What is primarily caused by cumulative uncertainty in the supply chain?

The primary cause of cumulative uncertainty in the supply chain is demand forecast errors. In a supply chain context, cumulative uncertainty arises from the inherent variability in demand, lead times, and supply. These uncertainties can lead to errors in demand forecasting, which is the prediction of future customer demand based on historical data and market trends.

When demand is not accurately forecasted, it can create a ripple effect throughout the supply chain. For instance, a misjudged forecast can result in either excess inventory or stockouts. Excess inventory ties up capital and increases storage costs, while stockouts can lead to lost sales and dissatisfied customers. This variability and the inaccuracies in demand forecasts are important factors that exacerbates cumulative uncertainty across all participants in the supply chain.

Demand forecast errors are influenced by various factors, including seasonal variations, promotional activities, and changes in consumer preferences, leading to a situation where all levels of the supply chain face challenges in their operations due to the unpredictability of demand. This understanding of demand forecast errors highlights their significance in managing supply chain efficiency and effectiveness.