The bullwhip effect is an incident observed in supply chains whereby unpredictable elements introduced by human behavior in the lower part of the chain become more pronounced the higher up the chain they move. The effect is important because it is frequently the cause of serious inefficiencies that result from ordering too much or too little of a given product as links in the chain overreact to changes further downstream.
Better cooperation and communication are seen as key elements in preventing or at least mitigating the consequences of the bullwhip effect. Reductions in lead time also help, as do a variety of new shipping, ordering and pricing methodologies that can introduce a greater degree of stability and prevent small fluctuations in demand from breeding excessive changes on the supplier's end of the chain.
An example would be customers order more than is required during a time of short supply, hoping that the partial shipments received will be sufficient.
Bullwhip is a true phenomenon in supply chain. Using your example, I also see the fact they over-ordered causing significant supply issues down the stream. Suppliers could misinterpret this as true requirements and seriously overproduce (ramp up) to meet the perceived shortfall. Can anyone give an example?