Consequences of bullwhip effect beer game

You can play it as a board game; there are software versions too. The Beer Game was created by management expert Jay Forrester at MIT in as a way of illustrating fluctuations in the supply chain—particularly the bullwhip effect.

As you can easily imagine, someone flicks a bullwhip with his wrist. On that end, the motion is small. But as it passes down the length of the whip, the loops get bigger and bigger so that the other end cuts a huge swath. In business, the bullwhip effect refers to the process whereby small fluctuations in demand at one end can cause huge distortions in production. One cause is that operators in the supply chain misread real demand. The classic case had to do with Volvo in the s. Volvo dealers had too many green cars, so they offered promotional deals to sell them.

The green cars, naturally, started to sell very well. This news got back to the manufacturer, who interpreted it as an increased demand for green cars. There are four players — the beer retailer, the wholesaler, the distributor and the manufacturer.

It lasts an hour at most and simulates up to a year in the beer-distribution supply chain. If any players are missing, AI bots can play their roles. You can even take part as a single player. Each week, the retailer places a beer order with the wholesaler.

They do the same with the distributor, and the distributor with the manufacturer. Whatever your role, you must avoid running out of stock, while keeping inventory costs down and bringing the supply chain to equilibrium as quickly as possible. You achieve equilibrium when each player reaches the target stock level and orders the same amount of beer each week for four consecutive weeks. From computer chips to chicken wings , the pandemic has led to shortages across the economy.

For example, a small spike in consumer demand at the store level might cause a retailer to order slightly more product from wholesalers. The wholesaler, seeing that demand spike, might put in a bigger order increases with their distributor.

That might trigger the distributor to put in an even bigger order increase from the factory, potentially causing the factory to overproduce. In the s, a group of researchers at the Massachusetts Institute of Technology developed an exercise to simulate supply chain dynamics using beer as an example.

Hoarding during periods of high demand creates the illusion of even higher demand, exacerbating the bullwhip effect. Our mission at Marketplace is to raise the economic intelligence of the country.

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