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| Authors: | Charles D. Ferguson, Philip D. Reed Senior Fellow for Science and Technology Michelle Smith, Research Associate |
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September/October 2008
Bulletin of the Atomic Scientists
While the commercial global nuclear industry was expanding in the 1960s, researchers at MIT’s Sloan School of Management were busy working toward a different kind of goal: how to regulate supplies of beer. With the aim of illustrating how hard it can be to manage a supply chain, the researchers invented a deceptively simple game about beer distribution. Today, management companies like IBM are trying to use “beer game” methods to jump-start construction in the U.S. nuclear industry, which has not ordered a new reactor since 1978. As in the beer game, however, excitement about a possible nuclear expansion might hurt more than help the industry.
The beer game starts with low demand for an obscure brand called Lover’s Beer. By chance, a rock band mentions it in a music video, creating buzz about the beer. Retailers soon notice more people buying the beer. Fearing that time lags in distribution will cause rapid depletion of their inventories, retailers place large orders with wholesalers to meet projected increased demand.
Likewise, wholesalers are concerned about delays in brewing the beer and place large orders with the brewery. As the sole source, the brewery becomes the major bottleneck—no pun intended—in the supply chain. By the time the brewery can fill the requests, demand drops off, causing huge excess inventories and resulting in lost revenue for retailers, wholesalers, and the brewery. This supply chain problem is a classic example of “the bullwhip effect” because orders along the chain get amplified like the motion along a bullwhip.
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