This perhaps is one of the most known demonstrations in management. It was designed by John Sterman (Teaching Takes Off, Flight Simulators for Management Education, OR/MS Today, October 1992, pp. 40-44).


The activity demonstrates the relationship between nodes on a supply/demand chain with time delay. It emphasizes the importance of information flow in the multiple echelon systems. In large part, the activity also demonstrates aspects of human nature, specifically the tendency to overreact and over compensate. Once students get over the initial surprise of their own performance, we spend the latter part of the class discussing other human behavioral tendencies that effect operations in a production system


The class is divided into groups of four. Tables are set up for each group to include a retailer, a warehouse, a distributor and a factory. The manipulative are pennies representing cases of beer. Each function maintains inventories and backorders. Each places an order down the demand chain and receives it after delay up the supply chain. The game is played over 36 periods where orders are placed and received every period. The demand at the retailers end is generated from a deck of predefined cards. The first four periods the demand is four cases each, after that the demand jumps to eight where it stays constant for the remainder of the game.


We have played the beer game several times involving tens of teams and, as universally seems to happen, every team "fell for it" to some degree. At the end of the game we ask participants other than at the retail position to give their assessment of the demand behavior. They often guess that the demand was varying through out the experiment with maybe two or three major variations. Once the retailers disclose that the demand was steady with the exception of the initial jump, the others are extremely surprised. We discuss how the fluctuations are a result of factors internal to the system and are not driven externally.


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