Decision making in the beer game and supplychain performanceJohn R. Macdonald&Ian D. Frommer&Itir Z. KaraesmenReceived: 16 February 2012 /Revised: 30 May 2013 /Accepted: 21 November 2013 /Published online: 15 December 2013#Springer Science+Business Media New York 2013AbstractThe beer game has been used to emphasize, inves-tigate, and analyze supply chain inefficiencies as well as theeffect of decision makers’biases. This paper investigates theshort- and long-run performance in the beer distribution gameby analyzing Sterman’s (Manag Sci 35(3): 321–339,1989)model that simulates decision-making. In this model, thesystem may have chaotic behavior depending on the heuristicsused by decision makers. We investigate how quickly thesystem reaches a steady state (if at all). It is known thatignoring supply line (outstanding orders) leads to the bullwhipeffect in experimental research. Among other results, we showthat the short-term performance of a supply chain is not apredictor of the long-term performance even when decisionmakers fully recognize outstanding orders. Results of thesimulation and practical implications are discussed.KeywordsBeer distribution game.Chaos.Decisionmaking.Simulation1 IntroductionThe bullwhip effect refers to the increase in the variability oforders at either a firm level or throughout the supply chain asone moves upstream, away from the customer demand at theretailer level. This has been observed across various industries(Lee et al.1997), and at individual firms in various echelons ofthe supply chain (Bray and Mendelson2012). It has beenestimated that profits for a firm on a given product line couldincrease by 10–30 % if the bullwhip were eliminated (Metters1997).A significant body of behavioral and analytical research onsupply chains uses the beer distribution game (referred to asthe beer game henceforth) developed at MIT as a model of aserial supply chain where the bullwhip effect is easily ob-served in a simulated environment. Descriptions of the beerdistribution game can be found in Sterman (1984) andHammond (1999). The causes of the bullwhip effect in thebeer game can be classified into two factor categories: (i)structural and (ii) behavioral. Structural factors include thedesign of the serial supply chain with four echelons, orderprocessing and shipment delays, lack of communicationamong the echelons (decision makers), and lack of inventorytransparency. Behavioral factors, on the other hand, includeinability to forecast demand and lack of rational decision-making while choosing order quantities.One important question involves the short- versus long-runperformance differences of the supply chain as demonstratedin the beer game. The bullwhip effect exhibits itself within thefirst 30 order cycles of the game in a typical classroom setting.