Booms, Busts, and Beer: Understanding the Dynamics of Supply Chains

Abstract

Supply chains are fundamental to a wide range of systems. Many exhibit chronic instability, including oscillations, amplification as disturbances move upstream from final sales, and phase lag. Every supply chain consists of networks, including stocks and flows of material, time delays, and the decision rules that couple them. This chapter develops a dynamic model of supply chains and shows how it can be customized to various situations. The model explains the sources of oscillation, amplification, and phase lag. Simulations, field studies, and experiments demonstrate that supply chain instability and oscillations arise from the failure of decision-makers to account for the time delays in the system and the supply line of orders not yet received, and failure to understand basic principles of accumulation. Two learning activities, the Manufacturing Case and the Beer Distribution Game, provide interactive experiences that help students and executives understand the structure and dynamics of supply chains.