What is the MIT Beer Distribution Game?

The MIT Beer Distribution Game is a powerful simulation developed at the MIT Sloan School of Management to illustrate the complexities and systemic challenges of managing a supply chain. It is an exemplary demonstration of how Systems affect Human Performance. Participants take on roles in a four-stage supply chain: Factory, Distributor, Wholesaler, and Retailer—with the player typically acting as the Retailer.

What the Experiment Teaches About Tampering

The Funnel Experiment reveals that Rule 1 (no adjustment) consistently produces the best results with the least variation around the target. The other three rules represent different forms of "tampering" - well-intentioned adjustments that actually make the process worse by increasing variation and moving results further from the desired target.

The goal of the game is simple: fulfill customer demand while minimizing total system cost. Yet, due to inherent delays, limited visibility, and local decision-making, players often generate massive inefficiencies—despite acting rationally.

What the Game Teaches About Systems and Management

The Beer Game demonstrates how even well-intentioned decisions can lead to chaos when actors operate without a clear understanding of the system they’re in. Players frequently experience wild swings in inventory and backlog—known as the bullwhip effect—caused by delayed information, overcompensation, and reactive ordering.

Despite having the same goal, different roles in the supply chain face unique challenges:

• Retailer: responds directly to fluctuating customer demand
• Wholesaler/Distributor: buffer between upstream and downstream volatility
• Factory: operates with the longest delay and the least visibility

Key Lessons:

• Local Optimizations Create Global Dysfunction
  Each player tries to do what's best for their own station, but without system-level coordination, this causes massive inefficiency.
• Delays Compound Problems
  A 2-week shipping delay means today's orders won’t arrive for two turns. This often leads to over-ordering and unstable inventory levels.
• The Bullwhip Effect is Real and Costly
  Small demand changes at the customer level can cause exponential swings upstream—more stockouts, more excess inventory, and higher costs.
• Seeing the Whole System Matters
  Performance improves dramatically when players understand the entire supply chain and communicate effectively across roles.
• Simple Doesn’t Mean Easy
  The rules are easy to understand, but without a system view, most players make predictable errors—hoarding inventory, ordering reactively, or panicking under pressure.