Production Planning & Control,

Vol. 17, No. 6, September 2006, 547557

How human behaviour amplifies the bullwhip effect.
A study based on the beer distribution game online
J. NIENHAUS, A. ZIEGENBEIN* and P. SCHOENSLEBEN
Center for Enterprise Sciences (BWI), ETH Zurich, 8092 Zurich, Switzerland
The bullwhip effect is a source of inefficiencies in supply chain performance. Since Forrester
(1958) discovered that demand variability increases upstream from customer to supplier,
extensive research has focused on identifying causes of the effect and on providing measures
for reducing its impact. While a number of different causes have been found, the role that
human behaviour plays in the bullwhip effect is still overlooked. After a literature survey of
known causes for the bullwhip effect, this article describes the beer distribution game online,
which is a web-based simulation of a supply chain with four tiers. Results of this simulation
(with, so far, more than 4000 people taking part) allow for the first time the analysis of how
humans perform as a partner in a supply chain compared with simple agent-based strategies.
The analysis shows that aspects of human behaviour need to be recognised as further
amplifying the bullwhip effect. Furthermore, it is proven that information exchange beyond
passing on orders reduces the bullwhip effect. Nevertheless, humans act as obstacles for
information flow in supply chains in practice.
Readers familiar with the bullwhip effect may want to skip the first section; those knowing the
beer distribution game, section 2.1.
Keywords: Supply chain management; Bullwhip effect; Beer distribution game
1. The bullwhip effecta literature survey on its causes
1.1 Its negative impact on supply chain performance
The bullwhip effect describes the phenomenon that
demand variability increases up the supply chain from
customer to supplier. The variation in demand is larger
the further away a company is from the end customer in
terms of lead time. Consider a supply chain that consists
of an OEM (original equipment manufacturer) and first,
second, and third tier suppliers. The OEM faces the
smallest and the third tier supplier the largest variations
in the demand (see figure 1).
This effect leads to inefficiencies in supply
chains, since it increases logistics costs and lowers
competitive ability. Particularly negative impacts of the
bullwhip effect for the supply chain are:
. Overloaded and/or under-loaded capacities. A varia-
tion in demand causes variation in capacity usage.
Here companies face a dilemma. If they design their
capacity according to the average demand, demand
peaks will regularly lead to delivery problems. On
the other hand, adjusting capacity to the maximum
demand results in poorly utilised resources.
. Variation in inventory level. The varying demand
leads to variation in inventory levels at each tier of
the supply chain. If a company delivers more than
the next tier passes on, the next tiers inventory
level increases. If a company delivers less than the
next tier passes on, inventory in the next tier is
reduced. A high level of inventory means excessive
inventory investments, while a low level of inven-
tory puts delivery reliability at risk. *Corresponding author. Email: aziegenbein@ethz.ch
Production Planning & Control
ISSN 09537287 print/ISSN 13665871 online 2006 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/09537280600866587
. High level of safety stock. The safety stock that is
required to ensure a sufficient service level increases
with the variation in the demand. Thus the stronger
the bullwhip effect in a supply chain is the more
safety stock will be required.
Thus, finding ways to minimise the bullwhip effect is
an important issue for supply chain managers. To that
purpose, it is important to understand the causal factors
that create upstream magnification of variation in
demand.
1.2 Lead time of information and material as the
primary causes for the bullwhip effect
The lead time of information and material is the primary
reason for the bullwhip effect (Forrester 1958, Lee et al.
1997a, 1997b, Simchi-Levi et al. 2000). A supply chains
reaction to a change in end customer demand is delayed,
firstly, because it takes time to pass on information
about the change to suppliers and, secondly, because
these suppliers need time to adjust their capacities and
deliveries. The longer a supply chain is unable to react
on a changed demand, the heavier it needs to react as
soon as this is possible. Thus the bullwhip effect
increases with longer lead times.
This mechanism is illustrated in figure 2. This supply
chain is adjusted to an expected constant demand of
1000 products per period, i.e. there are 1000 products on
stock and there is enough work in progress to cover a
demand of 1000 products during the lead time of
material, which in the example is three periods of time.
The supply chain faces an actual demand of the end
customer which is 500 products lower than expected. As
a result, there are too many products and there is too
much work in progress in the supply chain. To reduce
inventory to a level appropriate for the new demand,
production has to be reduced by 1000 (to zero) during
four periods, though the end customer demand is only
500 units lower than expected. Moreover, the example
shows, that the variation in production level increases
with lead time: For a lead time of two periods, the
inventory would have to be reduced by 1000 items, for
three periods of lead time by 1500 and in case of four
periods by 2000 items.
1.3 Secondary causes for the bullwhip effect: Planning
and behavioural aspects
In addition to the lead time of information and material,
the bullwhip effect is caused by other reasons:
. Demand forecast based on orders of the succeeding
tier. If a company bases the demand forecast on the
orders of the subsequent tier instead of the effective
demand of the end customer, the variation in the
demand is amplified up the supply chain (Lee et al.
1997a, 1997b, Slack et al. 2004). This fact is
analytically proven under the assumption of con-
stant planning lead times (Scho nsleben et al. 2003).
. Historically oriented-techniques for demand fore-
cast. Simchi-Levi et al. (2000) analysed the impact
of historically-oriented methods of demand fore-
casting on the bullwhip effect. They assumed that
the order point technique for materials manage-
ment is applied at all tiers of the supply chain. Since
order point and order quantity depend on mean
and variance of historic demand data they change,
even when demand is constant in the long run.
OEM 1st Tier 2nd Tier 3rd Tier
Orders
Stocks
Figure 1. The bullwhip effectincreasing variations in the demand up the supply chain (Scho nsleben 2004: 98).
548 J. Nienhaus et al.
Utilising a large number of measuring points for
the calculation reduces this effect.
. Batch ordering. Companies placing orders on
suppliers usually do so periodically in batches in
order to reduce set-up costs and fixed order
costs. The suppliers receive distorted and delayed
information on end customer demand. The con-
stant demand of the end customer turns into surges
in demand at certain points in time (at the level
of the order batch size) and periods without
any demand. This distortion of information con-
tributes to increasing demand fluctuations up the
supply chain (Simchi-Levi et al. 2000, Slack et al.
2004).
. Price fluctuations. Companies vary product prices
and offer promotions and temporary price reduc-
tions to retailers and end customers for marketing
reasons. This leads buyers to speculate, buying
large quantities when prices are low and avoiding
buying when prices are higher. This forward buying
increases the variation in end customer demand
and creates havoc upstream in the supply chain,
as demand variation becomes amplified by the
bullwhip effect (Lee et al. 1997a, 1997b).
. Rationing and shortage gaming. If the demand for
a product exceeds the supply, suppliers often ration
their products, for example by delivering only a
certain percentage of the quantity that customers
order. Buyers anticipating shortages and rationing
will often increase the size of their orders in excess
of their actual demand to ensure that they get the
amount that they really require. As soon as delivery
bottlenecks are overcome, they cancel their orders
for the unneeded quantity (Lee et al. 1997a, 1997b).
This phenomenon of gaming leaves the manufac-
turer with a much distorted picture of consumer
demand, and the bullwhip effect sets in.
These reasons are important and offer clear starting
points for measures that are useful for the reduction of
the bullwhip effect. This article adds two further reasons
for the bullwhip effect.
2. The beer distribution game online
2.1 Simulating a supply chain: The beer
distribution game
The beer distribution game, which was developed by the
Systems Dynamics Group at the Massachusetts Institute
of Technology in the 1960s, demonstrates the bullwhip
effect by simulating a make-to-stock supply chain with
) )
Expected
demand
Current st ock
1000
1000 1000 1000 1000
Wo rk in pr ogress
0 -3 -2 -1
Ti me
[per iods]
0 -3 -2 -1
500
1000 (+500) 1000 (+500) 1000 (+500) 1000 (+500)
Expected
demand
The supply chain is adjusted to
meet the expected demand of 1000
units during the next four periods.
Current stock
Facing an unexpectedly low demand, it has
too many units on stock and as work in
progress (see numbers in brackets). The
longer lead times, the more inventory is
exceeding demand. To adjust the supply
chain to the new demand (which is only
500 units below expectation), production
will be stopped for four periods.
1000
1000 1000 1000 1000
Work in progress
0 3 2 1
Time
[periods]
0 3 2 1
Demand
Expected demand
Actual demand
Time
Actual
demand
Work in progress
Current stock
Time
[periods]
Figure 2. Bullwhip effect caused by lead time of information and material.
How human behaviour amplifies the bullwhip effect 549
four tiers. Participants of the beer distribution game
take the role of the retailer, the wholesaler, the
distributor or the factory (see figure 3).
An end customer places orders at the retailer. His
demand pattern is given, but unknown to the partici-
pants. The retailer is asked for four units during the first
six periods and for eight units during the following
periods of the simulation. The partners up the supply
chain receive orders from their customers and decide
based on their current stock situation, the products in
transport, which will reach their stock within the next
periods, and the orders they receivedhow much to
order from their supplier for replenishment. This way,
information on the end customer demand is passed on
up the supply chain with a delay of one period of time
at each tier.
Material is forwarded in the other direction down
the supply chain. The material flow is delayed as well:
Material has to be transported (see the trucks between
tiers in figure 3) and it has to pass materials receiving.
Therefore, it takes two periods until material received
from a supplier can be delivered to a customer from
stock at each tier.
The goal is to minimise the over-all logistics costs of
the simulated supply chain. A product on stock costs
E0.5 per period (costs of capital employed). If a tier
cannot deliver, this causes costs of E1 per product per
period (penalty for out-of-stock situations). Thus
participants have to take into account a trade-off
between minimising the costs of capital employed in
stocks on the one hand and avoiding of out-of-stock
situations, on the other hand.
The beer distribution game has proved to be an
effective means of illustrating systems thinking
(Goodwin and Franklin 1994). By enabling managers
to experience the negative impact of the bullwhip effect
on supply chain performance, the beer distribution game
makes them aware of the application of counter-
measures in their companies. Therefore, the beer
distribution game is successfully applied in many
management development programmes.
2.2 The beer distribution game online: A supply chain
with humans and agents as participants
If the beer distribution game is played as a board game,
the feedback given to participants is limited for time
reasons. Usually giving feedback takes two persons: One
presents diagrams of orders placed by the participants
and of their stock situation during the game whereas the
other is manually calculating the resulting costs for
capital employed in stocks and backorders. The idea of
giving an instant feedback on the beer distribution game
originally led to the concept of the beer distribution
game online (Center of Enterprise Sciences 2003,
www.beergame.lim.ethz.ch).
Participants from all over the world meet on the web
site and arrange games. There are two game modes:
The classic version has the rules of the physical beer
distribution game implemented while the version classic
plus allows parameterisation. Participants decide how
many periods they would like to simulate, whether they
want to have full visibility of the stock situation
throughout the supply chain and whether they want to
allow information exchange between players or not.
Other participants can join the game and choose a tier
of the supply chain (see figure 4).
Alternatively, players can assign agent-based strate-
gies (Hieber and Hartel 2003) to the tiers. Currently,
there are two strategies to choose from. The first is
moving average/standard deviation, where the agent
orders the amount that was in average ordered from him
during the last five periods, plus an amount to create a
safety stock depending on the standard deviation of
orders he received. The second strategy, keep level
of stock, is even simpler: Each order received
from a customer is passed on to the supplier.
Retailer Wholesaler Distributor Factory
Information (orders)
Material
Figure 3. The four-tier supply chain simulated in the beer distribution game.
550 J. Nienhaus et al.
Surprisingly enough, this simple strategy is the best
solution to the beer distribution game (see chapter 2.3).
2.3 The best solution to the beer distribution
gameeasy to achieve
If each tier in the supply chain would target refilling his
stock after delivery to his customer by just passing on
the customers order to his supplier, the initial stock
levels would cover the unexpectedly higher demand
during the lead time of information and material.
Figure 5 shows orders (from left to right: the customer,
the retailer, the wholesaler, the distributor and the
factory) and stock levels (from left to right: the retailer,
the wholesaler, the distributor and the factory) of a
simulation in which all tiers followed this strategy.
At each tier of the supply chain it takes one period to
inform the supplier of the change of demand. It takes
two further periods for the material to be shipped from
the suppliers to the customers stock. Thus, at each tier
the supply chain can react on the demand change
within three periods. During these three periods, tiers
are required to meetaccording to the demand pattern
mentioned abovean unexpected demand of four
additional units without being able to react on it.
The initial stock of 12 units allows them to cover this
unexpected demand. Stock level in period one after
demand change is eight, in period two it is four and in
period three it is zero. As soon as the stock is empty, the
supply chain is adjusted to the new demand and eight
instead of only four units arrive at the stock enabling
partners to fulfil orders.
3. The role of human behaviour in the bullwhip effect
3.1 Experiments with the beer distribution game online
By means of the beer distribution game online for the
first time a significant amount of simulation results
could be collected. Currently results of more than 2667
simulations with at least 25 periods are available. They
were collected from 3648 participants from October
2003 to April 2005. Since the participants only indicate
Figure 4. Screen-shot of the beer distribution game onlinecreating a simulation.
How human behaviour amplifies the bullwhip effect 551
their email address before entering the game, there is
little evidence about the players. Nevertheless the
analysis of the top-level domains of their email addresses
provides insights into the participants countries of
provenance (see figure 6).
People from all five continents have already partici-
pated in the beer distribution game online whereas most
players were located in Europe. As half of the email
addresses could not be tracked down, investigations
with regard to the participants countries of provenance
are not undertaken. Due to the numerous feedbacks
from players it can be stated that they are students,
academics, consultants as well as practitioners.
Based on the simulation results, human behaviour is
analysed in two types of experiments: The first compares
the performance of simple agent-based strategies to that
of humans and shows typical type of human behaviour
(see section 3.2) whereas the second investigates the
Unexpected usage
4
Leadtime
3
=
Stock necessary
12
0
2
4
6
8
10
0 5 10 15 20
Retailer
Wholesaler
Distributor
Factory
Periods
0
2
4
6
8
10
12
14
05 10 15 20
Retailer
Wholesaler
Distributor
Factory

Order quantity
Customer
Retailer
Wholesaler
Distributor
Factory
Leadtime of
information
(1 period)
0
2
4
6
8
10
12
14
05 10 15 20
Retailer
Wholesaler
Distributor
Factory
Lead time of
information
and material
(3 periods)
Periods
Stock levels
Figure 5. The best solution to the beer distribution game online.
15%
Other European countries
(UK, F, A, NL, E, I, PL,
FL, RUS, DK, S, FIN, N, P, SK,
B, GR, EST, LV, GBG, CZ)
2%
Asia, Africa, Australia
(HK, CN, RC, AUS, TR, ZRE,
SUD, ROK, J, IND, T)
5%
America
(.edu, CDN, BR, CO,
MEX, GCA, DOM)
8%
Switzerland
20%
Germany
44%
Country-
unspecifc
domains
(.com, .net, .org)
6%
Email not
specified
Figure 6. Participants countries of provenance (country symbols are sorted by the descending number of players).
552 J. Nienhaus et al.
impact of the lead time of information on the
performance of human players in the beer distribution
game online (see section 3.3).
3.2 Human strategies in the supply chain:
Safe harbour and panic
In figure 7, each dot represents a result of either a
human or a computer playing the retailer. Human
players are marked in grey (1252 results), computer
players in black (1141 results). The more to the right a
dot is located, the higher the costs of capital employed in
stock caused by the retailer were. The more to the top it
is located, the higher were costs caused by out-of-stock
situations. For this experiment, as agent-based strategies
do not process information exchanged in the supply
chain, only those 2393 simulations were chosen where
no information (besides orders) flows.
The experiment clearly reveals two human strategies
causing an amplification of the bullwhip effect:
. Some humans act as the safe harbour of the
supply chain, i.e. they order more than actually
necessary and by that increase their safety stock.
They cause not only high costs for capital
employed in stock at their tier but they also force
suppliers either to increase their orders as well or to
pay for out-of-stock situations. Thus only one tier
following the safe harbour strategy has a negative
impact on the whole supply chain.
. Some games of human players result in high
penalties for out-of-stock situations, which indicate
a second extreme in human behaviour. The strategy
panic is to empty the stock before the end
customers demand increases. At first this does
not affect other tiers negatively. But as soon as end
customers orders increase, a tier following this
strategy has to order more than a tier that has
safety stock left. Then, this strategy has the same
negative impact on the whole supply chain, such as
the safe harbour strategy. Furthermore, the tier
following the panic strategy is not able to deliver
for some periods causing out-of-stock situations at
its customers. This affects computer as well as
human players especially in their role as retailers
(see dots on the left in figure 7)
The global best solution optimising the total supply
chain costs of all four tiers (see section 2.3) results in
total costs of E42 for the retailer. These are costs for
capital employed in stock during the first rounds of the
simulation (as shown in figure 5 the stock empties when
the end customers demand rises). Since the stock fully
covers the unexpected demand, there are no costs for
out-of-stock situations.
Compared with this global best solution of the beer
distribution game online, most human players as well as
the simple agent-based strategies perform worse as a
retailer: The average total costs for the human players
are E296 whereas the computer players perform better
with E286. It can be stated that computer players
perform better than humans as a retailer in the beer
distribution game online.
This result leads to the hypothesis that the more
humans are present in the beer distribution game online
the higher the total supply chain costs are. In figure 8,
the total supply chain costs of the 2393 games without
information exchange are illustrated dependent on the
number of human players in the game (1989 simulations
with one, 149 with two, 81 with three and 174 simulation
900
800
700
600
500
400
300
200
100
0
0 100 200 300 400 500 600 700 800 900
Strategy: Panic
Human players
Computer players
Strategy: Safe Harbour
of the supply chain
P
e
n
a
l
t
y

f
o
r

o
u
t
-
o
f
-
s
t
o
c
k

(
i
n



)
Capital employed in stock (in )
Figure 7. Performance of humans versus agent-based strategies in the role of the retailer.
How human behaviour amplifies the bullwhip effect 553
with four human players). The arithmetical average of
the total supply chain costs as well as the 10% and
90% quantile as a measure for the spread of the results
are calculated.
Though the general trend of costs (average as well as
90% quantile) rising with the number of human players
increasing is clearly visible in figure 8, the hypothesis
cannot be proven with statistical significance (Students
t test shows a significance of 75%; for example, with
four human players costs are higher than with three).
A larger sample of games with more than one human
player is required.
3.3 Under-estimating the value of information
With a second experiment, the impact of the informa-
tion exchange on the performance in the beer distribu-
tion game online is evaluated. As mentioned above,
agent-based strategies do not process other information
than the demand of the proceeding tier, so that only the
results of human players are included in the following
analysis. Information exchange means that in the
beer distribution game online participants have full
visibility of the stock situation throughout the supply
chain and they can exchange unstructured information
through a chat.
The performance of human players significantly
increases with information exchange (see figure 9).
That emphasises the finding that shorter lead time of
information results in much better performance of the
supply chain. The cost-saving due to the information
exchange is highest for the factory (E438 E280
E158), which due to the bullwhip effect faces the highest
variability in demand.
With four human players participating, the result of
games without information exchange (178 games) is
significantly worse than that with information exchange
(38 games): The arithmetic average of the total supply
chain costs is E1505 without information exchange
(E589 for capital employed in stock and E916 penalty
for out-of-stock situations) and E1023 with information
exchange (E478 for capital employed in stock and E545
penalty for out-of-stock situations). Regardless of the
number of human players in a game, the Student t test
shows a significance of more than 99% for the
hypothesis, that information exchange reduces costs.
The managerial implication is that information
should be exchanged in the whole supply chain to
improve its performance. After playing the beer
distribution game most of the participants agree that
lead time (and among it that of information) is the
major cause of the bullwhip effect. The lesson learnt for
their daily business is to get the relevant information
from their customers and pass it on to their suppliers
fast and vice-versa.
In practice, however, humans behave in a different
way. In the context of a survey among 200 European
companies (Nienhaus et al. 2003), operations managers
were asked, how valuable certain information from
customers is for their production planning and how
often they receive it from customers. Their answers are
represented by grey dots in figure 10. Generally speak-
ing, the more important information from customers
is, the more often it is available to a company.
Accordingly, the dots representing information lie on
a diagonal line in the diagram.
These operations managers were also asked to
estimate the value of the same information for the
0
500
1000
1500
2000
2500
3000
3500
Number of human players
2252
90%-quantile
Arithmetic
average
10%-quantile
24 58
1450
32 52
23 49
1505 1462 1418
1 2 3 4
2252
2458
32 52
23 49
535 501 577
638
T
o
t
a
l

s
u
p
p
l
y

c
h
a
i
n

c
o
s
t
s

(
i
n



)
Figure 8. Total supply chain costs subject to the number of human players.
554 J. Nienhaus et al.
production planning of their suppliers. It was found,
that they consider information to be less valuable to
their suppliers than this information is to them. As a
consequence they pass on this information less fre-
quently than they receive it from customers (see black
dots in figure 10).
The same applies to information, like capacity
available, which a company receives from suppliers
and which it should pass on to customers (see figure 11).
Thus, each tier acts as an obstacle for information flow
up as well as down the supply chain.
It was shown above, that lead time of information and
material are the primary reason for the bullwhip effect.
Under-estimating the value of information for custo-
mers and suppliers rises the lead time of information
and the bullwhip effect is amplified.
4. Conclusions
Aspects in human behaviour, like reactions to price
changes and bottlenecks, have been discussed earlier as
0
50
100
150
200
250
300
350
400
450
500
W
h
o
l
e
s
a
l
e
r
D
i
s
t
r
i
b
u
t
o
r
F
a
c
t
o
r
y
1252
152 87
625
88
710 639
95
Number
of games
considered
R
e
t
a
i
l
e
r
Without information
exchange
With information
exchange
A
v
e
r
a
g
e

t
o
t
a
l

c
o
s
t
s

o
f

t
i
e
r

(
i
n



)
Figure 9. Human performance dependent on the possibility to exchange information.
Value for planning
F
r
e
q
u
e
n
c
y

o
f

e
x
c
h
a
n
g
e
Never
High Low
From
time
to time
Regularly
Current sales figures
Lauch of new products
Sales forecast
Promotions
Information from customers
Information to suppliers
Focal
company
Suppliers Customers
Figure 10. Companies act as an obstacle for information flow up the supply chain.
How human behaviour amplifies the bullwhip effect 555
a primary source of variation in end customer demand.
This article showed, that human behaviour also
contributes to the amplification of variation, which is
observed in supply chains:
. Results of the beer distribution game online prove,
that especially two types of extreme behaviour,
namely safe harbour and panic, strategies have a
negative impact on the performance of supply
chains.
. The experiments showed that information
exchange beyond passing on orders reduces the
bullwhip effect. Humans act as obstacles for
information flow in supply chains in practice and
by that increase the lead time of information and as
a consequence the bullwhip effect.
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F
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e
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u
e
n
c
y

o
f

e
x
c
h
a
n
g
e
Never
High Low
From
time
to time
Regularly
Status of orders
Goods on stock Capacity
available
Production
plans
Information from suppliers
Information to customers
Focal
company
Suppliers Customers
Figure 11. Companies act as an obstacle for information flow down the supply chain.
556 J. Nienhaus et al.
Dr Joerg Nienhaus, born 1973, studied Industrial Engineering and Management at the University of
Karlsruhe with majors in Operations Management and Information Technology. In 1999 he joined
the Center for Enterprise Sciences (BWI) of ETH Zurich. He received his PhD in modelling and
simulation of supply chains. Since September 2004, he has managed supply chain management
projects in the business unit diesel systems of Robert Bosch, Stuttgart.
Arne Ziegenbein, born 1975, studied Electrical Engineering (Dipl.-Ing.) at RWTH Aachen
University and Imperial College London as well as Business Administration (Dipl.-Kfm.) at
University of Hagen. Since 2002 he has been research assistant and project manager at the Center for
Enterprise Sciences (BWI) of ETH Zurich. His research interests are uncertainty and risks in supply
chains.
Prof. Dr Schoensleben received his PhD degree in 1980. This was followed by several years of
responsibilities within the information technology and organisation departments of industrial
companies. From 1983 to 1991 he was a full professor for Business Informatics at the University of
Neuchatel, Switzerland. Since 1991 he has been a full professor of Logistics, Operations, and Supply
Chain Management at the Center of Enterprise Sciences (BWI) at ETH Zurich. He is member of
IFIP WG 5.7 (Production Management), of APICS and of the Supply Chain Council.
How human behaviour amplifies the bullwhip effect 557