Together with a group of academics at MIT, Professor Forrester developed the Beer Distribution Game, which is one of the classic management simulations and has been used since then to demonstrate supply chain characteristics as well as managerial behavior in many business or engineering schools.

In the studies conducted with a simple four-step supply chain, small variations in initial demand could lead to order amplitudes of 900 percent only four steps down the supply chain.

These studies demonstrated that the main cause for erratic fluctuations of order sizes and inventory levels in supply chains was actually not the amount of uncertainty of the demand function but the characteristic of the supply chain and the behavior of the supply chain managers.

The main factors influencing supply chain amplitudes were:

Length or number of steps in the supply chain
Speed or the time between order and order fulfillment
Incentives that lead to over reaction and panic ordering as inventory levels decrease
Available information about supply chain status

Here are some simple remedies:

Shorten the supply chain by eliminating intermediaries
Accelerate supply and reduce replenishment time
Limit order sizes and avoid wrong incentives
Make the order and inventory status in each step of the supply chain transparent to every participant