The Great Tequila Bubble

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👋 A margarita in 1980 cost 10x more than the year before. The reason? Mexico ran out of agave. The shortage was so severe that a black market emerged overnight. But this wasn't about expensive cocktails - it revealed a fundamental flaw in agricultural supply chains.

In this edition:

• 7-year plants crashed tequila forever

• How the bullwhip effect creates chaos

• Prevent tomorrow's supply crisis today

Read time: 4 minutes | 949 words

STORY 

🍸 The 1980s Tequila Bubble

The Big Idea: The tequila industry learned that even a simple plant can create an economic butterfly effect that reshapes an entire market.

Mexico's 1980s tequila crisis wasn't just about running out of agave – it was about how one agricultural miscalculation created a domino effect that transformed a centuries-old industry.

What makes this crisis particularly fascinating is how it exposed the fragility of traditional agricultural practices when faced with modern market demands.

The story is a perfect storm of market forces:

• Agave farmers switched to faster-profit crops

• Tequila demand unexpectedly skyrocketed

• Nobody could solve a 7-year plant growth cycle overnight

The crisis revealed a fundamental mismatch between agriculture and commerce. While modern markets can shift in days or weeks, blue agave stubbornly maintains its seven-year growth cycle – a biological constant that no amount of market pressure could change.

Here's how the crisis unfolded (and rewrote the rules of tequila):

• Agave prices shot up 1000%

• Black markets emerged for the precious plants

• Regulations changed to allow "mixto" tequila production

• Small distilleries got absorbed by industry giants

• Major producers started growing their own agave

The emergence of black markets was particularly telling. When legitimate supplies dried up, underground networks sprang up overnight, dealing in stolen agave plants and immature harvests.

By the Numbers:

• Years to grow agave: 7-8

• Price increase during crisis: ~1000%

• Minimum agave content for mixto tequila: 51%

• Premium tequila agave content: 100%

• Number of major corporate consolidations: Dozens

The Legacy: The Great Tequila Bubble shows how an agricultural crisis can force an entire industry to evolve.

What started as a shortage became the catalyst for modernizing Mexico's most famous spirit.

Fast forward to today:

• The industry is now dominated by large, vertically-integrated companies

• Clear distinction between premium and standard tequilas

• Much more sophisticated supply chain management

• Long-term agave cultivation planning is standard practice

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INSIGHT

🐂 Understanding The Bullwhip Effect

What's the Bullwhip Effect? It's when small changes in consumer demand create increasingly larger swings in demand at each step up the supply chain, like a bullwhip's motion amplifying from handle to tip.

The Tequila Crisis Shows 5 Classic Bullwhip Triggers:

1. Demand Signal Processing: Small increase in tequila demand led to massive overreaction in agave planting

2. Order Batching: Distilleries started hoarding available agave, amplifying shortages

3. Price Fluctuation: 1000% price spikes caused panic buying and speculation

4. Supply Rationing: Farmers' switch to other crops created artificial scarcity

5. Lead Time Delays: 7-year agave growth cycle prevented quick market correction

Why the Bullwhip Effect Matters:

• Destroys Efficiency: Like the tequila crisis showed, it forces companies to either overstock or face shortages

• Amplifies Costs: Each supply chain level adds its own safety margin, multiplying inventory costs

• Creates Market Chaos: Price volatility makes planning impossible for everyone

• Breeds Speculation: Uncertainty attracts middlemen who further distort the market

• Forces Structural Change: Companies must reorganize to survive (vertical integration in tequila's case)

Real-World Examples:

• Toilet Paper (2020): Tiny increase in home usage led to empty shelves

• Semiconductors: Phone demand changes create massive chip factory swings

• Oil Markets: Small demand shifts cause wild price fluctuations

POLL

ACTION

💰 Using Toyota’s 2-Bin System

Looking to avoid the whip? Toyota’s Kanban system uses visual cards to trigger production only when items are consumed - like a two-bin system where emptying one bin signals time to reorder.

Think of it like your kitchen: when you finish the milk in your fridge, you know it's time to buy more - no complex forecasting needed.

MASTER The Two-Bin System

• Track inventory movement for 2 weeks

• Identify your top 10 fastest-moving products

• Set up physical bins or digital tracking

• Establish clear reorder points

• Focus only on critical items first

Why It Works:

• Customers love predictable supply

• Less firefighting (problems become visible)

• Higher trust from reliable delivery

• Better work-life balance

• Premium service attracts loyal clients

Example Two-Bin Setups:

• Office Supplies: When Bin A empties, reorder while using Bin B

• Industrial Parts: Digital alert at 40% inventory

• Medical Supplies: Weekly par levels

• Tech Hardware: Automatic reorder points

• Raw Materials: Visual rack systems

Real Numbers That Work:

• Bin A Size = (Weekly Usage × 2)

• Reorder Point = 40% of total stock

• Safety Stock = 2 weeks of average use

• Lead Time Buffer = 1.5× normal lead time

• Maximum Stock = 3 months of use

Start tracking today. Set up two bins for your top product. Stop playing inventory firefighter. The end game isn't perfect inventory - it's perfect peace of mind.

MEMES