Beer Game

11 November 2016

SThe game has four players per team; Retailer, Wholesaler, Distributor, and Factory. The pennies represent cases of beer. A deck of cards represents customer demand. Each simulated week, customers purchase from the retailer, who ships the beer requested out of inventory. The retailer in turn orders from the wholesaler, who ships the beer requested out of their own inventory. Likewise the wholesaler orders and receives beer from the distributor, who in turn orders and receives beer from the factory, where the beer is brewed. At each stage there are shipping delays and order processing delays.

The players’ objective is to minimize total team costs. Inventory holding costs are $. 50/case/week. Backlog costs are $1. 00/case/week, to capture both the lost revenue and the ill will stock-outs cause among customers. Costs are assessed at each link of the distribution chain. (Sterman,1999). Since the Beer game has been around since the 1960’s the game is the best known simulation game of its kind and allows players a glimpse of the intricacies within the supply chain. Other games that deal with supply chain management are: Poker Chip, Wood Supply, LEAP Supply Chain, ITL and LEGO games (Cox, 2006).

Beer Game Essay Example

The Beer Game far outreaches all the other games; its focus is on dynamic complexity within the supply chain. Complexity within the supply chain has two forms, dynamic and detail. While the Beer Game focuses on dynamic complexity within the supply chain system, the Poker Chip Game focuses on the detail complexity of the systems. Detail complexity is where many variables, definitions, and lists of items are used to describe a system. (Cox, 2006) When you start listing the elements within the system that the Beer Game limits the Poker Chip Game allows some of these elements to exist.

However, by limiting the aspects within the system, the player is able to visualize and understand and learn the basics of the supply chain. All business areas are affected by the supply chain but the complexities of the chain often time causes stress in the area when management is concerned. Simulation games allow players to grasp hard to define concepts quickly and reach further into the complexities of the system. Bain and Company reports that 85% of senior executives surveyed say that improving supply chain performance is a top priority for their firm.

But, 50% reported having only basic information on their supply chain. (Cox, 2006) To receive better information, management must be in tune with questions to ask and to understand the information they receive. So a basic understanding must be gained. In the Beer Game, the supply chain provides the rhythm of the game but all the challenges and nuances associated to supply chain were removed or were made to be systematic / consistent in nature except for inventory management Thus, the focus of the game was the ability to manage the inventory levels within the system.

Teams focused on one product, Beer. Teams had only one vendor and customer. The factory didn’t have any supply issues for materials. Shipping and ordering delays were reliably constant. And finally there were set players in the supply chain: retailer, wholesaler, distributor, and factory. So the rest of the supply chain couldn’t get much cleaner than this setup. The system contained no flaws. This clean supply chain gave a feel for the system flow but allowed players to focus specifically on their inventories.

The demand remained relatively consistent with slight fluctuations within the game. So the game truly brings a focus, the reaction of the supply chain to small market fluctuations. However, if the focus of the game was inventory, I felt that one of the key costs of inventory was ignored in the game, that being ordering costs. We tracked shortages, ordering, and backlogs but we only focused on holding costs and shortage costs when it came to tracking team costs. We did not have costs associated to orders calculated into the system and in most cases each player ordered each cycle.

I am a little unsure why the element of ordering costs would have been left out of the equation except for the added variability to inventory it would cause. But since it was left out of the game, the inventory was allowed to be kept lower than if ordering costs remained in the game. Since there were no ordering costs, inventory was ordered on almost every cycle within the supply chain. Reaction of inventory fluctuations within the system or the bullwhip effect is another focus of what the game teaches. If ordering costs were in play it may distort the effect.

With no ordering costs the bullwhip effect is evident. The bullwhip effect shows that decisions made by groups along the supply actually worsen shortages and overstocks. It was interesting later to learn that in a structured supply chain, when a participant tries to amplify the profit at the respective stage in the system, it in turn, decreases the overall profitability of the system. This is part of the bullwhip effect. (wikipedia, 2007) The bullwhip effect is best visualized by a graph of the effect each player has on the next player in their team’s line.

The graph below shows the bullwhip effect when customer inventory levels are kept low and a small increase in demand is instituted in week 25. This increase affects the system through many weeks until the factory finally smoothes the inventory by supplying the chain with the needed gain in inventory. Usually the effect smoothes after the correction and the system goes to a constant line. If there are any fluctuations after that in the line then it is due to internal system demand or “ghost demand”. The game demonstrates patterns of behavior that are reflected by the graph above as well.

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