Beer distribution game

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Beer distribution game
Beer Distribution Game Board.JPG
An example of players at a game board.
PlayersMultiple teams with a minimum of 4 players
Setup time10–20 minutes
Playing time60–90 minutes; another 60–90 minutes for debriefing
ChanceNone
SkillsRecommended for graduate students, members of the business management community

The beer distribution game (also known as the beer game) is an educational game that is used to experience typical coordination problems of a supply chain process. It reflects a role-play simulation where several participants play with each other. The game represents a supply chain with a non-coordinated process where problems arise due to lack of information sharing. [1] This game outlines the importance of information sharing, supply chain management and collaboration throughout a supply chain process. Due to lack of information, suppliers, manufacturers, sales people and customers often have an incomplete understanding of what the real demand of an order is. The most interesting part of the game is that each group has no control over another part of the supply chain. Therefore, each group has only significant control over their own part of the supply chain. Each group can highly influence the entire supply chain by ordering too much or too little which can lead to a bullwhip effect. Therefore, the order taking of a group also highly depends on decisions of the other groups. [2]

Contents

History

The Beer Game was invented by Jay Wright Forrester at the MIT Sloan School of Management in 1960. The beer game was a result of his work on system dynamics. [2]

Rules

In the beer game participants enact a four-stage supply chain. The task is to produce and deliver units of beer: the factory produces, and the other three stages deliver the beer units until it reaches the customer at the downstream end of the chain. The goal of the game is to meet customer demand with minimal expenditure on back orders and inventory.

The game is played in 24 rounds and in each round of the game the following four steps have to be performed:

  1. Check deliveries: How many units of beer are being delivered to the player from the wholesaler.
  2. Check orders: How many units the customer has ordered.
  3. Deliver beer: Deliver as much beer as a player can to satisfy the demand (in this game the step is performed automatically).
  4. Make order decision: Decide how many units are needed to order to maintain stock.

As previously said, there are four stages, manufacturer, distributor, supplier, retailer, with a two-week communication gap of orders toward the upstream and a two-week supply chain delay of product towards the downstream. There is a one-point cost for holding excess inventory and a one-point cost for any backlog (old backlog + orders - current inventory). In the board game version, players cannot see anything other than what is communicated to them through pieces of paper with numbers written on them, signifying orders or product. The retailer draws from a deck of cards for what the customer demands, and the manufacturer places an order which, in turn, becomes product in four weeks. [3]

Players look to one another within their supply chain frantically trying to figure out where things are going wrong. The team or supply chain that achieves the lowest total costs wins. At the end during the debriefing, it is explained that these feelings are common and that reactions based on these feelings within supply chains create the bullwhip effect. [4] The game illustrates in a compelling way the effects of poor system understanding and poor communication for even a relatively simple and idealized supply chain. Although players often raise the lack of perfect information about the customer orders as a primary reason for their poor team performance in the game, analysis of the minimum possible score using the optimal strategy under different conditions shows an expected value of perfect information of 0 for the standard game, [5] and simulations that included giving players perfect information still showed poor team performance. [6]

Supply chain

A supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer. Supply chains are developed by companies so they can reduce their costs and remain competitive in the business landscape. It is important to understand how to manage the supply chain in the right way. Supply chain management (SCM) is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace. SCM represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production to product development to the information systems needed to direct these undertakings. [7]

Typically, SCM attempts to centrally control or link the production, shipment, and distribution of a product. By managing the supply chain, companies are able to cut excess costs and deliver products to the consumer faster. This is done by keeping tighter control of internal inventories, internal production, distribution, sales, and the inventories of company vendors. SCM is based on the idea that nearly every product that comes to market results from the efforts of various organizations that make up a supply chain. Although supply chains have existed for ages, most companies have only recently paid attention to them as a value-add to their operation. [8]

Bullwhip effect

The bullwhip effect (or whiplash or whipsaw effect) is a well-known symptom of coordination problems in traditional supply chains. It refers to the role played by periodical order amounts as one moves upstream in the supply chain toward the production end. Even when demand is stable, small variations in that demand, at the retail-end, tend to dramatically amplify themselves upstream through the supply chain. The resulting effect is that order amounts become very erratic. Very high one week, and then zero the next. The term was first coined around 1990 when Procter & Gamble perceived erratic and amplified order patterns in its supply chain for babies' diapers. As a consequence of the bullwhip effect, a range of inefficiencies occur throughout the supply chain: [1]

While the effect is not new, it is still a timely and pressing problem in contemporary supply chains. Generally, the reasons for the bullwhip effect are: [1]

Types

There are several options how to play the beer game. The various approaches are explained in more detail below.

Traditional board game

The traditional version of the beer game is a physical board game where people have to move actual objects. The tokens on the board game represent orders and stocks of a supply chain process. The main disadvantage is that this type of beer game takes much more time than the software version. Moreover, it is quite complex to play it since people need physical objects that represent the inventory on the board. Additionally, inventory levels of other supply chain stages are transparent and are therefore quite hard to estimate. [2]

Table version

This version of the beer game was introduced by the University of Klagenfurt. The game can be played with the usage of paper slips where the players have to write numbers on top. This type of game is a more pragmatic approach to moving orders and stock in the supply chain. Additionally, there is one person with the role of a bookkeeping person that keeps track of everything happening.

Adapted

The adapted table version is an expanded version of the table version where the bookkeeper is eliminated to achieve a more straightforward game. In order to play this game a spreadsheet and a laptop on each table are needed. The laptops are used for people's play sheets, which eliminates risks of miscalculating inventory levels. [2]

Software

The software version of the beer game is an online approach. This approach can be either used as a one player simulation demonstration or as a multiplayer simulation demonstration. [2]

Related Research Articles

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

<span class="mw-page-title-main">Kanban</span> Japanese business method

Kanban is a scheduling system for lean manufacturing. Taiichi Ohno, an industrial engineer at Toyota, developed kanban to improve manufacturing efficiency. The system takes its name from the cards that track production within a factory. Kanban is also known as the Toyota nameplate system in the automotive industry.

Vendor-managed inventory (VMI) is an inventory management practice in which a supplier of goods, usually the manufacturer, is responsible for optimizing the inventory held by a distributor.

The term demand chain has been used in a business and management context as contrasting terminology alongside, or in place of, "supply chain". Madhani suggests that the demand chain "comprises all the demand processes necessary to understand, create, and stimulate customer demand". Cranfield School of Management academic Martin Christopher has suggested that "ideally the supply chain should become a demand chain", explaining that ideally all product logistics and processing should occur "in response to a known customer requirement".

<span class="mw-page-title-main">Bullwhip effect</span> Form of distribution marketing

The bullwhip effect is a supply chain phenomenon where orders to suppliers tend to have a larger variability than sales to buyers, which results in an amplified demand variability upstream. In part, this results in increasing swings in inventory in response to shifts in consumer demand as one moves further up the supply chain. The concept first appeared in Jay Forrester's Industrial Dynamics (1961) and thus it is also known as the Forrester effect. It has been described as "the observed propensity for material orders to be more variable than demand signals and for this variability to increase the further upstream a company is in a supply chain". Research at Stanford University helped incorporate the concept into supply chain vernacular using a story about Volvo. Suffering a glut in green cars, sales and marketing developed a program to sell the excess inventory. While successful in generating the desired market pull, manufacturing did not know about the promotional plans. Instead, they read the increase in sales as an indication of growing demand for green cars and ramped up production.

<span class="mw-page-title-main">Demand-chain management</span> Management of relationships between suppliers &customers to deliver best value to customer

Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain management but with special regard to the customers.

Behavioral operations management examines and takes into consideration human behaviours and emotions when facing complex decision problems. It relates to the behavioral aspects of the use of operations research and operations management. In particular, it focuses on understanding behavior in, with and beyond models. The general purpose is to make better use and improve the use of operations theories and practice, so that the benefits received from the potential improvements to operations approaches in practice, that arise from recent findings in behavioral sciences, are realized. Behavioral operations approaches have heavily influenced supply chain management research among others.

Military supply-chain management is a cross-functional approach to procuring, producing and delivering products and services for military materiel applications. Military supply chain management includes sub-suppliers, suppliers, internal information and funds flow.

<span class="mw-page-title-main">Build to order</span> Production approach

Build to Order is a production approach where products are not built until a confirmed order for products is received. Thus, the end consumer determines the time and number of produced products. The ordered product is customized, meeting the design requirements of an individual, organization or business. Such production orders can be generated manually, or through inventory/production management programs. BTO is the oldest style of order fulfillment and is the most appropriate approach used for highly customized or low volume products. Industries with expensive inventory use this production approach. Moreover, "Made to order" products are common in the food service industry, such as at restaurants.

Customer demand planning (CDP) is a business-planning process that enables sales teams to develop demand forecasts as input to service-planning processes, production, inventory planning and revenue planning.

Channel coordination aims at improving supply chain performance by aligning the plans and the objectives of individual enterprises. It usually focuses on inventory management and ordering decisions in distributed inter-company settings. Channel coordination models may involve multi-echelon inventory theory, multiple decision makers, asymmetric information, as well as recent paradigms of manufacturing, such as mass customization, short product life-cycles, outsourcing and delayed differentiation. The theoretical foundations of the coordination are based chiefly on the contract theory. The problem of channel coordination was first modeled and analyzed by Anantasubramania Kumar in 1992.

Merge-in-transit (MIT) is a distribution method in which several shipments from suppliers originating at different locations are consolidated into one final customer delivery. This removes the need for distribution warehouses in the supply chain, allowing customers to receive complete deliveries for their orders. Under a merge-in-transit system, merge points replace distribution warehouse. In today's global market, merge-in-transit is progressively being used in telecommunications and electronic industries. These industries are usually dynamic and flexible, in which products have been developed and changed rapidly.

The term Lehman Wave refers to an economy-wide fluctuation in production and economic activity, with a wavelength of between 12 and 18 months, driven by a sudden major disruption of the economic system. The Lehman Wave is a damped, wave-like fluctuation around equilibrium. The amplitude of the Lehman Wave is larger for a business that is further away from its end market than for a business that is closer to its end market, which difference is caused by cumulative de-stocking of the intermediate supply chain. This term Lehman Wave has first been used by Dutch researchers in 2009 who gave that name to the economic wave that started in September 2008. They argue that the latter was caused by global de-stocking after the financial panic following the bankruptcy of Lehman Brothers on September 15, 2008. The Lehman Wave can have strong effects on the sales volume and therefore on the profitability of companies that are located upstream in the supply chain.

Active destocking in supply chain management is an active decision to reduce the inventory-to-sales ratio of a company. The inventory can include finished products, raw materials and goods in process. In general, active destocking is done following an autonomous, often financial decision by a company to improve its efficiency, free up cash and reduce its costs. Decisions for active destocking in general are made by financial executives or general managers.

Reactive destocking in supply chain management is a reduction of the inventory when expected demand goes down. When a company is only doing reactive destocking, the desired inventory to sales ratio, remains unchanged. Reactive destocking in general is done by operational managers of the logistical activities, without additional instructions. The inventory can include finished products, raw materials and/or goods in process.

Management accounting in supply chains is part of the supply chain management concept. This necessitates planning, monitoring, management and information about logistics and manufacturing processes throughout the value chain. The goal of management accounting in supply chains is to optimise these processes. This strategy focuses on supporting management.

Inventory optimization refers to the techniques used by businesses to improve their oversight, control and management of inventory size and location across their extended supply network. It has been observed within operations research that "every company has the challenge of matching its supply volume to customer demand. How well the company manages this challenge has a major impact on its profitability."

In supply chain management, supply chain collaboration is defined as two or more autonomous firms working jointly to plan and execute supply chain operations. It can deliver substantial benefits and advantages to collaborators. It is known as a cooperative strategy when one or more companies or business units work together to create mutual benefits. There are two main types of supply chain collaboration: vertical collaboration and horizontal collaboration. Vertical collaboration is the collaboration when two or more organizations from different levels or stages in supply chain share their responsibilities, resources, and performance information to serve relatively similar end customers; while horizontal collaboration is an inter-organizational systemrelationship between two or more companies at the same level or stage in the supply chain in order to allow greater ease of work and cooperation towards achieving a common objective.

References

  1. 1 2 3 "Beer Game | Simulation Based Game for Supply Chain Managers". Supply Chain Academy. Retrieved 2020-05-30.
  2. 1 2 3 4 5 "The Beergame". beergame.org. 2019-03-02. Retrieved 2020-05-30.
  3. ↑ "Understanding the Beer Game - transentis.com -". transentis.com. 2015-01-16. Retrieved 2020-05-30.
  4. ↑ Sterman, John D. (March 1989). "Modeling Managerial Behavior: Misperceptions of Feedback in a Dynamic Decision Making Experiment". Management Science. 35 (3): 321–339. doi:10.1287/mnsc.35.3.321. hdl: 1721.1/2184 . ISSN   0025-1909.
  5. ↑ Thompson, Kimberly M.; Badizadegan, Nima D. (2015). "Valuing Information in Complex Systems: An Integrated Analytical Approach to Achieve Optimal Performance in the Beer Distribution Game" (PDF). IEEE Access. 3: 2677–2686. doi: 10.1109/ACCESS.2015.2505730 . ISSN   2169-3536.
  6. ↑ Croson, Rachel; Donohue, Karen; Katok, Elena; Sterman, John (2005). "Order Stability in Supply Chains: Coordination Risk and the Role of Coordination Stock". APA PsycExtra. doi:10.1037/e640112011-046. hdl: 1721.1/102763 .
  7. ↑ Kenton, Will. "How Supply Chains Work". Investopedia. Retrieved 2020-05-30.
  8. ↑ Hayes, Adam. "Supply Chain Management (SCM): What You Need to Know". Investopedia. Retrieved 2020-05-30.

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