1 The Beer Game A production-distribution game to understand inventory management

2 Introduction The beer game is a demonstrator of the behaviour of supply chains It is based on the main principle of system dynamics: –Structure produces behaviour The game is employed for educational purposes at most MBA’ s worldwide

3 Overview of the system There exist four nodes in the game’s supply chain (look at the board): –Retailer (e.g., a supermarket that sells beer to end-customers) –Wholesaler (e.g., a local warehouse that consolidates various items and provides them to local retailers) –Distributor (e.g., a national importer of this particular beer with a centralized warehouse) –Factory, where beer is brewed and packaged

4 Overview of the nodes Each position: –Is identical, in terms of the rules of the game, except for the factory –Has an initial inventory of beer –Receives orders from and ships beer to the downstream node of the chain –Orders beer from the upstream node –One or two players are associated with it

5 Overview of delays (lead times) Beer is received after a shipping delay of two time units (e.g., 2 weeks or days) In case of the factory, beer is received after a production delay (it takes 2 time units to manufacture any beer batch) Orders are received after a mailing delay (it takes 2 time units from the moment you place an order to the moment this is processed by the upstream node)

6 Objective of the game The goal is to minimize the total cost Costs are computed as follows: –Inventory carrying costs (costs of holding inventory for one time unit) are €0.50 per case of beer per week (time unit = 1 week) –Out-of-stock costs (or backlog costs, i.e., no on- hand inventory to satisfy orders) are €1.00 per case of beer per week –Sum of carrying and backlog costs is total cost

7 Rules of the game No communication between positions is allowed, e.g., retailers should not talk to anyone else – same for wholesalers, distributors and factory Only communication is through the passing of orders and the receiving of beer Retailers are the only ones knowing actual customer orders – they should not reveal this information to anyone else

8 Initialization of the board Each chip on the board represents a case of beer (one unit of inventory) There exist twelve (12) chips representing twelve cases of beer in each inventory position (warehouse of each node) There exist four (4) chips in each shipping delay and production delay box There exist order slips in each order box (orders placed, incoming orders, production requests) face down

9 Additional information The raw materials inventory at the factory and the production capacity is infinite (i.e., the factory can produce any batch size) The capacity of the shipping trucks (moving inventory between nodes) is infinite The flow of materials (cases of beer) is from factory to retailer, while the flow of information (orders) is reverse (from the retailer to the factory)

10 Steps of the game Step 1: –Receive inventory and advance shipping delays –Factory advance the production delay Step 2: –Look at incoming orders and fill them Retailer looks at customer order cards Factory looks at incoming orders, not production requests

11 Steps of the game Step 2 (continued): –All incoming orders plus orders in backlog must be filled –If inventory is insufficient to fill incoming orders plus backlog, fill as many orders as you can (push all your inventory forward) and place unfilled ones to backlog Orders to Fill = New Orders + Backlog this week this week last week

12 Steps of the game Step 3: –Record inventory or backlog Step 4: –Advance order slips –Factory brews, i.e., it converts the production request (from last week) into cases of beer and puts the cases (chips) in the first production delay

13 Steps of the game Step 5: –Place and record your orders (retailer, wholesaler, distributor) –Factory places and records its production request –This is the only decision you have to make! Synchronize your steps (select a team leader and follow his “commands”)

14 Documentation Write down: –Level of inventory (count of chips in your warehouse) –Backlog (count of chips in unfilled orders) –Orders placed at the Record Sheet provided at each position Best of luck!

Step 1: –Receive inventory and advance shipping delays –Factory advance the production delay Step 2: –Look at incoming orders and fill them Retailer looks at customer order cards Factory looks at incoming orders, not production requests –All incoming orders plus orders in backlog must be filled –If inventory is insufficient to fill incoming orders plus backlog, fill as many orders as you can (push all your inventory forward) and place unfilled ones to backlog Step 3: –Record inventory or backlog Step 4: –Advance order slips –Factory brews, i.e., it converts the production request (from last week) into cases of beer and puts the cases (chips) in the first production delay Step 5: –Place and record your orders (retailer, wholesaler, distributor) –Factory places and records its production request 15 Orders to Fill = New Orders + Backlog this week this week last week