The Beer Game

Not long ago I had the opportunity to play what is one of the most famous games in the Supply Chain sphere; The Beer Game.

The Beer Game was developed in the late 1950s professor Jay Forrester. Initially it was played with pen, paper, printed plastic tablecloths, and poker chips, but nowadays there are on-line versions as well as board games. 

The Beer Game simulates the supply chain of the beer industry.The object of the game is to meet customer demand for cases of beer through the distribution side of a multi-stage supply chain with minimal expenditure on back orders and inventory. There are four units, retailer, wholesaler, distributor, and manufacturer, with a two week communication gap of orders toward the upstream and a two week supply chain delay of product towards the downstream

The goal is to keep operating costs as low as possible, teams will be penalized for having too much inventory (0.5 units per case of beer per week) or unfilled back orders (1 unit per case per week). Each link in the supply chain keeps track of its own costs, but a team’s score is the sum of these tallies. In the end, the lower the score, the better.

Usually 50 rounds (which represent weeks) are played, and to simulate the incomplete information we deal with in real life, players cannot communicate across stations. Each retailer draws a card indicating consumer demand for cases of beer; at the same time, all the units send their orders up the supply chain. In response, cases of beer, represented by poker chips, move in the opposite direction, from manufacturer to retailer. A small number of chips are already at every station when we start.

In the next video there is a detailed explanation of the game (min. 8:23) after a brief introduction on Supply Chain Management.

  

The principal effect shown by the Beer Game is the so called bullwhip effect. It refers to the effect that the amount of periodical orders amplifies as one move upstream in the supply chain towards the production end.

As a consequence of the bullwhip effect a range of inefficiencies occur throughout the supply chain:

• high safety stock levels
• poor customer service levels
• poor capacity utilisation
• inaccurate demand forecasting
• high cost

The main causes of the Bullwhip effect are

• The lack of information

In the Beer Game no information except for the order amount is shared up the supply chain, hence, most information about customer demand is quickly lost.

The game simulates supply chains with low levels of trust, where only little information is being shared between the parties and where all forecasting has to rely solely on the incoming orders at each supply chain stage. 

•   The structure of the supply chain

The supply chain structure itself contributes to the bullwhip effect. The longer it takes for an order to travel upstream and the subsequent delivery to travel downstream, the more aggravated the bullwhip effect will be.

The next video contains an example that explains the impact of the Bullwhip effect in the stock levelsas well as shows the obstacles the Supply Chain needs to overcome to  ensure a steady flow of stock up and downstream the Supply Chain. 

Finally, if you want to experience first-hand how it feels to play the Beer Game, in thelink below there is an online version where you can test yourself!

http://www.masystem.com/o.o.i.s/1365