BEER GAME

Preparatory Note1
Oops! No beer please! When the simulation was developed by MITs Sloan School of Management in the early 1960s, instructors felt that beer was more exciting than toasters or widgets. When played on children or in some foreign countries, beer is replaced by apple juice. This simulation game has been played all over the world by thousands of people ranging from high school students to chief executive officers and government officials. Beer game simulates the flow of material and information in a simplified channel of production and distribution. The game can be played with a minimum of four to as many as hundred.

Objectives of Beer Game

The objectives of beer game as used by experts of various disciplines are multifold. Marketing experts use it to demonstrate the simulated distribution network and supply chain issues like bullwhip effect. Operation experts use it teach inventory management. Behavioural experts use to demonstrate the influence of structure on the behavior, influence of information on the behavior of the team members of the organization and so on. For us, the objectives of the game are as follows. 1. To demonstrate how single parts in a system influence each other 2. To understand the role of information in the organization and its importance on the behavior of the intermediaries 3. To understand in specific about bullwhip effect

Setup of Beer Game

Though in reality, a beer supply chain might be networked with hundreds of distributors, thousands of wholesalers, and lakhs of retailers, the simulation game we are going to play has only one producer, one distributor, one wholesaler and one retailer. The game has two major flows; information flow and inventory flow. Information flows from consumers to factory and the inventory flows from factory to consumers. For our purpose the card coins will represent cases of beer. Each small card coin represents one case, medium size coin represents five and big size represents ten cases of beer. Look into Exhibit 1 for the setup of the beer game. There are four players (intermediaries), viz., Retailer, Wholesaler, Distributor, and Factory. Retailer fulfils the consumers orders, wholesaler fulfills the retailers orders, distributor fulfils the wholesalers order and the factory produces the beer to fulfill the distributors orders. It is assumed that the orders from each of the intermediaries are in weeks. The four channel participants have the responsibilities as given in Table -1.
1

Game preparatory notes as part of SDM course by Ajeesh B. Nair at Amrita School of Business, Cochin

TABLE -1 : CHANNEL MEMBER - RESPONSIBILITIES RETAILER Orders beer from wholesaler Managers inventory Ships beer to fill end customers orders WHOLESALER Orders beer from distributor Manages inventory Ships beer to fill retailers order DISTRIBUTOR Orders beer from factory Manages inventory Ships beer to fill wholesalers order FACTORY Schedules beer production Manages finished goods inventory Ships beer to fill distributors order

The beer company for the past few weeks has been observing at the retailer end that the consumer orders are consistently four cases per week. For several weeks the system has been very stable with orders through the channel synchronized with consumer demand. Hence the order send upstream has been also four cases. The inventory positions have also been stable. However, there are forecasts of variation in consumer demand for reasons like change in weather conditions, marketing efforts by the company and political reasons like lift of liquor prohibitions in few states. Thus, the simulation begins with the following set up: 12 cases of beer in each of the current inventory squares 4 cases of beer in each of the production delay squares 4 cases of beer in each of the shipping delay squares Orders for 4 cases in each order placed, incoming order, and custom order squares

Initially all the four teams (players of 2) would have 12 cases as current inventory (representing three weeks of orders as inventory) and a pipeline stock of 4 cases in each of the shipping delays. During the first few weeks (maximum of four weeks), players learn the mechanics of filling orders, recording inventory etc. during this time, consumer demand remains constant and each player is requested to order only four cases, so that equilibrium is maintained. Then on, when the game actually starts, players are allowed to order any quantity of cases of their wish or as per their forecast of the demand. Note that each move requires calculations of the cost and that your objective is to minimize the individual cost along with the supply chain cost. There are two types of costs involved in this game. 1. Inventory holding cost (Rs. 0.50/ case/ week) and 2. Backorder cost (Rs. 1.00/ case/ week) Inventory holding costs incur on the inventory you are carrying in the current inventory block. In addition, during the game you might find that the current stock is not sufficient to meet the customer order called as backlog. This you can fulfill in the following weeks provided you have enough stock to clear that weeks order and the backlog. Backorder has a cost Rs.1/-. It is important to note that backorder stock would be cumulative. i.e. if you do not fulfill the orders in the previous week and you are again in short of stock, then the total backlog is the previous week plus this week.

In each week, each player has the goal of minimizing the sum of the holding cost and backorder costs. Each player keeps track of his/ her inventory/ backlog position. At the end of the simulation, the total cost of supply chain is the sum of the total cost of each player (retailers total cost plus wholesalers plus distributors total plus factorys total cost).

How to play the game?

Before the participants are assigned their roles, the instructor of the game would be giving you an overview of the game, its rules and regulations. The following are the steps in the game. (Look into Exhibit 1 and compare with the notes for easier understanding)

Exhibit - 1 1. Receive your incoming inventory. Advance Shipping Delay/ Production Delay. Receive from the second shipping delay square (the one immediately to the right of your current inventory square on the board) in to your current inventory. You do this by advancing the coins from one square to the next. For example, the factory gets from its immediate production delay (4 coins initially) and adds into its current inventory. Similiarly, the distributor gets the stock added to his current inventory from the right hand side shipping delay block.

Next, advance the cases of beer from the first shipping or production delay to the second shipping or production delay block. The second shipping/ production delay stock has to get transferred to the immediate right shipping/ production delay block. 2. Look at the Incoming Orders and Execute Orders Look at the order in your incoming orders square (to your left). You have to look into backorders if any at this time. Fill all incoming order plus backlog if you can or if any. To fill orders move coins from current inventory to the first shipping delay, except in the case of retailer to the order sold square (the position immediately to the left of your current inventory square). If your inventory is insufficient, fill as many orders as you can and add the remaining unfilled order among to your backlog. You should not ship beer more than what is ordered plus backlog. Orders to fill this week = Incoming Orders + Backlog last week Raw materials would oblige the production requests and passes the material to the first production delay square. Note that raw material unit capacity is unlimited so brewer may produce, as they desire. 3. Record Current inventory or backlog Record your current inventory or backlog on the form provided to you by the game instructor. Note that the Backlog or Backorder is a cumulative phenomenon. This implies, if you have not fulfilled last week any order and in case you again have a back log this week, then the entry should be the sum of the previous and the current backlog/backorder. 4. Move the order slips and factory produces Move the order slips (remember to Face down the slip and no communication) from the orders placed
to the incoming orders square (to the right).

5. Place orders and record it. Write your order quantity on an order slip and place it face down on the order placed square (to your right). 6. Go to Step 1 For each period, the coordinator will call each step of the simulation. It is important that all the players in a group perform each step simultaneously. Also, the steps have to be followed in the same sequence as given above.

General Rules
The participants are requested to adhere to one important rule of the game i.e. there would be no communication (verbal, non-verbal or even Meta verbal!!!). Few other rules are 1. The customer demand is only know to the retailer.

2. If the stock is available sufficient to fulfill the order, the order has to obliged. 3. Every order as to be fulfilled, either in the current week or in the coming weeks (if there are backorders). 4. If at any point in the game you feel like fulfilling your backlogs and you have sufficient inventory, you may do so. 5. Note that each participant has to fill in the sheets given to you as indicated by the instructor.

At the end of the game

Calculate the costs incurred at each position. Inventory costs are Rs. 0.50/ case/ week and backlog costs are Rs. 1.00/ case/week. Sum the costs of each position to obtain a total system cost. Remember that the team with lowest total system cost wins the simulation. What strategies can you use to reduce costs? At the end exercise, add inventory figures in ending inventory column and record below. Then add backlog figures in the accumulated backlog column and record below. Total Inventory = Total Backlog =

Total Cost = (Rs. 0.50) (Total Inventory) + (Rs. 1.00) (Total Backlog) = Rs. Wishing you fun and lots of learning!

References & Courtesy

1. 2. 3. 4. Teaching notes by Dr. G. Sridhar, Asst Professor, Marketing IIM Kozhikode Prof. John Sterman, MIT October 1984 Teaching notes on the game YouTube videos on Beer Game Senge, Peter (1990), Prisoners of the system or prisoners of our own thinking in Fifth Discipline, pp 27-54