The Beer Distribution Game

Purpose: To introduce the concept of supply chain and the impact of decisions along the supply
chain on inventory levels and costs. For the game to be effective, please do not discuss the
game amongst yourselves (including team members).

Introduction: In this game, the retailer sells units of beer to a consumer and orders units of
beer from the wholesaler; the wholesaler sells units of beer to the retailer and orders units of
beer from the distributor; and the distributor sells units of beer to the wholesaler and orders
beer from the manufacturer (brewery). The manufacturer brews the beer. For each week of
play, every participant follows the same cycle in this order and concurrently:

1. Receive shipments and advance shipping delays and order delays,

2. Ship units of beer according to new orders and backlog, subject to inventory
availability,
3. Count inventory of units of beer,
4. Advance the order slips (or brew), and
5. Place orders for (or brew) more beer.

In the current online version of the game, points 1-4 happen on their own based on players’
decision on point 5 (placing order). Still, it is good practice to keep track of variables mentioned
in points 1-4.

There are only two costs involved in this simplified version of a logistics supply chain:
inventory holding (stock) costs ($ 0.50/unit/week) and backorder costs ($ 1.00/unit/week).
Each team has a goal of minimizing the sum of those cost by balancing the cost of having
inventory with the cost of being out of stock.

Each participant keeps track of his or her own costs. At the end of the game, the total game
cost for the distribution system is the sum of costs of four individual participants: Total cost =
retailer cost + wholesaler cost + distributor cost + manufacturer cost. The goal is to minimize
Total cost.

Participants:
Four positions--
Manufacturer (brewery), distributor, wholesaler, and retailer. Each position would be played
by one participant. In addition to these four positions, there is a consumer (played by the
instructor).

Action:
The game begins with a fully loaded “pipeline” of units of beer. Each position has eight units
of beer as current on-hand inventory. Each position has three orders pending. The first order
will be received right at the start (Week 0) and the second order will arrive in the first week
(Week 0 → 1) and the next order will arrive in the second week (Week 1 → 2). Each such
initial order consists of four units of beer.

The game will continue for up to 40 weeks.

The shipping (production) delay between any two participants is three weeks. For example, if
the wholesaler places an order of 14 units of beer on the 11th week (Week 10 → 11 ), then the
wholesaler receives the material on the 14th week (Week 13 → 14 ). This is conditional on the
availability of the stock with distributor (upstream player for wholesaler). If the distributor has
on-hand inventory of at least 14 units of beer on that week, then the wholesaler will receive the
material. However, if the distributor has less than 14 units of beer (say, eight units), then eight
units are immediately shipped. The balance 6 units are backlogged, to be satisfied later.

The Game:
All participants would follow this four-step cycle:

1. Receive your incoming inventory and advance shipping delays and order delays.
2. Fill (ship) orders: If your inventory is insufficient, fill as many orders as you can and add
the remaining unfulfilled order amount to your backlog. You cannot ship more beer than
what is ordered from you plus what is in your backlog.
3. Count and record status-- current inventory and backlog. You will never have units in both
current inventory and backlog.
4. Place orders.
5. Go to step 1.

In the current online version of the game, points 1-3 happen on their own based on players’
decision on point 4 (placing order). Still, it is good practice to keep track of variables mentioned
in points 1-3.

End of play: Construct a graph of (a) Net Inventory (Inventory-Backlog versus time and (b)
Orders placed versus time.