OMGT1021

Supply Chain Principles

Assignment 1
Presentation on the Beer distribution game
and analysis of data

• Name – Ayush Prakash Chavan

• Student ID – S3974679
• Friday 5:30 pm
Table of Content

1. Brief Introduction of game

2. Aim
3. Flow chart of typical beer distribution game
4. Strategies Planned
a. Building a Triple-A supply chain
b. Lean Perspective in Beer game
c. Push-Pull Approach
5. Game Outcome
a. Order analysis
b. Inventory/Backorder analysis
c. Cost analysis
6. Conclusion
 1.Brief Introduction

• Invented in 1960 by Jay Wright as a result of his work on System Dynamics.

• Four participants take part as Retailer, Wholesaler, Distributor and Factory.
• It’s a role-playing simulation game where every role is played by an individual.
• Its goal is to teach students the basic concept of supply chain management concepts, using various supply
chain techniques and strategies.
• The goal is to meet customers demand while keep the cost and backorder minimum and maintaining
sufficient inventory
• It also shed light of some supply chain effects such as bull-whip effect and teaches students the
importance of communication, collaboration and sharing information to maintain a healthy supply chain.
• The game is played in 20 rounds denoting 20 weeks.
2. Aim

• The aim here is to delivery the beer to the customers in a downstream pattern from factory
to the retailer.
• Satisfy customer demand while keeping the cost and backorders at minimum.
• Apply relevant supply chain concepts to maintain a healthy flow of beer.
• Keep a steady inventory levels to ensure we can deal with changing demand.
• To learn and understand how supply chain decisions might impact the overall
performance.
• To improve decision making skills and supply chain knowledge.
 3.Flow Chart of a typical Beer Distribution Game

1. Customer orders 3. Wholesaler supplies from available in stock 5. Factory supplies from available
stock or produces more beer.
beer from retailor or orders extra from the distributor.

Outgoing Demand Outgoing Demand

Incoming Order Outgoing Demand

Outgoing Order Incoming Order Incoming Order Incoming Order

Customer Retailor Wholesaler Distributor Factory
2. Retailor supplies the beer available in stock 4. Distributor supplies from available stock Or
or orders extra beer from Wholesaler. orders more from factory.

• Backorder cost - $1/week

• Inventory Cost - $0.5/week
• Lead time – 2 weeks
 4.Strategies Planned

a) Building a Triple-A supply Chain

i. Agility : Respond to short-term demand quickly and handle external disruptions smoothly.
ii. Adaptability: Adjust supply chain design to meet structural shifts in external environment.
iii. Alignment: Aligning supply chain goals and activities to achieve the common goal..

By using and implementing a Triple A supply chain, we can,

- Improve responsiveness towards changing customer demand and adjusting the inventory level and ordering further
beers accordingly.
- Adapt quickly to change in environment such as disruption or change in market conditions. We can create a
contingency plan to tackle such scenarios.
- Align company’s strategies and maintain a healthy communication with other parties to reduce bullwhip effect and
improve visibility.
b) Lean Perspective in the Beer Game
A lean perspective means focusing on maximizing value adding activities while minimizing waste and non-
value adding activities. Lean method can be applied when the variety is low, and volume is high. In the beer
game, the volume is high, and the variety of beers is low, so we can apply a lean method to our game.

7 Wastes of Lean

Defects can cause rework, led Excessive or unnecessary

Excessive inventory hold to Stocks waiting to be to scrap or go to production movement of goods.
meet unexpected demand delivered to the next step. again.

Source: Christopher M. (2012)

Unnecessary steps, time or

cost to production process Unnecessary movement of
Excessive production which which does not add value workers or machinery.
exceed customer’s demand to final product.
or market requirement.

Source: ‘7 Wastes of lean – How to optimize resources.’

url: https://kanbanize.com/lean-management/value-waste/7-wastes-of-lean
 b) Lean Perspective in the Beer Game

Major wastes to avoid in the Beer Game

General lead time to supply beer

Inventory costs $0.5/week.
If we can maintain stock
levels as per customers’
demand, we can avoid
excessive inventory
from manufacturer to customer is 2
weeks. This may cause backorder
and increase cost. We can reduce
this by improving flow of beer
through the supply chain
If the factory overproduce
and exceed the customer
demand, there will be no
customer to pay for it and it
will just pile up the inventory
and increase cost.
c) Pull-Pull approach to the Beer Game

• Push : Push approach can be used when the demand is predictable and stable. Products
are pushed downstream along the supply chain to distributors and retailors.
• Pull : Pull approach can be used when the demand is uncertain. Production is based on
customer’s demand.
• A hybrid Push-Pull concept can be applied to the game to minimize lead time and
optimize inventory level to reduce cost and back order.
• At the start, we can build up inventory levels in anticipation of demand, adopting a push
approach.
• As the weeks progress, we can approach a pull concept as the demand become more
uncertain. We can use customers order to drive up production and meet customer demand.
 5. Game Outcome

Bullwhip Effect
Customer Demand Retailor Wholeseller Distributor Factory

a) Order Analysis 3000

2500

• In order to meet customer demand, all the players

ordered in higher numbers to stock up inventory
and prevent backorder. 2000

Orders
• Factory clearly is producing more than the
customer demand, indicating that they are
planning to push the stock downstream and stock 1500

inventory for future demand.

• Due to lack of communication and coordination,
the demands of each player is fluctuating, and 1000

every player is ordering based on its predecessor’s

demand showing an evident bull-whip effect.
• Retailor, wholesaler and distributor are ordering 500

higher than the customer’s demand indicating they

want to maintain their inventory level to meet the
demand. 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Weeks
b) Inventory and Backorder 2000
Inventory/Backorders

Analysis
1500

1000

• From week 1 to week 6, retailor, wholesaler and 500

distributor has negative inventory level,

indication that they were unable to meet 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
customer demand.

Inventory
-500
• Factory has negative inventory level till week 4,
indicating that they were not able to produce -1000
enough beer.
• From week 4 to 8 and 8 to 14, factory was -1500
overproducing compared to customer demand.
-2000
• Due to factory’s overproduction, the inventory
levels with the retailor, distributor and wholesaler -2500
increased from week 16.
• With the fluctuation of demand, the retailor, -3000
Weeks
wholesaler, distributor and factory were not able
to cope up and we see wastes such as over
production, higher inventory levels and back
orders. Retailor Wholesaler Distributor Factory
 Cumilative Cost
$12,000

c) Cost Analysis
$10,000

• Cost incurred by each player is the sum of $8,000

inventory and backorder cost.
• The retailor sees a sharp rise in the cost from week

Cost ($)
1 to week 6, followed by wholesaler. This is $6,000
because of the rising levels of backorders.
• After week 6 the increase is steady and consistent
$4,000
for retailor and wholesaler.
• After 20 weeks, factory has the least cumulative
cost because factory had enough inventory to $2,000
fulfill orders but less backorders.
• As a result of overproduction by factory, inventory
levels increased with retailor, wholesaler and $-
1 2 3 4 5 6 7 8 Weeks
9 10 11 12 13 14 15 16 17 18 19 20
distributor, thus increasing cost.

Retailor Wholesaler Distributor Factory

 6. Conclusion
• Bull whip effect – It is a phenomena explaining how even a small fluctuation at a retail level can cause a larger progression in the upstream
levels at wholesaler, distributor and factor.
Week Customer demand Retailor order Wholsaler order Distributor order Factory Order

2 800 1000 1200 1500 2000

• For example, in above table, we see that the customer demand was 800 units, in reaction to that retailor ordered 1000 units, wholesaler ordered
1200 units, distributor ordered 1500 units and factory ordered 2000 units. We can clearly see it as an effect of bull-whip phenomena.

• Bullwhip effect was caused because the players didn’t have enough stock to fulfill the demand in the initial weeks. Adopting the push approach,
they ordered more to stock up the inventory in the anticipation of the demand and fulfill backorders.

• In the later weeks, as the demand became uncertain, pull approach was adopted and production was increased to meet the customer’s demand.

• As the weeks progressed, the backorders were reduced and inventory levels went up Triple-A strategy also used in the game, keeping the chain
agile and adaptable. The chain was not aligned as there was no flow of information among parties and no coordination.

• Due to non-alignment, factory overproduced the beers compared to customer demand and inventory levels went up, increasing price.

• As per lean perspective, the waste in the game was over production by the factory causing rise in the inventory levels at the retailor, wholesaler
and the distributor. The main cause of this was the non-alignment amongst the player.
Thank You