Beer Game --- MIT Supply Chain Simulation Game

Information sharing: Mail. Demand: Deterministic, Stochastic Costs Players Retailer, Wholesaler, Distributor and Manufacturer. Goal Minimize system-wide (chain) long-run average cost. Information sharing: Mail. Demand: Deterministic, Stochastic Costs Holding cost: $0.50/case/week. Penalty cost: $1.00/case/week. Lead time: 2 weeks physical delay

Timing 1. New shipments delivered. 2. Orders arrive. 3. Fill orders plus backlog. 4. Decide how much to order. 5. Calculate inventory costs.

Game Board

Orders of Events Order of events: the simulation is run as a series of weeks. Within each week, first the retailer, then the wholesaler, then the distributor, and finally the factory, executes the following series of events, as the simulation proceeds upstream: 1. The contents of Delay 1 are moved to inventory, and the contents of Delay 2 are moved to Delay 1. Delay 2 is 0 at this point.

Orders of Events 2. Orders from the immediate downstream facility (or in the case of the retailer, external customers) are filled to the extent possible. Remember that an order consists of the current order, and all accumulated backorders. Remaining orders (equal to current inventory minus the sum of the current orders and backorder) are backlogged, to be met as soon as possible. Except for retailers, which ship orders outside the system, the orders are filled to the Delay 2 location of the immediate downstream facility. Also, at this point the factory’s “Production Request” should convert raw materials into product and place these units into “Production Delay 2.” Finally, for all players this is the start of the two-week delay.

Orders of Events 3. Backorder and inventory costs are calculated. 4. Orders are placed. The user indicates the desired order amount.

Delays and Order Filling Note that this sequence of events implies several things. First, once an upstream facility fills an order, there is a two period delay before this material can be used to fill a downstream order. Also, there is a one period order delay.

Delays and Order Filling This means that if, for example, the retailer places an order for 5 units in this period, the wholesaler does not even attempt to fill the order until next period. This period, the wholesaler attempts to fill the order from the previous period. This can be considered a one period order processing lag. Thus, there is a total of three periods of delays between when a facility places and order, and when the results of that order arrive in inventory.

Delays and Order Filling Also, recall that there is no guarantee that an order will be met, even with that three period lag. An upstream supplier can only fill an order if it has the necessary inventory. Otherwise, it will backlog that order, and attempt to fill it as soon as possible. The exception to this is the factory. There is no production capacity limit, so the factory’s order will always be filled in its entirety after the appropriate delay.

Consider how much to order At each weekly ordering point, you will have decided how many units to order, based on the following information: • Your current inventory. • How much will arrive in one week. • How much will arrive in two weeks. • The size of your most recent order. • The demand you are currently facing. • Previous demand you have been unable to meet, and have backlogged. • The amount you most recently supplied. • The amount you ordered from your upstream supplier in prior weeks which has not yet been shipped. • Any historical information you have recorded.

Summary of The Rules Each move represents a week Competitive-cooperative game, with limits on cooperation You work with a partner You can’t talk to the rest of your team Objective: Run the minimum-cost distribution system

Preliminaries Introduce yourself to your team members Pick a team name Record your team name and position on your “Game Record”

Hints on Playing You can’t look ahead at orders Stay in step with me and your team One partner move the pieces (cards), and one partner record on the “Game Record” You receive orders and ship “downstream” After you file an order, slide the order slip under the board Your customers will wait forever, but it costs you (backlog) You place orders and receive from “upstream” It takes time for orders to reach your supplier and for shipments to reach you The factory position is a little different

Play the Game Each piece indicates one case of beer and each card represents ten cases of beer. Type the game board down to the table Place the inventory: Place four of small Pieces in each of the eight ”Shipping Delay” and “Production Delay” small squares, and place twelve small chips/pennies in each of the four large “Current Inventory” squares. Place ordering slips: Place approximately fifty slips of paper above each of the four large “Current Inventory” squares.

Play the Game 5. Fill the pipeline: Place an order slip in each of the seven small boxes labeled “Order Placed”, “Incoming Orders”, or “Production Requests”, Each order ship should have the number 4 written on it and be placed face down. 6. Place a copy of the sheet labeled “Game Record (by Week)” near each of the “Current Inventory Square” 7. Place approximately 100 small pieces and 20 cards at the “Raw Materials” location on the board.

Steps of the Game Receive inventory and advance shipping delays (Factories advance production delays) Look at your incoming orders and fill them --- Fill incoming orders PLUS orders in backlog --- If you don’t have enough inventory, ship as much as you can and the rest to your backlog 3. Record your inventory or backlog

Steps of the Game Advance the order ships and factories brew (Factories introduce production requests from last week into the production delay) Place and record your orders (Factory place and record production requests)

Calculating Backlog Last week’s backlog ____________ + New Orders ____________ = Order to fill ____________ - Amount shipped ____________ = This Week’s backlog ____________

Retailers Please Don’t Tell What The Customer Orders Were

Calculate Game Statistics Calculate your score --- Total your inventory --- Total your backlog --- Calculate your total cost 2. Plot your inventory or backlog All position except Retailer”: Plot estimated retailer customer orders Retailer: Calculate your total team score

Debriefing How Did You Feel Did you feel Or, did you fell a little Calm? Collected? In control? Or, did you fell a little Frazzled? Frustrated? At the mercy of events?

What about Your Teammates? Do you think they Showed great skill? Had your best interests at heart? Or maybe you think they Fouled up

HOW YOU DID?

What would happen in the real world with this kind of performance?

Results of the Beer Game Based on 40 weeks performance Performance of teams is always poor Average costs are about $2000 The best possible cost is about $200 [ A factor of 10 improvement is possible!] Similar patterns always occur, even though very different people play Our deeply embedded ‘mental models’ interact with the structure of the system The result is a poor outcome Furthermore, it is hard to learn to do better

How Could Your Reduce Costs in the Beer Game? Improve information flows When is this feasible? Improve forecasting Will your forests be self fulfilling? Eliminate the wholesaler and distributor What arte the implications of this? Improve order policies Could you be replaced by a computer? Any other way?

Consider an Ancient Greek Transported to Our Time Our science and technology has advanced so far as to seem like magic Our social and management structures would appear familiar Why the lack of progress?

Lessons of the Beer Game The structure of our management processes creates their behavior Changing the people leverage lies in redesigning the structure Therefore, the highest leverage lies in redesigning the structure of a process Systems thinking is essential for effective redesign The cause of a problem is often distant in time and space from symptoms Impacts of structural changes cross organizational and functional boundaries

Questions?

Thank You!

References The Beer Game Production-Distribution Exercise: Running Large Sessions http://www.public.asu.edu/~kirkwood/sysdyn/BGame/BGame.htm