The Beer Game

Welcome Readers!

I am Sheerapthi Ramiya, 2nd Year MBA from Amrita School of Business, coming back with this week's read ! Hope my readers are doing well and I hope you enjoy :) 

No this isn't a game you play at pubs or bars or house parties. It does not involve drinking beer at all ! I understand that the topic would be of interest to some of you readers *wink wink*, but don't worry because I can assure you there will be beer in the end if you go through my blog. 

We all have been reading pages and pages on supply chain management, discussed the various players in supply chain, how they function, the LOPS (Logistics, Operations, Procurement and Sourcing) in supply chain, various strategy fits, etc. and its not going to end there. What if you wanted to see how supply chain works in action but you cant go to a factory because its a large scale thing which cant be brought in front of your eyes. 

Let me introduce you to the Beer game !

The beer game was invented by Jay Forrester at MIT in the 1960s. It was a result of his work on system dynamics. The beer game lets the players and the spectators experience the supply chain and its hiccups. I bring it to light because this game demonstrates a phenomenon what is called a "Bullwhip Effect"  in Supply Chain Management which will be explained as we go further. The game also demonstrates the might of information sharing, supply chain management, coordination and collaboration in a supply chain.

The Beer Game, like any other business simulation game, is a role play simulation. Four Players are involved in the game representing 4 stages of a beer supply chain. They are 

1) Brewery (Manufacturer)
2) Distributor
3) Wholesaler
4) Retailer

The task of this game is to produce and deliver beer. The goal of this game is to minimize the total cost of supply chain.  This goal can be achieved by carrying minimum inventory with you. Of course any game comes with set of rules, but for this game there are only two rules - You shouldn't run out of inventory and The players cannot communicate with their teammates . Each player must decide how many cases of beer to order from its upstream player, given the order quantity it received at that particular time period.

The only strength we need to have for this game is COORDINATION throughout the supply chain. The 4 players will have their vague idea of what the future demand will be. Each player has control over their part of the supply chain. But even without having the information of demand, there is a way to understand how the demand is. The players can Influence each other by increasing or decreasing the order quantity. And this influence will have an effect on the other players in the supply chain too!

But then again, coordination ,with the added influence, may not go as you expect it to go. This is the point were the "Bullwhip"phenomenon happens when things go wrong in your supply chain.

The Bullwhip Effect 

The Bullwhip Effect was first identified by Jay Forrester in his book 'Industrial Dynamics', but he couldn't coin a name for it. The term "Bullwhip Effect" was coined around 1900 when Procter & Gamble disturbing and amplified order patterns for baby diapers in its supply chain. The Bullwhip Effect is a well known result of lack of coordination in supply chains. Even when the demand for beer is stable, small variations in the demand will dramatically amplify as we go upstream in the supply chain. A clear visualization of this effect can be observed below.

The Bullwhip Effect hence produces a lot of inefficiencies which become greater as we go upstream in the supply chain. Problems with demand forecasting, low levels of trust within the supply chain, high stock levels, poor capacity utilization, etc lead to growing costs in the supply chain.

I have attached a YouTube video where a group of students play the Beer Game in action. Do have a look. We should definitely play this when we are back at ASB! (For those who are not able to see the video below use this link: https://youtu.be/qxpgM8paegQ )

In the end, we can agree on how flow of information, systematic thinking, coordination and collaboration among various players in the supply chain is very important. Even though this effect is not something new, it is still a situation which needs attention in supply chains.

I thank all of you who made it to the end of my blog. I would also like to thank Hema Maam for giving us this opportunity in finding interesting reads in the field of Supply Chain. Cheers to you all and have a great day!

P.S - I am a man of my word 

- Sheerapthi Ramiya

ASB, Coimbatore