Beer Game in Supply Chain Management

Let’s start by talking about Beer game stimulation a little. The beer game for the supply chain is based on the system dynamics invented by Mr Jay Forrester at MIT. The Beer Game was introduced to students, managers, and executives to make them understand the concept of system dynamics. The basic agenda of this experiment was to understand the behavioural pattern of the people used to demonstrate the benefits of supply chain management, information sharing and distribution in the supply chain.

Players will experience the pressures of playing a role in a complex system and can see long-range effects during the course of the game. Each player participates as a member of a team manufacturer, wholesaler, distributor and retailer that must meet its customers’ demands. The game's object is your team and the whole operation.

In the structured debriefing, the game illustrates a number of insights about management systems that generalize well beyond inventories. To play and debrief the game takes a minimum of just over two hours. The debriefing is the most important part of the game. Each game board accommodates up to 8 players (4 pairs) comfortably. Additional boards can be obtained for larger groups. If assistance is needed to facilitate the playing of the game, one can request the facilitators.

Understanding of Beer Game in Supply Chain

It's a unique way to understand the real demand in the market from the information collected from suppliers, manufacturers, sales teams and the end customer. Every section in this chain influences the entire chain by forecasting or ordering too little or too much. A miss in the coordination can cost the company hugely monetarily as well as brand reputation.

The original goal of the simulation game is to research the effect of systems structures on the behaviour of people (“structure creates behaviour”), the game can be used to demonstrate the benefits of information sharing, supply chain management, and collaboration in the supply chain.

The most popular business game for supply chain

Beer Game is an experiential, competitive business simulation game demonstrating the need for coordination throughout the supply chain. Suppliers, manufacturers, salesperson, and customers have their own, often incomplete, understanding of what real demand is. Each group has control over only a part of the supply chain, but each group can influence the entire chain by ordering too much or too little. Further, each group is influenced by decisions that others are making.

This lack of coordination coupled with the ability to influence while being influenced by others leads to the Bullwhip Effect — shortages and overstocks across the supply chain.

While managing the Idiot Theory logistic I came across Bullwhip Effect and its inefficiencies in supply chain management.

1. High (safety) stock levels
2. Poor capacity consumption
3. Poor customer service levels
4. Intensified problems with demand forecasting

Bullwhip Effect

Now let’s talk about why it is tougher to achieve external integration compared to internal integration in the organization.

So what causes the bullwhip effect?

1. Order batching

Order batching occurs when each member takes order quantities it receives from its downstream customer and rounds up or down to suit production constraints such as equipment setup times or truckload quantities. The more members who conduct such rounding of order quantities, the more distortion occurs of the original quantities that were demanded.

2. Price fluctuations

Special discounts and other costs disturb regular buying patterns. What buyers want is to take advantage of discounts offered during a short time period, resulting in irregular production and distorted demand information.

3. Demand information

It is essential to understand that relying on past demand information to estimate current demand information of a product does not take into account any fluctuations that may occur in demand over a period of time.

4. Lack of communication

Due to a lack of communication between each link in the supply chain, it gets difficult for processes to run efficiently. For example; managers can identify a product demand quite differently within different links of the supply chain and therefore order different quantities.

5. Free return policies

Sometimes, customers may purposely overstate demands due to shortages and then cancel when the supply becomes adequate again, without return forfeit retailers will continue to exaggerate their needs and cancel orders; resulting in excess material.

Internal Integration:

1. Adopting cross-functional unification across departments

The unification of the management was observed through regular meetings, departmental meetings and the directions set by me. Many objectives were set based on the analysis of past records and sales and trend reports. The cross-functional unification using different modes (emails, Trello, networking systems, etc) across all the departments helped us in attaining the synergetic process.

2. Streamlined logistics operations and manage efficiency

We created a system that maintained coordination between the departments to streamline the processes and systems at the warehouse. Their job role involved receiving orders, loading them to the server to notify the uploading and unloading team and the time spent counting and inspecting goods. Order fulfilment accuracy was critical for us and customer satisfaction was our primary goal. The set guideline was given that made them aware of the shelf life or expiry dates of our products and needed to have effective stock control to manage it.

External Integration:

Initial when we started we used to sell 80% of the product on Amazon and Flipkart so our logistic was completely outsourced from their warehouse, that proved helpful and educative for me especially.

1. Joint planning with Idiot Theory and Amazon

Amazon relationship manager and I used to sit together weekly to gauge past sales and forecast sales, and plan our next collection based on the analysis we did using 9–10 parameters that we had, we had written it in detail in our Idiot Theory blog.

Amazon’s warehouses are strategically placed and stocked, moving closer and closer to main metropolitan areas and city centers. As a result, it uses a pure push strategy for the products it stores in its warehouses, forecasting demand for the specific region. On the other hand, it uses a pure pull strategy when it sells products from third-party sellers, using more of an order-by-order fulfilment model.

2. Sharing knowledge

Based on the sales and forecast data we used to plan our future sales prediction. Amazon is a huge company their data structuring and analysis used to be perfect and helped up in building our system as we could do different models of tests to understand the market, competitors, styles, patterns, price points, loyalty programs, etc. Due to the huge economies of scale and a bundle of industry-leading supply chain strategies, Idiot Theory was able to keep its overall per-unit supply cost to a bare minimum. As a result, it has been difficult for other companies with far lower sales volumes and only their warehouses to compete.