OPERATIONS MANAGEMENT

BEER GAME SIMULATION

GROUP NUMBER 5
BY-
AKSHAT JAIN-LR 2112003
ANANYA GUPTA-LR 2112007
SAGAR YADAV-LR 2112043
SHEFALI SAXENA-LR 2112046

The beer distribution game (also known as the beer game) is an educational
game that is used to experience typical coordination problems of a supply chain
process. It reflects a role-play simulation where several participants play with each
other. The game represents a supply chain with a non-coordinated process where
problems arise due to lack of information sharing.This game outlines the
importance of information sharing, supply chain management and collaboration
throughout a supply chain process. Due to lack of information, suppliers,
manufacturers, salespeople and customers often have an incomplete understanding
of what the real demand of an order is. The most interesting part of the game is that
each group has no control over another part of the supply chain. Therefore, each
group has only significant control over their own part of the supply chain. Each
group can highly influence the entire supply chain by ordering too much or too
little which can lead to a bullwhip effect. Therefore, the order taking of a group
also highly depends on decisions of the other groups.
In the beer game participants enact a four-stage supply chain. The task is to
produce and deliver units of beer: the factory produces, and the other three stages
deliver the beer units until it reaches the customer at the downstream end of the
chain. The goal of the game is to meet customer demand with minimal expenditure
on back orders and inventory.
The game is played in 24 rounds and in each round of the game the following four
steps have to be performed:
1. Check deliveries: How many units of beer are being delivered to the
player from the wholesaler.
2. Check orders: How many units the customer has ordered.
3. Deliver beer: Deliver as much beer as a player can to satisfy the
demand (in this game the step is performed automatically).
4. Make order decisions: Decide how many units are needed in order to
maintain stock.
There are four stages, manufacturer, distributor, supplier, retailer, with a two-week
communication gap of orders toward the upstream and a two-week supply chain
delay of product towards the downstream. There is a one-point cost for holding
excess inventory and a one-point cost for any backlog (old backlog + orders -
current inventory). In the board game version, players cannot see anything other
than what is communicated to them through pieces of paper with numbers written
on them, signifying orders or products. The retailer draws from a deck of cards for
what the customer demands, and the manufacturer places an order which, in turn,
becomes a product in four weeks.

Simulation is a technique used for evaluating alternative courses of action based

upon facts and assumptions with a computerized mathematical model in order to
represent actual decision making under conditions of uncertainty. Simulation is a
method of solving decision making problems by designing ,constructing and
manipulating a model of the real system. It is a useful technique for solving a
business problem where many values of the variables are not known or partly
known in advance and there is no easy way to find these values. Simulation may be
defined as a “quantitative technique that uses a computerized symbolic model in
order to represent actual decision making under uncertainty for determining
alternative courses of action based upon facts and assumptions.”
Simulation is probably the most important technique used in analyzing a number of
complex systems where analytical methods are either difficult or not known
.Basically it is a technique of manipulating a model through a process of
imitation .It normally involves a large number of computations .Whenever
mathematical models for getting an analytical solution does not exist , simulation
method enables us to obtain a numerical solution to the problem. A simulation
model may be considered to be consisting of two basic phases , namely ,
Preliminary Worksheet and Final Worksheet.

IMPORTANCE OF SIMULATION

Simulation allows the manager to both quantify and observe the system's behavior.
Whether the system is a production line, a distribution network or a
communications system, simulation can be used to study and compare alternative
designs or troubleshoot existing operations.
Simulation modeling solves real-world problems safely and efficiently. It provides
an important method of analysis which is easily verified, communicated, and
understood. Across industries and disciplines, simulation modeling provides
valuable solutions by giving clear insights into complex systems.

RETAILER

In the position of the retailer,the aim was to minimize stock on hand as we got
closer to the end of the game.As a result,in these rounds,I placed minimum orders
and only ordered additional stock if needed.As a result of this,an unexpected high
customer order in week 32 resulted in backorder.On the other hand,the on hand
stock at the end of the game was very low as targeted. I did not expect variability
to bullwhip along the supply chain to such an extent. The game started off with
zero demand at my (retail) echelon.We were stocked out and racking up backorder
costs while demand was high, but when demand began decreasing we began
receiving all those previous orders and were now racking up holding costs. To add
to the problem, I placed orders in anticipation of a trend of growing demand by
factoring in safety stock. Unfortunately, everyone along the supply chain did the
same and when demand started to decline, we had already placed large orders that
included significant safety stock quantities.

Retailer and Bullwhip Effect

The bullwhip effect describes how inaccurate information, and a disconnection

between production and real-time supply chain information result in loss of
revenue, bad customer service, high inventory levels and unrealized
profits.Retailer made an order of 45 units upstream in, when the wholesaler got the
figures the wholesaler then made an order of 50 units. This continued with the
distributor, who ordered 55 units upstream the reaction of the factory was similar
with an order of 55 units. This shows a spike in demand upstream. The major cause
of the bullwhip effect was the increase in consumer demand which later came to a
normal state. The individual demand forecasts from the supply chain operators also
caused the bullwhip effect.

CONCLUSION

Though this game’s result analyses (1) bullwhip effect; (2) supply chain
management; (3) information flow management; (4) inventory management (stock
control), all these options are highly advisable to be highlighted, with inventory
implementation as the highest priority in the supply chain.It was found out that
supply chain management is the set of actions that should be regarded in a close
context and correlation with the Deming Cycle of “Plan-Do-Check-Act”. This
four-fold principle allows all participants working out the overall strategy of the
company aimed at organizational performance improvement.
 WHOLESALER
By the relatively small demand fluctuation at the retailer level in comparison to the
fluctuation at wholesaler. When demand increased, we placed orders accordingly
until a point was reached where every level of the supply chain had too much
stock; by this time, demand had started declining. As the game came to an end,
everyone along the supply chain were no longer buying inventory and had high
inventory carrying costs and were no longer ordering more inventory but rather
trying to get rid of it. From the perspective of the wholesaler, it was especially
surprising how much demand differed between me and the retailer. Backorder
means a distribution term that refers to the status of items on a purchase order in
the event that some or the entire inventory required to fulfill the order is
insufficient to satisfy demand leading to a waiting period for the organization to
meet this demand.

The wholesaler started with an inventory of 12 units which remained the same.
Due to an increase in demand from the retailer and a lack of shipments from the
distributor, the inventories fell to 17 units, the wholesaler was having back orders.
Backorders keep reoccurring and fluctuating when it rose to 45 units of inventory
and reached a peak of 106 units in. The orders of the wholesaler, distributor and
factory remained zero because they had high inventories. The decrease in
inventories of the retailer resulted in the increase in order rates which was caused
by a decrease in shipment which is a bullwhip effect. All the supply chain
operators had increased their order rate because their inventory levels were down.
And back orders followed alongside changes in order changes which are all caused
by the bullwhip effect. The biggest challenge we faced during the beer game was
the challenge of constantly increasing backorders to 167.

Wholesaler and Bullwhip Effect

The bullwhip effect is a phenomenon in the supply chain whereby unpredictable

elements introduced by human behavior in the lower part of the chain become
more pronounced the higher up the chain they move. By synchronizing the supply
chain the bullwhip effect can be eliminated. The bullwhip effect describes how
inaccurate information, and a disconnection between production and real-time
supply chain information result in loss of revenue, bad customer service, high
inventory levels and unrealized profits. The retailer then made an order of 45 units
upstream in, when the wholesaler got the figures the wholesaler then made an
order of 50 units. This continued with the distributor, who ordered 55 units
upstream the reaction of the factory was similar with an order of 55 units. This
shows a spike in demand upstream. The major cause of the bullwhip effect was the
increase in consumer demand which later came to a normal state. The individual
demand forecasts from the supply chain operators also caused the bullwhip effect.

CONCLUSION

The wholesalers adopt a low-risk cautious strategy that avoids build-up of backlogs
and dealing with new customers. This reduces the cost of inventories as well as the
total expenditures. The main aim of wholesalers is to keep the minimum unsold
stock levels .The retailer is the bottom most player in contact with the customers.
The strategy is risk cautious, and the first aim is to have a stock that serves the
demand without the build-up of backlogs. The wholesaler’s strategy also aims at
maintaining the stock levels to serve any impromptu demand from the retailer and
wholesaler.
 DISTRIBUTOR

In the position of the distributor, I was surprised by sudden unanticipated

fluctuations throughout the game. We have had in class about the risks of
variability in demand and supply and I found it interesting how variability can
occur so rapidly and on such a large scale. It was also interesting how internal
supply chain processes can impact variability too. In our game, the lack of supply
chain integration or data sharing lead to colossal changes in the weekly
expectations. In my role as a distributor with an opening order of 13 units, my first
thought was that demand would be low generally throughout the game; I did not
place orders and build stock ahead of time, since I did not anticipate demand
fluctuations. However, orders quickly got much higher as the bullwhip effect
started to influence decision making. In round 3 order quantities from the
wholesaler began to rise. I was surprised by this and at that point, I could not meet
the needs as I had not planned for this. Also there was a spike in wholesaler
demand of 55 units in round 3, this was also unexpected and came just when I
presumed the factory would be able to fulfill the requirement on back order.

Distributor and Bullwhip effect

The bullwhip effect is a distribution channel phenomenon in which demand

forecasts yield supply chain inefficiencies. It refers to increasing swings in
inventory in response to shifts in consumer demand as one moves further up the
supply chain. The bullwhip effect describes how inaccurate information and a
disconnection between production and real time supply chain information result in
loss of revenue, bad customer service, high inventory levels and unrealized profits.
The wholesaler then made an order of 50 units upstream in, when the distributor
got the figures the distributor made an order of 55 units. This continued with the
manufacturer who took the order of 55 units. The major cause of the bullwhip
effect was the increase in consumer demand which later came into normal state.
The individual demand forecasts from the supply chain operators also caused the
bullwhip effect.
 MANUFACTURER

In the position of the Manufacturer, fluctuations in demand throughout the supply

chain were aggregated up towards me because each echelon also included safety
stock into their order quantities to protect against the lead time of information and
physical goods transaction. This in turn led to high variability in order quantities
from week to week; In the first week I would receive 12 orders and on other
weeks, orders would be placed for 25 units creating large backorder costs and
backing up the supply chain. This behavior did not surprise me since I knew each
member of the chain would attempt to mitigate their costs as much as possible by
holding minimal stock when demand is low, and chasing demand fluctuations with
appropriate orders to try and minimize backorder costs. There was also the issue of
latency between raw materials acquisition, beer production and order shipment; I
could not satisfy large orders in a just-in-time manner and the negative impact of
this caught me by surprise.

Manufacturer and Bullwhip Effect

The bullwhip effect is a phenomenon in the supply chain whereby unpredictable
elements introduced by human behavior in the lower part of the chain become
more pronounced the higher up the chain they move. By synchronizing the supply
chain the bullwhip effect can be eliminated. The bullwhip effect describes how
inaccurate information, and a disconnection between production and real-time
supply chain information result in loss of revenue, bad customer service, high
inventory levels and unrealized profits. The retailer then made an order of 45 units
upstream in, when the wholesaler got the figures the wholesaler then made an
order of 50 units. This continued with the distributor, who ordered 55 units
upstream the reaction of the factory was similar with an order of 55 units. This
shows a spike in demand upstream. The major cause of the bullwhip effect was the
increase in consumer demand which later came to a normal state. The individual
demand forecasts from the supply chain operators also caused the bullwhip effect.
RESULTS