The game that the group had to play was a simulation of a supply chain within the beer industry, starting with the factory and ending with the retailer.
Seen from the supply chain management point of view, the beer game reveals the importance of the communication and cooperation within the supply chain and highlights a certain behaviour that characterises the supply chains - the bullwhip effect. Like all the supply chains, the goal of the game was to fulfil customer’s requirements and at the same time to accomplish the company’s objectives – e.g. lower stock, but still increased delivery reliability.
One of the most important issues of the game was that all of the links in the supply chain did not have information about the customer’s demand, and thus, the game was basically played on making assumptions with regards to customer’s orders. In order to explain the problems that appeared during the game, a simple description of facts will be realised in the next part.
Seen from the Factory’s point of view, the game started with an amount of four beers in inventory, which is a valuable piece of information that should be considered for the rest of the game. This inventory reflects that customer’s demand is situated at around this value, and also reflects that the factory is able to produce in average a quantity of four beers for an order. During the game, up to week 4, the inventory is increasing due to the reduced quantity of orders that the Factory receives from the Distributor. From week 4 to week 6, the inventory decreases considering the higher level of orders that have been received from the Distributor. Again, for the next two weeks, the level of inventory increases, but between weeks 11 and 15, the Factory receives important quantities of orders, which will reflect on its inventory and backlog, since the stock does not cover the high orders. This unexpectedly high demand from the Distributor has a negative effect on Factory’s activity and it produces disequilibrium on the inventory and backlog, as it can be seen in the picture below: [pic]
If in the beginning of the game, the Factory was trying to run its activity as smoothly as possible, this cannot be said for the following period. Receiving this high amount of orders, will result in much even higher production orders, since the goal is to cover the demand and build a small inventory.
The Factory is now experiencing the, so called “Bullwhip effect”, by making higher production orders than needed, and this will result in very high level of inventory for the next period of time, as in the picture below: [pic]
For the next 19 weeks, the Factory is dealing with a difficult situation considering that it has a large amount of capital in an inventory that is not required. During these weeks, the Factory is not producing any beer, which can be considered a solution for reducing, or at least stabilizing the level of inventory, but will not improve the general situation of the Factory.
Even if it does not producing beers, the Factory has fixed costs that are independent of the quantity of products that are manufactured, not to say that during these weeks the quality of the products can modify and become waste. Moreover, what it will happen with its employees during these 19 weeks? Consequently, in these weeks the Factory accumulated losses, which are listed below: ▪ Losses in high inventory
▪ Fixed costs during the non-producing weeks
▪ Employees salary during the non-producing weeks
The total cost of the Factory can be calculated with the formula:
Total Cost = Total Inventory / 2 + Total Backlog
where:Total Inventory = 534 units
Total Backlog = 86 units
Total Cost = 353 units
The game records for the Factory are to be found in the appendix folder.
The Factory experienced a fluctuating demand – either very high or very low – which can be considered similar to the real...