UNDERSTANDING SUPPLY CHAIN THROUGH

THE BEER GAME

Presented By:
Unnati Mangal
Parijat Das
Kunal Dharmawat
Rohit Ranjan Singh
Rydham Goyal
Saphinangi Nongbet
Swetlina Mitra
AGENDA

1. Introduction to the Beer game

2. Rules and Assumptions
3. Key insights
4. Bullwhip effect in the Beer game
5. Mitigation Strategies
6. Real-world application
7. Conclusion
WHAT IS THE BEER GAME?
Developed in the late 1950s by Forrester at MIT Sloan School of Management to introduce concepts of dynamical systems. The
Beer Game illustrates how difficult managing a dynamic supply chain is. Participants take on roles such as retailer, wholesaler,
distributor, and factory, each responsible for managing inventory and orders

Key Players:
Factory
What the game demonstrates: Distributor
Wholesaler
Bullwhip Effect: Small fluctuations in demand
Retailer
cause large variations in the upstream supply
chain, leading to inefficiencies and higher costs
. Objective: Minimize long-run
Inventory Management: Trade-offs between average cost across the supply
holding costs and the need to meet demand. chain

Communication: Effective communication and Costs involved: Inventory costs

coordination within the supply chain are and backlog costs.
important.
FLOW OF ORDERS BETWEEN STAKEHOLDERS
RULES OF THE GAME

Decide the number of units

Check how many units of
Check the number of Deliver as much beer as required to stock up for the
beer are being delivered to
units for each link possible to satisfy the upcoming week, to ensure
clients from their supplier in
ordered in the supply maximum customer demand fulfillment of future beer
the supply chain
chain. demands

ORDER DECISION
CHECK DELIVERIES CHECK ORDERS DELIVER BEER
MAKING
ASSUMPTIONS

Every week, each stakeholder decides

the quantity to be ordered.
All the orders are plugged in only after a
new turn is launched.
The manufacturing lead time is 2 weeks.
Every week retailer receives a purchase
order from the client.
If enough stock is available, the items will
be sent immediately. Otherwise, it will
increase “backlog” orders.
Inventory cost is Rs 2 and Backorder Cost
is Rs. 4
KEY INSIGHTS FROM
THE BEER GAME
INVENTORY LEVEL ANALYSIS

Retailer Inventory: Should be stable. Any

significant deviations can indicate poor
demand forecasting or supply issues.
Wholesaler Inventory: Maintain
sufficient buffer against demand
variability from the Retailer and supply
variability from the Distributor.
Distributor Inventory: Should be
monitored to ensure they are not
excessively high (leading to holding
costs) or too low (leading to stockouts).
Factory Inventory: Balance production
to maintain optimal inventory levels,
avoiding both overproduction and
underproduction.
BACKORDER LEVEL ANALYSIS

Retailer: High backorder levels indicate

unmet consumer demand, which can
lead to lost sales and customer
dissatisfaction.
Wholesaler Backorders: Minimize
backorders to meet the Retailer's orders
on time.
Distributor Backorders: Cause delays
and disruptions further down the supply
chain, impacting both the Wholesaler
and Retailer.
Factory Backorders: Indicate production
constraints or supply chain disruptions.
This can cascade, causing delays and
variability throughout the supply chain.
COST ANALYSIS
Total Cost = Inventory cost + Backorder Cost

Holding Costs: Efficient inventory management at

the Retailer minimizes holding costs, while variability
at the Wholesaler and Distributor leads to higher
costs. The Factory's significant inventory variability
suggests a need for improved demand forecasting
and production planning to reduce holding costs.
Stockout Costs: Minimal backorders at the Retailer
indicate effective demand fulfilment. Higher
backorders at the Wholesaler, Distributor, and
Factory point to unmet demand and production
constraints, highlighting the need for better supply
chain coordination and demand forecasting to
reduce stockout costs.
Ordering Costs: Moderate order fluctuations at the
Retailer suggest balanced ordering costs. Greater
order variability at the Wholesaler, Distributor, and
Factory results in higher costs, necessitating order
smoothing strategies and improved coordination to
stabilize orders and reduce costs.
STAKEHOLDER WISE COST ANALYSIS
BULLWHIP EFFECT IN THE BEER GAME
BULLWHIP EFFECT
Amplification of Demand Variability: Small changes in consumer demand at the retail level lead to
much larger changes in orders placed by retailers to wholesalers and even larger changes in orders
placed by wholesalers to manufacturers.
CAUSES OF THE BULLWHIP EFFECT

PRICE FLUCTUATION ORDER BATCHING/LARGE LOT ORDER BATCHING/LARGE LOT

(PROMOTIONAL SALES). SIZE. SIZE.

UPDATING DEMAND FORECAST. INFLATED ORDERS DUE TO LACK LONG LEAD TIMES/TOO MANY
OF INFORMATION. INTERMEDIARIES.
MITIGATION STRATEGIES
MITIGATION STRATEGIES
Demand Forecasting:
Improve demand forecasting accuracy using advanced analytics and real-time data.

Inventory Management:
Implement inventory optimization techniques such as Just-In-Time (JIT) to reduce
holding costs and minimising excess inventory.

Effective Communication:
Foster better communication and information sharing across the supply chain to
improve coordination and reduce variability.

Order Smoothing:
Implement order smoothing strategies to avoid large swings in order quantities.

Supply Chain Collaboration:

Collaborate with supply chain partners to align production and inventory strategies,
reducing the amplification of demand variability.
REAL-WORLD APPLICATION
DELL (BUILD TO ORDER MODEL)
Dell revolutionized the computer industry with its build-to-order model, which aligns closely with the
principles illustrated by the Beer Game.

Direct Sales Model: Dell sells directly to consumers, bypassing traditional retail channels. This reduces the layers in the
supply chain, minimizing the bullwhip effect.

Real-Time Data: Dell uses real-time data to forecast demand and manage inventory. This helps reduce excess inventory
and backlogs, similar to the lessons from the Beer Game.

Customization: Customers can customize their orders, which Dell then builds to specification. This requires precise
inventory management and efficient production scheduling.

Supplier Relationships: Dell maintains close relationships with suppliers to ensure timely delivery of components,
reducing lead times and improving responsiveness.

Benefits:
Reduced Inventory Costs: By producing only what is ordered, Dell minimizes inventory holding costs.
Improved Customer Satisfaction: Customization and quick delivery enhance customer satisfaction.
Flexibility: Dell can quickly adapt to changes in market demand, offering a competitive advantage.
 TOYOTA(JIT MODEL)
Toyota’s Just-In-Time (JIT) production system is a cornerstone of its manufacturing philosophy,
focusing on producing only what is needed, when it is needed, and in the amount needed.

Key Aspects:
Kanban System: Toyota uses a Kanban system to signal when parts are needed in the production process. This
minimizes inventory and ensures a smooth flow of materials.

Takt Time: This concept refers to the rate at which products must be produced to meet customer demand. It helps
synchronize production processes and avoid bottlenecks.

Levelling: Toyota spreads production evenly to minimize fluctuations and ensure efficient resource allocation

Supplier Integration: Close collaboration with suppliers ensures timely delivery of parts, reducing lead times and
inventory levels.

Benefits:
Reduced Inventory Costs: JIT minimizes the need for large inventories, cutting storage and handling costs.
Improved Quality: Real-time production allows faster detection and defect correction, enhancing product quality.
Flexibility: Quickly respond to changes in market demand without maintaining vast inventories.
THANK YOU