Beer Supply Chain Game - Supply Chain Management

This presentation discusses the Beer Supply Chain Game and the principles of Supply Chain Management. It explains the purpose of supply chain, the characteristics of supply chain management, and the Blue Whip Effect. It also explores the flaws in predicting demand and the lack of information and collaboration in traditional supply chain. Finally, it suggests ways to mitigate the Blue Whip Effect and improve supply chain efficiency.

Beer Supply Chain Game

Supply Chain Management
 Any activity that realizes the goal of customer request is supply chain.
 It includes different layer of participants i.e. retail, wholesale, distributor &
factory etc.
 Supply chain function within company:
 The role of supply chain is to realize the objective that are in regard to
fulfilling customers request.
 Function such as marketing, finance, operation, distribution, customer
service and production development are all work to fulfill customer
request.
 It’s a dynamic network system that requires continuous flow of
information that moves throughout the layer of supply chain.

Purpose of supply chain
 Buffering time- Time taken between finished products and reaching its
customer.
 Moderating distance log- Distance between the production facility and the
consumer place.
 Assortment- Two types
• Producer assortment- They produce large quantity but limited assortment.
• Consumer assortment- They wants to have small quantity with wider
assortment.

Characteristic of supply chain Management
 Task performance excellence- Satisfying customer needs at the minimum
cost.
 Building relationship with the other partners of supply chain.
 IT

Beer Game
Factory Distribution
WholesalerRetailer
1 week
1 week
1 week
1 week
Ashlon Structure
order order
o
r
d
e
r
order
order

Operating process
• Beer logistical operation
• Inventory Management
• Order keeping (Beer)

The Beer Game
• Week 0
Factory
Order
Inventory
Back Order
0
12
0
Distributor
Order
Inventory
Back Order
0
12
0
Retailer
Order
Inventory
Back order
12
0
Wholesaler
Order
Inventory
Back Order
0
12
0

Calculation for 0 week
• Beer sold at retail=$0/pallets
• Inventory carrying cost= $0@1$/pallets
• Back order cost= $654@2$/pallets
• Total cost=$654/Unit
• In every stage of the supply chain (for week 0) the inventory is 0, No order
is placed till now.
• My role is to manage the supply chain.
• The customer would place the order for the beer, and my job would be to
manage the inventory by minimizing the inventory cost. I would try to
avoid stocking out or else there would be high back order cost.
• The retailer now places the order for 4 pallets.

The Beer Game
• Week 10
Factory
Order
Inventory
Back Order
7
11
0
Distributor
Order
Inventory
Back Order
8
0
6
Retailer
Order
Inventory
Back order
0
13
Wholesaler
Order
Inventory
Back Order
8
0
14

Week 25
Factory 0
Order 0
Inventory 8
Booking Ord. 0
Distribution
Order 0
Inventory 19
Booking 0
Retailer
Order 0
Inventory 2
Wholesaler
Order 0
Inventory 12
Booking
Order 0

The Beer Game
• Week 33
Factory
Order
Inventory
Back Order
12
06
0
Distributor
Order
Inventory
Back Order
12
10
0
Retailer
Order
Inventory
Back order
9
0
Wholesaler
Order
Inventory
Back Order
8
9
0

Beer Game Exercise Is to demonstrate system dynamics
 Small deviation from the consumer end causes enormous deviation in the
rest of supply chain.

Beer Game Review
• Participants typically crack the whip
• Initially there is a fixed demand for the beer, during the start of the game
• The demand is spiked only once in the game.
• This results in changes in the demand throughout the layers in supply chain.
• Participants overreacts to the sudden spike in demands.
• This results in errors that are magnified.

Supply Chain Dynamics
 Decreasing Variation-is the main goal of supply chain.
 Sources of changes in supply chain are not apparent in quickly moving
supply chain.
The Blue Whip Effect:
• Acting alone with very little or few information, supply chain managers
takes decision that are creates high variation in the immediate channels
resulting in stock outs and unwanted stocks throughout the supply chain.

Factors contributing to the Blue whip
• Lead time impact on supply chain- It takes two week in ordering and
receiving the product. The lag caused due to the two week delay makes
the system difficult to monitor.
• Impact of batch order- The system partner can make more order or place
the few but they are ordering once a week. Batching is more of a
hindrance to the system.
• Amplifying effect of increase in orders- If a customer places large order,
the person next in the supply chain thinks they are going to run out of the
stock and they order even more that's because maintaining inventory is
the number one priority of the supply chain managers. There is
psychological impact to JIT inventory but also just in case (JIC) inventory.
• Flaws in predicting demand- You didn’t know what the real demand was,
people simply reacts to the order put by the other participants.
• Lack of information & Collaboration- Traditionally supply chain does not
have the framework to share the information.

Observation (Blue whip effect)
• 10% change in retail sales
• 16% change in distributor orders.
• 28% change in factory warehouse.
• 40% change in factory production output.
Principle of system dynamics
• Multi step organizational layers- Get rid of some of these structures to
improve the efficiency.
• Delays- in implementation and information that creates amplification.
• Overcompensating decision

Principle of system dynamics
Structure
• Multistep organizational chains (Get rid of some of the structures to
improve the delays.
• Implementation & Information which creates amplification.
• Overcompensating decision.
Mitigating Blue Whip
• Centralization of data about demand would bring down the uncertainty
caused due to the lack of information.
• By reducing the changes caused in the system.
• JIT delivery and managing volume spikes of promotion.
• Decreasing the lead time.
• Responsiveness.
• By building relationship with supply chain partners.
• Channel to share the information across the supply chain.