Analysis of Beer Game Management Strategy

Introduction:

The beer sport is a simulation first developed at the Massachusetts Institute of Technology’s Sloan School of Management in the Sixties. This sport was made in other to experiment how real organisations functions, where the implications of every choices play out as clearly as potential in the recreation as they’d in a real organisation (Senge, 1990). Narayanan Arunachalam (2006) described the sport as a preferred classroom train for business faculties conceived at MIT with the first function of demonstrating industrial dynamics.

The beer sport is a “laboratory replica” of a real organisational setting, helps to focus on the potential disabilities and their causes of an organisation. The beer game nevertheless on this case was created to fail and spotlight attainable issues which an organisation might face in its supply chain which is the bullwhip effect. The game consists of four players which embrace the retailer, the wholesaler, the distributor and the factory which is in an uplink setting. After taking part in the game, below we might be giving an in depth report of the events that took place on the course of the game.

Data evaluation:

The goal of the beer recreation is to decrease the entire value for everybody within the provide chain by maintaining low shares and managing to ship all orders (http://supplychain.mit.edu/games/beer-game, 2011). However, the sport was created to fail and under is a abstract of events that took place through the sport.

During the course of playing the game, we adopted the zero technique which stated that “place zero orders upstream when your individual inventory is greater than demand”.

This rule was largely what formed the game and influenced the results by means of stock and backorders. The retailer had a considerable good begin in the recreation with a great document in inventories of 12 units until week 5 when demand rose from clients and this triggered the inventory price to fall. In week 6, because of no shipments and the bullwhip effect, the retailer started having back orders from the shoppers. Although the demand stayed the identical from week 6, the retailer continued to experience backorders till week 21 when the wholesaler despatched lots of supplies directly; this made the inventories to rise to a peak of 113 items in week 24. The wholesaler started with a listing of 12 units which remained the same in week 2.

However, due to incoming shipments from the distributor and an absence of demand from the retailer, the stock rose to sixteen models in week three and 20 models in week four and remained the identical till week 6. Due to a rise in demand from the retailer and a scarcity of shipments from the distributor, the inventories fell to 6 models and in week 7 and at week eight, the wholesaler was having back orders. Backorders keep reoccurring and fluctuating until week 21 when it rose to sixteen units of inventory and reached a peak of 136 units in week 25. The distributor through the game had the identical inventory rate for the primary two weeks. The distributor maintained comparable inventory charges until week 9 when the distributor started recording backorders this was because of the incapability of the distributor to fulfill the orders of the wholesaler.

The distributor continued to experience fluctuations in backorders until week 25 when it got lots of supplies from the manufacturing unit the inventories at the finish of this week was at 40. The manufacturing facility had began the game with a listing of 12 items which remained the same till week 10. This was largely because of a scarcity of giant demands from the distributor. The factory nevertheless started experiencing backorders at week11. Backorder rates stored fluctuating in the course of the weeks as a result of lack of ability of the manufacturing unit to satisfy the needs of the manufacturing unit on time. At week 25, the factory received an enormous sum of provides from the brewery which made its inventory to succeed in a peak of units. The excessive rate of back orders was caused by lengthy lead occasions, the bullwhip impact and the results of the zero technique. This made backorders to be on the rise for all the supply chain operators. Increase in demand also played a fantastic role in causing the high number of backorders which in turn made the total price to rise at the next pace than it should.

Above is a chart exhibiting the order ranges of the Retailer, wholesaler, distributor, factory and customer. At the course of the game, because of the zero strategy, all supply chain operators had to make zero orders from week one to week 4, as a end result of demand was lower than the inventory. The customer demand remained the identical at four models until week 5. In week 5, demand from the retailer’s order rate had increased from zero to 16 while demand rose to 8 units compared to earlier weeks.

The orders of the wholesaler, distributor and manufacturing facility remained zero in this week because they’d high inventories. The decrease in inventories of the retailer resulted in the increase in order rates which was caused by a decrease in cargo which is a bullwhip effect. By week 11, all the availability chain operators had increased their order price because their stock levels were down. And back orders adopted alongside changes in order changes that are all attributable to the bullwhip effect. In week 21, the bullwhip effect had been decreased which resulted to increased inventories and the zero rule coming in.

* Issues that you encountered using the zero technique:
* Increase in Backorders:

The greatest challenge we faced in the course of the beer game was the problem of regularly rising backorders which can be seen in figure1. The retailer had a peak backorder price of 49, the wholesaler ninety, the distributor eighty five and the manufacturing facility seventy two backorders. Backorder means a distribution term that refers back to the standing of things on a purchase order within the event that some or the entire stock required to satisfy the order is inadequate to fulfill demand leading to a waiting period for the organisation to meet this demand (Donovan, 2010). After utilizing the zero strategy for a couple of weeks, we found the backorder like a sequence reaction star from retailer up to the manufacturing unit.

* Zero stock and Safety stock:

We know that in the real enterprise, zero inventories and inventory means that the company’s ability of resisting the danger of backorders and shortage of provide is lowered. But this is the case in the beer recreation where we went on with zero stock and security stock for weeks. This showed that the corporate was incompetent in meeting its personal standards.

* High rise of cost:

Cost control is very important for an organization, high cost operation is unacceptable. During the beer recreation, as a outcome of excessive value of again orders, we were working on an outrageous cost per week. This was either due to enormous inventory or huge backorders. The price of the backorders $1.00 and stock value $0.60. After we end this recreation, we found that the value of every provide chain operator was excessive and a complete price of $2, 862. At the initial stage, the increase in price was little and comparable when back orders rose, the price became super.

* Delay in cargo (Long lead time):

During the game, it took two weeks for the retailer to get supplies from the wholesaler and twice as lengthy if the wholesaler has not sufficient assets for the retailer. That signifies that it took two weeks to obtain from the wholesaler, when the wholesaler is out of stock, it takes 4 weeks, and when the distributor is out of stock it takes six weeks for the distributor to get inventory from the manufacturing unit and finally, when the manufacturing facility is out of stock, it takes seven weeks for the retailer to receive provides. This cargo delay makes it difficult to satisfy buyer calls for and causes excessive cost as a end result of backorders.

* Lack of communication:

During the beer game there was no communication of any sort between the availability chain operators and this led to so many misjudgements. The lack of communication led to the bullwhip impact which value us so much by resulting in back orders, and high prices.

* Challenges encountered in beer game:
* Bullwhip Effect:

The “bullwhip” effect was coined in by Proctor and Gamble (P&G) when the company experienced in depth demand amplification for their diaper merchandise (Lee et .al, 1997). The bullwhip effect is a phenomenon within the supply chain whereby unpredictable parts launched by human behaviour in the lower a part of the chain turns into more pronounced the upper up the chain they transfer (Baugher, 2012). By synchronizing the provision chain the bullwhip effect could be eradicated. The bullwhip impact describes how inaccurate information, and a disconnection between manufacturing and real-time provide chain info result in loss of income dangerous customer support, high inventory levels and unrealised profits (Agarwal, 2009). With reference to determine 1 above, we can observe that the bullwhip impact did happen during the beer game simulation. An example of such a situation is in week 5 when the buyer demand elevated from 4 models to 8 models.

The retailer then made an order of sixteen models upstream in week 5, when the wholesaler got the figures the wholesaler then made an order of 20 models in week 7. This continued with the distributor, who ordered 25 items upstream in week 9, the reaction of the factory was similar with an order of 26 items in week 11. This shows a spike in demand upstream as illustrated in determine 3. The main reason for the bullwhip impact was the rise in shopper demand in week 5 and 6. Which later came to a standard state in week 7 at eight models as illustrated in figure 2? The individual demand forecasts from the provision chain operators also brought on the bullwhip impact.

Lack of communication can be quite common when the availability chain operators may not present sufficient or accurate information up the supply chain as regards to current market situations causing improper ranges of stock (Coyle et.al, 2003). This was the case in the course of the beer sport which could be seen that with time, the demand was interpreted differently because it went upstream. This the whole provide chain confronted backorders because of the bullwhip effect from week 6 onwards even though the demand remained the same from week 8 onwards. The implications of the bullwhip effect includes extra inventories which was the case at the closing weeks of the game, issues with high quality, increased raw materials costs, extra time expenses, elevated inventory prices, elevated backorder prices and increased delivery prices (Bowersox, D.J, 2007).

* Long lead time:

Lead time delay happens when the time it takes to acquire, make and deliver the completed items to a buyer takes longer than the time the shopper is prepared to wait for it to achieve them (Fawcett et.al, 1992). During the beer recreation, it takes 2weeks for the wholesaler to get information from the retailer and vice versa. It takes the distributor two weeks to get information from the wholesaler and it takes two weeks for the wholesaler to get data from the distributor.

It additionally takes two weeks for the manufacturing facility to get info from the distributor and two weeks for the distributor to get provides from the manufacturing unit. It takes the brewery one week to get data from the manufacturing unit and one week for the manufacturing facility to get information from the brewery. So prefer it was experienced within the beer game, when all the provision chain operators are dried out, doing the maths, it takes seven weeks for provides to go from the brewery down to the consumer, and 6 weeks for data to go from the retailer to the manufacturing facility. The longer the lead time, it creates unfavorable influence on the firm because it reduces the customer’s responsiveness and reactions (Stock, J.R and Lambert, D.S, 2001).

* Zero technique:

The zero strategy which is a rule for taking part in the game clearly states that we because the operators place zero orders uplink if demand is less than stock. This went along method to cause plenty of delays in shipments because of long lead times. This is as a outcome of when the stock of the retailer as seen in figure 1 becomes less than demand, it took 5 weeks for the manufacturing unit to have such an effect. This made the lead time even longer and brought on the bullwhip impact in addition to enormous again orders.

* Neglect orders to cut back inventory:

During the course of the sport, we needed to neglect backorders to have the ability to scale back inventory and save prices. This may be seen in figure three beneath where the retailer did not dramatically enhance demand to meet back orders however did this on a gradual basis in order to scale back inventory and holding price. However when the provides lastly came, the consequences were simply as bad with inventory rates skyrocketing in a single day. Figure three: Inventory and Demand of retailer

* Ways to improve the zero technique:
* Improve communication:

By bettering communication levels among the provide chain operators will help to resolve the problem of assumptions, inappropriate decisions and scale back the bullwhip effect. In both precise supply chains and provide chain simulation, we are in a position to minimize provide chain fluctuations by 80% by chopping order-to-delivery time by half (Simchi et.al, 2003). Improvement in communication will help to enhance the effectivity of the system by eliminating assumptions and stimulating a synchronized supply chain which will help in getting all the partners to function in a method that is mutually supportive, corporative and transparent (Gérard P. Cacho et al.)

* Point of Sale (POS) system:

Point of Sale system is a method or can be referred to as a system which is supposed to deal with the gross sales of products. Point of sale system is software that works with hardware in order to examine and monitor sales to be able to give correct demand and sales info (http://www.gofrugal.com/pos/ point-of-sale.html?gclid=CPyHobrW-q4CFQ8b6wodkDXwwg,2004). By implementing this method, the company can have the ability to get correct demand which will help the company in eliminating sudden demand spikes like seen in the beer game. An example of an organization which uses such a system is Wal-Mart and the system works properly for the corporate helping to watch all gross sales and demand, reduce the danger of inventory shrinkage, handle special demands, preserve management, improve effectivity and help the corporate make timely and correct reports (http://www.carolinabarcode. com/run-my-store-a-36.html, 2012).

* Just in time stock system:

Just in time (JIT) also recognized as simply in time stock system manages the inventory and lessens the costs of stock control and the value of sustaining the stock of a business. This helps the corporate to reduce a substantial quantity of its inventories, reduce ordering and save warehousing prices (Bowersox, D.J, 2007). A real life example of a company utilizing the Just in time stock system is Dell laptop company which makes use of the simply –in –time system in order that an order for a custom-made personal laptop that is out there in over the internet at 9am could be delivered by truck to the customer by 9pm.

This system allows dell to save lots of costs and with this, the corporate under prices its products compared to its rivals by about 10% to 15% (McWilliams, 1997)(Source: Gray McWilliams, “Whirlwind on the internet, “Business Week, April 7, 1997.). This system would result in more efficiency of the bear game eliminating backorders and keeping just sufficient inventory for the corporate to produce when needed. This strategy will by many provide chain operators such because the distributor and the wholesaler leaving simply the factory and the retailer making merchandise out there shortly and nearly eliminating the bullwhip impact.

* Push and Pull Boundary:

The push boundary process is a forecast and execution pushed in anticipation for demand, whereas the pull process is demand pushed and is initiated in response to actual demand (Chopra and Meindl, 2001). The current pattern around the world is a swing from a push system to a pull system it’s because the pull system helps in lowering inventory ranges. Push and pull boundary happens when the demand intersects expectation of future demand. Pull techniques are based mostly on real demands and production and manufacturing of goods done in relationship with the calls for of the customers (Bowersox, D.J, 2007).

Figure 3: Push/pull boundary in Dell’s supply chain

The above diagram exhibits the push and pull boundary of Dell’s provide chain. The company combines each push and pulls boundary techniques in operating its operations. The company by-passes lots of areas in the provide chain by manufacturing and selling directly to its prospects. The course of starts with shopper ordering and then the manufacturing cycle which are known as pull boundary methods.

The stock of the corporate might be stocked up following the demand of consumers in order for the product to be made. All the processes included in the procurement of a product is carried out by Dell and this is considered a push method primarily as a end result of it reacts to future calls for successfully making products available in time and maintaining low inventories. This system shall be of nice help to the beer game helping in making uncooked supplies readily available for manufacturing and preserving inventories and costs low.

* Eliminate gaming in scarcity conditions:

During the beer recreation, the gaming shortage situation was skilled when there was a scarcity in uncooked supplies and inventories for the manufacturing of those products. When shortages happen, instead of allocating merchandise based on orders, it is allocated in a proportion to previous gross sales document. This will make clients haven’t any need to exaggerate their calls for because it will trigger them unfavorable outcomes. General motors’ has used this method for a long time within the allocation of its supply. This will help to make the beer game have more dependable demand knowledge.

* Continuous system (fixed –order-quantity):

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In the beer recreation, order time is identical which is once every week. This makes it easier for the retailers to make fast orders for merchandise required. However, the amount of the product differs and it might be simpler if the demand price was fastened with adjustments made to make the order price cater for stock, buffer stock and demand. This will go a long way in making things simpler and reducing the bullwhip impact which could be seen to be predominant within the sport.

Adopt the Vendor Managed Inventory Strategy:

The vendor managed inventory technique is a strategy which manages the quantity of goods produced by a producer permitting the producer to decide the quantity to keep and how much to ship to the retailer. This is a strategic transfer for producers to ensure that them to have the power to enhance profitability by eliminating inventory whereas improving on sales and overall performance.

Avoid multiple demand forecast updates:

As may be famous within the beer recreation, the bullwhip impact causes the demand forecast to be multiplied as it goes uplink. Instead, making similar orders from downstream been the retailer to the provider to be the identical will make issues a lot simpler eliminating excessive inventories and the bullwhip impact.

Reasons for Changes made to the Zero Strategy:

The zero technique is taken into account as a bad strategy as a outcome of its failure in the course of the simulation test. While we obeyed the zero rule of the zero strategy while taking half in the game, we seen that the sport started to fail with a dramatic fall in stock rate, lack of buffer stock, improve in backorders and an increase in the whole operations cost. This led to the whole failure of the sport as a end result of the zero technique didn’t allow us to fulfill the needs of shoppers because of too many uplinks in the provide chain and lengthy lead time. The bullwhip impact additionally posed a fantastic drawback to the technique because it contributed significantly to the failure of the game. * Impact on the outcome of the sport:

• Decrease in value on account of little inventories and no backorders.
• Elimination of some provide chain operators which will reduce lead time and results in quick move of data and supplies.
• Decrease or remove the bullwhip impact.
• Decrease lead occasions and make delivery faster.
• Have security stock for dangerous situations.

Conclusion:

Having carried out the above analysis on the zero technique, it’s important that I stress that the bullwhip impact can take a excessive toll on an organization with reference to the sport. The recreation nonetheless was an incredible failure with poor outcomes which includes improve in backorder rates, lack of inventories, rise in value and lengthy lead time. These issues can nonetheless be overcome by using the POS system, just in time inventory system (JIT), improve communication among provide chain operators and the push and pull boundary system. With example of success from firms which have tried these systems and its success within the beer recreation, I think these modifications will go a good distance in making the beer recreation simulation successful.