Beer Game Report
Date: 27/10/2022
Atakan Yazganarikan IEM3
S5136989
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Contents
Brief Introduction........................................................................................................... 3
Round Analysis .............................................................................................................. 3
Round 1. No communication ..................................................................................... 3
Round 2. Communication .......................................................................................... 5
Round 3. Focused Communication ............................................................................ 6
Conclusion and Discussion ............................................................................................ 8
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Brief Introduction
Beer Game Report covers the three different rounds of the game and investigates how
the level of cooperation effects the efficiency of the supply chain. The goal of the game is to
fulfil customer demand while minimizing costs. The chain consists of 5 stages: Groningen
Supermarket, Groningen Warehouse, Wholesaler, Distributor and the Manufacturer. Each
stage has inventory cost per product of 0.5€ and backorder cost of 1.0€. The game’s time period
is in weeks and the supply lead time is constant to 3 weeks. Each rounds of the game have a
different strategy consisting of, no communication, communication and focused
communication.
Round Analysis
Round 1. No communication
First round of the game explores how absence of communication affects the supply
chain. In this round communication between stages were blocked and the only information
provided for each stage was the demand from the following stage.
Table 1 Stage 1. and corresponding Performance Indicators Table
Performance
Maximum
Largest order
Largest
Service
Total
Indicator
Customer
placed by a
order to
Level
Cost (€) (highest vs.
Demand
stage (Units)
Lowest
(%)
(Units)
Stage 1
9
Ratio (%)
260
3
70
10,524
Cost ratio
Number
of back
lowest stage)
orders
(%)
(weeks)
19
23
The first weeks of the round every stage had low to no demand. This was due to
Groningen supermarket using its stock inventory to fulfil orders without placing any orders
themselves until needed. This strategy was shortly lived and resulted in a high demand crisis.
Demand for each stage went from 0-4 to 20 and above. Each stage panic ordered more than
required amount of units since the initial customer demand is unknown for stages other than
Groningen Supermarket. This resulted in high level of backorders (24 weeks) and in the process
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each stage tried to reduce their own cost without considering the other stages. This was due to
the fact that there was a lack of information regarding the cost of other stages, thus the stages
did not know the cost effect of the orders they place in other stages. In the end, no
communication resulted in the bullwhip effect as seen in figure.1. The chain ended up with a
poor service level of 70% and a total cost of 10,524€.
Demand Per Week of the Stages
Figure 1 Beer Game Round 1 Results, Demand of each stage by week. Stages: Groningen. Supermarket, Groningen.
Warehouse, Wholesaler, Distributor and Manufacturer
Demand thought the stages until the last had an exponential increase with the maximum
customer order being 9 units in Groningen Supermarket and the maximum order within the
stages being 260 units by the manufacturer, having a ratio of 3%. The effect can also be
observed from the average standard deviation of demand and supply. Customer orders deviated
by 1.8 units thought the round the supply chain deviated by 34.1 unites. The significant cost
ratio of 19% between stages Groningen Supermarket and Manufacturer is the result from the
bullwhip effect. In conclusion, lack of cooperation has resulted in the bullwhip effect which
resulted in a high number of backorders (23) and a low service level while having a high cost.
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Round 2. Communication
Second round of the game communication was allowed. Each stage shared all
information and coordinated to reduce overall costs.
Table 2 Stage’s 1 and 2 with their corresponding Performance Indicators
Performance
Maximum
Largest order
Largest
Service
Total
Indicator
Customer
placed by a
order to
Level
Cost (€) (highest vs.
Demand
stage (Units)
Lowest
(%)
(Units)
Ratio (%)
Cost ratio
Number
of back
lowest stage)
orders
(%)
(weeks)
Stage 1
9
260
3
70
10,524
19
23
Stage 2
9
12
75
100
737
80
0
Communication allowed each stage to place orders depending on the following stages
demand and observe the supply chain as a whole rather than only focusing on local profits.
Information sharing abled the overall chain to have a plan and adjust to demand uncertainty
better, thus allowing the chain to have a 100% service level and 0 backorders. In the end,
cooperation allowed stages to better determine their orders which decreased the bullwhip effect
significantly and had a significant decrease in total supply chain costs of 737€.
Demand, Backorder and Order Per Week of the Stages
Figure 2 Beer Game Round 2 Results, Demand, Backorder and Order of each stage by week. Stages: Groningen. Supermarket, Groningen.
Warehouse, Wholesaler, Distributor and Manufacturer
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Stability between order and demand thought the entire chain can be seen in figure.2.
The difference between the maximum customer order demand and largest order placed is only
3 and has a ratio of 75%, indicating that there has been less unnecessarily placed orders thus
less bullwhip effect. The decrease in bullwhip effect had a positive impact on decreasing the
cost and having less cost difference between stages. Highest cost was by the manufacturer
(163€) and the lowest was by the Groningen Supermarket (131€) which give a ratio of 80%. In
conclusion, cooperation and communication has allowed the supply chain to maximize service
level and have no backorders while lowering the costs down to 737€.
Round 3. Focused Communication
Communication has drastically increased the performance of the chain. However, too
much information and a cluster of it can make the chain more complicated than it need to be.
To test this Round 3 was conducted only using the customer demand and every stage would
place orders based on customer demand.
Table 3. Stage’s 1, 2 and 3 with their corresponding Performance Indicators
Performance
Maximum
Largest order
Largest
Service
Total
Indicator
Customer
placed by a
order to
Level
Cost (€) (highest vs.
Demand
stage (Units)
Lowest
(%)
(Units)
Ratio (%)
Cost ratio
Number
of back
lowest stage)
orders
(%)
(weeks)
Stage 1
9
260
3
70.0
10,524
19
23
Stage 2
9
12
75
100
737
80
0
Stage 3
9
10
90
95.4
470
69
17
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Demand, Backorder, Order, Cost and Stock Per Week of the Stages
Figure 3 Beer Game Round 3 Results, Demand, Backorder, Order, Cost and Stock of each stage by week. Stages: Groningen.
Supermarket, Groningen. Warehouse, Wholesaler, Distributor and Manufacturer
In a perfect scenario ordering exactly the amount of demand should be the ideal option
given that the customer demand will be met by the supply while having no backorders.
However, there will always be demand uncertainty and delay due to order lead time. In this
case ordering only according to customer demand resulted in the slight decrease in service
levels by 3.6% and resulted in 17 backorders. The effect on service level was relatively lower
than Round 2 but in return Round 3 had the lowest costs of 470€ out of all rounds. The reason
why service level was not effected in a large extent was because each stage had initial
inventory. Initial inventory was used when the orders of the new demand had not arrived due
to the lead time of 3 weeks which allowed the chain to tackle sudden changes in demand. What
allowed Stage 3 to have the lowest cost was the elimination of bullwhip effect. Every stage had
the same amount of orders and there weren’t any unnecessary large orders. Limiting the
communication to only share important information, such as in this case only demand of
customers allowed the stages to view the supply chain process in a much simpler manner
compared to Stage 2 while lowering the costs.
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Conclusion and Discussion
The Beer Game has shown the importance of cooperation within a supply chain to
reduce bullwhip effect and have low costs. Stage 1 has showed the drastic result of having no
cooperation with its low service level and high costs. In Stage 2 cooperation was introduced
and there was an information flow within the supply chain. Sharing information allowed stages
within the chain to work together on minimizing costs and predict their individual demand thus
place orders accordingly. Stage 2 had the best performing service level and significantly lower
costs than Stage 1. Stage 3’s strategy was to focus information on critical subjects, in this case
customer demand. Every stage placed their orders based on customer demand without being
exposed to too much information. This allowed the chain to be more focused and efficient,
almost eliminating the bullwhip effect and lowering the costs even more. Even though it had
a slightly lower service level than Stage 2, this can be fixed by having slightly more initial
inventory for the Groningen Supermarket. If looked at figure.3 after week 10 the stock has
depleted and backorders begin to come up. Having a slightly more initial inventory for
Groningen Supermarket would allow a high service level while keeping the cost low. In
addition, Manufacturer can also be given more initial inventory to prevent backorders and in
the end minimize the costs even more.
In large companies and firm’s cooperation is key when achieving high efficiency and
allowing for flexibility. Without cooperation and information flow tough the stages of the chain
the entire chain is prone to flaws and it becomes harder to align goals of the chain. The absence
of cooperation can lead to obstacles such as local optimization, multiple demand forecasts by
each stage, rationing and shortage gaming and other behavioural obstacles. All these obstacles
including more, can occur with lack of cooperation which in the end all cause the bullwhip
effect, decreasing productivity and increasing overall costs of the supply chain. However,
sharing every information can also be a downside. Unlike the beer game having a more
complex supply chain results in many data and information at each stage. If all stages shared
all the information they had it would make the chain more complex than it needs to be and
would make it more difficult to sort out the information that is really required. In the end, this
is why Stage 3 in the game has shown the lowest costs and focusing information sharing in a
more complex supply chain would provide similar or even much better performance if only the
crucial information is shared. In a managerial perspective rather than weather to cooperate or
not, what is important is deciding which information is crucial to share.
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