The Beer Game
A production-distribution game to
understand inventory management
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Introduction
• The beer game is a demonstrator of the
behaviour of supply chains
• It is based on the main principle of system
dynamics:
– Structure produces behaviour
• The game is employed for educational
purposes at most MBA’ s worldwide
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Overview of the system
• There exist four nodes in the game’s supply
chain (look at the board):
– Retailer (e.g., a supermarket that sells beer to
end-customers)
– Wholesaler (e.g., a local warehouse that
consolidates various items and provides them to
local retailers)
– Distributor (e.g., a national importer of this
particular beer with a centralized warehouse)
– Factory, where beer is brewed and packaged
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Overview of the nodes
• Each position:
– Is identical, in terms of the rules of the game,
except for the factory
– Has an initial inventory of beer
– Receives orders from and ships beer to the
downstream node of the chain
– Orders beer from the upstream node
– One or two players are associated with it
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Overview of delays (lead times)
• Beer is received after a shipping delay of
two time units (e.g., 2 weeks or days)
• In case of the factory, beer is received after
a production delay (it takes 2 time units to
manufacture any beer batch)
• Orders are received after a mailing delay (it
takes 2 time units from the moment you
place an order to the moment this is
processed by the upstream node)
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Objective of the game
• The goal is to minimize the total cost
• Costs are computed as follows:
– Inventory carrying costs (costs of holding
inventory for one time unit) are €0.50 per case
of beer per week (time unit = 1 week)
– Out-of-stock costs (or backlog costs, i.e., no onhand inventory to satisfy orders) are €1.00 per
case of beer per week
– Sum of carrying and backlog costs is total cost
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Rules of the game
• No communication between positions is
allowed, e.g., retailers should not talk to
anyone else – same for wholesalers,
distributors and factory
• Only communication is through the passing
of orders and the receiving of beer
• Retailers are the only ones knowing actual
customer orders – they should not reveal
this information to anyone else
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Initialization of the board
• Each chip on the board represents a case of beer
(one unit of inventory)
• There exist twelve (12) chips representing twelve
cases of beer in each inventory position
(warehouse of each node)
• There exist four (4) chips in each shipping delay
and production delay box
• There exist order slips in each order box (orders
placed, incoming orders, production requests) face
down
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Additional information
• The raw materials inventory at the factory
and the production capacity is infinite (i.e.,
the factory can produce any batch size)
• The capacity of the shipping trucks (moving
inventory between nodes) is infinite
• The flow of materials (cases of beer) is
from factory to retailer, while the flow of
information (orders) is reverse (from the
retailer to the factory)
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Steps of the game
• Step 1:
– Receive inventory and advance shipping delays
– Factory advance the production delay
• Step 2:
– Look at incoming orders and fill them
• Retailer looks at customer order cards
• Factory looks at incoming orders, not production
requests
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Steps of the game
• Step 2 (continued):
– All incoming orders plus orders in backlog
must be filled
– If inventory is insufficient to fill incoming
orders plus backlog, fill as many orders as you
can (push all your inventory forward) and place
unfilled ones to backlog
Orders to Fill = New Orders + Backlog
this week
this week
last week
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Steps of the game
• Step 3:
– Record inventory or backlog
• Step 4:
– Advance order slips
– Factory brews, i.e., it converts the production
request (from last week) into cases of beer and
puts the cases (chips) in the first production
delay
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Steps of the game
• Step 5:
– Place and record your orders (retailer,
wholesaler, distributor)
– Factory places and records its production
request
– This is the only decision you have to make!
• Synchronize your steps (select a team leader
and follow his “commands”)
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Documentation
• Write down:
– Level of inventory (count of chips in your
warehouse)
– Backlog (count of chips in unfilled orders)
– Orders placed
at the Record Sheet provided at each
position
• Best of luck!
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