APICS Hampton Roads: 10-17-06
G. L (Jerry) Kilty, CFPIM, CIRM, CSCP
 2519 McMullen Booth Road
 Suite 510 Q
 Clearwater, FL 33761
 727 725-7674
 QMSJerry@ij.net
Quality Management Solutions, Inc.
The Beer Distribution Game
The Beer Distribution Game
Purpose of the Game
Introduce the principle that structure produces
behavior
Experience the pressure of playing a role in a
complex system and understand the impact of
collective decisions on system performance
Show the impact and importance of information
flow on the supply chain
Quality Management Solutions, Inc.
Objectives for Your Teams
The Beer Distribution Game
Minimize total supply chain costs -- watch
your inventory levels
Achieve high order fill rates -- keep your
customers happy and keep their business
The team with the lowest total cost wins
Cost of inventory: $1.00/case/wk
Out-of-stock cost: $2.00/case/wk
Quality Management Solutions, Inc.
The Beer Distribution Game
Rules of the Game
1
Pick a team name
2
Each company fills out Record Sheets – Inventory/
Backlog and Orders
3
No communication between positions
4
Retailers -- do not reveal what customers
actually order
5
Play for 50 weeks
Quality Management Solutions, Inc.
Overview of the Game - The Supply Chain
The Beer Distribution Game
Customer
Retailer
Wholesaler
Distributor
Factory
Maximize customer
loyalty and sales
Track record of
high service levels
Pretty good
customer service
Strategy = quality
and on time
Back orders mean
high customer dissatisfaction, loss of
sales, and loss of
market share
One of a few select
suppliers
On notice: in
danger of losing
business if fail to
achieve required
fill rates
Distributor cross
docks so needs high
service level
Poor service = loss
of business
Quality Management Solutions, Inc.
Charge-back penalties
if late
The Beer Distribution Game
Let the Game Begin
We will walk through the first few weeks
slowly until you get the hang of it
For the first two weeks, order four cases/wk
As the facilitator calls the weeks, follow the
Instruction sheet
Good Luck!!
Quality Management Solutions, Inc.
The Beer Distribution Game
About Week 8 or 9...
Back orders appear
Back orders are cumulative
….and explain
Orders to fill
=
this week
New orders
Back orders
+
this week
from last week
Quality Management Solutions, Inc.
Debriefing: Purpose of the Game
The Beer Distribution Game

Experience the pressures of a complex
system

Understand the impact that the collective
results of many individual decisions can
have on system performance

Recognize that internal structure -- not
external events -- causes system behavior

Highlight the importance of coordination in
an organization in meeting customer and
company objectives
Quality Management Solutions, Inc.
Debriefing: Lesson #1
The Beer Distribution Game
Even though different people working in the same
structure act exercise their own free will, the qualitative
patterns of behavior are the same:
 Oscillation -- Orders and inventories are
dominated by large amplitude
fluctuations, with an average period of
about 20 weeks
 Amplification -- The amplitude and
variance of orders increases steadily
from customer to retailer to factory. The
peak order rate at the factory is on
average more than double the peak order
rate at retail.
 Phase Lag -- The order rate tends to
peak later as one moves from the retailer
to the factory.
Quality Management Solutions, Inc.
Retailer
Orders
Factory
Orders
…And the winner is….
Quality Management Solutions, Inc.
The Beer Distribution Game
The Beer Distribution Game
Debriefing: Lesson #1 continued
The “Bullwhip Effect” in Action
20
1. Consumer Sales
Order
Quantity
20
2. Retailer Orders to Wholesalers
Order
Quantity
0
20
0
Time
3. Wholesaler Orders to Manufacturers
Order
Quantity
20
Time
4. Manufacturer Orders to Supplier
Order
Quantity
0
Time
0
Time
Source: Prof. Tom Davis, “The Role of Variability in the Supply Chain” Seminar, Stanford University, Sept., 1996.
Quality Management Solutions, Inc.
The Forrester Effect
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Demand
Poor communication
Lack of visibility
Human error
Process constraints
(e.g., capacity, batch
sizes)
• Time lags
Quality Management Solutions, Inc.
Demand
Time
Small Change
in Demand
IMPACT
•
•
•
•
Time
Time
Time
Increased
Variability
Consumer
Demand
Time
Retailer
Demand
Demand
Demand
Distribution
Demand
Manufacturer
Supplier
Time
Debriefing: Lesson #1 continued
Quantity
Actual Customer Orders
Weeks
Quality Management Solutions, Inc.
The Beer Distribution Game
Debriefing: Lesson #2
The Beer Distribution Game
Internal Structure -- Not External Events -- Causes
System Behavior
 Although each player was free to make his or
her own decisions, the same patterns of
behavior emerge in every game,
demonstrating the powerful role of the system
in shaping our behavior.
 Understanding how well-intentioned, intelligent
people can create an outcome no one
expected and no one wants is one of the
profound lessons of the game.
Quality Management Solutions, Inc.
The Beer Distribution Game
Group Exercise
What would you do to improve the
supply chain?
Take 20 minutes
Presentations
Quality Management Solutions, Inc.
The Beer Distribution Game
Wrap Up
Supply chain improvements…..
 Integrated planning and scheduling processes
 Demand-pull manufacturing systems
 Integrated supply chain (VMI, CRP, etc.)
 Enterprise-wide information systems
 Process-based organizational structure
 Co-location of functional departments

Other?
Quality Management Solutions, Inc.
The Beer Distribution Game
THE END
Quality Management Solutions, Inc.
The Beer Distribution Game
THANK YOU!
G. L (Jerry) Kilty, CFPIM, CIRM, CSCP
 2519 McMullen Booth Road
 Suite 510 Q
 Clearwater, FL 33761
 727 725-7674
 QMSJerry@ij.net
Quality Management Solutions, Inc.