Computerized Beer Game

Designing & Managing the Supply Chain Appendix A

Youn-Ju Woo

Outline
Introduction The Traditional Beer Game The Scenarios Playing a round

Options and Settings

Summary

Introduction
Traditional Beer Game
Role-playing simulation of a simple production and distribution system MIT developed in the 1960s

Computerized Beer Game

Similar to Traditional Beer Game Possible to test the various SCM concept

The Traditional Beer Game (1)

Retail Manager
Observing external demand Filling demand as much as possible Record Back orders Place order with wholesaler

Factory Manager
Observing demand Filling demand and back orders Begins production
Demand Card

Wholesaler Manager
Observing demand Filling demand and back orders Place order with distributor

Distributor Manager
Observing demand Filling demand and back orders Place order with factory

The Traditional Beer Game (2)

Goal of Team
Minimize : Total cost = Holding cost + Shortage cost

Game Rules
Back-order should be filled ASPS Each manager has only local information 25 ~50 weeks Holding cost $0.50, Shortage cost $1

End of the game

Players are asked to estimate customer demand The demand information is opened to players
Demand is 4 during the 4 weeks and 8 during the last

The Traditional Beer Game (3)

Difficulties
The students focus on correctly following the rules, not developing an effective strategy Demand pattern does not reflect a realistic supply chain scenario Doesnt demonstrate several important issues in SCM
The real objective is to minimize the total system cost, not individual performance

Shortening cycle times and centralizing information are useful

The computerized Beer Game is developed

The Scenarios (1)

A simplified beer supply chain
Consist of a single retailer, a single distributor, a single wholesaler and a single factory Each component has unlimited storage capacity, fixed lead time and order delay time

Every week, each component tries to meet the demand of downstream component
Meet every back order ASPS No ignore any order Member orders item to the upstream component
Place an order
Arrive ordered item

W+1

Supplier gets order

W+3

The Scenarios (2)

Other options to model various situations
Lead time reduction, global information sharing, centralized management

A centralized scenario
Factory manager controls the entire supply chain and has information of external demand and entire inventory Only factory can place orders Only retailer pays a $4.0 shortage cost

Playing a round (1)

Modeling the first scenario
Player chooses one component (Retailer, Wholesaler, Distributor, Factory) Computer takes the remaining roles

Playing a round (2)

Order of Events
Step 1 Contents of delay 2 moved to delay 1 Step 2 Order from downstream facility are filled
Order = current order + back orders Remaining orders = current inventory Order Back orders Except the retailer, the orders are filled to the delay 2 location of the downstream

Step 3
Total costs = accumulated cost from previous period + shortage and Holding cost Holding cost = $ 0.5 (Inventory at facility + in transit to the next downstream) Shortage cost = $ 1 Back orders

Step 4
Player input the order quantity, other orders are placed by computer

Playing a round (3)

Understanding the Screen
Example; Distributor

Number of items in inventory

In transit to inventory
Delay 1: No. of items will arrive in one week

Total cost : Accumulated cost from previous period and shortage and Holding cost Backorder: Orders received by the Distributor but not yet met from inventory

Playing a round (4)

1. Click start
Start Button
Input order quantity

Week 0
Initial inventory : 4 unit Delay 1 : 4 unit Delay 2 : 4 unit

Week 1
Inventory : 8 unit Delay 1 : 4 unit Delay 2 : 0 unit

Playing a round (5)

2. Enter a demand amount ( Ex, Input 3)
Make balance inventory holding costs and shortage costs Check the amount of back order your upstream supplier already has to fill After entering the quantity, the remaining members play automatically, the screen is updated

Total cost = (4 + 0 + 8) $ 0.5 = $ 6

Playing a round (6)

3. Select Next Round
The upstream supplier will try to meet last periods order (3) Enter order 6

Total cost = $ 6 + (0 + 0 + 12) $ 0.5 = $ 12

Playing a round (7)

3. Select Next Round
Total cost = $ 12 + (0 + 12 + 0) $ 0.5 + 18 $ 1 = $ 36
Level of back order at the beginning of this round, before the player attempted to fill downstream orders How much total back order

Current level of back order

How much order quantity should be entered?

Order = current order + back orders

Options and Settings (1)

File Commands
File-Reset : Reset the game File-Exit : Exit the game

Options Commands
Options-Player

Options and Settings (2)

Options Commands
Options-Policy
s-S: When inventory falls below s, the system order to bring inventory to S S-Q: When inventory falls below s, the system places an order for Q Order to S: Each week, the system order bring inventory to S Order Q: Each week, the system orders Q Updated s: The order-up-to level s is updated
- The moving average of demand over past 10 wks - Inventory level falls below s, the system orders up to s, the maximum order size is S

Echelon: A modified version of perododic review echelon policy

retailer : s ( L r ) AVG ( D) M STD( D) ( L r ).5 wholesaler : s ( L L r ) AVG ( D) M STD( D) ( L L r ).5 distributor : s (2 L L r ) AVG ( D) M STD( D) (2 L L r ).5 factory : s (3 L L r ) AVG ( D) M STD( D) (3 L L r ).5

Options and Settings (3)

Options - Short Lead Time
Remove delay 2, shorten lead time to 1 week

Option - Centralized
The interactive player manages the factory, can observe external demand and react it The inventory is only held by Retailer

Option - Demand
Set the external customer demand Deterministic Select the constant demands and weeks Random Normal Select Means, stds, weeks

Option Global Information

Display iventory and cost information and external demand at all of the stages

Options and Settings (4)

The Graphs Commands
Graphs - Player Graphs Others Graphs - System

Options and Settings (5)

The Reports Commands
Reports - Player Reports Others Reports - System

Summary
Usage of Computerized Beer Game
Test the Traditional Beer Game Possible to test the various SCM concept
Shortened lead time Centralized SCM SCM with Global information system Setting Various Demand

Display Results
Graph Report

The Risk Pool Game

Designing & Managing the Supply Chain Appendix B

Youn-Ju Woo

Outline
Introduction The Scenarios Playing several round Options and Settings

Summary

Introduction
Concept of Risk Pooling
If each retailer maintains separate inventory and safety stock, the higher level of inventory is needed than using pooling system

Risk Pooling Game

Execute both system simultaneously
A system with risk pooling Centralized System A system without risk pooling Decentralized System

Compare the performances to understand the concept

The Scenarios
Centralized Game
A supplier serves a warehouse, which serves three retailers
Order Order

Retailer Warehouse
Supply 2 periods

Supplier

Supply 2 periods

Retailer Retailer

Decentralized Game
Three retailers order separately , and supplier ships material directly to each retailer Order
Retailer Supplier
Supply 4 periods

Retailer Retailer

If the demand is not fulfilled at the time, it is lost. The goal in both system is to maximize profit

Playing a round (1)

Description of Screen
Order from supplier Inventory at least 4 period away from retailers

Allocation to retailers

Inventory of retailers Cost of goods sold Holding Cost = Revenue (COGS + Holding)

Supplier = Demand met / Total demand * 100

Playing a round (2)

Order of Events
Step 1.
Centralized System: Four period moves to three periods away, inventory three periods is added to warehouse inventory Inventory one moved to retailer inventory

Step 2.
Each retailer fills demand as much as possible Both systems faces the same demand

Step 3.
Centralized System: Enter an order for the supplier or keep the default value Allocate the warehouse inventory to the retailers Decentralized System: Enter an order for each retailer or keep the default value The allocation amount must be less than or equal to the total warehouse inventory Press Orders button

Step 4.
Orders are filled

Step 5.
Cost, Revenue, and service level is calculated

Playing a round (3)

Playing a round (4)

Options and Settings (1)

Play Play Options
Initial Conditions
The retailers must have same initial inventory The transit inventories should be same

Demand
Normal distribution with mean and standard deviation The slider control enables to control the correlation of demand at retailers

Options and Settings (2)

Inventory Policy
Safety Stock policy - Select order-up-to levels - Using multipliers by mean demand and Std. deviation Weeks of Inventory policy - A single value multiplied by mean demand

Cost
Holding cost, Cost, and Revenue cost are per item per period

Options and Settings (3)

The Reports Commands
Reports - Orders

Reports Demands