Manufacturing & Supply Chain Disaster: The Beer Game
Summary
TLDRThe video script narrates the classic 'beer game' illustrating a supply chain disaster. It tells the story of a sudden demand spike for 'Lover's Beer' due to a song, causing inventory issues for a retailer, distributor, and brewery. The case study highlights the bullwhip effect in supply chains, where small changes in demand lead to larger fluctuations upstream. It concludes with lessons on understanding complex systems, recognizing inherent behaviors in roles, and addressing internal forces to prevent system collapse.
Takeaways
- 🍺 **Supply Chain Coordination Problem**: The beer game illustrates a classic supply chain coordination problem, showing how fluctuations in demand can propagate upstream through the supply chain.
- 📈 **Demand Amplification**: Small changes in consumer demand can lead to significant oscillations in orders as they move up the supply chain, a phenomenon known as the 'bullwhip effect'.
- 📦 **Lead Time and Inventory Management**: The importance of managing inventory and lead times is highlighted, as they can greatly affect the ability to respond to changes in demand.
- 🔄 **Order Batching**: The tendency to batch orders can exacerbate supply chain issues, as seen when the retailer and distributor place larger orders in response to increased demand.
- 📈 **Sudden Demand Spike**: A sudden increase in demand for 'Lover's Beer' due to a song lyric demonstrates how external factors can disrupt a steady supply chain.
- 🤔 **Lack of Communication**: The lack of communication and visibility across the supply chain leads to misaligned expectations and actions among stakeholders.
- 🛑 **Stockouts and Customer Satisfaction**: The fear of stockouts can lead to over-ordering, potentially causing dissatisfaction when customers cannot be served.
- 📉 **Overcorrection and Undersupply**: Overcorrection in response to demand spikes can lead to overproduction and subsequent undersupply as the market adjusts.
- 🏭 **Capacity Planning Challenges**: The brewery's struggle with capacity planning shows the difficulty in predicting and responding to volatile market demands.
- 📊 **Data-Driven Decision Making**: The need for data-driven decision making is emphasized, as it can help in better anticipating and managing demand fluctuations.
- 🔄 **Feedback Loops**: The importance of establishing effective feedback loops within the supply chain to quickly respond to and correct demand signals.
- 🛠️ **System Dynamics Understanding**: Understanding the dynamics of complex systems is crucial for managing supply chain disruptions and avoiding systemic collapse.
- 💡 **Proactive Management**: Proactive management and continuous monitoring of supply chain operations can help in mitigating the effects of sudden demand changes.
- 📚 **Educational Opportunity**: The beer game serves as an educational tool for managers to learn about the complexities of supply chain management and how to better handle them.
Q & A
What is the 'beer game' referred to in the video script?
-The 'beer game' is a classic case study used to demonstrate the bullwhip effect and coordination problems in supply chain processes.
What was the average weekly sale of Lover's Beer before the sudden increase in demand?
-The average weekly sale of Lover's Beer was four cases before the sudden increase in demand.
What is the lead time for the retailer to receive an order from the distributor?
-The lead time for the retailer to receive an order from the distributor is four weeks.
Why did the retailer initially increase the order from four to eight cases of Lover's Beer?
-The retailer increased the order to eight cases of Lover's Beer to replenish the stock after selling eight cases in a week, which was unusual for him.
What event triggered the sudden increase in demand for Lover's Beer?
-The sudden increase in demand for Lover's Beer was triggered by a local music album where the last line of one of the songs mentioned the beer.
How did the retailer react to the increasing demand and delayed supply from the distributor?
-The retailer became frustrated and anxious, ordering 24 cases of Lover's Beer to avoid running out of stock and losing customers.
What was the distributor's initial strategy to manage the increased orders for Lover's Beer?
-The distributor initially managed the increased orders by supplying as many cases as possible from his existing stock and increasing his order to the brewery.
What action did the brewery take in response to the dramatic increase in orders?
-The brewery, under the new marketing manager, decided to expand the manufacturing capacity by acquiring another plant to meet the increasing demand.
What was the unexpected outcome when the orders from the distributor to the brewery became zero?
-The unexpected outcome was that the brewery was left with a surplus of beer as the orders from the distributor became zero due to the retailers having excess stock from previous bulk orders.
What are the three key takeaways from the supply chain training mentioned in the script?
-The three key takeaways are: 1) Understanding how a complex system functions and causes its own behavior, 2) Recognizing that each role in a complex system has certain common behaviors, and 3) Realizing that internal forces, not external ones, often lead to the collapse of a system.
What are the two important questions posed to the team of managers regarding the beer game scenario?
-The two questions are: 1) Who is at fault—the retailer, the distributor, or the factory manager? 2) How could managers avoid this problem occurring in their organization or supply chain?
Outlines
🍺 The Beer Game: A Supply Chain Disaster
The first paragraph introduces the 'Beer Game,' a classic case study in supply chain management, used to illustrate the bullwhip effect and coordination issues within supply chains. The scenario involves a beer seller in Wisconsin who experiences a sudden increase in demand for a local beer brand, Lover's Beer. The retailer, distributor, and brewery each face challenges as they try to respond to the fluctuating demand. The retailer's sales spike unexpectedly, leading to a series of reactive orders that exacerbate the situation. The paragraph sets the stage for a detailed exploration of the dynamics at play in a supply chain when faced with unpredictable demand.
📈 The Ripple Effect: Orders Surge Through the Supply Chain
The second paragraph delves into the escalating orders and the challenges faced by the distributor and the brewery. As the demand for Lover's Beer increases, the distributor struggles to keep up, eventually increasing their orders to the brewery. The brewery, under new management, responds by ramping up production and even expanding capacity. However, the surge in demand was temporary, triggered by a local music album's lyrics. As the retailers' orders, placed in haste, start arriving, they find themselves with excess stock and no further demand, leading to a sudden drop in orders. This creates a significant surplus for the distributor and challenges for the brewery, which had invested in increased production capabilities.
🏭 Supply Chain Reflections and Resolutions
The final paragraph wraps up the story by reflecting on the situation at the brewery and posing questions for the audience to consider. It highlights the brewery's new marketing manager's initial success and subsequent challenges as orders drop to zero. The paragraph concludes with a call to action for viewers to engage with Creative Heads for further training and insights on supply chain management. It also provides key takeaways and questions to ponder, emphasizing the importance of understanding complex systems and internal forces within a supply chain that can lead to collapse.
Mindmap
Keywords
💡Supply Chain
💡Beer Game
💡Lead Time
💡Inventory
💡Demand Fluctuation
💡Bullwhip Effect
💡Order
💡Distributor
💡Brewery
💡Stockout
💡Coordination Problem
Highlights
Introduction to the beer game, a classic case study in supply chain management.
Description of the steady weekly demand for Lover's Beer in Wisconsin.
The retailer's standard inventory and ordering process for Lover's Beer.
Unexpected increase in sales volume of Lover's Beer in week two.
The retailer's response to increased sales by ordering more stock.
The distributor's role and ordering process from the brewery.
Lead time of four weeks from order placement to delivery.
The sudden spike in demand for Lover's Beer due to a music album reference.
The retailer's frustration with supply shortages impacting customer service.
The distributor's challenges in meeting increased demand from retailers.
The brewery's reaction to the surge in orders and the new marketing manager's strategy.
The brewery's expansion plans in response to increased demand.
The collapse of demand as retailers receive bulk orders and have no storage space.
The distributor's overstock problem following the sudden drop in retailer orders.
The marketing manager's concerns over the drop in orders and potential reputation impact.
Three key takeaways from the supply chain training emphasizing system behavior and internal forces.
Two important questions posed for managers to consider regarding fault and avoiding similar problems.
Creative Heads' role as a consulting firm in organization development and performance.
Call to action for conducting the beer game simulation for supply chain management learning.
Transcripts
hello and welcome back to creative heads
virtual learning solutions
are you associated with manufacturing
industry
or lead a team there stay with us for
the next few minutes to learn a classic
case of supply chain disaster known as
the beer game
demonstrating a typical coordination
problem of a supply chain process
once there was a beer seller who used to
sell multiple brands of beer to the
local residents of a county in the state
of wisconsin
united states apart from selling many
popular brands like miller and bud
he used to sell locally brewed beers as
well one of which was called lover's
beer
lovers beers was not the most popular
beer however
there was a steady demand of the lover's
beer each week
the retailer sold on an average four
cases of the lover's beers
and would maintain a steady stock of 12
cases in the inventory
each week the distributor's truck would
arrive at the back of his store and
unload four cases of the lover's beer
and he hand over the truck for his order
written on a form
the order he'd place each week would
arrive at his store after four weeks
that's the lead time the distributor
would take to ship the order
it was simply so because the distributor
would further place the order to the
brewery which was around 300 kilometers
away from its location
and it would take nearly four weeks for
the supply to come from the factory
the business was going fine and the
sales of the beers were steady as it's
always been during this time of the year
suddenly let's say in week two the
retailer sold eight cases of the lover's
beer instead of usual four
he simply thought it might have been a
party or something and that's why he
sold eight cases instead of the average
four cases a week
he didn't worry much as he still had
eight cases of lovers beer in stock
in order to bring his inventory back to
12 he ordered eight cases of lovers beer
this week
the truck brings another four cases of
the lover's beer in week three as it was
supplying the order the retailer placed
four weeks ago
interestingly this week too the retailer
sold eight cases
and now he was left with only four cases
therefore
he ordered 12 cases of lovers beer this
time
still he did not know what exactly had
given this sudden increase in the sale
he wondered if there was any
advertisement in the newspapers or
leaflet etc
not that something he could think of
before he could ask the trucker this
question
a customer came in and he got busy
managing the customer
in the beginning of week four there were
two customers who came and wanted to buy
12 cases of lovers beer
as he was left with only four cases he
sold those four and the customers
happily shared the contact details and
requested the retailer to inform them
as soon as the new stock of lovers beer
would arrive it was from these two
customers he came to learn why there was
a sudden hike in the demand
one of the customers told the retailer
that a music album produced by a local
band of youngster used in the last line
in one of the songs
and i sip my lover's beer before i go to
the beach
[Music]
this week again he was delivered seven
cases of beer as the distributor tried
to supply as many cases as he possibly
could
however the retailer was now very
worried is he never wanted his customers
to have the impression that he was out
of stock
and that his customers go to another
retailer to buy the beers
frustrated due to the lower supply from
the distributor
he decided to raise the demand to 24
cases but the distributor was unable to
match sudden raise in the demand
in the week six the retailer was highly
annoyed and had tried it every possible
way to keep the customers
he couldn't stop thinking the amount of
profit he could make and got
angry at the distributor for not
supplying the complete orders
this week nine cases of lovers beer were
delivered the retailer placed another
order of 24 cases
as he was way behind the demand
whatsoever
he knew that the order will definitely
start arriving but was wondering
when
this week the distributor could manage
to send 10 cases
let's look at the situation at the
distributor
the distributor had a small table and a
chair and was sitting between hundreds
of cases of beers of multiple brands
he even had truckloads of stock in his
inventory as he was applying multiple
brands to multiple retailers in many
small cities
suburbs etc he was not the only
distributor in the region
there were three more distributors but
he was well established and had a good
reputation
like the retailer the distributor too
used a form to place his orders and give
it to his trucker
the distributor was receiving orders in
terms of truckloads
to keep it simple the distributor was
also placing four truckloads of order
each week and used to keep 12 truckloads
in the inventory
as he knew he would receive his order
after four weeks from the brewery
to week four he managed with all the
fluctuations in the orders he received
as there was nothing to worry about
he had enough stock to manage the small
raise in the demand
however week five onward he found that
the orders were doubling
tripling and even quadrupling and it was
getting difficult for him to meet the
demand
though the distributor came to know
about the video from the multiple
sources in week six
and smartly enough he increased the
order five times
and made it 20 truckloads in week seven
and eight
the distributor received the order that
he placed in the week three and four
and despite his all efforts he couldn't
fulfill the orders per demands of the
retailers
in the subsequent weeks seeing the
constant increase in the demand from the
retailers going many folds
he too raised his order to 40 truckloads
the orders of 40 truckloads arrived and
without wasting any time
he put all his men into distributing
those orders to the retailers
in week 17 all his orders started coming
in
however he observed that the retailer's
order had now became zero
week after week and after week it was
because the retailers had started
receiving the orders they placed in bulk
weeks ago and they now had no space to
store more
the distributor was now sitting between
the truckloads of beers and there were
more to come
[Music]
we have seen the retailer and
distributor so far and i'm sure
you are keen to know the situation at
the factory so let's take a look at the
factory too
the brewery was located some 300
kilometers away from the distributor
it was not the most popular beer but was
known for its good quality
the brewery recently had a new marketing
manager who joined in some three months
back
the manager was previously a quality
control manager and joined in here
because of his previous record
it was luck that worked for the new
manager that there was a sudden boom in
the demand and the management was very
happy with the race demands of the beer
in the market
the manager came to know about this hike
in orders in week six and tried to
immediately manage the situation by
asking people to do double shifts
it usually takes two weeks time for a
bottle of beer to brew and ready for
shipment
the manager realized that this dramatic
growth was a great opportunity to expand
the manufacturing capacity
furthermore they couldn't meet with just
eight hours shift and one manufacturing
unit to supply the increasing demand
he showed all the sufficient
documentation to prove his point to the
management and convince them to acquire
another plant
he became famous and happy as he was he
started imagining his photograph on the
front page of the local business
magazine
the marketing giant however this name
and fame couldn't last long
as the orders from the distributor
became zero week after week and after
week
and the marketing manager was really
getting worried for his reputation
he was thinking how he would justify
this to the management and their
investment in the new factory
he started blaming the customers and how
disloyal customers could be
he was even thinking of resigning
[Music]
to learn what happens further at the
factory whether the new marketing
manager resigns and what he does next to
manage to situation
or for conducting the supply chain
simulation popularly known as the beer
game
so that your managers and supervisors
can learn how to best manage their
production and supply chain
write to us at info creativeheads.co
here are the three key takeaways of our
supply chain training
one this is a fantastic case to
stimulate different stakeholders to
understand how a complex system
functions
it shows how the system causes its own
behavior
2. irrespective of who holds a position
in a complex system
each role has certain behaviors common
to it 3.
it is not the external forces rather the
internal forces that compel the system
to collapse
[Music]
here are the two important questions to
be asked your team of managers
just in case if you wish to share this
video with your managers
1. who is at fault the retailer the
distributor
or the factory manager 2. how could your
managers avoid this problem occurring at
your organization or supply chain
if you wish to have your team solve this
supply chain challenge and learn from
this simulation
send us an email creative heads is a
boutique organization development
consulting firm that helps organizations
to achieve extraordinary results in the
areas of growth and performance
for more videos subscribe to our youtube
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thank you for watching
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