Manufacturing & Supply Chain Disaster: The Beer Game

Creative Heads

4 Aug 202110:08

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

00:00

🍺 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.

05:00

📈 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.

10:01

🏭 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

Supply chain refers to the network of organizations, people, activities, information, and resources involved in moving a product or service from raw material to the end consumer. In the video, the supply chain involves the retailer, distributor, and brewery, and the story illustrates the coordination problems that can arise within this network, such as the bullwhip effect.

💡Beer Game

The beer game is a classic simulation used to demonstrate the dynamics of supply chain management and the challenges of coordinating demand and supply. In the video, the beer game serves as a case study to show how a sudden increase in demand for 'Lover's Beer' affects the entire supply chain, from the retailer to the brewery.

💡Lead Time

Lead time is the interval between the placement of an order and the receipt of the goods. In the context of the video, the lead time is four weeks for the retailer's orders to be shipped from the distributor, and the distributor's orders from the brewery, which plays a crucial role in the unfolding supply chain disaster.

💡Inventory

Inventory refers to the stock of goods held by a business. In the video, the retailer maintains a steady inventory of 12 cases of Lover's Beer, which becomes a critical factor when unexpected demand increases, leading to inventory fluctuations and potential stockouts.

💡Demand Fluctuation

Demand fluctuation is the variability in the quantity of a product that consumers wish to purchase. In the video, the sudden increase in demand for Lover's Beer due to a local music album's lyrics causes fluctuations that ripple through the supply chain, affecting order quantities and inventory levels.

💡Bullwhip Effect

The bullwhip effect is a phenomenon where small changes in customer demand at the retail level result in larger changes upstream in the supply chain. The video script exemplifies this effect as the retailer's increased orders due to a spike in demand lead to significant order variability at the distributor and brewery levels.

💡Order

An order is a request made by one party to another for goods or services. In the video, the retailer's order for Lover's Beer, which is placed on a form and delivered to the distributor, becomes a point of contention as the supply chain struggles to respond to changing demand.

💡Distributor

A distributor is a person or company that supplies goods to retailers. In the video, the distributor plays a pivotal role in the supply chain, facing challenges in meeting increased demand from retailers and managing inventory levels amidst the fluctuating orders.

💡Brewery

A brewery is a business that makes and sells beer. In the video, the brewery is the source of Lover's Beer and is impacted by the supply chain disruptions, with the new marketing manager attempting to expand production capacity in response to increased demand.

💡Stockout

A stockout occurs when a company runs out of a particular item or product. In the video, the retailer experiences a stockout risk when the demand for Lover's Beer increases unexpectedly, highlighting the challenges of managing inventory and fulfilling customer orders.

💡Coordination Problem

A coordination problem arises when different parts of an organization or supply chain are not working in harmony, leading to inefficiencies or disruptions. The video's narrative centers on the coordination problems within the supply chain as each link struggles to anticipate and respond to changes in demand, leading to over- or under-ordering.

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.