Manufacturing & Supply Chain Disaster: The Beer Game

Summary

The 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?