Ever go to the store to pick up the “beer essentials” and wondered how they got there? There are vast networks of exchange in place to get the simplest of items to our grocery store. It’s really amazing when you think of it.
Our “beer game” helps students understand how supply chains economics operate and to illustrate a common problem called the “bull whip effect” that comes from information asymmetries. This effect is characterized by how sudden changes in customer demand generate larger and larger changes in order submissions upstream through the supply chain.
In this game each student represents one of four roles in a supply chain: retailer, wholesaler, distributor, and producer. As depicted in the picture above, orders flow upstream between firms and shipments flow downstream between firms. Each round proceeds in the following way:
The goal of each firm is to minimize costs from holding inventory ($1/unit) and from unmet demand or backlog ($2/unit). But, minimizing cost gets harder and harder as you move upward through the supply chain since order submissions become larger as firms seek to avoid the penalty from unmet demand. Then order submissions nose dive as firms begin to feel the pain of high inventory costs. This kind of behavior is a huge drag on supply chain efficiency.
Speaking of efficiency, while most implementations of the beer game can be run by hand, game board, etc., this online economics game has a smooth interface that can be played on any internet connected device. Plus, graphs and summary tables with relevant data are available immediately following game play. This will help drive home the bull whip effect but also to show how logistical improvements that reduce shipping delays can attenuate the bull whip effect.