The Beer Game
To see how decisions at one part of a supply chain effect the overall performance of a system, we ran a simulation called the beer game. The supply chain consists of a retailer who orders from a distributor who orders from a wholesaler who orders from a factory. At the beginning of each period, each stage of the chain orders upstream and receives the order shipped out to them two periods ago (the order they placed 4 periods ago) unless the next stage upstream is backlogged. All orders are eventually filled when inventory becomes available. The holding cost specified for each location are (in $/keg.period): factory: 0.25, distribution center: 0.50, warehouse: 0.75, and factory: 1.00. Additionally, the penalty cost for a shortage is zero for all stages except the retail stores where the penalty cost is estimated to be $10.00 per keg/period.
After trying many different strategies, the best policy I was able to come up with had a total cost of $122.00. This was achieved using choice 4, the base-stock policy. This policy re-orders a specified amount, less inventory on hand and pipeline inventory. The player specifies the base stock quantity for the retailer, warehouse, distributor, and factory. When this policy was used at each point in the supply chain, the lowest cost strategy was achieved.
Location Base Stock Amount Cost
Retail 300 101.55
Warehouse 210 10.21
Distributor 210 7.70
Factory 150 3.41
Total 122.87
Because the retail store encounters such a high penalty for shortages, it is best to keep them well stocked. They also have the highest holding “overage”cost, but at $1.00 it is only 1/10 of the shortage “underage”cost. If the “overage” and “underage” costs were equal it would make sense to always order enough to anticipate having the mean (50) on hand. This policy is not optimal however, when it costs the retailer more for a shortage than for excess.
In hindsight it would have been more advantageous towards the beginning of the simulation to purchase an additional Machine 2 which was the second constraint after we solved the issue with Machine 1. An early purchase of Machine 2 would have allowed us to maximize the amount of time using Contract 2 and 3. As it was, our average revenue (excluding the first 50 days) was $820. Selling the machines close to day 220 would have netted revenue at which time we could have been conservative and switched to Contract 2 or 1 for the remaining 50 days (Exhibit
Economics of sale is high (so, the retailer is able to sell out products with discounts)
When Maria was considering a large bulk order, how should she use the concept of contribution margin to decide which cookie's production to reduce in order to free up enough capacity to accept the bulk order? Under what circumstances should she not have accepted the bulk order? In the simulation Maria should use the contribution margin method when sales revenue less variable costs. It is the amount available to pay for fixed costs and provide any profit after variable cost has paid. Maria suggested that the total contribution Margin as well as the operating profits from lemon crème cookies is less than that for real mint cookies. Therefore reduce the current production volume for lemon crème cookies and produce more real mint cookies to accommodate this bulk order.However, Maria decision what not so conducive. When a company maximizes operating profits it is better to produce more of the product that has a greater contribution margin per-unit like the lemon cookie. In the beginning of the simulation Maria felt that price reduction alone was not sufficient. Aunt Connie's Cookies had to establish that they were one of the favorites in the convenience food category. It was best that Aunt Connie's Cookies increase their ad expenses by half for both peanut butter and lemon cookies. The company would then reach out to more retailers in the metros. To achieve this, they must pay more to their distributors $0.10 per pack instead of $0.06 per pack. Retaining the unit prices and increasing Aunt Connies Cookie's marketing expenditure resulted in good profits for the company. However, reducing unit prices could have boosted sales and resulted in even better profits. The bulk order shou...
WISNER, J.D., TAN, K. and LEONG, G.K., 2009. Principles of supply chain management : a balanced approach / Joel D. Wisner, Keah-Choon Tan, G. Keong Leong. Mason, OH : South-Western Cengage Learning, 2009; 2nd ed. pp 111-113,262
In the effort to lock supplies of limited products, the company was seen ordering enormous quantities in advance. Another symptom of the problem was the artificially inflated projections. Other companies had noted the flaws in their projections, but Cisco failed to notice. This was because there existed other Competitors in the market that compromised Cisco’s projections since customers would turn to suppliers who would deliver the products first. In addition, the triple and double ordering of inventory without contemplating on the accuracy of their projections was a great symptom that squeezed on the supply of goods and bloated the demand
Do you have what it takes to become a beer pong champion? If so, you have come to the right place! In this step-by-step tutorial, I will reveal the secrets of miserably defeating your opponent at the sport of beer pong. When played in tournament, beer pong takes a great amount more physical, psychological, and intellectual endurance than many other sports. It may even take many years of practice to become a champion.
…the increased variability in the order process (i) requires each facility to increase the safety stock in order to maintain a given service level, (ii) leads to increased costs due to overstocking throughout the system, and (iii) can lead to an inefficient use of resources, such as labor and transportation…
Throughout the many years, college students have engaged in many activities to either entertain themselves or pass endless time. These activities have ranged from sports, either intramural or varsity, to various clubs and organizations devoted to students personal interests. While these have sparked interest and lasted a long time, none has exceeded the expectations of the wonderful game of beer pong.
Increasing customer expectations and fluctuations in demand are driving companies search for alternative strategies to operate their supply chains to make more profit now and in the future. Goldratt 's distribution replenishment model is one of such strategies that is being extensively implemented nowadays and gaining popularity throughout world (Belvedere & Grando, 2005). The model is called Theory of Constraints Supply Chain Replenishment System : TOC - SCRS. This is a replenishment method of the TOC Supply Chain Solution (Cole & Jacob, 2002; Goldratt, 1994). In this paper, I would like to give an example of a bakery and dairy products company that manufactures and distributes throughout a supply chain network consisting of Plant, Central
With most aspects of life it is frequently the failures, as opposed to successes, from which we learn the most indelible lessons. With this approach in mind, The Beer Game to a large extent serves as the very antithesis of a properly functioning supply chain. In other words, the exercise demonstrates how NOT to manage a logistic operation. Hopefully, an examination of the pitfalls and shortcomings of a worst case scenario and avoiding the same types of mistakes will lend insight how to correctly manage a supply chain. What otherwise appears as a simple classroom exercise actually represents a powerful training tool with enduring lessons directly transferable to real world application.
Beer 1. Wages and rations were paid by Bread and beer, which was at the base of an economy. Wine was deeply engraved into the Mediterranean culture and assisted in flourishing trade. Wine also gave a reflection of the Roman Hierarchical society and influenced much of the world’s religion. Cereal Grains were a small food surplus, so wine was used as an alternative to this.
Understanding the changes in the market and the growth of e-commerce prompted the organization to invest heavily in its supply chain management forecasting and management system. The development of a network of distribution centers and Direct Fulfillment Centers to position the company to capitalize on the growing e-commerce market indicate a strong understanding of the need to adapt to changing market forces. The company spent over $300 million on new distribution center facilities in 2014 alone, and continues to expand to maintain efficiency in product movement (Cassidy,
Coase study #2 Beer: The vice president of marketing for a major brewing company is aware that college students account for a large proportion of beer sales and that people in this age group form lifelong loyalties to brands of beer. The executive is personally uncomfortable with the tasteless gimmicks used by her competitors in the industry to encourage drinking on campuses, including beach parties and beer-drinking contests. She worries about the company’s contribution to underage drinking and alcohol abuse among college students. Should she go along with the competition? State your case/opinion, etc.
Just like anything in life, there are going to be certain peaks and valleys to worry about. There is one concept however that tries to make sense of this madness. According to finance.zack.com It is called risk pooling. Risk pooling is mainly used in the insurance industry to try and lower risk for things like earthquakes, fires and hurricanes. This technique will diversify risk between several companies through pooling agreements. In the world of supply chain, this theory suggests that when demand is lower in a certain area, there is probably a different area that is experiencing high demand. Because of this, you don’t have to keep as much safety stock. If high demand and low demand with cancel each other out, than less inventory will be
Inventory management involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs (Collier & Evans, 2009). In order for business and supply chains to run smoothly, they must meet all the listed requirements for effective inventory management. Thus, inventory management must be managed wisely in order to be a successful an...