Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Citation: Martin, J. R. Not dated. The Beer Game. Management And Accounting Web. http://maaw.info/TheBeerGame.htm
The beer game was developed at MIT in the 1960s. The game involves a simple production/distribution system for a single brand of beer. There are three players in the game including a retailer, a wholesaler, and a marketing director at the brewery. Each player's goal is to maximize profit.
A truck driver delivers beer once each week to the retailer. Then the retailer places an order with the trucker who returns the order to the wholesaler. There's a four week lag between ordering and receiving the beer.
The retailer and wholesaler do not communicate directly. The retailer sells hundreds of products and the wholesaler distributes many products to a large number of customers.
The following represents the results of a typical beer game as described by Peter Senge in Chapter 3 of his 1990 classic, The Fifth Discipline: The Art & Practice of The Learning Organization1.
Week 1: Lover's Beer is not very popular but the retailer sells four cases per week on average. Because the lead time is four weeks, the retailer attempts to keep twelve cases in the store by ordering four cases each Monday when the trucker makes a delivery.
Week 2: The retailer's sales of Lover's beer doubles to eight cases, so on Monday, he orders 8 cases.
Week 3: The retailer sells 8 cases. The trucker delivers four cases. To be safe, the retailer decides to order 12 cases of Lover's beer.
Week 4: The retailer learns from some of his younger customers that a music video appearing on TV shows a group singing "I'll take on last sip of Lover's beer and run into the sun." The retailer assumes that this explains the increased demand for the product. The trucker delivers 5 cases. The retailer is nearly sold out, so he orders 16 cases.
Week 5: The retailer sells the last case, but receives 7 cases. All 7 cases are sold by the end of the week. So again on Monday the retailer orders 16 cases.
Week 6: Customers are looking for Lover's beer. Some put their names on a list to be called when the beer comes in. The trucker delivers only 6 cases and all are sold by the weekend. The retailer orders another 16 cases.
Week 7: The trucker delivers 7 cases. The retailer is frustrated, but orders another 16 cases.
Week 8: The trucker delivers 5 cases and tells the retailer the beer is backlogged. The retailer is really getting irritated with the wholesaler, but orders 24 cases.
The wholesaler distributes many brands of beer to a large number of retailers, but he is the only distributor of Lover's beer. The wholesaler orders 4 truckloads from the brewery truck driver each week and receives the beer after a 4 week lag. The wholesaler's policy is to keep 12 truckloads in inventory on a continuous basis.
Week 6: By week 6 the wholesaler is out of Lover's beer and responds by ordering 30 truckloads from the brewery.
Week 8: By the 8th week most stores are ordering 3 or 4 times more Lovers' beer than their regular amounts.
Week 9: The wholesaler orders more Lover's beer, but gets only 6 truckloads.
Week 10: Only 8 truckloads are delivered, so the wholesaler orders 40.
Week 11: Only 12 truckloads are received, and there are 77 truckloads in backlog, so the wholesaler orders 40 more truckloads.
Week 12: The wholesaler orders 60 more truckloads of Lover's beer. It appears that the beer is becoming more popular from week to week.
Week 13: There is still a huge backlog.
Weeks 14-15: The wholesaler receives larger shipments from the brewery, but orders from retailers begin to drop off.
Week 16: The trucker delivers 55 truckloads from the brewery, but the wholesaler gets zero orders from retailers. So he stops ordering from the brewery.
Week 17: The wholesaler receives another 60 truckloads. Retailers order zero. The wholesaler orders zero.
The brewery keeps sending beer.
The brewery is small but has a reputation for producing high quality beer. Lover's beer is only one of several products produced at the brewery.
Week 6: New orders come in for 40 gross. It takes two weeks to brew the beer.
Week 14: Orders continue to come in and the brewery has not been able to catch up on the backlogged orders. The marketing manager begins to wonder how much bonus he will get for increasing sales so dramatically.
Week 16: The brewery catches up on the backlog, but orders begin to drop off.
Week 18: By week 18 there are no new orders for Lover's beer.
Week 19: The brewery has 100 gross of Lover's beer in stock, but no orders. So the brewery stops producing Lover's beer.
Weeks 20-23. No orders.
At this point all the players blame each other for the excess inventory. Conversations with wholesale and retailer reveal an inventory of 93 cases at the retailer and 220 truckloads at the wholesaler. The marketing manager figures it will take the wholesaler a year to sell the Lover's beer he has in stock. The retailers must be the problem. The retailer explains that demand increased from 4 cases per week to 8 cases. The wholesaler and marketing manager think demand mushroomed after that, and then fell off, but the retailer explains that didn't happen. Demand stayed at 8 cases per week. Since he didn't get the beer he ordered, he kept ordering more in an attempt to keep up with the demand.
The marketing manager plans his resignation.
Lessons from the Beer Game
1. The structure of a system influences behavior. Systems cause their own problems, not external forces or individual errors.
2. Human systems include the way in which people make decisions.
3. People tend to focus on their own decisions and ignore how these decisions affect others.
Lessons Related to the Learning Disabilities (described in Chapter 2)
1. People do not understand how their actions affect others.
2. So they tend to blame each other for problems.
3. Becoming proactive causes more problems.
4. The problems build gradually, so people don't realize there is a problem until its too late.
5. People don't learn from their experience because the effects of their actions occur somewhere else in the system.
The players eventually discover a little of Pogo's wisdom. According to Pogo, "We have met the enemy and he is us" (p. 54).
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