Instructions for playing beer distribution game :

Instructions / Notes for playing the Beer Distribution Game

The Beer Distribution Game was devised at MIT for understanding the dynamics in the supply / distribution side of the supply chain.

Objective : After playing for ten to fifteen cycles, control your ordering, holding and shortages, to keep the total costs low. If multiple teams / supply chains are playing, the team with the lowest overall supply chain costs is the winner.

Structure : The game is played by dividing the students / members to many groups, each group representing the retailer, wholesaler, the distributor and manufacturer. Usually, we play with two or three groups of retailers, being supplied by each wholesaler ( also two or three in number). The wholesalers are supplied by a Distributor who in turn is supplied by a manufacturer.

The different entities take different times to replenish orders placed on the upstream entity. We call this as lead time. The lead time is more at manufacturing stage than at the distribution side. If the distances involved are more, higher lead times result. Additionally, there are costs incurred for keeping additional units with oneself, called holding costs and costs incurred for not holding items in-stock, called shortage costs. The value of the item changes as we move from the manufacturer to the final customer, so does the holding costs and shortage costs. Holding and shortage costs are higher as we move from the manufacturer to the final customer.

There are many reasons for experiencing the dynamics in the supply side. One is the physical dimension of the multiplicity of players and the local sub-optimal goals of each of them. The next is the time dimension of being able to satisfy the orders. Replenishments are never instantaneous and usually takes time to receive the supply and distribute. We call this as the lead time for supply. The third reason for the dynamics is the willingness of the customers to wait for the supply ( or the ability of the SC players to convince the customers of supply at the next earliest date ), called back-ordering.

The supply side (Distribution side) of the supply chain has many players like the Distributors, Wholesalers and Retailers. All of these players are independent entities who work for the local (their own) optimisation, leading to sub-optimal optimisation of the whole supply chain. The presence of multiple players and the allocation issues between them lead to distribution issues and complexities in the supply chain.

Items when ordered can be supplied off-the-shelf, if items are present at the premises of the SC player (we call this initial inventory) . Mostly the initial inventory levels are low and new items are ordered from the upstream entity, ie, the retailer orders from the wholesaler, the wholesaler from the distributor and so on. The items when ordered are not supplied immediately as they have to be either manufactured by the manufacturer or it must be transported from a higher level to the lower level and so on. This is called the lead time , ie, manufacturing, transportation.

The lead time of supply of items is often not considered or overlooked while orders are placed. The items are being processed and are in the pipeline of the distribution channel. But since physically items are not present, the supply chin player ( ie. Wholesaler, distributor or retailer) will tend to order more and hence there will be more orders placed for items than what is actually needed. Ie, wrong signals of increased demand are propagated upstream while the actual demand has not altered much.

Back-ordering, leads to complexity as it is forgotten and the SC players tend to order for more items, magnifying the demand when actually it is not there. If unmet orders/demand are not back-ordered, they are lost for ever (lost sales).


How to play :

Each team is given a printed sheet where you have to record the stock of items and many slips of paper.. Every team is given an initial inventory of items. (represented by pieces of cardboard). Depending on the orders placed by the downstream entity, it will have to place orders with the upstream entity.

Every order you place with the upstream entity will be entered on the slip of paper and passed to the upstream entity. At the end of each ordering cycle, enter the details of the demand from the downstream entity, excess stock ( or shortages) with you and the orders you have placed with the upstream entity.

Once the game is declared over, calculate the costs by multiplying the items by the respective costs. Compute the total costs.

Each entity can also calculate the (sample) variance of the orders placed (x) with the upstream entity. Calculate the average value of the orders (x bar) and find the square of the deviation ( x minus x bar)squared. Add it up and divide by n – 1, where n is the number of cycles you have played. There are called variances of the orders placed.

Questions to be answered...

1. What do you observe of the supply chain costs of retailers, wholesalers, distributors and manufacturers ?



2. What do you observe of the (sample) variances of the orders placed by

1.the retailers on the wholesalers

2.the wholesalers on the distributors and

3.the distributors on the manufacturer.


3. How could you have reduced your costs ?




NOTES/GENERAL OBSERVATION :: Date of playing the game : Role :