1 of 13 The Production Distribution Game About the FAO Policy Learning Programme This programme aims at equipping high level officials from developing countries with cutting-edge knowledge and strengthening their capacity to base their decisions on sound consideration and analysis of policies and strategies both at home and in the context of strategic international developments. Related resources See all material prepared for the FAO Policy Learning Programme See the FAO Policy Learning Website: http://www.fao.org/tc/policy-learning/en/
2 of 13 The Production Distribution Game By Carlos da Silva, Agribusiness Economist Agricultural Management, Marketing and Finance Service, Rural Infrastructure and Agro-Industries Division, FAO, Rome, Italy of the FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS About EASYPol The EASYPol home page is available at: www.fao.org/easypol This presentation belongs to a set of modules which are part of the EASYPol Resource package: FAO Policy Learning Programme : Specific Policy Issues: Agrifood EASYPol is a multilingual repository of freely downloadable resources for policy making in agriculture, rural development and food security. The resources are the results of research and field work by policy experts at FAO. The site is maintained by FAO s Policy Assistance Support Service, Policy and Programme Development Support Division, FAO.
3 of 13 Introduction The production-distribution game, also known as the beer game, is a management simulation tool developed by the Massachusetts Institute of Technology, which is used to illustrate the complexities of organizing and managing a supply chain. The game simulates the structure and functioning of a production-distribution chain for an agrifood product. It is played by teams of at least 4 players, with each player representing a stage of the supply chain. Players are expected to fulfil product orders while minimizing inventory and stockout costs. At the end of a number of simulated weeks, a discussion session is conducted to analyze the results and discuss strategies for supply chain improvement.
4 of 13 Objectives Game principles Scope of the game Supply your customers while minimizing the total cost of inventories in the system Team with the lowest total cost wins Player roles Retailer Wholesaler Distributor Manufacturer
5 of 13 Game board
6 of 13 Game dynamics Each chain segment has one initial inventory Each segment has placed orders and has orders waiting to be fulfilled Only the retailer knows the weekly demand
7 of 13 Game rules Game runs for fifty weeks You should follow the instructions from the facilitator: DON T MOVE PIECES OR ORDERS BEFORE BEING ASKED TO DO SO! You can talk to your partner but not to the other members of your chain There are time lags between orders There are time lags for delivery There are time lags for production
8 of 13 Game rules For each week you will: Receive your inventory Advance the shipping delays (the factory will advance the production delay) Look at incoming orders and fill orders (all incoming orders must be filled if you don t have enough inventory, you have a backlog Retailer looks at customer demand
9 of 13 Game rules Record your inventory (or backlog) Advance the order slips (factory makes beer: introduce last week s request in the production delay) Place and record your orders Factories: Place and record your production requests
10 of 13 Inventory costs The concept of order backlog the backlog represents orders you've received, but have not yet filled, and which you must fill in the future. The backlog is cumulative. Orders to fill = New orders + Backlog of last week This week s backlog = Orders to fill Amounts delivered Inventory keeping costs Cost of excess inventory: 50 cents per case per week Cost of under-stock: 1 dollar per case per week REMEMBER The team with the lowest total cost wins!
11 of 13 Keeping track Week Inventory Backlog Your Orders Placed Week Inventory Backlog 1... 26... 2... 27... 3... 28... 4... 29... 5... 30... 6... 11... 7... 32... 8... 33... 9... 34... 10... 35... 11... 36... 12... 37............... 25... 50... Totals....... Your Orders Placed INV 1 BL 1 INV 2 BL 2 Total Cost= Inv x 0.5 + BL
12 of 13 Recommendations Only move stock or orders after the moderator s call do not anticipate moves. We have to coordinate our actions!!! Do not let others see your orders Keep track of your inventory and backlogs
13 of 13 Conclusions The game is used frequently in management training programmes. It has proven to be an effective way to illustrate the importance of coordination as a determinant of chain competitiveness. Invariably, the game dynamics demonstrates that independent optimization of operational efficiency in the different supply chain echelons does not necessarily lead to optimal results for the entire chain. As such, players develop an understanding of the complexities of managing a supply chain and learn a number of classical strategies to improve chain performance.