Instructions for Running the Beer Distribution Game
John Sterman, October 1984
This document outlines the protocol for the beer distribution game developed to introduce people to concepts of system dynamics. The game can be played by as few as four and as many as 60 people (assistance is required for larger groups). The only prerequisite, besides basic math skills, is that the none of the participants have played the game before, or else agree not to reveal the "trick" of the game.
- Introduce people to the key principle "structure produces behavior"
- Experience the pressures of playing a role in a complex system
- Overview of production-distribution system
- Identify the four positions: retailer, wholesaler, distributor, and factory
- Each position is identical (except for the factory). Each has an inventory of beer. Each receives orders from and ships beer to the sector downstream. Each orders beer from the sector upstream. Beer is received after a shipping delay. (In the case of the factory, beer is received after a production delay.) Orders are received after a mailing delay.
- Basic rules
- Have each team pick a name for their brewery (e.g. the name of a real beer). Have them label their record sheets with the name of their brewery and their position, e.g. retailer, wholesaler, etc.
- Have each person ante up $1.00, or an appropriate amount, which will go to the winning team, winner take all.
- The object of the game is to minimize total costs for your team. The team with the lowest total costs wins. Costs are computed in the following way: The carrying costs of inventory are $.50 per case per week. Out-of-stock costs, or backlog costs, are $1.00 per case per week. The costs of each stage (retailer, wholesaler, distributor, factory) for each week, added up for the total length of the game, determine the total cost.
- No communication between sectors. Retailers should not talk to anyone else, same for wholesalers, distributors, and factories. The reason for this is that in real life there may be five factories, several dozen distributors, thousands of wholesalers, and tens of thousands of retailers, and each one cannot find out what the total activity of all the others is. The only communication betweer. Sectors should be through the passing of orders and the receiving of beer.
- Retailers are the only ones who know what the customers actually order. They should not reveal this information to anyone else.
- Steps of the Game. The game leader should call out the steps as the game progresses. The first few times when the system is still in equilibrium the leader should go through the steps very slowly to make sure people have the mechanics down. Notice that of the five steps of the game, only the last, placing orders, involves a decision. The first four steps only involve moving inventory of beer or order slips, and are purely mechanical. For the first few weeks the leader should tell everyone to order four units to keep the system in equilibrium.
- Initialization of the boards
- There should be twelve pennies or chips representing twelve cases of beer in each inventory. Each chip or penny represents one case. There should be four pennies in each shipping box and production delay. There should be order slips with "4" written on them, face down in each order box (orders placed, incoming orders, and production requests). A supply of blank order slips should be available at each sector, as well as a supply of pennies or chips.
- The deck of cards with the customer demand should not be revealed in advance. The pattern of customer demand that is most effective for first-time players is a pattern of four cases per week until week five, and then eight per week from week five on. Each order deck should have fifty weeks' worth of cards, and the players should be told that the game will be fifty weeks long. Typically it's only necessary to run the game thirty-five weeks or so in order to see the pattern of fluctuation, but telling the players it will be fifty weeks prevents horizon effects, where they run their inventories down because they feel the end of the game is coming.
- It's very helpful if the game leader makes sure that each team stays in step so that you can quickly glance around the room and see that everyone is at the right place.
- The game leader should write the current week on the blackboard as the steps for that week are called out.
- In about the eighth or ninth week the retailer will run out of inventory and have a backlog for the first time. People do not understand the meaning of backlogs, or the cumulative nature of the backlog. It is necessary to stop the game at this point, ask everyone to pay attention, and explain how backlog accounting works. Explain that the backlog represents orders you've received, but have not yet filled, and which you must fill in the future. Explain that the backlog is cumulative. "Next week you have to fill the incoming orders that you receive, plus whatever is in your backlog, if possible. If not possible, then the amount left over is added to the existing backlog and must be filled in later weeks." Emphasize at this point that backlog costs twice as much as inventory. You may need to do this one or two more times, and should be careful to check and be sure that they do in fact fill their backlog. It is helpful to write the following equation on the blackboard to help with backlog accounting:
Orders to fill = New orders + Backlog this week this week last week
- The game can be played in as little as one and a half hours if the leader maintains a very brisk pace. The debriefing usually requires at least 40 minutes and can be expanded substantially.
This quotation from Tolstoy's War and Peace illustrates well the idea "structure produces behavior".