CoRem, the Council on Realizing Excellence in Management, puts on programs about once a month to help business owners understand the theory behind business practices and processes.
One of CoRem’s recent offerings was the Beer Game, an exercise that simulates the distribution chain from manufacturer to retailer. The game is played by the retailer drawing cards that represent cases ordered by customers in successive rounds, then forwarding the order up the line to the distributor, who places an order with the wholesaler, who in turn places an order with the brewery.
The brewer then decides how much beer to produce and fills orders to be shipped through the system and ultimately back to the retailer. Each team in turn moves a like number of cases to the next distribution level. A one-week lag is built into the process, and none of the teams knows what the orders are until they receive them, so none can anticipate what the immediate demand might be.
The score for each team is determined by assessing a cost for each case that is either backordered or held in inventory in each round of the game, so holding a lot of inventory or backorders can get expensive.
What seemed like a pretty simple process got a whole lot more confusing once the game got underway. I was on the retail team, arguably the easiest to manage, but still no snap.
It wasn’t long before things got out of whack at almost every level. Teams reacting to an anticipated shortage in inventory placed big orders that failed to meet its needs one week only to get snowed under with product later in the game.
The exercise demonstrated not only how critical it is to have good data to manage the process, but how emotion will drive the process in the absence of hard information. The CoREM guys pressed us to make fast decisions, and even though our team adopted a conservative approach to replenishing inventory, our judgments were based on little more than gut feeling.
What did I learn besides the fact that I wasn’t cut out for the beer business? Having a thorough knowledge of your own company isn’t enough.
And knowing as much as you can about your customer’s customer and your supplier’s supplier isn’t a luxury, it’s a necessity. How to reach: CoREM, www.CoRem.org
