Decision making implications for a selected echelon in the beer game

Abstract

The beer production-distribution game, in short “The Beer Game”, is essentially a board game and it simulates a four echelon supply chain consisting of a retailer, wholesaler, distributor, and factory. During the game, every participant in a group of four is responsible for one of these four echelons and manages the associated inventory by placing orders. The aim of the game is to minimize the accumulated total cost obtained by the participants of a group managing each echelon. In this thesis, a mathematical model that is an exact one-to-one replica of the board version is constructed. The main aim of this thesis is to develop an understanding about how one should control an echelon in The Beer Game in the presence of identically controlled echelons; we assume that only the participant managing the echelon of concern behaves different than the rest of the group. We are specifically interested in the case where the echelons other than the selected one sub-optimally manage their individual inventories or backlogs. There can be two objectives: (i) the minimum cost for the echelon of concern can be obtained, (ii) the minimum group total cost can be obtained by optimizing the decision parameters of the selected echelon. Accordingly, we optimize the parameters of the anchor-and-adjust heuristic, which is the control policy used in this study, for the selected echelon by keeping the decision parameters constant for the rest of the three positions. We obtain different instances of the anchor-and-adjust ordering policy by optimizing stock adjustment time and by optimizing desired inventory of the selected echelon. In general, the group total cost can be decreased by allowing an increase in the total cost of the selected echelon. Unexpectedly, we obtained the lowest group total costs for the wholesaler when we minimized the group total cost by sacrificing the objective of minimizing the cost of the echelon of concern.