Supply Chain Management Simulation Activity

This page is authored by Michelle B. Kunz, Morehead State University, using an online simulation by Michael Bean co-founded Forio Business Simulations, via Merlot link: http://www.merlot.org/merlot/viewMaterial.htm?id=225345
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Initial Publication Date: August 11, 2010

Summary

The Near Beer simulation demonstrates the difficulty of managing supply with customer demand and exemplifies the Bullwhip Effect in supply chain management. In essence, the simulation will show how difficult it is to match production and supply as customer demand changes. The free, limited use, Near Beer simulation has two levels, novice and expert. The novice level provides sufficient interaction for students to attempt to match inventory with customer demand. This simulation is appropriate to use in a principles of marketing course, to supplement the class discussion, and might be introduced at the conclusion of the first class session, to be completed by the end of the week, or conclusion of the class topic discussion.

Depending upon the size of the class, students can complete the simulation individually, or in small (no more than three students) teams. I prefer to assign this activity individually. The objective is to balance inventory with demand, and reduce or avoid stock-outs and over-supply of inventory. Not as easy as it sounds! The effectiveness of meeting demand is measured in how many weeks it take to reach a balanced inventory. I have had students meet demand in as little as 6 weeks, while others may take as long as 16 weeks.

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Learning Goals

After completing the simulation, student will
  1. Analyze the factors affecting inventory equilibrium in the supply chain
  2. Discuss factors that impact supply chain management decisions

Context for Use

This is a simple and visual way to demonstrate the difficulty of getting goods through the supply chain to meet customer demand. Students will find it fun just because of the name, but also more engaging as the class discussion progresses. It will depend upon how many class sessions are devoted to supply chain management, but I like to have discussed the topic at least one day, and then at the end of that class session introduce the simulation assignment. If I have two more days of discussion, this is a good way to open the last day of class discussion, and see just what observations and comments the students have upon completion. If you only have two days in class to cover the topic, then I use this as the final, "wrap-up" discussion to conclude the chapter. On occasion, I have used this as an extra-credit assignment, but over time, have found that assigning the simulation as a graded assignment is more effective. Finally, I do not grade students based upon how long it took them to equalize inventory with demand, rather on their analysis of their decisions and adjustments that influenced the outcome of the simulation.

Description and Teaching Materials

The Near Beer online simulation is a free version of the for-purchase Beer Simulation. For the purpose of exposing students to the complexity of managing the supply chain to meet changing consumer demand, the free Near Beer simulation works very well. The goal of the simulation is to demonstrate the Bullwhip Effect, oscillations of stock-outs, followed by over-supplied inventory. Quite simply, only one single change in customer demand can take weeks to reach equilibrium.

The simulation provides feedback to each weekly change made in production orders, and demonstrates just how difficult it is to predict and meet consumer demand. There are graphs that track customer orders, lost orders, inventory and shipments.

Teaching Notes and Tips

There is nothing noted on the website, but the free simulation has a limited number of days it will function, so I try to get students to complete the assignment in 2-3 days. There are additional articles available on the site that discuss supply chain management challenges.

There are other simulations available at the home page of this site. Examples that might also be appropriate in other topics include restaurant wait time and new product launch. Full-length simulations can also be purchased if needed for semester-long instructional support.

Finally, if students do not find the combination to reach equilibrium after two or three attempts, they may become frustrated and give up. This is why I stress that there is no "perfect" answer, but rather the purpose of the task is to see just how difficult matching supply with demand can be.


Assessment

In the student's written analysis of the simulation exercise, I ask them to respond as a minimum to these questions:
  1. How many weeks did it take you to reach equilibrium?
  2. What inventory shortages and lost orders did you experience?
  3. Did you ever have more inventory than customer orders?
  4. How did you adjust your production/raw orders to meet customer demand?
  5. What challenges/problems did you experience?

If I do not assign a written analysis, then in the case of a small class, in-class discussion of their results and responses provides good in-class discussion.

References and Resources