The Beer Game on a Global Scale

The Beer Game on a Global Scale

The current unstable supply chains across the world are affecting most industries and are unlikely to go away anytime soon. We believe this situation will continue in one form or another for the next 12-18 months.

The problems began during the pandemic with businesses reducing stock to improve cash flow, but as demand has returned more sharply than many businesses expected, they have been unable to refill the supply chain and fulfil orders. Consequently, organisations have grabbed stock when they can, which in turn leads to greater supply shortages and price inflation. We talked about this vicious cycle more in a recent article.

There has been much talk of supply chain resilience and the death of Lean supply chains. This is unfair and only occurs where supply chains have been allowed to become anorexic rather than lean.

The Beer Game, for those that don’t know

Those Lean practitioners of a certain vintage will know the beer game: it’s used to train people in the difference between MRP driven, batch-based, push manufacturing and the greater agility and flexibility shown by a pull-based, Lean approach to manufacturing. One of many such games that exist today.

For those not of this particular `vintage’ the game is designed in two rounds: Round one uses a push approach, with demand growth designed so that the inertia of the push approach builds inventory but a failure to supply. Just as equilibrium is reached and good supply starts, demand reduces, and we have lots of unusable stock. In round 2 Lean rides to the rescue and the greater agility and responsiveness ensures better supply and inventory balance as demand increases and critically when it drops away.

Why is that relevant today?

As lockdowns end and demand rapidly returns towards pre-pandemic levels, we are seeing Lean supply chains struggling to deliver to customers and the principles of Lean and Agile being challenged for the first time in many years.

What we are seeing is a wider failure of the supply chains where they have been allowed to become anorexic, understandably to save cash, so capacity has reduced and with extended and tightly coupled global supply chains, the ability to respond in the short-term is limited and expensive. The inertia and hysteresis is too great.

The behaviours that are emerging go back to push type mindsets where we “grab” stock when we find it which is not a balanced supply chain approach. This is exacerbating shortages and inflating the apparent level of true demand.

I have this terrible feeling that we will convince ourselves that all of the current demand growth is real and sustainable and, just like the beer game, capacity will be ramped up and reach a new equilibrium only to realise only part of the growth was real and everyone will then look to de-stock and push back orders. The classic boom/bust cycle.

So, who will be the winners?

The winners will be those with robust S&OP disciplines with the skills, systems and the ability to test scenarios and be honest about what proportion of growth is real and sustainable and what is not. Above all, they will have maintained and evolved the agility of their Lean based supply chains building resilience only where it is strategically important, and working more collaboratively with customers, suppliers and including those two or three tiers down the supply chain to achieve this.

Iter Consulting has an excellent track record and skills in strategic supply chain design and optimisation, the use of S&OP and the strategic use of Lean and Agile approaches and we would love to discuss how we can help you to navigate the choppy waters of the next few months.

Tim Richardson
Development Director
Iter Consulting