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Players’

guide
The Supply Chain Game

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited
Contents

1 Introduction to the Game


Objective of the Game
About the Game
What you can learn from the Game

3 GameCo and its supply chain


Background to GameCo

8 Game-playing schedule and rules


Schedule
Rules of replenishment

11 Costing and accounting policies


Revenue, cost of sales and stock
accounting
Storage and distribution
Overheads

12 Team strategy
Strategy presentation

14 Decision pro-forma

15 Last year’s reports


Distribution report
Production report
Sales report
Branch report
Profit and Loss account

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited
The Supply Chain Game
Introduction to the Game
To play the Supply Chain Game, you will become a member of a small business team.
Your job as a team will be to take decisions on the supply and deployment of inventory to
meet the demand for product in the company simulated in the Game – ‘GameCo’.

Objective of the Game


Your team’s objective in the Game is to:
‘enhance profitability through effective management of the supply chain’.

About the Game


The Game is competitive – your mission is to exceed your objective and to do better than
the other teams.
The winning team will be the one that makes the most profit for GameCo – although, the
Game managers have the discretion to adjust the winning order if a leading team has left
itself short of inventory for next year, or not met its goals on customer service.
So be warned – end games are not acceptable!
The Game focuses on the supply chain only, and you should note the following points:
• the demand data that you will encounter is the same for every team and cannot be
influenced by actions between teams, such as pricing and promotion
• the structure of the supply chain is fixed in terms of material flow and lead time, and
you do not have the opportunity to change it.
• there is only one product in GameCo, which is a necessary simplification to keep the
time to play the Game down to a few hours.
Apart from these points, GameCo is exactly like a real company. The Profit and Loss
account that you get each period follows standard accounting practice; and your team will
be taking decisions which are typical in an organisation every week or accounting period.

What you can learn from the Game


The Game has been developed to enable you to experience some key areas of the supply
chain:
• the strategic significance that supply chain management plays on profitability
• the impact of long lead times throughout the supply chain
• the hard work of forecasting in a business
• the complexity of managing a supply chain with several levels of distribution, each
with different cost and margin structures

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Logistics Consulting Partners Limited
Team User Systems Company Limited Introduction 1
The Supply Chain Game
• the implications for manufacturing and supply of changing schedules on unit cost,
and how that balances with the cost of holding inventory
• the organisation and team dynamic issues that are faced every day in making
decisions around supply chain management.

But, above all, the Game is designed to be an enjoyable and challenging experience.
So, make sure you make the most of it and – have fun!

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited Introduction 2
The Supply Chain Game
GameCo and its supply chain
Background to GameCo

GameCo is a manufacturer of high quality kitchen equipment. Sales volume for last year
was 46,500 units. The overall company performance was a profit before tax of £2.2 million
for last year and inventories increased slightly over the year to more than 17 weeks of
coverage. The sales manager has managed to get some ‘evidence’ of lost sales of well over
2,000 units over their peak selling period, but he believes that the lost sales had been as
high as 3,000 units last year. The management has been able to agree that they lost sales on
a number of occasions during the year due to poor supply chain management but not on
how much had been lost.
The Profit and Loss account for last year is as follows.

Units £000’s £/unit %


Sales 46,532 35,824 770 100
Cost of Sales* 46,532 21,478 462 60
Gross Margin 14,346 40
Overheads £000’s
Operating 5,720 123
Storage 4,548 98
Stock Finance 1,050 23
Transport 840 18
12,159 34
Net Profit before tax 2,188 6

* includes £455K cost of schedule change

The management believes that there is real growth in the market, at the unit level, of
between 3% and 4% pa.
GameCo sells its products through retail, wholesale and bulk direct channels with a sales
mix and pricing structure, as shown in the ‘Table of mix and value’, on the next page.
The structure of the supply chain is illustrated in the diagram on the next page.
This diagram also shows that the retail outlets are supplied from the regional distribution
centre which, then, is supplied from the central warehouse. The central warehouse is
adjacent to the plant, and product is moved from the plant as soon as it is made. This
structure is not available to change.

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Logistics Consulting Partners Limited
Team User Systems Company Limited GameCo and its supply chain 3
The Supply Chain Game

Manufacturing
Manufacturing

9 Weeks Central
Central
Warehouse
Warehouse

Regional
Regional
3 Weeks Distribution
Distribution

4 Weeks Retail
RetailBranches
Branches

Table of mix and value

From Sales last year Revenue


percentage units per unit

Central warehouse 23.5% 10,947 £720


Regional distribution centre 22.5% 10,497 £750
Retail branch 54.0% 25,088 £800

Lead times through the GameCo supply chains are quite long, but typical for an industrial
company. It takes a total of 16 weeks to get a change right the way though the GameCo
supply chain.
Specifically:
• a change in manufacturing output is available after 9 weeks
• a change in replenishment from the central warehouse to the regional distribution
centre is available after 3 weeks
• a change in replenishment from the regional distribution centre to the retail branch
is available after 4 weeks.
The implications of lead times are important, and they are shown in the diagram on the
next page.

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Team User Systems Company Limited GameCo and its supply chain 4
The Supply Chain Game

4 wks 4 wks 4 wks 4 wks

last period next period 2nd period 3rd period

today
9 week leadtime

Manufacturing 900 900 900 900 900 900 900 900 ?? ?? ?? ??

3 week leadtime

RDC Replen 800 800 800 800 ?? ?? ?? ?? today’s


decision
4 week leadtime

Retail Replen 300 300 300 300 ?? ?? ?? ??

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited GameCo and its supply chain 5
The Supply Chain Game

Seasonality and volatility of sales


The following charts show the sales by period and week for last year at each echelon.
There are some key features to these charts:
• weekly volatility is much greater than would be interpreted from sales data on a
period basis
• volatility and seasonality are very significant at the retail branch level but much less
so at the regional distribution centre and central warehouse levels
• there is at least one major seasonal peak in demand at the retail branch echelon
• close inspection reveals some evidence of lost sales.
Pattern of period sales for last year

Central
Sales Results Last Year Region

3000 Branch

2500

2000

1500

1000

500

1 2 3 4 5 6 7 8 9 10 11 12 13

1 2 3 4 5 6 7 8 9 10 11 12 13 Year

Central 806 777 810 1035 791 1007 1054 805 676 844 651 753 938 10,947

Region 1038 896 1009 831 780 601 749 728 667 715 691 882 910 10,497

Branch 1691 1756 2577 2108 2000 1603 1782 2135 2798 972 1255 2504 1907 25,088

Total 3535 3429 4396 3974 3571 3211 3585 3668 4141 2531 2597 4139 3755 46,532

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Logistics Consulting Partners Limited
Team User Systems Company Limited GameCo and its supply chain 6
The Supply Chain Game
Pattern of weekly sales for last year

SalesCW

1200 SalesRDC

SalesBr
1000

800

600

400

200

0
10

13

16

19

22

25

28

31

34

37

40

43

46

49

52
1

Week No

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited GameCo and its supply chain 7
The Supply Chain Game
Game-playing schedule and rules
Schedule
The Game is played for a financial year consisting of 13 four-week accounting periods.
Each team takes 13 decisions using the ‘Decision input form’ shown below.

Decision input form

Your Team:

Year: 1

For Period No:

Units per week


Branch
Replenishment Order:

Region
Replenishment Order:

Production Schedule:
N.B. Range: 400 - 1500

It all looks extremely simple – all you appear to have to do is enter 3 numbers each period,
over the 13 periods. But appearances can be deceiving…
How it works
Each decision specifies the weekly manufacturing and replenishment quantities for the
next four weeks at the lead time for each echelon, as shown in the diagram on page 5.
Until that time, the previous decision in the system applies. At the start of the Game there
are decisions already in the system that you will experience. These are also shown in the
diagram on page 5.

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited Schedule and rules 8
The Supply Chain Game
You may not vary the weekly quantity within the decision period; the quantity you specify
is applied equally to each week within the period.
The system recalculates the position each week, based on the decisions your team has
made and the demand that is in the Game.
Each period you receive a set of reports showing:
• the weekly situation within the period
• the total for the period
• the Profit and Loss account for the period
• the total position for the year to date.
You can find the reports for the last period of last year on page 13.

Rules of replenishment
The rules in the Game regarding replenishment and production are as follows.
• Stock arriving at a location is added to the stock after the customer demand and
replenishment has been taken from the previous balance on hand. See the diagram on
page 5 to understand how this works.
• At both the regional and central stores, priority is given to satisfying customer orders,
before replenishment orders from the lower levels are satisfied.
• Unsatisfied customer demand is perishable; that is, if insufficient stock is available for
customer demand, part orders are satisfied, but the shortfall is not carried over as a
back-order, and is registered as ‘lost’.
• However, unsatisfied stock replenishment is not perishable, and will be carried over to
the following period, but with customer demand remaining the priority. In these
cases, care is needed to ensure that you do not allow the level of back-orders to build
up over a longer period. The ‘Branch report’ will give you a clear indication when this
problem arises.

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited Schedule and rules 9
The Supply Chain Game
Production
Production can be specified at a weekly rate of between 400 and 1,500 per week but not
outside this range.
If you elect to reduce production, the company continues to bear the full variable and
fixed cost of the previous production rate for one period after the schedule change has
been applied. For example, if the schedule was 900 per week in weeks 5–8 and you reduce
the rate of supply to 800 units for weeks 9–13, the unit cost of production for weeks 9–13
would be as follows:
Fixed cost (4 weeks at £110,000 per week) £440,000
Variable cost (900 times £325 per unit, times 4 weeks) £1,170,000
Total cost £1,610,000
Actual production 3,200
Unit cost = £1,610,000 divided by 800 times 4 weeks £503
The next period, the unit cost is the fixed cost, plus the rate of production, times the
variable cost, divided by the rate of production (£462.50) – unless you lower the rate of
production again. If production is increased, the variable unit cost remains at £325, but the
full unit cost goes down as the fixed costs are spread over a greater volume.

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited Schedule and rules 10
The Supply Chain Game
Costing and accounting policies
Revenue, cost of sales and stock accounting
As explained earlier, the unit price is different for the three trade channels, resulting in
substantial differences in gross margin between the echelons, based on a standard cost
with fixed costs fully overhead absorbed at the rate of 1,000 units per week

Selling price Gross margin Margin %


Retail branch £800.00 £365.00 46%
Regional distribution centre £750.00 £315.00 42%
Central warehouse £720.00 £285.00 40%

The accounting policy for stock is to use the weighted average of the stock value in the
company, and the current period’s production with the fixed costs for the period of
£440,000 (£110,000 per week), absorbed on the output in the period.
The cost of sales for the period is calculated using this weighted average unit cost.
The average stock value is updated weekly, and is used to calculate the stock investment
charge using a financing rate of 18% pa.

Storage and distribution


The storage and distribution costs at each level in the chain are as follows:

Storage cost per unit per week Transport cost to each level
Retail branch £10.00 £10.00
Regional distribution £7.00 £15.00
centre
Central warehouse £5.00 nil

The cumulative cost of shipping product to the retail level from the plant is £25.
Overheads
There is an operational overhead charge on the business of £440,000 per period.

© January 1998
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Team User Systems Company Limited Costing and accounting policies 11
The Supply Chain Game
Team strategy
You need to think as a team about your strategy to play the Game.
The session starts with a period of about an hour in which you are not required to make
any deployment decisions. During this time, you should understand the overall dynamics
of the situation and put together a high level assessment of what you will be trying to
achieve when you make your decisions.
The following are some guidelines to the elements of strategy. You may find it useful to
work using these headings.
• Profitability – given the profit and loss account for last year, where are the
opportunities to improve profit going to come from?
• Customer service objectives – what should your team be aiming for in terms of
satisfying demand? Given the apparent volatility of sales at the retail level, is it
viable to aim for 100% fulfilment?
• Sales forecast for the year – what do you think the overall volume will be if the
company meets all the demand, given the forecast growth rate and the estimates of
lost sales?
• Target total inventory to run the business, and at each echelon – how much stock
is needed in total and at each level in the chain to cover replenishment lead times
and the volatility of demand? Currently, there is about 14 weeks of cover. What will
be the leverage on the Profit and Loss account if this is reduced?
• Manufacturing run rate and schedule change strategy – based on your conclusions
above and the high cost of making changes to output, how should you operate the
supply side of the business?
• How to correct any out-of-balance in the current situation – given your assessment
above, how should inventory be re-deployed ?
• How to handle the lead time variations through the chain – given your overall
strategy, what are the implications of lead times and how should your team handle
them?
• How to organise to make the decisions – this is the final question for you, as you
consider your strategy, but by no means the least important. Who in your team is
going to do what? Will you organise functionally with someone guiding you on
finance, another on forecasting, another on inventory planning and manufacturing
scheduling? Or will you go for a collective approach, where you, as a team, define
the process and work out your decisions together?
We have prepared a ‘Decision pro-forma’ to help you manage the numbers. It is part of
this pack. However, it’s worth noting that it’s easy to get immersed in trying to crank the
numbers and to lose sight of the objectives and the key drivers. Think how, or if, you want
to use it to best effect.

© January 1998
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Team User Systems Company Limited Team strategy 12
The Supply Chain Game

Strategy presentation
When you have considered all the factors above, write on just one page of flip chart paper,
a statement of your objectives, and your strategy for managing the company’s supply
chain. Use the following headings:
• Customer service objectives
• Manufacturing strategy – change and run rate
• Inventory levels and positioning
• Team organisation – such as, functional, collective, or your own structure?
• Profit improvement on last year.
This will be used in the review process after you have made your decisions. It is helpful
for you to:
• see if you met your own objectives
• see if your objectives were right
• understand where you might have been able to improve.

Enjoy the Game!

© January 1998
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Team User Systems Company Limited Team strategy 13
The Supply Chain Game
Decision pro-forma

Decision input form

Your Team:

Year: 1

For Period No:

Units per week


Branch
Replenishment Order:

Region
Replenishment Order:

Production Schedule:
N.B. Range: 400 - 1500

© January 1998
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Team User Systems Company Limited Decision pro-forma 14
The Supply Chain Game
Last year’s reports
This section contains the set of reports published for the company for period 13 of last
year, together with two charts showing the pattern of sales for last year. This information
should help you to operate the network over the following year.

Distribution Report
Week 1 2 3 4 Current Cumulative
Period to date
Warehousing storage costs
(£)
Central 23,205 23,245 22,745 22,825 92,020 1,048,840
Regional 54,313 55,972 57,925 59,969 227,906 2,350,754
Branch 32,510 31,360 32,010 30,560 126,440 1,148,890
Total 110,028 110,577 112,680 113,081 446,366 4,548,484

Trunking Units
Regional 800 800 800 800 3,200 39,000
Branch 300 300 300 800 1,200 25,500
Total units 1,100 1,100 1,100 1,100 4,400 64,500

Trunking costs (£)


Regional 12,000 12,000 12,000 12,000 48,000 585,000
Branch 3,000 3,000 3,000 3,000 12,000 255,000
Total 15,000 15,000 15,000 15,000 60,000 840,000

Production Report
Week 1 2 3 4 Current Cumulative
Period to date
Production units
Current production 1,000 1,000 1,000 1,000 4,000 49,000
New schedule 900 900 900 900 3,600 --

Production stock units - central store


Stock-central 4,641 4,649 4,549 4,565 4,565 --

Production costs (£)


Production - fixed 110,000 110,000 110,000 110,000 440,000 5,720,000
Production - variable 325,000 325,000 325,000 325,000 1,300,000 16,055,000
Production - change 65,000 65,000 65,000 65,000 260,000 455,000

Total production cost (£) 500,000 500,000 500,000 500,000 2,000,000 22,230,000

Unit production cost (£) 500 500 500 500 500 450
Note
Because of the 8-week lead time, production of the 900 units per week scheduled for
period 13 of last year will not start until week 1 of period 2.

© January 1998
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Team User Systems Company Limited Last year’s reports 15
The Supply Chain Game
Production during period 12 of last year was scheduled at 900 units per week. This
schedule will commence during week 1 of period 1.

© January 1998
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Team User Systems Company Limited Last year’s reports 16
The Supply Chain Game

Sales Report

Week 1 2 3 4 Current Cumulative


period to date

Sales units
Central 192 300 184 262 938 10,947
Regional 263 221 247 179 910 10,497
Branch 415 235 445 812 1,907 25,088
Total units 870 756 876 1,253 3,755 46,532

Total revenue (£) 667,490 569,750 673,730 972,490 2,883,460 35,824,900

Stock units
Central 4,641 4,649 4,549 4,565 4,503 —
Region 7,459 7,696 7,975 8,228 8,549 —
Branch 3,251 3,136 3,201 3,056 2,544 —
Total stock 15,351 15,481 15,725 15,849 15,596 —

Note:
The weekly stock figures are opening stocks, while the period end units are closing stocks.
For period 13 of last year the branch and region replenishment orders were scheduled at
300 and 800 units respectively. These will become available during week 4 period one
(branch) and during week 3 period one (region).

© January 1998
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Team User Systems Company Limited Last year’s reports 17
The Supply Chain Game

Branch Report

Week 1 2 3 4 Current Cumulative


period to date

Retail sales
Total units 415 235 445 812 1,907 25,088
Total revenue (£) 332,000 188,000 356,000 649,600 1,525,600 20,070,400

Branch stocks
Receipts 300 300 300 300 1,200 25,500
Stock units 3,251 3,136 3,201 3,056 2,544 —

Orders outstanding
Region 1,600 1,600 1,600 1,600 — —
Branch 900 900 900 900 — —

Note:
The branch stock units in week 2:
stock (week 2) = stock (week 1) – sales (week 1) + receipts (week 1)
3136 = 3251 – 415 + 300
The orders outstanding include all replenishment orders raised but not delivered
including those within the lead time and therefore not yet eligible for delivery. These
orders will (subject to stock being available) continue to flow during year 1.

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited Last year’s reports 18
The Supply Chain Game
Profit and Loss Account

Units £s £ / unit %
Sales 46,532 35,824,990 770 100%
Cost of sales* 46,532 21,478,437 462
Gross margin 14,346,553 40%
£s
Overheads Operating 5,720,000 123
Storage 4,548,484 98
Stock finance 1,050,460 23
Transport 840,000 18
12,158,944 34%
Net profit before tax 2,187,609 8%
* includes £455,000 cost of scheduled change

© January 1998
Logistics Consulting Partners Limited
Team User Systems Company Limited Last year’s reports 19