THE DISTRIBUTION CHANNEL GAME Developments In Business Simulation & Experiential Exercises, Volume 20,1993 139 The Distribution Channel Game Dr. Richard Teach, Georgia Institute of Technology THE GAME This is an easy-to-use exercise, which demonstrates some of the unanticipated affects of a change in demand upon inventory levels at points in the distribution channel and the capacity levels needed for manufacturing. The exercise works best with 21 participants but can be used with as few as 10. If there are more than 21 in the session or class, they are able to learn by observation and are able to actively participate in the debriefing. Observation of this game is almost as informative as participation. The exercise requires between an hour and an one and one half hours to complete and debrief. It emphasizes that even when every partner in a product’s distribution channel behaves in a rational manner, the results may be very detrimental to every one. The participants blame the bad outcome on each other, calling their behavior irrational. The results if fully debriefed causes the participants to question the system and not each other’s behaviors. The exercise uses microcomputers as the example product but other products could be substituted depending upon the participants’ experiences. The important characteristic is that the product not require major attention from the reseller. That is the product be only one item in a multi-product category. The game is normally structured with 16 resellers, 4 distributors (each distributor handles 4 resellers) and one manufacturer. Other configurations could be developed and substituted easily. The specific structure depends upon the number of participants. This example is structured for 21 participants. THE RULES The rules of the game are as follows: At the end of each simulated week, the reseller normally orders, from their distributor, the same number of units that they sold during the week. This, however, is not a firm rule. It depends upon the buyer’s wishes. If the reseller wants to, he or she may order more or less units than was sold, it depends upon their expectations of future sales. It is normally expected that it will take four weeks for the distributor to deliver the order, but the participants are told that sometimes the truck arrives late and it has been known not to show up at all and miss the entire week’s orders. This lack of guaranteed delivery has, at times, occurred at the distributor’s level as well. The players are told that two years ago, one of the distributors ran out of inventory during a peak selling time, and as a result, his resellers also ran out of inventory and lost some sales due to being out of stock. They are also told that the history of dealing in this industry has taught the resellers and the distributors to carry about 4 weeks worth of inventory. At the beginning of the game, each reseller carries a physical inventory of 4 weeks supply. These same rules apply for each distributor and the manufacturer. It takes 4 weeks for the manufacturer to increase production capacity. Price is not a variable in the game. It is simply assumed that price is held constant. RUNNING THE GAME At the start of the simulation, each of the resellers is selling at a constant rate of 4 units per week, and have 16 units in inventory. Each distributor is shipping 16 units per week (4 to each reseller) and has 64 units in inventory. The manufacturer is shipping 64 units per week (16 to each distributor), carries inventory of 256 units, produces at the rate of 64 per week and has a manufacturing capacity of 128 units per week. In the third simulated week, demand starts to increase at the rate of one additional unit per week per reseller. This increasing rate of sales continues for 4 weeks, until the demand doubles to 8 units per week per reseller. Thereafter, demand remains stable at 8 units per week per reseller. This is all that is happening. The game is typically run for about 30 simulated weeks. RESULTS In this scenario, demand was initially stable, then demand increased in a very steady fashion, one added unit per week, to a level twice what it originally was and then demand stabilized again. This demand phenomenon is not unusually wild, in fact, it is much more well behaved than one might expect, especially when considering high- tech products. The normal outcome is totally unexpected. Early in the game every reseller throughout the channel has its inventories fall to zero, and sales are lost due to inventory shortages. This is followed by substantial over-ordering and then excessive inventories all along the channel. At the end of the game, there is both excessive inventory and over-capacity at the manufacturing end, excessive inventory for the distributor and excessive inventory at every reseller’s establishment. The only way to correct for the excesses is for the manufacturer to have a lengthy lay-off, take a capital loss and reduce capacity and then wait until the excessive inventories are worked down. This process could take as long as 6 to 8 months. In a real situation this would likely cause the manufacturer to go bankrupt. The distributor will suffer excessive inventories for as long as 6 to 7 months and the resellers may not get inventories into proper alignment for 4 to 6 months. Debriefing is usually very lively. The discussion leads to an explanation of the problem, what happened, why it happened, the process that caused it and then leads the participants to consider methods of avoiding this serious and not uncommon problem. Table of Contents Volume 20, 1993 Dominant Personality Types and Total Enterprise Simulation Performance Shelf Wars: A Grocery Channel Simulation Shared Cultural Perspectives: An Experiential Exercise Utilizing International Students to Globalize the Classroom An Instrument for Investigating the Effectiveness of Teaching Methods in the Business Policy and Strategy Formulation Course Providing Better Trained Graduates for Accounting Employers The Ambition Gradient Approach to Evaluation of Computer Simulation Game Team Performance Alphatec: A Negotiation Exercise with Logrolling and Bridging Potential Using the Ideafisher Idea Generation System as a Decision Support System in Marketing Strategy Courses A Dynamic Market Share Allocation Model For Computerized Business Simulations Multi-Cultural Adaptability Using Experiential Learning in a Graduate Course Development of Experiential Applications in HRM: Practicing What Preach and Preaching for Practice Linking Students and Business Leaders Through Portfolios Debriefing International Experiential Learning Exercises: Road Signs for Effectiveness Sales Manager: A Simulation Modeling Interactive Effects in Mathematical Functions for Business Simulations: A Critique of Goosen's Interpolation Reducing the Complexity of Interactive Variable Modeling in Business Simulations Through Interpolation Antecedent Biases of Experiential Learners: Trainee Occupation and Subgroup Diversity Pax in Terra Sancta: Simulating the Middle East Peace Negotiations A Multiple Regression Case In Experiential Learning Changes in Ethnocentric/Geocentric Orientation by Business Students after Exposure to a One Summer Course in International Marketing's A Systematic Approach to the Development and Evaluation of Experiential Exercises Entrepreneurs Evaluate Experiential Education A Linear Programming Approach to Open System Total Enterprise Simulations Reflecting Leader Behavior from the Looking Glass, Inc. Simulation Linking Cognitive Styles, Teaching Methods, Educational Objectives and Assessment: A Decision Tree Approach Restructuring Management Education in Post-Communist Countries: How Western Experts Can Help Managerial and Cultural Pre-Conditions for Superior Performance in a Global Setting: An Experimental Study with the Aid of Business Games Multiple Industries in Computerized Business Gaming Simulations Content or Process? - Content and Process! Some Observations and Reflections About Management Education in Central Europe Out-of-Class Experiences to Promote Volunteerism Enacting the Linguistic Consciousness of the Modern Managerial Mind: Post-Modernism and Experiential Learning Intergrating Experiential Exercises into the College Curriculum: The Case of Internationalizing the Business Curriculum Simulation Marketing Oversights Incorporating Advertising Creative Strategy into Computer-Based Business Simulations The Dynamics of a Partnership Between Business and Education Collaborative Education Done Globally Experiential Systems Analysis CADPLAN: A Simulation for Comparative Advertising A Doctoral Symposium: Preparing Students for Conference Behavior Comparing the Simulation with the Case Approach: Again! Total Quality Management: A Model for Continuous Quality Improvement The Quality Audit: An Experiential Exercise for Business Students Extending the Reach of Simulations: DECIDE Heads for the Inner City Lessons Learned from a Customized Management Development Simulation The Foreign Exchange Spot Trading Simulation Using Lotus 1-2-3 to complete a Triple Play in a Simulated Competition International Business Education: Is Enough Being Done? Matching of Student-Teacher Cognitive Style as a Factor in Student Success in an Introduction to Information Systems Course Breathing (More) Life into the Case Approach Lord of the Flies: A Live Case Approach to Leadership Cooperative Case Studies: Experiential Tools for Teaching Business Problem Solving Tools Strategy Simulations in Context: An Evaluation of Key Dimensions The Distribution Channel Game Evaluation of a Simulation Game as an Education Tool for Utility Professionals The Relationship Between Total Enterprise Simulation Performance and Learning Total Quality Management does not Happen by Magic, but it can be Taught Using a Pedagogical Methodology that Utilizes Magic Effectively Preparing Students for Careers in a Global Environment by Integrating Total Quality Management Thoughout the Business Curriculum An Empirical Investigation of Cognitive and Performance Consistency in a Marketing Simulation Game Environment Using MARSGAP with LAPTOP: (A Marketing Simulation Game Analysis Program) with LAPTOP: A Marketing Simulation Adapting TQM Implementation to Organizational Level An MBA Business Simulation: Executive Interaction Experiential Exercises and Pedagogy Track Workshop: Experiencing Cultural Diversity in the Classroom (and the Hotel Meeting Room) Closing the Gap between Corporate and National Culture The Dynamic Manufacturing Company The Use of Experiential Techniques in Corporate Training The State of Simulation Gaming in Easter European Countries- Principally Russia An Experiential Exercise in Cross-Cultural Training Valuing Differences: A Conceptual Framework Demonstration of an Experiential Exercise Effectively Using Experiential Learning to Impart TQM Concepts in a High Technology Environment The Older Worker Questionnaire: An Exercise Concerning Older Worker Stereotypes and Behaviors The Crime Fighting Task Force: An Exercise in Organizational Politics Welcome to the Party! An Expression of Vocational Preference Experiential Exercise for Imparting Cross-Cultural Appreciation Six Swift Simulations on Globalization Overview of BASF Delegate Program