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Beer game esristhi
- 1. www.esrishti.co.in Network Enterprises Solutions ESRISHTI PVT LTD IIT Kharagpur 721302 INDIA
- 5. www.esrishti.co.in Lack of SC Coordination and the Bullwhip Effect Supply chain coordination – all stages in the supply chain take actions together (usually results in greater total supply chain profits) SC coordination requires that each stage take into account the effects of its actions on the other stages Lack of coordination results when -Objectives of different stages conflict or -Information moving between stages is distorted
- 6. www.esrishti.co.in Bullwhip Effect Fluctuations in orders increase as they move up the supply chain from retailers to wholesales to manufacturers to suppliers Distorts demand information within the supply chain, where different stages have very different estimates of what demand looks like Results in a loss of supply chain coordination Examples: Proctor & Gamble (Pampers); HP (printers); Barilla (pasta)
- 7. www.esrishti.co.in Consumer Sales at Retailer 0 100 200 300 400 500 600 700 800 900 1000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 Consumerdemand Retailer's Orders to Wholesaler 0 100 200 300 400 500 600 700 800 900 1000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 RetailerOrderWholesaler's Orders to Manufacturer 0 100 200 300 400 500 600 700 800 900 1000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 WholesalerOrder Manufacturer's Orders with Supplier 0 100 200 300 400 500 600 700 800 900 1000 1 4 7 10 13 16 19 22 25 28 31 34 37 40 ManufacturerOrder The Bullwhip Effect
- 9. www.esrishti.co.in ORIGIN • The Beer Game is a logistics game that was originally developed by MIT in the 60s and has since been played all over the world by people at all levels, from students to presidents of big multinational groups.
- 10. www.esrishti.co.in PURPOSE • The purpose of the game was to show how the patterns we create in our relations with the world around us sometimes give unexpected and undesired results. This is an expression for what is called system dynamics. Jay W Forrester in the USA first developed the ideas and theories behind this branch of science. • The game shows how we (re)act in various situations, and how these situations lure us into standard ways of "thinking" that we accept without question, as exemplified by responses such as it has always been that way.
- 11. www.esrishti.co.in OBJECTIVES • To experience systemic effects and to introduce the need for supply chain and network management. • To see how single parts in a system influence each other • To observe how individual thinking differs from systemic thinking (network thinking). • Potentials for systems optimization and the use of information systems.
- 12. www.esrishti.co.in PLAYERS The Beer Game supply chain consists of four players: • Retailer • Wholesaler • Distributor • Factory
- 13. www.esrishti.co.in STRATEGY SET OF PLAYERS The actions that can be performed by each player are: • receive incoming orders • receive incoming deliveries • send out deliveries • decide on the quantity to be ordered
- 14. www.esrishti.co.in PLAYING PROCEDURE The game runs in weeks starting from 1. In each week, each player has to proceed with the following steps: • Receive new deliveries • Receive orders • Calculate the total amount that will be shipped (“their delivery”) • Decide on a new order amount
- 15. www.esrishti.co.in BASIC RULES Ordering sequence of beer Customer Retailer Wholesaler Distributor Factory Supply sequence of beer Customer Retailer Wholesaler Distributor Factory Each player is under an obligation to meet his demands.
- 16. www.esrishti.co.in COSTS • The main objective of each player is to minimize his cost. • There are two types of costs to each player: – Inventory cost : Cost for holding the inventory in stock – Back-order cost : If an incoming order cannot be fulfilled, items are outstanding and have to be put on “backorder” to be satisfied in the following week(s)
- 17. www.esrishti.co.in SOME MORE RULES • No communication is allowed between supply chain groups; supply chain groups must not talk to each other at any time • Especially the customer demand is only known to the retailer • If stock is available, an order has to be fulfilled • Every order has to be fulfilled, either in the current week (if enough stock is available) or in one of the next weeks (items go on backorder) • Either the inventory or the backorder, one of them is always zero
- 18. www.esrishti.co.in GAME SET-UP • Inventory Cost $0.5 • Back-order Cost $1.0 • Lead time 1 week
- 19. www.esrishti.co.in TABULATION A good analysis requires the following values to be tabulated • Incoming Delivery • Incoming Order • Back-order • On-hand Inventory • Cost • Player’s Order
- 21. www.esrishti.co.in POST GAME ANALYSIS • Did you feel yourself controlled by forces in the system from time to time? Or did you feel in control? • Did you find yourself "blaming" the groups next to you for your problems? • Did you feel desperation at any time? • Why are there order delays? • Why are there production delays? Shipping delays? • Why have both distributor and wholesalers; why not ship beer directly from the factory to the retailer? • Must the brewer be concerned with the management of the raw materials suppliers?
- 24. www.esrishti.co.in REVIEW a. What went wrong? How can the performance be improved? b. What are the important factors affecting supply chain performance? c. How can you help in improving supply chain performance with respect to these factors?
- 25. www.esrishti.co.in BULL-WHIP EFFECT • The bullwhip effect (or whiplash effect) is an observed phenomenon in forecast-driven distribution channels. It refers to a trend of larger and larger swings in inventory in response to changes in demand, as one looks at firms further back in the supply chain for a product. • Order variability is amplified upstream in the supply chain. Ex: HP
- 26. www.esrishti.co.in BULL-WHIP EFFECT PROBLEMS • Variation in demand along the supply chain requires the following to cope with peaks. – Shipment capacity – Production capacity – Inventory capacity • Most of the time this capacity will be idle. – There’s significant cost and investments attached! • In the end: high overall cost in the supply chain – But competition is between supply chains and networks, not just between individual companies!
- 27. www.esrishti.co.in FACTORS CONTRIBUTING TO BULL-WHIP EFFECT • Demand forecasting – Usage of aggregate and thus inaccurate data does not allow for good predictions – High variability leads to continuous adaptations of order policies and thus increases variability upstream • Lead time – High lead time creates uncertainty – Requires high safety stock levels – Reduces flexibility and adaptability to unforeseen changes in demand
- 28. www.esrishti.co.in • Batch ordering – Batch ordering at one stage in SC leads to observing high variability at next stage upstream: • one week large order followed by weeks with no order • Contributors: fixed ordering costs, transportation and price discounts • Price fluctuation – Stock up when prices are lower large orders – Promotions and discounts • Inflated orders – In time of shortages, suppliers place big orders when expecting to be allocated proportionally FACTORS CONTRIBUTING TO BULL-WHIP EFFECT
- 29. www.esrishti.co.in STRUCTURE CREATES BEHAVIOUR • Different people in the same organizational structure produce similar results. • The structure of the game (i.e. the supply chain) causes the resultant behaviour. • This is precisely what its inventor (Forrester) intended to achieve and what is referred to as the effects of systems dynamics.
- 30. www.esrishti.co.in MORAL • In traditional supply chains information about consumer demand is only passed up the supply chain through the orders that are placed – Or using aggregated figure • Information is therefore lost • High Buffer stocks result • Even if each party acts “optimally” individually the result is less than optimal for the whole supply chain • Result is higher prices, less sales. • Competition is now supply chain against supply chain and network against network
- 31. www.esrishti.co.in ONGOING RESEARCH: MORE BEER • Value of information sharing. • Coordination and cooperation. • Bargaining and negotiation. • Alternative learning mechanisms: Classifier systems.
- 32. www.esrishti.co.in References 1. Introduction to operations and supply chain management, Sunil chopra and peter meindl. 2. Introduction to Logistics Systems Planning and Control, Ghiani, Laporte and Musmanno, Wiley.