10.1007-s12063-013-0083-4.pdf - Oper Manag Res(2013...

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Decision making in the beer game and supply chain performance John R. Macdonald & Ian D. Frommer & Itir Z. Karaesmen Received: 16 February 2012 /Revised: 30 May 2013 /Accepted: 21 November 2013 /Published online: 15 December 2013 # Springer Science+Business Media New York 2013 Abstract The beer game has been used to emphasize, inves- tigate, and analyze supply chain inefficiencies as well as the effect of decision makers biases. This paper investigates the short- and long-run performance in the beer distribution game by analyzing Sterman s (Manag Sci 35(3): 321 339, 1989 ) model that simulates decision-making. In this model, the system may have chaotic behavior depending on the heuristics used by decision makers. We investigate how quickly the system reaches a steady state (if at all). It is known that ignoring supply line (outstanding orders) leads to the bullwhip effect in experimental research. Among other results, we show that the short-term performance of a supply chain is not a predictor of the long-term performance even when decision makers fully recognize outstanding orders. Results of the simulation and practical implications are discussed. Keywords Beer distribution game . Chaos . Decision making . Simulation 1 Introduction The bullwhip effect refers to the increase in the variability of orders at either a firm level or throughout the supply chain as one moves upstream, away from the customer demand at the retailer level. This has been observed across various industries (Lee et al. 1997 ), and at individual firms in various echelons of the supply chain (Bray and Mendelson 2012 ). It has been estimated that profits for a firm on a given product line could increase by 10 30 % if the bullwhip were eliminated (Metters 1997 ). A significant body of behavioral and analytical research on supply chains uses the beer distribution game (referred to as the beer game henceforth) developed at MIT as a model of a serial supply chain where the bullwhip effect is easily ob- served in a simulated environment. Descriptions of the beer distribution game can be found in Sterman ( 1984 ) and Hammond ( 1999 ). The causes of the bullwhip effect in the beer game can be classified into two factor categories: (i) structural and (ii) behavioral. Structural factors include the design of the serial supply chain with four echelons, order processing and shipment delays, lack of communication among the echelons (decision makers), and lack of inventory transparency. Behavioral factors, on the other hand, include inability to forecast demand and lack of rational decision- making while choosing order quantities. One important question involves the short- versus long-run performance differences of the supply chain as demonstrated in the beer game. The bullwhip effect exhibits itself within the first 30 order cycles of the game in a typical classroom setting.

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