CH12 Near Beer Game
"The Beer Game is a role-playing simulation developed at MIT's Sloan School of Management in the 1960's to clarify the advantages of taking an integrated approach to managing the supply chain; it particularly demonstrates the value of sharing information across the various supply chain components."
We are going to use a simulator called "The Near Beer Game". Click on this link to run the simulator.
From the article, Bullwhips and Beer: Why Supply Chain Management is so Difficult
Here's how the Near Beer Game works:
· At the beginning of the simulation your supply chain is in perfect equilibrium. Customers are ordering ten cases of beer each week, you have ten cases in inventory, ten cases are brewing, and ten cases worth of raw materials are arriving from your vendors.
· In week two, demand increases to fifteen cases per week and remains at fifteen cases for the remainder of the simulation. The game ends when you manage to get your supply chain back in equilibrium for fifteen cases of beer.
Sounds easy right? Try it out and see how many weeks it takes you. See if you can bring the supply chain back into equilibrium without the bullwhip oscillations of stock-outs followed by over-supply. Feel free to do research on Supply Chain and the BullWhip Effect to further your knowledge.
The basic concept behind supply chain management is that customers order products from you; you keep track of what you're selling, and you order enough raw materials from your suppliers to meet your customers' demand.
The problem turns out to be one of coordination. Suppliers, manufacturers, sales people, and customers have their own, often incomplete, understanding of what real demand is. Each group has control over only a part of the supply chain, but each group can influence the entire chain by ordering too much or too little. Further, each group is influenced by decisions that others are making.
This lack of coordination coupled with the ability to influence while being influenced by others leads to what Stanford's Hau Lee refers to as the Bullwhip Effect. Decisions made by groups along the supply actually worsen shortages and overstocks.
But coordination isn't just about communication. Even in supply chains where communication is perfect, manufacturing and procurement delays can wreak havoc. That's because while customers are asking for increased orders, backlogs are building, and it is oh-so-easy to confuse backlogged orders with increases in demand.
How to Reduce the Bullwhip Effect
One way to reduce the bullwhip effect is through better information, either in the form of improved communication along the supply chain or (presumably) better forecasts. Because managers realize that end-user demand is more predictable than the demand experienced by factories, they attempt to ignore signals being sent through the supply chain and instead focus on the end-user demand. This approach ignores day-to-day fluctuations in favor of running level.
Another solution is to reduce or eliminate the delays along the supply chain. In both real supply chains and simulations of supply chains, cutting order-to-delivery time by half can cut supply chain fluctuations by 80%. In addition to savings from reduced inventory carry costs, operating costs also decline because less capacity is needed to handle extreme demand fluctuations.
In addition to cycle time reductions throughout the supply chain, Hau Lee, V. Padmanabhan, and Seungjin Whang recommend the following actions to reduce the supply chain management bullwhip effect:
- Focus on end-user demand through point-of-sale (POS) data collection, electronic data interchange (EDI), and vendor-managed inventories (VMI) to reduce distortions in downstream communication.
- Work with vendors to create smaller order increments and reduce order batching. Order batching exacerbates demand fluctuations.
- Maintain stable prices for products. Price fluctuations encourage customers to over-purchase when prices are low and cut back on orders when prices are high, leading to large demand fluctuations.
- Allocate demand among customers based on past orders, not present orders, to reduce hoarding behavior when shortages occur.
Post a discussion and answer the following questions. Please number your responses.
Reply optional but encouraged this week. It is recommended to read through the posts to see the various strategies that can be used to achieve equilibrium. The best one can do is 4 or 5 weeks, depending on how you play the simulation.
1. Explain the strategies you used when playing the simulation
2. Explain which information you gained from some research was helpful and why
3. Note how many weeks it took to understand how to reduce the bullwhip effect and bring the supply back to equilibrium?
4. Did this simulation give you an appreciation of why supply chain management is so difficult?
You are required to submit a screenshot of your best attempt at obtaining equilibrium, which displays the number of weeks. Your screenshot should have the following message:
You got your inventory balanced in week "n"
The following message is NOT the correct message and should NOT be submitted:
Your Finished Goods Inventory matches Customer Orders this week.
As an added incentive, I will add 5 extra points to your discussion to the student(s) who took the least number of weeks to reach equilibrium.
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