Hi Fellow MC506 Students
Wasn't that an interesting experience playing the beer game in class last night? I can't wait to see the results of our manic beer making! The effects of non-communication in a manufacturing environment were so apparent...communication really is the key in so many situations. Had we been allowed to discuss orders, demand, manufacturing levels etc. my guess is we would have been able to keep the inventory and backlog to a minimum.
What an interesting "game" ! I am not quite sure how the backlogs begin, however, being the factory we tried to constantly second quess the distributor, ( who I suppose was trying to second guess the retailer etc...). If there is only one lesson learned from this game it is again interactions. Without the interactions of the 4 parts the whole was skewed! To be successful they (as everyone) needed to work together and communicate. Communication is an important part of making the parts equal the whole.
The backlogs arise due to the "bow wave" or "whip saw" effect in the orders. You can see the first cycle in the ordering chart for the Hiccups.
The customer increased its order to 8 per week at week 4. It took a few weeks for this to deplete inventories and start the panic cycle in orders. Notice that as the order sizes increased, it created even bigger backlogs "upstream" later in time.
The Retailer made a peak order of 20 at week 15.
Three weeks after that, the Wholesaler peaked at 40
The odd thing is the Distributor peaked early at 25 in week 16. The Distributor spread the peak between week 16 and week 21.
Finally, in week 20 the Factory peaked at 50.
Notice the delay in time, and the growth in the order size. Then orders shut down in week 22.
Another odd thing I haven't seen before was the runup by the Distributor and then the Factory in the last few weeks. It looks like the Wholesaler started a small runup in week 25 that peaked at week 27 with an order of 20. The Distributor then peaked at week 31 with an order size of 100, and the Factory peaked at week 33, also with an order size of 100. Meanwhile, the Retailer had completely stopped ordering. I estimate there were about 300 cases of beer in the supply chain at that point, at least 25 weeks of supply.
A study in psychology more than anything, I thought. It was very difficult for a "control-freak" like myself to realize that I, essentially, had no control over outcomes. I found myself feeling very frustrated with my "assistant" when I realized that she/I had not kept track of what was owed to us (the distributor). We knew the backlog for our customer, but not from our supplier. We were lost from that point on. I was the one making the final decision for orders; but, I tried to play psychologist in determining trends: ie. did we control the production cycle, and reduce our backlog by ordering less beer, and trying to play "catch-up" with our backlog? Or, would we replenish more quickly if we ordered one big batch (of 100)? No rationale seemed to connect to outcomes (later found out about the bull-whip effect, which we experienced in spades!). For me, this was an ongoing frustrating attempt to discover a cause and effect from trends, which did not exist. However, was great fun and learning exercise! Anita
The beer game provides a provocative and informative lesson in the importance of managing your supply chain. I find it amazing that customer demand at the retailer remained constant beginning at four cases and then moving only to eight cases, yet the supply chain from the factory to the wholesaler tried to anticipate demand and escalated the supply far beyond the system needs. Yes, the bull whip effect is real as demonstrated by the exercise. It is also very interesting to me that when the data from various groups has been plotted on graphs the bull whip remains fairly constant from group to group. Businesses in the real world must strive to improve the information flow in their supply chain, improve forecasting, and improve ordering processes to alleviate this problem. In the game the results were entertaining, but in the real world similar results would be devastating for a business.
It was unfortunate that I missed the Beer Game. From the looks of the spreadsheets, everyone was very busy!!
I was reading one of the articles suggested about supply chains:
"Another classic in Mr Lee's repertoire is the “bullwhip effect”, named after the way the amplitude of a whip increases down its length—just as variations in orders tend to get amplified along the supply chain. Why is it, for instance, that Procter & Gamble has to deal with widely fluctuating orders for its nappies, when babies' consumption is generally quite steady? The reason is that each retailer bases his orders on his own, slightly exaggerated, forecast, thus increasingly distorting the information about real consumer demand. This is one of the most important causes of inefficiency in a supply chain. "
It really struck home with me, as my husband worked for 25 years for a very popular consumer supply company. They have recently closed down several of their plants and have the sales running through another company. I think that the overproduction of goods at several different times was for exactly the reasons stated above, as well as no communication with the individuals actually selling the product. The "bullwhip effect" probably became one of the major reasons for their closure.
I agree with my class and teammates about the frustration of not being able to communicate; that would have been essential to finding out what was going on with the orders (or lack of). As the retailer, once I figured out that I was going to get slammed with more beer than I could sell, stopped ordering and think that by the end of the 50 weeks it would balance out. I'm still trying to figure out that if I had put in a huge order in the beginning, then just stuck with the 8 per time, if it would have worked out.
But....an excellent learning experience - much easier to remember than just reading about the process. I may test it out this weekend with real product.
Loved the Beer Game. The setup was simple but effective. Plant the seed that demand is variable, make it cost more to be short than have inventory, and not allow discussion among the supply chain. Like everyone, I initially feel for the idea to have some excess inventory would be a good thing. I also did my part to support the whip saw effect. After about 20 turns, I realized what was happening. Even though I had my orders written down, I did not keep track of what I needed to send out. Therefore, it was difficult to determine how to get back into balance. Without being able to discuss this with the team, it is impossible to get the backlog flowing thru the supply chain without inducing the next level up the chain to begin ordering more. It would seem that with all of our tools and software that the whip saw effect would cease to exist, yet it is obvious that the lack of communication and "assumptions" that are made exist exactly the same way in the real world.