1. Beer Game Debrief
© Thomas F Gattiker

2. For each chain….
Service Level at Retail=(cases sold) / (cases sold + lost sales)
Could a retailer survive with this service level?
Factors that make this game easier than real SCM: Only 1 kind of beer; Unlimited capacity; Total visibility of pipeline
Raw Material Provider & Manufacturer, how would you characterize retail demand based on what you experienced?

3. Capture on white board for several teams:
Week
Raw Matl orders received from factory
Factory orders received from Distributor
Distributor orders received from Wholesaler
Wholesaler orders received from Retailer
Retailer “orders” received from consumer 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Range

4. How many people were surprised at the stability of customer orders?
Referring to the previous table(s), what is the general pattern in variability (range) of orders as we move back the supply chain from the consumer level to the raw material level? In other words, what happens to information quality as we move up the chain?
What are some of the reasons that cause this-- in the game? In real supply chains?

5. Bullwhip Effect The tendency of small changes in demand to become amplified and/or distorted as they are transmitted through the supply chain

6. Bullwhip Effect in Aggregate

7. What are some of the reasons that cause the bullwhip effect-- In the game? In real supply chains?

8. Customer Demand Increase of One in Beer Game
Sales to consumer are basis for Retailer’s forecast
Orders/Sales to retailer are basis for Distributor’s forecast
Forecast by naïve method (exponential smoothing, α=1.0)
Target safety stock = 4
Retailer
Distributor
Actual
Fcst.
Order
Actual
Fcst.
Order 4 4 4 4 5 5 6 6 6 8
SS= 4 3
SS= 4 2

9. Other Causes of the Bullwhip Effect
Other policies/practices that translate relatively smooth & predictable demand to lumpy, less predictable demand ?
Full truck load order policy
Shortage gaming by customers
Focus on ordering costs
Quantity discounts
Periodic specials

10. Final Thoughts on Beer Game
If this were just a matter of internet enabled inventory & forecast visibility, we would have solved this by now
Bad decision making within the system or good decision making within a bad system

11. (Really) Final Thoughts on Beer Game
“The invisible hand may be invisible because it is not there.” --Joseph Stiglitz, Nobel prize-winning economist
“There are worse things than ending up with a bunch of extra beer” --Cooper Kalisek, former student

12. Thank You for Participating today

14. Bullwhip Effect “May be attributed to irrational decision-making”
“However the effect is actually a result of rational behavior within the supply chain infrastructure”
“Companies wishing to control the bullwhip effect have to focus on modifying the chain’s infrastructure”
Lee, H “Bullwhip Effect in Supply Chains, Sloan Mgt. Review

15. “Despite the increased efficiency of many companies’ supply chains, the percentage of products that were marked down in the United States rose from less than 10% in 1980 to more than 30% in 2000, and surveys show that consumer satisfaction with product availability fell sharply during the same period.” HBR
“In the U.S. food industry poor coordination among supply chain partners wastes $30 billion annually.” AT Kearny

16. Order Batching
Blue: Consumer demand Pink: Retailer’s orders to wholesaler

18. The Great Inventory Write-down of 2001 (Cisco)
Comp1
CM1
100
200
Cisco
100
100
200
100
Customer
Comp2
CM2
200
100
100
100 HP
100
Comp3
CM3
“Inside Cisco’s 2$ Billion Blunder” Paul Kaihla, Business 2.0 March 2002.

19. Causes of the Bullwhip Effect in Supply Chains
Occurs when each company in the supply chain forecasts and plans based on the orders received from its immediate customer
Causes of the Bullwhip Effect in Supply Chains
Lot sizing
Borrowing against future demand
Demand forecast updating
Order batching
Price fluctuation / forward buying
Rationing and shortage gaming
Periodic trade discounts or
Anticipated price increases
Over-order from one supplier
Redundant order with multiple suppliers

20. Causes of the Bullwhip Effect in Supply Chains
Lot sizing
Borrowing against future demand
Demand forecast updating
Order batching
Price fluctuation / forward buying
Rationing and shortage gaming
Occurs when each company in the supply chain forecasts and plans based on the orders received from its immediate customer
Based on periodic trade discounts or anticipated price increases
Over-order from one supplier
Redundant order with multiple suppliers