mit center for transportation & logistics the beer game debrief · 2019-04-05 · the beer game...
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MIT Center for Transportation & Logistics
The Beer Game DebriefAugust 22, 2017Cambridge, MA
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Debrief Plan
Howdidyoufeelwhileplaying?
Werethereanyproblems?Ifso,what?
Whatcausedtheseproblems?
Whataresomesolutionstotheseproblems?
Announcewinners
Analysis
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Heard While Playing
ItjustgoesSOwrongSOquickly(factory)Don’tlookatmybacklog!(retailer)We’reinaBIGmess– Iunderforecasted andthenIoverforecasted (retailer)(withsadness….)Ididn’tlookwhereIwaspullingfrom….(retailer)Wegotmixedsignals(factory,aboutdistributor)I’veseenthis(bullwhip)toomuchinactualproduction(factory)YouguysCANNOTbetalkingtoeachother(tablefacilitator)Twohandedslide(singsongbyoneofthefacilitators)Gameover– what?!Boooo….
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How did you feel while playing?
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Were there any problems? If so, what?
Andhowwouldyousolvethoseproblems?
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How would you solve those problems?
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So who won this game?
• TheSmugglers** $2,775
• IPAs* $4,604
• KoolBeer* $1,032
• Macro-Brew $2,281
• MITBrau $1,840
• FatTire $4,177
• Topp Hopps $4,785
• OnTap $4,166
Averageforthisgame $3,145
*Experttable
**Factorydidn’tcountbacklogfor10weeks….
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How do most teams do?
• Topscores ~$1,000+• Worstscores $24,000+• Average $2,000
• BestPossible $200
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A Mystery
Whydosmart,well-intentionedpeopleperformsopoorly?
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Unravelling the Mystery…
Mostpeopledealwithsystematthelevelof……
Events
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Event Thinking
Saturday,May14,2005
Uniondividedoverhowtoreversemembershipdrop
WASHINGTON– …Laborleaderscitemanyreasonsforthedecline:Theglobaleconomy,tradeagreements,…poorenforcementoflaborlaws,andRepublicantaxpoliciesthatsqueezethemiddleclass.
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Event Thinking
UnionMembershipDropstoRecordLow
“Muchofthedeclineiscomingfromshiftsintheeconomy,"saidGregDenier,aspokesmanforChangetoWin,afederationoflaborunions.“Thousandsofjobsarebeingoutsourcedorlosttotechnologicalchanges.”
"Theunionsarelosingsomanymemberseachyearbecausetheirjobsarebeingoutsourcedandtheyareorganizedinshrinkingsectorsoftheeconomy,likeautos,steelandtextiles,"saidGaryChaison,alaborspecialistatClarkUniversityinWorcester,Mass.
Ref:WillLester,AssociatedPress,Thursday,January25,2007
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Event Thinking
1968 2014
https://gfycat.com/gifs/detail/DaringEmbellishedHake;https://www.washingtonpost.com/news/wonk/wp/2015/02/24/the-incredible-decline-of-american-unions-in-one-animated-map/?utm_term=.534a3cc2404f
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Event Thinking
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Example
Ex.Jan‘16SamAdams– Orders by Retailer
Trigger “Event”–spike inorders at
week 9-10
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Example
Ex.Jan‘16SamAdams– Orders by Wholesaler
ResponsetoEvent – giantorders at
weeks 11-12
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Events are “just” the visible manifestation of patterns
Events
PatternsofbehaviorIncreasingLeverage
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Industry Example: Andre Horn
Foundedin1920
Pioneerinundergroundminingequipment
AndreHornofferedCEOpostafterunprofitableyear….
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Andre Horn
Beforehetookthejob,HornpresentedtotheJoyMfg Board….
changeinprofitsRef.J.Hines,MIT
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What patterns did you observe?
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Common Patterns
• Oscillation• Largeamplitudefluctuations,average20weeks.
• Amplification•Amplitudeandvarianceofordersincreasessteadilyfromcustomertoretailertofactory.
• PhaseLag•Theorderratetendstopeaklaterasonemovesfromtheretailertothefactory.
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We call these collective patterns“The Bullwhip Effect”
• “Bullwhip”coinedbyProf.HauLee(1997)• iswhere“informationtransferredintheformoforderstendstobedistortedandcanmisguideupstreammembersintheirinventoryandproductiondecisions…thevarianceofordersmaybelargerthanthatofsales,andthedistortiontendstoincreaseasonemovesupstream”*
• describesthegeneraltendencyforsmallchangesinconsumerdemandtobeamplifiedwithinaproduction-distributionsystem**
**McCullen andTowill,Diagnosisandreductionofbullwhipinsupplychains,SupplyChainManagement:AnInternationalJournal,Vol 7,No32002
*Lee,Padmanabhan andWhang,TheBullwhipEffectinSupplyChains,SloanManagementReview,Spring1997
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“The Bullwhip Effect”
Customer Retailer Distributor Factory Tier 1 Supplier Equipment
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Oscillation Example – Jan 2017
Oscillation
Oscillation
SamAdams–Inventory atRetailer
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Amplification Example – Jan 2017
Amplification
SamAdams– Inventory atWholesaler
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Inventory Phase Lag Example – Jan 2017
SamAdams– InventoryatDistributor
Phase lag – low point atweek 19
SamAdams– Inventory atFactory
Phase lag – lowpoint atweek 22
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Orders Phase Lag Example – Jan 2017
SamAdams– Orders byRetailer
Peak atWeeks 10-13
SamAdams– Orders byWholesaler
Peak atWeeks 13-15
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Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip
E. Anderson, C. Fine & G. Parker "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.
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Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip
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E. Anderson, C. Fine & G. Parker "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.
%ChangeinVehicleProduction
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Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip
E. Anderson, C. Fine & G. Parker "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.
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%ChangeinMachineToolOrders
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Examples of patterns in your supply chain?
• Oscillation
• Amplification
• PhaseLag
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Bullwhip & Soup: Event, Pattern
• Event:• Spikeinwinterseasonsoupsales
• Patterns:• Consumptionshowsanincreaseinwinterseason• Shipmentsincrease2Xmaximumconsumptionin
thewinterseason
GraphicRef.:HarvardBusinessReview,March-April1997,pg 112
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Questions about patterns
• Whodidtheworstoneachteam?
• Wastheexperiencethesameordifferentforeachteam?
• Whatdidthedemandpatternsbycustomerlooklike?
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What demand patterns did you observe?
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The actual pattern was……
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But the “Estimates” of Customer Demand Indicate
• Peoplearetransferring“eventorientation”topatterns
• Thecauseisstillasinglething
• Thecauseis‘outthere’
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The Ultimate Cause is Structure
Events
Patternsofbehavior
Structure
IncreasingLeverage
Thebehavioroftheplayersiscontrolledbythestructureofthesystem
SlideadoptedfromDr.JimHines,MITSystemDynamicsGroup
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Bullwhip & Soup: Event, Pattern, Structure
• Event:• Spikeinwinterseasonsoupsales
• Patterns:• Consumptionshowsanincreaseinwinterseason• Shipmentsincrease2Xmaximumconsumptionin
thewinterseason
• Structure:• Salespromotionsandincentivesencourage
inventorybuildupbeyonddemand
GraphicRef.:HarvardBusinessReview,March-April1997,pg 112
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Bullwhip & Wheat: The Facts
• WSJ5-3-17reportsgrainsurplus,foodprocessorshavenoincentivetobuyinadvance
• WSJ7-10-17reportswheatshortage,40%priceincrease,speculatorsbuying
Ref.:WSJ7-10-17“TradersGobbleUpWheatAmidGreatPlainsDrought”Ref.:WSJ5-3-17“GrainTradersHaveaProblem:TooMuchGrain”
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Bullwhip and Wheat: Event, Pattern, Structure
• Event:GlobalgrainglutSpring2017• Response:Farmersfallowfields(i.e.theydonotplant)• “Farmerssowedthefewestacresofwheatinacenturythisyear.”
• Patterns:• #plantedacresofwheathasbeen
decliningfordecades• Yieldhasbeenincreasingfordecades
(enabledbytechnologyandprocess).0
10.020.030.040.050.060.070.080.090.0100.0
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Yield(bushe
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racre)
PlantedAcresandYield(AllWheat)
PlantedAcres Yield
Datasource:https://www.ers.usda.gov/data-products/wheat-data/ QuoteRef.:WSJ7-10-17“TradersGobbleUpWheatAmidGreatPlainsDrought”
• Structure:• Fewerplantedacresarerequiredforthesameoutput• Feweracresplantedmakesforsystemmorepronetodroughtrisk
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Bullwhip and Wheat: Options
• Weseethatstructureisdrivingthepatterns:• Theagriculturesystemrequiresfeweracresforthesameoutput• Butlessacreageplantedmakesforsystemmorepronetodroughtrisk
• Knowingthere’smoreriskintheagriculturalwheatproductionsystem,considersomeactionstotake:• Buycontractsearlytolockupsupply• Contractforsupplydirect• Contractforsupplyfromdifferentlocationstospreadregionaldroughtrisk
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Beer Game Structure
Inventory
OrdersPlaced
IncomingOrders
ShippingDelay
ShippingDelayDesired
Inventory
InventoryShortage
CausalLoopDiagrams
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Now that we understand the patterns and structure…
• Whatarethestructuralproblems?
• Whataresomesolutions?
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What are the structural problems?
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What are the structural problems?
• Informationlags– 2weeksbetweeneachstage• Deliverylags– 2weeksbetweeneachstage• Limitedinformation- eachweeklyorderistheonlyinfoprovided• Eachstageforecastingindependently
• Nocoordinationpermitted• Actualdemandunknownexceptatretailer• Coststructure– twiceexpensivetostockout thantocarryinventory
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Other common structural problems
• Pricingpolicy– encouragingbulkpurchases,forwardbuyingàartificiallycreatesspikes• Cancellationpolicy– canenableover-orderingiftherearenodownsidesforcancellations• Promotions&discounting– canshiftdemandintocyclicalpurchasepatternsratherthansteadyresupplybasedonactualdemand• Allocationpolicyinconstrainedsupplyenvironment– canenableover-ordering• Inconsistentincentives
• Quarterlysalesgoals,unitcostfactorymeasure,lowestcostdistribution
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What are the some solutions?
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What are the some solutions?
• Collaboration
• Increasevisibility
• Usehistoricaldata
• Shorterdelays
• Eliminatemiddle-man
• Strategicpartnership&informationsharing
• Alignpolicies,incentives,perf.measures
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Some suggestions & challenge to implement
• Collaboration• Increasevisibility• Usehistoricaldata• Shorterdelays• Eliminatemiddle-man• Strategicinfosharing• Alignincentives,KPIs
Ö
Ö
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Ö
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Ö
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Difficult LessDifficult
Thesealleffectthestructureofthesystem…..
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Applying these to “The Bullwhip Effect”
Customer Retailer Distributor Factory Tier 1 Supplier Equipment
STRUCTURALPROBLEMS:InformationlagsDeliverylagsIndependentforecastingOrderbatchingPricefluctuationsInconsistentincentives- GamingallocationsPromotions/discounting
SOLUTIONSTRATEGIES:• ReduceUncertainty
• ReduceVariability
• ReduceLeadtime
• ImproveChannelMgt
• Alignpolicies,incentives,KPIs
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Thoughts to Leave With
• Whatcausedtheproblems?• Rushtosolutionsbeforeseeingtheproblem(oscillations)!• Evenafterseeingtheproblemwerushedtosolutionswithoutunderstandingtherealdynamics(flatdemand)andtherootcause(structure)
• Whatwillyoudowhenyoureturntotheworkforce?• Rushtosolution?• Orwillyoufirstdeterminetherootcauses?• Howwillyoudothat?• Howwillyoufindthebigprobleminyoursystem?
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Thank you
JimRiceDeputyDirector– MITCTL
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Reference
• “The Fifth Discipline” by Peter Senge
• Available at the MIT COOP (next to Marriott)