MIT Center for Transportation & Logistics The Beer Game Debrief · 2019-04-05 · The Beer Game Debrief August 22, 2017 Cambridge, MA MIT Center for Transportation & Logistics

8/23/17

1

MIT Center for Transportation & Logistics

The Beer Game DebriefAugust 22, 2017Cambridge, MA

MIT Center for Transportation & Logistics

MIT Center for Transportation & Logistics 2

Debrief Plan

Howdidyoufeelwhileplaying?

Werethereanyproblems?Ifso,what?

Whatcausedtheseproblems?

Whataresomesolutionstotheseproblems?

Announcewinners

Analysis

8/23/17

2


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….


How did you feel while playing?

8/23/17

3


Were there any problems? If so, what?

Andhowwouldyousolvethoseproblems?


How would you solve those problems?

8/23/17

4


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….


How do most teams do?

• Topscores ~$1,000+• Worstscores $24,000+• Average $2,000

• BestPossible $200

8/23/17

5


A Mystery

Whydosmart,well-intentionedpeopleperformsopoorly?


Unravelling the Mystery…

Mostpeopledealwithsystematthelevelof……

Events

8/23/17

6


Event Thinking

Saturday,May14,2005

Uniondividedoverhowtoreversemembershipdrop

WASHINGTON– …Laborleaderscitemanyreasonsforthedecline:Theglobaleconomy,tradeagreements,…poorenforcementoflaborlaws,andRepublicantaxpoliciesthatsqueezethemiddleclass.


Event Thinking

UnionMembershipDropstoRecordLow

“Muchofthedeclineiscomingfromshiftsintheeconomy,"saidGregDenier,aspokesmanforChangetoWin,afederationoflaborunions.“Thousandsofjobsarebeingoutsourcedorlosttotechnologicalchanges.”

"Theunionsarelosingsomanymemberseachyearbecausetheirjobsarebeingoutsourcedandtheyareorganizedinshrinkingsectorsoftheeconomy,likeautos,steelandtextiles,"saidGaryChaison,alaborspecialistatClarkUniversityinWorcester,Mass.

Ref:WillLester,AssociatedPress,Thursday,January25,2007

8/23/17

7


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


Event Thinking

0

5

10

15

20

25

30

35

40

1880 1900 1920 1940 1960 1980 2000 2020

Year

Percen

t

%UnionMembership

8/23/17

8


Example

Ex.Jan‘16SamAdams– Orders by Retailer

Trigger “Event”–spike inorders at

week 9-10


Example

Ex.Jan‘16SamAdams– Orders by Wholesaler

ResponsetoEvent – giantorders at

weeks 11-12

8/23/17

9


Events are “just” the visible manifestation of patterns

Events

PatternsofbehaviorIncreasingLeverage


Industry Example: Andre Horn

Foundedin1920

Pioneerinundergroundminingequipment

AndreHornofferedCEOpostafterunprofitableyear….

8/23/17

10


Andre Horn

Beforehetookthejob,HornpresentedtotheJoyMfg Board….

changeinprofitsRef.J.Hines,MIT


What patterns did you observe?

8/23/17

11


Common Patterns

• Oscillation• Largeamplitudefluctuations,average20weeks.

• Amplification•Amplitudeandvarianceofordersincreasessteadilyfromcustomertoretailertofactory.

• PhaseLag•Theorderratetendstopeaklaterasonemovesfromtheretailertothefactory.


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

8/23/17

12


“The Bullwhip Effect”

Customer Retailer Distributor Factory Tier 1 Supplier Equipment


Oscillation Example – Jan 2017

Oscillation

Oscillation

SamAdams–Inventory atRetailer

8/23/17

13


Amplification Example – Jan 2017

Amplification

SamAdams– Inventory atWholesaler


Inventory Phase Lag Example – Jan 2017

SamAdams– InventoryatDistributor

Phase lag – low point atweek 19

SamAdams– Inventory atFactory

Phase lag – lowpoint atweek 22

8/23/17

14


Orders Phase Lag Example – Jan 2017

SamAdams– Orders byRetailer

Peak atWeeks 10-13

SamAdams– Orders byWholesaler

Peak atWeeks 13-15


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.

-10

0

10

20

30

40

50

60

70

80

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

% C

hang

e ye

ar o

ver

year

% Change in GDP

% Change in GDP

8/23/17

15



-40

-20

0

20

40

60

80

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991% C

hang

e ye

ar o

ver

year

% Change in GDP % Change in Vehicle Production


%ChangeinVehicleProduction




-80

-60

-40

-20

0

20

40

60

80

1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991

% C

hang

e ye

ar o

ver

year

% Change in GDP % Change in Vehicle Production % Change in machine Tools Orders

%ChangeinMachineToolOrders

8/23/17

16


Examples of patterns in your supply chain?

• Oscillation

• Amplification

• PhaseLag


Bullwhip & Soup: Event, Pattern

• Event:• Spikeinwinterseasonsoupsales

• Patterns:• Consumptionshowsanincreaseinwinterseason• Shipmentsincrease2Xmaximumconsumptionin

thewinterseason

GraphicRef.:HarvardBusinessReview,March-April1997,pg 112

8/23/17

17


Questions about patterns

• Whodidtheworstoneachteam?

• Wastheexperiencethesameordifferentforeachteam?

• Whatdidthedemandpatternsbycustomerlooklike?


What demand patterns did you observe?

8/23/17

18


The actual pattern was……


But the “Estimates” of Customer Demand Indicate

• Peoplearetransferring“eventorientation”topatterns

• Thecauseisstillasinglething

• Thecauseis‘outthere’

8/23/17

19


The Ultimate Cause is Structure

Events

Patternsofbehavior

Structure

IncreasingLeverage

Thebehavioroftheplayersiscontrolledbythestructureofthesystem

SlideadoptedfromDr.JimHines,MITSystemDynamicsGroup


Bullwhip & Soup: Event, Pattern, Structure

• Event:• Spikeinwinterseasonsoupsales

• Patterns:• Consumptionshowsanincreaseinwinterseason• Shipmentsincrease2Xmaximumconsumptionin

thewinterseason

• Structure:• Salespromotionsandincentivesencourage

inventorybuildupbeyonddemand

GraphicRef.:HarvardBusinessReview,March-April1997,pg 112

8/23/17

20


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”


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

1970/71

1972/73

1974/75

1976/77

1978/79

1980/81

1982/83

1984/85

1986/87

1988/89

1990/91

1992/93

1994/95

1996/97

1998/99

2000/01

2002/03

2004/05

2006/07

2008/09

2010/11

2012/13

2014/15

2016/17

Plantedacres(millionacres)

Yield(bushe

lspe

racre)

PlantedAcresandYield(AllWheat)

PlantedAcres Yield

Datasource:https://www.ers.usda.gov/data-products/wheat-data/ QuoteRef.:WSJ7-10-17“TradersGobbleUpWheatAmidGreatPlainsDrought”

• Structure:• Fewerplantedacresarerequiredforthesameoutput• Feweracresplantedmakesforsystemmorepronetodroughtrisk

8/23/17

21


Bullwhip and Wheat: Options

• Weseethatstructureisdrivingthepatterns:• Theagriculturesystemrequiresfeweracresforthesameoutput• Butlessacreageplantedmakesforsystemmorepronetodroughtrisk

• Knowingthere’smoreriskintheagriculturalwheatproductionsystem,considersomeactionstotake:• Buycontractsearlytolockupsupply• Contractforsupplydirect• Contractforsupplyfromdifferentlocationstospreadregionaldroughtrisk


Beer Game Structure

Inventory

OrdersPlaced

IncomingOrders

ShippingDelay

ShippingDelayDesired

Inventory

InventoryShortage

CausalLoopDiagrams

8/23/17

22


Now that we understand the patterns and structure…

• Whatarethestructuralproblems?

• Whataresomesolutions?


What are the structural problems?

8/23/17

23


What are the structural problems?

• Informationlags– 2weeksbetweeneachstage• Deliverylags– 2weeksbetweeneachstage• Limitedinformation- eachweeklyorderistheonlyinfoprovided• Eachstageforecastingindependently

• Nocoordinationpermitted• Actualdemandunknownexceptatretailer• Coststructure– twiceexpensivetostockout thantocarryinventory


Other common structural problems

• Pricingpolicy– encouragingbulkpurchases,forwardbuyingàartificiallycreatesspikes• Cancellationpolicy– canenableover-orderingiftherearenodownsidesforcancellations• Promotions&discounting– canshiftdemandintocyclicalpurchasepatternsratherthansteadyresupplybasedonactualdemand• Allocationpolicyinconstrainedsupplyenvironment– canenableover-ordering• Inconsistentincentives

• Quarterlysalesgoals,unitcostfactorymeasure,lowestcostdistribution

8/23/17

24


What are the some solutions?


What are the some solutions?

• Collaboration

• Increasevisibility

• Usehistoricaldata

• Shorterdelays

• Eliminatemiddle-man

• Strategicpartnership&informationsharing

• Alignpolicies,incentives,perf.measures

8/23/17

25


Some suggestions & challenge to implement

• Collaboration• Increasevisibility• Usehistoricaldata• Shorterdelays• Eliminatemiddle-man• Strategicinfosharing• Alignincentives,KPIs

Ö

Ö

Ö

Ö

Ö

Ö

Ö

Difficult LessDifficult

Thesealleffectthestructureofthesystem…..


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

8/23/17

26


Thoughts to Leave With

• Whatcausedtheproblems?• Rushtosolutionsbeforeseeingtheproblem(oscillations)!• Evenafterseeingtheproblemwerushedtosolutionswithoutunderstandingtherealdynamics(flatdemand)andtherootcause(structure)

• Whatwillyoudowhenyoureturntotheworkforce?• Rushtosolution?• Orwillyoufirstdeterminetherootcauses?• Howwillyoudothat?• Howwillyoufindthebigprobleminyoursystem?


Thank you

JimRiceDeputyDirector– MITCTL

[email protected]

8/23/17

27


Reference

• “The Fifth Discipline” by Peter Senge

• Available at the MIT COOP (next to Marriott)

Documents

MIT Center for Transportation & Logistics The Beer Game Debrief · 2019-04-05 · The Beer Game Debrief August 22, 2017 Cambridge, MA MIT Center for Transportation & Logistics