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1
Prisoners of Our Own Thinking?
Prisoners of the System
OR
2
1.Raja Manzar.2.Rana Shahzad.3.Rashid Aziz.4.Muhammad Farooq.
3
INTRODUCTION
4
AIMTo acquaint you all with the
concepts of Famous Beer Game, Lessons
learnt, Analysis and how to Improve
Performance by using Beer Game.
PART 1 – (Raja Manzar)
Beer Game.
SEQUENCE
5
PART 2 – (Rashid Aziz)
Lessons Learnt from Beer Game.
PART 3 – (Muhammad Farooq Munir)
Structure Influences Behavior.PART 4 – (Rana Shahzad)
Redefining your Scope of Influence: How to Improve Performance in the Beer Game.
The Learning Disabilities and Our Ways of Thinking
6
PART 1
7
A glance on Ordering & delivery system
Dist
ribut
or
Who
le se
ller
Reta
iler
Cons
umer
Brew
ery
The Consumer buys beer from
the retailer.
The retailer either has beer in stock or orders extra
units of beer from the wholeseller.
The wholeseller either has beer in
stock or orders extra units of beer
from the distributor.
The distributor either has beer in
stock or orders extra units of beer from the brewery.
Demand for beer is fulfilled as soon as there is enough
beer in stock.
Demand for beer is fulfilled as soon as there is enough
beer in stock.
Demand for beer is fulfilled as soon as there is enough
beer in stock.
Demand for beer is fulfilled as soon as there is enough
beer in stock
The brewery either has beer
in stock or it increases the production.
Order PlacingCycle
Order Delivery
Cycle
8
What is “BEER GAME”• Beer game as described by Peter Senge in Chapter 3 of
his book - The Fifth Discipline: The Art & Practice of The Learning Organization.• Was developed at Massachusetts Institute of
Technology's Sloan School of Management in the 1960s by James R. Martin, Ph.D.• The game involves a simple production/distribution
system for a single brand of beer.• Mainly 3 players in the game. Each player's goal is to
maximize profit.–a retailer, a wholesaler, a marketing director at the
brewery. Contd…
9
What is “BEER GAME”• The players at each position are completely free to make
any decision that seems prudent. Their only goal is to manage their position as best they can to maximize their profits.• Truck driver delivers beer once each week to retailer &
he places order for next week. Truck driver places order with distributor. There is 4 weeks lag in between. • The retailer and wholesaler do not communicate directly.• The retailer sells hundreds of products.• The wholesaler distributes many products to large no of
customers.
Contd…
10
The RETAILER• Imagine that you're a retail merchant. • No matter what your store looks like, beer is a cornerstone of
your business. • Stock beer in back room, where you keep your inventory.• Once each week a trucker arrives, hands over delivery & takes
new orders for next week. • A delivery of beer generally arrives in your store about four weeks
after you order it.• You probably have never even met your beer wholesaler him; you
know only the truck driver. • One of your steadiest beer brands is called Lover's Beer.• To make sure you always have enough Lover's Beer, you try to
keep twelve cases in the store at any time.
Contd…
11
The RETAILER• Week 2: • Without warning, one week in Nov sales of the beer double.
They jump from four cases to eight. To bring your inventory back to normal you order 8 cases this week.
Contd…
Contd…
1st week 2nd week0123456789
12
The RETAILER• Week 3:• You sell eight cases of Lover's Beer the next week. • You think for a moment about any advertisement, spring break
etc. But gets out of thoughts due to a customer. • At the moment the deliveryman comes, you're still not thinking
much about Lover's Beer, but you look down at your sheet and see that he's brought only four cases this time. (It's from the order you placed four weeks ago.)
• You only have four cases left in stock, which means unless there's a drop-back in sales you're going to sell out all your Lover's Beer this week.
• Just to be on the safe side, you order twelve so you can rebuild your inventory.
Contd…
Contd…
13
The RETAILER• Week 4: You find time on Tuesday & It turns out that a new
music video appeared a month or so back using "I take one last sip of Lover's Beer and run into the sun." • You think of calling the wholesaler, but a delivery of potato
chips arrives and the subject of Lover's Beer slips your mind. • In next delivery of beer comes in, only five cases of beer arrive. • In stock you are left with one case only so you order 16 more.
Contd…
Contd…
1st week 2nd week 3rd week02468
1012141618
14
The RETAILER• Week 5: • Your one case sells out Monday morning. Fortunately, you receive a
shipment for seven more cases of Lover's (apparently your wholesaler is starting to respond to your higher orders).
• All are sold by the end of the week, leaving Inventory zero. • You order another sixteen.
• Week 6: • Customers are looking for Lover's beer. • Some put their names on a list to be called when the beer comes
in.• The trucker delivers only 6 cases and all are sold by the weekend.
The retailer orders another 16 cases.
Contd…
Contd…
15
The RETAILER• Week 7: The delivery truck brings only five cases this week.• Lover's Beer is sold out within two days. • This week, amazingly, five customers give you their names. • You order another sixteen and silently pray for delivery.
• Week 8: Now you are eagerly waiting for truck expecting 16 cases.• But he brings only five. Upon question by you he replies "I guess
they're backlogged. • Seeing the situation you order 24 cases.
• Your state of Mind. • What is that wholesaler doing to me, you
wonder? • Doesn't he know what a ravenous market we
have down here? • What's going through his mind, anyway?
Contd…
Contd…
16
The RETAILER Contd…
1st week 2nd week
3rd week 4th week 5th week 6th week 7th week 8th week0
5
10
15
20
25
30
17
The WHOLESALER• Distributes many brands of beer but only distributor of
Lover's beer. • Orders 4 truckloads per week & receives after 4 week lag. • As policy keeps 12 truckloads in inventory at all times.
Contd…Order per week Inventory per week
0
2
4
6
8
10
12
14
18
The WHOLESALER• Week 6: • By week 6 the wholesaler is out of Lover's beer and zero. • He responds by ordering 30 truckloads from the brewery.• A few of the larger chain stores called you asking for Lover’s beer.
• Week 8: • By the 8th week most stores are ordering 3 or 4 times more
Lovers' beer than their regular amounts.• When you had called the brewery to ask if there was any way to
speed up their deliveries they answered..
“we had only just stepped up production two weeks before. We have just learnt about the increase in demand”.
Contd…
Contd…
19
The WHOLESALER• Week 9: • You're getting orders for 20 truckloads' worth of Lover's Beer per
week, and you still don't have it. • Last week 29 truck loads orders are still backlogged.• But you're confident that, this week, the 20 truck-loads you
ordered a month ago will finally arrive.• But only 6 truckloads arrive. • You call some of your larger chains and assure them that the beer
they ordered will be coming shortly.• Week 10:• You were expecting 20 truckloads this week.• Only 8 truckloads are delivered.• To meet up new and old backlogged demand you order 40
truckloads this week.
Contd…
Contd…
20
The WHOLESALER• Week 11:• Only 12 truckloads are received and there are 77 truckloads in
backlog, so the wholesaler orders 40 more truckloads.
Contd…
Contd…Order per week Inventory this week Orders Backlogged
0
10
20
30
40
50
60
70
80
90
21
The WHOLESALER• Week 12: • The wholesaler orders 60 more truckloads of Lover's beer. • It appears that the beer is becoming more popular every week.
• Week 13: • There is still a huge backlog.
• Weeks 14-15: • Finally larger shipments started pouring from the brewery.• But orders from retailers begin to drop off.
• Week 16:• Receives 55 truckloads.• Zero orders from retailers.• You order zero to brewery.
Contd…
Contd…
22
The WHOLESALER• Week 17: Now you receive backlogged orders of 60 truck loads,
no orders from retailer so you also order zero. The brewery keeps sending beer.
Contd…
0
20
40
60
80
100
120
23
The BREWERY• 4 months ago you were hired as manager marketing &
distribution. • Yours is a small brewery, known for its quality but not marketing.• In 2nd month new orders had begun to rise dramatically. • By 3rd month orders increased from 4 to 40 truck loads. • At breweries they take 2 weeks to decide brewing bottles. • By week 10 you were a hero within your company. • Plant manager had given everyone incentives to work double
time.• Finally, you had caught up with the backlog in Week 16. • After week 18 distributors ordered Zero.
Contd…
24
The BREWERY• Week 19:• The brewery has 100 gross of Lover's beer in stock.• No new orders.• But the plant keep on brewing what you had ordered.• After explaining to boss the brewery stops producing Lover's beer.
• Weeks 20-23.• No orders in these 4 weeks.
Contd…
Contd…
25
The BREWERY Contd…
Contd…
Retailer inventory Wholesaler inventory Brewery inventory
-100
-50
0
50
100
150
200
250
26
The BREWERY• At this point all the players blame each other for the excess
inventory. • Conversations with wholesale and retailer reveal an inventory of 93
cases at the retailer and 220 truckloads at the wholesaler. The marketing manager figures it will take the wholesaler a year to sell the Lover's beer he has in stock. The retailers must be the problem.
• The retailer explains that demand increased from 4 cases per week to 8 cases. The wholesaler and marketing manager think demand mushroomed after that, and then fell off, but the retailer explains that didn't happen.
• Demand stayed at 8 cases per week. Since he didn't get the beer he ordered, he kept ordering more in an attempt to keep up with the demand.
• The marketing manager plans his resignation.
Contd…
27
PART 2Mr Rashid Aziz
LESSONS OF THE
BEER GAME
• What can your team and organization learn
from the exercise?
• Take some time to discuss with your team.
• Capture 3 to 4 lessons learned.
Reflection and Knowledge Capture
• There are no such culprits • There is no one to blame• Each of the three players in our story had the best
possible intentions: to serve his customers well, to keep the product moving smoothly through the system, and to avoid penalties
• Each participant made well-motivated, clearly defensible judgments based on reasonable guesses about what might happen
• There were no villains, but there was a crisis nonetheless built into the structure of the system
Analysis of the Game
How could sucha small perturbation in
one part of the system createsuch havoc in the
rest of the system?
ONE.
• The structure of any system governs human
behavior within the system.
• Changing people without changing the
system structure may not lead to desired or
permanent improvement.
Beer Game Lessons
TWO.• To effectively manage a system a “systems”
perspective should be adopted:Realize that . . .
Often, . . . a lag between what one observes and what caused that observation.
Ripple effects within and across organizational boundaries.
Volatility directly proportional to distance from market.
Beer Game Lessons
THREE.• The amplification in the supply chain is
called the “Bullwhip effect.”• Suggested Solutions?
Improved communication Reduced lead-time
• What does research and experience tell us?
Beer Game Lessons
FOUR.Characteristics of top Supply Chain performers?• Agile: able make quick adjustments in output
in response to the market.• Adaptable: able to adapt supply chain
structure and facilities to changing needs.• Alignment: Partners in the supply chain are
aligned in their objectives & incentive structures.
Beer Game Lessons
• How do you feel now? How did you feel while playing the game?
• Did you feel yourself controlled by forces in the system from time to time?
• Did you find yourself “blaming” the person next to you for your problems?
• What is the total cost of your team? Why the large discrepancy between teams? What caused large inventories and backlogs?
• Did you notice any patterns on your graphs?
Debriefing . . .
• There is growing demand that can't be met. • Orders build throughout the system. • Inventories are depleted. • Backlogs grow. • Then the beer arrives en masse while incoming
orders suddenly decline.Moreover "beer game"-type structures
create similar crises in real-life production distribution systems.
PROBLEMS OF BEER GAME
In 1985, personal computer memory chips were cheap and readily available; sales went
down by 18 percent and American producers suffered 25 to 60 percent losses. But in late
1986 a sudden shortage developed and was then
exacerbated by panic and over ordering. The result was a 100 to 300 percent increase in prices for
the same chips.
PROBLEMS OF BEER GAME
A similar surge and collapse in demand occurred in the
semiconductor industry in 1973 to 1975. After a huge order buildup and
increases in delivery delays throughout the industry, demand
collapsed and you could have virtually any product you wanted off any supplier's shelf overnight. Within
a few years, Siemens, Signe tics, Northern Telecom, Honeywell, and
Schlumberger all entered the business by buying weakened semiconductor manufacturers.
PROBLEMS OF BEER GAME
• A real retailer can order from three or four wholesalers at once, wait for the first group of deliveries to arrive, and cancel the other orders. Real producers often run up against production capacity limits not present in the game, thereby exacerbating panic throughout the distribution system. In turn, producers invest in additional capacity because they believe that current demand levels will continue into the future, then find themselves strapped with excess capacity once demand collapses.
• The dynamics of production-distribution systems such as the beer game illustrate the first principle of systems thinking:
PROBLEMS OF BEER GAME
That makes total intellectual activity of Organization:• Idea generation • Learning & Skill development• Exchange of information• Development of strategic Direction• Project Planning• Communication• Market Research• Problem solving• Process improvement• Quantum leaps
System Thinking
42
PART 3Mr Farooq Munir
“STRUCTURE INFLUENCES
BEHAVIOR”
“When placed in the same system, people, however different, tend to produce similar
results”
“A truly profound and different insight is the way you begin to see that the system causes its
own behavior”
(Donella Meadows)
During the beer game“after a one-time increase, consumer
demand, for the rest of the simulation, was perfectly flat! “
Of course, none of the players other than the retailer knew consumer demand, and even the retailers saw demand only week by week, with no clue about what would come next?
In Actual
“What is/was the causeof that activity, or from what laws did it arise? asked the
human intellect”
Once they see that they can no longer blame one another, or the customer, the players have one last recourse—blame the system:
"It's an unmanageable system," and some say:
"The problem is that we couldn't communicate with each other”
“Blame each other / system”
• But, the human intellect not only refuses to believe in explanations, but flatly declares that the method of explanation is not a correct one . . .
• Because the logic behind is:“whenever there have been wars, there have been great military leaders; whenever there have been revolutions in states, there have been great men," says history. "Whenever there have been great military leaders there have, indeed, been wars," replies the human reason; "but that does not prove that the generals were the cause of the wars”
“Blame each other / system”
• In the beer game, the structure that caused wild swings
in orders and inventories involved:
• The multiple-stage supply chain
• The delays intervening between different stages
• Limited information available at each stage in the
system
• The goals, costs, perceptions
• Fears that influenced individuals' orders for beer.
Explanation
Contd…
• But it is very important to understand that when we use the
term "systemic structure" we do not just mean structure
outside the individual. The nature of structure in human
systems is subtle because we are part of the structure. “This
means that we often have the power to alter structures within
which we are operating”.
• However, more often than not, we do not perceive that power.
In fact, we usually don't see the structures at play much at all.
• Rather, “we just find ourselves feeling compelled to act in
certain ways”.
Explanation Contd…
Contd…
• Structure: " as used, does not mean the "logical structure" of
a carefully developed argument or the reporting "structure"
as shown by an organization chart. Rather,
• “Systemic Structure" is concerned with the key
interrelationships that influence behavior over time. These
are not interrelationships between people, but among key
variables, such as population, natural resources, and food
production in a developing country; or engineers' product
ideas and technical and managerial knowhow in a company..
Explanation Contd…
Contd…
• The beer game provides a laboratory for exploring how structure influences behavior. Each player—retailer, wholesaler, and brewery —made only one decision per week: how much beer to order.
• The result is a characteristic pattern of buildup and decline in orders at each position, amplified in intensity as you move "up-stream," from retailers to breweries.
• The other characteristic pattern of behavior in the game can be seen in the inventories and backlogs.
• These characteristic patterns of overshoot and collapse in ordering and inventory backlog cycles occur despite stable consumer demand..
Explanation Contd…
54
PART 4Mr Rana Shahzad
REDEFINING YOUR SCOPE OF INFLUENCE
&
“HOW TO IMPROVEPERFORMANCE IN THE
BEER GAME”
• Incoming orders come from "outside"—most wholesalers and brewers, for instance, shocked by the implacable mystery of those latter-half orders, “which should be high numbers”
• Members responded to new orders by shipping out beer, but had little sense of how those shipments will influence the next round of orders
• Only had a fuzzy concept of what happens to the orders you place
Beer Game Perspective
• Consider outcomes, if each player did nothing to correct his inventory or backlog- Backlogs developed
• Which precluded placing the orders in excess of orders received needed to correct backlogs
• Is the "no strategy" strategy successful?• In real life, such a situation would, undoubtedly, invite
competitors to enter a market and provide better delivery service
• Only producers/distributors with monopolies on markets would be likely to stick to such a strategy
• ‘Strategy’ - eliminates the buildup and collapse in ordering, and the associated wild swings in inventories
“No Strategy” Strategy
59
My Customers
Orders
My System
BREWERYSTOCKYARD
Delive
ryDela
ys
My Orders Placed
ViciousCycle
My Inventory
• If players, respond (as many do) by placing still more orders, they create a "vicious cycle" that increases problems throughout the system
• It can be set off by any player who panics, anywhere within the system—be he retailer, or wholesaler
• Even factories can create the same effect, simply by failing to produce enough beer
• Eventually, as one vicious circle influences other vicious circles, the resulting panic spreads up and down the entire production distribution system
• Once the panic builds momentum, players generate orders that are twenty to fifty times what is actually needed to correct real inventory imbalances
The Vicious Cycle
61
My Customers
Orders
The Vicious Cycle
BREWERYSTOCKYARD
Delive
ryDela
ys
My Orders Placed
ViciousCycle
My Inventory
• Redefine the Scopes of Influence (your success is not just influenced by your orders; it is influenced by the actions of everyone else in the system
• Under standing of “Vicious cycle”• Manage Your Position• Understanding Structural explanations: are so
important; is that only they address the underlying causes of behavior at a level that patterns of behavior can be changed
How to Improve Performance
• Shift of view: means getting to the heart of fundamental mismatches - "mental model" of it and knowing the actual reality of how the game works
• Pay close attention to your own inventory, costs, backlog, orders, and shipments
• “Managing their position“ - how their position interacts with the larger system
How to Improve Performance
• "Take two aspirin and wait" rule• Don't panicHow well can players do if follow these guidelines?• Totally eliminate all overshoots in orders and all
inventory/backlog cycles – Not possible• Hold instabilities to a very modest level - Possible• Substantial improvements – Possible
It takes discipline to contain the overwhelming urge to order more when backlogs are building and your customers are screaming
Guidelines for Improvements
LEARNING DISABILITIES &
WAYS OF THINKING
• It is no accident that most organizations learn poorly. The way systems are designed and managed, the way people's jobs are defined, and most importantly, the way we have all been taught to think and interact (not only in organizations but more broadly) create fundamental learning disabilities
• These disabilities operate despite the best efforts of bright, committed people. Often the harder they try to solve problems, the worse are the results
Poor Learning – A Real Fact
• "I am my position“• "The enemy is out there“• The illusion of taking charge• The fixation on events• The parable of the boiled frog• The delusion of learning from experience• The myth of the management team
Learning Disabilities
• Because they "become their position," people do not see how their actions affect the other positions
• Consequently, when problems arise, they quickly blame each other—"the enemy“ becomes the players at the other positions, or even the customers
• When they get "proactive" and place more orders, they make matters worse
• Because their over ordering builds up gradually, they don't realize the direness of their situation until it's too late
Outcomes of Learning Disabilities – Beer Game
• By and large, they don't learn from their experience because the most important consequences of their actions occur elsewhere in the system, eventually coming back to create the very problems they blame on others
• The "teams" running the different positions (usually there are two or three individuals at each position) become consumed with blaming the other players for their problems, precluding any opportunity to learn from each others' experience
Outcomes of Learning Disabilities – Beer Game
• Been with us for a long time• In story after story, leaders could not see the
consequences of their own policies, even when they were warned in advance that their own survival was at stake
• We live in no less perilous times today, and the same learning disabilities persist, along with their consequences
• The five disciplines of the learning organization, act as antidotes to these learning disabilities:
Disabilities & Disciplines
• Personal Mastery• Mental Models• Building Shared Vision• Team Learning• The fifth discipline: “Systems thinking” is the fifth discipline.
It is the discipline that integrates the disciplines, fusing them into a coherent body of theory and practice. It keeps them from being separate gimmicks or the latest organization change fads. Without a systemic orientation, there is no motivation to look at how the disciplines interrelate. By enhancing each of the other disciplines, it continually reminds us that the whole can exceed the sum of its parts
Disciplines of Learning Organization
Comes from seeing:• How learning disabilities are related to “alternative ways of
thinking” in complex situations• When people realize that their problems, and their hopes for
improvement, are inextricably tied to “how they think”• They also discover a bit of timeless wisdom delivered years
ago by Walt Kelly: "We have met the enemy and he is us.“• Requires a conceptual framework of "structural" or systemic
thinking, the ability to discover structural causes of behavior• Enthusiasm for "creating future" is not enough“Generative learning” cannot be sustained in an org where event thinking predominates. It requires a conceptual framework of "structural" or “Systemic Thinking”
Deepest Insight - Thinking
Systemic Structure (generative)
Patterns of Behavior (responsive)
Events (reactive)
Multiple Levels of Explanation - (Thinking)
• Event explanations: "who did what to whom“- “reactive stance” - most common in contemporary culture, and that is exactly why reactive management prevails
• Pattern of behavior: to break the grip of short-term reactiveness; “suggest how, over a longer term, we can respond to shifting trends”
• “Structural" explanation: least common and most powerful; focuses on answering the question, "What causes the patterns of behavior?"
Multiple Levels of Explanation - (Thinking)
• How orders placed• Shipment movements• Inventory interact to generate the observed
patterns of instability and amplification• Taking into account the effects of built-in delays in
filling new orders, and the vicious cycle that arises when rising delivery delays lead to more orders placed
Structural Explanation Must Show
• Addresses the underlying causes of behavior at a level that patterns of behavior can be changed
• Structure produces behavior, and changing underlying structures can produce different patterns of behavior
• Structural explanations are inherently generative• Structure in human systems includes the
"operating policies" of the decision makers in the system, redesigning our own decision making redesigns the system structure
Importance of Structural Explanations
77
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