the “beer game” improving supply chain efficiency
DESCRIPTION
This project explains possible solutions and problem area’s in the "Beer Game" also known as the Supply Chain.TRANSCRIPT
Alex BurkJeremy CarterLisa GoldmanWill SteinertMorgan Williams
The “Beer Game” Improving Supply Chain Efficiency
Forecasting
Projection of a firm’s economic activity and prediction of future events and their impact on a company and/or supply chain
Judgment--Actual rarely matches predicted. Guides corporate strategy Affects and is affected by: all areas of planning Accuracy =preparation Most difficult to forecast: high-technology innovations (80%
wrong) Lack of unity throughout organization may be fatal
The simultaneous use of varying methodologies will host the bullwhip effect
Ordering will fluctuate and demand will become distorted
Demand Signal Processing
P&G variation in diaper orders
HP Printer Distributors > customers
Distortion of Data interpreted as amplified demandWhen retailer issues orders based on updated demand
forecast
Pass the Secret
Differing Forecasting Methodologies
Eliminating channel intermediaries (unified forecast)
Order Excess Inventory from Suppliers If a large order is not filled
Suppliers increase capacityContinuously large orders are placed
Revert Back to original order quantitySuppliers now have excess capacity
The Rationing Game
Reasons for gaming
Forgotten inventory in pipeline
Time lag to receive past orders
Rational behavior
The Rationing Game
Companies often batch or accumulate demands before issuing an order.Two forms of order batching:
Random ordering occurs when demands from retailers are independent.Correlated ordering occurs when all orders fall in the same period. High variability.
Order Batching
Reasons for large order batching:
Periodic review process
High cost of placing an order and
replenishing it.
Cost of transportation
Order Batching
Counter Measures to mitigate batching effect:
Provide access to sell-though/inventory data at retail levelLower transaction costs by implementing EDI- based order transmission systems.Discount on assorted truckloadsConsolidation by third party logisticsCoordination of delivery schedules
Order Batching
Inherent in Supply Chain Raw Material price fluctuations
Natural disaster Shortage/surplus Market demand changes Critical supplies Obsolete material in product
Equipment Requirements Handling/Storage cost Stimulates Value Chain Buyer Power/Supplier Power
Price Variation
Mitigating Bullwhip Effect Purchase Contract
Manufacturer meets production schedule requirements Buyer keeps strategic purchasing practice
Win-win negotiation (zero-sum) Mutual benefit Customer satisfaction Efficiency in SC flow
Reduce frequency/depth of promotions (EDLP model)
Price Variation
Allow managers time to do other value adding tasks
Studying trends Product sales Customer wants and needs Improving employee skills and training Frees up time for high level
duties/responsibilities
Technology
Technology breakthroughs enable increased feedback Between concurrent teams Through CRM and SAP systems Between different functional area’s of the
organization Centralizes function’s
DRP
Technology
Used to simulate situations
Test situation prior to implementation
Develop new possibilities
Plan for the future events
Technology
Increases automation Lowers labor costs Increases efficiency levels of processes Increases productivity and production
levels Decreases error rates
Technology
Problem is not the technology Lack of proper implementation of the
technology Organizations failure to practice the theories
available today Lack the ability to keep pace with technology
changes Technology changes over night
Technology
Agility Flexibility with market trends/change is key
Noticing consumer demand changes To avoid over stocks To avoid having to discount inventories
React speedily React in a cost-efficient manner to changes Collaborative relationship with suppliers and customers
Design and redesign processes Prepare a backup plan for crisis situations
Trained managers Design common parts or processes with little variation
Interchangeable pieces Simple/standard processes
The 3-AAgility, Adaptability, Alignment
Adaptability Two keys
Ability to spot trends/future patterns Capability to change supply networks
React to strategic and structural changes Evolve over time Recognize economic progress, political and social
changes, demographic trends, and technology advancements
The 3-AAgility, Adaptability, Alignment
Alignment Align interest to optimize performance of Supply Chain
Vendor Managed Inventory Clear, defined roles for partnerships relationship to
be successful Three area’s to align
Forecasting Sales data Planning
The 3-AAgility, Adaptability, Alignment
Anchoring in the Choice of the Desired Stock
With absence of a calculus to determine
optimal inventories, subjects strongly anchor
desired stocks on their initial level.
Misperceptions of Feedback
Misperception of Time LagsUnderestimation of lag between placing and receiving ordersTo ensure appropriate acquisition rate the supply line must be proportional to the lag in acquiring beerFailure to allow for sufficient beer in the pipeline to achieve their desired inventory level.Need to fully account for goods in supply line to prevent over ordering
Misperceptions of Feedback
“Open-Loop” Explanations of FeedbackAttribute dynamics to external variablesErroneous open-loop attribution of dynamics to exogenous events draw learning away from the high leverage point in the system and towards efforts to anticipate and react to external shock.Key to improved performance lies within the policy individuals use to manage the system and not in the external environment.
Misperceptions of Feedback
Time Lag
Order placement
Lead time
Order processing
Order filling
Shipping time
Time Lag
How does it effect the supply
chain?Forgetting beer in the pipeline
May cause stock out or overstock
Requires further forecasting
More inaccurate
Point in value chain for a product, where the product is linked to a specific customer order Two types of Customer Order Decoupling Points (CODP) also
known as Flows or “Leagility” approach
Upstream Forecast-driven Lean supply chain Associated with high levels of cost performance MTS – oriented Difficult to maintain right quantities and competitive pricing
all the time
Decoupling
Two types of Customer Order Decoupling Points (CODP) also known as Flows or “Leagility” approach Downstream
Customer order-driven Agile supply chain
Associated with flexibility in performance Market/production alignment
MTO - oriented
Decoupling
Decoupling
Aspect Upstream the CODP Downstream the CODP
ProductStandard components, high volumes, predictable demand
Fully customized, unpredictable demand
Process Assembly line type Job shop type
Supply chainPhysically efficient, high utilization, low-cost, supplier selection based on cost and lead time
Market-responsive, buffer capacity
Planning and control
Make-to-stock Make-to-order, customer orders
Company perspective of CODP can be positioned at:
Manufacturing operations Suppliers (upstream) Interface with suppliers (raw material inventory) At the border towards the customer (finished goods
inventory) Beyond the customer (further downstream)
Lean (Upstream) and Agile (Downstream) SC focus
DecouplingDual design Approach
Questions