...entire system. System dynamics use feedback loops and stocks and flows to study complex and non-linear systems. Dynamics of the system contain quantities that vary over time. There are several laws of Fifth Discipline showing how system dynamic works. 1) For every action, there is a reaction. It is self-proofed in the beer game. Every order has to be fulfilled, either in the current week (if enough stock is available) or in one of the next weeks (items go on backorder). 2) Short-term improvements often lead to long term difficulties. In the beer game, it’s always a tradeoff between fulfilling demand and minimizing cost. Timely delivery calls for enough inventory, while cumulative inventory results in climbing inventory cost, due to more people to handle the beer and more storage space, and there is also a possibility that the beer will be left in your inventory when the total period is over or the redundant beer might go bad since it cannot be kept long. 3) Cause and effect are not necessary closely related, either in time or in space. Sometimes solutions implemented here and now will have impacts far away at a much later time. In the beer game, it is not possible for any one component of the system to be immediately aware of the actions and needs of all other organizational components. A change of strategy for ordering can lead to a better condition, though may not be real-time. 4) The entirety of an issue is often more than the simple aggregation of the components...
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...The Root Beer Game Simulation John Doe TUI University ITM 436 Operations Mgmt and Operations Sys. John Doe, Ph.D. What I learn about supply chain management during this tutorial? Successful supply chain management is significant to the survival of today’s business. To review supply chain strategies and evaluate proposed changes that impact the business as a hole, supply chain managers should be able to assertively predict their network’s performance under a range of conditions. This apparently impossible task has urged a search for better software to help decision makers analyze the design and operation of their supply chain. Computer simulations have become the tool of choice. Since simulation capture real world system variability, a simulation program helps managers to better understand the supply chain as it presently exists. Most significantly, a simulation gives planners a realistic view of what will happen in their supply chain under conditions that do not currently exist, but might take place. The tutorial presented a distribution network for a root beer beverage. The simulation starts in week 16 of the inventory with 170,000 cases of root beer on backlog. Having product cases on inventory or backlog will add additional expenses to the company (inventory $.50/bottle and Backlog costs $1/bottle). The business objectives include reducing inventory and backlog cost. The simulation project provides managers a tool for supporting strategic supply chain decisions...
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...speculation of any sort in such a market (on a short term basis), with a lack of need on controlling the costs of inventory, one theory remains key to the airbus manufacturing process, that theory that states that Airbus was born due to the proximity of the EU countries and so the geographical constraints are very important. Meaning that airbus is a combination of different EU organization that each one manufactures its products in a way that optimizes there restraints and capabilities and all is dialed down for assembly, and the proximity and open market of the multiple EU countries involved in the production that takes out the need of the transportation issues and logistics. 2. Why your Beer Game performance cannot be considered as a component of your final grade in this seminar? The beer game performance is an example of how crucial communication is...
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... List of Figures ii 1. Introduction 1 2. The Bullwhip Effect as a Supply Chain Phenomenon 1 2.1. Managing the Supply Chain 1 2.2. The Bullwhip Effect as Supply Chain Dynamics 2 2.3. The Bullwhip Effect as an Inevitable Consequence of Supply Relations—The Beer Game 3 2.4. The Reasons for the Bullwhip Effect 3 2.5. Studying the Bullwhip Effect in Data 5 3. Formal Analysis of the Bullwhip Effect 7 3.1. Models Based on Serially Correlated Demand 7 3.2. Measuring the Effect of Transparency 8 4. Mitigating the Bullwhip Effect 8 4.1. Information Policy 8 4.2. Reducing Lead Time 8 4.3. Collaboration of Retailers 9 5. Summary 9 References 10 Appendix 12 List of Figures Figure 1: Order fluctuations in the beer supply chain 12 1. Introduction The US-American telecommunications company CISCO depreciated 2.25 million US dollars in the third quarter of 2001 due to excess stock (Beer, 2014, p. 1). According to Beer (2014, p. 3.) the bullwhip effect is the probably most important reason for this depreciation. The bullwhip effect affects production and leads to a shortage of stocks or excess stocks, drops in sales, increases inventory costs and instability of planning (Beer, 2014, p. 3). Productivity losses due to the bullwhip effect are between 10 and 30%, according to Beer (2014, p. 3). Thus, eliminating the bullwhip effect is one of the most important goals of supply chain management. Since the length of production chains has increased over...
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...(2014) Simulation games in operations management: the importance of immediate post game analysis. Global Management Journal, 6(1): 61-64. 1. The aim of this paper focuses on 3 types of learning, pre-game, post game and most especially the discovery of post game analysis in context of the MIT Beer Game (Onoferei & Stephens, 2014). The paper explains that it is essential for research to be conducted reflecting on experiential learning practices utilised to enhance student interaction and understanding of supply chain with the support of simulation techniques(Case studies, site visits & games) (Onoferei & Stephens, 2014). 2. These activities prove that concepts and models create value when used in relation to real global problems in making decisions and finding solutions (Onoferei & Stephens, 2014).The difficulties were for educators to encourage learners to understand class activities from an organisational point of view. In acknowledging this, the paper contributes to the fact that instructors must help to make sense of thinking practices such as data interpretation and problem solving implications. The Beer Game description used in this paper comprises of the separate functions of the brewers, distributors, wholesalers and retailer. (Onoferei & Stephens, 2014). The outcome is to be able to meet consumer demand by bringing together the supply chain and reducing the total expenditure amongst its functions. This creates value across the supply chain as information...
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...Ertek, G., Eryılmaz, E. (2008) “The bullwhip effect in supply chain: Reflections after a decade” . CELS 2008, Jönköping, Sweeden. (presented by EmreEryılmaz). Note: This is the final draft version of this paper. Please cite this paper (or this final draft) as above. You can download this final draft from http://research.sabanciuniv.edu. THE BULLWHIP EFFECT IN SUPPLY CHAIN Reflections after a Decade Gürdal Ertek, Emre Eryılmaz Sabancı University, Orhanlı, Tuzla, 34956, Turkey Abstract A decade has passed since the publication of the two seminal papers by Lee, Padmanabhan and Whang (1997) that describes the “bullwhip effect” in supply chains and characterizes its underlying causes. The bullwhip phenomenon is observed in supply chains where the decisions at the subsequent stages of the supply chain are made greedily based on local information, rather than through coordination based on global information on the state of the whole chain. The first consequence of this information distortion is higher variance in purchasing 1 quantities compared to sales quantities at a particular supply chain stage. The second consequence is increasingly higher variance in order quantities and inventory levels in the upstream stages compared to their downstream stages (buyers). In this paper, we survey a decade of literature on the bullwhip effect and present the key insights reported by researchers and practitioners. We also present our reflections and share our vision of possible future...
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...raised the minimum wage from $4.25 per hour to $5.15 per hour, and then raised it again in 2007. Some people suggested that a government subsidy could help employers finance the higher wage. Suppose the supply of low-skilled labor is given by LS = 10w, where L is the quantity of low-skilled labor (in millions of persons employed each year), and w is the wage rate (in dollars per hour). The demand for labor is given by LD = 80 – 10w. (a) What will be the free-market wage rate and employment level? Suppose the government sets a minimum wage of $5 per hour. How many people would then be employed? (b) Suppose that instead of a minimum wage, the government pays a subsidy of $1 per hour for each employee. What will the total level of employment be now? What will the equilibrium wage rate be? Answer. (a) In a free-market equilibrium, LS = LD. Solving yields w = $4 and LS = LD = 40. If the minimum wage is $5, then LS = 50 and LD = 30. The number of people employed will be given by the labor demand, so employers will hire only 30 million workers. w S 8 LS 5 4 LD 30 40 50 80 L 1 (b) Let ws denote the wage received by the sellers (i.e., the employees), and wb the wage paid by the buyers (the firms). The new equilibrium occurs where the vertical difference between the supply and demand curves is $1 (the amount of the subsidy). This point can be found where LD (wb) = LS (ws), and ws – wb = 1 Write the second equation as wb = ws – 1. This reflects the fact that firms pay $1...
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...Interpersonal Communication in the Supply Chain Rick London Muhlenberg College Communications Nancy Miller July 15, 2015 Abstract Effective communication is an essential part of any interaction between two or more parties. For tasks to be completed, a message must be sent so that it can be understood and acted upon by all the parties involved. In business, parties to a transaction may or may not personally know each other and oft times they may not be on the same continent or speak the same language. This paper examines several case studies to determine if the personal relationships and interpersonal communications between parties in supply chain management has a positive effect on the transaction. Interpersonal Communication in the Supply Chain Introduction Supply Chain Management (SCM) emerged as an employment field in the nineteen nineties; before that time, the study of communication in business practices has occurred since at least 1958 (Gligor & Autry, 2012, p. 24). This paper explores the necessity for effective interpersonal communication in the supply chain in the present. Communication is defined as the act or process of using words, sounds, signs, or behaviors to express or exchange information ("Definition of Communication," 2015, para.1). We are all familiar with communication in our daily lives and the importance it holds in conveying or receiving a message, but, when the operation of a business, or a supply chain in this instance, relies upon...
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...1. Supply Chain Management The objective of supply chain management is to provide a high velocity flow of high quality, relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to customers. In other worlds it would be responsible to put the right product and quantity, at the right place and at the right time. The logistic performance has a strong influence over the financial performance of the industrial companies and commercial. With the development, together with development of the information technology, among other factors, show up the possibility of supply chain managed, which is know as Supply Chain Management. It is very important to understand first the objectives of the Supply Chain Management therefore give a close up at the Bullwhip Effect and understand its causes and understand how to minimize it. 2. Bullwhip Effect Supply Chain coordination functions well as long as all stages of the chain take actions that together increase total supply chain profits. Each part of the chain should maintain its actions in a good relation to other participants and the supply chain in general and make decisions beneficial to the whole chain. If the coordination is weak or does not exist at all, a conflict of objectives appears among different participants, who try to maximize personal profits. Besides, all the relevant information for some reason can be unreachable to chain participants, or the information can get...
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...Matthias Spleit (0966118) The Bullwhip Effect What is the bullwhip effect? The bullwhip effect is an observed phenomenon in supply chains and points out the magnification of demand fluctuations, especially when demand increases and decreases. The main reason for this phenomenon is a lack of demand information in the supply chains. FORRESTER was the first who mentioned the bullwhip effect in the literature.1 He studied the behaviour of dynamic systems in industrial organisations, by analysing different parameters like stock sizes, production rates and time delays and demonstrated the effects on these parameters, whenever modifications are applied. The outcome of his analysis was, that in a simple production- and distribution system, a small interruption or fluctuation in demand at the retail stage can cause a significantly stronger fluctuation in the whole system.2 These fluctuations have first been considered to be unavoidable and beyond the control of the respective companies. Forrester cleared up that misunderstanding on the basis of a four level dynamic system, showing the organisational structure of a production- and distribution system: Illustration: Bullwhip Effect3 1 2 Forrester, J. (1972), 21ff. Forrester, J. (1972), 22. 3 http://sinaslogisticsblog.blogspot.co.at/2010/04/bullwhip-effect.html (13.01.2015) 1 Matthias Spleit (0966118) There are four main operational factors that stimulate the bullwhip effect:4 1. fixed costs in production, ordering...
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...resource. Up until recently only De Beers controlled the diamond industry making the diamond industry monopolistic. (Zimnisky, 2014) However, over the last 25 years a series of events led to the dismantling of the De Beers monopoly. De Beers no longer has complete control over the diamond industry and instead it is market forces, not the De Beers monopoly, driving the diamond market. (Zimnisky, 2014) The following essay will discuss what events led to the dismantling of the De Beers monopoly, the role of the diamond cartel in determining the price of diamonds as well as the history of the diamond cartel. diamonds in South Africa and businessman Cecil Rhodes purchased as many diamond mining claims as he could including the farmland owned by the De Beer family. (Zimnisky, 2014) Eventually, Rhodes had acquired enough properties of the majority of the world’s supply of rough diamonds and he called his company De Beers Consolidated Mines Limited. De Beers effectively influenced all the world’s rough suppliers to sell production through the de Beers channel, acquiring full control of the global supply not produced by the de Beer mines. (Zimnisky, 2014) This power gave rise to the diamond cartel. De Beers is the dominant company in the industry and has been around since 1880. (FALL, 2007) Since 1925, the Oppenheimer family has controlled the company because at the beginning of the 20th century, Ernest Oppenheimer began accumulating shares of De Beers whenever available. (FALL, 2007)...
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...representative sports in America, that is no surprise. Most Americans follow a team, -usually, their home team- from beginning to, if they are lucky enough, the final countdown, the Superbowl. Some of them follow their favorite team fervently to stadiums for live shows, investing an excessive amount of money on football tickets, team's jerseys and much more Others, still fans, but more conservatives, prefer watching the games at home, with their families and friends, holding a few cold beers and some snacks. If you are the later person, here we offer you some tips for you to throw the best NFL Football Party Imagine NFL game is on Friday, today is Monday, and you want to host...
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...For the Root Beer Game Simulation, I played the role of a factory. My responsibility was to receive orders from the distributor and place orders for raw materials. At the beginning, the orders I received from the distributor was pretty stable (50,000 products each week, for the first 5 weeks). I could have used the 150,000 products that I was already carrying, but I decided not to. Instead, I ordered more inventory to plan ahead for increased demand. I did this despite the inventory costs because I knew that customer demand can change erratically. I also knew that this game was a simulation of the Bullwhip Effect. From previous readings and lectures, I knew that when a Bullwhip Effect happens, the demand variation is much more drastic in upstream...
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...when the demand is amplified in the supply chain as they move up in the channels of the supply chain of a firm. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies. Companies can effectively counteract the bullwhip effect by thoroughly understanding its underlying causes. Procter & Gamble (P&G) introduce this term. Logistics executives at Procter & Gamble (P&G) examined the order patterns for one of their best-selling products, Pampers. Its sales at retail stores were fluctuating, but the variabilities were certainly not excessive. However, as they examined the distributors' orders, the executives were surprised by the degree of variability. When they looked at P&G's orders of materials to their suppliers, they discovered that the swings were even greater. At first glance, the variability did not make sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variability in the supply chain were amplified as they moved up the supply chain. P&G called this phenomenon the "bullwhip" effect. (In some industries, it is known as the "whiplash" or the "whipsaw" effect.) Causes of the Bullwhip Effect Researchers found out that the factors which cause the bullwhip effect are the demand forecasting and amplification of oeders to the upper level of the supply chain. The best illustration of the bullwhip effect is the well known "beer game." In the game, participants (students, managers,...
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...The Beer Distribution Game (Channel Coordination Simulation) This exercise was developed by Forrester at MIT to study industry dynamics during the 1960s. The exercise is now being played in most major business schools as supply chain management has become an important strategic issue for business to stay competitive. The exercise allows you to experience first hand the flow of materials through a supply chain, see its mechanics, and appreciate some important phenomena associated with a supply chain. Students are divided into teams and compete with each other. Each team comprises of four members and each member will work independently to minimize the total inventory carrying costs and stock-out costs of the whole distribution network over the course of many time periods. Collusion (i.e. talking) among team members is strictly prohibited during the game. The four members of each team will play the roles of the Retailer, Wholesaler, Distributor and Manufacturer in a supply chain. Each member is responsible for making his/her own ordering decision. The system will keep tab of inventory and ordering information as the game progresses. Obviously, your ordering decision will affect your inventory and stockout costs, and therefore the overall performance of your team. Assume that this is a new product, so you don’t any reliable historic record to forecast your demand at the start of the game. The cost parameters are as follows. Any unmet orders at all four players...
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