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Supply Chain Supply Chain ManagementManagementOVERVIEWOVERVIEW

Beer Game DebriefingBeer Game Debriefing

Handling UncertaintyHandling Uncertainty

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Today’s AgendaToday’s Agenda

Quiz #1Quiz #1 Debrief on Beer Game Debrief on Beer Game Bullwhip effect and its possible Bullwhip effect and its possible

causescauses Symptoms of bullwhip effectSymptoms of bullwhip effect Counteract the bullwhip effectCounteract the bullwhip effect

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Beer Game DebriefBeer Game Debrief What patterns do you see?What patterns do you see?

What problems did you experience when What problems did you experience when playing the game?playing the game?

What are the underlying causes of the What are the underlying causes of the problems you experienced?problems you experienced?

How did you “feel” through out the How did you “feel” through out the game?game?

Do you consider this a realistic Do you consider this a realistic representation of a supply chain? Why representation of a supply chain? Why or why not?or why not?

The Bullwhip EffectThe Bullwhip Effect

Logistic phenomenon named after the way Logistic phenomenon named after the way the amplitude of a whip increases its lengththe amplitude of a whip increases its length

The phenomenon occurs in forecast-driven The phenomenon occurs in forecast-driven distribution or supply channelsdistribution or supply channels

Described by Lee, Padmanabhan, Whang in Described by Lee, Padmanabhan, Whang in MIT-Sloan Management Review in 1997MIT-Sloan Management Review in 1997

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The Bullwhip EffectThe Bullwhip Effect Distorted information from one end of Distorted information from one end of

a supply chain to the other can lead to a supply chain to the other can lead to tremendous inefficiencies: tremendous inefficiencies: Excessive inventory investment, Excessive inventory investment, Poor customer service, Poor customer service, Lost revenues, Lost revenues, Misguided capacity plans, Misguided capacity plans, Ineffective transportation, Ineffective transportation, Missed production schedulesMissed production schedules. .

How do exaggerated order swings occur? How do exaggerated order swings occur? What can companies do to mitigate them?What can companies do to mitigate them?

55Lee, Padmanabhan, Whang in MIT-Sloan Management Review in 1997Lee, Padmanabhan, Whang in MIT-Sloan Management Review in 1997

The Bullwhip EffectThe Bullwhip Effect

““This phenomenon occurs when companies This phenomenon occurs when companies significantly cut or add inventories. significantly cut or add inventories.

Economists call it a bullwhip because even small Economists call it a bullwhip because even small increases in demand can cause a big snap in increases in demand can cause a big snap in the need for parts and materials further down the need for parts and materials further down the supply chain.the supply chain.” ” WSJ, May 26, 2010WSJ, May 26, 2010

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The Bullwhip EffectThe Bullwhip Effect

The increasing variability of demand as The increasing variability of demand as one moves one moves upstreamupstream in a supply chain in a supply chain

Demand variability amplified through Demand variability amplified through supply chain by :supply chain by : Distorted and/or delayed information-demand Distorted and/or delayed information-demand

forecastingforecasting Long lead timesLong lead times Order batchingOrder batching Over-reactionsOver-reactions Rationing & Game-playing Rationing & Game-playing

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The Bullwhip Effect in Supply The Bullwhip Effect in Supply ChainChain

Symptoms of Bullwhip Symptoms of Bullwhip EffectEffect

Excessive inventory (shortages Excessive inventory (shortages of working capital)of working capital)

Poor product forecastsPoor product forecasts Insufficient or excessive Insufficient or excessive

capacitiescapacities Poor customer servicesPoor customer services High cost of corrections (e.g., High cost of corrections (e.g.,

expedited shipments, overtime)expedited shipments, overtime)99

How to Counteract the How to Counteract the Bullwhip EffectBullwhip Effect

Avoid Multiple Demand Forecast Avoid Multiple Demand Forecast UpdatesUpdates

Break Order BatchesBreak Order Batches Stabilize PricesStabilize Prices Eliminate Gaming in ShortageEliminate Gaming in Shortage

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Lee, Padmanabhan, Whang in MIT-Sloan Management Review in 1997

Framework for Supply Chain Framework for Supply Chain Coordination InitiativesCoordination Initiatives

1111Lee, Padmanabhan, Whang in MIT-Sloan Management Review in 1997Lee, Padmanabhan, Whang in MIT-Sloan Management Review in 1997

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Next ClassNext Class

Next class – Managing qualityNext class – Managing quality Read chapter 6Read chapter 6

Due name of your group, Due name of your group, members, and leader by next members, and leader by next classclass