EBU6609 Logistics and Supply Chain Management
TUTORIAL 1: SUPPLY CHAIN ORGANISATION MS. BING HAN
Beer Game – the Bull Whip Effect
Case Study: Smart Car
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Coursework
EBU6609 Logistics and Supply Chain Management
Beer Game Layout
General Information
Developed by MIT to simulate a simple 6‐tier single product supply chain.
The game is played in a series of periods; each period corresponds to one week.
Each order has a two‐week delay and each shipment has a two‐week delay.
EBU6609 Logistics and Supply Chain Management
Beer Game Layout
General Information
There is cost associated with having too much inventory (i.e., inventory carrying costs) and too little inventory (i.e., backlogs, lost sales, lost customers).
To hold a unit of inventory for one week costs $1.00.
Each unit of backlog costs $2.00 per week.
Inventory and backlog levels are tracked during the game on a form.
EBU6609 Logistics and Supply Chain
Management 3
Order Entry Form
Backlog = previous period backlog + current period demand – amount shipped in current period
Game Sequence
1. Receive Inventory and Transport Orders – products in shipping delay boxes are advanced one position on the game board.
2. Look at and Fill Incoming Orders – receive incoming order and ship the requested number of units (plus any existing backlog), if possible, into the empty shipping delay box that was created during step 1. If you don’t have enough inventory, ship as much as you can and add any unfilled orders to your backlog.
3. Record Inventory or Backlog Levels – count your inventory or calculate your backlog and record it.
4. Place an Order – decide how many units to order from your immediate supplier. Advance your previous period’s order from the order placed box into the supplier’s incoming order box and place your new order in the order placed box. Place orders face down so they cannot be seen by your supplier.
EBU6609 Logistics and Supply Chain
Management 4
Rules of the Game
You may NOT communicate with your supplier or any other tier in the supply chain. The only communication that takes place between the is through the order cards that are passed face down along the supply chain.
Customer demand is determined in advance. Retailers are NOT allowed to share this information with other tiers.
Each step in the game sequence must be completed by each of the tiers for the current period before the next period can be started.
The aim is to minimize the total cost for everyone in the supply chain by maintaining low stocks but nevertheless managing to deliver all orders.
It is not the intention that you should try to reduce your costs at the expense of the other players.
EBU6609 Logistics and Supply Chain
Management 5
Bullwhip effect (exaggerated demands along the SC)
Forecast is important, end user’s demands are more predictable
Reduce delays along the SC
The Bullwhip Effect
EBU6609 Logistics and Supply Chain Management
The Bullwhip Effect
Bullwhip effect costs can be as high as 12-25%
Bullwhip can be effectively mitigated by:
◦ Sharing point of sale data
◦ Collaborative forecasting
◦ Collaborative future product promotion planning
The Bullwhip Effect
Variation in demand is exaggerated as information moves upstream away from the point of use.
Variation in demand is exaggerated due to infrequent demand and/or inventory level information exchange and order batching.
EBU6609 Logistics and Supply Chain
Management 7
To mitigate Bullwhip effect…
Focus on end‐user demand through point‐of‐ sale (POS) data collection, electronic data interchange (EDI), and vendor‐managed inventories (VMI) to reduce distortions in downstream communication.
Work with vendors to create smaller order increments and reduce order batching. Order batching exacerbates demand fluctuations.
Maintain stable prices for products. Price fluctuations encourage customers to over‐ purchase when prices are low and cut back on orders when prices are high, leading to large demand fluctuations.
Allocate demand among customers based on past orders, not present orders to reduce hoarding behavior when shortages occur.
Case Study – Smart Car
To find more information, visit
◦ http://www.smart.com
EBU6609 Logistics and Supply Chain Management
Smartville
Where is it?
– Location, location, location!
Questions for discussion
1. Why should MCC assemble cars itself when suppliers are already integrated on the site?
EBU6609 Logistics and Supply Chain
Management 9
EBU6609 Logistics and Supply Chain
Management 10
Coursework
1. Choose one relevant company from Fortune 500 (2021):
See the List of Supply Chain Companies for 2021
Collect information/data from various sources
SCM analysis
Report and Presentation
4000 words (clear and concise)
Report format – no compulsory template provided
◦ https://fortune.com/fortune500/
Or, from Gartner’s Supply Chain Top 25 list:
Recommended Report Format
Cover page
Table of Content
Introduction
oJustification and backgrounds
Situation Analysis
◦ Supply Chain Structure
◦ Physical flow of goods
◦ Information management ◦ Organisational structure
◦ Supply Chain Performance ◦ The business context
EBU6609 Logistics and Supply Chain Management
Report Format (cont’d)
Identification of main issues and problems
Generalisation and evaluation of alternative solutions
Recommendation
◦ Justification and solutions
Implementation issues
Important things to remember:
Real company – but you won’t be sacked!
Opportunity to evaluate situations faced by real operations managers
Personal preparation + Syndicate work + group discussion
Critical thinking – applying clear and logical reasoning to the information available
EBU6609 Logistics and Supply Chain Management
Skills to be developed:
Analytical skills – deal with both quantitative and qualitative data
Time management skills ‐ allocation of time, resources
Decision making skills
Written communication skills – case reports
Persuasion/presentation within/outside groups
Questions to
‐ What’s the purpose of the Beer Game?
‐ What’s the significance of Smart Car in terms of Supply Chain Management?
‐ What can be applied in our Coursework?
EBU6609 Logistics and Supply Chain Management
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