Beer Game Exercise A simple supply chain Beer

Beer Game Exercise: A simple supply chain

Beer Game Exercise Procedure 1. 2. 移貨 (將兩個shipping delay的貨各往下游移動一格) 看單出貨 (依incoming order的數量從Current Inventory 將貨放於第一個 shipping delay) 3. 4. 5. 6. 7. 登記 Ending inventory, Backlogs, Incoming order 移單 (將order placed的定單移至incoming order) 下單 (下一個訂單放在order placed) 登記下單量 (完成一回合) Return to step 1 (for next cycle)

Increasing Variability of Orders Up the Supply Chain Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

The Bullwhip Effect While customer demand is changed, the increase in variability as we travel up in the supply chain is referred to as the bullwhip effect.

Causes of Bullwhip Effects Demand forecasting. n Lead time. n Batch ordering. n Price fluctuation. n Inflated orders. n

Consequences…. n n Increased safety stock Reduced service level Inefficient allocation of resources Increased transportation costs

We Conclude …. n n Order variability (oscillation) is amplified up the supply chain; upstream echelons face higher variability. Phase lag.

Impact of order variability:

Coping with the Bullwhip Effect n n n Reduce Variability and Uncertainty - POS - Sharing Information - Year-round low pricing Reduce Lead Times - EDI - Cross Docking Alliance Arrangements n Vendor managed inventory n On-site vendor representatives

Case: Barilla Sp. A (A) n n n Harvard Business School, 9 -694 -046 Barilla Sp. A is the world’s largest pasta manufacturer The company sells to a wide range of Italian retailers, primarily through third party distributors During the late 1980 s, Barilla suffered increasing operational inefficiencies and cost penalties that resulted from large week-to-week variations in its distributors’ order patterns

Exhibit 12 Weekly Demand for Barilla Dry Products from Cortese’s Northeast Distribution Center to the Pedrignano CDC, 1989.

Discussion Questions: n n What exactly is causing the distributor’s order pattern to look this way? What are the underlying drivers of the fluctuations?

Causes for Demand Fluctuations n Transportation discounts n Volume discount n Promotional activity n No minimum or maximum order quantities n Product proliferation n Long order lead times n Poor customer service rates n Poor communication

What is the impact of demand fluctuation seen in Exhibit 12? n n n Because the plant has high product change over costs, Barilla has either inefficient production or excess finished goods inventory Utilization of central distribution is low n Workers n Equipment Transportation costs are higher than necessary

What is the impact of demand fluctuation seen in Exhibit 12? n The distributor must build excess capacity to hold goods bought on any type of promotion, including quantity discounts, truckload discounts and canvass period discounts n n What if the distributor passes the discount along to the retailers? What is the value of the promotion game?

Barilla Sp. A Part A n n n (continued) To address this problem, the director of logistics suggests the implementation of Just-in-Time Distribution (JITD), with Barilla’s distributors. Under the proposed JITD system, decision-making authority for determining shipments from Barilla to a distributor would transfer from the distributor to Barilla. Specifically, rather than simply filling orders specified by the distributor, Barilla would monitor the flow of its product through the distributor’s warehouse, and then decide what to ship to the distributor and when to ship it.

Evaluation of the JITD Proposal n Clearly the variation in demand is imposing additional costs on the channel. What do you think of the JITD proposal as a mechanism for reducing these costs? n Why should this work? n How does it work? n What makes Barilla think that it can do a better job of determining a good product/delivery sequence than its distributors?

Two Key Concepts Behind JITD n Replace Sequential optimization with Joint optimization n n Who will optimize? Eliminate some of the ‘false’ economics that drive traditional ordering processes

Implementation Issues Resistance from the Distributors n n “Managing stock is my job; I don’t need you to see my warehouse or my figures. ” “I could improve my inventory and service level myself if you would deliver my orders more quickly; I would place my order and you would deliver within 36 hours. ” “We would be giving Barilla the power to push products into our warehouse just so that Barilla can reduce its costs. ” ?

Implementation Issues Resistance from Sales and Marketing n n n “Our sales levels would flatten if we put this program in place. ” “How can we get the trade to push Barilla product to retailers if we don’t offer some sort of incentive? ” “If space is freed up in our distributors’ warehouses…the distributors would then push our competitors’ product more than ours. ” “…the distribution organization is not yet ready to handle such a sophisticated relationship. ” ?

How Can Maggiali Solve the Implementation Problems? * * *

Barilla (B) Case n n n What did Barilla learn from the experiments in Florence and Milan? How should Barilla change the way it attempts to sell the JITD concept to its distributors? If you were a Barilla distributor, would you sign onto the program after seeing these results?