I have talked about System Dynamics (SD), and its application in business and
social science before.
Yesterday in our System Dynamics class, we finally had the opportunity to play the Beer Distribution Game (or simply Beer Game) to illustrate application of
System Dynamics in the field of Supply Chain Management (SCM). Electronic versions of The Beer Game can be found here and here. However, the Beer Game is much better played in teams than individually on a computer.
I took an operations and supply chain class last year and even scored an A in that class. So I know what Bullwhip Effect is and its implications in supply chain management. In fact, a majority of my classmates who played the game yesterday have taken the same class before. We were confident of contributing positively to the game and likewise had expected all of us to do very well in the game. Given that the game is easy to play and that we all understand the ill effects of the Bullwhip Effect,
we should all do very well in this game, right?
Wrong. While the final score of our team was decent, our decisions made during
the operation was not optimal - our final score hovered around average. We all understand the bullwhip effect and even told ourselves before the game that
we have do whatever it takes to minimize it as much as possible. However, once the backlog rises, we
seemed to have forgotten some of the tenets of good supply chain management. We
underestimated how real bullwhip effect can really take hold and its negative
impacts. But in some way, I was glad that we didn't do as well
because the game really made us appreciate the Bullwhip Effect.
The Beer Game is typically used to demonstrate the principles of Supply Chain
Management; but the game can also be used to illustrate three principal System Dynamics-related effects in a time-delayed, complex system: oscillation, time lag, and amplification. In terms of
Supply Chain Management, these three effects are effectively captured by the phrase Bullwhip Effect, which according to
Wikipedia describes the effect of the Bullwhip Effect as: "variations are amplified the farther you get from the end-consumer." But the take-away lessons from the exercise are summarized as follow:
- Bullwhip Effect manifests itself not just in the context of supply chain but in almost every complex system.
- The root cause of most problems is attributed to the behavior of the system, not external
variables or psychological factors. Ultimately, it is the structure of a system
that influences the behavior.
- People tend to focus on their own decisions and
don't understand how their decisions can affect others. Sometimes, these decisions can come in full circle and one's decisions can eventually affect oneself later (feedback loops).