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).
  

7/19/2006 7:07:33 PM (Eastern Daylight Time, UTC-04:00)

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System Thinking

The phrase The Long Tail was coined by Wired Magazine writer Chris Anderson who observed that the future of Internet business is selling of less of more. Such effect has been studied and well documented in academia, and Anderson attributed to several key academic papers in his article. Nonetheless, it was interesting to listen to the discussion of The Long Tail on NPR earlier today. An archived of the radio segment can be found here.

The notion of the The Long Tail is based on a statistical distribution called Pareto distribution, which starts off from high-frequency population from the left of the chart, then drops off quickly to a very low-frequency population with a long, gradual decline to zero - the shape is similar to the exponential decay. In terms of ecommerce business, the more popular goods (top hits and such) that sell a lot are on the left of the curve and less popular goods that sell little are on the right. Traditionally, with limited shelf space, the few things that sell a lot dominate. So not so long ago, big hits rule. Well not any more. With a huge virtual shelf space, online stores can offer much wider variety of things, including many low demand items, to consumers (aka niche markets). When this happens, the tail end of the curve stretches out and the resultant accumulation demand of less popular goods can outnumber that of more popular goods. What does this mean? From the introduction of the radio program: "shop online and everything becomes available to anyone, no matter when it was made and where. Top ten hits whether they are on the radio or TV or on the bestseller books list are giving ground to a universal ground of more obscure music, films, and books." Well... that pretty much describes the business model of iTunes, Netflix, and Amazon.

7/18/2006 11:56:38 PM (Eastern Daylight Time, UTC-04:00)

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Business

I wrote about System Dynamics and growth a few days ago. Can the same reasoning mentioned from that blog entry be applied to policy, especially policies on climate change and world growth? After all, it took millions of years for humans to reach one billion people in 1800 and the next 130 years to reach the second. Today, the population stands at 6.5 billion - 4.5 billion increase in world population in one lifetime. The bigger question is: does this planet has enough resources to sustain such growth? Indeed, this is a morbid topic to many people and honestly, I don't claim to have a solid idea what the future may hold. But the book Limits to Growth: The 30-Year Update was suggested for people interested in exploring this topic from a System Dynamics point of view. I haven't have the chance to read it yet but here's a review of the book.

7/15/2006 3:06:22 PM (Eastern Daylight Time, UTC-04:00)

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System Thinking

The Daily Show televised two nights ago was hilarious. Jon Stewart lampooned North Korea's recent missile test with a segment called "License to Il" (Il as in Kim Jong Il). You can watch the videos for that episode here:

• Swaggering bush version 1.0 vs. Bush version 2.0 with touchy feely patch
• The phony North Korean parody of The Daily Show

7/14/2006 8:00:56 AM (Eastern Daylight Time, UTC-04:00)

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The Daily Show

I have not done much research to back some of my statements, so this is one of those stream of consciousness entry on System Dynamics and its application in the real world.

I am really starting to like System Dynamics as it has provide a powerful way of thinking about the dynamics of the world that we live in, and then applying the ideas and understandings in making sound strategic choices. This week in our System Dynamics class, we covered the People Express (A) case, which chronicles the spectacular rise and fall of People Express. Despite being a pioneer in some very innovative business practices in the airline industry, like deep discount airfare and no frills service, People Express no longer exists today. Since starting business in 1981, People Express had become the fifth largest airline in the U.S. the course of 5 years since and yet a year later, the business went bust. What happened? A common explanation for their demise is excessive corporate growth. I know it sounds counter-intuitive that excessive growth is seen as detrimental factor to a company's bottom line. I struggled with it initially too; but after reasoning it with System Dynjamics, the explanation makes perfect sense.

Complex systems, including business organizations, have reinforcing and balancing feedback loops that are associated to growth. For the uninitiated, these feedback loops are the cause and effect of different components of a system. A reinforcing loop refers to a cyclical series of interactions among entities that has an multiplying effect on a certain behavior, while a balancing loop is inimical to that behavior. For the engineers out there, these loops are similar to the feedback loops in Control Theory but in System Dynamics, feedback loops are often used to model complex behaviors in a social setting. Now most growths and declines are exponential in nature (compounding effect). However, in our social-physical world, nothing can grow forever as growth needs be fueled by resources. All growth processes will eventually be limited by some balancing loops due to the limits of resources. Likewise, a company that experiences tremendous growth in its early stages is likely to be slowed later by its limited resources (tangible or intangible, controlled or non-controlled). Such a phenomenon explains the shape of an S-curve. In the worst case scenario, the growth is so rapid and excessive that it overshoots its natural limits (or some people call it the tipping point), allowing balancing loops to dominate. When this happens, decline becomes inevitable and may lead to undesirable outcome. In this case, the phenomenon is characterized by a parabola (or some people call it the bell curve). The take away from this discussion is this: the recognition and understanding of key strategic assets as well as the dynamics of the limitation of growth are critical to any corporate growth strategy.

Reference: M. Salge, P. Milling, "The Pace or the Path? Resource Accumulation Strategies in the U.S. Airline Industry," 2004.

7/13/2006 2:31:15 PM (Eastern Daylight Time, UTC-04:00)

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System Thinking

I performed terribly in all sports that I played last weekend. I didn't do very well at the weekly LFM soccer game on Friday. I wasn't as fast as I had wanted to be and didn't handled the ball very well. Worse, I hurt my ankle during the game - still nursing the injury at the moment. Saturday's tennis game with Dave wasn't much better either. I struggled with most of my serves and had difficulty returning Dave's serves. The squash game with AJ and Sriram on Sunday was another disaster. Out of 6 games, I lost all games with them. I wasn't hitting that badly; but my problem was placement - I kept hitting the ball straight at my opponent, which made it easy for them to return. Arghhh... How frustrating.

But the biggest disappointment in sports last weekend was the World Cup final. It was a heartbreaker not because the team that I supported for lost but my favorite player in the World Cup, Zinedine Zidane, did something blatantly and deliberately stupid. I am still baffled by Zidane's head-butt on Italy's Marco Materazzi during the World Cup final. What circumstances prompted him to do this? Apparently, the whole news media around the world are still covering this news two days after it happened. I don't know, I was disappointed by this incident. All in all, an utterly disappointment in sports last weekend - self-induced and otherwise. :-(

7/11/2006 11:27:10 PM (Eastern Daylight Time, UTC-04:00)

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Sports

This is a quick, random blog entry. I have just stumbled upon Venturewoods.org, an interesting blog on entrepreneurship and venture/private equity investing for the Indian venture community by like-minded people. The blog has some interesting stuff.

On a totally irrelevant note, I am super excited for the final World Cup match where France plays against Italy. I will head out after submitting this entry to play squash with AJ before heading down to Phoenix Landing to catch the game.

7/9/2006 11:44:24 AM (Eastern Daylight Time, UTC-04:00)

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Entrepreneurship

Yesterday in my System Dynamics class, I heard Prof. J. Bradley Morrison mentioned the acronym MBWA, an enormously popular buzzword in the early 80's (according to the professor) that is short for management by wandering around. Intrigued by the term, I did a search on it and found a slew of articles written about MBWA. Make no mistake, MBWA is a non-sophisticated virtue that advocates business leaders to engage actively with the employees to make things happen, much like Alexander the Great who personally led his troops to the battlefield. Speaking of the military, I think that MBWA comes more naturally with people who have military background. As a sergeant in the infantry many years ago, I was taught to practice participatory leadership with my troops. We didn't use the term MBWA, instead we use a less catchy phrase called leading by example. Throughout my career in the military, I have witnessed a difference troops' morale and performance whenever I rolled my sleeves up and got involved with them in the tasks that I asked them to do. Ultimately great teamwork was fostered through my active engagement with the people that I supervise.

But is MBWA still relevant in today's business context? Personally, I think that it is needed more today than ever before. In my humble opinion, I feel that today's business leaders are just too fixated on interacting only with people whom they have direct relationships with - direct reports, customers, shareholders, and investors. Worse, in the advent of video conference, email, and web cast, it has become ever easier for business leaders to appear as remote figureheads, further alienating them from their organization. Instead of showing the employees a video cast of their CEO presenting the company's quarterly earning announcement, the CEO should personally be on site and address the company's rank and file. Be genuinely interested in what people do and learn about what they do and feel. If nothing else, share your vision with them. Read this article for more details on MBWA. Anyway, it is getting a little touchy-feely already (yikes ); but my point is that business leaders can't afford to be out-of-touch with the realities and the people who make up a major portion of an organization.

7/7/2006 8:06:48 PM (Eastern Daylight Time, UTC-04:00)

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Business

These days, we hear the term "globalization" mentioned frequently in almost aspect of our life. But has anyone wondered about the originality of the term. Well, as reported by the Boston Globe, Theodore Levitt, who coined the term, has died. According to the article:

"Levitt first used the term 'globalization' in a 1983 Harvard Business Review article about the emergence of standardized, low-priced consumer products. He defined that globalization as the changes in social behaviors and technology which allowed companies to sell the same products around the world."

7/6/2006 6:08:53 PM (Eastern Daylight Time, UTC-04:00)

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Business

I had wanted to spend a quiet July 4th weekend at home reading and watching TV. However, I decided the last minute to visit my buddies Siobhan and Steve over that weekend in New York City instead. It was great catching up with the both of them. Steve was busy preparing for his New York bar examination, which will be take place at the end of the month. Siobhan was in the midst of her well-deserved two month long break between her graduation from NYU Stern and her new job. Nonetheless, both of them were gracious enough to hang out with me last week. Thank you for hosting me.

The first night in NYC was a night out with Fernando, Nick, Serge, and Will - all whom happened to be in town the same night as I was. The second day was spent at Jones Beach in Long Island. That day, I was badly burned from not using sunscreen lotion at the beach even though I knew full well that I should have. Today, the redness and burning sensation have subsided but my whole body still itches like crazy. Moral of the story is: don't be a hero, use the sunscreen lotion. On the brighter side of things, we joined Brian and other close friends on Independence Day to watch the fireworks on a roof deck of an office building in Mahattan. What a spectacular view of the city and fireworks!

I have been visiting NYC a lot lately and starting to like the city. The city appeals to me because as an energetic person, I am attracted to the exuberance that the city has to offer. I think I would fit right in NYC. I am now seriously considering living and working in NYC for a few years.

7/5/2006 11:52:10 PM (Eastern Daylight Time, UTC-04:00)

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Travels

As a World Cup junkie who has been watching the most beloved game in the world as of late, I have been itching for a real game so that I can, too, bend it like Beckham. I had suggested a friendly football match between LFM and SDM to satisfy my itch but the reception from my SDM class has been less than enthusiastic at first. I finally got a team of about 12 people from SDM but I now have scheduling problems as not all of us can play at the same time. Arghhh... It looks like we might finally get that match scheduled for the weekend of July 14-16.

Not willing to wait, I played in an LFM organized football pick-up game yesterday. Despite being the holiday weekend, there were 24 people playing on the MIT AstroTurf at one point of the game. Most players are LFM students and there were a few MBA and ESD students. Ankur and I were the only people from SDM. I played my usual position as a defender. Even though I have not played for more than 5 years, I was very happy with my performance. I was fast and well coordinated. I was feeling confident by the second half. It was a fun game and I plan to continue playing this pick-up game every Friday.

7/1/2006 3:31:47 PM (Eastern Daylight Time, UTC-04:00)

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Sports

I barely have enough time to keep up with my readings of the magazines I subscribe to (The Economist and BusinessWeek), yet I have recently decided to order more magazines. I have read a few Harvard Business Review (HBR) articles as part of the required readings in some of the classes that I took at MIT. A month ago, I caved in and ordered a year's subscription of HBR to try it out. I have already received two issues of HBR and so far, I like what I have read. Most of the articles are written very thoughtfully and certainly has an academic tinge to it. Unlike BusinessWeek, which reports about the latest trends and news in the business world, HBR focuses on findings from the latest research in management science as well as issues that are nascent. Such characterization should be of no surprise since most of the contributing authors are faculty members of established business schools.

These days, I am still trying to make sense of the war and America's foreign policy. More importantly, in a highly globalized world and as a student of policy, I simply can't ignore the political and policy matters at the world stage. So I subscribed to Foreign Affairs, a magazine about international affairs, a month ago (about the same time I subscribed to HBR). Similar to HBR, a good portion of the articles in Foreign Affairs are written by professors as well as prominent players in the international affairs scene. Unfortunately, I have only received my first copy of the magazine yesterday, so I will defer my review of the magazine till a later time.

7/1/2006 1:36:32 PM (Eastern Daylight Time, UTC-04:00)

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