Beer Distribution game 8 April 2019 ..

The supply details and cost data for diff entities

Beer Distribution game .. 8 April '19 

Bullwhip effect was evident in the best way today after we played the MIT SCM Beer Distribution game in the second sem MBA Operations class this afternoon ..

The total SC costs of SC A at INR 9510/- was almost double of SC B at INR 5120/- even though both the supply chains handled the same total items of 51 units of Beer crates over a 12 week period in a step wise increase and decrease mode of customer demand. The similar costs of holding and of shortage (shortage costs = 3 x holding costs) in both the supply chains are given in the figure. Clearly it was evident that SC B was well managed in terms of costs than SC A. 

Another aspect that was very clearly evident was the gradual amplification of the variance of the orders placed by the downstream entities on upstream entities, commonly called the Bullwhip Effect.

Figures in brackets on the left of costs denote
variance of orders

For SC A, the variance of the orders placed increased from 6.8 at retailer to 37 (wholesaler) to 38.2 (distributor) to 216.9 (manufacturer) was markedly much more than a disciplined SC B which had corresponding values of variance at 4.65, 24, 2, 34.8 and 42.5 .. 

The comparatively lower variance of orders placed in SC B in comparison to SC A explains the total SC costs of SC B being just half of SC A. 

Great learning of the relationship of Bullwhip effect on Total SC costs .. 

If the total profits from trading 51 items ( total demand) each with 2 retailers at Rs 100 each were to be considered, we find the total profits from SC A would be just Rs 690/- compared to SC B's Rs. 5090/-. 

When I asked the members of SC A as to why their costs and variance of orders placed were so high, their unanimous reply was that they floundered in the demand forecasting aspect. 

Thanks to Massachusetts Institute of Technology for giving the students great learning..

George ..