Supply Topic 4 (Beer Distribution Game)

Question 1

types of costs

Answer 1

1. inventory holding costs
2. backorder penalty costs

Question 2

inventory holding costs

Answer 2

• kept and used later when demand comes from customers
  -hold it for number of weeks
• more inventory = higher inventory holding costs

Question 3

backorder penalty cost

Answer 3

-double inventory cost
-ones that cant be fulfilled but are requested
-pay the penalty for the unfulfilled orders
-when inventory is fewer than demand
-more inveotry is lower backorder risk

Question 4

backorder risk

Answer 4

hard to estimate how much is the downstream
make decision on how much to order from upstream
(shipping delay and info delay)

Question 5

bullwhip effect
elements

Answer 5

• order vs real demand
• inventory/backholders vs real demand

Question 6

order vs real demand

Answer 6

order we placed and the real demand
order = fluctuates a lot
variation increases as we go upstream to factory/distributor
retailers = costs is lowest (see end customer real demand, no info delay) = control cost

Question 7

inventory/backorders vs real demand

Answer 7

stages alternate between phases of out of stock and over stock at different moment during the game

variation increases as we go upstream
back order = panic buy = now high inventory holding costs = overstock

Question 8

what is the bullwhip effect

Answer 8

• customer has a small change in demand = larger changes for different stakeholders along supply chain from downstream to upstream = retailers are influenced

small changes in demand can produce whip like effects upstream

Question 9

causes of the bullwhip effect

Answer 9

• what led you to order with these high variations
• did you have a specific strategy

Question 10

9 causes of the bullwhip effect

Answer 10

1. no communication or coordination
2. anticipation of shortages
3. long lead times
4. lead time variability
5. behaviour causes
6. forecast errors
7. price fluctuations
8. quantity discounting
9. order batching

Question 11

4 consequences of the bullwhip effect

Answer 11

1. lower revenues
2. higher costs
3. quality
4. poor service

Question 12

5 ways to tackle the bullwhip effect

Answer 12

1. communicate more
2. re-order only what is needed to keep a minimum stock at each stage (avoids peaks)
3. project the future sales to plan/order in advance
4. reduce the lead times
5. reduce the number of tiers

Question 13

backorders

Answer 13

created when an order cannot be filled immediately after it is placed because it is not currently in stock with the seller

want as few as possible as this creates costs