Chitto Chai Shop | [Home] |
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The Chitto Chai Shop is modeled after the Beer Game which originated at MIT. The purpose of the game is to demonstrate the Bull Whip Effect . The effect refers to the increasing variability of orders up the supply chain. Typically, orders are amplified up the supply chain. ( The longer the supply chain, the harder the whip cracks! ). This is because of little information sharing among supply chain members (such as Point-of-sale data, demand trends etc) which ultimately hampers production planning.
Main Factors giving rise to the Bull Whip Effect –
Demand Forecasting: Each level orders-up-to-level (lead time + safety stock) and may use different forecasting techniques.
Lead Time: Longer the lead times, more is the amplification in the variability; moreover each level can have different lead times.
Batch Ordering : Batch/periodical ordering by the supply chain members while customer demand remains fairly constant - this finally leads to batching of production.
Price Fluctuations/Discounts and Rationing/Short Gaming: Most purchases are through forward buy agreements to take advantage of any discounts, rebates etc. Moreover, one level may hoard up in anticipation of rationing by the next higher level.
In this game, variability in orders resulting from the kind of demand forecasting done and lead times will be demonstrated.
Points to be noted
Each level orders-up the chain. Customers come to the retailer to purchase chai (beer) who tries to fill customer orders from the inventory. Any unfulfilled demand is carried over to the subsequent period as backlogged demand (Backorder). The retailer places a replenishment order with the wholesaler who tries to fulfill the demand from his inventory and carried over unfulfilled demand as backorders. The wholesalers orders from the distributor who orders from the manufacturer/producer who orders raw materials from the supplier and so on.
The highest level in the chain has 100% fill rate. The demand met for other levels depends on the kind of order placements done by levels above them (and hence can be < 100%).
An Order is received at the beginning of a period. Order received in the current period is the order placed lead time periods before.
Opening Inventory = Order Received in the current period + Closing inventory of the previous period.
An Order is placed at the beginning of a period. This is entered by the player .
Current period demand at level n = Size of the order received from level n-1
Total/Gross demand during a period = Current period demand + Backorders from the previous period
Demand met i.e. amount sent by level n to level n-1during a period = Total Demand or Opening Inventory whichever is lower.
Backorder = Total demand – Demand Met (If Total demand exceeds opening inventory, the unfulfilled demand becomes Backorder, else backorder is zero)
Closing Inventory = Opening Inventory – Demand Met
Inventory Cost during a period = Average Inventory * Inventory cost per unit where, Average inventory = (Opening Inventory + Closing Inventory)/2 and IC/unit taken to be a constant is given
Backorder Cost during a period = Backorder * Backorder cost per unit where, BC/unit taken to be a constant is given
Total Cost = Inventory cost + Backorder cost
Cumulative Cost = Sum of total costs of all periods played till current period
Average Cost per period = Cumulative cost / Period #
The goal of each stage/level is to minimize the total cost over the period the game is played.
At the end of the game, the extent of variability of orders in the supply chain can be seen by the measure
Var (Qn)/Var (D), where,
n - #level of the supply chain, D - Customer demand and Qn – Order placed/demand at level n
It takes lead-time periods for orders to be serviced at each stage/level.
A player can view the demand for the current period t only after placing the current period order with the upstream. Moreover, he cannot place another order (for the next period t+1) until everyone in the chain has played his/her turn in the current period t.
Information present at beginning of a typical game
For the Game <Gameid>
Number of Levels = <2> (Customer is Level 0, Retailer is Level 1 and so on)
Number of periods over which the game is to be played = <#periods>
Lead time for each level = <3 weeks>
Inventory cost per unit =<Rs 1>
Backorder cost per unit =<Rs 1>
Customer demand follows a Normal Distribution N (<70, 30>)
For the supply chain member <LSC_1_1>
Opening inventory in the 1 st week = <70 units>
Week # |
Order Received |
1 |
<70> |
2 |
<60> |
3 |
<58> |
(Provided up to lead time)