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Shrey

November 24th, 2012

The Bullwhip Effect

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Estimated reading time: 5 minutes

Shrey

November 24th, 2012

The Bullwhip Effect

0 comments

Estimated reading time: 5 minutes

It all began with a simple email.

“Dear students, please bring your laptops to the foundations seminar”

Two days later, we trooped in, all sixteen of us, on (another) rainy Friday evening, counting down the hours to the weekend. Our professor for the evening was Dr. Ted Piepenbrock and we were supposed to study something called the bullwhip effect. The fact that I vividly remember all this should be your first clue that this class was not like other classes.

Ted divided us in to groups of four and told us we were now going to play ‘The Beer Game’ – this caught our attention like only the word beer can. Everybody frantically looked around for the 16 six-packs that we imagined we would need, or a keg. Since neither was around, we assumed he was just being cruel. “I said, the beer game, not a drinking game!” he said!

It turned out that The Beer Game is a very popular supply chain simulator created by HBS and each of the four groups was a node of the supply chain – factory, distributor, wholesaler and retailer. The aim was to keep costs as low as possible while placing orders up the supply chain. We could discuss within our team about the quantity we wanted to order but we couldn’t talk to the other teams – it was a competition after all! (The winning team may or may not have been promised a case of beer!)

The game began with Ted as the customer and for the first few minutes, there was peace. The inventory depleted gradually, costs reduced, everything was right with the world! Suddenly orders began to increase, there was shortage, costs started mounting and I think it was the ‘factory’ team that shouted to the distributors “Are you guys crazy?!” They replied “It’s the wholesaler’s fault; they are ordering beer like the world’s going to end!” The wholesalers retaliated and scenes from 300 would have been re-enacted if Ted hadn’t stepped in. Instead of being angry, his first words were “Well that took longer than expected!”

He then explained his role as the customer and how the lack of coordination in the supply chain and the lag in delivery led to huge boom-bust cycles as seen in so many industries. After witnessing first-hand the destruction that this could unleash, we hung on to each and every word of what he said that day.

And that is why I remember the bullwhip effect and probably will till the day I die – beer.

About the author

Shrey

Master’s in Management (MiM)

Posted In: LSE

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