Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
Raw
Material
Supplier
Individual Business Units
Final
Customer
Buyer
IBU IBU IBU IBU IBU IBU IBU IBU IBU IBU
Work
flows
into the
System
Work flows through the System
Work
flows
out of the
System
•Raw Material supplier has infinite capacity and instantaneous delivery. Sells RM for $2 per
unit. Each unit is represented in the system by a token.
•Final Customer Buyer purchase on average 2.5 units per period at a price of $22 each. The
demand curve is:1, 0, 3, 0, 5, 6 (based on a fair die counting 0 to replace the 2 and 4 sides).
Expected average gross sales then is $55 per period.
•Individual Business Units start with 5 units of raw material. Each period, they produce
according to the roll of a fair die. They control (negotiate with their supplier) how much input
material they buy each week. They sell (negotiate transfer with their customer) Finished Goods at
a price $2 above what they pay their supplier. Inventory Holding Costs are $0.50 per unit in Raw
Material or in Finished Goods each period. If the average production is 2.5 units ($5.00) and
average inventory is 5 units ($2.50), and periodic Operating Expenses are $2, the expected profit
would be about $0.50 per period.
•The Total System then sells each unit for $22 (final product price). The cost-of-goods-sold or
raw material cost is $2 per unit. The Total System pays Inventory Holding Costs of $0.50 per unit
per period for all inventory as long as it is in the system. This covers the expense of warehousing,
transportation, scrape and loss. The total system has a periodic Operating Expense of $20 per
period (10 Individual Business Units * $2 each). The expected average profit for the system is not
high: Average sales of 2.5 per units per period * $22 - $2 (gross profit per unit) - $25 (expected
Inventory Holding Cost for 50 units in the system) - $20 (Operating Expenses) = $5.00 profit per
period.
•Players needed to play the game:
•Raw Material Supplier (1 each)
•Ten (10) Individual Business Unit Managers (each can use an assistant if available to keep the books)
•Market Representative (1 each)
•Inventory Control Manager (1 each)
•System Accountant (1 each)
•System Policy Maker (1 each)
Washington State University ©2001
1
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
Raw Material Supplier
The Raw Material Supplier sells raw material to the first Individual Business Unit (IBU).
The IBU can purchase as much Raw Material as they want and have it instantaneously.
(There are not returns-All sales are final).
Each period, give the first IBU one token for each RM unit requested.
Record sales for each period on your work sheet.
Report your period sales to the Inventory Manager
Tally your Revenues at $2.00 per unit.
Period Sold
1
2
Revenue
@$2
each
@$2
each
3
4
5
6
@$1
each
7
8
9
10
@$2
each
Total
@$2
each
@$2
each
@$2
each
@$2
each
@$2
each
@$2
each
@$2
each
Washington State University ©2001
2
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
Market Representative
The Market Representative acts as the Final Customer Buyer. You buy completed units from the
last Individual Business Unit (IBU) for $22 per per unit. The number you want to buy changes each
period according to the roll of a fair die (except if you roll a 2 or 4 then you do not order anything
that period). On average, you request 2.5 units per period. The IBU sells you the minimum of what
you want to buy (your roll) or what they have to sell. There are no back orders!
If you cannot buy what you want (when they can’t deliver), you complain loudly! And you record a
$100 Customer Dissatisfaction Complaint for each unit you were not able to buy.
Record your Roll each period (Marking 0 each time you roll a 2 or 4).
Report your period purchases (the minimum of your roll or number delivered) to the Inventory
Manager
Tally Gross Sales at $22.00 per unit.
Record any Customer Dissatisfaction Complaints ($100 for each unit requested that is not received)
and complain again loudly!
Inv.
Period Roll Rec’d
1
Number
Sales Complaints
@$22
each
@$100
each
2
@$22
each
@$100
each
3
@$22
each
@$100
each
4
@$22
each
@$100
each
5
@$22
each
@$100
each
6
@$22
each
@$100
each
7
@$22
each
@$100
each
8
@$22
each
@$100
each
9
@$22
each
@$100
each
10
@$22
each
@$100
each
Total
@$22
each
@$100
each
Washington State University ©2001
3
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
System Inventory Control Manager
http://www.vancouver.wsu.edu/fac/holt/
The Inventory Control Manager tracks the total inventory in the system Since the inventory
between and within Individual Business Units (IBUs) constantly changes, the only practical way of
managing this is to take a periodic audit of What was in the System last period, What came in this
period and What left this period.
You collect information about the inventory that entered the System from the Raw Material
Supplier.
You collect information about the inventory that left the System from the Market Representative
(Final Customer Buyer).
Please try and stay current and be accurate!
At the end of each period, Record the Incoming Inventory and the Outgoing Inventory.
Calculate the new System Inventory.
Report the period Sales and the new System Inventory to the System Accountant.
Prior
Period Inv.
New
Sales
RM In FG Out
+
1
50
+
2
+
3
+
4
+
5
+
6
+
7
+
8
+
9
+
10
Ending Inventory
-
Washington State University ©2001
New
Inv. Level
=
=
=
=
=
=
=
=
=
=
4
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
System Accountant
The System Accountant is responsible for documenting the performance of the System as a whole. Each Individual
Business Unit (IBU) records their own local data. You record the summary data for the whole system. Since it is
impractical to communicate with each IBU each period, you base you numbers on the System Aggregate numbers.
You record the periodic System Sales (Revenue to the system ) and subtract out all the costs to the system during that
period to determine the systems period cash flow.
The costs to the system include the money spent for new Raw Material each period, the period Inventory Holding Costs
and the period Operating Expenses. The System Inventory Control Manager will give you all the numbers you need.
Raw Material costs are $2 per unit purchased during the period
Inventory Holding Cost is $0.50 per unit in the system (total of RM and FG) for each period.
Operating Expenses are $2 per IBU per period or $20 total for the ten IBUs.
Each Period, record the Sales Revenue, Raw Material Purchased, and Inventory Holding Cost. The Operating Cost is
already noted.
Calculate the Cash Flow (Sales - RM - Inv. - OE = Cash Flow).
Report your Cash Flow figure to the System Policy Maker each period.
Period Sales RM
$
1 $
$
2 $
$
3 $
$
4 $
$
5 $
@$22 each
@$22 each
@$22 each
@$2 each
@$2 each
@$0.50 each
@$0.50 each
@$0.50 each
@$22 each
@$2 each
@$22 each
@$2 each
$
$
$
$
$
$
$
$
$
@$22 each
@$2 each
@$0.50 each
@$22 each
$
$
$
$
@$2 each
@$0.50 each
6
7
8
9 $
10 $
@$22 each
@$22 each
@$22 each
Total
@$2 each
Inv. OE
$
$ 20
$
$ 20
$
$ 20
$
$ 20
$
$ 20
@$2 each
@$2 each
@$2 each
@$0.50 each
@$0.50 each
@$0.50 each
@$0.50 each
@$0.50 each
Cash Flow
$
Cash flow equals
Sales less RM
less Inv. less OE
$
$
$
$
$ 20 $
$ 20 $
$ 20 $
$ 20 $
$ 20 $
$
Washington State University ©2001
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
Cash flow equals
Sales less RM
less Inv. less OE
5
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
Washington State University ©2001
6
Supply Chain Management: The Game
Developed for the Engineering Management Program
http://www.vancouver.wsu.edu/fac/holt/
James R. Holt, Ph.D., PE.
RM
5
Add
Add
Add
Add
Add
Add
New
Period RM
Add
1
Add
Add
2
Add
3
4
Add
Add
5
Add
6
Add
7
8
Add
9
Add
10
Add
Add
Add
Add
Numb
Produced
New
FG
Less
Less
Less
Less
Less
Less
Less
Less
Less
Numb
Sold
X2
X2
X2
X2
X2
X2
X2
X2
X2
X2
$
$
$
$
$
$
$
$
$
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
(RM + FG)/2
$
$2
$2
$2
$2
$2
$2
$2
$2
$2
$2
$
$
$
$
$
$
$
$
$
$
Revenue - Inv. Hold - OE = Period
@$2
Cost
$
Profit
Individual Business Unit Manager Record Sheet
Numb
Roll
Add
Add
Add
Add
Add
Add
Add
Add
Add
Less
7
Washington State University ©2001
Less
Less
Add
Add
Add
Add
Add
Add
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
System Policy Maker
You are the System Policy Maker. You are the CEO of the whole Supply Chain
System. It is your role to oversee the whole system. Don’t get too involved with
the periodic problems of Individual Business Units (IBUs). Keep a global view.
From this viewpoint, you guide the Supply Chain. You guide by issuing Global
Policy Statements that your IBUs try to follow.
Current Policy: The Current policy empowers each IBU to make their own
decisions. The IBUs decide how much Raw material to order. They decide how
much of their productive capacity to use. They decide if they want to sell their
Finished Goods or to hold them. Each IBU tries to make as much profit as
possible. Each IBU can negotiate with other IBUs for its own benefit.
Executing Your role:
In your role as CEO, you should monitor the profits and inventories
of individual IBUs. You may need to “strongly suggest improvements” to an IBU
Manager from time to time. Try to keep ethical operations in your System (No
Cheating! Else, you won’t learn what you need to learn).
As CEO, you should scrutinize carefully the report of the System
Accountant. Try and keep the system profitable by securing a positive Cash
Flow. An occasional period with negative Cash Flow is acceptable. However, if
your system has three periods of loses (negative Cash Flow) in a row, you
may be replaced!
The CEO should listen to the final customer as well. It shouldn’t be
too hard since the Market Representative will complain loudly to everyone if
you can’t deliver. If such a complaint occurs, record a $100 loss for each
complaint.
If necessary, issue new policies to the IBUs. That’s what CEOs do!
There is a lot of money to be made here. I hope you can find it.
Dr Holt
[email protected]
Washington State University ©2001
8
Supply Chain Management: The Game
Developed for the Engineering Management Program
James R. Holt, Ph.D., PE.
http://www.vancouver.wsu.edu/fac/holt/
Having trouble managing the whole supply chain?
After you have played the Supply Chain Game for 6 to 10 periods using individual business unit
measures for decisions, its obvious no one can control what is happening to them. It becomes very
frustrating for all IBUs and for the CEO. Clearly, the beginning strategies (policies) are not working.
So, what should the new policies be?
Possible new ones are:
“Balance the Line”- Make everyone move the lowest roll.
“Kanban”-Only replenish what was taken.
“Traditional”- Push as much as you can through the system.
However, the best method of managing a supply chain is with Drum-Buffer-Rope.
The constraint in this system (Drum) is the market that demands only 70% of the IBU individual
capacities. The final market demand must be buffered by moving as many tokens as possible as
quickly as possible to the final IBU.
The Inventory in this system is way too high. It needs to be reduced to half or less.
The competitive measurement system between IBUs should be abolished. The sales of the system as a
whole is what is important, not the profit of the isolated IBUs.
To try out DBR, start the game over. Only this time, only give RM and FG inventory to the last five
IBUs (the first five remain empty--no inventory) for a total inventory of only 25 tokens. Tell each
IBU to roll their die and move as many tokens as possible down the line. Tell them to take as much
RM inventory as possible (except for IBU #1). The first IBU only requests RM from the Raw
Material Supplier at the rate of the Market Representative (customer) requests. That is, each period,
IBU# 1 watches carefully how many units the Market Representative buys and requests that same
amount of units from the Raw Material Supplier. With this policy, the system inventory stays
constant at 25 units. All IBUs work as hard as possible to move the units to quickly from IBU#1 down
the line towards the customer.
After several periods, the CEO may choose to further restrict input of RM to reduce the buffer
inventory.
Individual IBU profits need not be calculated (some will make profit and others not). The system cash
flow numbers will be substantially better. The system will share profits among all in the supply chain.
References:
THE GOAL by Eli Goldratt
NECESSARY BUT NOT SUFFICIENT by Eli Goldratt with Eli Schragenheim and Carol
A. Ptak
Washington State University ©2001
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