Keep calm, it’s just the bullwhip effect
SYLVIE DOUGLIS, BYLINE: NPR.
(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")
DARIAN WOODS, HOST:
Well, welcome to the beer game.
STACEY VANEK SMITH, HOST:
Last week, Darian, you invited me and some of the members of THE INDICATOR team to an online game about beer.
WOODS: That's right. It was a computer game about the supply chain for cases of beer because, as a lot of people are talking about right now, the whole world is in this bind, trying to just get things shipped to people. So thank you for playing along, Stacey.
VANEK SMITH: Is this, like, supposed to be, like, a game that people voluntarily play? Or is it, like, homework?
WOODS: This is no Candy Crush. Let's put it that way.
WOODS: And the four of us each took on different roles in that supply chain to get beer to customers. We had a beer shop run by...
VIET LE, BYLINE: I'm Viet. I'm a producer on THE INDICATOR. And I'm the retailer. Very excited to be here.
VANEK SMITH: And Viet bought his beer from our wholesaler.
KATE CONCANNON, BYLINE: I'm Kate. I'm the editor of THE INDICATOR.
WOODS: Kate got her beer from me, a distributor. And I ordered my beer from you, Stacey. You were a proud brewer.
VANEK SMITH: There's no beer without me. You cannot say beer me if I am not in the picture.
WOODS: And that was the supply chain - the beer retailer, the wholesaler, the distributor and the manufacturer - four steps from the brewery to the beer drinker.
VANEK SMITH: And we thought by actually playing a role, like, being inside of a supply chain, we could maybe, just maybe, solve the supply chain issue for ourselves, maybe the country, maybe the world.
WOODS: Modest ambitions.
VANEK SMITH: (Laughter) I mean, at least we could better understand where some of the problems are coming from.
This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.
WOODS: And I'm Darian Woods. And today on the show, we talk to the developer of an online game to explain supply chain problems. And we check in on how our game with THE INDICATOR team turned out.
VANEK SMITH: Is actual beer involved in this, or this is all metaphorical beer?
LE: I know. Do we get beer at the end? Yeah.
WOODS: Yeah. Well, we're just going to get intoxicated on logistics.
VANEK SMITH: (Laughter) Oh, yeah.
(SOUNDBITE OF MUSIC)
WOODS: Mathias Le Scaon made the online beer game. And it's adapted from a game that he played when he was studying for his master's in production management and logistics.
MATHIAS LE SCAON: We played the beer game. It was on paper using just coins.
WOODS: This tabletop game with paper and poker chips was invented by an MIT systems scientist in the 1960s. And a typical game goes like this, whether it's in person or in Mathias' online version. Each player has a different role along the supply chain, whether it's retailer, wholesaler, distributor or brewer. And every round, you only do one thing - you choose how much beer you're going to order.
VANEK SMITH: So let's say in the scheme, you are the beer distributor. In real life, you have to think, how much beer am I going to order this week? So let's say, you know, I sold four cases last week. So maybe I'll order from the factory another four more beer cases to keep my inventory stable. So that sounds reasonable. But then...
LE SCAON: When you're in the middle of the supply chain, you are receiving bigger and bigger orders, so you do the same to your own supplier. But he doesn't respond usually quickly enough.
VANEK SMITH: The supplier usually does not respond quickly enough. And pretty soon, you've got a backlog of beer orders. So you know, human nature being human nature, you panic and order more beer.
LE SCAON: You always have this situation where people are screaming like, come on, where's my stuff, guys?
VANEK SMITH: Where's my beer?
WOODS: Exactly. And this is part of a pattern that happens almost every time that people sit down and play the beer game. It's - the further away from the beer customer you are, the more volatile your orders would likely be. So this pattern is called the bullwhip effect.
VANEK SMITH: The bullwhip effect - so just like the shape of a whip, the part close to your hand goes up and down only a little bit. The whip's ends, though, the very tip of the whip, goes up and down a lot. So a small change in customer demand might mean the factory on the other end gets, like, hundreds of orders one week and no orders the next. Hundreds more the week after that - and, you know, that becomes really overwhelming.
WOODS: Were there solutions to the bullwhip effect in the beer game?
LE SCAON: So the main answer is usually more collaboration between the different stages of the supply chain. You need to - not to panic, and you don't panic because you know that your supplier will have some stock for you.
WOODS: So maybe we should bring out those keep calm and carry on posters again.
LE SCAON: Exactly.
WOODS: Keep calm. It's just the bullwhip effect.
LE SCAON: Yeah.
WOODS: And after dealing with real-life bullwhip effects while working for a French cosmetics company, Mathias wanted to share those lessons with the world. That's where he came up with the online game version so that real-life supply chain managers could play it, kind of like a flight simulator, for training their teams.
VANEK SMITH: Yeah. So we at THE INDICATOR, we signed on to train.
WOODS: How much are people buying from you?
VANEK SMITH: They're not buying that much. Oh, my God.
LE: I just - I'm...
WOODS: After an optimistic forecast for more beer customers, Viet ordered a few more cases of beer, which further down the chain - Stacey, you were not particularly happy about.
VANEK SMITH: Viet's gone rogue.
LE: I want to stock up on beer 'cause I'm worried about what might happen.
WOODS: A few extra orders from Viet soon magnified into a huge backlog of orders further down the supply chain.
CONCANNON: Way to throw me under the bus, Viet.
LE: (Laughter) Sorry.
VANEK SMITH: Poor Viet - I have to say, I feel bad now.
VANEK SMITH: But I felt like I was under a lot of pressure because I was at the extreme end of the bullwhip as the brewer. And so the backlog just got bigger and bigger and bigger.
WOODS: I asked for 250 next week, but instead I'm only getting 20.
VANEK SMITH: Well, I'm sorry. I was trying to stay sober in the face of mania.
WOODS: I was the face of mania.
VANEK SMITH: (Laughter).
WOODS: I'm sorry, Stacey.
VANEK SMITH: I was feeling a lot of pressure. And then I didn't want to respond too extremely 'cause then I was afraid I'd have all this beer on my hands that I couldn't sell.
WOODS: And look - I mean, that's probably what you should have done. Like Mathias says, the key to avoiding the bullwhip effect is to keep calm and being steady. But I've got to say, Stacey, eventually, you did cave.
VANEK SMITH: OK. You know what I'm going to do? I'm going to make 600 cases of beer. I don't care.
VANEK SMITH: I'm just - I'm done. I'm tired of backorders and everything going up. Fine. I'm joining the insanity. Yes. How does that feel, everybody?
I think we've all learned something here today. I hope everybody learned their lesson, which is that no one should ever buy beer from me, and I should have nothing to do with any part of any supply chain.
WOODS: And by the time we wrapped up, Viet, our wonderful INDICATOR producer but also beer seller, beer retailer - maybe he owned a bar, or maybe he owned a bottle shop, who knows? - he had stopped ordering entirely because he had this huge inventory of beer starting to go stale on his shop's shelves.
LE: I don't want your beer.
VANEK SMITH: That is so unfair. You cannot do this to us.
WOODS: And I wasted a lot of money on buying beer from you, Stacey. And I could never sell that. And ultimately, when the game finished, I actually lost the game. I had spent the most amount of money.
VANEK SMITH: Right. And, Darian, I was in second to last place. My costs were really, really high.
I don't want to ever play again. I hate beer.
WOODS: And look - I tried to comfort you and say, this is exactly what was predicted by this concept. It's called the bullwhip effect.
Would it help you if I told you this was completely predicted by logistics theory?
VANEK SMITH: No.
WOODS: (Laughter) That was not comforting.
VANEK SMITH: (Laughter) That is not comforting.
WOODS: I tried something else. I was trying to say that, look, this is a teaching tool. And we learnt we needed to communicate better and stay cool while everyone else is in a frenzy.
This is not Farmville. This is not Candy Crush. This is not Angry Birds.
VANEK SMITH: I am an angry bird.
WOODS: You are the angry bird.
VANEK SMITH: I feel terrible. I need to go walk around the block and have a coffee. I don't know. This is really hitting me much harder than it should hit a person. I don't like beer, and I don't like losing.
WOODS: Is it a competition?
CONCANNON AND VANEK SMITH: Yes.
VANEK SMITH: The sting of the bullwhip - still feeling it.
WOODS: Yeah, that's right. But look - we over-ordered. We caused all kinds of supply chain problems.
VANEK SMITH: Yeah.
WOODS: And as far as I know, I haven't heard of any major, major beer shortages out there. Have you, Stacey?
VANEK SMITH: Don't even say it out loud, Darian. Do you know what it would do to this country if there were a beer shortage?
(SOUNDBITE OF MUSIC)
WOODS: Today's show was produced by Brittany Cronin with help from Josh Newell. It was fact-checked by Taylor Washington. Viet Le is our senior producer. And Kate Concannon edits the show. THE INDICATOR is a production of NPR.
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