Mountain goats, beer, and logistics: a game

There are quite a number of counter-intuitive issues in logistics. Probably the most famous one is the Forrester (or whiplash) effect: forward prediction of demand in separate links in the supply chain will often lead to increasing cycles of alternate over- and under-stocks that travel through the chain like the undulations in a cracking whip. In other words: in a situation in which you do not have sufficient information about what happens further down the chain (as is so often the case), trying to look into the future can actually damage reliability and efficiency. Or to put it even more succinctly: don’t try to be smart when your ignorant.

So looking ahead can be bad for you? How is that for being counter-intuitive?

I am not going to explain here why this happens. Instead, I am going to ask you to play a game with a couple of your mates. Each of you is responsible for a link in the production and distribution of beer (hmmmm… how about Mountain Goat?), within a couple of rules – the most important one being that you are not to talk with each other, but only communicate by purchase orders and invoices. Sounds almost like the real world, doesn’t it? I mean, how often do you sit around a table with all supply managers in the full supply chain to see what each of you expects to happen next month?

Setting up the game and organising a play takes a bit of organisation, but luckily there is an online version, graciously run by the Swiss Federal Institute of Technology (who else?). So get a group of mates or colleagues online and play the game – and be astounded by the results. Please do so before reading on after the fold.

So, have you played the game? Then the results as they are explained here by prof. John Sterman should look familiar. Did you expect this to happen? Highly unlikely, unless you had some previous logistics training or have been confronted by the Forrester effect before, either in a game or in real life – or are a natural-born operations research genius, in which case I would love to work with you.

There are two things to notice here. One is that the Forrester effect is only one of a number of very counter-intuitive issues in supply line management; and people who think that you can work large-scale logistics without some understanding of the underlying dynamics and (gasp!) mathematics will find themselves running a supply chain that is either completely unreliable or highly ineffective – probably both. What’s even worse: they would probably not even notice it.

Now please note that I am not saying that we should only use logisticians with an advanced degree in logistics and operations research (although I think having more of these people would be a great thing, for various reasons); but I do maintain that you will need to do a lot of reading on the subject if you ever want to run any supply line that is even marginally larger than your local clinic in a manner that is both effective and efficient. Of course, if you don’t care that you cause regular stock-outs, or that you continuously need to destroy expired drugs that have been lying around in your warehouse for mountain goat’s… ermmm, donkey’s years, than you can forget about all that; but in that case, why are you reading this blog?

The second point to make is that, actually, it is not really necessary to know any of the underlying dynamics and (gasp!) mathematics. Am I contradicting myself here? Not really: you can gain some understanding of the two without having knowledge of it. Just having been confronted by e.g. the Forrester effect in a game is a powerful experience that you will not easily forget, even if you don’t know your regression from your integration; and it will easily teach you the importance of knowing at the start of the supply chain what is happening at its end. Few people who have played the beer game will forget the importance of demand communication throughout the chain, even if they have never heard of kanban or action triggers.

Prof. Sterman’s description of games like these as “flight simulators for management education” is a very good analogy; after all, most flight simulators these days live as games on home computers, even though they started as a safe and cheap way of training pilots. And remember, ‘safe and cheap’ here is ‘safe and cheap as opposed to crashing plane after plane until you get the hang of it’ – which, for some reason, is what we insist on doing in aid logistics.

Now please excuse me; I have a nice, cool glass of beer waiting for me. Mountain Goat, of course.

[Photo credits: Mountain Goat Beer Hightail Ale by Richard Giles; Interior cockpit of a twinjet flight simulator, courtesy of NASA.]

Tagged as: Education, John Sterman, Simulations, Whiplash effect