REVERSE OUTSOURCING GAME: A VARIATION OF THE BEER GAME ABSTRACT

Transcription

1 REVERSE OUTSOURCING GAME: A VARIATION OF THE BEER GAME ABSTRACT The Beer Distribution Game has proven to be an effective tool for illustrating the concepts of general supply chain management. It is possible to extend and modify the beer game to create new simulations which can then be used to illustrate different topics in supply chain management. This paper proposes a modification to the beer game to create a new simulation which is entitled, Reverse Outsourcing Game. Reverse outsourcing is an emerging phenomenon in the area of outsourcing which has many possible scenarios. We address a number of those issues in this paper. The Reverse Outsourcing Game can be used to simulate all the possible scenarios of reverse outsourcing and is an effective tool for analyzing the advantages and disadvantages of reverse outsourcing. The game is played by teams having five or more members. The goal of each team is to minimize their cost to time ratio. Based on the results of the game, it is possible to predict the possible situations in which reverse outsourcing can prove to be beneficial for an organization. Introduction The Beer Distribution Game is a simulation game whose main objective is to demonstrate the key principles of supply chain management. The game is played by teams having a minimum of four players and the players enact a four stage supply chain. It is followed by a debriefing session where the results of each team are reviewed and the outcomes are discussed. The Beer Distribution Game is an effective method to illustrate systems thinking (Goodwin and Franklin, 1994). By enabling managers to experience the real life hazards in the supply chain, the Beer Distribution Game makes them aware of the application of countermeasures in their companies

2 (Nienhaus, Zeigenbein and Schoensleben, 2006). The beer game is also an effective means of providing an in class understanding of the obstacles involved in supply chain management to the students. It is also possible to modify the beer game in different ways to teach a number of topics in supply chain management. To date, only one researcher has attempted to extend the beer game to further enhance the teaching of SCM concepts (Reyes, 2007). We propose to extend the game by adding a new dimension reverse outsourcing. Reverse outsourcing is a term that has been coined by several practitioner outlets such as professional society magazines and newspapers (Rafferty, 2010, p.12; Hartnett, 2009, p.45-47; Shenn, 2005, p.12). There are many possible scenarios of reverse outsourcing. The most common scenario is the one in which country A outsources to country B and then country B outsources back to country A. An example which illustrates this scenario is that of Patni Computer Systems, an India based information technology firm. It has around employees in India who are working on software projects, most of which are outsourced by US based firms. Now the Panti is involved in reverse outsourcing by creating a branch in El Paso, Texas and employing US citizens to staff it (Rafferty, 2010, p.12). Another example is that of Infosys Technologies which is an IT firm based in India. According to a report by Priya Sridhar (personal communication, April, 2009) from RT news, the company has initiated reverse outsourcing by employing IT graduates from top US schools such as Stanford and taking them to the India to work on software projects.

3 The Basic Beer Game We assume that the reader is familiar with the basic beer game. I, If the reader is unfamiliar with the rules, we suggest referring to Sterman (1989) for an understanding of the game. The game consists of four sectors including: the retailer, the wholesaler, the distributor and the factory. Each of the participants takes one of the roles. An end customer gives his orders to the retailer. The retailer passes on the orders to the wholesaler. Partners up the supply chain get the orders and then decide how much to order from their supplier for replenishment. This decision is based on the following factors: a) current stock situation b) products in transport which they will be receiving soon and c) received orders. Thus, information on end customer demand is passed on up the supply chain with a delay. The material flow is in the opposite direction down the supply chain and has a delay which is affected by several factors (Nienhaus, Zeigenbein and Schoensleben, 2006). The Reverse Outsourcing Game The Reverse Outsourcing Game is a modified version of the beer game which incorporates reverse outsourcing along with the general supply chain. The objective of the game is to satisfy the demand of the customer while trying to have a minimum cost to time ratio. In the basic beer game, the team with the lowest total costs is considered the winner but in the reverse outsourcing game, the team having an optimal or near optimal cost to time ratio is considered the winner. As opposed to the beer company in the basic beer game, our model assumes a discrete manufacturing process that produces widgets. Our fictional company is named as Widgets Inc. The proposed design for the reverse outsourcing game consists of five sectors: retailer, wholesaler, distributor, manufacturer and supplier. The supplier entity is a modification to the

4 basic beer game. The role of the supplier can be any of the following: providing low cost labor to manufacture goods or providing raw materials. This enables the manufacturing firm to outsource a portion of its work to the suppliers. When the order reaches one of the manufacturers, it is compulsory that the manufacturer has to outsource part of the work to one of the suppliers. The game includes all the rules of the basic beer game along with additional rules. Appendix A1 gives the list of the proposed preliminary rules. We will continue to expand and explicate any further rules or issues regarding the game as we further develop the paper for the conference. Simulation of the Reverse Outsourcing Game The game begins when any of the customer places an order at the retailer. One of the several possible network designs for this game is as follows: two customers(c1,c2), two retailers(r1,r2), two wholesalers(w1,w2), two distribution centers(dc1,dc2), two manufacturers(mf1,mf2) and four suppliers(sa,saa,sb,sc). DC1 and W1 are owned by a firm F1 and DC2 and W2 are owned by a firm F2. The two distribution centers (DC1, DC2) and the two manufacturers (MF1, MF2) are assumed to be in the same country A. Supplier Sb is in country B, supplier Sc is in country C and suppliers Sa and Saa are in country A. The maximum shelf space capacity for the retailers is 50 units, but the actual shelf space allocation for each product remains at 25 units each. The wholesalers store 50 units of each type of product. The distribution centers have a maximum warehouse capacity of 100 units. There is a cost for holding inventory which is $1. There is also a cost for not satisfying demand (backorder) which is $2. It is assumed that the demand for the product remains until it is satisfied. The customer order is passed from retailer to wholesaler, wholesaler to distributor and then distributor to manufacturer. The flow of order takes place in the same way as in the beer game and each of the sectors

5 follows the rules while passing the orders. When it reaches the manufacturer, he has to now create a plan on outsourcing and decide on a supplier. It is compulsory that he has to outsource part of the work. The reason for outsourcing is the high cost of labor and raw materials in country A. Another issue that will be a deciding factor in the outsourcing decision is the availability of the required raw materials and labor in the country to which the work is outsourced. Appendix A1 describes the rule concerning the outsourcing decision in detail. Manufacturer MF1 does his calculations according to rule 6 and 7 of Appendix A1 and analyzes the result. He finds that supplier Sb is favorable for him and decides to outsource a part of the work to him. MF1 outsources 50% of the job to supplier Sb who is in country B. MF1 expects the supplier to provide the finished products within the deadline. In order to finish the job within the allowed time period, supplier Sb outsources 25 % of the job to supplier Sa who is in country A (the same country as manufacturer MF1) and provides the raw materials. Supplier Sb will use a modified version of Rule 7(Appendix A1) to take the outsourcing decision. By providing the raw materials, supplier Sb tries to keep the overall cost low because the costs may greatly increase due to the high labor charge in country A. Manufacturer MF2 outsources 50 % of the job to supplier Saa (who is also in the same country as MF2 i.e. country A). Supplier Saa also has to get the job done within the deadline. Although supplier Saa is in country A which has a high cost of labor and raw materials, still he is chosen by MF2 because based on his calculations, he was able to come to the conclusion that supplier Saa was favorable for him rather than a supplier in another country. There is another possible scenario which is also simulated in a similar way. MF1 outsources 50 % of the work to supplier Sb. Sb again outsources 25% of the work but this time it outsources the work to supplier Sc who is in country C which is different from both country A and country B. One motivating factor for outsourcing to a new country C

6 rather than to country A as in the first scenario is the low cost of labor in Country C as compared to A. Another motivating factor is the close physical proximity of country C to country B. If the cost of raw materials is assumed to be same, this will make Sb free from the additional overhead of supplying raw materials. Supplier Sc will complete the work and ship the finished products to MF1. Again MF2 outsources 50% of the work to supplier Saa and as mentioned earlier, MF2 and Saa are in the same country A. Proposed Methodology for Data Collection Simulation of the outsourcing part of the game is based on data collected from organizations. Data will be collected from organizations in India and USA which are involved in reverse outsourcing. Examples of such organizations are Infosys and Wipro. Authors will hire marketing consulting firms in India to collect data from the organizations in India which are involved in reverse outsourcing. Personal interviews and telephone conversations will be used to collect data from the organizations in the USA. Data will also be collected from government agencies as well as geographical organizations based in India and USA which will be used for calculating the supplier values for average labor cost, availability of raw materials and distance between countries. Simulation of the Outsourcing Part Of The Game The real life scenario of supplying between two countries is simulated by assigning A, B and C to real countries and providing the same average time delay as it takes in real life. This average time delay is based on the data collected from firms involved in reverse outsourcing between different countries. The threshold values (Appendix A1, rule 7) for the manufacturer sector are

7 also calculated based on the data from real life organizations. Examples of such data are the available budget of the organization, available deadlines etc. The values for the supplier sector (Appendix A1, rule 7) are calculated based on the data from government agencies and geographical organizations. Calculating Minimum Cost to Time Ratio The minimum cost to time ratio will be computed as the optimal value of the cost to time ratio problem. The minimum cost to time ratio problem has been formulated as a linear programming problem by Dantzig.et.al (1967) which will be used in the reverse outsourcing game as well. Playing the Game For playing the game, a debriefing and discussion of the basic beer game is done so that the players become familiar with the basic rules. Then the modifications and the rules of the new game are explained. Then the roles are assigned to individual players and the actual simulation of the game is carried out. For the Customer demand, two demand streams are generated using the random number generator in excel. Recording Game Results There are data collection forms to record the data (for example, time and cost involved). Forms will vary depending on the roles of players (Appendix A2). The recorded data helps us to understand the advantages and disadvantages of the different scenarios of reverse outsourcing. The data collection forms are collected at the end of the simulation and are used in generating results and conclusions.

8 DISCUSSION This game is a realistic representation of reverse outsourcing. It will be an efficient tool for demonstrating reverse outsourcing in classroom teaching. Students will be able to get a hands-on experience on reverse outsourcing and thus will be able to develop a better understanding about this emerging phenomenon. It will also be a helpful tool for researchers who are interested in pursuing research on reverse outsourcing. In addition, it will help organizations determine the applicability of using reverse outsourcing in their firms.

9 REFERENCES Reyes, P.M. (2007). Parallel Interaction Supply Chain Game: An Extension of the Beer Game. Decision Sciences Journal of Innovative Education,??? Nienhaus, J., Zeigenbein, A., and Schoensleben, P. (2006). How human behavior amplifies the bullwhip effect. A study based on the beer distribution game online. Production Planning & Control, 17(6), Rafferty, H. (2010, July). Reverse outsourcing presents HR challenges. HRMagazine, 55(7), Hartnett, M. (2009, January). Reverse Outsourcing. Stores Magazine, 91(1), Shenn, J. (2005, December 7). MoneyLine Starts Reverse Outsourcing. AmericanBanker, 170(132), Hartmann, M., and Orlin, J.B., (1993). Finding Minimum Cost to Time Ratio Cycles with Small Integral Transit Times. Networks, 23,??? Dantzig, B., Blattner, W., Rao, M., Finding a cycle in a graph with minimum cost to time ratio with application to a ship routing problem. In: Rosenstiehl,ed, P., (1967). Theory of Graphs, 77-84

10 APPENDIX A1 A1: PROPOSED RULES 1) The objective of the game is to minimize the cost to time ratio. The team having the lowest cost to time ratio will be the winner. 2) There will be a cost for underperformance. Underperformance is considered different from back order and is associated with the quality of work delivered by each sector. It will be evaluated using factors such as customer satisfaction. 3) No communication is allowed between the sectors. Communication will be only through passing of orders and receiving of supplies. 4) It is compulsory for the manufacturer to outsource a part of the work. 5) There will be a start time and deadline for each sector to complete their work and the start time and deadline of each sector will depend on the start time and deadline of its predecessor. For example, for the supplier sector, there will be a start time which will be after the time at which the order is received from the manufacturer and there will be a deadline which will be before the deadline of the manufacturer. This will allow the manufacturer to finish his part of the work on time. Sectors are not allowed to choose same values for start time and deadlines.

11 6) For the supplier sector, there will be a value for capacity. The amount of work which the manufacturer outsources to the supplier cannot exceed the capacity value. 7) For the supplier sector, a mathematical value will be given to the average labor cost and availability of raw materials in the country of the supplier. The value of the distance between the two countries (of the manufacturer and the supplier) will also be noted. Manufacturer will outsource a part of the work to a supplier in another country only if each of the following hold true: average labor cost < threshold value( a pre determined value), availability of raw materials > threshold value, distance between the two countries < threshold value. If the supplier values satisfy all the three conditions, then the supplier is favorable. If any of the above condition fails, then the manufacturer outsources part of the work to the supplier in the same country. 8) If there is a situation in which the manufacturer finds that more than one supplier have favorable values, then the manufacturer will choose the supplier which satisfies the following condition: lower value for average labor cost, higher value for availability of raw materials, lower value for distance between the two countries.

12 APPENDIX A2 A2: DATA COLLECTION FORMS(WITH LIMITEDCOLUMNS) Inventory Demand Backorder Order Cost UP* WEEK WEEK WEEK WEEK WEEK (For manufacturer sector) *UNDERPERFORMANCE