system dynamics basic

1. Discussion Soda Game

2. Bullwhip Effect
• Order Uncertainty causes panic effect in downstream, and it
eventually spreads to upperstream.
• Customer order increases drastically to retailer,
• Retailer responses it with magnifying order drastically to
wholesaler,
• The situation forces wholesaler to order to distributor more
than the retailer’s order,
• Distributor orders more than wholesaler’s order
Multiplication of order drastically

3. Bullwhip Effect
• Supplier has difficulties to fulfill demand in large numbers
drastically
Domino effect in supply chain
All components in supply chain experience the difficulties
from their customers
• In the beginning, increasing order drastically was considered as
solution, but eventually in the long term it causes severe
bottlenecks that harm them in supply chain.

4. Retailer's Order
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Week
Order
Wholesaler's Order
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Week
Order
Distributor's Order
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Week
Order
Factory's Order
0
10
20
30
40
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Week
Order
Bullwhip Effect

5. Lee et al., 1997, Sloan Management Review
Bullwhip Effect (P&G Case)

6. What if Scenario in Soda Game

7. Rule 1
RETAILER WHOLESALER
FACTORY
DISTRIBUTOR
Orders
received by
wholesaler
Place to put
customer’s
order
Customer’s
old order
cards
Customer order
Retailer’s
order
Wholesaler’s
order
Distributor’s
order
Order
received by
factory
Instruction to
produce
Delay
transportation 1
Delay
transportation 2
Raw materials
Delay
production 2
Inventory
5 5
• Order sent to upstream is equal to order received by
downstream
• The rule is applied to all the retailer, wholesaler, distributor,
& factory
Orders
received by
distributor
Inventory
Inventory
Inventory
Delay
production 1
Delay
transportation 2
Delay
transportation 1
Delay
transportation 1
Delay
transportation 2

8. If every agent makes order based on
order received by the agent
0
20
40
60
80
100
120
140
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Backorder
Back Order Tiap Agen
Retailer
Wholesaler
Distributor
Factory
For all possibilities of costumer demand, grand
mean penalti Rp. 9.179.526,25
0
20
40
60
80
100
120
140
160
180
200
Rp- Rp8,000,000
Rp16,000,000
Rp24,000,000
Frequency
Penalti Retailer, Upper Limit of Interval
Mean Rp 12.932.055
0
50
100
150
200
Rp- Rp10,000,000 Rp20,000,000
Frequency
Penalti Wholesaler, Upper Limit of Interval
Mean Rp 11.984.500
0
50
100
150
200
250
Rp- Rp10,000,000 Rp20,000,000
Frequency
Penalti Distributor, Upper Limit of Interval
Mean Rp 9.804.950
0
100
200
300
400
500
600
Rp-
Rp3,000,000 Rp6,000,000
Frequency
Penalti Factory, Upper Limit of Interval
Mean Rp 1.996.660

9. Rule 2
RETAILER WHOLESALER
FACTORY
DISTRIBUTOR
Pesanan
diterima
wholesaler
Tempat
meletakan
pesanan
customer
Kartu bekas
pesanan
customer
Pesanan
customer
Pesanan
retailer
Pesanan
wholesaler
Pesanan
diterima
distributor
Pesanan
distributor
Pesanan
diterima
factory
Perintah
memproduksi
Delay
transportasi 1
Delay
transportasi 2
Delay
transportasi 1
Delay
transportasi 2
Delay
transportasi 1
Delay
transportasi 2
Bahan baku
Delay
produksi 2
Delay
produksi 1
Gudang
penyimpanan
(inventory)
Gudang
penyimpanan
(inventory)
Gudang
penyimpanan
(inventory)
Gudang
penyimpanan
(inventory)
7
• If:
+ <=
 = order from DS + order received by DS
3
DS’s order order received by DS inventory US
4
order to US

10. Rule 2
RETAILER WHOLESALER
FACTORY
DISTRIBUTOR
Pesanan
diterima
wholesaler
Tempat
meletakan
pesanan
customer
Kartu bekas
pesanan
customer
Pesanan
customer
Pesanan
retailer
Pesanan
wholesaler
Pesanan
diterima
distributor
Pesanan
distributor
Pesanan
diterima
factory
Perintah
memproduksi
Delay
transportasi 1
Delay
transportasi 2
Delay
transportasi 1
Delay
transportasi 2
Delay
transportasi 1
Delay
transportasi 2
Bahan baku
Delay
produksi 2
Delay
produksi 1
Gudang
penyimpanan
(inventory)
Gudang
penyimpanan
(inventory)
Gudang
penyimpanan
(inventory)
Gudang
penyimpanan
(inventory)
5
• If:
+ >
 = inventory US
3
order from DS order received by DS inventory US
4
order to US

11. 0
50
100
150
200
250
Rp2,000,000 Rp3,000,000 Rp4,000,000
Frequency
Penalti Distributor, Upper Limit of Interval
0
50
100
150
200
250
300
350
400
450
Rp1,500,000
Rp2,500,000
Rp3,500,000
Rp4,500,000
Frequency
Penalti Wholesaler, Upper Limit of Interval
0
50
100
150
200
Rp- Rp8,000,000 Rp16,000,000
Frequency
Penalti Retailer, Upper Limit of Interval
For all possibilities of costumer demand,
grand mean penalti Rp. 4.644.719
0
10
20
30
40
50
60
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Backorder
Back Order Tiap Agen
Retailer
Wholesaler
Distributor
Factory
Mean Rp 8.301.400
Mean Rp 2.526.800
Mean Rp 2.885.025
0
50
100
150
200
250
300
Rp6,200,000
Rp6,800,000
Rp7,400,000
Rp8,000,000
Frequency
Penalti Factory, Upper Limit of Interval
Mean Rp 7.462.175

12. Conclusions
• In order to make policy, we need to consider:
– interaction with other stakeholders (impact to
other stakeholders)
– Considering performance of team holistically No
Silo Thinking