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DOS5101: Supply Chain Coordination and Risk Management

Guide to Simulation Game

Overview

• The objective of the game is to come up with a coherent supply chain strategy that incorporates overall planning and risk management, and helps the company to maximize its operating profits in the long-run

• Involves the use of excel spreadsheet

• Players play for 6 rounds, with each round representing a year

• First year will be the same decision for all teams, so you are effectively making decisions for 5 years (= 5 rounds)

Game Rules

• There is a set of management decisions to choose from

• Every year, each team will select 3 decisions / actions

• Results of the decisions / actions are to be updated into the spreadsheet template

• The 3 actions in each year must be different – meaning that you cannot take one action and do the same thing twice within the same year

• Some actions are mutually exclusive in the same year

• At the end of each round, facilitator will draw an event card, which may have certain effects on the next round

• No action should be taken more than three (3) times in the five years from Year 2 to Year 6

• Results will usually take place in the next year, but some actions have a delayed result, such as R&D, investment, etc where expenditures come first, but results come later

Simulation Game

• Simulation game will take place over 4 weeks (please note it will be very compressed!)

• We will start with a baseline for every group

• Each group expected to make management decisions for every quarter, choosing from a list of actions / decisions to be taken

• Each management decision / action will result in certain costs and revenue impacts, which are known

• Every “cycle” of the game, we will draw a card / spin a wheel which will introduce some macroeconomic event

• We will tabulate the financial results of the groups after every cycle of operation and circulate this on the class website

• Top teams receive prizes

Using the financial template

• Formulas are already linked

• The key is to make changes in the cells by multiplying by percentage changes

• There is a base spreadsheet which is locked. This is your comparison spreadsheet in case you make changes and forget what you did. You can go back to compare to the original

• Starting base year is year 0

• Actions are to be taken on Year 1. In case of delayed effects (example in R&D), the delayed effect on sales will happen in Year 2. Similarly, if the R&D action is taken in Year 2, increase R&D cost will occur in Year 2 but sales increase will happen in Year 3

• Whatever action is taken, the effect will continue into future years

• Actions are non-sequential for the particular year – example, whatever 3 actions are taken, all the effects on the P&L are added together and key into Year 1

• Example, if action 1 increases sales by 5% and action 2 decreases sales by 3% and decreases logistics cost by 5%, the net effect on year 1 is based on: Year 0 X 1.02 for sales and Year 0 X 0.95 for logistics cost

• For Year 1, all groups will take the same actions so you should all get the same result

Macroeconomic event (Exploding Kittens!)

• At end of every year, event will be drawn

• Event cards describe certain events that cause impact to your supply chain. Typical events include events such as – epidemics, new sales opportunities, new competitor products are introduced, etc

• Each event has a certain probability of happening and certain impact depending on what actions you took

• There will be impacts to revenue or cost. These impacts could be positive or negative depending on what actions you took

• Events will impact actions which are taken in previous years as well

Wheel of fortune

Impact of event

• Once the event card is drawn, any impact on your financial statement is made in Year + 1 together with the rest of your actions

• Example if you are playing Year 1, and sales reduce by 5% through the Event, and you take an action that increase sales by 7%, year 2 sales = year 1 * 1.02 in Year 2

• This is done before you start the rest of your actions for Year 2

• Actions + Event impact is additive

Simulation game report

• Each group to keep track of their decisions every cycle

• Management Report -- 12 to 18 pages, excluding appendices

• Diagrams and models can be included in the Appendix of the Management Report

• Management Report

• What was your analysis of the industry dynamics and the company situation

• Overall strategy for the company

• What decisions were made, how these decisions were arrived at

• Whether their decisions changed when looking at other teams’ performance, or in light of changes in macroeconomic situation

• What are the management lessons you learnt

• Conclusions

• Appendix / attachments

• The grade will be assigned based on your Management Report AND your overall profits in the simulation