Logistics and Supply Chain Management

BEER DISTRIBUTION GAME: A BEHAVIORAL STUDY

Project Presentation

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Beer Distribution Game: A Behavioral Study

Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

1/3/2013

Beer Distribution Game: A Behavioral Study

Motivation

Why do we need to consider cultural differences in Supply Chain Management?

Assembly

Components

Design

Minor parts

Advertising

30%

17.5 %

7.5%

2.5%

1.5%

1/3/2013

Beer Distribution Game: A Behavioral Study

Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

1/3/2013

Beer Distribution Game: A Behavioral Study

Cultural Differences
Exploring cross-cultural differences
China and Germany, were the most dissimilar from the international average
Hofstedes 5 dimensions: PDI Power Distance Index IDV Individualism MAS Masculinity UAI Uncertainty Avoidance LTO Long-Term Orientation

150

PDI

100
MAS 50 0 IDV Germany China UAI

LTO

Source: Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and Organizations: Software for the Mind. Columbus, OH: McGraw-Hill

1/3/2013

Beer Distribution Game: A Behavioral Study

Cultural Differences
Behavioral Research:
Results show that Chinese participants have been more risk-seeking than the German and American
Weber, Hsee, and Sokolowska (1998)

the probability judgment of the most Chinese was found less accurate and they were more overconfident with their individual knowledge Weber and Hsee (1999)

1/3/2013

Beer Distribution Game: A Behavioral Study

Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

1/3/2013

Beer Distribution Game: A Behavioral Study

Hypothesis

Experimental Research in Behavioral Finance, Marketing, etc. shows that Chinese subjects behave more risk seeking than subjects from Germany. Hypothesis:

Chinese subjects are more risk-seeking than German subjects in the Supply Chain Management

1/3/2013

Beer Distribution Game: A Behavioral Study

Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

1/3/2013

Beer Distribution Game: A Behavioral Study

Beer Distribution Game

developed by the Systems Dynamics Group at the Massachusetts Institute of Technology in the 1960s demonstrates the bullwhip effect by simulating a maketo-stock supply chain with four tiers

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Beer Distribution Game: A Behavioral Study

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Beer Distribution Game

Order Processing Delays

Factory

Distributor

Retailer
Transport Delays
1/3/2013 Beer Distribution Game: A Behavioral Study

Customer
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Beer Distribution Game

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Beer Distribution Game: A Behavioral Study

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Beer Distribution Game

Idea
Simulation of a Supply Chain Network

Goal
To minimize cost of capital employed in stock while avoiding stock out situations

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Beer Distribution Game: A Behavioral Study

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Beer Distribution Game

No communication is allowed between two nodes other than passing on the orders and beer Real customer demand is only known by the retailer and is standard normal distributed Material and information passes through the nodes without skipping any node in between The Game will last for 20 weeks

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Beer Distribution Game: A Behavioral Study

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Beer Distribution Game

Cost of holding inventory per week = 0.50/bottle/week Cost of stock out/back-orders/backlogs = 1.0/bottle/week Orders to fill = New orders + Backlogs Lead Time between any two nodes is 2 weeks

Every node will start with an inventory of 16 bottles

In-transit stock to each node per week is 4 bottles

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Beer Distribution Game: A Behavioral Study

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Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

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Beer Distribution Game: A Behavioral Study

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Experiment Procedure
Participants
Nationality: Subjects: Age: Occupation: Experience: Chinese/German 12 Chinese/15 German 18-25 student None

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Beer Distribution Game: A Behavioral Study

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Experiment Prosedure
3 subjects for one game

Choose of the position Warm up: 5 periods

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Beer Distribution Game: A Behavioral Study

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Internet based beergame

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Beer Distribution Game: A Behavioral Study

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Experiment Procedure

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Beer Distribution Game: A Behavioral Study

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Experiment Procedure

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Beer Distribution Game: A Behavioral Study

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Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

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Beer Distribution Game: A Behavioral Study

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Analysis
Definition of Order Deviation:

The absolute difference between the order quantity and the current demand quantity
Change in order deviation reflects a change in the participants expectations
Kuo-Ting Hung; Sungmin Ryu (2008)

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Beer Distribution Game: A Behavioral Study

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Analysis
Definition of risk-averse and risk-seeking behavior:
A risk-averse participant will order to meet the demand while considering his or her inventory and backorder levels
A risk-seeking participant will show a greater order deviation than a risk-averse participant
Kuo-Ting Hung; Sungmin Ryu (2008)

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Beer Distribution Game: A Behavioral Study

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Analysis
Basic Statistics Group German N 300 Mean 3,00 Std. Deviation 3,568

Chinese

240

5,89

4,574

2-Sample T-Test (p<0.001)

t df Sig. (2-tailed) Mean Difference 0,000 -2,892 -8,254 538

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Beer Distribution Game: A Behavioral Study

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Contents
1. 2. 3. 4. 5. 6. 7. Motivation Cultural Differences Hypothesis Beer Distribution Game Experiment Procedure Analysis Conclusion

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Beer Distribution Game: A Behavioral Study

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Conclusion
The Order Deviation between the Chinese and the German subjects is significantly (p<0.001) different. The Mean of the Order Deviations from the German orders is lower than the one from the Chinese subjects. Therefore, the Chinese behave more risk-seeking in the Beer Game

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Beer Distribution Game: A Behavioral Study

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