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Case: Demand Surge
At a certain point in time during the game, the economy starts changing.
Several products will have price changes, and as a result the behavior of your
customers will change. News messages always introduce these changes, so watch
the news closely.
For those products that became cheaper, the clients use
the opportunity to place some big orders, putting some extra pressure on the
supply chains. In the short term, distributors can get away by tapping from
their own inventories to meet the sudden demand surge. However, in the long
term, a more structural solution is needed to capture the benefits of this
windfall without disrupting the order fulfillment processes. It is also the
question how long the beneficial situation will last. For other products, the
market might collapse, and you may be left with a large inventory of products
that quickly lose their value. For increased sales, the distributor can make a
number of choices such as immediately ramping up inventory with help from key
manufacturers, obtaining additional supplies from non-key manufacturers, or
analyze the nature of the surge. For decreased sales, it might be important to
sell the stock on hand quickly, for instance by selling to markets further away.
Goal of the game The goal of the game is to show you the complexities of
global sourcing in a complex market with products that quickly lose their value.
There are many trade-offs to manage: do I source where it is cheap, but possibly
farther away? What do I know about suppliers that are far away? Will they
deliver on time? Especially when the number of possible suppliers grows, it
becomes harder to manage the information about the quality and reputation of
your suppliers. The same holds for the markets. When you operate on the global
market, you also have to see on which requests for quote you react. Do you
operate on the global market, or are you going to focus on your local market
only?
Stimulating good behavior of the actors The game has several incentives for
correct behavior built in. This holds both for the suppliers and for you as one
of the distributors. The following fines are built into the game for incorrect
behavior. When an shipment for an order is delivered after the promised
delivery date, the supplier has to pay a fine. The fine is based on an interest
rate of 20% per year for the value of the shipment. When you have not delivered
after 30 days, you pay 50% of the agreed price for the order. When you do not
pay on time, you also pay a fine of 20% interest rate per year. When you have
not paid after 14 days, the bill will be charged to your bank account, even if
you did not take action, or if you have a negative balance. By the way, the game
is symmetric in the sense that you also get the benefits of a fine for markets
that do not deliver on time or do not pay on time.
Finances For the distributors, there
are several costs you make during the course of the game. One of the types of
costs is fines, which has been explained above. You can avoid fines by
delivering and paying on time. The second type is the depreciation of your
inventory. As this amounts to 5% per week, make sure you don't keep the
computers too long in your inventory. The third type are the fixed costs for
personnel, buildings, equipment, etc. This amounts to $ 500.- per day. This
sounds like a small amount, but it has been calculated as a percentage of the
total operational costs or the distributor, for that part of the distributor
organization that deals with these four products. The final type of costs (or
benefits) are the interest rates for your bank account. When you have a positive
balance, you receive 3% interest per year, but for a negative balance, you pay
8% per year.
Initial product prices The initial
average market prices of the products are as follows:
- DESKTOP: $900.-
- LAPTOP: $1500.-
- LINUX: $1200.-
- MMEDIA: $1700.-
The starting value of your initial stock is as
follows:
- DESKTOP value: $40500.0 unit price: $900.-
- LAPTOP value: $48000.0 unit price: $1500.-
- LINUX value: $55200.0 unit price: $1200.-
- MMEDIA value: $20400.0 unit price: $1700.-
The total value of your
initial stock is: $164.100.-.
During the game, product prices change as
a result of economic or other developments. After a change, your suppliers will
offer computers for different prices, and your customers expect other prices as
well. By the way, you can make offers above market price, but be aware that your
customer will base its choice on price, distance, and promised delivery date.
How the customer weighs these three aspects is unknown to you.
Transportation The computers lose
their value rapidly. Therefore, shipping is done by plane. The shipping costs
are $250.- per shipment for handling and taxes, plus $0.0007 per kilometer per
kilogram of weight. The weight of a laptop is 6.5 kg, the weight of the other
three types of computers is 15 kg. The time it takes to transport a shipment is
two days for shipping the goods to and from the airport and to handle the
shipment, and for the rest a shipping time based on a speed of 800 km/hr is
added to the transportation time. This means that you can get your goods to any
place of the world within 4 days. Be aware of the costs for transporting to or
from a remote location, however! |
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