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Business Logistics
Seminar 6 The risk pooling game
Learning objectives: To analyse the inventory policy with different distribution systems.

Activities before the seminar 1. Install the program given in AG. 2. Read instructions to play the game (p.3-12). Activities in the seminar  Play the game several times before writing report.  Write and upload a report in Aula GlobalMoodle with a summary of conclusions of the game (1 page as a maximum).  Some guidelines are provided to write the report (p.2).

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Guidelines to write the report 1. What are the highest profits you were able to obtain in both systems centralized and decentralized?  Centralized system Profit ________________  Decentralized system Profit ________________ 2. How many weeks did you need to achieve the above results?  Number of weeks _________________________ 3. How many times you run the game before obtaining the above results’  Game rounds _____________________________ 3. Did you adopt a specific inventory policy or strategy to achieve the highest profits in both systems centralized and decentralized? 4. Did you change some initial option about inventory policy to obtain these results? If yes, please indicate what option you modified and why. 4. How do you explain numerically the profit differences of the two systems? 5. How do you manage the lead times in both systems? Do you take into account them in placing orders? 6. Which type of demand (random, strong negatively or positively correlated), do you suggest is better to adopt a decentralized system and a centralized system? 7. What do you think to have learned through this game?

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INTRODUCTION
One of the most important concepts in supply chain management is the concept of "risk pooling''. Recall that risk pooling involves using centralized inventory to take advantage of the fact that if a warehouse serves a variety of retailers, when demand is high at some of the retailers, there is a good chance that it will be low at others. Thus, if each retailer maintains separate inventory and safety stock, a higher level of inventory has to be maintained than if the inventory and safety stock is pooled. The system with risk pooling therefore has less overall inventory, and is thus cheaper to operate, with the same service level. The Game illustrates risk polling concepts. In the game, students, simultaneously manage both a system with risk pooling (or centralized system) and a system without risk pooling (or decentralized system).

The goal in both systems is to maximize profit. THE SCENARIOS IN THE GAME Centralized System: A supplier serves a warehouse, which serves three retailers Order Order

Retailer
Warehouse
Supply 2 periods

Supplier

Supply 2 periods

Retailer Retailer

A supplier serves a warehouse, and the warehouse serves three retailers. It takes two time periods for material to arrive from the supplier to the warehouse. This material can be shipped out during the same period, or held in inventory. Once shipped, it takes an additional two periods for material to arrive at the retailers. The retailers then fill all the demand that they can. If demand cannot be met, orders are lost. The top half of the screen shows the centralized system:

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Figure 1

Decentralized System: Three retailers order separately, and supplier ships material directly to each retailer

Order

Retailer Supplier
Supply 4 periods

Retailer Retailer

Materials take four periods from the time the order is placed, the same length of time in the centralized. As is centralizes system, the retailer fill as much demand as possible – demand that is not met is lost. The bottom half of the screen shows the decentralized system: Figure 2

When the risk pool game software is started, the following screen appears:

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Figure 3

During each period or round of the game, several events occur.

PLAYING THE GAME Step 1: to start this step, press the START ROUND button. The inventory is...
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