I am fond of history. Without it, geography is mere tectonic playfulness and people a chain of successful hominids with little to recommend them except their nimble intelligence and opposable thumbs.
Completely on-topic (don’t worry, we’ll come back in a minute – history is a winding, troublesome thing) when considering demand management, I’m always reminded of the Beer Distribution game. In it, teams of players compete to supply customer demand on a single product while minimising the cost of inventory and backorders. What makes it useful as a simulation is that players aren’t allowed to communicate in any way, and have to rely on patterns to discern the necessary orders.
More often than not, the game results in a huge leaps and dips in inventory and backorders. I recently read of a variant presented by a management education company, SIOM, called Sake: The Beer and Bull Game , which takes the massive silk industry in Japan during the Meiji era as its inspiration.
The Meiji era – from 1868 through to early 1900’s - was a period of massive industrial development in Japan, as the government focused on driving technological advances in its manufacturing to bring it on par with its Western peers.
Silk was the primary export of Japan to the US and Europe, and received considerable attention and much government funding. Indeed, the Tomioka Silk Mill in the Gunma prefecture, initially a test factory for machine-reeled silk, is now considered a national heritage site.
But, according to an article written by Sashinami Akiko entitled “A Handspun Tale of Technological Change” in the Social Science Japan Journal in 1997, the manufacturing take-up in the Japanese silk industry was incredibly staggered, with silk producers in Gunma largely using an improved hand-reeling production style while still outpacing competing prefectures who had jumped straight to machine-reeled silk factories.
Sashinami suggests that Gunma silk producers deliberately chose to utilise the improved hand-reeling style because of knowledge they had gained from foreign buyers in Yokohama about overseas distribution requirements. While foreign buyers would pay high prices for the high-quality silk the factories could provide, what most of their clients wanted was consistent merely standard-quality silk in large volumes.
What does this have with demand management? While their government and their competing prefectures ramped up factory production at immense cost to supply the required volumes, Gunma producers realised they could control the quality enough to meet international demands at a fraction of the price.
Far from being dismissive of the machine-reeled process, Gunma producers understood that machine-reeled silk production, while inevitable, was not immediately necessary for their success.
Insight into the supply chain at the time, combined with an understanding of their customers’ actual requirements, allowed the Gunma producers to adequately supply their customers with just the right level of investment. The minor improvement in the last stage of their production allowed them to assess the pros and cons of machine-reeled silk while maintaining consistent supply in a period of high demand.
What both the beer distribution game and this little detour into Japanese industrial history suggest is communication outside of your operation is what’s key to ensuring your demand management strategy is in-line with actual customer requirements. You’ll need to step two or three stages beyond your immediate customers and suppliers to understand how to manage supply and demand in your supply chain.
While the silk producers were largely reliant on the merchant class that dealt directly with the foreign buyers in Yokohama, sourcing information today requires merely the permission of your upstream and downstream customers and suppliers. Before implementing potentially costly solutions internally, consider your immediate neighbours to see what can be gained from knowledge sharing.
Contributed by: Rick de Klerk, Technical Writer, Opsi Systems
