Understanding Systems Thinking – The Beer Game

It’s Monday. You arrive at the office to find a strongly-worded complaint from an angry customer who failed to receive an important delivery of goods over the weekend. “It must be the lousy delivery company again,” you think to yourself.  It’s the 10th time in the 2 months you’ve had to deal with such a problem, and you cannot understand why the delivery company can’t seem to pull up its socks after so many discussions. Maybe it’s time to look for another delivery company, you think.

Well, what if the problem had nothing to do with the delivery company, but everything to do with the delivery system, and you had personally contributed to the problem?   What if you are missing out on the big picture and demonstrating the “Beer Game syndrome”?

 

THE BEER GAME – Understanding How Systems Affect Behaviour

The beer game was developed at the MIT in the 1960s, to simulate a simple production/ distribution system for one brand of beer. In the book The Fifth Discipline: The Art & Practice of The Learning Organization, Peter Senge summarizes this game and some useful lessons to be learnt from it.

The game involves 3 three players – a retailer, a wholesaler, and a marketing director at the brewery. Each player’s goal is to maximize profit.

Just like in the real world, the game simulates imperfect communication, production and distribution patterns between the retailer and wholesaler.  Specifically, there’s a 4 week lag between the time the retailer orders and receives the beer from the wholesaler, and a 4 week lag between the time the wholesaler orders and receives the beer from the brewery. The brewery takes 2 weeks to brew the beer upon receipt of order from the wholesaler.

The beer game

Picture from thebeergame.org

What happens in the game is a good reflection of what typically happens in real-world organizations and systems. There’s a (short-term) spike in customers’ demand of a specific brand of beer at the retail store.  Due to the 4 week lag in delivery, the retailer soon finds himself out of stock, with new stocks being sold out in a matter of days.  He keeps adding new and larger orders, feeling frustrated at the lost sales and backlog of unfulfilled orders from the wholesaler.

Likewise, the wholesaler finds himself out of stock due to the increase in retailers’ orders, and starts to order larger batches from the brewery. The brewery in turn realizes that it has a huge backlog of beer orders building up (beer production takes 2 weeks), and decides to significantly increase its production of that brand of beer. A snowball effect builds up.

Due to the 4 week lags, by the time the previous weeks’ orders arrive (and keep rolling in), the demand has already tapered off. At the end of the game, every one (retailer, wholesaler, brewery) had huge excess inventory, due to a very small, short-term spike in demand.

When the players are interviewed, they blame the other parties for the problems and excessive inventory. They fail to see that the true problem is a structural/systemic one, due to the delays, time lags and imperfect information in the distribution system.  They also fail to understand how their actions (e.g. ordering more-than-necessary inventory) affect others and compound the problem.

 

SYSTEMS THINKING

Our education (and eventually management) systems have trained us to break down problems into small parts. This makes complex tasks manageable, but we no longer see connections and the big picture.

The Fifth Discipline_Systems Thinking

Systems influence behaviour. To understand a thunderstorm, we need to understand the entire eco-system, not just part of the pattern. When faced with a problem, we also need to understand the true systemic causes, not just “solutions” that are close by or visible to us. There are 3 progressive levels of thinking: Events (reactive) => Patterns of Behaviour (responsive) => Systematic Structure (generative).

The Fifth Discipline_a shift of mind_title

In The Fifth Discipline, Peter Senge explains the concept of Systems Thinking, and how we can learn to fundamentally shift our thinking to see and understand complex systems, rather than individual, disjointed events and parts.

We tend to see reality in straight lines, when it is really made up of curves and circles. When we get fluent in the language of systems thinking means we start to see circles of causality:
• We see inter-relationships rather than linear cause-effect chains
• We see processes of change rather than static snapshots

The main shift is to see how we are actually a part of the feedback process, not outside of it, i.e. we have to part to play in the results and circumstances that we are observing.

The Fifth Discipline_System archetypes_title

In a nutshell, systems thinking means seeing and thinking in terms of recurring structures or system archetypes.

We can organize all the variables (including our actions) into loops of cause-effect relationships, where they reinforce or balance one another through a “feedback” process.

These are the 3 key components that form system archetypes:

 Reinforcing (or amplifying) feedback: These are engines of growth that amplify small changes/ actions to form vicious or virtuous cycles e.g.The Fifth Discipline_Balancing feedback

 Balancing (or stabilizing) feedback: These are part of a self-correction process to maintain an implicit or explicit goal/ target. They are sources of both stability and resistance e.g.
Both explicit and implicit balancing processes are constantly at play. Most resistance comes from implicit goals/ assumptions (e.g. ambitions, fears).The Fifth Discipline_Reinforcing feedback

Delays: There may be systemic delays or “time lags” between actions and visible results (e.g. beer cannot be brewed instantaneously). A lack of awareness may trigger overly-aggressive actions that cause us to “overshoot” our mark.

The Fifth Discipline_generative learning_title

Only when we can see the real issues (and their underlying causes) are we able to address them.  Otherwise, we will only be treating the problems symptomatically. For example, here are 2 common system archetypes that we face in our daily lives:

(i) Limits to Growth. Often, we see periods of growth then a slow down, halt or reversal, as the growth hits certain limits. The solution is not to push growth, but to identify and remove the factors limiting growth (e.g. lack of manpower or supporting processes).

(ii) Shifting the Burden. It is usually hard to identify the true underlying problem(s), or costly to address them. Hence, managers may prefer to “shift the burden” using symptomatic solutions e.g. providing short-term incentives to boost sales. These may seem to alleviate the issues, but in reality only move the problems to other parts of the system. The underlying problems usually re-surface in a different or worse form.

 

Systems thinking may seem complex at first glance, but it is really a powerful way to think insight-fully about our work, businesses, relationships and life in general.  With genuine insights, we have the power to learn and create new outcomes.

To get more details on systems thinking, check out these book summaries:  The Fifth Discipline summary and Thinking in Systems summary.

 

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