“The beer game”

There’s a retailer who sells beers.    The retailer buys his beer from a wholesaler, who in turn buys beer from a brewery.    Beer is delivered once a week to the retailer. If the retailer wants beer, he places an order with the wholesaler and four weeks later, the beer is delivered to him. Also, just like the real world, the retailer sells hundreds of products and the wholesaler distributes many products to a large number of customers.   Now, imagine there’s a slight uptick in demand for beer. Maybe it’s a hot day. Perhaps there’s a popular beer commercial some people loved. Doesn’t matter. The retailer notices and, to be safe, he decides to order a couple of extra cases of beer.    He’s not the only retailer who does this. Others do it too. The wholesaler, who receives the orders, notices and surmises that there’s a spike in demand, decides to increase his orders as well from the brewery. Pretty soon, the brewery notices that something is happening.    What happens eventually
Order flow and product flow
Source: thebeergame.org
In B-schools across the world, in their supply chain 101 class, the beer game is played. Sadly, there’s no real beer, but the simulation illustrates systems thinking, and how supply chains behave in response to changes in demand.    Most people who have played the beer game will never forget it. It’s instructive. It’s memorable. And its results may surprise you.    Over the last few weeks, we have seen multiple variants of the beer game being played out across the world—in groceries, in hand sanitizers, but most notably, in healthcare supplies.    I’m going to talk about a couple of them. And through them, you’ll probably understand the lessons of the beer game, and the point of systems thinking. 
The bullwhip effect of N95 masks   N95 masks have been a strange commodity during this entire crisis. First, multiple organisations, including the WHO, repeated the claim that masks would be useless and needn’t be used.    This was at the beginning of the year, when the coronavirus was at its peak in China. What did China do? It stockpiled masks. A lot of them.
As hospitals and governments hunt desperately for respirators and surgical masks to protect doctors and nurses from the coronavirus pandemic, they face a difficult reality: The world depends on China to make them, and the country is only beginning to share.   China made half the world’s masks before the coronavirus emerged there, and it has expanded production nearly 12-fold since then. But it has claimed mask factory output for itself. Purchases and donations also brought China a big chunk of the world’s supply from elsewhere. The World Needs Masks. China Makes Them, but Has Been Hoarding Them, The New York Times
In fact, while the crisis unfolded, American companies continued to export and sell masks to China. Until the coronavirus hit their shores, and demand spiked.    And now everyone wants masks. And China has them all, including the manufacturing capacity to supply the world. China is ramping up, but it hasn’t been easy.
Chinese mask makers were only operating at 76 percent capacity in mid-Feb. according to Chinese officials, which puts daily production at around five million pieces fewer than the 20 million maximum. The country’s output of N95 respirators, which are often worn by medical workers for additional protection, is even lower, at 200,000 a day, given the more complex technology and materials required to make them.   To meet the shortfall, some Chinese companies in unrelated industries have started making masks. Foxconn, which manufactures Apple’s iPhones in China, has switched some of its production to masks; the company aims to produce two million units a day by the end of the month. Others, like an auto-maker in south China’s Guangxi Zhuang Autonomous Region, are making masks too There Aren’t Enough Medical Masks to Fight Coronavirus. Here’s Why It’s Not Going to Get Better Anytime Soon, Time
That’s the bullwhip effect.    One of the first lessons of the beer game is that fluctuations in demand get amplified as you move closer to the supplier. A retailer places an order of two extra cases of beer, which amplifies as you reach the wholesaler, and gets really high as it reaches the supplier. And there’s a time delay. So the supplier could see soaring demand one week, and zero demand the subsequent week.    As a result, countries like the United States are forced to take unprecedented—even controversial—actions.
The Trump administration is using a Korean War-era law to redirect to the United States surgical masks manufactured by 3M in other countries as part of a heated pressure campaign to force the Minnesota company to cut off sales of surgical masks abroad.   The policy is a significant expansion of the American government’s reach and a reversal of President Trump’s hesitant use of the Defense Production Act, which allows the administration to force a company to prioritize the U.S. government over competing orders.   But in this case, the administration is invoking the law to compel 3M to send to the United States masks made in factories overseas and to stop exporting masks the company manufactures in the United States Trump Seeks to Block 3M Mask Exports and Grab Masks From Its Overseas Customers, The New York Times
These desperate actions aren’t just restricted to masks. Or to the federal government. In a dramatic event, one state rushed to place a higher order to redirect masks meant for Germany – an act which was later described as ‘modern piracy’.    Then there’s India.    And a drug called hydroxychloroquine.   Hydroxychloroquine is slightly controversial. It’s usually used in malaria treatment, but there’s some casual, anecdotal observation that it may be effective to some degree against the coronavirus. If you think I am being tentative, it’s for a reason. All the evidence of its effectiveness is suggestive, at best.    But for some strange reason, Donald Trump, the president of the United States, has been pushing hydroxychloroquine aggressively in his briefings. And there’s reporting that there were strong disagreements between his administration and Dr Anthony Fauci, the nation’s top doctor on infectious diseases and a member of the White House task force to fight the coronavirus outbreak.    The United States has been working hard to stockpile hydroxychloroquine. Just in case.  And guess which country has over 50% of it?    Yes.    Welcome to India.    And what did India do?    Yup.
Nearly half the supply of hydroxychloroquine to the U.S. comes from makers in India, a flow that has now been abruptly stanched after the Asian nation banned exports of all forms of the malaria drug touted by President Donald Trump as a “game changer” for treating the coronavirus.   India’s export ban on the drug is aimed at ensuring it has enough supply for domestic use after the American president’s endorsement sparked global stockpiling of the medication. As the coronavirus pandemic widens globally, countries competing for supplies have enacted export bans or restrictions on goods from rice in Vietnam to face masks in Germany Half the U.S. Supply of Trump-Touted Virus Drug Now Cut Off, Bloomberg
It’s not just this. Here’s Nadine on other pharmaceuticals from India. This time, the region in need is Indonesia:   Supplies of antiretroviral (ARV) drugs needed to treat HIV-positive patients last till the end of May, says Rumah Cemara, an advocacy group. It supports Indonesia’s roughly 640,000 people living with HIV/AIDS. The group first warned about a potential shortage of the drugs in early March, but the problem is still unresolved.   Indonesia doesn’t make ARV drugs itself and imports all its supply from India. The coronavirus pandemic is causing delays and uncertainty in the supply chain of the drug. HIV treatment in Indonesia is part of a government programme, and the Ministry of Health is the sole importer.    If new shipments arrive, they still have to be distributed to all corners of the Indonesian archipelago, which may also result in further delays. The drug is now already being handed out in two-week instead of one-month rations. Some patients will likely have to suspend their treatment for a while as supplies of the drug run out.     Which brings me to the other lesson of the beer game.    The beer game was invented by Jay Forrester at MIT in the 1950s. Since then, the beer game has been played at MIT Sloan, its business school. One of its professors, Prof. John D Sterman, has conducted it over 200 times in his class over three decades.   What does Prof. Sterman say?
Quote “When we shift from blame to trust, from disdain to respect, we can harness the capabilities of all people to understand how our actions create our future,” says Prof Sterman. “Not just in the here and now, but globally and for the long term.” Prof. John D Sterman, MIT Sloan
Over to Olina.
Feedback * Infinity   By the time the iron grip over our cities is loosened, Covid-19 may have already left an indelible mark on the shared mobility business. Of all the on-demand conveniences that made our lives easier, shared mobility was possibly the biggest disruptor. But as the Covid clock winds down, it’s likely to be the most disrupted.   The first things to roll were heads. Bounce laid off around 200 staffers and announced pay cuts. Rival Vogo has laid off 55 people since December. Uber and Ola suspended services across the country, and did away with Pool. Longer-term rentals like Zoom and Revv have stopped as well.   This succinct explanation, by Animesh Kumar at GlobalData, captures most of the domino Covid effects on shared mobility:
Quote “The impact is likely to be witnessed beyond Covid-19. Uncertainty over recovery poses an existential threat to many shared mobility service providers as Covid-19 is expected to change consumer travel preferences in the near-term. The outbreak is likely to impact the trust on public transportation as well as shared mobility and customers are likely to find personal vehicles safer. Shared mobility providers and their partners have to tackle leases and loans. Without operations, there is a significant risk of loan defaults.” Animesh Kumar, GlobalData
These are all crucial second and third order effects. But one that poses the biggest existential threat is ironically something that made these mobility options popular in the first place.   Sharing allowed costs to be low. For more assets to be deployed simultaneously. For traffic in congested cities to ease up because everyone wasn’t using their own vehicles. If on-demand mobility was habit forming, is the opposite also true? Are people likely to reset in 21 days?   Now, say the habit, tucked away in the corner of our brains, comes back. How many of us want to use shared scooters or cars? There are too many points of exposure; too much at risk with a virus of unprecedented virulence. Unlike grocery delivery or Zomato orders, how contactless can shared mobility be?   There is a workaround, as TechCrunch reported. Wheels, a scooter rental company, is using NanoSeptic tech on its lever brakes and handlebars, mostly on scooters it has provided for frontline workers: “NanoSeptic’s technology, which is powered by light, uses mineral nano-crystals to create an oxidation reaction that is stronger than bleach, according to the company’s website. NanoSeptic then implements that technology into skins and mats to turn anything from a mousepad to door handles to handlebars into self-cleaning surfaces.” Wheels is deploying e-bikes with self-cleaning handlebars and brake levers, TechCrunch
It’s as impressive as it is expensive—around $199 a pop.   Whether used in a time-share pattern, like houses for Airbnb, or used consecutively, like cars or scooters, the shared economy has some quick mopping up to do. This means wiping down cars, handles, seats, seat belts, ensuring the driver’s health, and that passengers wear masks hereon. Tracking an infection trail, if it does emerge from a shared resource, could potentially kill a resurgent business all over again.   That’s small beer compared to shifting mindsets, again, about sharing resources.   Discounts aren’t going to be nearly enough.   Next up is Jon.
Microsoft conscripts Skype to its remote work army   Microsoft is competing hard to own the battle for remote work software. Zoom looks to be leading with 200 million daily users, but in its effort to capitalise on its young challenger’s recent missteps around privacy, Microsoft is enlisting an old war veteran to its ranks.   Zoom, Slack, Google Meet (née Hangouts) and even Microsoft Teams dominate the remote work conversation, but Skype—the granddaddy that pioneered free online calls in the 2000s—finally added an update to allow anyone join a call without an account, or at least needing to sign into one. The feature is borrowed from younger competitors, which  shows Microsoft is putting all its available boots on the ground for battle.   Skype had been a veritable business favourite, but it has been surpassed by more modern video calling inside Teams. Still, it makes sense to tap into its user base, which was apparently as high as 300 million in 2016—the most recent data from Microsoft that we can find—and likely includes many small businesses which may not have invested in remote tools yet. Teams is the core focus for Microsoft but at least Skype now offers a Zoom-like experience without the commitment of Teams. But do businesses trust Skype after all these years?   Over to Savio.
The (l)end of the world   The Indian government has offered precious little to quantify the impact of the 21-day lockdown on the economy. And that is what made the conference call of Bajaj Finance, one of the largest retail non-bank lenders, an interesting event on Monday evening. The lender estimated that a one-month-long lockdown would cause a hit of $250 billion, or roughly 10%, to the country’s GDP. But that’s been estimated. That’s not the story.   The real meat is in the numbers Bajaj reported. It said it lost 350,000 customers in 10 days of the lockdown, while its assets under management (AUM) sank Rs 4,750 crore (about $625 million). And how will that play out over the rest of the lockdown? Well, that depends on how long the lockdown lasts. The lender is preparing for three scenarios: 1) the lockdown lifts on April 14, as planned 2) the lockdown lifts on April 30, or after 37 days, and 3) the lockdown lifts on May 15, or after 52 days—roughly 1/7 of the year.   If Bajaj lost 35,000 customers per day for the first 10 days, how bad will it be if the lockdown is extended. Bajaj estimates managing just 20% of planned volumes if the lockdown is lifted in mid-April. An end-April scenario would bring May’s volumes to just 30% of what was originally forecast. If the lockdown lasts through mid-May, Bajaj warns that business will be zero, (no really, zero), this month and next. And if you thought that is a dire prediction from the lender, it’s disclaimer is even more sobering. Bajaj, in general, it said, doesn’t lend to hotels, restaurants, and aviation companies. Or their employees. So? So, you have to see the estimates in a new light once you realise it doesn’t include any data for some sectors that are worst hit by the pandemic.   And even without loans to those sectors on its books, Bajaj said its commercial client portfolio sank 35-40% in the last few days. Commercial customers, despite being in a strong position, relatively speaking of course, are opting for the Reserve Bank of India-sanctioned moratorium. It almost sounds like a complaint from Bajaj, when in fact, it is the basic fiduciary duty of any company to bolster its cash reserves in such times. If a company were to take the high moral ground and opt not to take the moratorium, and then it went bust, can you imagine how shareholders and board members would react? The said company’s executives would probably wish for a lockdown then

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