MBA Learning-Overcooked-Ramen Kingdom

Ramen Kingdom

I went to Ramen Kingdom, a Japanese ramen restaurant in Amsterdam last week. I personally think it is the best Japanese ramen restaurant in Amsterdam, anyway…

When you walk to the front of this ramen shop opposite the central station, you easily get a bad feeling - the queue is so long, and the store is said to be very small, with only one row of counter seats and a few scattered double seats.

At this point, you will think, “It’s over. It should take one or two hours to get through this queue.” But on the other hand, you are also a bit looking forward to it. As a Taiwanese who always lines up for ramen, this kind of lineup rhythm can only be good, not bad!

So, following the floor guide, we arrived at the second line, and the staff came out to organize the queue. He started by greeting those people who didn’t know they had cut the line from the end of the first queue, friendly asking them to line up at the end of the second line, and then he walked back to the front of the first queue, guided the first few groups to enter the shop.

Ah! It looks like they have a good turnover rate quickly, and the long queue will be cleared soon.

After a while, you saw the girl who originally stood at the front of the queue with blue hair that you liked came out, and you thought to yourself, “Wow, can ramen be served that quickly?” (And apparently she must has swallowed it fast)

It was only then that you slowly realized that they had just been taken inside to place their orders! After ordering, people didn’t return to the line, which gave the illusion that the line was always moving forward. Soon enough, you were also taken inside to use the machine to place your order. Because there was no queue behind you, ordering didn’t feel rushed, and you even had time to go to the side and get a Gashapon (capsule toy).

After placing your order, you received a Pokemon ball made of crochet and then went back outside to wait.

The weather in Amsterdam changed rapidly, and suddenly dark clouds rolled in, bringing rain with them. The staff brought out umbrellas for everyone to use. Although the line of people waiting had changed, it was still quite long, and everyone was given an umbrella.

Time passed quickly, and after about ten minutes of waiting outside, you were finally seated. The ramen arrived shortly after.

Ah, the ramen was really delicious.

The Supply Chain Course

I am really looking forward to this class, as market demand planning is almost like the last straw that broke my back. After finishing the last annual demand planning, I told myself, “Okay, it’s time to go back to school.”

After passing the GMAT, taking the IELTS exam, and going through interviews, I came here to pursue an MBA. I want to use the tools and knowledge I acquire here to face the big boss1 in the workplace, even if it means dealing with statistics, which I used to avoid.

Interestingly, when I was chatting with an Iranian professor whom I met for the first time, he joked, “Do you know that front-end business people are usually those who put garbage in and produce garbage out?” I laughed from the bottom of my heart and didn’t feel offended because it was indeed true. Often, we are asked to provide demand planning for one, three, or five years without much knowledge about the product. Sometimes, I even joke with my boss, saying, “Let me go home and take a nap, and maybe I’ll dream about the exact numbers.”

To be honest, it’s not too difficult to plan demand for a new product that has a certain sales target and clear historical data. After about two years, we can write down some numbers almost blindly. The data management in my former company was very good, and we had all the necessary information. Although we couldn’t make a more precise market analysis by comparing the differences between previous and current products during the initial demand planning, the demand context and market positioning were consistent, and the market environment (external analysis, PESTEL) was controllable. Writing requirements was often just playing a allocation game.

The difficulty lies in the middle and later stages of the product life cycle after the product is launched and during the promotion period. This is where I can’t escape from the professor’s joke because even though I didn’t kill the person, I still made many mistakes while controlling the demand allocation for the Korean market in the business department. In the end, I had to rely on our strong production team to save the day, and I went through tough times clearing inventory.

What did I learn in the TIAS MBA program?

Although there may be a gap between theory and practical operation, what I deeply realized after returning to school for classes is that many people have already done research in this field, so you don’t have to go the wrong way. By memorizing the rules of the game, you will know how to play.

During class, a classmate next to me asked, “Don’t you think it’s strange? ‘The Goal’ is such a good book that explains the Theory of Constraints so clearly and logically. Why does it feel like many companies aren’t using it now?”

I have never worked in production or process-related departments, and cannot speak for them, but I vaguely feel that these theories should have been widely used in production because I used to be chased by production management asking, “When will you sell these goods?” in order to allocate output quantity according to the actual demand time of different regions. (Of course, my thoughts were actually the same as many regional managers, and I just wanted to say “It’s none of your business !? XD”. When it comes to our popular products, everyone wants to be the first to get the supply.)

The author of the book “The Goal,” Eliyahu M. Goldratt, uses a novel to introduce how to use the Theory of Constraints to manage factories and achieve the ultimate goal of making money for the company. The book mentions that there are three most important indicators for production:

• Throughput: Effective output
• Operating expenses: Management cost
• Inventory: Stock

“Effective output” is the rate at which a system produces actual output that generates revenue for the enterprise through sales. It is an important indicator for evaluating a system’s ability to create value for customers.

“Management cost” refers to the cost of all resources consumed in the process of producing goods or providing services, including the cost of raw materials, labor, energy, and other expenses related to operating the business.

“Inventory” refers to the stock held by the enterprise. Inventory is crucial for ensuring the smooth progress of the production process and meeting customer demand. However, holding too much inventory is costly and takes up resources that could be used more effectively elsewhere in the organization.

The author believes that the main goal of a company is to make money, so the management goals should be to increase effective output, reduce management costs, and minimize inventory. By doing so, the company can improve profitability and achieve the ultimate goal of making money. In order to achieve this goal, it is important to remove the “bottlenecks” in the system. This also echoes with the concept of “Lean Production” in Toyota, which mentions that by removing waiting time (useless time waste) in the system, economic value can be created.

In plain language, the indicators used to manage the production end of the factory should not only be production efficiency and order fulfillment rate. “Goods need to be sold to count.” If the production end only cares about the business placing an order for “1,000 units, delivered before the end of September,” but does not know the actual sales demand of the business, it may result in excessive inventory or a shortage of goods, which is not conducive to the company’s profitability.

Everywhere there are bottlenecks, order decoupling points.

After taking this class, if you were to ask me what we learned, I think for a long time everyone would have these in their minds: bottlenecks, lean and agile, especially bottlenecks. Walking out of the classroom, you suddenly realize that bottlenecks are very common, you don’t even need to mention the chip bottleneck during the epidemic period, you can see it as soon as you step out of the alley.

But the easiest thing to help understand this topic is probably not this blog post, but the game Overcooked.

One sentence summary of this game: Players must find a way to quickly complete all the steps of cooking and serve meals within the time limit.

To achieve this goal, we will intuitively think:

Let’s chop the tomatoes, onions, and lettuce all at once and put them aside, even if there are no orders yet.
Let’s put the steak on the pan even if no one has ordered it yet.
Because the chicken legs need to be cut and fried, and combined with spaghetti to be served, let’s prepare the fried chicken first.

From our life experience, we have already built the concept of bottlenecks. In order not to let the entire system process get stuck in one step, we know that we need to prepare well before the process that is easy to get stuck, ensuring adequate supply (lots of chopped vegetables) and good quality (not halfway cut vegetables). Reducing the chance of this easy-to-get-stuck point causing a traffic jam can also improve the efficiency of serving meals.

And that very easy-to-get-stuck specific process is the “Order Decoupling Point (ODP) (or Order Decoupling Point)” position, which is an important concept that needs to be discussed when formulating service and supply processes. It is also the point where demand and inventory are decoupled.

The reason it is called the “order decoupling point” is that it deliberately uses this point to separate demand information and create demand buffers. Before and after this point, information does not need to be interconnected. A person in charge of frying chicken does not need to know how many chicken leg spaghetti dishes need to be served in this round. Conversely, the number of spaghetti orders received by the order desk does not and should not affect how many chicken legs need to be fried before combining them with spaghetti.

If there is no decoupling point, the possible situation is that the person cutting vegetables in the back needs to know that five chicken leg spaghetti dishes have been received at the front desk before starting to cut the chicken legs from scratch, and the entire delivery time becomes lengthy. Before orders arrive, the fryer is also left empty, which is a waste.

Bullwhip Effect and Beer Game

Another reason to set a decoupling point is the famous bullwhip effect. Imagine you swing a skipping rope or a battle rope in the gym, the vibration at one end is small, but this amplitude will be amplified at the other end. This effect explains the phenomenon of information distortion that occurs at the end of the supply chain due to opaque information transmission at the front end.

In class, we played the beer game developed by MIT to observe the entire supply chain through the process of supplying beer. The winner of the game is the team with the lowest “supply chain cost” after all rounds.

According to the game’s settings, each team can decide how many stations to pass through from the front end to the back end of the supply chain. The default stations also simulate the operation mode of the real world, including:

• Consumer
• Shop/Merchant
• Retailer/E-commerce
• Distributor
• Brand-Manufacturer

In the game, each team member is responsible for one station, and we can decide whether to remove retailers or distributors and determine the communication delay time between stations, which is at least one round and at most two rounds. If the team decides to have a delay of two rounds, the communication time between each station is two rounds.

That is to say, if consumers and shops place an order, the shop will not see this demand enter the system until two rounds later in the game. Similarly, when the shop places an order (restock) to the retailer, the retailer will also see this order demand after two rounds. In addition, each station can only see the demand of their own downstream customers in the current round and does not know the inventory on hand and the quantity being produced (restocked) by their upstream suppliers, nor the future demand of their downstream customers.

The scoring method of the game is that the cost of holding inventory is $1 per unit, and there is a penalty for stock-out. A penalty of $2 per unit must be paid. The total score of each station will be added up every round. The goal of the game is for the team with the lowest total cost to win after all rounds are completed. In other words, team members need to control their order quantity and inventory without knowing the supply and demand situation before and after the system, and try to ensure that supply and demand are close enough to avoid hoarding too much inventory or causing shortages.

From the game mechanism, the following strategies can be easily deduced:

1. “Perceptually,” the more stations there are in the supply chain, the more communication barriers there are, so the number of stations should be minimized, and shorter communication cycles should be set.

2. Because the penalty for stock-out is heavier and we do not know the upstream inventory status, regardless of which station is responsible, we should stock some goods to avoid stock-out.

Not enough of frying pans!

However, before we started playing the game, after listening to the game mechanism, my classmates who had experience in demand planning and I all took out Excel and began recording the current demand and the difference, calculating the safety stock. We even joked that after a few more rounds, we could calculate a more accurate average inventory level (let’s see what our work has done for us XD).

If you have the chance to play this beer game, I can almost recommend the simplest calculation method is to not worry about the level of Back Orders (accumulated orders with delayed delivery). Instead, focus on recording the demand received each round, subtract the inventory and add the safety stock you want to grab. Then you can figure out how many orders you should place for the next station. Because using accumulated delayed shipping orders to grab safety stock and calculate the current order quantity at each station is the main cause of the bullwhip effect.

Of course, even so, because the end demand is still fluctuating, the demand gap will make people unable to resist adjusting the safety stock level, resulting in an increase in the average inventory level and an increase in inventory costs. To completely eliminate the bullwhip effect is almost an impossible task. This method can only slightly uncouple the entire supply chain system and reduce the chance of information inflation at the back end caused by the demand information received at the front end.

In addition, the beer game and the bullwhip effect also illustrate the problem of information chain being too long. Because the system is interlinked, the factory end of the back end receives information too late and must deal with “demand beyond the usual supply volume.”

Now we can all go back to the game Overcooked! it’s just like having too many raw steaks to fry at the last minute, and there is not enough of frying pans to use!