Supply chains: how online game principles can give dramatically improved efficiency

In recent years he has applied the principles of Massively Multiplayer Online Games (think World of Warcraft) to supply chains with interesting success. Based in Chicago, USA, Perini Journal recently spoke to him to learn more about his work to gain better efficiencies in supply chains.

Hugh O’Brian 

At first, it seems to be quite a strange idea that supply chain management for any business or industry can be very similar to a massively multiplayer online game (MMOG) like World of Warcraft. However, when discussing this analogy with Mike Hugos, the similarities become rather clear.


GOALS, RULES, FEEDBACK, AND ENTHUSIASM. “Online games are made up of four things: 1. Goals, 2. Rules, 3. a Feedback System, and 4. Enthusiastic Participation. If you apply those same four elements of a game, which I call game mechanics, to supply chains, the efficiency can increase dramatically. Specific focus must be put on feedback, as it gives real-time visibility, and lets every ‘player’ in the supply chain know the score. If you think about any sports game or online game, there are none where the players don’t know the score, but in many supply chains this real-time visibility or score, is not available to all.”


VISIBILITY AND THE BIG PICTURE. Visibility is clearly an important theme for Hugos. “In many supply chains,” he says, “individuals want to do a good job and are trying to optimize things like inventories or transportation routes. But they don’t see the big picture because they aren’t given the needed insight. So their attempts to optimize things in the small picture will inevitably lead to inventory buildup somewhere, or lots of little trucks running around which is very inefficient or some other non-optimal solution. Today, with costs swinging wildly, a centrally-steered supply chain needs to be reconfigured every 30 days. This simply doesn’t make sense.”
Therefore Hugos has seen the benefits of applying game mechanics to SCM, with special focus on more people being involved for real-time feedback and visibility.
This means that:
• everyone can see what’s going on as it happens, they know the score;
• everyone has authority to act, within the rules, to achieve common goals;
• and everyone has a stake in the outcome, so they care about optimizing.
As represented in Figure 3, Hugos considers supply chains in any sector to be made up of four critical entities: Products, Facilities, Vehicles and Routes. Evolving combinations of these four entities can model any supply chain. Large swings in current energy prices, however, mean that costs all through any supply chain are changing all the time these days. Supply chains are dynamic systems, making it very difficult to get long-term pricing or accurate forecasts on hardly anything. That is why it is so important for everyone in a supply chain to see what is happening as it happens. This makes for a much more responsive supply chain.
Hugos explains: “Instead of a small group of central planners trying to respond to constantly changing conditions, it works better when everyone can see the score and they can act on their own without waiting for orders. Imagine the difference between a sports team where the players have to get permission from their coach before they can act, and a team where players have authority to act on their own. Which team will win more games?”


OPTIMIZED CUP DELIVERY AT A GIANT COFFEE CHAIN. “I have worked extensively with one of the world’s leading coffee house chains which had consistent problems delivering the right cups in the right format and color to the right place from numerous distribution centers. By applying the SCM Globe model with game mechanics we were able to give real time visibility to let everyone see what’s going on, not just the managers, but also drivers and warehouse personnel, etc.”
“This was a very complex supply chain with numerous players, and it worked like a charm. All of a sudden instead of a group of 5-6 experts at the company headquarters trying to figure out what was happening and what to do, we could all see what was happening and all participate to improve things. We created a single database from simple daily information sent by all the players in the supply chain. It provided an end-to-end view of the entire supply chain from the manufacturers through to the end-use customers, and all the steps in-between.”


SPREADSHEETS CAN BE VERY POWERFUL. Applying these principles in any supply chain does not need to be complicated, continues Hugos. It can be as simple as some programs to load daily supply chain data into an online spreadsheet. There are different tabs for the different regions and suppliers, and macros in the spreadsheet generate moving average trendlines. People go to a website, type in a password, and they can see current information showing what is happening from one end of the supply chain to the other.
Then, if all the people involved get together on short daily conference calls, and all are looking at the same data, it turns out these groups of people can make better decisions, and make them faster than isolated experts at headquarters with all kinds of fancy technology. Hugos reported that this simple system enabled everyone to act quickly as all had a stake in the outcome, and they did not have to wait for orders from above. Unfortunately most supply chains in the world continue to be run by small groups of experts, who really have an impossible job of centralized command-and-control in today’s volatile and unpredictable markets.


APPLIED ON MICROSOFT XBOX PROBLEM. Similar success was seen with the SCM Globe methods at Microsoft in 2007. They were having a problem called “the three red lights”, where Xboxes were overheating and malfunctioning, but the source of the error was extremely hard to track in the complex Xbox supply chain. Microsoft engineers wanted to fix it and re-design the Xbox, but they had no idea which components were failing.
“I was asked to come out to Seattle,” says Hugos, “and talk with the group that designs and assembles the Xbox. I started with a day and a half workshop where they all described what they knew about the problem, and I helped them put together possible answers. Then I challenged them. I said, “Of those possible answers, what can we do in 30 days that would make a significant improvement and provide a stable foundation and value in its own right that we could build upon in the next 30 days?’ A small team from my firm worked with a small Microsoft team of engineers and software developers. And in 30 days we delivered the first big improvements.” Basically, that first big improvement provided real time visibility into the Xbox supply chain and Xbox customer service calls. It once again came down to applying game mechanics starting with real time visibility and transparency. That worked out so well that they wanted Hugos to apply this approach on other assignments with Microsoft.


FINDING AND DOING SIMPLE THINGS WELL. “All of this comes down to IT and business agility. That means using deliberately limited time and resources to achieve the single most important thing that will have the biggest impact in 30 days,” concludes Hugos. “Agility to me is not about doing complex things fast; it’s about doing simple things well. And finding the right simple thing is hard, but it becomes easier with practice.” *To contact Michael Hugos: mhugos@scmglobe.com



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