In competitive environments, operational innovation could well be the answer to inventory risk
According to standard economic theory, an increase in the number of competitors decreases prices and profits. Typically, increased competition puts rival firms on the edge, doing what they can to win over customers – including reducing price. But a curious phenomenon emerged in a class exercise, challenging this general wisdom and suggesting that there is more than meets the eye.
In a series of class exercises, business students and executives played an extended version of a supply chain simulation game known as the beer game, developed by one of the co-authors. The setting was a serial supply chain where players assumed the roles of a retailer, a wholesaler, a distributor and a manufacturer. Players had to overcome the challenges of managing inventory, logistics and communication among independent decision makers, and could adjust prices according to their strategy.
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