STOCKLOGS: A CLASSROOM EXERCISE FOR TEACHING THE LOGISTICAL RELATIONSHIP OF LOCATION AND INVENTORY Development In Business Simulation & Experiential Exercises, Volume 18, 1991 138 STOCKLOGS: A CLASSROOM EXERCISE FOR TEACHING THE LOGISTICAL RELATIONSHIP OF LOCATION AND INVENTORY George C. Jackson, Wayne State University Harish Verma, Wayne State University ABSTRACT An important decision for logistics managers is to determine the number of locations at which to stock goods for subsequent sale and movement to consuming points. This decision requires an understanding of the relationships within the logistics system. To help students develop an appreciation for this decision and its underlying complexities an interactive simulation has been developed. The following paper describes the basic problem encountered by logistics managers, the simulation and how it is used in the classroom. INTRODUCTION For many organizations a major logistical decision is determining how many locations at which to stock inventory. This is not an easy decision because the relevant costs are in conflict and therefore must be traded off with one another. The decision to have fewer stocking locations will result in lower inventory costs but higher transportation costs. In addition, customer service levels will decline because product is not as close to customers. On the other hand, the decision to have mare-stocking locations will reduce transportation costs and raise customer service levels but increase inventory costs. The effect on transportation costs of increasing the number of stocking locations is clear and well understood and is based on transportation economics (Ballou, 1985). More stocking locations mean that product can be moved in large volumes closer to the demand point thus reducing the expensive, small volume distance from the stocking point to the demand point. The effect on inventory levels is more complicated and harder to understand (Bowersox, et al., 1985). It is important not only that students know that inventory levels will increase as the number of stocking locations increases but it is even more important that they understand why this occurs. This paper describes an exercise, which has been developed to give students an understanding of this basic logistics principle. DESCRIPTION OF STOCKLOCS The task facing the teacher of logistics is to develop in the student a full understanding of these relationships and their cumulative effects. In addition to presenting to the student a discussion similar to that contained in the previous section of this paper it was felt that placing the student in the role of a decision-maker would be an effective way to develop the desired understanding of these concepts. To this end a small, interactive program was written in BASIC and named STOCKLOCS. STOCKLOGS simulates the inventory levels in a physical distribution system and allows the user to experiment with the number of stocking locations, the annual demand in the system, the cost to carry inventory, the uncertainty of demand, the value of the product and set-up or ordering costs. The user can manipulate any one or several of these variables. STOCKLOCS quickly calculates the base stock, safety stock and average inventory in the system and the annual cost to carry that inventory. STOCKLOCS assumes that the market area is constant and that changes in the number of locations simply divides up the market demand equally. For example, if demand is 100.000 units for the entire system and there is one warehouse, 100,000 units will be assigned to move through that warehouse. If the number of warehouses is increased to two, 50,000 units will be assigned to move through each warehouse. Notice that transportation costs are not included in STOCKLOCS. Students must be cautioned that a final decision on the number of stocking locations must consider transportation costs. USING STOCKLOCS IN THE CLASSROOM STOCKLOCS is used in the classroom as a one-time assignment at the end of the inventory or warehousing sections of a logistics course. Preferably, the student is familiar with stocking strategies and is comfortable with the concepts of safety and base stock. STOCKLOCS is a very effective way to cap off the inventory section of a logistics course because it integrates the concepts of base stock, safety stock and stocking strategy. Students are provided with a diskette containing STOCKLOCS and a short assignment sheet/manual. The assignment consists of leading the student through a series of experiments so that she or he learns the relationships of the variables in STOCKLOCS. Students must also explain why the inventory levels are changing. For example, students are asked to increase the number of stocking locations from one to ten, to report the results and to explain the results. The last question on the assignment sheet is a very important one, which asks if there are other factors, which should be considered. The student should be aware that transportation costs should be decreasing as the number of stocking locations is increasing and that a decision about stocking locating is not complete without an analysis of transportation costs. They should also be aware of the factors that can affect base stocks. For instance, the firm may be using a variable quantity/fixed interval inventory system rather than calculating an EOQ. There are also factors, which can modify the EOQ such as volume freight rates, the use of a just-in-time system or a minimum stock policy. Table of Contents Volume 18, 1991 Personality Types and Total Enterprise Simulation Performance Using DIS 'n DAT as a Decision Support System for a Marketing Simulation Game Theoretical Derivation of a Market Demand Function for Business Simulators The Ethnographic Case Study: An Experiential Approach to Teaching Retail Management Electronic Bulletin Board Systems (BBS): Support Software for Computer Simulations The New Budget Game Negame: A Cross-Cultural Role-Play to Introduce Students to the Familiarization Stage of Negotiations Modeling Short-Run Cost and Production Functions Using Sheppard's Lemma in Computerized Business Simulations Increasing Simulation Realism through the Modeling of Step Costs Predicting Simulation Performance: Differences Between Groups and Individuals A Facility Location Case to Stimulate Classroom Interaction Educational Effectiveness of Business Simulation Gaming: A Comparative Study of Students and Practitioner Perspective Ethical Dilemmas in Experiential Learning: Issues and Strategies A Critical Review and Assessment of ABSEL's Award-Winning Procedures and Protocols Political Risk: A Simulation for Business Practitioners Upside Down: A Cross-Cultural Game in Experiential Learning Gorby's Dilemma: From Communism to Free Enterprise in Two Hours Strategic Market: Planning with the COMPLETE Product Portfolio Analysis Package: A Marketing Decision Support System Career Concepts and Total Enterprise Simulation Performance Experiential Learning in Human Resources: A Performance Appraisal Application Managerial Motivation and Realism Among MBA Student as Viewed through The Looking Glass, Inc. Simulation An Experiential Approach to Teaching Data Analysis Using MYSTAT: Rationale, Procedures and Results Practicing What Was Preached: A Sequential Learning Model put to the Test Student Attitudes about Policy Course Simulations An Investigation of the Relationship Between Simulation Play, Performance Level and Recency of Play on Exam Scores The Effect of Leadership and Cognitive Processing Styles upon Peer Performance Evaluation: Implication for the Utilization of Simulations in Business Pedagogy On the Transfer of Market Oriented Business Games to Socialist Cultures An Application of Financial Analysis of the Business Firm in a Simulated Competitive Environment Collective Bargaining Simulation: An Exercise based on a Familiar Theme Making Business Policy a Strategic Management Experience A Student Exercise for Intergrating the Concepts of Power and Motivation The Boundaries Extended: An Experiment Comparing Dialectical Inquiry, Devil's Advocacy and Consensus Using the Executive Game Using a Simulation Package to Develop a Simulation Exercise in Cost Accounting Success Factors in Experiential Training for Creative Problem-Solving Teams An Experiential Approach for teaching Quality management Critical Success Ratios: A Comparison of Two Business Simulations in a Multi-Year Environment Stocklogs: A Classroom Exercise for Teaching the Logistical Relationship of Location and Inventory The Organizational Leadership Program Simulating Business Decision-Making: Using Statistical Cases for Classroom Exercises Scripting for the Classroom Upgrading the Business Strategy and Policy Game Developing Student Team-Building and Leadership Skills Using Computer-Aided Experiential learning Strategies Organizing and Outward Bound Field Trip An Architecture for Extensible Simulation Games Performance in the Capstone Business Course: What is the effect of Pedagogy, Learning Styles, and Student Motivation? Operational Strategy with Participant-Modifiable Parameters An Example of a Personal Selling Case Transformed into a Role Play Scenario Instructional Software: It's Evolution and Current State of the Art in the Business Curriculum Ascertaining Performance Variables for use in Determining Student's Grades in Courses Employing a Business Simulation Designing Management Seminars Using Business Simulations The Accounting Information Systems Course: Bridging the Gap between the Classroom and the Real World The Good Cooks Guide to Training Excellence: Working with Passion A Demonstration on Multiple Data Collection Methods: Seeing Strategic Issues Through the Looking Glass Simulation Systems Analysis and Design: Why Undergraduate Education gets a Failing Grade Accommodating Organizational Culture: An Evaluation of Management Development Delivery Modes in Varying Organizational Cultures Modeling Total Quality into Business Simulations The Political Futures Game Meeting Meeting Objectives