Mozzini: the "gearbox game"

Dynamics within a supply chain

Prepared by Gianluca Spina and Stefano Ronchi

School of Management – Politecnico di Milano

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 Mozzini: the "gearbox game"
Dynamics within a supply chain

One rainy day Michele Mozzini, CEO of a corporate company operating in the
automotive industry (Mozzini S.p.A.), turned his head taking a glance outside the window
of his office and looked dejected at the heaps of containers containing raw cast and burred
components all over the front yard and the car parking of his company. The warehouse
was not large enough to stock all the production coming out the foundry plant and the
burrers any more. To make things worse, Michele, turning his head back on his desk,
gazed an increasing stack of customers' complaints caused by delays in Mozzini's
deliveries.

The company within the automotive supply chain

Mozzini is an Italian small-medium group based near Bergamo with a turnover of €150
mln and its biggest business is based on gearboxes. Mechanical components are produced
in three different foundry companies belonging to the family group. The group is both a
first tier supplier for main European car manufacturers (e.g. Fiat, Audi, Mercedes, Volvo)
and a second tier supplier selling components to system integrators (e.g. SMI, TRW) who,
on their turn, supply integrated assembled systems to car manufacturers. In the
automotive industry, each potential supplier participate in a bidding process in order to
obtain an exclusive contract with the system integrator or the car manufacturer to supply
that particular component for that particular car model all over its life cycle. However,
each supplier is potentially substitutable with other ones that supply similar components
for other car models. This particular procurement policy is called "parallel sourcing".
Mozzini has always based its success on the quality of its products and its competence on
die-casting technologies. Its competitive strategy focuses on complex-design and high
margin components; for this reason, in order to obtain such kind of contracts, the process
of new moulds development and new components prototyping is crucial.

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Mozzini Group founds its roots in its biggest foundry company (Mozzini) where
aluminum alloys are die-cast into raw cast components. The supply chain from this stage
to the final customer is rather complex. In some cases, die-cast components were sent to
external burrers before supplying system integrators or car manufacturers, which then
completed the process through fine metalworking operations and further assembly with
other components. In other cases, Mozzini sent burred components to external
metalworkers in order to obtain the finished products to be directly sent to system
integrators or car manufacturers for the assembly line.
The heart of mechanical components is of course the raw material: the aluminum alloys.
Aluminum alloys inventory management has always been a sort of parallel business for
Mozzini and his President Adriano Mozzini, Michele's father. Adriano speculates on
aluminum inventory and he has a good competence in buying and selling such alloys
depending on the price cycles on the market. For this reason, aluminum stock
management policies are more based on financial issues rather than on real requirements
of the foundry process. However, the President is able enough to manage appropriately
inventory levels in order to satisfy all the foundry needs, and the plant has never run out
of aluminum stock.

Pressures in the supply chain: demand volatility, customers' expectations, and

service level

In the recent past big customers started establishing high quality standards for all
purchased components, this trend made very critical and thus expensive the quality
control at external burrers and metalworkers sites. In addition, in those years customers
demand volatility, and thus the work load both in the foundry, in the burrers, and in the
metalworkers plants, started to be out of control and not predictable any more, while in
the past it was quite easy formulating accurate forecasts also in the long term. Due to such
demand volatility, delivery performances started decreasing dramatically, despite the
increased inventory levels. Such problems were also emphasized by the poor coordination
and communication among the foundry, the burrers and the metalworkers. Both quality
problems and delivery performances were strongly dependent on the metalworkers - the
last stage of the supply chain in contact with the customers -.

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In order to respond to such trends, Adriano and Michele decided to acquire Noro, one of
the largest and most reliable metalworkers in the area. Shifting all the metalwork
operations to Noro and directly controlling its activities, Mozzini would have been able
to increase quality levels and to improve delivery performances.
After initial difficulties in integrating Mozzini's and Noro's processes and people, the
situation improved and in few years the Group reached excellent performances and
acquired new big contracts.
However, recently big customers started to be even more and more demanding in terms
of delivery performances. The orders are placed day by day, and it is impossible any
formulation of accurate forecasts, neither for the following week. Moreover, some large
customers started pushing Mozzini in applying VMI (Vendor Managed Inventory)
policies at their own sites. This choice would have made even more complex Mozzini's
activities.

Problems in supply chain management

A number of problems arose inside and outside Mozzini.

Fabrizio Bonaiuti, Director of the Mozzini plant, must cope with high production volumes
and high variations in the production plans due to final demand volatility. He sustains that
he cannot follow the demand because of his production process. The blast furnaces are
working 24 hours a day, as usual, but the big problem is in the die-casting technology.
Every component has its own mould to be raw cast by the presses. In order to change the
mould, and thus setting up one press from the production of one component to the
production of another one, it is necessary the presence of five or six mechanics for 15
hours on average. For this reason, lot sizes must be large enough to absorb high set-up
costs and cannot follow demand variability.
Maurilio Bafferi, Director of Noro, sustains that his machining lines are flexible enough
to follow the demand pattern, but his big problem is related to component availability
both from Mozzini and from the external burrers. When he needs burred components to
be metalworked for the final customer, these are often missing in the warehouse and he
cannot satisfy customers' needs.
One of the external burrers, Sacco, sustains that it cannot continue in managing urgent
orders day by day. The production planning process is no longer effective because it has

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not any visibility on customers' demand and on Mozzini and Noro production processes.
It receives orders sometime via fax and sometime via e-mail, but there is not any standard
procedure or tool used to plan production schedules. This way of working has also
decreased quality levels, and lots of materials need to be reworked.
All these problems are making crazy the Logistics Director of Mozzini, Luca Tunisi, who
is the interface among the foundry, the burrers, the metalworker, and keeps the contacts
with the customers in order to schedule their shipments. Such shipments are often
exceptional freights arranged day by day to complete missing orders caused by such a
fragmented production process. Of course, this causes high additional costs. Finally,
Tunisi is approximately aware of inventory levels in the Mozzini warehouse, but he has
not idea of inventory levels at burrers and at Noro's sites.

The results of the whole situation is in front of Michele's eyes, right outside his window:
heaps of raw cast components coming out from the Mozzini foundry, heaps of burred
components coming from the external burrers, and a stack of customers' complaints on
his desk.

The simulation game

The situation described in the previous paragraphs highlights typical problems

encountered in managing a supply chain and it could be exemplified through the "gearbox
game". This business game is inspired to the famous beer game, which has been created
at the Massachusetts Institute of Technology and is frequently used in many business
schools. It is a role business game that stimulates the understanding and discussion about
dynamics within a simplified supply chain; in particular, it highlights information and
physical flows. It might be adopted also to analyze the effects of different production
planning methods.
The gearbox game was played among main figures involved in Mozzini's production
process - Mozzini's plant Director, Noro's Director, Logistics, Sales and Production
managers - to analyze and discuss main issues in complex supply chains management.

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The simulated simplified supply chain deals with one single products (steering gearbox).
The manufacturing processes is performed on different plants, and include different actors
(table 1 and figure 1).

MOZZINI: SACCO: NORO: SMI:

the Foundry the Burrer the Metalworker the Customer

Orders aluminum Orders raw-cast Orders burred Orders finished

blocks from gearboxes from gearboxes from gearboxes from
suppliers the foundry the burrer the metalworker

Manages Manages raw-cast Manages burred Manages finished

aluminum blocks gearboxes gearboxes gearboxes
inventory inventory inventory inventory

Produces and
Produces and Produces and Produces and
sends the final
sends raw-cast sends burred sends finished
steering gear
gearboxes to the gearboxes to the gearboxes to the
system to the final
burrer metalworker customer
user

Table 1. Actors and roles within the chain.

Figure 1. Actors and flows within the chain.

Mozzini is the foundry upstream the whole chain; it manages its own inventory of
aluminum blocks and casts them into raw-cast gearboxes following the burrer's demand.
Sacco is the burrer; it manages its own raw-cast gearboxes inventory and burrs them into
burred gearboxes following the metalworker's demand. Noro is the metalworker; it
manages its own burred gearboxes inventory and works them into finished gearboxes
following the two customers' demand. SMI is a big European system integrator and

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represents the customer; it manages its own inventory of finished gearboxes and
assembles them into the final system following the final user demand (i.e. Renault).
Depending on the different aspects to be discussed and analyzed, production planning
policies, demand information, and the initial status of the pipeline (e.g. initial inventory)
will be communicated at the beginning of the game. In any case, in order to make the
simulation simpler, order and production lead times are always the same. The order lead
time is 1 day for every actor (from the moment in which the customer sends the order to
the moment in which the supplier receives it); the production and transportation lead time
is 2 days for every actor (from the moment in which the supplier starts the production to
the moment in which the customer receives the batch) and it does not depend on the
dimension of the batch. The only exception is made for Mozzini (the foundry): as
aluminum inventory management policies are not completely dependent on the real final
demand, but are more related to aluminum quotation on the market, the foundry has
always enough raw materials to satisfy the demand. For this reason, any order placed by
the foundry is delivered the day after (from the moment in which it establishes the needs
to the moment in which that needs are satisfied through the delivery of the batch in the
warehouse). However, if needed, also all these lead times might be modified at the
beginning of the game.
The objective of each player is twofold:
1) to minimize its own inventory level, thus reducing inventory carrying costs.
2) To minimize its backlog to its customer, thus increasing the service level.
Carrying and opportunity costs for each unit at stock for each day is €5. Backlog costs for
each unit not delivered to the customer for each day is €10.

Each player will play one of the four positions within the supply chain. As illustrated in
figure 2, orders and materials flows and lead times will be simulated through squares
placed between players (one blue for the orders, and two yellows for the materials).

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 Figure 2. Orders and production & delivery lead times.

Team X

Day Y

1 1 1

1 1

[FOUNDRY] [BURRER] [METALWORKER] [CUSTOMER]

1 2 1 2 1 2

Figure 3. Orders and production & delivery lead times for the whole supply chain.

Figure 3 shows the whole supply chain as it appears in the online game interface.
Simulation data are recorder in the record sheet shown in Figure 4.
Total Cost:

Initial Total Received Total Final

Day Demand Production Order Backlog
inventory Demand materials availability inventory
3
2
1
Figure 4. The record sheet

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Simulation will last for a number of days, in each day players will have to perform the
following activities and to fill in the record sheet for each managed product (see the
enclosed attachment).

1. Order reception. The day begins with the order reception: each player reads the order
coming from the blue square of the downstream player in the chain (its direct
customer). The final customer receives the orders directly from the game coordinator.
The order amount is then registered in the record sheet in the column "Demand".

2. Materials reception. Each player receives materials sent by its direct supplier,
upstream in the chain, by reading the upstream yellow square representing the second
day of production & delivery lead time. The system then registers the shipment
amount into the column "Received Materials". Such amount is then added to the
"Initial Inventory" in order to fill in the "Total Availability". At the end of this step,
the system shifts the yellow card placed in the first upstream square representing the
production & delivery lead time to the second square (thus simulating the second day
of the lead time).

3. Production. At this point, each player must produce in order to satisfy its own
customer's demand; unsatisfied quantities are postponed to the following day
(backlog). For this reason, the total amount to satisfy is equal to:

Total demand = order received + previous day backlog (if any)

If all the demand is satisfied then the backlog becomes 0. Each player cannot produce
more materials than the overall demand to be satisfied.
The only production constraint, under the hypotheses of dedicated plants and infinite
production capacity, is due to the availability of materials in the incoming warehouse,
therefore the production quantity is:

production = Min (demand to be satisfied; total availability)

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 The production quantity is reported in the column "Produced materials" and in the
first downstream yellow square representing the first day of production & delivery
lead time.

4. Calculation of final inventory and backlog. The columns "Final Inventory" and
"Backlog" of the simulated day are now filled in. The final inventory is written also
in the column "Initial Inventory" of the following day in the following row of the
record sheet. The two figures are calculated as follows:

final inventory = total availability – produced materials

backlog = previous day backlog + order received – produced materials

These figures cannot be negative. Moreover, if plants are dedicated and the player
tries to satisfy the demand with its total availability, it is impossible for these two
figures to be both bigger than 0 at the same time.

5. Order placement. Finally, each player must decide the quantity to order from the actor
upstream in the chain, its direct supplier, thus filling in the box "Placed order", in the
upstream blue square representing the order lead time.

At the end of the day, the simulation continues in the following day, starting again from
point 1.

During the simulation, the system calculates the total inventory and backlog by adding
the figures in the two columns ("Final inventory" and "Backlog") for both the two
products.
The total inventory is then multiplied by €5 and the total backlog by €10. The sum of this
two values is shown in the top cell ("Total cost"). Finally, the overall chain performance
could be evaluated by adding the total costs sustained by each of the five positions.
Game mode
The game is played in 2 different modes:

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 • The first round takes place “without information”, since each player knows only
the data relate to his own position, without any information on the inventory and
demand of other players. Communication between players takes place only by
means of orders and products shipped, any other form of communication is strictly
forbidden.
• The second round takes place “with information”, since all players have full
visibility on the entire supply chain, being able to see inventories and of all
positions. It is also possible (and strongly recommended) to communicate with
other players, trying to collaborate for mutual interests.

Game platform

The gearbox game platform can be accessed at the following URL:

http://gearbox.mip.polimi.it:8080/gearboxgame/

Usernames and passwords will be provided by the instructor.

Home page:

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 • Home: this page
• Games: click here to view your games
• Game profile: short description of the game
• Contacts: the MIP team that developed the game platform
• Logout: to exit

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Games Page:

This page shows your games:

To enter the game, click “Play”.
Once the game is finished, you can click on “View” to see the results and the game
statistics.
You can change the team name by clicking on “edit team name”.

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Game interface “Without information”

The player should fill in the red box with the amount he wants to order. Only positive
integer numbers are accepted (zero included). After filling in the value, click “Submit”.
Be careful, orders cannot be changed after this stage.
The clock on the top shows the remaining time. After time has expired, the system
automatically sets the order to zero.
If an order is place before the time expires, the day is over and the system waits for all
the other players to place their orders. When all players have placed their orders, or time
has expired, the new day starts.
Green buttons on the top:
• Export data to Excel (“Export”)
• View game parameters (“View Parameters”)

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Game interface “With Information”

In this mode, you can see all the orders and products in the chain. Besides, by clicking on
the magnifying lens on each position, you can see the related record sheet.

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