Jay Forrester, discoverer of the Bullwhip Effect
Jay Forrester is seen as the inventor of the Bullwhip Effect. Nevertheless, he has never craved any attention for his discovery. It was his seminal work on system dynamics that led to path breaking research work on “Information distortion in Supply Chains”, popularly called as the Bullwhip Effect.
This, in my opinion, makes the Germeshausen Professor Emeritus in Sloan School of Management an unsung hero. This is the story of Jay Forrester.
Early days – the management scientist who grew up in a cattle ranch
Forrester grew up in a cattle ranch in Nebraska. However, it would soon become clear, that he was a very talented young man. Even when he was in high school, he impressed all by constructing a wind driven electricity plant. After finishing his school education, he decided not to work in the family farming business. Instead he chose to start a career in electrical engineering. He joined Massachusetts Institute of Technology (MIT) after his graduation where he landed a $ 100 per month research assistantship. It was at MIT that Forrester started to work with Gordon Brown, who would later become his mentor, to develop technology for radar antennas. Together they developed the SAGE air defense system.
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Engineering to Management
By 1956, Forrester felt that the days in digital computers were over. He had already gained experience in management by managing his projects and decided to engage fully in the field of management. What also worked in his favour at the time was that Alfred Sloan, the former president of the General Motors Corporation, had given a grant of 10 million dollars to MIT. The funding was used to start a management school in a technical environment. This was different from Harvard or Columbia as these management schools were based in a liberal arts environment.
The birth of system dynamics
During conversations with people from General Electric, Forrester realised that the GE team was trying to work out what went wrong in their household appliance plants in Kentucky. These plants were working for three or four shifts a day but then a few years later half of the staff were made redundant. It was not the reversal of fortunes in the business cycle that was solely responsible for this turn of events. Forrester was sure that it was something more than that.
Forrester began to study the hiring and inventory decisions at GE and started a simulation using a pencil and paper. He drew three columns – inventories, employees and orders. Even when there was a steady stream of incoming orders, there was uncertainty about the employment because of decision making policies of the firm. His findings would mark the beginning of system dynamics.
Some time after that, Forrester developed a simulation model using the talent and competence of a brilliant programmer called Richard Bennett.
When Forrester started modeling high technology growth companies, he got a few insights about why such companies have a fast pace of growth in the first few years and why they start stagnating later on.
Low cost housing – bohemian views
Forrester might have been praised for his models of high growth technology companies, but he received a lot of criticism for his bohemian views on low cost housing. He believed that low cost housing was a double edged sword and led to the worsening of urban conditions. His opinion was that housing used up space where jobs could have been created. He felt that low cost housing created poverty instead of alleviating it. Despite initial opposition to the idea, he was successful in spreading his message. Even people who opposed his findings realised the gravity of what he had discovered.
The rise of System dynamics
Housing was not the only topic, Forrester had strong views on. He strongly believed that computer modeling should be taught to students as young as ten. As a result, system dynamics later found its way into high schools.
Earlier scholars used the system dynamics model to make recommendations about an organisation but seldom were these recommendations viewed seriously. As expected, the traditional ways of working continued as they were justified under the garb of “operational efficiency” and “we-have-been-there-done-that” syndrome. However, Forrester feels that a mindset change is possible where contrarian thinking gets easily accepted and digested.
What does Forrester say about management education?
According to Forrester, if system dynamics was fully adopted, it could lead to a major breakthrough in scope and effectiveness. He compares system dynamics to case study method of analysis. Both methods gather information and organise it. However, in the case study method, the information is in a descriptive format that makes it more complex.
So, what can system dynamics do?
• Organise the descriptive information
• Retain the richness of the real processes
• Build on the experiential knowledge of managers
• Reveal the dynamic behaviors that follow from different choices of policies
• Lead to greater interdisciplinary sharing of information
After a period of hibernation, work on system dynamics was researched further and by the early nineties, Hau Lee had published the seminal paper on bullwhip effect in supply chains. Sterman popularised it with the Beer game in the nineties. Academic research on bullwhip effect has been abundant since the 90’s despite the fact that there are still gaps in the research that can fuel future academic research.
The article is based on excerpts from the banquet talk given by Jay Forrester at the international meeting of system dynamics society at Stuttgart, Germany on 13th July 1989.