CASE STUDY CONCEPT: Balancing Responsiveness and Efficiency — The Central Supply Chain Challenge.
Imagine a company called “Cincinnati Seasonings” located in Cincinnati, Ohio USA. The company’s founder learned about food seasonings and spices by working in the family business while growing up. They operate a chain of restaurants in Cincinnati whose specialty is Cincinnati-style chili, the city’s contribution to world cuisine. It uses a certain fine mix of seasonings to give it the flavor it is famous for (Wikipedia article – http://en.wikipedia.org/wiki/Cincinnati_chili).
The company and its founder reflect the heritage and style of this historic river city. Cincinnati Seasonings has done well. And you have been hired to head up the company’s supply chain operations. They have a seasonings factory downtown in an industrial area by the river, and a distribution center at a transportation hub on the outskirts of town. They deliver products to stores in Ohio and surrounding states. The company wants you to improve their existing supply chain, and then expand it to support the company’s growth.
[This is the best case study to start with, do this case first before working with more advanced cases in the online library. For instructors there is a step-by-step study guide that goes with this case (email info@scmglobe.com). The structure and level of detail can be modified to fit anything from a half day exercise, to a full semester. The study guide is illustrated with screenshots and commentary. Instructors, students and professionals interested in this case can request a free evaluation account .]
Cincinnati Seasonings has a relatively simple supply chain composed of one factory, one warehouse distribution center (DC), and three stores. This supply chain enables the company to sell its products in stores around the Midwestern United States. As the case study progresses, you will be challenged to keep expanding the supply chain to serve more stores farther and farther away from the original company factory and DC.
[ We offer a version of this case as a multiplayer game. People playing this game will develop skills that are directly applicable to the real world of supply chain management. See “A Multiplayer Supply Chain Game” for more details.]
In working with this case study you will get experience dealing with the central challenge of supply chain management — always meet customer demand (be responsive), and also keep operating costs and inventory levels as low as possible (be efficient). This calls for you to find the right balance between responsiveness and efficiency in order to keep your supply chain running while also reducing expenses so the business can earn a profit.
You will get an introduction to the five supply chain drivers as shown in the diagram here (see more about these drivers in our blog article Five Supply Chain Drivers). Working with this case you will see how decisions you make about these five drivers affect your overall supply chain performance (its responsiveness and its efficiency). You cannot think only of efficiency, or only of responsiveness. You have to find a good balance between the two. And that balance keeps changing as business situations change.
In working with Cincinnati Seasonings you will become familiar with the basics of setting up a supply chain and managing its daily operations. You will create and modify the facilities, vehicles and routes as needed to respond to different challenges. Then you’ll run simulations that show how well your supply chain works. Based on what the simulations show, keep improving your design to get the best performance you can. In this process, you will gain an appreciation for some of the key issues involved in operating any supply chain.
The Cincinnati Seasonings Supply Chain
Go to the online library of case studies and import a copy of the Cincinnati Seasonings supply chain model into your account. Then open the model in your edit screen (shown below). You see the seasonings factory and the company distribution center, and you also see the routes connecting these facilities and the three stores that sell the company’s product. Zoom in on the map and look at the facilities and routes more closely. Switch from the map view to the satellite view (button in upper left corner of screen) to get an even better picture of what this supply chain looks like and see where individual facilities are located.
(click on screenshot for larger image)
Click on the “Products” tab in the sidebar menu on the right side of the screen. You see a product called “Spicy Cube” in the products menu. Click on this product and a dialog box opens up with information about the product. It is a mix of different seasonings and spices the company makes and has a price of $1,000. It is shipped in a standard container that is one cubic meter in volume and 40 kilograms in weight.
Then click on the “Facilities” tab and click on some of the facilities. A dialog box opens up to display information about those facilities. In this supply chain most of the vehicles are stationed at the distribution center to support a “hub and spoke” distribution model (the DC is the central hub and the delivery routes are the spokes). So click on the Seasonings DC, and then click on the “Vehicles” menu tab to see the vehicles assigned to that facility. As you click on each vehicle, the route traveled by that vehicle is shown on the map. When you select a vehicle, click on the “Routes” menu tab and select a route. This opens a dialog box to show you information about that route.
As you respond to the challenges you encounter in this case you will type in new numbers for some of this information. And you will draw in new delivery routes and locate new facilities to redesign and reconfigure your supply chain. Simulations will show you how well your ideas work and where the problems are.
(click on screenshot for larger image)
Now you know something about how the company’s supply chain is designed, so let’s see how well it works. Click on the “Simulation” button in the upper right corner of the edit screen, and a new browser tab opens to show the simulation screen. Wait for the supply chain to draw on the map, then click the “Play” button to start the simulation. The simulation begins. You see vehicles moving on their routes, and on the right side of the screen you see graphic and numeric displays of data generated by the simulation. Then at the end of day two a problem occurs… Your first challenge has appeared.
[ Save time and avoid confusion by taking 15 – 30 minutes to scan through Getting Started and the Frequently Asked Questions (FAQs) – please do this now if you haven’t done so already. When editing or simulating supply chains in SCM Globe you can always access this Online Guide — just click the blue “Help” button in the upper right corner of any SCM Globe application screen.]
FIRST CHALLENGE: Get the Supply Chain to Run for 30 Days
As the new supply chain manager for Cincinnati Seasonings you have inherited a mess. You need to make improvements to the supply chain to get it to run for 30 days. You are going to encounter a few problems early on that will cause the supply chain to crash. Either you run out of product at one facility, or build up too much product at another facility and run out of storage space to handle it.
To fix these problems you have many options. You can take actions such as: increase storage capacity at facilities; increase or decrease product drop qty on delivery routes; change delivery vehicles; and change delivery routes and schedules. Do whatever you feel you need to do to get the supply chain to run for 30 days. There are many combinations of actions you can take. Some combinations work better than others.
(click on screenshot for larger image)
Keep trying things and running simulations to see what happens. After some experimentation you will find a way to get the supply chain to run for 30 days or longer. If a simulation runs past 30 days, you can click the “Stop” button in the upper right corner of the simulation screen to stop the simulation.
At Cincinnati Seasonings they use a 30-day S&OP cycle (sales and operations planning cycle). That is why you focus on 30 day simulations. Every 30 days the company updates its demand forecasts at the stores and changes its production rates at the factory, and that in turn leads to changes in the vehicles and routes and delivery quantities. So there isn’t much point in running simulations beyond 30 days. Your job is to manage supply chain operations from one 30-day S&OP cycle to the next and meet product demand (be responsive) while also reducing inventory and operating costs (be efficient).
NOTE: Remember to click the “Update” button in the dialog boxes for products, facilities, vehicles and routes after making changes to those entities or changes will not be saved.
SAVE BACKUP COPIES of your supply chain model from time to time as you make changes. There is no “undo”, but if a change doesn’t work out, you can restore from a saved copy. And sometimes supply chain model files (json files) become damaged and no longer work, so you want backup copies of your supply chain to restore from when that happens.
SECOND CHALLENGE: Add more stores and keep the supply chain running for 30 days
As soon as you stabilize the company supply chain and get it to run for 30 days, they want you to add more stores and delivery routes to support expansion of the business. The business needs to open new stores and increase sales in order to cover monthly rent and operating costs and show a profit. (Note: Default values for rent at facilities are set higher than current market rates.)
Click on “Facilities” and then click on the “New” button to create new facilities in cities where Cincinnati Seasonings is opening new stores. Create stores in the following cities using the numbers shown below:
- Chicago Store: daily demand 100; quantity on-hand 300; storage capacity 500
- Columbus Store: daily demand 30; quantity on-hand 60; storage capacity 300
The VP Sales tells you the address for the new Chicago Store is: 1840 N Clybourn Ave, Chicago IL. As shown in the screenshot below, you type that address into the location finder in the upper left corner of the edit screen (1). The map zooms in on the location specified. You pull back a bit to get a sense of the surrounding area and switch to the satellite view by clicking on the Map/Satellite button in upper left corner of the screen (2).
(click on screenshot to see larger image)
In the satellite view you zoom in again to take a closer look at the building where the new store will be located (red circle). You assess the loading facilities at the building and make some decisions about the size of trucks the facility can handle. Then you open the Facilities menu tab and click the “New” button to add this new store (3). And you click on “Product” in the facility dialog box to add products to the store (4).
Regarding the Columbus store, it will be in the northwest side of the Columbus, Ohio metro area near the intersection of the I-270 expressway and Rt 33 (as shown in screenshot below), but no specific address is known yet. So just place the store in that general area. Zoom in on that area of the map and switch to the satellite view. Look for a shopping mall in that area or some other likely spot for the store and place it there. You can always come back later and edit the facility to change its location by dragging and dropping it to a different location if needed.
(click on screenshot to see larger image)
NOTE: In the Edit screen you change location of a facility by selecting the facility in the facilities menu tab; then clicking on the facility; and dragging it to a new location (vehicles and routes related to the facility will also be moved). Click the “Update” button to save this change. If you do not want to save the change, just close the facility dialog box without clicking the Update button. If vehicles and routes are assigned to a facility the facility icon can be overlaid with a vehicle icon making it hard to drag and drop – just zoom in on the facility and the facility icon will emerge (see FAQs, Known Issues & Bugs, Bug 3).
After you create the Chicago and Columbus stores, select the Seasonings DC facility and create Vehicles and Routes to deliver the Spicy Cube to these new stores. Things to think about as you do this are: frequency of deliveries; size of trucks to use; and delivery routes for the trucks.
Unless your instructor tells you otherwise, just accept the default specifications for the trucks you create. The default speed is 90 kilometers per hour (about 55 mph) and the carry volumes and weights vary according to the size of truck (small, medium, or large). You can also try using other vehicles such as trains and airplanes (or even ships on the Ohio River) if you want. Simulations show how well different kinds of vehicles and routes will work.
You can control the frequency of deliveries a vehicle makes by setting the number in the “Delay between departures” field. If you set the number to 24 then the vehicle will depart again 24 hours after it returns from its last delivery run; if you set the number to 8 then the vehicle will depart 8 hours after returning from its last delivery run, etc.
When you create a delivery vehicle, then create one or more delivery routes for it. You can create routes that take a vehicle back and forth between the DC and a particular store where it drops off all the products it carries. Or you can create routes that take a vehicle from the DC to two or more stores where it drops off at each store some portion of the total products it is carrying. When you are finished creating new vehicles and routes, delete any vehicles that do not have routes assigned to them.
HINT: Try whatever vehicle and route combinations look best — then run simulations and see what happens. Experiment with different ideas. There are no right answers, only better answers. And better answers are those that keep the supply chain running for 30 days while also lowering operating costs and inventory levels. Remember that as you make changes and additions to your supply chain model, the Butterfly Effect will cause your simulation results to differ somewhat from others who are working on the same case study.
As the company continues to grow, you can add even more stores after you get Chicago and Columbus up and running. Your instructor may suggest adding new stores in cities such as:
- Kansas City Store: demand 75; on-hand 300; storage 500
- St. Louis Store: demand 50; on-hand 250; storage 400
- Put stores in Buenos Aires, London, Montreal, Paris, or Singapore…
- Create the new stores and define vehicles and delivery routes to keep them supplied with products
THIRD CHALLENGE: Lower Transportation and Operating Costs and Reduce On-hand Inventory… while still keeping the supply chain running for 30 days.
Now that you have created a responsive supply chain to support company growth, you need to improve its efficiency to support company profitability. You need to keep your supply chain running for 30 days while also finding ways to lower transportation costs, facility operating costs, and the amounts of on-hand inventory across the supply chain. This is the central challenge of supply chain management!
You will find you cannot just focus on lowering one cost without considering its impact on other costs. And you will find the overall performance of the supply chain is dependent on an ever shifting mix of interactions between the four supply chain entities (products, facilities, vehicles, and routes). You can learn more about how to analyze simulation data in the online guide section “Analyzing Simulation Data“.
(click on screenshot to see larger image)
GENERATE MONTHLY PROFIT & LOSS REPORTS
The screenshots above show a sample of the data displays you get when you run simulations. Use these onscreen data displays and keep modifying your supply chain model so as to improve overall performance and get your simulation to run for 30 days. Then when you have 30+ days of simulation data you can download your simulation data to a spreadsheet to further analyze the numbers and fine tune your supply chain performance. You will see how supply chain operations impact company profitability.
There is a spreadsheet template you can use to import your simulation data and produce monthly Profit & Loss (P&L) Reports plus key performance indicators (KPIs). This report shows both the financial and operational sides of supply chain management. P&L reports help you analyze your supply chain performance and find areas for improvement that will increase overall supply chain efficiency and profitability. To learn more go to Analyzing Simulation Data and scroll down to “Download Simulation Data to Spreadsheet Reporting Templates“.
A FEW THINGS YOU SHOULD NOT DO: While working with this case there are a few things you should not do because they either don’t make business sense, or they don’t make logistics sense (see further explanation of these points in an email a logistics professor sent to his students — Case Study Caveats and Taboos):
- Don’t reduce product demand or prices – that makes no business sense (business is about increasing demand and profits).
- Don’t increase or decrease initial on-hand inventory amounts at the start of a case study – that makes no logistics sense (inventory doesn’t simply appear or disappear).
- Don’t change default values for daily rent and operating costs at facilities, or default values for vehicle operating costs. Unless your instructor says otherwise, you can assume they are out of your control in this case study.
- Default rent costs at facilities in this case are higher than current market rates. If your instructor does allow you to change rent costs, use a commercial real-estate website such as CityFeet (www.cityfeet.com) to research rental rates in different cities and enter those rates in place of the default rates.
Other than these few things, you can do anything else to address challenges and solve problems that arise. This case study is not a multiple choice test; there is no single right answer — only better answers. And better answers are those that keep the supply chain running for 30 days at lower operating costs and lower inventory levels — responsive and efficient.
[ THERE IS A CASE STUDY SIMILAR TO CINCINNATI SEASONINGS SET IN INDIA: Hyderabadi Biryani – Paramount Restaurant ]
YOU MAY FIND SOLUTIONS NOBODY ELSE HAS THOUGHT OF: Simulations show where your ideas can lead. The world is yours… See where you can go!
Apply supply chain concepts and best practices from your readings and lectures to solve the problems you encounter in this case study. The problem-solving skills you develop here are directly applicable to the real world. Techniques that work well in these simulations will also work well to improve actual supply chain operations. This is a powerful way to build your understanding and skills in supply chain management (see our blog article Four Reasons to Use Simulations in Supply Chain Learning).
It can feel a bit awkward at first as you start working with the simulations. But after a little practice it will start to click, and you will get the hang of it (…might even be fun 🙂 ). You’ll start to see the patterns and move to the rhythms of supply chain management. Here’s how one professor describes it, “What You Learn from Case Studies and Simulations“.
[ Instructors interested in this case can request a free evaluation account and a copy of the study guide.]
You will acquire an intuitive or “street-smart” sense (a mental model) for how supply chains operate. And you will develop analytical skills for exploring different ideas to improve supply chain performance. In discussing simulation results with your instructor and classmates, you’ll find yourself using supply chain terminology and concepts you learned in readings and lectures to describe the problems you encounter and the actions you take to fix them. You will start talking and thinking like a real supply chain professional.
[ We offer a version of this case as a multiplayer game. People playing this game will develop skills that are directly applicable to the real world of supply chain management. See “A Multiplayer Supply Chain Game” for more details.]
REMEMBER — There is spreadsheet template you can download and import your simulation data to produce monthly Profit & Loss Reports plus key performance indicators (KPIs) that measure your supply chain performance (go to Analyzing Simulation Data and scroll down to “Download Simulation Data to Spreadsheet Reporting Templates“).
SHARE YOUR SUPPLY CHAIN MODEL — See “Download and Share Supply Chain Models” to download a copy of your supply chain (json file) to your PC and send it to other SCM Globe users
TIP: After you finish Cincinnati Seasonings and start working with more advanced case studies, or start modeling real supply chains, read “Tips for Building Supply Chain Models” to learn more advanced modeling and simulation techniques.
Register on SCM Globe to gain access to this and all other case studies. Click the blue “Register” button on the Log In page (app.scmglobe.com) and buy a subscription (if you haven’t already) using a credit card or PayPal account. Then go to the SCM Globe library and click the “Import” button next to this case study. Scan the “Getting Started” section (if you haven’t already), and you are ready to go.