CASE STUDY CONCEPT: Balancing Responsiveness and Efficiency — The central challenge of almost any supply chain is to meet product demand (be responsive) while also reducing inventory and operating costs (be efficient).
A company called “Cincinnati Seasonings” is 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 “Cincinnati Chili” – 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, demand for their food seasonings is growing steadily and you have been hired to head up the company’s supply chain operations. There is 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. Work individually at first. Go through the 6 steps to get started, and then do the three challenges in this case as shown below. By working individually you learn to use the simulation software, and how to think about and design supply chains. Learn this before working in groups or working on more advanced cases. For instructors there is a step-by-step study guide that goes with this case (email firstname.lastname@example.org). Challenges and level of difficulty in this case can be adjusted to fit anything from a half day exercise, to a full semester course.]
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 an advanced version of this case as a multiplayer game. See “A Multiplayer Supply Chain Game – Overview” 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) while also keeping operating costs and inventory levels as low as possible (be efficient). This calls for finding the best balance between responsiveness and efficiency so as to keep your supply chain running, and reduce expenses as much as possible so the business can earn a profit.
You will get an introduction to the five supply chain drivers as shown in this diagram (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 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. (click on screenshot for larger image)
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. See where individual facilities are located.
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. It is shipped in a standard pallet-size container that is one cubic meter in volume and 40 kilograms in weight. It has a price of $1,000
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 DC 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.
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 at the Ft Wayne store… Your first challenge has just appeared.
FIRST CHALLENGE: Get the Supply Chain to Run for 30 Days (one month)
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 too much product builds up at one facility and you run out of storage space, or you run out of product at another facility and can’t meet customer demand.
To fix these problems you have many options. You can take actions such as: increase storage capacity at facilities; increase or decrease product delivery amounts (drop qty) on delivery routes; change delivery vehicle types; change delivery routes; and change delivery frequencies (delay between departures). Type in new numbers for these attributes as you try out different ideas to solve the problems that the simulations uncover.
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. Remember to click the “Update” button in the dialog boxes for products, facilities, vehicles and routes when you make changes, or the changes will not be saved.
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, or one month simulations. Every month, the company updates its product demand forecasts at the stores and that leads to changes in its production schedule at the factory. Which in turn leads to changes in vehicles and delivery routes. So there isn’t much point in running simulations beyond 30 days. Your job is to plan and manage supply chain operations from one monthly S&OP cycle to the next. Your goal is to meet product demand each month at all the stores (be responsive) while also reducing inventory and operating costs as much as possible (be efficient).
The supply chain model you create and get to run for 30 days is the monthly operating plan for your supply chain. It shows how much product will be made at the factory, and how much product will be delivered to each facility. And it shows the vehicles and routes used to make those deliveries. Simulations show how well that plan will work. Using simulation results, you make changes to your supply chain model (operating plan) so as to achieve better levels of performance.
NOTE: Distance and time displayed on new routes is ROUND TRIP… BUT sometimes ONE WAY distance and time shows on existing routes in supply chain models from the library. However, regardless of numbers displayed, simulations always use round trip numbers – please see FAQs, workaround for Bug #2).
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 two 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).
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.
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, or 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. If the delay between departures for a vehicle is currently 20 hours and you want it to run twice as often then cut the delay in half and make it 10 hours. If you want it to run four times a often then make the delay 5 hours, 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
- Buenos Aires, London, Montreal, Paris, or Singapore… how will you deliver products to these cities?
- Create stores in these cities and define vehicles and routes to keep them efficiently supplied with products
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 they no longer work, so you want backup copies of your supply chain to restore from when that happens.
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. Balancing these two demands 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“.
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.
As you add new stores you also increase revenue. As revenue rises, and if you can control costs, you begin to make a profit. Can you design a supply chain model that shows a profit after adding the new stores in Chicago and Columbus? How many new stores do you need to add before you can show a profit in your monthly P&L report?
There is a spreadsheet reporting 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. An example is shown below.
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 “Exporting Simulation Data” and “Download Simulation Data to Spreadsheet Reporting Templates“.
NOTE: Default values that come with the Cincinnati Seasonings supply chain model require you to both cut costs and increase revenue (open more stores) in order to make the company profitable. With only three stores you can reduce losses, but you cannot simply cut and save your way to profitability. However, as you add new stores, you will find ways to be profitable. Supply chains enable companies to expand and increase their revenue as well as control their operating costs.
A FEW THINGS YOU SHOULD NOT DO
SCM Globe is used to model and simulate real supply chains so all numbers in any model can be changed as needed to more accurately describe actual products, facilities, vehicles and routes. However, when using the simulations as a learning tool in a case study it does not make sense to change some default values even though the software will let you do so. You should not change certain default values listed below because it either doesn’t make business sense, or it doesn’t make logistics sense (see further explanation in the 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 as 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 as 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.
- NOTE: Default rent costs at facilities are set 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 current rental rates in different cities and type in those rental rates in place of the default rates.
Apart from these few things, you can do anything else to address challenges and solve problems that arise in the simulations. You can:
- add or change types of delivery vehicles and delivery routes
- change delivery frequencies (delay between departures)
- change delivery amounts (drop qty)
- expand or reduce storage capacity at facilities
- change production rates at the factory
- experiment with different locations for new facilities added during the case study
- You can do anything that is not specifically prohibited!
This case study is not a multiple choice test. There is no single “right answer” — only better answers. Running simulations and downloading the results to create Profit & Loss Reports will show you the better answers. They are the ones that keep the supply chain running for 30 days at lower operating costs and lower inventory levels — they make the supply chain as responsive and efficient as possible.
[ 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… Sometimes traditional ideas work best. Sometimes you need to think out of the box. Try things and see what the simulations show you. Be prepared to explain why your solution is plausible, even if you do some things that aren’t traditional. 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… like learning the steps to a new dance. But after a little practice it will start to click, and you’ll 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. That’s how one professor describes it in a note to his students — “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 looking at the data, and 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 – Overview” 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
[NOTE: Sometimes there is a bug in displaying route distances and travel times. For new routes, the distances and times show ROUND-TRIP, but sometimes on existing routes they show ONE-WAY numbers. This is a display problem only. The distances and times used in the simulations for new and existing routes are always ROUND-TRIP so simulation results are accurate.]
TIP: As you go further with the Cincinnati Seasonings case or start working with other more advanced case studies, and if you start modeling real supply chains, you should read other sections of the online guide to learn more advanced techniques. Some useful sections to read are “Tips for Building Supply Chain Models” and also “Cutting Inventory and Operating Costs“. Check the Table of Contents in the online guide for other sections of interest.
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.