CASE STUDY CONCEPT: Supply Chain Managers Need Good Mental Models for Effective Decision Making.
What we are seeing in this supply chain model and these simulations is the mental model you created and the intuitive understanding or “street smarts” you have acquired that enable you to comprehend and manage the business. This mental model enables you to run scenarios in your head and see how the different parts work together, the products, facilities, vehicles, and routes, and how changes to one affect all the others. (This article picks up where the previous one, Supply Chains of Rome — The Olive Oil Trade, left off.)
Since there’s no Internet or computers or phones in your world of 300 AD, messages between facilities can take from a couple of days to several weeks to arrive and for replies to return. Because of those time lags, things can get seriously out of hand if you loose control of the situation.
Without a good mental model you won’t survive in business for long. Even though this business was happening 1,700 years ago, that doesn’t mean it was a simple business. Who would have thought there was so much involved (and have you ever tried to do calculations using Roman numerals)?
Modern supply chain managers still need accurate mental models to effectively manage their supply chains. Since we do now have computers and phones, it makes things go faster, so now because of the increased speed of events, things can get seriously out of hand real quickly if you loose control of the situation. Managers (then and now) need to know what they are doing and why they are doing it.
OPPORTUNITIES FOR IMPROVEMENT
When you think about the vehicles that deliver wheat and oil to the Emporium from your warehouse at the harbor in Ostia, you see (shown below) there is more capacity on those vehicles so they can pick up more manufactured goods at the Emporium and start them on the trip back to Leptis.
You figure the warehouse in Carthage isn’t getting enough manufactured goods (blue line in diagram in lower right of screen below), so you need to get more in from Rome. It looks like the place to direct your attention is that part of the supply chain that moves products across the sea, the route between Carthage and Ostia. If you bring more manufactured goods back across the sea, then you can move more manufactured goods down the coast from Carthage to Leptis.
You think about the other olive growing estates and farms the family owns in Tripolitania. They are spread across Tripolitania, and some are several days travel into the desert. They are out at the end of long supply chains. It’s tricky to get their oil back to Leptis in a timely manner and also keep them supplied with what they need.
(screenshot showing on-hand inventory – click for larger image)
You figure that almost all of them are experiencing a buildup of olive oil inventory on-hand. That means all of them need to step up the rate of deliveries of oil to Leptis. And, because you just ran out of manufactured goods in Leptis, you know there is more demand at the estates and farms for manufactured goods in return. (Charts below show what is happening at three of the other estates.)
(on-hand inventory at various olive oil producing facilities in the supply chain)
TIME FOR ACTION
Now is the time to take bold action to set things right before your supply chain falls further behind and things get really out of hand. Here’s what you decide to do:
- Ship more olive oil and use the proceeds to buy more manufactured goods in Rome – that means put more of your cargo on the big ships that sail between Carthage and Ostia.
- Increase the number of coastal freighters on the route between Carthage and Leptis to deliver more oil to Carthage and bring back more manufactured goods from the Carthage warehouse.
- Double the number of ox carts on the various routes to Leptis from the olive oil producing farms and estates so more olive oil can be delivered to Leptis for shipment on to Carthage and Rome.
This will cost more money, but if it works, you will also make more money from increased olive oil sales and increased sales of manufactured goods from your warehouse at Leptis (it had better work or you’ll be hearing about your mistakes from the rest of the Septimi family and they won’t be in a good mood).
You run the plan past your uncle and he thinks it could work. You wish there was some magic talking device you could use to speak instantly with the managers of the estates and farms out in the desert, and with the managers of the warehouses in Carthage and Ostia. But there is only the slow delivery of written messages by sailing ship or horseback. So you need to rely on your street smarts and act now.
(Oil and grain merchants and ships with harbor lighthouse courtesy Ostia Antica
You make your plans and write out instructions to your business managers in Ostia and the olive oil estate managers. You tell them to implement the three points you’ve decided on. Because of the slow communications, there is not much opportunity to change or adjust your plans once they are put into action. You hope the mental model you used to analyze the situation is accurate enough to point you in the right direction.
GOING IN THE RIGHT DIRECTION
Every ship captain and every ox cart caravan leader brings you written messages showing the on-hand inventory of products at the facilities they came from, and the daily demand there for those products. They also show you the amount of products ordered by those facilities that they will pick up at your warehouse. You keep careful account of all this information on large papyrus scrolls you hang up on a wall in your office. Here’s what you see at several of the facilities:
(on-hand inventory at facilities after implementing the three points above)
You are getting more olive oil delivered from the estates, but those estates (Desert Valley Farms on the left and Inland Estates in the middle) produce a lot, and oil is still building up at the estates. On the far right is the display for the Leptis warehouse.
You are bringing in more manufactured goods, but inventory gets drawn down quickly to meet daily demand. Then it spikes up again when new shipments arrive. Twice in the last 30 days you almost ran out before new shipments replenished the stock of manufactured goods. And you see you are also about to run out of wheat that you ship to Carthage.
(on-hand inventory graphs and more data on products – click for larger image)
Looking at other facilities, you see a lot more manufactured goods inventory building up in Carthage on the left, maybe too much. You still need to move more of it to Leptis. In the middle you see things are looking good at the Emporium in Rome. Olive oil stocks are building up so they’ll be available to sell in the winter months when your ships can’t sail. Levels of manufactured goods and wheat are fairly stable; they’re keeping up with demand. On the right is more information about products at other facilities and data on vehicle costs (costs and product values are shown in denarii, not dollars).
You acted quickly and got a handle on the situation for now. But you can see there is more work to be done. To improve profits you need to fine tune this supply chain so as to lower operating and transport costs and better balance on-hand inventories with demand at the different facilities.
There are lots of ways to proceed… how would you do it? What ideas would you put into action?
There is a working model of this supply chain available in the SCM Globe library. You can import it into your account and explore the issues discussed here in greater depth.
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The Ancient City: Life in Classical Athens & Rome, Peter Connolly and Hazel Dodge, Oxford University Press, Oxford, 1998
The Buried City: Excavations at Leptis Magna, Giacomo Caputo and Ernesto Vergara Caffarelli, Frederick A. Praeger Publishers, New York, 1966
Diocletian and the Roman Recovery, Stephen Williams, Routledge publishers, New York and London, 1985
Edict of Maximum Prices, Emperor Diocletian, 301 AD, as presented in the article “What Things Cost in Ancient Rome” http://ancientcoinsforeducation.org/content/view/79/98/
Essentials of Supply Chain Management, 4th Edition, Michael Hugos, John Wiley & Sons publishers, Hoboken, 2018
Ostia: Harbour City of Ancient Rome, website devoted to information for professional archaeologists and historians, students of Roman archaeology and history, and interested lay-people, http://www.ostia-antica.org/
Septimius Severus: The African Emperor, Anthony Birley, Routledge publishers, New York and London, 1988
SCM Globe, interactive supply chain modeling and simulation application, case study “Leptis Magna Olive Oil”, app.scmglobe.com
Tripolitania, David J. Mattingly, University of Michigan Press, Ann Arbor, 1994
Wikipedia, The Free Encyclopedia, the following articles:
“Leptis Magna”, http://en.wikipedia.org/wiki/Leptis_Magna
“Monte Testaccio”, http://en.wikipedia.org/wiki/Monte_Testaccio
“Septimius Severus”, http://en.wikipedia.org/wiki/Septimius_Severus
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