CASE STUDY CONCEPT: Supply Chain Managers Need Good Mental Models for Effective Decision Making.
Imagine it is the year 300 AD and you have just been promoted to the head of a large trading corporation dealing in olive oil. The company is owned by your family who is one of the wealthiest families in Roman Africa – the Septimii. They come from the city of Leptis Magna and own extensive olive growing estates in the province of Tripolitania. They are a major player in the lucrative olive oil business. Are you up to the challenge of running this business and the supply chain that supports it?
In the simulations you will see a supply chain as complex as many modern supply chains even though it operated a long time ago. As you run simulations and see the results you will form an intuitive understanding or “mental model” of how this supply chain works. And you will use your mental model to see where to make improvements to keep this supply chain running as efficiently as you can. The Romans didn’t have computers, and even simple math was pretty complicated… have you ever tried to do calculations with Roman numerals? So they must have relied on mental models or professional judgement based on years of experience in order to manage the complexity and keep their supply chains running. This skill in forming good mental models is still critical for managing supply chains today (maybe even more so).
Though we now have powerful modern technologies, supply chain managers still need to know what they are doing, and understand why they are doing it. Computers and telecommunications make business happen a lot faster than it used to, so situations can quickly get out of control if people do not understand what is happening and what they are doing. Computers, artificial intelligence and big data analytics allow us to manage larger flows of products in faster moving supply chains – but technology alone will not save us. We still need good mental models to understand how supply chains work, and make good decisions to keep them working and improve them.
A PICTURE OF THE OLIVE OIL SUPPLY CHAIN
Rome got most of its wheat and a significant portion of its olive oil from its provinces in North Africa. The province of Tripolitania (now part of Libya) produced an enormous amount of olive oil (and still produces a lot even now). Huge fortunes were made growing olives and exporting the oil. Olive oil was used as food, as fuel for lighting, and as an ingredient in everything from paint to soap to cosmetics and ointments. It was one of the most valuable commodities in the empire. Here is a picture of the supply chain that moved olive oil from North Africa to Rome.
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There were five main parts in the supply chain that delivered olive oil from Tripolitania to Rome (shown in the map above). Each of those parts is still quite visible today. In this case study we’ll look at those five parts, and then we’ll create a supply chain model that shows us how those parts worked together to move products between Rome and Leptis Magna. You will start to appreciate what the job might be like, and get an idea of the supply chain management skills you’ll need to be successful at this job.
1 – THE GREEN SEA
This supply chain originated in an area of North Africa once called the “Green Sea” because it was literally a green sea of olive trees. People had been cultivating olive trees in this area for centuries and under the Roman Empire it reached its peak. Much of the coastal plain of Tripolitania was a forest of olive trees.
Because olive oil was so valuable, extensive waterworks to support olive growing were built inland up into the dry hills at the edge of the Sahara Desert, and also out in desert valleys far from the coast. Terraces and retaining walls were built on hillsides to cause the occasional rains to soak into the earth instead of rushing into the ravines. Water that overflowed the retaining walls was captured in ditches leading to underground cisterns where it was stored for later use. And water that reached the ravines and valleys was stored behind low dams built across the valley floors so it seeped into the soil of the valley floors instead of draining off the land in flash floods.
The result was olive trees and crops like wheat could be grown on formerly barren hillsides and desert valleys. Roman demand for olive oil created a market and a supply chain that literally changed the landscape as shown in the pictures below.
Picture 1 shows a satellite view of Tripolitania. The roads between various centers of olive oil production are shown in blue. Picture A shows a close up of abandoned water works, hundreds of low dams across now empty desert valleys. Where there is just drifting sand, there were once forests of olive trees. Picture B shows a desert valley and ravines far out in the Sahara. The darker bands across the valley and ravines are strips of vegetation growing where the remains of Roman waterworks still allow water to collect and trees can grow.
(satellite photos courtesy of Google Maps – click for larger image)
(desert valley photos courtesy of Saeid Zbeeda, Bani Walid, Libya, 2016 – click for larger image)
2 – CITY OF LEPTIS MAGNA
The roads led to a city on the coast where the olive oil was transferred to coastal freighters for shipment to Carthage and then on to Rome. The name of this city is Leptis Magna. The oil of Tripolitania flowed through its port. It was also the family home of the Septimii, and from this family came a dynasty of Roman emperors – the Severan dynasty. When Septimius Severus became emperor in 195 AD, he endowed his already prosperous city with a fine new harbor and forum and basilica and other buildings built on a scale to match those in Rome.
Picture 2 shows the plan of Leptis Magna and the harbor. Picture A shows the big public buildings at the center of this city, and picture B shows the now silted up harbor. It was a circular harbor with a lighthouse on the point of land extending into the sea. What is now a stretch of beach was the entrance to the harbor, and ringing the harbor were stone quays and large, two story warehouses where olive oil was stored in shipping containers called amphorae and loaded onto waiting ships. This is illustrated in the rendering below.
(City and port of Leptis courtesy RomanPorts.org – https://www.romanports.org/en/the-ports/102-lepcis-magna.html )
3 & 4 – HARBORS AT CARTHAGE AND OSTIA
Those ships sailed west from Leptis Magna along the coast to the capital of Roman Africa – Carthage. In the big harbor at Carthage the oil was transferred from the coastal freighters to the large ships of the grain fleet that carried wheat and olive oil from Africa to the port of Rome. Picture 3 shows the remnants of the harbor at Carthage. The circular harbor (A) was the military harbor, and the commercial harbor (B) is next to it.
Picture 4 shows the harbor on the other side of the sea that was the destination for the ships from Carthage. It was the port of Rome at the mouth of the Tiber River. The port was named Ostia and its harbor was built in the shape of a huge hexagon (A). Floods from the Tiber have since silted up the harbor entrance from the sea. On a good voyage, the trip took three or four days from Carthage to Ostia.
Through this port came food and other products needed to support the largest city in the western world at that time (at least a million people). The harbor was ringed with warehouses where olive oil in large amphora were offloaded from seagoing ships. The oil was then loaded onto river barges that were pulled by gangs of workers up the Tiber River (B) to Rome.
The picture below on the left shows a harbor crane unloading a ship docked alongside a quay at a harbor such as Carthage or Ostia. On the right is one of the warehouses at Ostia where products were stored (the marble inscription above the main entrance says it was owned by two freedmen, Epagathus and Epaphroditus). The building was built during the reign of the Emperor Claudius circa 145-150 AD (CE).
(Roman cargo loading crane drawing courtesy Ostia Antica, http://www.ostia-antica.org/index.html. Roman warehouse at Ostia courtesy Wikimedia Commons, photo by Patrick Denker, 2007, https://it.wikipedia.org/wiki/File:Ostia_antica-17.jpg)
The picture below shows the modern harbor of La Spezia on the coast of Italy north of Rome. Note the harbor cranes for loading and unloading ships, and the storage containers for storing products (things are bigger but still much the same).
(Picture of modern port at La Spezia, Italy courtesy Google Maps.)
5 – ROMAN EMPORIUM AND A MOUNTAIN OF AMPHORAE
On a busy day hundreds of barges loaded with olive oil and other products were pulled up the Tiber and unloaded at a huge dock and warehouse complex named the Emporium (A). There the olive oil was poured from the shipping amphorae it came in and stored in large holding tanks. The shipping amphorae were then transported several blocks away to a disposal site (B). At that disposal site today is a mound of broken shards of olive oil amphorae that is still some 115 feet high (35 meters) and a bit more than half a mile in circumference (1 kilometer). Picture B shows a close up of this mound (known as Monte Testaccio). Note its size compared to the buildings around it.
Evidence from this mound and other sources indicates Rome was importing at least 2 million U.S. gallons (7.5 million liters) of oil annually. In the above rendering of the Emporium on the Tiber River the disposal site for olive oil amphorae can be seen in the upper right corner.
CAN YOU MANAGE THIS SUPPLY CHAIN?
In this case study we’ll build a model of this olive oil supply chain and simulate its operations. Compared to modern supply chains, the technology is simple. But there is more going on than you might think. There is a lot to figure out if you are going to run this supply chain efficiently and keep the business profitable.
Read the following two articles to get a fuller understanding of this supply chain and then take on the challenges below for improving and expanding this supply chain. In the first article we’ll build a model of this supply chain that supported the olive oil trade. The prices shown in the model are denominated in the Roman silver coin called a denarius (plural is denarii). We know these prices because of an edict on prices issued by the emperor Diocletian in the year 301 AD (see more about this in the next article). Then we’ll run simulations of the model to investigate the situation you are facing. The simulations will enable you to understand how the supply chain works and to figure out what needs to be done to get things back on track.
FIRST CHALLENGE —Improve profits by making adjustments to this supply chain that supports the Olive Oil Trade. Find ways to lower operating and transport costs and better balance on-hand inventories with demand at the different facilities. As described in Mental Models, you acted quickly and are starting to get a handle on a difficult situation. But there is still more work to be done.
Here are some things to think about as you work on this challenge:
- Supply chains in the ancient world and the modern world are governed by some basic principles that have not changed much over the centuries. How is this supply chain similar and how is it different from modern supply chains?
- What supply chain principles would you put into action in the areas of inventory management, transportation and delivery scheduling?
- What actions can you take to smooth out inventory flow through the supply chain and lower on-hand amounts of products while still meeting demand?
- What actions can you take to lower transportation costs?
- Summarize your answers in a short report. Use screenshots and data from simulations to illustrate what you did to lower operating costs and inventory levels.
- Describe the model of your supply chain that has formed in your mind, list the important parts of the model and describe how they work together to produce the results you want
After you improved performance of the existing supply chain, olive oil production at the family estates continues to increase as water works are extended and more land is brought under cultivation. In the screenshot below notice low stone walls built across the valley floors to trap rainwater causing it to seep into the soil and water olive trees once planted in those valleys. Photos show remnants of fortified desert farms and waterworks.
(Olive oil is produced from olive trees grown in desert valleys – click for larger image)
Several years go by and the oil production at each estate increases by 30 percent. To support that increase, demand for manufactured goods and olive oil and wheat at the estates increases by 10 percent. In addition, there is a 10 percent increase in demand for manufactured goods and a 5 percent increase in demand for oil and wheat at the Leptis warehouse to sell to people in the city of Leptis (see screenshot and city rendering below).
(Olive Oil comes to Leptis Magna from Coastal Estates and Desert Valley Farms)
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 — You decide to expand into new markets to sell your increased supply of olive oil. There is a city even larger than Carthage several days sailing to the east of Leptis Magna. That city is Alexandria, in the Roman province of Egypt. It is an important new market for your olive oil. It is also a source of manufactured goods that you can sell in Leptis and use on the estates. A map of the major multi-modal transportation hubs and regional ports is shown below along with a rendering of Alexandria.
(Roman ports map courtesy Ancient Ports, www.ancientportesantiques.org)
The concentration of regional ports (green circles) indicates the population density of those regions. Three of the four multi-modal hubs, shown in black, are in the largest cities of the empire (all except Gades). The main trade links between the multi-modal hubs are shown in red. In order for Leptis Magna to get its olive oil into the mainstream economy of the empire, it has to transport its oil to either Carthage or Alexandria or both.
Add a new warehouse facility in Alexandria, Egypt. Define this facility to be the same as your warehouse in Carthage. Find Alexandria on the map and zoom in on the harbor — assume what you see now is what it looked like then. Locate a good place for the new warehouse down by the harbor. Assume you can generate daily demand at the Alexandria warehouse for olive oil and wheat equal to half the daily demand for those products at the Emporium in Rome.
Your plan is to use the revenue from selling olive oil and wheat in Alexandria to purchase local manufactured goods and import those goods back to Leptis to meet increased demand for manufactured good at the estates (10%) and increased demand at the Leptis Warehouse (10%). How well does this work — is it profitable? How profitable can you make it?
Here are some things to consider as you work on this second challenge:
- Increase production of olive oil and wheat at the estates, and increase demand for manufactured goods, olive oil and wheat at the estates and Leptis as described above.
- How many new coastal freighters will you need to handle the trade with Alexandria?
- Can a 30 percent increase in production at the estates produce enough olive oil and wheat to meet demand in Alexandria and also the increased demand on the estates and in Leptis? Is it too much or not enough?
- What can you do to balance supply with demand in this supply chain given that you cannot quickly increase production of olive oil?
- Do the sales revenues from selling the additional oil and wheat and manufactured goods cover the additional operating and transportation expenses? What is the percentage change in profits between the original supply chain and the expanded supply chain?
- Estimate sales revenue by looking at the amount of products going out of facilities where those products are sold (daily demand). Sales revenue at each facility equals the product price plus profit margin multiplied by the number of products going out of facilities where products are sold (not just transfered). Assume there is a 15 percent profit margin added to the price of products sold.
- Since your family owns the estates do not count demand for products at these facilities as sales. Do not add the profit margin to the price of products consumed at the estates and consider their consumption as an additional operating expense. How does this effect the economics of this supply chain?
- List the main entities in this supply chain and describe how they work together to deliver the products handled by this supply chain
- Where are the main expenses, and where the main sources of revenue in this supply chain and how do they affect each other?
In 300 AD it would have required years of experience to form a good mental model of this supply chain. How long did it take you to form and refine a good mental model by running simulations instead?
For ideas on how to start expanding this supply chain see “Tips for Building Supply Chain Models”. There are also useful ideas to be found in the section “Reducing Inventory and Operating Costs”
TIP: 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.
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REMEMBER — There is a spreadsheet reporting template you can use to analyze downloaded simulation data. Import your simulation data into the template and create monthly profit & loss reports as well as generate key performance indicators. See more about this in the online guide section “Analyzing Simulation Data” – scroll down to the heading titled “Download Simulation Data to Spreadsheet Reporting Templates”. The sample template is set up for the Cincinnati Seasonings company, but look at how the reports read the simulation data and you will see how to change the spreadsheet as needed to accommodate this case study.
To share your changes and improvements to this model (json file) with other SCM Globe users see “Download and Share Supply Chain Models”
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