Collaborative Supply Chains

CASE STUDY CONCEPT: Collaborative Supply Chains and Shared Services help companies grow while controlling costs.

This case is based on a real candy company called Just Born Candy that has it’s main factory in Bethlehem, Pennsylvania, and a competitor candy company that we’ll call Crunch Candy Company with its factory in a nearby town. Even though both of these companies compete with each other, their main competitors are big candy companies such as M&M Mars and Hershey’s. By combining their individual supply chains both companies can benefit by becoming more competitive against their larger competitors.

Collaborative supply chains generate value

Value in the form of increased customer service levels and lower operating costs can be had when two different companies in the same industry combine their supply chain operations. If these companies are selling to many of the same customers, and if both of them compete against much larger companies then they can mutually benefit from creating a single supply chain to support both of their businesses – even if they still compete against each other to some degree.

 (click on screenshot for larger image)

[For instructors there is a study guide for this case study. It is structured as a 12 week course and explores different aspects of this case study in detail. The structure can be modified as needed. It is illustrated with screenshots and commentary. Instructors using this case study can contact info@scmglobe.com to request a study guide.]

When you load this case study you will see the supply chains of Just Born Candy and Crunchy Candy Company. You will see the location of their factories and their distribution centers. Also shown are customers’ stores where they make deliveries. Each company does not sell to all of the same customers as the other, but there is a significant amount of overlap in the customers of the two companies. You can see the overlap in the supply chains of these two companies when you map them out as shown in the screenshot above.

Customers would like to see fewer deliveries of candies in larger quantities, like what they get from the bigger candy companies (M&M Mars and Hershey’s). They are also asking for lower prices. Both of these customer requests point toward the need for combining supply chains. That way both smaller candy companies could make fewer and larger deliveries of their combined products. And if they can reduce their supply chain costs, they can also lower prices to customers.

You are a highly regarded supply chain consultant

The CEOs of the two companies have appointed you to lead a project team composed of people from both companies. Your mission is to design a new common supply chain for both companies that will reduce costs and still meet customer demands. How will you combine the supply chains of Just Born Candy and Crunchy Candy to create a single more cost effective supply chain for both companies?

Each company makes and delivers two kinds of candy to their customers. These products are shown as JBCandy1, JBCandy2, Crunchy1, and Crunchy2. Look at the production rates for these candies, and check the daily demand for these candies at the customer stores.

At the start of the case study both companies operate their own supply chains. You can simulate the operations of these two company supply chains and see their combined costs and the amounts of inventory they need to keep on-hand in order to meet customer demands over a 30 day period.

The two company CEOs asked you to first make recommendations for improving operations of their two existing supply chains. Then they want you to recommend how to combine the two separate supply chains into one common supply chain that meets the needs of both companies, and is less expensive to operate. Those requests are reflected in your two challenges shown below.

NOTE: This is an advanced case. Work through the three challenges of the beginning case, “Cincinnati Seasonings” before taking on the challenges in this case.

 

FIRST CHALLENGE

Get the supply chains for both companies to run for 30 days without problems

Do whatever you feel is necessary to make this happen. In the process you will come to learn a lot about how these two company supply chains work. You will get an insight into how the two company supply chains work, and you will see some of the strengths and weaknesses of each company’s supply chain. The screenshot below shows the result of one simulation; the red circle with the line through it shows where a distribution center has run out of one of the candy products.

 (click on screenshot for larger image)

REPORTING TEMPLATE for use with this case study: Import your simulation data into the template and create monthly profit & loss reports as well as generate key performance indicators. The reporting template to use is set up for the S&J Trading Company. Look at how the report on the first tab read the simulation data on the second tab. You need to add another row for a fourth product, and add more columns for the additional facilities in this case study. See the short tutorial on modifying P&L reporting templates to accommodate extra facilities at the bottom of the Analyzing Simulation Data page. Then go ahead and download copy of Multi-Product P&L Reporting Template here.

[If you are using SCM Globe Professional version, these reports can be generated automatically by clicking on the “Generate P&L Report” button on the Simulate Screen]

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.

NOTE: This is an advanced case. Work through the three challenges of the beginning case, “Cincinnati Seasonings” before taking on the challenges in this case.

 

SECOND CHALLENGE

Find ways to reduce inventory and operating costs by combining the two company supply chains into one common supply chain 

By combining the supply chains of the two companies you will be able to reduce operating and transportation costs and reduce on-hand inventory across the supply chain. You’ll need to make decisions about whether to create a single distribution center and where to locate that facility. You also need to make decisions about the size of trucks and their delivery routes and schedules.

There are several ways to combine facilities in SCM Globe. Each way has different advantages as far as speed and ease of use.

• For instance, if you want to combine two DCs into a single DC, you can delete one DC and edit the other DC to change its attributes (operating cost, rent cost, storage capacity, and products assigned to it) so as to redesign that DC to become the new combined DC. While editing this DC you can also drag and drop it to a new location or leave it where it is. Remember to click the screen refresh button on your browser after you finish editing this remaining DC.
• Vehicles and routes originating at the DC you deleted will be deleted also, so recreate them at the remaining DC (usually best to delete the DC with the fewest vehicles and routes). At the remaining DC create any new vehicles you need and assign routes and products to those vehicles. You can also edit vehicles and routes that already exist at the remaining DC and update those vehicles and routes to deliver products to the facilities that were earlier covered by vehicles and routes from the deleted DC.
• You can also just delete both the original DCs and create a brand new facility to be the new DC. In that case, recreate vehicles and routes as needed to redirect deliveries to the new DC and create deliveries from the new DC to the facilities that DC serves.

Do what you think is best and get the combined supply chain to run for 30 days. Then go back and get the combined supply chain to run for 30 days at the lowest transport and operating costs and lowest amounts of on-hand product inventory across the supply chain. There are useful ideas to be found in the section “Reducing Inventory and Operating Costs”

REPORTING TEMPLATE for use with this case study: Import your simulation data into a spreadsheet template and create monthly profit & loss reports as well as generate key performance indicators.  The reporting template to use is set up for the S&J Trading Company. Look at how the report on the first tab read the simulation data on the second tab. You need to add another row for a fourth product, and add more columns for the additional facilities in this case study. See the short tutorial on modifying P&L reporting templates to accommodate extra facilities at the bottom of the Analyzing Simulation Data page. Then go ahead and download copy of Multi-Product P&L Reporting Template here.

[If you are using SCM Globe Professional version, reports can be generated automatically by clicking on the “Generate P&L Report” button on the Simulate Screen]

NOTE: An earlier bug that displayed some routes times and distances as ONE-WAY has been fixed. All routes now show ROUND-TRIP times and distances. Simulations use ROUND-TRIP times and distances.

 

THIRD CHALLENGE

Expand the common supply chain to support new stores as the companies grow

Your combined supply chain has been quite successful, and both companies have prospered. Now they want you to add new stores in other cities further west such as Chicago, St. Louis, Kansas City, and Omaha.  They want you to add the new vehicles, delivery routes, and warehouse facilities that you feel are necessary to support this business growth. The screenshot below shows one possible supply chain design that you explore as you investigate different design options to see what works best.

There will be a lot going on in this expanded supply chain. Here are some things to think about:

• When you simulate the operations of this supply chain you can look at the data displays for Facilities, Vehicles and Products to see graphs and numeric read outs showing where buildup or depletion of inventory occurs, and where transportation and operating costs are greatest.
• You can continue to use trucks to do all the transportation or you may want to consider a mix of truck and railroad transportation. Where would it make sense to use railroads and why?
• Does the original DC in Pennsylvania still work well enough or do you need a new DC to the west that is closer to the new stores? What is the effect on transportation and operating costs of opening a new DC?
• Summarize your main challenges and how you responded to them in a short paper using screenshots and data from the simulations to illustrate your main points. Use screenshots of onscreen data displays such as those shown below as well as P&L Reports and KPIs generated from downloaded simulation data

Default rent costs at facilities are set higher than what they would normally be in the real world. If your instructor allows 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. 

NOTE: Find useful ideas for reducing inventory and for calculating optimum product delivery amounts and schedules by reading “Cutting Inventory and Operating Costs” in the online guide. For ideas on how to start expanding this supply chain see “Tips for Building Supply Chain Models” for useful techniques.

Footnotes:

1. This case study uses research done by Professor Joel Sutherland then at Lehigh University in Pennsylvania, now at Supply Chain Management Institute, University of San Diego. The research is published as an executive insight article titled “The Confection Connection” starting on page 106 of Essentials of Supply Chain Management, 4th Edition
2. See more about success with collaborative supply chains in an insightful article at CSCMP Supply Chain Quarterly, “Six Steps to Successful Supply Chain Collaboration“

 

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.

To share your changes and improvements to this model (json file) with other SCM Globe users see “Download and Share Supply Chain Models”

 

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.