Supply Chains of Rome - The Olive Oil Trade | Supply Chain Case Study

CASE STUDY CONCEPT: Supply Chain Managers Need Good Mental Models for Effective Decision Making.

You’ve worked in the business for years and learned the olive oil trade. Your uncle just retired, and now it’s your time to show what you can do. The family expects you to make money and grow the business – their livelihoods depend on it. Let’s take a look at the operations you manage. (This article picks up where the first article in the series, Supply Chains of the Roman Empire, left off.)

When you think about the business, you’ve learned to think about four things: the products; facilities; vehicles; and routes that work together to make it all happen. You have learned a lot about the main product, olive oi. And you’ve visited the company’s facilities and traveled on the vehicles and routes that move products between facilities. You can picture these things in your mind as you think about how the company operates. You’ve learned to think of the business itself as the outcome of the interactions between products, facilities, vehicles and routes. The better they all work together, the more profitable the business becomes.

Products

You view products from the perspective of one responsible for handling them efficiently and making a profit. That means you consider their prices, weights and shipping volumes. It’s standard in the trade to refer to quantities of 100 amphorae of oil so that’s how you measure your inventory (dialog box below shows this data for olive oil).

Map of the olive oil supply chain of Rome — Supply chain for delivering olive oil to the City of Rome: Leptis Magna – Carthage – Rome

(click on screenshots to see larger images)

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The price for 100 amphorae of olive oil is 380,000 denarii. It is one of the most valuable commodities in the empire next to gold itself. Olive oil is used for everything: for cooking and eating; as fuel for lighting; and as an ingredient for all sorts of balms and cosmetics and paints. Whoever can produce oil and get it to market can make a lot of denarii. (See footnote at end of article for more on Roman products and prices)

Facilities

It’s early May and the summer season is in full swing. Here’s how things look at your warehouse in the harbor at Leptis Magna; so far so good (dialog box below shows data on the Leptis Warehouse – storage capacity, costs and on-hand inventory).

Aerial picture of the ancient port of Leptis Magna — The olive oil of Tripolitania flowed through the port of Leptis on its way to Carthage and Rome.

And here’s how things are out in the Desert Valley Farms facility that your family owns. The family has made considerable investments in building the low dams and waterworks shown in the screenshot below to open up these desert valleys for growing olive trees (dialog boxes show data for this facility and its vehicles and routes).

picture of desert valley water works to enable olive trees to grow — Low dams built across valley floors trapped rain water letting it sink into the ground to water forests of olive trees, and olive oil production steadily increased.

Vehicles and Routes

It takes 5 to 10 years for trees once planted to start bearing fruit, and during that time your money is tied up waiting for the oil to flow. So when it does start flowing, you want to make sure it gets delivered to Leptis and shipped on to Rome. In this case that means lots of ox carts to haul in oil from the estates and desert farms (in screenshot above, dialog box in upper right shows data on a group of 120 Ox Carts – carry volume and weight, speed and cost).

Oil is heavy and bulky so it takes a lot of ox carts to move it. Those 120 ox carts combined can deliver 6 units of 100 amphorae on each trip they make. And they pick up 6 units of manufactured goods to bring back to the Desert Valley Farms (dialog box in lower right shows data on route – distance, time, stops on route and delivery and pick up quantities).

Supply Chain Operations

As the days roll by, you start to notice something – your on-hand product inventories at the warehouse in Leptis are trending downward (daily trend lines for Leptis Warehouse are shown in chart on right side of screen). You aren’t getting products delivered soon enough to meet demand. When will the next shipments of manufactured goods from Rome arrive? How come there aren’t more deliveries of oil from the estates?

A screenshot of the SCM Globe application showing the mediterranean and the Bani waled farms. — Olive oil and wheat are brought to Leptis Magna for export, and manufactured goods are imported through the Port of Leptis

(simulation shows daily results data in graphic and numeric displays on right side)

Then after 10 days, in mid-May, you run out of manufactured goods at your warehouse in Leptis (dialog box above shows that status). Customers are angry and going elsewhere. You need to bring in more manufactured goods from Rome and Carthage. The ships delivering olive oil to those facilities need to pick up and return with larger quantities of manufactured goods.

Thinking about the business, you first consider what’s happening at the Desert Valley Farms. There are long lead times to get deliveries of oil from that facility and others out in the desert and to send back the manufactured goods they need. You’ve gotten reports that the on-hand quantity of olive oil (shown in screenshot below – red line) is building up. Maybe you need more ox carts out there to bring in the oil.

A satellite picture of a desert valley with highlighted routes and data boxes. — Delivery routes traveled by ox carts moved olive oil from desert valley farms to large inland estates closer to the coast

But that will increase transport costs and also demand for grain and fodder to feed the oxen (yellow trend line for wheat is good indicator of grain and fodder – it’s already going down, let alone when demand increases because of more animals to feed).

When you consider the other end of the supply chain at the Emporium in Rome (shown below), the news you have and your own estimate of what is happening is actually pretty good. Olive oil (red line) is rising because you need to ship a lot of oil during the summer and fall so it that exceeds demand and a reserve builds up to be used during the winter months when the seas are too stormy for your ships to sail.

A satellite map of rome with data windows. — Olive oil amphora unloaded at the Port of Ostia where loaded onto barges and towed up the Tiber River to the Emporium in Rome

You also figure inventory of manufactured goods (blue line) is going down as it gets picked up and shipped back to Carthage and on to Leptis. You could even acquire more manufactured goods in Rome since now you know demand exists in Leptis for more.

Getting Things Back on Track

What are you going do to get things back on track? You need to make decisions and act in the next day or two and send your instructions to the managers at the estates and warehouses. The long travel times for messages and deliveries make it important to act now. Delays in decision making are magnified by the days and weeks it will take for your orders to arrive and for those actions to show results.

And if you decide wrong, then there will be further delays of additional days and weeks before you get it right, during which time the business will be underperforming or even losing money. You begin wondering why it was you ever wanted to be in charge of this business…

We’ll use supply chain simulations to explore possible courses of action in the next article. There is a working model of this supply chain available in the SCM Globe library, “Supply Chains of Rome_Olive Oil”. You can import this model into your account. We’ll explore the issues discussed here in greater depth, and look at how simulations can help us make the decisions we need to make to get this supply chain back on track.

Now let’s see how to use simulations to make operating decisions in the last article of this series: Supply Chains of Rome — Mental Models

FOOTNOTE:

We know about the prices used in this supply chain model because at the time of this case study (circa 300 AD) the Emperor Diocletian issued an edict on maximum prices. He covered everything from services to products. He set prices for day laborers, skilled laborers, scribes and lawyers; he decreed prices for manufactured goods from lady’s shoes to wool cloaks and farming tools; and for food items from wheat to cabbages and beef to olive oil. He had these edicts and prices engraved on stone tablets that were erected in the forum of every town and city in the empire. You can see more on prices from an English translation of the Edict on Maximum Prices, also known as the “Price Edict of Diocletian” (Edictum de pretiis rerum venalium) – http://kark.uib.no/antikk/dias/priceedict.pdf.

A section of Diocletian’s edict on maximum prices is shown on the stone tablet below.

(section of edict on maximum prices courtesy Wikimedia Commons, photo by Matthias Kabel, 2007)

For some perspective on prices, one amphora of finest quality oil is worth 6,300 denarii and second quality oil is still worth 3,800. A volume of wheat comparable to one amphora of oil is worth about 1,200 denarii, or less than a third the price of the lowest cost olive oil. That compares to other prices such as a day’s wages for a farm laborer of 25 denarii; or 50 – 60 denarii for a skilled laborer; or 1,000 denarii for a lawyer to plead a case. Manufactured goods such as ladies boots cost 60 denarii, a woolen cloak was 500 denarii, and double-soled sandals for farm workers were 80 denarii.

You currently price your oil at 3,800 denarii per amphora because it is early in the season and the olives on your estates haven’t ripened yet, so you’re shipping oil from last year that you stored over the winter when your ships couldn’t sail (second quality oil). As the season progresses, you’ll start shipping the freshly pressed, finest quality olive oil for 6,300 per amphora. That’s were the best profits are. But you still need to ship the rest of last year’s oil before that inventory goes bad and you can’t sell it at all.

Learn more about Roman units of weights and measures from Wikipedia article “Ancient Roman units of measurement”

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