CASE STUDY CONCEPT: Timeless Supply Chain Challenges — Inventory, Location, Transportation, and The Bullwhip Effect. It is the year 210 AD, and you manage the largest merchant trading house on the ancient Silk Road. The long prosperity of the Pax Romana has created strong demand in the Roman Empire for the luxury products you import from China and India. Chief among those products is silk. Everybody who is anybody wants their clothes made of silk.
Along the length of the Silk Road stretching from the borders of the Roman Empire in the west, to the Middle Kingdom (China) in the east, there are many merchants and many cities. Yet all know your name and your city — you are the Merchant Trading House of Barmakid, in the city of Merv.
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The Ancient Silk Road was approximately 4,000 miles (6,440 km) from its start in China to its end on the shore of the eastern Mediterranean. This compares with 2,440 miles ( 3,930 km) between New York and Los Angeles, and 1,760 miles (2,830 km) between Paris and Moscow.
Your city of Merv (3) is the largest city on the Silk Road. It sits at the main crossroads that connect the road’s starting points in China (1) and India (2) with its end point in the Roman Empire on the shores of the Mediterranean Sea (4) (https://en.wikipedia.org/wiki/Merv).
Products on the Silk Road
There is great desire in the west to have the exotic goods of the east. And the most widely desired of those goods is that marvelous fabric called silk. It is beautiful to the eye, smooth to the touch, light in weight and very strong. How it is made is a mystery, only the Chinese know that, and they carefully guard the secrets of its manufacture.
You also trade in other fine products to enhance the enjoyment of life. There are jewels to delight the eye, spices to tantalize the palette, medicines to heal the body and substances to sooth the mind. These are the products that are carried on the Silk Road. They are high in value, and smaller in size and weight than the common commodities of daily life such as grain, leather, iron, wood, or woolen cloth. It is this combination of high value, small size and lightweight that makes it profitable to transport such products over long distances.
Cities and Facilities on the Road
During all but the coldest months of the year, there is a steady stream of caravans and exotic merchandise flowing from east to west on the Silk Road. And coming back the other way, the caravan owners carry gold and silver coins exchanged for their silk and precious goods, along with other products they will sell in the cities they return to. Cities on the Silk Road have prospered because of this trade.
The city of Xi’an (1) is where the Silk Road starts. It is the city where the first great emperor of China built his capital. His walls were strong and his army (1A) was unstoppable; he united much of China under his rule. This is the place where silk and exotic merchandise is gathered and loaded onto caravans to start the journey to the west.
Note the regular street grid and the large square moat that surrounds the entire old core of Xi’an. The size and layout of the city shows the builders had great resources and a disciplined workforce.
The other source of exotic merchandise is the cities of India to the south. The Indian city (2) of Indraprastha (Delhi) on a tributary of the Ganges River is the place where spices and jewels and other products begin their journey north and west.
The cities of India in many cases still occupy sites where people have lived for thousands of years even though most traces of the older cities are gone. Delhi occupies a site on the banks of the river where Indraprastha once stood.
The central meeting point on the Silk Road is the city of Merv (3). It is the place where the many different routes of the Road become one. The city was founded by Alexander the Great in the year 330 BC during his campaign through Persia, Afghanistan and Central Asia. Even then, this was where the ancient trade routes converged; that is why Alexander chose this place. There was already a small city surrounded by round walls (3A) that you can see inside the straight walls of the Greek city.
The city has been ruled by Greeks, Parthians, Persians and Arabs. Over the centuries it grew in size and splendor. The main warehouses (3B) that hold the Barmakid inventory are located inside the walls of the old Greek City (once known as Margiana Antiochia), later overshadowed by a much larger city (3C) that came to be known as Merv.
The site of Merv is now abandoned. It prospered for more than a thousand years and grew to become a city of half a million or more people. Then in 1221 the city surrendered to Tolui, son of Genghis Khan. But instead of showing mercy, he massacred its inhabitants and put the city to the torch.
It is hard to say where the Silk Road ends because there are always merchants who buy the products and sell them to others even further west. Yet one could say the Silk Road ends in the city of Palmyra (4). It is a city of wealthy merchants on the eastern frontier of the Roman Empire. That city is located in the biggest oasis between the Euphrates River and the city of Damascus. Beyond Palmyra lie the cities of Damascus, Tyre and Antioch where the products imported on the Silk Road are exported to the rest of the Empire.
Notice the curve of the city walls outlined in shadow across the top of the picture. In the lower part of the walled area are the main buildings, the theater, agora, senate house and the Sanctuary of Bel. Palmyra became so powerful that in 270 AD it rebelled against Rome and took control of Egypt and other eastern Roman provinces. It was defeated in a war that followed, and in 273 a Roman general destroyed the city after putting down a second rebellion. (The ruins of this city were further destroyed by the extremist group ISIS in the summer of 2015.)
Many of the cities on the Silk Road were fortress cities protected by strong walls that can still be seen today. In addition to Merv and Palmyra, walled cities such as Bukhara, Bactra, and Kunduz are shown below. A big risk that comes with large amounts of valuable inventory is the risk of raiding tribes and bandits. It takes lots of money to build and maintain the walls, and pay the soldiers needed to keep raiders and bandits from carrying off the merchandise.
Vehicles on the Road
The Silk Road depends on a vehicle known as the camel. No other animal can carry the cargo it carries and endure the hardships it endures. On the roads to the east of Merv the camels with two humps (Bactrian camels) are most common, and to the west, it is the camels with one hump (Dromedary camels) that are most common.
Each kind of camel is best adapted to the climate they encounter on their part of the Silk Road. The double humped camel can survive both the heat of the eastern deserts and the cold of the high mountain passes. The camels with one hump are better in the relentless heat and dust storms of the western deserts. Without these unique animals to transport products through such harsh lands, there could be no Silk Road.
Transportation Routes
To the east of Merv, the routes are especially challenging and unpredictable. The Silk Road splits into northern and southern routes to cross the great Taklamakan Desert and the high passes of the Tian Shan Mountains before they arrive in Merv.
The desert routes follow the best paths from one oasis to the next. In the pictures below you see how the routes follow the streams and rivers (fed by melting snow from the surrounding mountains). Cities grew up in the big oases where the caravans stop to rest and refit.
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Travel times between the oasis cities are 10 to 20 days because camels and people cannot journey much longer before needing to rest and replenish their food and water. Woe to the caravans that lose their way in a storm, or fail to follow the landmarks properly. They are never heard from again.
These cities are also places where caravan leaders can sell their products to local merchants and return to their cities of origin. One way to manage the risks inherent in a long journey on the Silk Road is to specialize in just one or a few shorter routes between certain cities. The prices you can get for products increase the further you go from the origin points of those products, but costs and risks also increase the further you carry those products. So you balance the risks against potential profits.
In the picture below, Merv is marked with an orange circle where different routes converge. It makes sense for those routes to converge on this large oasis because such an oasis can grow a lot of food and feed a lot of people. So a big city can grow there. And because it is where the different routes converge, this city can exert considerable influence on the operation of that supply chain called the Silk Road.
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Looking to the west from Merv, you see a similar pattern. Again the cities are 10 to 20 days travel from each other until Palmyra. At Palmyra the routes split again with one going south to Damascus and Tyre, and the other going north to Antioch. These cities in turn become the starting points for other supply chains within the Roman Empire that supply the northern and southern shores of the Mediterranean.
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Situational Awareness
In meetings with caravan leaders, and countless conversations with other merchants, travelers, priests and soldiers, you are forever gathering information about conditions on the Road and prices and supply and demand for different products. You work at developing an intuitive sense for opportunities and risks. And as you sense what is happening, where supplies are running out and where they are building up, you see possibilities and business opportunities.
Part 2 of this case – “Taming the Bullwhip on the Silk Road” explores how the Silk Road was organized and operated so as to maintain a predictable flow of products from one city to the next. Simulations will provide hands-on experience in how the supply chain operated, and in finding ways to overcome the major challenges that got in the way of efficient operations. The techniques used to do this are still used in modern supply chains (technology used has changed, but not the techniques themselves).
Part 3 of this case – “Taking Care of Business on the Silk Road“, investigates how prices were set and inventory was managed. We’ll use simulations to try out different supply chain designs and see what works best. Finding what works best in simulations reveals a lot about the practices that were probably used to manage inventory and operations on the ancient Silk Road (HINT: those practices were surprisingly modern). The practices you’ll learn are still used to manage supply chains today.
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.
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SILK ROAD CHALLENGE – PART 1
Import a copy of the ancient Silk Road supply chain model from the library into your account. Then open the model in your edit screen and explore the model. Let this article guide you in your exploration; zoom in on the cities and locations mentioned in this article and turn on the satellite view and look around. See how the facilities and routes are influenced by the constraints imposed by the terrain through which the Silk Road travels.
Let’s look at the Silk Road supply chain from three perspectives: 1) Terrain; 2) Products; and 3) Time Scale
- Turn on the “Terrain” option under the Maps view to get a better look at the terrain as shown in the first screenshot below. Notice how the roads follow the flattest land and the lowest passes through the mountains. Modern roads still usually follow ancient routes because those ancient routes were the best way through the landscape.
- In 2013 the Chinese government launched the largest infrastructure project in the world to build a modern Silk Road (The New Silk Road: Ambition and Opportunity | CNBC). Officially known as the Belt and Road Initiative or BRI, the intent is for a modern Silk Road to connect China with markets in Europe, the Middle East and Africa, and generate commercial activity that grows the economies of countries it passes through, just as the ancient Silk Road once did.
- The modern Silk Road follows many of the same routes used by the ancient Silk Road because the terrain remains the same, and those routes are still the best ways to cross this terrain even with modern trucks and trains. Many of the cities on the modern Silk Road are still in the same locations too because those are still the best places to find food and water.
- There are three product categories: Jewels; Silk Textiles; and Spices. These products are defined in units called a “libra” which was the basic Roman unit of weight. A libra was about 0.72 pounds or 0.33 kg. The libra was brought to Britain and other provinces of the Roman Empire where it became the standard for weighing gold and silver and for use in all commercial transactions. The abbreviation “lb” for pound is derived from libra.
- Product weights are different but sizes are 0.1 cubic meters (3.5 cubic feet) for each product. That is the size of the carrying case used to transport these products. The sizes and weights of these cases are designed so they will fit on the camels used for transportation on the Silk Road. Inside these cases would be multiple individual items within each product category. Product prices are at the carrying case level and denominated in the Roman denarius (plural is denarii). During the time of this case study, circa 200 AD, a denarius was worth about a day’s wages for a common laborer.
- Skilled workers such as carpenters, blacksmiths, stone masons and other craftsmen could earn two or three times as much. Professionals such as scribes, lawyers, teachers, engineers and doctors earned perhaps 10 to 20 times more, and wealthy landowners and noble families had incomes that were hundreds of times greater. Assume the average Roman worker earned 300 to 500 denarii per year at this time. That will give you an idea of the value of the products being transported on the Silk Road, and the people who could afford to buy those products.
- The modern Silk Road moves products in much larger sizes and quantities, and does so at much lower costs compared to the ancient Silk Road. This results in a much larger range of people who can afford to purchase the products that are manufactured and transported on the modern Silk Road.
- The time scale of this model has been modified so each day represents a week.
- Daily demand, production rates, and costs at facilities are multiplied by seven to be weekly rates, and vehicle speeds are seven times faster than for a daily model (see more about this in the “Timeline” section of Tips for Building Supply Chain Models).
- Because the vehicles move so slowly and the distances are so great, it makes sense to use a weekly time scale instead of a daily one. If this were a model of the modern Silk Road, the distances would be the same but the vehicles would move much faster. So a daily time scale would be appropriate for that simulation.
Click on the “Simulation” button in the upper right corner of the Edit screen to open the Simulate screen. When the Simulate screen opens, click the “Play” button in the upper right corner of the screen (you might want to set the speed of the simulation to “Fastest” because this is a big supply chain model and it can run slowly). Notice vehicles (camel caravans) moving between the cities on the Silk Road. Zoom in and look at the cities and click on the city names in the display menu on the right side of the Simulate screen. Notice how inventory levels of the different products fluctuate from week to week and from one city to the next.
In week 19 of the simulation a problem will arise and cause the simulation to stop as shown above. Click on the city names in the display menu on the right side of the screens. Try to get a mental picture of how the different products are flowing through the Silk Road supply chain. It’s hard because there are so many different cities but do the best you can.
Run the simulation several more times. Click through the on-hand inventory and other data displays for the different cities on the Road while the simulation is playing. Try changing some entity attributes such as the amounts of different products delivered on a route, or the size and frequency of the caravans (vehicles) that deliver those products. Can you get this supply chain to run for 32 weeks? That would be about eight months, which is the period when most business was done each year (cold and stormy weather from November to February brought activity to a halt during those months).
What are the problems you keep running into? What can you do to address these problems? If you have inventory available you may need to add more vehicles to deliver that inventory to other cities. As you move products through this supply chain do inventory increases in some cities work better than others to keep products flowing across the entire Silk Road? How many weeks can you get this supply chain to run?
Summarize what you learned in a short presentation using screenshots and data from the model and simulation to illustrate your findings.
- Describe the structure of the Silk Road and how it is shaped by the topography of the land over which it travels.
- Then describe how this supply chain structure affects the flow of products along the Silk Road.
- Point out a few things that work well with this supply chain, and a few things that don’t work well.
- Which cities have the greatest amounts of products flowing through their warehouses? What effect do you think this had on the economy of those cities? Why?
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 is set up for the S&J Trading Company, but look at how the reports read the simulation data and you will see how to change the spreadsheet as needed. There are already three products so just change their names. You can add more facilities to accommodate this case study, or you may decide to only monitor and report on a smaller number of key facilities such as: Dunhuang; Kashgar; Bactra; Merv; Ctesiphon; Palmyra – 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: 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.
NOW ADVANCE to the Second Challenge: Taming the Bullwhip on the Silk Road
Your challenge there will be to organize and operate the Silk Road so as to maintain sufficient inventories and flow of products to meet demand in the cities along the Road during its annual operating season.
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 other supply chain simulations. Click the blue “Register” button on the app login page, and buy an account with a credit card (unless you already have an account). Scan the “Getting Started” section, and you are ready to start. Go to the SCM Globe library and click the “Import” button next to this or any other supply chain model.