DANCING WITH THE STARS – the Spicy Cube “Electric Slide” Version
by Frank Scheer, Ph.D., University of Maryland Global Campus
Coordinating a supply chain to achieve efficiency balanced with cost is very much like learning a line dance. Missteps stand out prominently, as does not keeping up with the rhythm of product demand. Everyone feels disoriented at first. But then they start to enjoy it after some practice, and add their own style along the way. This is the reason for the supply chain case studies and simulations [Cincinnati Seasonings, S&J Trading Company, etc. ]. The textbook provides the principles, but the simulations teach you the moves.
The core supply chain management challenge is determining how to meet product demand while at the same time minimizing cost and on-hand inventory. Inventory is comprised of a safety stock base along with the amount of product planned for consumption during a sales period. There is also a concept of “Economic Order Quantity” (EOQ) which is the amount of product delivered at one time to a warehouse or retail location that is the best balance of transportation and order processing expenses. Supply chain logistics management is composed of trade-offs between inventory management, warehousing, transportation, and packaging options.
A logistics manager can meet demand for products if lots of product is produced and lots of product is kept on hand at facilities, but too much product at facilities increases inventory costs. The best one can do is to match product demand with product deliveries, thereby keeping on-hand product at a minimum. Utilizing “just in time” delivery in this way is referred to as a “lean supply chain”.
As you execute the Cincinnati Seasonings case study assignments, please consider demand for the Spicy Cube product [or other products in other case studies] at each retail location and consider ways to schedule product deliveries. A learning objective is to adjust daily product deliveries to each facility just enough to cover daily demand. If deliveries can’t be matched exactly for each day, add enough product on hand to cover the difference between deliveries and demand — that is “safety stock”. Next, schedule deliveries so that over a longer period, such as three days, the supply chain is balanced between demand and deliveries.
Overall demand from all the stores should also be investigated. The factory production rate ought to be synchronized with the overall retail demand. If the factory is making more than total demand, product inventory will accumulate in warehouses and retail locations. The cost of your inventory on-hand will go up as excess inventory accumulates.
In addition, and not depicted in the simulation, are the impacts of out-of-date stock. Many products such as spices have a limited shelf-life. They “lose their punch” or spoil. These products are usually moved through a supply chain as “first-in, first-out” to minimize product obsolescence, which is called “inventory turns,” how often a particular product within a warehouse is completely replaced. A result of too much inventory is that the product turns won’t be often enough to avoid spoilage. Unsold product will therefore need to be destroyed and written off, which is supply chain wasted expense.
In summary, balancing production with overall demand and synchronizing product deliveries with individual store demand is how a logistics manager lowers on-hand inventory at facilities and lowers supply chain inventory costs. As you practice these changes in the Cincinnati Seasonings supply chain, play a simulation of those changes and observe the results. This is how the best combination of factory production rate and product delivery schedules will be discovered.
In that process of investigation comes an intuition about combinations that best satisfy different situations. That intuition is what the textbooks will not teach you, but it is an essential attribute of a skilled supply chain professional.