Research Paper - Strategic Purchasing and Logistics

Running Header: SCM GLOBE SIMULATION: CINCINNATI SEASONINGS RESULTS

SCM Globe Simulation:

Cincinnati Seasonings Results

ASCM 629

Dr. James A. Bryant

University of Maryland University College

Over the past ten weeks the SCM Globe Simulator has been a great resource to aid in educating me on the numerous details associated to managing and running a successful supply chain. In conjunction to the text contained in Bowersox, Closs, Cooper and Bowersox (2013), I was able to better understand the many facets of supply chain management and successfully expand supply chain operations, decrease inventory costs, reduce transportation costs, expand the supply chain to support company growth, and ultimately establish company growth by more than quadrupling the Cincinnati Seasonings model. The final results for week ten that will be discussed in this paper provide a summary regarding the culmination of knowledge and understanding of the SCM Globe simulator gained through each week’s assignments by tinkering, adjusting, and expanding the Cincinnati Seasonings model.

The SCM Globe assignments each week provided a sense of real world supply chain management of the Spicy Cube product minus certain aspects of supply chain management not being included in this simulation. For instance, aspects such as the purchasing of raw materials for the factory, labor costs (outside of transportation), and the actual waves of supply and demand associated to consumer consumption is lacking but SCM Globe remained a great simulator and resource for students to utilize. My first impression of SCM Globe was that it would be a herculean task to comprehend and I questioned how anyone could learn the many steps needed to run the simulator successfully. Luckily the gentlemen at SCM Globe provided a great tutorial that assisted with answering the countless questions posed while Prof. Bryant provided fun and pertinent weekly assignments that allowed for the progressive learning of supply chain management and the running of the simulator. Listed below are the weekly tasks assigned in SCM Globe:

Learning SCM Globe 1 week at a time, Weekly Goals in SCM Globe:

Week 1: Learn the program, Summarize Initial Thoughts

Week 2: Begin Cincinnati Seasonings Case, Summarize Thoughts

Week 3: Expand Supply Chain Operations

Week 4: Decrease Inventory Costs

Week 5: Reduce Transportation Costs

Week 6: Review Modeling Accomplishments

Week 8: Summarize Thoughts Thus Far

Week 9: Expand Supply Chain to Support Company Growth

Week 10: Personal Goal- Establish Company Growth by Quadrupling Organization

From stock-outs to running out of storage space to shipments being overloaded, the Cincinnati Seasonings Company and its popular Spicy Cube product has expanded from three stores supplied by one DC in week one to twenty stores supplied by six DC's spread across two states in week ten. In order to complete this major expansion successfully by week ten, intermodal transportation was used through combining rail and truck adjacent to decreasing inventory costs whenever possible. Week four's SCM Globe assignment initiated the continued goal of decreasing inventory costs that carried throughout the remaining weekly assignments and is summarizes in figure 1 below. This initial reduction in inventory over a 30 day period provided nearly a 59% savings by eliminating 5,497 Spicy Cube products that did not need to be held in inventory.

Figure 1: Inventory/Operating Costs

Week 4 Goal: Decrease Inventory Costs

After 30 Days:

	On-Hand
Facility	Before Reduction	After Reduction
Seasonings Factory	1600	1226
Seasonings DC	3605	1470
Louisville Store	2325	161
Indianapolis Store	315	255
Ft. Wayne Store	265	233
Columbus Store	855	231
Lexington Store	360	252
Total Inventory:	9325	3828
Total Value:	$9,325,000.00	$3,828,000.00
Total Reduction:	$5,497,000.00

Decreasing inventory costs in week four led to reducing transportation costs in week five. This task was accomplished by combining rail and truck modes of transportation in order to “take advantage of the inherent economies of each and provide an integrated service at lower total cost” (Bowersox et al., 2013). The reduced cost associated to implementing intermodal transportation was evident in week five when tasked with reducing transportation costs over a 30 day period and is expressed in figure 2 below. In order to take advantage of transportation economies to reduce costs, I utilized both the quantity principle and tapering principle.

The quantity principle was implemented by maximizing the items shipped to either the largest value possible or nearly the largest value possible to save on transportation costs (Bowersox et al., 2013). This was accomplished by shipping the maximum amount possible by rail to each of the break-bulk warehouses for distribution to the surrounding stores. The quantity principle was carried out again when shipping to each store by maximizing the amount shipped by small truck to satisfy demand and save on transportation costs. Then the tapering principle was utilizing when shipping the largest of the shipments the furthermost distance possible to the Cincinnati Seasonings break-bulk warehouses by rail (Bowersox et al., 2013).

Figure 2: Transportation Costs

Week 5 Goal: Reduce Transportation Costs

Data collected after 30 Days simulation:

Transportation Cost
Vehicle	Before Reduction		Vehicle	After Reduction
Factory Truck 1	$7,074.00		DC Train 1	$1,080.00
Factory Truck 2	$5,022.00		DC Train 2	$784.00
Factory Truck 3	$3,037.50		Factory Truck 3	$3,118.50
Truck 1- Louisville/Lexington	$8,100.00		Truck 3 – Indianapolis	$4,995.00
Truck 2 - Louisville/Lexington	$13,932.00		Truck 6 – Columbus	$9,495.00
Truck 3 - Indianapolis	$4,995.00		Train 1 – Louisville	$1,290.00
Truck 4 – Ft. Wayne/Indianapolis	$5,805.00		Train 2 – Lexington	$1,136.00
Truck 5 - Ft. Wayne/Indianapolis	$10,368.00		Train 3 – Louisville	$1,264.00
Truck 6 - Columbus	$9,495.00		Train 4 – Ft. Wayne	$1,056.00
Total Cost:	$67,828.50		Train 5 – Indianapolis	$680.00
			Total Cost for Rail:	$7,381.00
			Total Cost for Truck:	$17,608.50
			Total Cost:	$24,989.50
Total Reduction:	$42,839.00

By utilizing rail for the largest shipments and the longest distance under the tapering principle as a part of intermodal transportation in week five I was able to reduce transportation costs by more than 60% to save Cincinnati Seasonings $42,839.00. The use of intermodal transportation continued throughout the remaining week’s assignments to subsequently allow for break-bulk warehouses to be established to further company growth in week nine. During week nine the simulated total costs associated to expanding the supply chain to allow for further company growth became visible when I added these additional warehouses but did not add any additional stores to signify potential revenue increases. This decrease in profits for week nine was caused by the increased running costs of transportation, increased operating costs of the new warehouses, and the additional inventory carrying costs. While these additional costs are allowing for company growth, if not implemented properly they can be detrimental to an organization that lacks profit to cover these costs or fails to have the proper technology in place.

Technology such as materials resource planning (MRP) systems to “aid in interfacing between purchaser and supplier” or advanced planning and scheduling (APS) systems to add in “identifying the most cost-effective trade-offs considering all relevant costs” can improve decision making and provide increased supply chain visibility (Bowersox et al., 2013). Further technological undertakings such as implementing the use of semi-automated or automated systems can dramatically improve a firm's profits by reducing labor costs and allowing for potential continuous product flow. While these aspects are not considerations that are relevant in the SCM Globe simulation, they are very relevant for every domestic or global firm to examine.

Prior to accomplishing week ten's goal of establishing company growth, week nine's assignment of expanding supply chain operations to support company growth needed to be implemented. This involved adding the break-bulk warehouses and adjusting shipments to accommodate the increased inventory. Figure 4 below provides the data associated to the increased operations costs associated to expanding the supply chain to support company growth while figure 3 provides the transportation cost data during this process.

Figure 3: Transportation Costs

Week 9 Goal: Expand Supply Chain to Support Company Growth

After 30 Days

Vehicle	Running Cost
DC Train 1	$1,096.00
DC Train 2	$792.00
Factory Truck 3	$3,118.50
Train 1- Louisville DC	$1,176.00
Train 2 – Lexington DC	$1,104.00
Train 3 – Louisville DC	$1,272.00
Train 4 – Ft. Wayne DC	$1,016.00
Train 5 – Indianapolis DC	$680.00
Truck 3 – Indianapolis DC	$4,995.00
Truck 6 – Columbus DC	$10,125.00
Truck 1 – West Ft. Wayne	$3,118.50
Truck 1 – East Lexington	$4,860.00
Truck 1 – South Columbus	$7,209.00
Truck 1 – South Indianapolis	$6,723.00
Truck 1 – West Louisville	$8,545.50
Total Cost for Rail	$7,136.00
Total Cost for Truck	$48,694.50
Total Combined Cost	$55,830.50

Figure 4: Inventory/Operating Costs

Week 9 Goal: Expand Supply Chain to Support Company Growth

After 30 Days

Facility	Quantity on-hand	Value
Seasonings Factory	1161	$1,271,000.00
Seasonings DC	1513	$1,240,000.00
West Louisville Store	175	$108,500.00
South Indianapolis Store	205	$108,500.00
West Ft. Wayne Store	255	$86,800.00
South Columbus Store	225	$83,700.00
East Lexington Store	230	$83,700.00
Louisville DC	763	$465,000.00
Indianapolis DC	765	$465,000.00
Ft. Wayne DC	761	$465,000.00
Columbus DC	772	$465,000.00
Lexington DC	762	$465,000.00
Total	7587	$5,307,200.00

Using the on-hand data from week four figure 1 of $3,828,000.00 and comparing it to week nine figure 4 on-hand data of $5,307,200.00, the added inventory needed to supply the break-bulk warehouses increased inventory by $1,479,200.00 over 30 days. This led to week ten's goal to re-implement inventory reduction in order to decrease this added cost. Also by adding the break-bulk warehouses, combined transportation costs increased from week five's total in figure 2 of $24, 985.50 to week nine's total combined transportation costs in figure 3 of $55,830.50. This $30,845.00 increase in combined transportation costs associated to week nine's goal of expanding the supply chain to support company growth also has the potential to be reduced in week ten.

Several goals were set in place for week ten, such as decrease inventory costs, reduce transportation costs, and to establish supply chain expansion by adding fifteen more stores in the current regions. In week ten these adjustments increased company value from $5,307,200.00 in figure 4 to $6,918,400.00 in figure 5 seen below, a $1,611,200.00 increase while reducing on-hand quantities by 1566. Along with increased value came increased transportation costs due to the need for more short distance trucks and increased number of shipments made to the break-bulk warehouses. Figure 6 displays the data associated to the increased transportation costs associated to week ten's supply chain growth.

Figure 5: Inventory/Operating Costs

Week 10: Establish Company Growth- Quadrupling Cincinnati Seasonings Organization

After 30 days:’

Facility	Capacity	Quantity on-hand	Value
Seasonings DC	2.65	397	$1,280,000.00
Seasonings Factory	54%	1890	$1,456,000.00
Columbus DC	5.56	278	$480,000.00
East Columbus	16	80	$86,400.00
West Columbus	16	80	$86,400.00
North Columbus	16	80	$86,400.00
South Columbus	15	75	$86,400.00
Ft. Wayne DC	9.8	490	$480,000.00
East Ft. Wayne	16	80	$86,400.00
West Ft. Wayne	11	55	$89,600.00
North Ft. Wayne	16	80	$86,400.00
South Ft. Wayne	8.4	42	$86,400.00
Indianapolis DC	9.32	466	$480,000.00
East Indianapolis	16	80	$86,400.00
West Indianapolis	16	80	$86,400.00
North Indianapolis	16	80	$86,400.00
South Indianapolis	21	105	$112,000.00
Lexington DC	8.92	446	$480,000.00
East Lexington	16	80	$86,400.00
West Lexington	16	80	$86,400.00
North Lexington	16	80	$86,400.00
South Lexington	16	80	$86,400.00
Louisville DC	9.04	452	$480,000.00
East Louisville	16	80	$86,400.00
West Louisville	25	125	$112,000.00
North Louisville	16	80	$86,400.00
South Louisville	16	80	$86,400.00
Total:		6021	$6,918,400.00

In week ten transportation costs increased $88,281.00 with the addition of fifteen new stores, with trucking costs being the largest increase in transportation costs totaling $116,599.50 in figure 6, a $67,905.00 increase from figure 3 in week nine. Rail remained the cheapest transportation mode regarding the volume and distance being transported at $27,512.00 in figure 6 compared to the $7,136.00 in figure 3. These costs still have the potential to be reduced further by adjusting the size of the truck transporting the Spicy Cube from the break-bulk warehouses to the regional stores. Utilizing one large truck to deliver to the four stores in an area instead of four small trucks for each store could reduce the transportation costs in the supply chain even further.

Figure 6: Transportation costs:

Week 10: Establish Company Growth- Quadrupling Cincinnati Seasonings Organization

After 30 days:

Vehicle	Running Cost
DC Train 1	$2,152.00
DC Train 2	$2,560.00
DC Train 3	$2,560.00
DC Truck 1	$2,794.50
Train 1 – Louisville DC	$2,560.00
Train 2 – Lexington DC	$3,600.00
Train 3 – Louisville DC	$1,720.00
Train 4 – Ft. Wayne DC	$4,744.00
Train 5 – Indianapolis DC	$3,800.00
Train 6 – Columbus DC	$3,816.00
Truck 1 – West Ft. Wayne	$3,888.00
Truck 1 – East Lexington	$4,941.00
Truck 1 – South Columbus	$7,411.50
Truck 1 – South Indianapolis	$6,844.50
Truck 1 – West Louisville	$8,707.50
Truck 2 – East Ft. Wayne	$4,941.00
Truck 2 – East Louisville	$4,860.00
Truck 2 – North Columbus	$7,128.00
Truck 2 – North Indianapolis	$6,844.50
Truck 2 – West Lexington	$4,779.00
Truck 3 – North Ft. Wayne	$5,224.50
Truck 3 – North Lexington	$4,860.00
Truck 3 – North Louisville	$4,981.50
Truck 3 – West Columbus	$5,305.50
Truck 3 – West Indianapolis	$5,670.00
Truck 4 – East Columbus	$7,330.50
Truck 4 – East Indianapolis	$4,900.50
Truck 4 – South Ft. Wayne	$4,941.00
Truck 4 – South Lexington	$4,900.50
Truck 4 – South Louisville	$5,346.00
Total Rail Cost:	$27,512.00
Total Truck Cost:	$116,599.50
Total Cost:	$144,111.50

In conclusion, the culmination of the assignments from week one through week nine of the SCM Globe Simulator have aided in the expansion of my understanding regarding supply chain logistics and the many issues an organization may face. While my initial thoughts of the simulator were not very flattering, I later found it to be extremely helpful in portraying the logistics of a supply chain. Occasionally the aspects associated to refreshing the browser or the time it took to run the simulator with such a large supply network was still frustrating at times, for me SCM Globe was still a great resource for this course.

References

Bowersox, D.J., Closs, D.J., Cooper, M.B, Bowersox, J.C. (2013). Supply Chain Logistics Management, (4th ed). McGraw-Hill Co Inc., New York, NY.