Supply Chains of Rome – Olive Oil

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

Imagine it is the year 300 AD and you have just been promoted to run the family business. Your family is one of the wealthiest families in Roman Africa – the Septimii. The family comes from the city of Leptis Magna and owns extensive olive growing estates and is a major player in the olive oil export business. Are you up to the challenge of running this supply chain?

Rome got most of its wheat and a significant portion of its olive oil from its provinces in North Africa. The province of Tripolitania (now part of Libya) produced an enormous amount of olive oil (and still produces a lot even now). Huge fortunes were made growing olives and exporting the oil. Olive oil was used as food, and fuel for lighting, and as an ingredient in everything from paint to soap, cosmetics and ointments. It was one of the most valuable commodities in the empire. Here is a picture of the olive oil supply chain from North Africa to Rome.

Leptis Olive Oil SC2 [ We are glad to provide free evaluation accounts to instructors, students and supply chain professionals interested in exploring SCM Globe simulations — click here to request an account — Get Your Free Trial Demo ]

There were five main parts in the supply chain that delivered olive oil from Tripolitania to Rome (shown in the map above). Each of those parts is still quite visible today. In this case study we’ll look at those five parts, and then we’ll create a supply chain model that shows us how those parts worked together to move products between Rome and Leptis Magna.

In the simulations you will see this supply chain is as complex as many modern supply chains even though it operated a long time ago. You will form an intuitive understanding or “mental model” of how this supply chain worked. The Romans didn’t have computers, and even simple math was pretty complicated using Roman numerals (have you ever tried to do calculations with Roman numerals?), People must have relied on their mental models or professional judgement based on years of experience to manage the complexity and make their supply chains work. And this skill in forming good mental models is still critical for managing modern supply chains.

Leptis Magna Olive Oil 1 (click on screenshot to see larger image)

Roman supply chain managers did not have computers and telephones to keep them informed, so they needed an accurate understanding of how things worked in order to make effective decisions. Pictures below show a Roman harbor crane for loading/unloading ships and a warehouse for storing products at the harbor of Ostia.

 (Roman cargo loading crane drawing courtesy Ostia Antica, http://www.ostia-antica.org/index.html. Roman warehouse at Ostia courtesy Wikimedia Commons, photo by Patrick Denker, 2007, https://it.wikipedia.org/wiki/File:Ostia_antica-17.jpg)

Even though we now have modern technology, supply chain managers still need good mental models to be successful. Computers and telecommunications make business happen a lot faster than it used to, so situations can quickly get out of control if you do not understand how things work and what is happening. The picture below shows the modern harbor of La Spezia in Italy (note the harbor cranes for loading/unloading ships and the storage containers for storing products – bigger but still the same).

 (Picture of modern port at La Spezia, Italy courtesy Google Maps.)

Modern managers still need to know what they are doing and why they do it. Computers, artificial intelligence and big data analytics are helpful; they allow us to manage much larger flows of products in much faster moving supply chains. But technology alone will not save us; we still need good mental models to understand how supply chains work.

Information for this case study is contained in a sequence of three short articles in the SCM Globe Blog. Read these three articles to see how this supply chain worked. The first article shows the five main parts of the olive oil supply chain. The second article describes the different entities and operations involved. And the third article describes the situation you are facing and what you have done so far:

  1. Supply Chains of the Roman Empire
  2. Supply Chains of Rome – The Olive Oil Trade
  3. Supply Chains of Rome – Mental Models 

YOUR FIRST CHALLENGE — Improve profits by making adjustments to this supply chain so as to lower operating and transport costs and better balance on-hand inventories with demand at the different facilities. As described in Supply Chains of Rome – Mental Models, you acted quickly and got a handle on a difficult situation. But there is still more work to be done. 

Here are some things to think about as you work on this challenge:

  • Supply chains in the ancient world and the modern world are governed by some basic principles that have not changed much over the centuries. How is this supply chain similar and how is it different from modern supply chains?
  • What supply chain principles would you put into action in the areas of inventory management, transportation and delivery scheduling?
  • What actions can you take to smooth out inventory flow through the supply chain and lower on-hand amounts of products while still meeting demand?
  • What actions can you take to lower transportation costs?
  • Summarize your answers in a short report. Use screenshots and data from simulations to illustrate what you did to lower operating costs and inventory levels. 
  • Describe the model of your supply chain that has formed in your mind, list the important parts of the model and describe how they work together to produce the results you want

After you improved performance of the existing supply chain, olive oil production at the family estates continues to increase as water works are extended and more land is brought under cultivation. In the screenshot below notice low stone walls built across the valley floors to trap rainwater causing it to seep into the soil and water olive trees once planted in those valleys. Photos show remnants of fortified desert farms and waterworks.

Desert Valley Farms4 (Olive oil is produced from olive trees grown in desert valleys – click for larger image)   (photos courtesy of Saeid Zbeeda, Bani Walid, Libya, 2016 – click for larger image)

Several years go by and the oil production at each estate increases by 30 percent. To support that increase, demand for manufactured goods and olive oil and wheat at the estates increases by 10 percent. In addition, there is a 10 percent increase in demand for manufactured goods and a 5 percent increase in demand for oil and wheat at the Leptis warehouse to sell to people in the city of Leptis (see screenshot and city rendering below).

Olive Oil from Desert Valley Farms (Olive Oil comes to Leptis Magna from Coastal Estates and Desert Valley Farms)  (City and port of Leptis courtesy RomanPorts.org – https://www.romanports.org/en/the-ports/102-lepcis-magna.html )

You decide to expand into new markets to sell your increased supply of olive oil. There is a city even larger than Carthage several days sailing to the east of Leptis Magna. That city is Alexandria, in the Roman province of Egypt. It is an important new market for your olive oil. It is also a source of manufactured goods that you can sell in Leptis and use on the estates. A map of the major multi-modal transportation hubs and regional ports is shown below along with a rendering of Alexandria.

(Roman ports map courtesy Ancient Ports, www.ancientportesantiques.org)

The concentration of regional ports indicates the population density of those regions. Three of the four multi-modal hubs are in the largest cities in the empire (all except Gades). The main trade links between the multi-modal hubs are shown in red. In order for Leptis Magna to get its olive oil into the mainstream economy of the empire, it has to transport its oil to either Carthage or Alexandria or both.

YOUR SECOND CHALLENGE —  Add a new warehouse facility in Alexandria, Egypt. Define this facility to be the same as your warehouse in Carthage. Find Alexandria on the map and zoom in on the harbor — assume what you see now is what it looked like then. Locate a good place for the new warehouse down by the harbor.

TIP: Save backup copies of your supply chain model from time to time as you make changes. Click “Save” button next to your model in Account Management screen. Then if a change doesn’t work out, you can restore from a saved copy.

Assume you can generate daily demand at the Alexandria warehouse for olive oil and wheat equal to half the daily demand for those products at the Emporium in Rome. Your plan is to use the revenue from selling olive oil and wheat in Alexandria to purchase local manufactured goods and import those goods back to Leptis to meet increased demand for manufactured good at the estates (10%) and increased demand at the Leptis Warehouse (10%). How well does this work — is it profitable? How profitable can you make it?

For ideas on how to start expanding this supply chain see “Tips for Building Supply Chain Models”. And there are useful ideas to be found in the section “Reducing Inventory and Operating Costs

To access this Online User Guide click “Help” button in upper right corner of any SCM Globe application screen ]

Here are some things to consider as you work on this second challenge:

  • Increase production of olive oil and wheat at the estates, and increase demand for manufactured goods, olive oil and wheat at the estates and Leptis as described above.
  • How many new coastal freighters will you need to handle the trade with Alexandria?
  • Can a 30 percent increase in production at the estates produce enough olive oil and wheat to meet demand in Alexandria and also the increased demand on the estates and in Leptis? Is it too much or not enough?
  • What can you do to balance supply with demand in this supply chain given that you cannot quickly increase production of olive oil?
  • Do the sales revenues from selling the additional oil and wheat and manufactured goods cover the additional operating and transportation expenses? What is the percentage change in profits between the original supply chain and the expanded supply chain?
  • Estimate sales revenue by looking at the amount of products going out of facilities where those products are sold (daily demand). Sales revenue at each facility equals the product price plus profit margin multiplied by the number of products going out of facilities where products are sold (not just transfered). Assume there is a 15 percent profit margin added to the price of products sold.
  • Since your family owns the estates do not count demand for products at these facilities as sales. Do not add the profit margin to the price of products consumed at the estates and consider their consumption as an additional operating expense. How does this effect the economics of this supply chain?
  • Describe the model of your supply chain that has formed in your mind, list the important parts of the model and describe how they work together to produce the results you want

Do you have an intuitive feel for how this supply chain works? Can you describe how the different entities of this supply chain work together? Can you describe where the main expenses are, and where the main sources of revenue are, and how they affect each other?

In 300 AD it would have taken years of experience for you to form a good mental model of this supply chain. Now, with the use of new technology, that has changed. How long did it take you to form and refine a good mental model by building and running simulations instead?

 

REMEMBER — There is a spreadsheet reporting template you can use to analyze downloaded simulation data. Import your simulation data into the template and create monthly profit & loss reports as well as generate key performance indicators. See more about this in the online guide section “Analyzing Simulation Data” – scroll down to the heading titled “Download Simulation Data to Spreadsheet Reporting Templates”. The sample template is set up for the Cincinnati Seasonings company, but look at how the reports read the simulation data and you will see how to change the spreadsheet as needed to accommodate this case study.

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

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