The case study is based on a real life candy company called Just Born Candy that has it’s main factory in Bethlehem, Pennsylvania (http://www.justborn.com), and a competitor candy company that we’ll call Crunch Candy Company with its factory in a nearby town. Even though both of these companies compete with each other, their main competitors are big candy companies such as M&M Mars and Hershey’s. By combining their individual supply chains both companies can benefit by becoming more competitive against their larger competitors.
This case study illustrates the value generated by collaborative supply chain operations. It demonstrates the value that can be had when two different companies in the same industry combine their supply chain operations. If these companies are selling to many of the same customers, and if both of them compete against much larger companies then they can mutually benefit from creating a single supply chain to support both of their businesses – even if they still compete against each other to some degree.
[For instructors there is a study guide for this case study. It is structured as a 12 week course and explores different aspects of this case study in detail. The structure can be modified as needed. It is illustrated with screenshots and commentary. Instructors using this case study can contact email@example.com to request a study guide.]
CASE STUDY CONCEPT: Collaborative Supply Chains and Shared Services Help Companies Succeed
When you load this case study you will see the supply chains of Just Born Candy and Crunchy Candy Company. You will see the location of their factories and their distribution centers. Also shown are customers’ stores where they make deliveries. Each company does not sell to all of the same customers as the other, but there is a significant amount of overlap in the customers of the two companies. You can see the overlap in the supply chains of these two companies when you map them out as shown in the screenshot above.
Customers would like to see fewer deliveries of candies in larger quantities like what they get from the bigger candy companies (M&M Mars and Hershey’s). They are also asking for lower prices. Both of these customer requests point toward combining supply chains. That way both smaller candy companies can make fewer and larger deliveries of their combined products. And if they can reduce their supply chain costs, they can also lower prices to their customers.
You are a highly regarded supply chain consultant who has been appointed to lead a project team composed of people from both companies. Your mission is to design a new common supply chain for both companies that will reduce costs and still meet customer demands. How will you combine the supply chains of Just Born Candy and Crunchy Candy to create a single more cost effective supply chain for both companies?
At the start of the case study both companies operate their own supply chains. You can simulate the operations of these supply chains and see their combined costs and the amounts of inventory they need to keep in stock in order to meet customer demands over a 30 day period (both companies use a 30 day S&OP cycle).
In this case study each company makes and delivers two kinds of candy to customers. These products are shown as JBCandy1, JBCandy2, Crunchy1 and Crunchy2. Look at the production rates for these candies and the demand for these candies at the customer stores.
[ Access this Online User Guide by clicking “Help” button in upper right corner of any screen in SCM Globe application ]
FIRST CHALLENGE — Get the existing supply chain to run for 30 days without breaking. Do whatever you feel is necessary to make this happen. In the process you will come to learn a lot about how these two company supply chains work. The screenshot below shows the result of a simulation; the red circle with the line through it shows where a distribution center has run out of one of the candy products.
SECOND CHALLENGE — Now find ways to keep the supply chain running for 30 days and also reduce operating and transportation costs and reduce on-hand inventory across the supply chain. You’ll need to make decisions about whether to create a single distribution center and where to locate that facility. You also need to make decisions about the size of trucks and their delivery routes and schedules.
There are several ways to combine facilities in SCM Globe. Each way has different advantages as far as speed and ease of use.
- For instance, if you want to combine two DCs into a single DC, you can delete one DC and edit the other DC to change its attributes (operating cost, rent cost, storage capacity, and products assigned to it) so as to redesign that DC to become the new combined DC. While editing this DC you can also drag and drop it to a new location or leave it where it is. Remember to click the screen refresh button on your browser after you finish editing this remaining DC.
- Vehicles and routes originating at the DC you deleted will be deleted also, so recreate them at the remaining DC (usually best to delete the DC with the fewest vehicles and routes). At the remaining DC create any new vehicles you need and assign routes and products to those vehicles. You can also edit vehicles and routes that already exist at the remaining DC and update those vehicles and routes to deliver products to the facilities that were earlier covered by vehicles and routes from the deleted DC.
- You can also just delete both the original DCs and create a brand new facility to be the new DC. In that case, recreate vehicles and routes as needed to redirect deliveries to the new DC and create deliveries from the new DC to the facilities that DC serves.
Do what you think is best and get the combined supply chain to run for 30 days. Then go back and get the combined supply chain to run for 30 days at the lowest transport and operating costs and lowest amounts of on-hand product inventory across the supply chain.
TIP: Save backup copies of your supply chain model from time to time as you make changes. Then if a change doesn’t work out, you can restore from a saved copy.
THIRD CHALLENGE — Add new stores in other cities further west such as Chicago, St. Louis, Kansas City and Des Moines. Expand the supply chain to support these new stores – add new vehicles and routes and facilities that you feel are necessary. There will be a lot going on in this expanded supply chain. Here are some things to think about:
- When you simulate the operations of this supply chain you can look at the data displays for Facilities, Vehicles and Products to see graphs and numeric read outs showing where buildup or depletion of inventory occurs, and where transportation and operating costs are greatest.
- You can continue to use trucks to do all the transportation or you may want to consider a mix of truck and railroad transportation. Where would it make sense to use railroads and why?
- Does the original DC in Pennsylvania still work well enough or do you need a new DC to the west that is closer to the new stores? What is the effect on transportation and operating costs of opening a new DC?
- Summarize your main challenges and how you responded to them in a short paper using screenshots and data from the simulations to illustrate your main points.
Default rent costs at facilities are set higher than what they would normally be in the real world. If your instructor allows you to change rent costs, use a commercial real-estate website such as CityFeet (www.cityfeet.com) to research current rental rates in different cities.
NOTE: Find useful ideas for reducing inventory and for calculating optimum product delivery amounts and schedules by reading “Cutting Inventory and Operating Costs” in the online guide. For ideas on how to start expanding this supply chain see “Tips for Building Supply Chain Models” for useful techniques.
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”
This case study uses research done by Professor Joel Sutherland then at Lehigh University in Pennsylvania, now Managing Director at Supply Chain Management Institute, University of San Diego. The research is published as an executive insight article titled “The Confection Connection” on page 100 of Essentials of Supply Chain Management, 3rd Edition, (http://www.amazon.com/Essentials-Supply-Chain-Management-Third/dp/0470942185).
See more about success with collaborative supply chains in an insight article by McKinsey & Company, “Six Steps to Successful Supply Chain Collaboration” – https://www.mckinsey.com/practice-clients/operations/six-steps-to-successful-supply-chain-collaboration
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