Cincinnati Seasonings Case Study Guide Ver2-7-8 E-51-68

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Apr 3, 2024

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Supply Chains for Lowest Total Cost Seasonings Factory Seasonings DC Louisville Store Indianapolis Store Ft. Wayne Store Chicago Store Columbus Store Console Data 48
Supply Chains for Lowest Total Cost There are opportunities to reduce storage at all the facilities except the Chicago Store. We could reduce storage capacity at all facilities, including Chicago, and still get the supply chain to run in this simulation. But there is usually a need for most facilities to maintain an appropriate amount of extra storage capacity to accommodate business growth and the occasional need to take in larger than usual amounts of inventory for whatever reason. Different facility storage costs make it advisable to shrink storage capacity in some facilities and expand it in others. Stores have the highest storage costs followed by the factory. The DC has the lowest storage costs so it makes sense to concentrate storage at the DC and use vehicles to transport product to stores as needed to meet demand and maintain safety stocks. You decide to make the changes shown in the table below. Facility Current Storage Reduced Storage Comment Factory 3,000 1,000 Move to less expensive storage at the DC Seasonings DC 15,000 10,000 Meet present needs of 5,000 and allow for doubling of business Louisville Store 1,500 500 Storage at stores is expensive Indianapolis Store 1,000 500 Large store format Ft. Wayne Store 800 800 * Unique store format Chicago Store 500 500 Large store format Columbus Store 300 100 Small store format In the edit screen you click on the Facilities menu tab and for each of the facilities in the supply chain you reduce storage as noted in the table above. * NOTE: Too much inventory at Ft. Wayne prevents savings from storage reduction 49
Supply Chains for Lowest Total Cost You run the simulation again after you make these reductions to the storage space at each of the facilities. And you stop the simulation after 30 days and export the results to excel. Then you open this spreadsheet and the spreadsheet you saved before you changed the storage capacity at the stores. You add some rows into the spreadsheets and add some useful equations to quickly give you a sense of the cost savings that resulted from reducing unneeded storage space. Here is a screen shot of the spreadsheet where you have inserted equations to use the simulation data to calculate cumulative 30 day facility cost and average daily facilities cost before storage reduction. (This is just a portion of the simulation data available in the spreadsheet that you download from SCM Globe. Add any equations you want to analyze the data.) 50
Supply Chains for Lowest Total Cost 51 And here is a screen shot of the spreadsheet where you have inserted equations to use the simulation data to calculate cumulative 30 day facility cost and average daily facilities cost after storage reduction . (This is just a portion of the simulation data available in the spreadsheet that you download from SCM Globe. Add any equations you want to analyze the data.) Over this 30 day period you reduced cumulative facility costs from $3,264,000 to $2,454,000 – that’s $810,000. And you reduced average facilities cost from $108,800 per day to $81,800 per day – that’s $27,000. You achieved a 24.8 percent decrease in facility costs by doing the simulations and finding opportunities to reduce storage capacity. Now look at your costs of transportation and the cost of the on-hand inventory across the supply chain. How much have you reduced these costs since the end of week 3? Go back and look at the spreadsheet of simulation data you downloaded at the end of week 3. Here’s what you see: Facility Costs Vehicle Costs Avg Prod On-Hand Week 3 $3,264,000 $55,967 6,989 Week 8 $2,454,000 $54,482 4,360 Savings Amt $810,000 $1,485 2,629 Savings Pct 24.8 % 2.7 % 37.6 % You are doing a great job. You have earned your paycheck this week. Go to the edit screen and create a save state of this design.
Expanding Supply Chains to Support Business Growth Week 9 – Expanding Supply Chains to Support Business Growth Objective – find the best way to support the growth of Cincinnati Seasonings by designing an expanded supply chain that runs for 30 days. Consider the impact of different types of transportation and different combinations of facilities and locations to support business growth into further cities such as St. Louis, Kansas City and points west. You load up the save state you created at the end of week 8 and take a look at the supply chain map. Here is what you see. The icons and blue lines show your present supply chain network. Circled in red are the three new store locations opening now. Circled in blue are other locations where the company has plans to open stores in the future if all goes well (the circles are added here for illustration purposes, they are not part of the SCM Globe simulation). Some of these stores will be the large format stores like Indianapolis and Chicago. They will have daily demand in the 70 – 100 unit range. Other stores will be small format stores like the ones in Ft. Wayne and Columbus; their demand will be between 20 – 50 units per day. The list below shows the stores and their expected daily demand levels: Denver – 100 Des Moines – 30 Kansas City – 100 Little Rock – 40 Memphis – 45 Minneapolis – 85 Omaha – 35 Sioux Falls – 30 Wichita – 35 52
Expanding Supply Chains to Support Business Growth 53 There is a lot to think about here. One way to structure your approach is to focus your investigation around two big questions: 1. Will you open a new DC to support the new stores or will you support them out of your existing DC? 2. Will you use a truck-based supply chain or will you use a mix of trucks and railroads? Once you decide on answers to these two questions, then you can further refine your design as we have done already with this supply chain in earlier weeks. First just get the basic idea in place and make it work. Then look at ways to reduce inventory and vehicle costs and facility costs. You start your investigation by adding the new stores in St. Louis, Kansas City and Des Moines. You can use the default values for most of the store definitions. Set store demand at: St. Louis – 80; Kansas City – 100; and Des Moines – 30. Leave the default storage capacity of 500 cubic meters for the St. Louis and Kansas City stores because they are large format stores. Set the storage capacity for Des Moines at 100 cubic meters because it is a small format store. Exact addresses for the stores are still being negotiated, so the chief operating officer (COO) tells you the general neighborhood of the stores in each city and says give it your best guess. You can always drag and drop those stores later if you need to fine tune their locations. Even without an exact address you can place the stores, and the simulation results will still be quite accurate. Accurate enough to show which design options are the most cost effective. In addition to placing the three new stores, you’ll need to estimate the increased production at the factory to handle the new demand from the new stores. Their combined daily demand is 210. At present the factory is producing 190 units of the Spicy Cube per day. This calls for more than doubling factory production rate so you should adjust the daily operating cost at the factory. The rent cost fluctuates with storage space used, but you need to estimate how increased production will affect operating cost. Operating cost includes labor, utilities, insurance, and other cost items that the company’s chief financial officer (CFO) tells you to include. At present the daily operating cost is $35,000. That seems high, yet the factory is producing 190 units of the Spicy Cube each day and they are valued at $1000 each. The factory is well equipped, and can quickly add extra capacity to increase production as demand rises. The CFO tells you to adjust the daily operating cost up to $55,000 to account for hiring more people and greater usage of power and utilities and other supplies. Then you need to find ways to move the extra product to the existing DC faster so as not to let factory on-hand inventory go beyond factory storage capability. You want to concentrate on-hand inventory at the DC because that is where storage costs are lowest.
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