 Welcome to SC2X's last live event here. I'm Chris Kaplus and I'm joined by Jim Rice and we're gonna talk about a couple things. First, we're gonna talk about a quick rundown of the course and give you some key things to remember that you've done over the last 10 weeks. And then we're gonna talk about the Chef Yourself case and just kind of go over some of the responses that you guys put in the polls and then we're gonna give you a chance to discuss with each other. We'll do a little breakout session for about 15, 20 minutes. And during that time, I'm gonna ask you a specific question and I'll tell you the question now, but I'll recap it before we go on to our break. And the question I want you to focus on in your breakout groups is looking at in real work, tear yourself away from the Chef Yourself case for a second and look at the acquisition that Amazon had of Whole Foods, which is a upscale grocer with a small market share but they're still very niche but upper higher level. And what impact would that have on Chef Yourself's market industry? It's market, it's industry and do you think it would help Chef Yourself, hurt Chef Yourself or have no impact? And so I'll recap that but that's the thing I want you to be thinking about and I'll give you some more details. Before we go into Chef Yourself, let's talk about the course. So the whole thing for SC2 Act, it's the third of the five courses and this is really the transitional one. Whenever you build an arch, you always need a keystone and the keystone is the thing that holds the arch together. SC2 Act is the keystone for the whole series from MicroMasters. The first two courses, zero and one, we're all quantitative dealing with models. We taught you techniques, we showed you how to apply them to make transportation trade-offs and then the last two courses are much more qualitative. We're gonna talk about dynamics and how things like global supply chains disruptions and regulations impact supply chains and then how to scale it up to bigger sizes but in the middle it's SC2X. The first half is relatively quantitative and the second half is relatively qualitative. So it's kind of the key of the entire course that kind of ties things together and we tie things together by focusing on the design of the flows, the physical flow, the information flow and the financial flow. So we start off the first four weeks solely on the physical flow and we did two things. We looked at two classes of models. One is facility location and then the other is network design. And so we kind of brought those together into a supply chain network design model. And so what we're doing here is applying mixed integer linear programs to help us decide the decision variables which would be where to locate facilities, where to serve what facility from which other facility, how to bundle customers together, all about the physical flow. So what we're really designing there is the physical flow of goods from origin all the way through to destination. And we did a couple of cases with multiple echelons with the plants, multiple plants, multiple DCs, multiple regional DCs and how things flow. We focused on the math but we also spent some time on the process because again, this is one of those things where yeah, the math is one thing, it's fun and a lot of you enjoy the math but it's the least important part in a real process because getting the right decision makers together, making sure you're solving the right problem and bringing everyone on board, that whole change management is usually more important than the actual optimization models. And that's a hard thing for us, quantitatively oriented people to get our arms around because we always think the numbers are the most important and they're usually not. It's actually those softer things and that's what we tried to introduce as well. Then we moved into production planning. This is kind of dealing with the information from the sourcing side on and you saw how the exact same models which is your linear programs can be used to determine production scheduling, tying in the bill of materials with the MRP plan and try to set up the production planning that goes naturally into information going to your customers in aggregate planning. And so hopefully you saw in the whole dire wolf example we did where you can actually optimize the whole supply chain. Now, it's just a plan, right? Because in real life, things change. We'll talk about that in SC3X but you can use this same approach and it's widely, widely used to plan your whole supply chain. We also took the opportunity to introduce you to heuristics. Sometimes heuristics are better than optimal methods for a bunch of reasons and the primary one is an optimal method usually looks at everything to be exactly the same and totally deterministic. And in life, nothing is deterministic. So sometimes a myopic heuristic like the silver meal algorithm we did for production planning outperforms an optimal method which looks at a full time horizon. So you have to trade off do I wanna do a heuristic or an optimal method and there's a lot of trade offs there. We went into sales and operations planning which again moves up the information flow with you and your customers and we went through the process by which that can happen. And finally we finished up with introducing the last piece of product flow which is channels. And we defined what a channel is and how there are different channels that are used by the same companies will usually have multiple channels of getting their product to market whether it's a traditional channel through their distribution centers or direct to store or maybe a hybrid using an omnichannel approach where you have e-commerce introduced there's all this different flux but it's all ties together with how you want your product to flow. And the last thing we did on product flow was talked about the reverse flow because now we have product going out but especially with e-commerce where returns can be 30% or higher you need to process the stuff coming back and it's not just returns sometimes you have products which are in a closed loop. And so we try to tie all those things together when we looked at the physical flow. Then you had your midterm which I know you all enjoyed and then we had the next week we came back in the Professor Yossi Sheffi talked about procurement and this is where we're talking more about the information flow and so this is the information flow from you to your vendor and he talked about just general methods of procurement kind of a standard approach that's pretty common to be used for any kind of product and then he went and dove a little deeper into combinatorial options and these are makes sense whenever you have a complex procurement the thing that you're trying to procure where there might be economies of scope scale or other softer constraints you want to enforce and again what you found is you use the same mixed integer linear program to solve this problem and again it's very widely used. After that I turned it over to Jim and Jared and they talked about supply chain finance so I'll let Jim give a recap on those two weeks. Thank you Chris and welcome again to all of you and congratulations on making your way through the course. So in our week eight, nine and part of week 10 we really it was a bit of a departure because instead of living in the supply chain we actually stepped out and we tried to present to you the student the opportunity to look through the CFO's lens if you will to understand the supply chain from the financial perspective and in the first week we really introduced some of the basic fundamental concepts how to read an income statement and a balance sheet understanding the connection between those two. We talked about cost systems and this goes to your point earlier Chris about numbers and how numbers how much we love numbers but how really they're primarily used for helping us make decisions and the numbers by themselves do not tell us what the right answer is if you put that in a broader context and the same is true in supply chain financial analysis. So we looked at cost systems and cost systems provide information to the practitioner to understand how his or her system is generating costs vis-a-vis their ability to generate revenue and then that might lead them to take actions to modify their revenue plans or modify their costs by dealing with the supply chain design itself. We then led to talking about ABC activity-based costing which is a very specific practice that allows firms to understand and make a very clear connection between the cost drivers and the actual cost that's created in the product itself and it's a new relatively new the last 30 years or so but it hasn't been so widely adopted that everybody's using it's commonly used and provides a much better insight into the actual cost that a firm occurs when producing a product. We finished up that first week by talking about introducing working capital in the cash conversion cycle. So how long does it take from the time you put that first bit of currency on the table to the time that you actually get that back through from their production and sale of a product? The week nine, we continued talking about working capital and my colleague Jared Guetz will introduce some of the concepts of this kind of cash flow and that present value particularly to help you understand how to make investment decisions in the supply chain. Now investment decisions that hold analysis is very similar across cuts across just about any domain. However, there are some unique or at least unusual aspects in the supply chain and Jared covered those in that particular segment. The last piece that we did in the week 10 I introduced this concept of supply chain finance. Now you've heard the term supply chain finance supply chain financial analysis and in that segment I basically suggested that these terms are not very clearly indicative of what this subject matter really is. Supply chain finance as it's currently used relates to the process where a firm basically takes its receivables and goes to alternate parties, third parties to try and provide some cash for them. And this is driven because in the last mainly since 2008, we've seen a credit crunch and lack of ability for firms to get cash. And so the buyers are often extending the receivable their payables to upwards of 180 days which means firms have to operate for six plus months without cash. Hence this need to go out and basically take that receivable and get some cash for that. That's what supply chain finance is about. It's not really directly, I mean it's directly related to the broader subject matter of looking through the CFO's lens to understand the supply chain from a financial perspective. So that's what we did in weeks eight, nine and 10. So for the supply chain finance that's more about negotiating the payment terms. Well that's one aspect of it. Sometimes you don't get the chance to negotiate. So what have you seen for companies as far as ranges of payment terms? You mentioned an extreme but what are you seeing that trending over the last couple of years? The amount of payment terms that a buyer is giving to its suppliers. So I went and looked at some of these cash conversion cycles and particularly looked at the payables and it varies somewhat by industry but certainly in the consumer products industry that has increased across most of the large competitors. So it went from about 40 to 45 days which is probably three or four years ago all the way up to on average is probably in the 90s. Now within that particular industry in that segment the range is upwards of 180 days to about 75 days. And some of the more thoughtful practitioners the customers I should say are basically saying look we are gonna extend our payment terms but we'll help arrange something so that you can get cash earlier. But it means that the supplier is gonna get less than what they've bargained for. Yeah but there's a reason why companies are doing this. Oh yeah. So I know I'm talking to someone like Ann Hazard Bush who went in and they do 180 days and they pushed it except for some industries they backed back down for example for transportation they cannot do 180 days. There are no carriers that would accept that. So they had to shrink that but it's a huge changing the payment terms are massive. I mean it's a way to get quick cash for the buyer. Yeah so this concept of the supply chain finance is really very powerful and I think it's only taken, it's grown significantly in the last eight years or so. Now the fact is it's been around for a long time we just didn't call it supply chain finance. We've known it as discounts that the supplier might offer to the customer if they paid early. But that's a form of, it's a mechanism to get that cash earlier. But what's interesting though is that talking to some CPOs and chief procurement officers from different companies when they institute something like this not all companies complain. A lot just don't even notice. They don't do anything. And so there's a reason it's like same thing. I equate it when we did a study back, gosh remember this was about six years ago we're after 2008 and the same response with the recession is a bunch of vendors started slow shipping or slow steaming rather. And so they slow down instead of taking 26 days it would take 30 days to get to port. And all of us in our models will say oh inventory is gonna go up because of you know if I slow down my lead time my safety stock has to increase. And we saw nothing, no impact because things are so loose. And I wonder if it's the same thing. If I'm a CPO chief procurement officer for a large company why not? Why not try it and see who complains? Gonna go from 30 days to 60 days and if someone complains maybe I'll deal with them but chances are maybe half the people won't say anything, won't even notice because they're disconnected. I think it's possible to have a win-win. Actually it's a win-win-win. It's a win-win for the customer who basically gets to extend their payments and use what's called OPM, other people's money for a while, right? And then for the supplier it can be a win because he or she can actually get cash sooner than what they're accustomed to. I mean instead of getting cash in 45 days they can get it in 10 days. And then for the banks who are providing the liquidity this is wonderful because they get all this additional business. So it helps manage the working capital that's being used in the supply chain. So it really has great potential. Because if not, if you assume everything gets to 30 days it's kind of like almost a yield management. Not every company is as sensitive to having to get the cash in 30 days. So if you offer a portfolio maybe it fits a little better to different people. Yeah and that's one of the variants in supply chain finance is this idea of dynamic discounting and so traditionally that the discount is offered on a fairly fixed term. You'd be 2% net, 2% 10 net 30 meaning you'd get 2% discount if you paid within 10 days. Well this dynamic discounting is an arrangement by between the supplier and the customer whereby the supplier might say you know what I really need the money in four days and here's the discount I'll give you if you pay me in four days. And then the customer gets to accept or decline that offer. So there are increasing number of options and I think that's a good thing because I think it can be good for all parties. So to ripple that out the system, the ERP which are probably handling most of these payments they're mostly going to be able to handle this because it's just payment terms. And every, it's usually payment term by company so it seems like it's one of those things that a system can automatically handle. Other things like when we talked about slow steaming ERPs are not capable generally of handling multiple lead times on an origin destination pair or a sourcing pair, but it seems like for payment terms for a specific vendor it's very doable. Well and I think the electronic systems and programs that manage your procurement can be very productive and effective in this environment because in this case you're really talking about managing days. And if you can make that arrangement say look I'm going to pay you in 180 days but I will pay you 180 days, not 181, not 179. Well if the supplier can bank on that or count on that, that's going to be very powerful instead of saying well I'm not really sure so I have to add some hand in there. So those systems can increasingly allow for the money to go more quickly when it needs to go. So it takes the uncertainty out. It does, absolutely. That makes sense. It reminded me, prior to coming back to MIT I was doing acquisitions for companies for truckload transportation and other things. And I remember we did a bid and we went out and the company was a steel manufacturer kind of in that industry and they went out and they asked each carer to give two different bids one for 30 day pay terms and one for 60. And can you guess what the outcome was? From all the carers. So they go out and say, okay, Kara you give me your bid on this lane and we'll pay you in 30 days. Same, give me another bid and we'll pay you in 60 days. Identical rates, there's no difference. They're not sophisticated. And one of the reasons is the guy who's filling out the procurement, they want to win, right? And they're totally disconnected from the payment term because you don't care what the payment terms are. You want to win. So it's kind of interesting how that ties together. And then that goes back to why this segment is important because we in the supply team can't just think about winning. We have to think about how this affects the overall business and working capital. We are in the supply team, we are really responsible for a lot of the working capital. So we really need to understand that the financial lens and one of the things that we can do to better manage the company's assets. It's so much more fun to win though. I like to win also. You get your bonus, right? Okay, so then once Jim finished in that in the first half of week 10, Jared came in and talked a little bit about metrics, performance metrics within financial. And I came in right after that and talked about operational metrics. And we're kind of similar in that when you look at things as an input-output model and everything can be all metrics kind of tied to that. You can measure how effective or how you're utilizing your inputs, how effective are your outputs and how efficient are you transforming inputs to outputs. Whether you're converting receivables into products, whether you're converting shipments into orders, anything that you're looking for in supply chain you can turn it into a process and measure it. The key things we wanted to let you know is there is no one golden metric that's gonna tell you everything. You need a balanced scorecard. You need to make sure you're covering all three aspects of a system, the utilization of the inputs, the effectiveness of the outputs, the quality and then the efficiency or productivity of the transformation. It's pretty common, but we kind of gave you a framework that you can look at that. And then we finished up with organizational design. Again, everything in this course is a design of the physical flow, the financial flow and the information flow and finally organization, which seems so trivial, but when you get to large companies, this is the problem that they have. So we did a large project with BASF, a large chemical manufacturer six years ago and their problem is they have 72 business units and each one has its own P&L profit and loss, but then there's a centralized supply chain. So the question is what things does the P&L, does the business unit do? What things does corporate do? And how do I set up that level of agreement? How do I set up that service level agreement? Other companies have this exact same problem. Any company with more than one division or region will face this problem. What do I centralize? What do I decentralize? And it's not the same. What I gave in the lesson was just a rule of thumb and generally things that are more strategic or can be leveraged for economies of scale across the whole organization, centralize those. Decentralize operational things that need that touch, but that's like a broad brush. Do you have any experience from here? Any thoughts on that, the centralized decentralize? Cause you've seen this in a lot of different companies. Well, we've seen that in a lot of the companies we work with and it's a constant struggle for firms because there's benefits of course for centralizing, but then you lose that custom approach and the ability to actually have very close management of the operations. So we end up with matrix operations. The matrix systems a lot. So matrix is where you have, I think I talked about this in the lesson, you have solid lines and dashed lines that you report to two people, two organizations. So that was a quick recap of the course and Sergio, did we miss anything? I don't think so. I always have to check with Sergio. He's the master of the course. And so we had a couple of questions before we get into the case study. William Casper asked if which areas in SC2 are the least well implemented by companies today? Where's the best opportunity to apply what we've learned? Boy, that's a good question because it varies by company. I think some of the easiest things you can take and apply will be some of the finance stuff, to be honest, because a lot of times if you're in a supply chain organization, they're not that financially savvy in a lot of respects. They speak the language of production and lead time, item short, they don't transition into the CFO's talk. I think that can help you personally the most as far as what companies do the worst or where there's biggest opportunity. Besides that, I would say procurement. Procurement is suddenly, not suddenly, is more often being included in supply chain, at least for indirect goods instead of direct. Remember direct is for the materials itself that goes into the product, indirect are the things like transportation, logistics, paper clips, things that don't go into the product itself, which is still can be a big buy. And I think some of the things in procurement can be really readily used for really quick gains as well as longer strategic ones. But what are your thoughts, Jim? And what do you think is the thing that they can is least well implemented by companies today? Well, for large firms, they are gonna be very actively managing the working capital. And I think the giant firms. But I do think that if your firm doesn't happen to very actively manage working capital, that this concept we spent some time talking about the supply chain finance really does, can make a difference. And that's up to you to go out and work together with your finance colleague and help him or her understand if they don't where capital is used in the supply chain and what the opportunities might be for reducing some of that capital. So the things could be operational to help you reduce capital, right? Just in time system would certainly reduce capital. That's not for everybody. But then you could also do some things, as I mentioned, as we've talked about using third parties for managing these receivables and the payables. So I think that that can be a quick hit, but a relatively quick hit because I think it's one of those underutilized and emerging areas. It's relatively new to the end. I mean, it's been around forever, but it's still relatively underemployed. Well, just as an example, this treatment of this concept of supply chain finance, it wasn't until last fall that Harvard Business School produced their first case on that, to my knowledge. And now they have tons of cases, I think about them as being leaders in this subject area, but looking at it from a supply chain perspective, that just suggests to me, it's just one anecdotal piece of data that says, hey, this is now emerging. Does that say something about Harvard Business School or about the industry? Tim's a grad, so I have to make fun of him for Harvard. Okay, we have another question from Candido Perez and he or she asked, how do supply chain managers deal with uncertainty? I mentioned optimization models are deterministic. Yes, all optimization models, not all. The vast, vast, vast majority of optimization models you'll see in practice, assume a deterministic demand and everything is deterministic. Dealing with uncertainty, we know this already. If you took SC1X, you should have a good handle on this. You can either try to reduce the uncertainty or buffer against it. That's really it. And so you can also try some flexibility things, but for buffering, it's called inventory. And so you should be experts at how to set your inventory levels based on the uncertainty levels. As far as reducing it, we talked about different things to try to reduce that uncertainty. And what Jim talked about for the finance, that's another way to reduce the uncertainty of being paid and getting your receivables. But we talked about reducing it in terms of forecasting, accuracy in terms of transportation variability. So doing a network design under uncertainty, that's tricky. And what I showed you in, I want to say, we sure three, Sergio, what you can do is kind of a bootstrapping method where you can do a simulation, do your optimization within a larger simulation that has the demand change. And you see which facilities tend to be open more frequently. And so you look at kind of a, which is a more robust optimization plane. So you can handle it that way. But there's a lot of things you can do to handling uncertainty and operational. Strategically, it's a little harder. And we talked about, we'll talk more about that actually in SC3X when I talk about longer term planning as well as some other techniques. All right, any other last questions about the course? Nope, okay. So we introduced this case study. Let me just give you three minutes of it. We followed, it's a theoretical case. I made it up and we've added to it over the last year or so, but it's based on some real companies. And so the situation was Wendy showed up first day at work, new to the company, and she was charged with trying to institute, to fix things over which she had no authority, which is a highly realistic situation to be honest. And so what we gave you was a series of interviews she had and questions that she had for different people, try to identify what the fix is. So she talked to the CEO, John Bush and the transportation director who was an early, early employee, talked to the nutrition director Lisa Cross, the sourcing director Eddie White, Becky Schick, the kitchen operations director who owns the kitchens, as well as the marketing director who was new Linda Chin. And they each had differing opinions on what should be done. And so we tried to pepper the case with a lot of realistic challenges because this is a challenge that any growing company faces, they go from the small thing and suddenly they become so big they hit a tipping point. So things, no one's a generalist anymore. And so you have specialists and people have starting having differing opinions of where the company needs to go. And so I asked you a series of polling questions and the first one was, which of the set of initiatives that I gave you to say, do you think when you should start with? Because she had to start with an initiative because she was working with Raj, Raj is the CFO, the COO Raj Singh and trying to understand what should she do first. And so I gave a series of questions, options rather to establish an SNLP process, create a formal forecasting team, conduct a network design, establish a meal design process for sourcing, kitchen, marketing and other functions, kind of bringing that together, redesigning the distribution of the boxes to those new cities, remember LA, San Diego, Las Vegas and Phoenix were the new cities they were adding. And then the last one was renegotiate the payment terms for suppliers from 30 to 60 days. And so comparing what you guys said, you guys went all for the SNLP, which I could predict you would have done because it's the last thing we covered, right? And in the lesson when we talk about physical flow. So you have to ask yourself, is that the right thing to do first? Because all of these initiatives, these one, two, three, four, five, six make sense to do. And so the question is, what do you do first? What do you do longer term? Because now it gets into that qualitative kind of squishy stuff. So it's the softer skills of change management. And so one of the key things when you're having to institute change management, especially if you have no authority and Wendy has no authority, no one reports to her, is what do you need to do? You need to do something quickly to establish credibility because she has two strikes against her right now. One is she's new to the company. So she's not one of us, right? She's this new person coming in. The second is that the, I lost my train of thought. She's new to the company and the other thing, she has no authority, sorry. And so she really doesn't, she can't direct people to do anything. So she has to influence, she can't direct. So it's a soft skill, not a hard skill. And I think I talked about that at the end of SC1X or somewhere in there earlier too. And so while I agree that probably the most critical thing she needs to do is get the SNLP process, that could take a year to get in place because think about what the SNLP requires. It requires both the operations people and the sales and marketing people to come to a single meeting and agree on things. And that's usually non-trivial to make happen. So if I look at this, the thing that you guys voted as the least important, renegotiate the payment terms for a supplier from 30 to 60 days, I think I'll do it on day one. And the reason why is exactly what Jim said, I wanna, I need to get some cash because if you look at the financials, they're not doing so well, right? Things are kind of bleeding a little bit. And so maybe the way to get credibility is to hemorrhage, stop that hemorrhaging a little bit. But Jim, what do you think? I agree with you. And I think that it's an easy- Good answer. He is my boss, okay? No, but I have a little bit of a different perspective. A lot depends also on the context. In this particular case, you have a small firm. It's a startup. And in a startup, I mean, it's true for all companies, but cash is king. And so in a startup, if you are hemorrhaging cash, you may not be able to operate very long because you're living on investors' money. And so typically if you're a startup, the clock starts ticking once you get your first unit of currency, right? Whether it's a dollar or a euro. And you operate until that money is gone. And because these firms in a startup are relatively small, oftentimes don't have a lot of assets, they can't go to the bank and say, well look, we're gonna provide our assets to back up the loan. No, you may not have that. So it's even more acute in this particular case. They need to get cash to preserve their cash. And by going from 30 to 60 days, it's a near immediate hit. And it's relatively easy to implement. Now, ideally they would work that out with their suppliers and not just start paying them in 60 days because you're only gonna hurt your suppliers if you tell them you're gonna pay in 30 and then you pay in 60. So I think that's an immediate hit. And then the next one I think that, you wanna talk about the next one? Well, I think the other one was redesign the distribution of the boxes to the, I'll call them more remote sites. If you, the student had done some analysis and looked at the revenue and the cost by location, you'd realize that the sites that are right near the headquarters, which is Sacramento, San Francisco and San Jose, their operating margin were all positive. But every one of the others, Los Angeles, San Diego, Las Vegas and Phoenix, all of them were operating with negative operating margin which would tell us that their costs have obviously increased so much for the, due to the transportation, so much that that's something that you need to fix. And fixing that right away is gonna provide the, it's gonna go right to the bottom line. You know, in fact, the next question we asked was what transportation initiatives should Wendy take? And there was a series of six there and you guys did put as a top one negotiate with the carrier KC Fish, which is just a play on JB Hunt, another national carrier, to take over the distribution to the four new markets as well as run a transportation bid for all line hall transportation, which makes sense because that's getting to exactly what Jim talked about. Let's do this now. We're gonna go to the breakout rooms. And so here's the question that I want you guys to be thinking about, how will the recent acquisition of Whole Foods by Amazon impact chef yourself's market and entire industry, discuss this, come up with some thoughts. You can chat those to us, text those out to us. And I also want each group to vote on whether the acquisition hurt chef yourself, help chef yourself or has no impact. So each team, each breakout group should give me a vote on what they think it is. And you can vote individually as well. Just send us an email in and we'll tally up those votes. When do you want to vote by? I want it in the next, let's see, it's 35. So let's give you 15 minutes, okay? So 15 minutes and we'll give you a little couple minutes warning sign, come back. And if you have any other questions, you can chat those through as well. All right, seeing about 15 minutes guys.