 Welcome back. I'm Chris Caplis. Jim Rice. And we're going to talk to you about the Chef Yourself case. But first I wanted to do a quick recap of what you've learned so far in the course. And then we'll get into the discussion of the case, which is becoming more relevant, certainly in the states, the last couple months. And then we'll have a breakout. We'll ask you guys to break out in the separate rooms and have a discussion yourself. And then we'll come back and discuss that and wrap it up and talk about SC3X, the follow-on course. All right. So let's talk about SC2X. SC2X is my favorite course, to be honest, because it's the Keystone course. You've got zero and one, which are all about analytical methods and models, and then you've got two. And that starts with models and design, but it goes quickly into not the softer side, but the more qualitative side of supply chain. So you get into a lot more realistic things. And then, as you'll see in SC3X and 4X, we expand that even further with complexity and dealing with large-scale systems. So it's kind of the bridging course in the whole curriculum. So we started off with models. We start off with facility location models, the Webber method, center of gravity, kind of basic stuff. And then from that grew into using Mixinger Linear Programs to do network design. This is usually supply chain network design that you will always touch in your career. You will touch this at least once in any company you're working with, whether you're running the design project or you're helping with it or providing input to it or discussing the results. So we spent a lot of time on network design, and there was also a way to teach you the ideas of running scenario-based analysis, where you always do a base case and then optimize base case and then compare to that. And it's just a good approach to looking at making large-term strategic decisions and using that with models. And remember, the key takeaway from all of this is not the math. It's that models don't make decisions. People do. They're decision support systems. So always keep them in the back of your mind because whether you work for a consultancy, a software company, or you have one of them work for you, there will always be people on the team who will think the model makes the decisions. And you have to really resist that. It's just there to support your decisions. Then we took that same framework and applied it to production planning. And you saw that that mix-ins-your-linear-program technology, that method, is very robust. And it's widely, widely used. I would say it's the most widely used analytical method in supply chains. We used it in aggregate planning. We used it within production planning. And we also showed you when it falls apart and when you might want to use heuristics instead of an optimal approach. And a lot of that depends on how much uncertainty and change that you might have. Because sometimes that was myopic. Those really focused heuristics work better than a long-range optimization that's considering everything in the future equally. So it's just a way of weighing those. Then we went into SNOP, sales and operations planning. Spent a lot of time on channel design, distribution flows. Looked at that omnichannel, direct-store delivery. Kind of transitioning away from pure models into how they're applied. And we finished up with closed loop and reverse supply chains. Kind of wrapping up the whole design of the flow, the physical flow. Then after the midterm, we shipped the gears a little bit. And we started with Yossi Shepi talking about procurement. And again, you saw both the use of that mix-ins-your-linear program as it's being more common with optimization-based procurement, which is much more common now. We introduced you to auctions and just the general procurement approach. And then after that, we turned it over to some supply chain finance. I'll let Jim talk about those weeks. Yeah, I was just thinking about the comment you made earlier, Chris, about the course being a bridging course. I think it's also a bridging course in the sense that it connects all the things that we do in the supply chain to the broader business. I mean, you mentioned earlier that you talked about S&O fee. Well, that's connecting with the sales and marketing folks and integrating what we do in the business. So we don't want to work as a silo. We want to be part and integrated with the business. And I would say that that's one of the core purposes of why we have the supply chain financial analysis segment in this as well. Because what we're doing in that particular those couple of weeks of subject matter is we're trying to help you make the connection between what we do in the supply chain to the financial statements and to the leaders in the business whose primarily lexicon, their dictionary, their language is the language of business or finance. So we need to be able to take what we do in the supply chain and help people understand it. And that's why we start, for instance, in week eight, we start with understanding some of the fundamental primary financial reports that are used in business. And that's the income statement and the balance sheet. We carried on from there to understand what the role of accounting is and that there's a number of different types of accounting that are used if you will in terms of the cost systems that is. And then there's some fundamental principles of accounting. Now all these really set the stage to help you be able to do the following. That is making a very clear connection between the specific financial, the transactions in the supply chain and how it impacts the income statement and the balance sheet. That's going to be really important to be able to explain to the leaders in the business. Now the costing systems, we need to understand that the costing systems really comes back to what you were saying about decision support. These are decision support systems. These are internal systems that allow the business to have a better understanding of how the costs are created so they can make better decisions about which products, which customers, which markets to serve or choose not to serve. That leads us into this approach of using activity-based costing, which gives a more accurate reflection of the cost for a business. We then field off of that and go into working capital space, which is basically the funds that the business invests in the operations and how much cash is actually necessary to run the business and how long you need to have that. And that's where we showed you how to do the cash conversion cycle. We talked about net operating, working capital, sort of how long you need it and how much you need. Jared Gensel, my colleague, picked up and then went and talked about discounted cash flow, supply chain cash flows, and net present value to help you understand how to make investment decisions for the business in the world of supply chain. And then finally we talked about supply chain finance, which is, you know, here to forward has been known as supply trade financing. But basically how do you get cash when you have a receivable, meaning someone owes you money and you need to get cash to run your business? Pretty simply stated. Yeah, so the first part of the course was all about designing the physical flow. The second part was more about the financial flow. And so interest first with this is some of the information flow. And why we wanted to introduce the financial here is because everything we've done previous to this to include the two courses is kind of our own supply chain speak. You know, I wanted to introduce you to the language of the CFO. And that's really what Jim and Jared were able to do. We wrapped up the whole course with tying together design of the organization itself. And this is something that every supply chain has and every company goes through this pendulum. Do I centralize? Do I decentralize? And supply chain is one of those things, whether it's pieces or the whole thing that kind of goes back and forth like a yo-yo. I know just as many companies where the supply chain is decentralized out in all the separate business units as it is a centralized function. Sometimes it's a shared function. It's something you're going to have to deal with because a lot of times you will be grouped in the supply chain function. We grouped in with, say, with manufacturing. Sometimes it's grouped in with marketing. Sometimes it's with procurement. And so it'll be organized in different ways with different companies. And what you need to think about is, instead of the whole entity, is what features should be centralized or decentralized. This is a general rule, I think we would agree. There are certain things that should be centralized where you can leverage, scale, like procurement, any kind of strategic planning. But the execution should almost always be decentralized. But there's always a trade-off between that. And we finished up with metrics. How do you design a supply chain metric system? So hopefully you got a lot out of this course so far because it was all about design. Design of the physical, design of the financial, and design of the information flow along the supply chain. And so what we wanted to do to finish up before your final exam next week is to talk about this case study. And so we created this case study and it's evolved over the last year and a half since we first wrote it. It was really kind of a jumble of things. And we kind of wrote it up like any case study is that at first things were working fine, something happened, and you got to do something different. And so the whole case centers on Wendy Swenson who comes to this new company and she's faced with all these competing views of what to do. From the CEO to each person in charge of wearing the transportation, the kitchens, and all these other areas. And what your job was was to try to figure out, okay, what should we do next? And so we kind of set you up for this to put you in Wendy's shoes because this is a situation that if you come into a new job, unless you're coming in on a lower mid-level staff, you'll come into a situation like this where you're expected to solve something. And you don't quite know the people, you don't know the players. And so we tried to put a little bit of everything in this case. Now we didn't design this out of scratch. We actually based this on a series of companies that are here, mainly Blue Apron. And we'll talk about them in a second. But let me just summarize. We asked you guys a couple polling questions. That's one of the talk about those. We first asked you, we gave you a short list of initiatives to give. And what should Wendy do first? And the ones that we listed in the rank order, one was them to establish a meal design process with sourcing, kitchen, marketing, and other functions. Because as you remember, it was kind of done haphazard. The person in the kitchen was kind of doing whatever she wanted. And then everyone else was expected to source that so there was no real synchronization. You guys put that as the number one thing to focus on. Interestingly, we've done this case two other times. That has never cracked the top four previously. That was always one of the lower ones. So it's really interesting that you guys thought that was one of the interesting things. In fact, the first time we ran it, it was the lowest ranking priority. So it's really interesting how that's changed. And so I'd love for you guys to talk during the break a little bit about how you came up with that. The next was sales and operations planning your SNOP process. That's typically the number one. And that's something to set up. But it raises a question though, Jim, because you've had this before. Some things are easy to do short term. Other things take a long term. So in your experience, thinking about SNOP, is that an easy thing to do up front? Or is that like a longer term thing that takes longer to put together? What do you think? I think it's a midterm. And that's not to make a decision. But what it has to do is you have to set up very specific processes between all the different parties. And you have to come to agreements. SNOP is about agreeing, coming to consensus. And so if there's one party that says we're going to go make SNOP happen, well, he or she might be a bully to the others and really not be able to create the consensus. So I think that there's sometimes necessary for relationship development, process development. It's not a really long term one. You have to wait three years to build a semiconductor path, for instance. But it's not something that I think you would have set up in a month's time or a weekend. So it's a little bit of a time. No, probably near to midterms. Because we had some Larry Lapidi when he was here at the center. He had a bunch of SNOP work. I'm trying to think, because there's two sides to it. There's sales and marketing side and the off side. It seems to me that it's usually the off side that's asking for it. Have you gotten a different perception? In most, when we go to companies, I'm trying to think, who is asking for this? Because usually, in my impression, I don't have as much exposure as you do that the ops guys feel the pain. The marketing guys are always aspiring, but they have to deliver. So they're crying uncle before the marketing guys. Do you have a different perception? No, I think that's consistent with my understanding. And that makes complete sense because the marketing sales folks were charged with building the business. And they're going to do that to the best of their capabilities using whatever possibilities that may exist. And that might mean, hey, we're going to introduce a new product. Or we're going to do this, that, and the other thing without really coordinating upstream. So it's hitting costs. It's hitting costs aren't reflected yet. And so they may make a commitment that the folks in operations can't support. And the SNOP process really brings everybody together so that operations can support those initiatives that sales and marketing really want to pursue. What's really interesting, so yes, we talked about SNOP and SC2X and SC3X, we talked about complexity. Because what you just described, Jim, is that hidden complexity that the marketing guys don't always see. The sales guys, because they say, let's do another skew extension. Well, that has ramifications, especially down at your inventory stocking and a lot of your other operations. And so the whole idea of adding complexity, that's fine. But you've got to make sure people understand the cost of adding that complexity. So one of the things about SNOP and on this idea of complexity, I think SNOP helps the folks in marketing and sales understand some of that complexity. But I also think that it helps the operations folks understand the challenges and the complexity that the sales and marketing people have so that they can better coordinate the whole enterprise. And it's funny because going back to what you guys picked for your number one initiative, which was establish a meal design process with sourcing, kitchen, marketing and other functions, that's essentially a little SNOP internal to the company. So that's like an operations coordination because what we had done in the case, and I kind of hinted at this through the case through other discussions that Wendy had, is that sourcing didn't talk to kitchen, didn't talk to marketing, didn't talk, we don't forget sales in this. It was just the people themselves. These are the SNOP and this are kind of similar, similar processes because the integration is what you guys were leading towards. So that's interesting. So then we also asked you about transportation initiatives. That's another area I wanted you to explore. And you guys are pretty much fell in line with the previous runs is that renegotiating with the KC Fish carried to take over distribution for those four new markets. Because if you do any run any numbers here, you see that you're just being it's just a bad contract. And so you need to do something there. And that that pretty makes sense. And then running a bid for the line hall transportation. That's everyone says that's one of the top one or two things that hopefully because you just had a week on procurement. And we talked about transportation procurement. It's a good way to see what the market will bear for those things. So that's great. The last thing we did we gave you three pieces here and this is interesting process initiatives. Where's the highest priority SNOP meal design or forecasting and you list them in those orders. So it's interesting. The meal design process was number one for the short list of initiatives, but it was number two by dramatic range. 60% of you said for SNOP, then 20% for meal design, 20% for forecasting. That's kind of surprising that they flipped there. But most people do say the SNOP is something that's needed because obviously the big thing you can take away from this case study is that people weren't talking to each other. And I wish I could say that's unique to this case study. But that seems to be the root of almost every problem in every organization is that there's no formal mechanism for people to communicate and trade off the decisions for a unified decision. And I think that's a specific, especially true for startups, because in startups people have to get stuff done and a lot of times they don't have the high structure that usually comes with large organization. And so it's not only, I mean, not all startups have that problem, but it can be more likely there. And so like I said, I didn't base this on just, you know, I didn't make it up totally from scratch. I actually based it on a company called Blue Apron, which interestingly went public last summer, the summer of 2017. And it originally went out at a stock price of $10 a share on the end of June. And do you know what it's trading for now? I just checked it last night. $3 a share. It had two big drops. One of them coincided with the Amazon announcement where Amazon bought Whole Foods, but then it just recently dropped again. They've had their revenue has actually gone up. It's exceeded expectations. So for Q3, which ended in September, their revenue is about $210 million. Great. It exceeded by like, I want to say 10 to 15%. However, the number of customers is falling. It's dropped from a million in the first quarter down to 800,000. So they're dropping customers and it's costing them more. The costs are going up both for their marketing costs to retain, get new customers. And also they just opened up a new facility and that's really hitting a lot of their costs. And so they've had a lot of layoffs. They've laid off over 10%, or right around 10% of their workforce. So they've been struggling, but they're not alone. There's other people in this space. Now there's a lot of companies that are entering or have been in there. And I think it's not clear how that market is going to develop because there's, we believe, obviously the folks who joined us in the marketplace believe that this is, there's going to be continued demand for this. But what we don't know is whether this is going to be a passing pad or and only be serving a very small marketplace. Yeah, because this is also, you know, we can talk about the different companies because there are at least I just went on the web real quick. I found six direct competitors. So Hello Fresh, Plated, Green Chef, Sunbasket, Home Chef, Purple Carrot. I know Tara's Kitchen is another one. There's a lot of local ones that do this as well. And these are ones that order online, deliver at home. Some are specialty. There's some that are only kosher food. There's some that are organic. Some are higher end, some are lower end. But they're all kind of following the same format, but put them aside. There's a whole nother area of competition and that's grocery stores. If you, if anyone has the misfortune to work for a grocery chain, your margins are razor thin. The only place you really make money is if you can sell wine and beer. That's one. But the other is prepared foods. And so if you go into any supermarket, they'll push that prepared, you'll pick up and take away home meals right up front because that's where they make their margin. And so the difference between this home delivery where you have to bake it a little yourself versus pick up, grab and go. That's, there's a lot of competition there. Well, and that's what I think. We just don't know how big a market ultimately will be. You know, there's a market there, but can, can organizations serve that market efficiently and effectively and still make a profit? Yeah, because what it comes down to and hope you, you saw it. And I think the online companies are figuring this out. It's one thing to prepare the meals and get the web interface, the front end, everyone can pretty much do that. That's not a barrier to entry. The hard part is figuring out how to deliver low frequency, small objects to a wide dispersed customer base. It works where in high density. That's why you see any of these initiatives happen in cities, right? But as you get out into the suburbs or spread out, it gets tougher because your economics, the cost of delivering that one food pouch goes way up. I used to belong, my wife and I used to belong to a service that was called gosh, it can't be your name. But they would deliver every day, the meals for that day. And we did it for a little while, but that, my gosh, every day delivery, that's just so expensive. I don't know how they made money. That's probably why they're out of business today. They didn't. They didn't. But what all the most customers doing, they deliver multiple meals once a week. So they cut down the number, the frequency. So therefore you can increase the volume. That's one way to do it. But it is a challenge. Yeah, but it's a similar problem that any of the package delivery companies are trying to deal with. They need to get density for the, be able to make multiple deliveries at one particular location. And so what I think is really interesting in this exciting and emerging business, the success will largely come down to the supply chain logistics aspect of it, which is what you all are going to be doing. You're going to be the ones who are going to make or break these companies. Yeah. It's the same thing that in the United States, there's a great war going on between the traditional retailers, Walmart, moving into the e-commerce space and Amazon, the classic e-commerce, the original e-commerce giant, going into the retail bricks and mortar space. So they're kind of stepping into each other. And they're still, everyone is stumbling over the same challenge as how do I deliver small packages to a wide set of customers. So that to hold the tyranny of the last mile is the thing that's killing them. Amazon did something really interesting kind of aside from the food is they've started in major cities, I know in New York, they started taking over the management of like a large apartment complex, the back room. If anyone lives in a building where you have a concierge, the UPS guy used to come and drop six packages off and the concierge would deliver them about the day. Well over the last five years, those six packages are now like 60 packages and they keep coming in. And what was once a little mail room where you stack the packages up, it's now like a receiving dot. And so what Amazon has done is brilliant, they take over ownership of management of that away from the concierge so the building doesn't worry about it. But now they have this pipeline to a high volume traffic area. And so now they can control that flow because they're collecting, consolidating all that demand from the different places into one area. So that's pretty clever. We're seeing a lot of interesting things happen on this space. All right, anything else you want to say about the case or anything that you saw? No, I think it was really fascinating and I'm curious to see what everybody comes up with in terms of how you think about this. Yeah, so what did you do during the break out? Let's get back to the case and we want to ask a specific question because if you remember from the case, the existing kitchen is in Sacramento and now it's fine when they were serving Sacramento. A member kept getting bigger and then they started going to San Francisco and they started going down to San Jose and that's fine but now you have these other locations opening up and so they're hitting a critical juncture and so what I want you guys to decide in your groups is one, should we open a new kitchen? Yes or no? Because you're going to have to have some investment one way or the other. Expand the kitchen in Sacramento, make it bigger, make it more efficient scales because as you make it bigger you can become more efficient. Or two, do I open up additional kitchen or kitchens? And if you do that second option, where should they be? So first question is, should I keep one expand existing kitchen or open new kitchens and if you choose to, where do you locate them? I gave a couple potential locations but I'd love to hear your discussion on that. So it is just about good. Yeah, and so I also suggest if you think about what are the tradeoffs? If you're going to choose one, what are the tradeoffs between making that choice versus having multiple kitchens? And I won't say anymore but I hope that they'll give you some inspiration to Frank and be very clear about what is it that you're actually trading off? Why would you choose one versus multiple? Or vice versa? Alright, so that's your mission. So at this point let's break off in discussions. We'll bring you back in about 15 minutes and so we'll see you in a few minutes.