Posts Tagged ‘Supply Chain’
Thursday, October 6th, 2011
John Jordan, clinical associate professor of supply chain and information systems, reflects on the accomplishments of Steve Jobs:
The passing of Steve Jobs is a cultural milestone; his greatness is unquestioned. He was responsible for five seismic changes in the computing landscape: the original Macintosh, Pixar studios (home of “Toy Story”), the iPod, the iPhone, and the iPad. For all the justified talk of Jobs being a visionary, however, his name is on 313 different Apple patents, demonstrating an attention to detail rare in a chief executive.
Why are people bringing personal notes and tributes to Apple stores? With Steve Wozniak, whom he treated shabbily, Jobs helped invent the personal computer. But it is only in the past decade that the computer has become truly personal, part of our daily life: iPods are in our ears, iPhones in our pockets, and iPads get read in bed. This intimacy, the quality of computing that stops being called computing, results from Jobs’ attention to design. He studied calligraphy as a teenager, and his love of typography helped defined the graphical user interface. The iPod has no screws or fasteners visible, and Apple’s signature white plastic cases are actually clear, with white backing. Even something as non-essential as the magnetic case for the iPad 2 is incredibly clever. The net result of such fastidiousness is tools that become fun to use, not alien forces to be wrestled into submission.
But such triumphs were not inevitable. Perhaps the most salient point of Jobs’ career is that his greatest moments emerged from personal failure. After the original Mac failed to sell in large numbers, Jobs was forced out of the company he co-founded. Apple drifted for more than a decade, and when he returned, Jobs’ first move was to tighten relations with Microsoft, disappointing the us-against-them crowd and, incidentally, obtaining a desperately needed cash infusion. The turnaround that followed was among the greatest success stories in the history of American business.
In part, technology had advanced to the point where Jobs’ vision could be executed: processors got fast and cool enough for slim designs. Flat-panel displays replaced bulky CRT monitors. Miniaturization of components, increased storage density, and ubiquitous wi-fi made the hand-held computer known as the iPhone possible. But Apple was never only about the technology, it was about human imagination and aspiration. When Jobs talked about “insanely great,” he referred both to the hardware and to the people at the company responsible for it. He will be remembered as an icon alongside Henry Ford, a man largely responsible for the dawn of an era.
Monday, April 4th, 2011
Due to the recent events in Japan, many companies, like Boeing, are concerned. The practice of keeping inventories lean in order to boost profits is proving to be problematic and Japanese suppliers are unable to keep up with demand. An article in Bloomberg Businessweek discusses the risks associated with just-in-time inventory. Smeal’s Susan Xu, professor of management science and supply chain management, shares her thoughts on what supply chains need to do to avoid these risks.
Today’s supply chains are operating under lean manufacturing principles which embrace low inventory and just-in-time (JIT) delivery. However, a tightly coupled supply chain removes inventory redundancy and makes the network as a whole more vulnerable in the face of disruption, as illustrated by the significant impact of Japan’s earthquake on part deliveries of Boeing’s 787 Dreamliner, which is already more than three years behind schedule due to perpetual production delays. To avoid the downside of JIT, companies need to increase safety stock to certain extend to isolate the impact of disruption. However, stockpiling inventory in anticipation of low probability, high impact disruptive events is also not a cost-effective strategy. Companies need to create reliable and cost efficient supply chains by using other risk mitigation strategies.
First, a move toward modularization and mass customization in recent years has allowed many companies to offer customers with a wide variety of products. These products tend to have flexible configurations and it is often the case that a part in shortage can be replaced by another part with supply. Flexibility in product design and product variety can be an effective strategy for supply chain risk management. In times of crisis, a company can dynamically influence consumer choices by offering reconfigured products or alternative products via dynamic pricing, incentives and promotions. Dell used this tactic effectively to manage its part shortage problem during the Taiwan earthquake in 1999. In contrast, Boeing was unable to alter the configuration of 787 Dreamliner due to its unique product design.
Second, relying on a single source for a critical part of a product can leave a company in a highly vulnerable position when the supply chain is interrupted. Boeing single-sourced most parts of 787 Dreamliner, as few suppliers were capable of producing these sophisticated parts. It has been shown in academic research and practice that risk diversification via multi-sourcing can help companies maintain a steady supply of critical parts. However, risk diversification may not be achieved by simply lining up multiple suppliers. There have been many real world examples, including ones illustrated in this article, where a single catastrophic event simultaneously degraded the capabilities of suppliers located in the same region. In a recent project, partly supported by my NSF grant “Risk Management of Supply Chain Networks with Dependent Disruptions,” we show that companies not only need to multi-source, but also need to select the suppliers who are not subject to common-cause disruptions (e.g., the suppliers located in different geographical locations).
Third, in the assembly phase of supply chain operations, the deliveries of subassemblies must be highly balanced and coordinated, to prevent the delay of the final assembly due to shortages of certain subassemblies. Boeing suffered from repeated delays because it outsourced subassembly operations to a large number of suppliers worldwide, many of them faced with their own interruptions such as natural disasters, labor unrest, and economic downturns. The results from our recent NSF project show that, while risk diversification is desirable at the component level, risk concentration is preferable at the assembly stage (e.g., selecting suppliers located in the same geographical region). In retrospect, if Boeing had decided to use its in-house capacity for the subassemblies of 787 Dreamliner, it might have been able to avoid some significant delays.
Monday, June 21st, 2010
Have you driven past an empty BP gas station lately only to refuel at a Chevron, Exxon, or Shell station? According to dozens of media reports, motorists bypassing BP to fill up with alternative brands of gasoline are hurting the local owners of the BP-branded stations and having little effect on the oil giant itself. What’s more, these boycotters may still be purchasing fuel manufactured by BP.
Smeal supply chain professor Terry Harrison, who studies the management of renewable natural resources, clarifies the gasoline supply chain below. According to Harrison, BP-manufactured gasoline could end up at gas stations not flying the BP flag, and BP stations are not necessarily selling BP-manufactured fuel—making the boycotts of BP stations a lot less painful for the corporation.
Virtually all firms that refine petroleum into gasoline execute “exchange agreements” with other firms.
Gasoline is a fungible product. That is, gasoline refined by one firm is equivalent to gasoline (of the same grade) refined by another. Only when additives are introduced does the gasoline become differentiable.
The basic idea of exchange agreements is that Refiner A has a refinery near Refiner B’s customers and vice versa, and they trade product. So, rather than trucking Refiner A’s product from their refinery all the way to the customers near Refiner B, Refiner A executes an exchange agreement and draws gasoline from Refiner B’s refinery. At Refiner B’s refinery, Refiner A keeps a loading platform with Refiner A’s additives. Refiner A loads up on Refiner B’s gas, then drives under the additives loading point, inserts Refiner A’s additives and now has Refiner A gas on the truck even though it was manufactured at Refiner B. The truck then satisfies demand for Refiner A’s customers on a local basis. Refiner B does the opposite at Refiner A’s refinery. Both win in that the trade in product has resulted in lower production costs since the transportation costs are reduced.
Monday, June 7th, 2010
Bloomberg BusinessWeek recently reported on Wal-Mart’s efforts to control deliveries from manufacturers, which will allow the retailer to carry more goods per truck and ensure greater efficiency of its deliveries.
“The retailer aims to take over U.S. transportation services from suppliers in an effort to reduce the cost of hauling goods,” write the authors of the article. “Under the new program Wal-Mart will increase its use of contractors, as well as its own vehicles, to pick up products directly from manufacturers’ facilities.”
While this move may make it possible to reduce prices in the stores, increased costs could be passed on to other retailers, according to Smeal’s Robert Novack, associate professor of supply chain and information systems. Below, Novack takes a closer look at Wal-Mart’s new transportation strategy and the impact this decision has on cost, competitors, and control.
Wal-Mart’s initiative to take over transportation from its suppliers to its distribution centers and stores has several interesting components. First, Wal-Mart has a very large private fleet (6,500 tractors and 55,000 trailers), which is used primarily to move product from its distribution centers to its stores. Getting the trailers to return full from the stores to the distribution centers is a challenge. So, using the private fleet to pick-up from suppliers and return to the distribution center full is very cost efficient and environmentally friendly.
Second, this initiative is getting some attention from other retailers with suppliers in common with Wal-Mart. All shippers use volume of product in a freight lane as leverage when negotiating freight rates with carriers. With Wal-Mart pulling freight volume from these shippers’ freight lanes, their freight costs could go up. These cost increases could be passed on to other retailers.
Third, many retailers have their own private fleets and have the same empty mile problem as Wal-Mart. The question then becomes should these retailers follow suit and start to take over inbound moves from their shippers. Although this sounds like a logical idea, shippers want to control their freight movements and are hesitant to give up control of outbound shipments. How does Wal-Mart get away with it? Volume. Wal-Mart represents a significant percent of most large manufacturers’ revenues. As such, they are in a position to take whatever action is going to save them money. Other retailers don’t have nearly as much leverage with these manufacturers.
Finally, this is not Wal-Mart’s first attempt at controlling more of its inbound logistics operations. It has initiated a program to increase its percentage of imports to the United States by dealing directly with overseas contract manufacturers, thereby increasing ownership and control and eliminating the role of the U.S. manufacturer.
Globally, retailers have been hit hard by the economic downturn. Wal-Mart’s actions are intended to decrease its costs so it can reduce prices to consumers at the stores. This is what business is all about. However, do these actions actually increase overall supply chain costs? This question has yet to be answered
Monday, February 8th, 2010
A recent article (and accompanying photos) in The Wall Street Journal follows one 15-truck convoy as it attempts to distribute earthquake aid in Haiti, detailing the logistical nightmare facing aid workers there.
Below, Smeal’s Felisa Preciado, an expert in the supply chains of Latin American, explains how an already weak logistics infrastructure in Haiti was decimated by the earthquake, making it nearly impossible to get resources to where they’re needed in a timely fashion.
Christopher Rhoads’ “Convoy to Nowhere” article takes us along in a journey of widespread despair and utter frustration through a devastated Haiti. This convoy’s story, mingled with all the alike reports coming from that tropical island nation, brings to mind the rising needs of the Haitian people in face of the impossibility to effectively match supply and demand. So, what is the problem? Many have wondered. Why is it so difficult to distribute aid in Haiti? Are these predicaments a natural consequence of Haiti’s pre-earthquake impoverished infrastructure? How is Haiti different than other countries struck by tragedy in recent years?
The truth is that there are no simple answers or solutions. Haiti’s notoriety as the poorest country in the Western hemisphere makes it no surprise that their need for foreign aid dates to long before the deadly January 12 earthquake. In addition, prior to the disaster, their population of more than 9 million was dependent on a very limited logistical infrastructure. There are four airports with paved runways, but only one of those has, in its single runway, sufficient capacity (length) to handle large aircraft. Add to it that the overwhelming majority of the roadways are unpaved (nearly 75 percent according to the CIA Factbook), and the picture becomes clearer. It was a challenge to distribute anything even before the day tragedy struck. Furthermore, as an island, Haiti requires access to ocean freight, which only has through one outlet, Cap-Haitien. This port was completely devastated during the quake. All cranes and quays ended up underwater, excluding the access through their ports as an option for relief arrival, sorting, and distribution.
From the early stages, as aid poured in from all over the globe, it became evident that the airport, the most direct and only port of entry (other than border-crossing from neighboring Dominican Republic), was going to be a major bottleneck. A bottleneck resource limits your capacity, and limited it has been indeed. Slowly aid is coming through and out of the airport. Notwithstanding the badly damaged control tower, all aid agencies have tried their best to reach the needy with the help mainly of the United Nations and the U.S. military through the Port-au-Prince airport as the major hub and command center.
Another major aggravating factor is that the local infrastructure that traditionally is key after a natural disaster was not there. A supply chain needs not only roads and ports, but also manpower, equipment, facilities, and accurate and timely access to information.
All of these were already scarce, and the disaster took a major toll on the limited resources that were available. The reality is that, in fact, they were not only dealing with the aid delivery problem; there was the rescue problem and the healthcare delivery problem, as well.
Three supply chains with distinct purposes, yet very closely intertwined and interdependent. A challenge that requires collaboration, synchronization, and the involvement of the local authorities and other entities, which sadly for Haiti were already deficient, then rendered completely crippled by the fateful event. In consequence a domino effect has taken place: delays in getting the aid to people, people becoming hungrier and more desperate, security problems arising, then security problems delaying and even blocking the distribution of badly needed aid.
The problems seem overwhelming, but the resolve of people like Scott Lewis (in the Journal article) shows the best of our humanity. There are people working around the clock to repair the Cap-Haitien port. Many from the logistics community—from freight forwarders and third-party logistics providers to academics and members of related professional organizations—are donating their time and effort to help bring comfort to this battered country by developing effective distribution strategies. They work side by side with medical personnel, relief agencies, and the international community at large. They need help, and will continue to need help for a long time. In spite of all the obstacles logistical, or otherwise, we must not silence that which compels us to help in any way possible.
Thursday, November 5th, 2009
BusinessWeek’s Cliff Edwards reports on California’s plan to regulate the sale of televisions that are not energy-efficient, leaving consumer electronic companies and retailers up in arms. “As early as Nov. 4, the state is expected to set new guidelines that would require retailers by 2011 to sell only sets that consume about a third less power than they do today,” writes Edwards. “Manufacturers and retailers say the new rules could force them to pull large-screen plasma TVs and many other models off store shelves.”
Smeal’s Dan Guide weighs in on the issue and how this impacts consumers:
California’s proposed rules mandating power consumption from TVs are an excellent example of good legislative intentions with bad outcomes for consumers. The bad outcomes are most likely to be increased prices for TVs and reduced choices for consumers in California. Is the real problem that energy prices are too low? If consumers are indifferent to an increase in their energy consumption then there is a strong possibility that sufficiently raising electricity rates will decrease consumption, but at a high societal cost (e.g., older people on fixed incomes unable to afford air conditioning and dying from heat stroke). Consider the impact of $4 or $5 a gallon gasoline prices on fuel-inefficient SUV sales as a recent case in point. Should refrigerators that consume ‘too much’ energy be banned? It seems a no-brainer for those of us with plenty of money, but energy efficiency comes at a price (a more expensive price tag) and we (hopefully) recover our investment in a reasonable period of time. However, if you are worried about paying for the food every week, then buying a more expensive, but energy efficient, refrigerator may be out the question.
The U.S. EPA’s Energy Star Program already rates TVs on power consumption and makes this information easily available via their website. This option allows consumers to vote with their wallets and if consumers don’t buy energy inefficient TVs, then manufacturers will stop selling them. The California commission claims that 38 million Californians would ‘double TV energy consumption’ by 2020. This claim assumes that manufacturers will do nothing to reduce the energy consumption of their future offerings. This isn’t likely since manufacturers have already made marked improvements in plasma TV energy consumption. It seems odd to single out a single luxury item for this type of legislation. What about flat panel monitors for computers?
A related question (that hasn’t been asked) is where the most energy is consumed during the product life cycle. For example, mobile phones and laptop computers sip energy during the use phase, but require enormous amounts of energy during the production phase. To make the problem worse, both of these products have very short life cycles before they are discarded in favor of the newest model (80 percent of Americans replace their mobile phone within a 12 month period). Recycling of both these products is problematic since there are so many mixed materials present. This is a much more difficult problem to address, but with a higher potential payout.
Monday, July 6th, 2009
The New York Times recently reported on the growing trend of electronics recycling. “Since 2004, 18 states and New York City have approved laws that make manufacturers responsible for recycling electronics, and similar statutes were introduced in 13 other states this year,” The Times reports. However, electronics recycling is likely little more than a Band-Aid that “simply covers up the problem of e-waste for a short period,” according to Smeal’s Daniel Guide, whose research focuses on the creation of industrial systems that are both environmentally and economically sustainable.
More from Guide:
As a result of the recent interest in the recycling of consumer electronics, many states are passing producer responsibility legislation aimed at keeping e-waste out of landfills. Keeping e-waste out of landfills is an excellent idea—especially older waste that contains lead-based solders and dangerous heavy metal such as cadmium. However, the United States would be well-advised to learn from the European Union’s recent experiences with the Waste Electronics and Electrical Equipment (WEEE) directive. The WEEE is widely regarded as a disaster and adds a layer of bureaucracy and associated costs to mandated recycling. In addition to the high costs of compliance, there is still the nagging issue of demand for recycled materials. Virgin raw materials are often much less expensive than recycled versions and it’s a simple economic fact that no business manager can justify spending more money on raw materials. The intent of the WEEE was to encourage companies to change the design of products to make it easier to recover materials, but given the collective nature of the system, this simply hasn’t happened.
In the United States, it seems likely that the simplest, and therefore the most likely, way to handle e-waste is to export it. There is very little that can be done in the way of product reuse with computers that are three to four years old. The rate of technology change is simply too rapid to support component reuse, so we are left with piles of mixed materials that cannot be easily separated. This situation leads to very expensive recycled materials with no demand. Recycling feels good, but it simply covers up the problem of e-waste for a short period. In essence, we are putting a Band-Aid on a ruptured artery and expecting a good outcome.
I advocate finding ways to make product recovery and reuse profitable for the firm. The remanufacturing industry in the United States is enormous (larger in direct employment than the steel industry) and very profitable. Remanufacturing is value-added recovery that restores products back to the original quality and performance specifications (and in many instances better performance). Through our experiences with a variety of companies, my fellow researchers and I have found that remanufacturing is value-creating and saves energy and materials. Consumers routinely put remanufactured parts and components into their autos because of the price savings. However, many consumer products are simply not designed for remanufacturing. Consumer electronics are often manufactured as cheaply as possible and these design choices often prevent product or component reuse. When this is combined with rapid product obsolescence (80 percent of consumers upgrade their cell phone within one year), the end result is predictable—overflowing landfills and a public outcry. Until consumers demand that producers make upgradable, or at least standardized designs, there will continue to be growing piles of e-waste. Recycling programs make us feel better, in no small part because we’ve done the “responsible” thing. However, all this does is treat the symptoms, not the root cause.