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Custom-made bikes are a very small slice of the US bike market. According to The Atlantic, the vast majority of bikes sold in the US are made in Asia and a handful of companies dominate the market (America’s Rebel Band of Custom-Bike Builders, Apr 3).

Though thriving, the 100 or so builders in the hand-built bicycle scene make up about 3.3 percent of the overall U.S. bike industry, which was valued at $6.1 billion in 2012 and is sourced almost completely overseas, according to bicycle industry expert Jay Townley with the Gluskin-Townley market research firm and a report by the National Bicycle Dealers Association. In 2011, 99 percent of bicycles sold in the U.S. were assembled in Asia—93 percent in China and six percent in Taiwan.

Additionally, just four companies—Dorel Industries, Accell Group, Trek Bicycle Corporation, and Specialized Bicycle Components—own about half of the 140 bicycle brands available in this country, including Schwinn, Cannondale, Raleigh, Gary Fisher, Trek, and Specialized, Townley said.

The article goes on to note that while small, those custom builders are responsible for a lot of the innovation in the industry. Because their work is premised on doing something unique, they are inclined to take more chances than a larger firm. So what does it take for these small guys to be successful?

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Gustin

One of my favorite topics to teach is the newsvendor problem, an inventory model for very short-lived products like newspapers and fashion goods. One of the points that gets made in that class is that variability is costly. Having to commit resources before knowing what will sell means risk and risk may be a reason not to be in the business. But that risk also suggests an opportunity: If one can find a way to reverse the order of things and commit resources only after knowing what will be demanded, then an otherwise unprofitable business can be a profitable one.

That is essentially the idea behind Gustin, a maker of high-end jeans. It initially sold its jeans trough boutiques, which bought jeans at a wholesale price near $80 but then marked them up to around $200. Gustin had to front all the cost of production and then wait for stuff to sell. Now, they have reversed the order of things and take orders directly from customers ahead of production. As the founders tell it on Marketplace, they have positioned themselves as a totally crowdsourced fashion company (Burning down the house that Levi’s built, Apr 8). You can hear the story here:


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What’s the right mix of workers and machines in making cars? According to Bloomberg, Toyota has been re-thinking that question and moving to shift more work back to people (‘Gods’ Make Comeback at Toyota as Humans Steal Jobs From Robots, Apr 7).

Inside Toyota Motor Corp.’s oldest plant, there’s a corner where humans have taken over from robots in thwacking glowing lumps of metal into crankshafts. This is Mitsuru Kawai’s vision of the future.

“We need to become more solid and get back to basics, to sharpen our manual skills and further develop them,” said Kawai, a half century-long company veteran tapped by President Akio Toyoda to promote craftsmanship at Toyota’s plants. “When I was a novice, experienced masters used to be called gods, and they could make anything.”

These gods, or Kami-sama in Japanese, are making a comeback at Toyota, the company that long set the pace for manufacturing prowess in the auto industry and beyond. Toyota’s next step forward is counter-intuitive in an age of automation: Humans are taking the place of machines in plants across Japan so workers can develop new skills and figure out ways to improve production lines and the car-building process.

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Which is worse, having your flight delayed two hours or having your flight cancelled and being rebooked on a flight two hours later? According to Delta Airlines, customers generally prefer a simple delay to a cancellation and rebooking. That has led to Delta working hard to minimize the number of cancelled flights. According to the Wall Street Journal’s Middle Seat column, last year Delta cancelled just 0.3% of its flights — well below the industry average of 1.7% — and at one point went 72 straight days without canceling a single flight (A World Where Flights Aren’t Canceled, Apr 2). As the graphic above and the video below demonstrate, this has taken a lot of operational refinements.

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Part of the beauty of Uber is that the payment process is all automated. Once your ride is complete, the firm bills the credit card they have on file, minimizing the time it takes to wrap up your trip; there is no fussing over payments and tips with the driver. But how should the driver be paying Uber? The driver after all is dependent on Uber to match them with riders. Currently, the drivers pay (effectively) by sharing their fares with the company. However, the Economist argues that such an arrangement is inefficient (Pricing the surge, Mar 29).

There is some evidence Uber’s surge pricing is improving taxi markets. The firm says drivers are sensitive to price, so that the temptation to earn more is getting more Uber drivers onto the roads at antisocial hours. In San Francisco the number of private cars for hire has shot up, Uber says. This suggests surge pricing has encouraged the number of taxis to vary with demand, with the market getting bigger during peak hours.

However, the inflexibility of Uber’s matchmaking fee, a fixed 20% of the fare, means that it may fail to optimise the matching of demand and supply. In quiet times, when fares are low, it may work well. Suppose it links lots of potential passengers willing to pay $20 for a journey with drivers happy to travel for $15. A 20% ($4) fee leaves both sides content. But now imagine a Friday night, with punters willing to pay $100 for a ride, and drivers happy to take $90: there should be scope for a deal, but Uber’s $20 fee means such journeys won’t happen.

Despite the revenues a matchmaking fee generates, it may not be Uber’s best strategy. A fixed membership charge is often firms’ best option in two-sided markets. By charging drivers a flat monthly fee Uber would generate revenue without creating a price wedge that gets in the way of matches. Since stumping up cash might put infrequent divers off, they could be offered a cheaper category of membership. Uber should keep its surge pricing in place. But to make the market as big as possible, and really revolutionise taxi travel, it might need to retune its fees.

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How heavily should a firm use its resources? Resources — be they people, equipment, or facilities — are expensive so there is an obvious case to be made for keeping utilization rates as high as possible. But there is also something to be said for not pushing utilization too high. Many systems need some slack to work well. It is slack that allows firms to absorb the unpredictable or to address problems that go beyond immediate firefighting. That is the point of a recent Strategy & Business article (Cut Your Company’s Fat but Keep Some Slack, Spring 2014). The authors main point is that “slack is routinely undervalued.”

Here is the example given to lead off the article.

In 2002, the operating rooms at St. John’s Regional Health Center, an acute-care hospital in Missouri, were at 100 percent capacity. When emergency cases—which made up about 20 percent of the full load—arose, the hospital was forced to bump long-scheduled surgeries. As a result, according to one study, doctors often waited several hours to perform two-hour procedures and sometimes operated at 2 a.m., and staff members regularly worked unplanned overtime. The hospital was constantly behind.

Administrators brought in an outside advisor, who came up with a rather surprising solution: Leave one room unused. To many, this seemed crazy. The facility was already being squeezed, and now comes a recommendation to take away even more capacity? Yet there was a profound logic to this recommendation, a logic that is instructive for the management of scarcity.

On the surface, St. John’s lacked operating rooms. But what it actually lacked was the ability to accommodate emergencies. Because planned procedures were taking up all the rooms, unplanned surgeries required a continual rearranging of the schedule—which had serious repercussions for costs and even quality of care. The key to finding a solution was the fact that the term unplanned surgery is a bit misleading. The hospital can’t predict each individual procedure, but it knows that there will always be emergencies. Once a room was set aside specifically for unscheduled cases, all the other operating rooms could be packed well and proceed unencumbered by surprises. The empty room thus added much-needed slack to the system. Soon after implementing this plan, the hospital was able to accommodate 5.1 percent more surgical cases overall, the number of surgeries performed after 3 p.m. fell by 45 percent, and revenue increased. And in the two years that followed, the hospital experienced a 7 and 11 percent annual increase in surgical volume.

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I have become increasingly taken with the question of what constitutes a good job. Various parts of operations in many industries have become automated over time and that trend will continue. But firms will still need people. Some production steps will be sufficiently nuanced or require too much dexterity that using a robot is (at least for now) impossible. Other setting like retail will favor resources who can move more or less seamlessly between restocking shelves to checking out customers. So what do these jobs look like? Unfortunately, the answer can be fairly grim.

The Atlantic has an article written by an ex-Politico reporter who lost his job and ended up (mostly out of desperation) working at sporting goods store (My Life as a Retail Worker: Nasty, Brutish, and Poor, Mar 11) and found the experience rather dehumanizing.

Of course, I had no idea what a modern retail job demanded. I didn’t realize the stamina that would be necessary, the extra, unpaid duties that would be tacked on, or the required disregard for one’s own self-esteem. I had landed in an alien environment obsessed with theft, where sitting down is all but forbidden, and loyalty is a one-sided proposition. For a paycheck that barely covered my expenses, I’d relinquish my privacy, making myself subject to constant searches.

“If you go outside or leave the store on your break, me or another manager have to look in your backpack and see the bottom,” Stretch explained. “And winter’s coming—if you’re wearing a hoodie or a big jacket, we’ll just have to pat you down. It’s pretty simple.”

When he outlined that particular requirement, my civil-rights brain—the one that was outraged at New York Mayor Michael Bloomberg’s stop-and-frisk policy and wounded from being stopped by police because of my skin color—was furious. …

I’m not sure why—perhaps out of middle-class disbelief or maybe a reporter’s curiosity—I pressed the issue. Seriously: I have to get searched? Even if I’m just going across the street for a soda, with no more than lint in my pockets? Even if you don’t think I stole anything?

Stretch shrugged, unconcerned. Clearly he’d been living with this one for a while.

“Yeah, it’s pretty simple. Just get me or one of the other managers to pat you down before you leave.” Continue Reading »

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