Supply chain innovation: Flowers by sea

So how much innovation can there be in supply chain design for cut flowers? Once the industry globalizes (as it has), it would seem that airfreight is the only option. Customers value freshness and cut flowers are the essence of a perishable flower. However, there may be more room for process changes than you would think as there is a trend of shipping flowers by sea (Fresh-Cut Flowers, Shipped by Sea?, Wall Street Journal, May 11).

The delicate business of transporting fresh-cut flowers from field to vase is being quietly rearranged, with more and more blooms taking a slow steam by sea from South America and Africa instead of being whisked by air.

Global cut-flower sales approached $14 billion last year and most move by cargo plane, but high jet-fuel costs and improvements in chilling technology are prompting a shift to more ocean shipping, particularly for imports to Europe.

Ocean transport costs can be half those of airfreight, an important consideration for price-conscious supermarkets and florists. Mom is unlikely to notice the difference in her Mother’s Day bouquet. Proponents say certain roses, carnations and other hearty varieties show no ill effects from the sea voyages spent in refrigerated containers a degree or two above freezing.

According to the article, some industry participants say that ocean shipping could account for a significant chunk of the market in coming years. Currently, airfreight accounts for 99% of shipments.

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Will the Bangladeshi factory collapse change global apparel supply chains?

I’ve been thinking over the last several days about the tragic factory collapse in Bangladesh. One question that comes up is why global apparel firms would choose to source their products from Bangladesh. CNN has a spiffy graphic that clearly shows that cost is one reason (Bangladesh vs. the U.S.: How much does it cost to make a denim shirt?, May 3).

Of course, the US ain’t exactly the right benchmark here. The real alternative is China and  the Wall Street Journal reports that wages there are four times higher than those in Bangladesh (The Global Garment Trail: From Bangladesh to a Mall Near You, May 3). That kind of cost advantage together with a tariff advantage with the EU gets you growth like this.

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Making toys in the US

Last Monday I posted about Rethink Robotics’ Baxter robot which can be easily programmed to perform a variety of manufacturing tasks. And that very day, the Wall Street Journal had a story about a firm that uses Baxter robot (A Toy Maker Comes Home to the U.S.A., Mar 11)! K’Nex Brands makes a variety of plastic building sets that snap together to make any number of things. Over the last several years, they have moved much of their production from China back to Pennsylvania. There are a number of strategic reasons for the move.

By moving production closer to U.S. retailers, K’Nex said it can react faster to the fickle shifts in toy demand and deliver hot-selling items to stores faster. It also has greater control over quality and materials, often a crucial safety issue for toys. And as wages and transport costs rise in China, the advantages of producing there for the U.S. market are waning.

Robotics play a roll in this. They use the Baxter for “simple packaging tasks,” which sounds like the kind of thing that it would be impossible to have a human do more cost effectively in the US than in Asia.

But to my mind, the most interesting part of the article discusses the design trade offs that K’Nex has made to facilitate the move.

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Outsourcing at Boeing (…Revisited)

While the initial reaction to Boeing’s 787 electrical problems was to blame outsourcing, there is more and more understanding that outsourcing itself is not the issue. Boeing has always outsourced the production of batteries. There are several explanation that emerged since.
(1) It’s not outsourcing. It is the trend of modularization: We know that more modular designs allow for lower cost, but come at the expense of quality and performance. One should say that this is a very valid argument, since modularization is clearly the enabler of the excessive outsourcing trend.

(2) An alternative explanation is that It’s not outsourcing itself, but rather the specific method of outsourcing where Boeing outsources the design and control over sub tiers.  This is the main focus of The Seattle Times’s article (“Boeing 787’s problems blamed on outsourcing, lack of oversight“).

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How the New Year in China affects supply chain reliability

An interesting story from today’s Wall Street Journal (Companies Seek to Avoid China New Year Hangover, Feb 21). Basically, the Chinese New Year is complicating supply chain management.

For toymaker The Bridge Direct, Easter now begins in August.

That is when the Boca Raton, Fla., producer of Inkoos stuffed monsters and Justin Bieber dolls has to file orders with its Chinese suppliers to ensure delivery by the spring holiday. It used to place orders closer to the key selling period, which allowed it to get a sharper sense of demand and better manage its cash. But now the greater concern is making sure it doesn’t get left shorthanded because of China’s New Year holiday.

The company is one of many from the U.S. and other countries that are closely watching China as factory workers slowly return this week from the country’s long Lunar New Year holiday. Every year, millions of China’s 250 million migrant workers leave their factories and travel across the country to visit their families at home. The problem for toy and apparel makers in particular is that fewer and fewer workers are returning to the factories when the break is over.

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Dueling with Chinese banjo makers

Some may view banjo music as an acquired taste, but that doesn’t mean the banjo market is not interesting. The LA Times recently published a profile of Deering Banjo, a San Diego based banjo maker (Deering Banjo in a groove, Feb 2). There is also a video accompanying the article.

The banjo market may not be huge but Deering has been generally successful. In 1997 their annual sales were around a million dollars. By 2011, they had weathered the recession and had sales over $3 million. And they have done this as they have faced increasing competition from Chinese banjo makers. In many ways, the way they have gone about this is a playbook for taking on low-wage foreign competition.

First, they have focused on productivity.

The efficiencies wrought from such a unique work space are unmatched in the industry, Deering said.

“We keep track of our man hours per banjo,” he said, “and this past week, it was three hours per banjo. That’s extremely good. One of the longest takes 20 hours. The Chinese can’t build banjos faster than we do.”

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Apple versus Samsung: Is Design or Business Model the sustainable advantage? What does that mean for Outsourcing?

Apple, the world’s highest valued company, and its relationship, both competitive and cooperative, with Samsung provide a wonderful setting to discuss some fundamental questions that relate to strategy and operations:

FIRST: Which one is the more sustainable provider of Apple’s competitive advantage: design or the business model?

• Daring Fireball’s John Gruber wrote three beautiful paragraphs to argue his view on what he termed “The New Apple Advantage“:

So let’s be lazy for a second here, and attribute all of Apple’s success over the past 15 years to two men: Steve Jobs and Tim Cook. We’ll give Jobs the credit for the adjectives beautiful, elegant, innovative, and fun. We’ll give Cook the credit for the adjectives affordable, reliable, available, and profitable. Jobs designs them, Cook makes them and sells them.

It’s the Jobs side of the equation that Apple’s rivals — phone, tablet, laptop, whatever — are able to copy. Thus the patents and the lawsuits. Design is copyable. But the Cook side of things — Apple’s economy of scale advantage — cannot be copied by any company with a complex product lineup. How could Dell, for example, possibly copy Apple’s operations when they currently classify “Design & Performance” and “Thin & Powerful” as separate laptop categories?

This realization sort of snuck up on me. I’ve always been interested in Apple’s products because of their superior design; the business side of the company was never of as much interest. But at this point, it seems clear to me that however superior Apple’s design is, it’s their business and operations strength — the Cook side of the equation — that is furthest ahead of their competition, and the more sustainable advantage. It cannot be copied without going through the same sort of decade-long process that Apple went through.

• James Allworth, co-author of How Will You Measure Your Life?, adds an important dynamic component to the argument by applying Clay Christensen’s theory to this question:

The design part of Apple’s equation is to their ability to redefine new industries as they did with the iPhone. Whether they go after the TV market next, or something else, it’s this integrated design component that will be crucial to their initial success. But compared to the business side of Apple, design actually generates much less sustained strategic advantage in any one product category, once performance in that category becomes “good enough”. The tech industry has always revolved around copying. Once folks work out how it’s done, everyone piles on. And at that point, it becomes much less about design than it does about how you operate your business.

• In summary: the answer to whether design or the operating model is the more sustainable competitive advantage is the typical MBA response to a tough question: “it depends.”  The rather sophisticated reasoning involves the fact that products and services over time improve and then become “good enough” and the dimension of competition shifts. Notice that I did not say that design is a commodity and fully copyable (my personal favorite question: why can’t Lexus designs have the timeless sophistication and elegance as Mercedes?); rather, another dimension overtakes it in importance.

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Why is GE bringing appliance manufacturing back from China?

The cover of this month’s Atlantic proclaims Comeback Why the future of industry is in America. It features two articles (The Insourcing Boom and Mr. China Comes to America) on how companies are “insourcing,” moving production back from other parts of the globe (primarily China) to the States. They make some interesting points. The Insourcing Boom focuses on General Electric’s decision decision to repatriate a significant amount of its appliance manufacturing to Louisville, Kentucky. Before you dismiss this as a bit of window dressing to provide some political cover, you should know that Jeff Immelt and company are dropping $800 million to make this happen. I’m sure Mr. Immelt likes political cover and good press as much as the next CEO, but he didn’t get to be head of GE by spending nearly a billion dollars on a whim. They really believe that they can make this work.

The article points out several factors that have come to favor producing in the US.

At Appliance Park, this model of production—designed at home, produced abroad—had been standard for years. For the GeoSpring [water heater], it seemed both a victory and a vulnerability. The GeoSpring is an innovative product in a mature category—and offshore production, from the start, appeared to provide substantial cost savings. But making it in China also meant risking that it might be knocked off. And so in 2009, even as they were rolling it out, the folks at Appliance Park were doing the math on bringing it home.

Even then, changes in the global economy were coming into focus that made this more than just an exercise—changes that have continued to this day.

• Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
• The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
• In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
• American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
• U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.

That’s a compelling list but all in one or another come around to saying that the US is cheaper (or China is more expensive) than you would have thought. But the article also makes the case that there are further benefits. 

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Is Sony dying? Some operations and strategy thoughts…

A great article titled “The Ghosts of Sony” and authored by Jake Adelstein and Nathalie-Kyoko Stucky, came to me via a tweet by my good colleague Robert Swinney.  (That’s one of the reasons I love Twitter!) It surely is worth a read as it prodded a few thoughts:

• History repeats itself: In our Operations Strategy class, we teach two cases that prominently feature Japanese companies both in the same scenario: they attack the incumbent (a Swiss and an American company, respectively) “from below” and gradually move up the food chain.  This follows the typical innovation dynamics that Clay Christensen has promulgated.  After Sony did the same, it became the incumbent and is now under attack by South Korean Samsung Electronic Co.
• Are management professionals good CEOs of tech companies?  We need to see more than a few data-points but Sculley didn’t perform well at Apple either, nor did this work at Sony:

Former Sony executives and current employees blame the fall of the firm on the loss of brainpower and good employees during the reign of Nobuyuki Idei, from 1999 to 2005. Idei was the first Sony CEO to rise up entirely from a management background and in the “Who-killed Sony?” genre of books and articles; he is regularly the prime suspect.

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Process standardization at Ford

How should firms think about designing factories when they have several in their network? Should they let local managers make idiosyncratic choices or should they try to standardize as much as possible? Ford apparently is going the latter route by, among other things, trying to eliminate forklifts from its factories (Going ‘fork free’, 3D scans part of Ford’s gold standard, Reuters, Aug 31).

At its just-opened $450-million factory in Thailand, Ford Motor Co (F.N) prides itself on being “fork-free.”

Eliminating forklifts, which can have big blind spots, from the floor improves worker safety, the U.S. automaker says. Ford instead uses trolleys to bring parts to workers on the line here.

This shift is just one example of the new manufacturing standard that Ford is rolling out at its plants worldwide. Such changes are key to helping Ford cut costs and boost quality as it moves toward building more cars on shared global platforms.

Many of these practices are being tested at Ford Thailand Manufacturing, Ford’s newest factory, where the automaker now builds its Focus compact for the local market here and other countries in southeast Asia.

Over time, Ford expects to export such practices to other plants worldwide, including some in the United States.

“Thailand is the first of a number of facilities that are going to look and feel exactly the same,” said John Fleming, Ford’s head of global manufacturing and labor affairs, in an interview Friday.

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