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Archive for the ‘Operations Strategy’ Category

Have you ever thought about pallets? You know, those wood contraptions that can hold a pile of stuff off the floor while letting a forklift easily scoop up said pile? Here’s a snapshot of one that just happened to be lying around the Northwestern campus.

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So in many ways, there is nothing particularly special about pallets except that they play a key role in logistics and supply chains. They basically make schlepping stuff modular. What is actually stacked on the pallet doesn’t matter; a guy with a forklift can just pick it up and put it on or take it off a truck. Which is not to say that pallets are uninteresting. The people at Planet Money did a whole episode on pallets (Episode 545: The Blue Pallet, Jun 11) that makes for great listening. Here, check it out:

The key point is that there has in fact been innovation in the pallet market. What you see above is your basic stringer pallet. It consists of 15 pieces of wood and a bunch of nails. Note that with those three pieces of wood sandwiched between the other twelve, a forklift can only pick it up from two sides — either the front or back in the picture above. The alternative is to have a block pallet. A block pallet replaces that those three pieces of wood with nine blocks. Those blocks give extra spacing on the other two sides and a forklift can hoist the thing from any side. That additional flexibility increases efficiency. Go to a Costco. They have essentially mandated all their suppliers send stuff on block pallets. If you unload as many tractor trailers as Costco does, the productivity boost from block pallets really adds up. (more…)

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Reshoring — moving manufacturing from far-flung global locations back to the US — has been a popular topic both in the general press and on this blog. What’s not to like about it? As long as manufacturing allows average humans without extreme degrees of education or super rare skills to make a decent wage, new employment opportunities in manufacturing are always going to create a buzz.

But just what kind of firms are bringing work back to the States? According to the Wall Street Journal, we are mostly talking about smaller enterprises (Bringing Jobs Back to U.S. Is Bruising Task, Jun 25).

More than 80% of companies bringing work back to the U.S. have $200 million or less in sales, according to the Reshoring Initiative, a nonprofit that encourages companies to return production to the U.S. Many supply parts to bigger companies or, if they sell directly to consumers, are seeking to cut out lengthy supply chains from Asia.

But big companies have the resources and experience to hopscotch around the globe. It’s harder and riskier for small firms to do the same.

So for every General Electric moving appliance manufacturing back to Kentucky, you have lots of firms like Chesapeake Bay Candle dealing with much smaller product lines. To some extent this is not too surprising. Whether you are GE or Chesapeake Bay Candle, managing a long supply chain or navigating cultural differences is nontrivial. One of those firms, however, can much more easily absorb the cost of having in country staff or can resort to throwing around its sizable weight to get a good deal. Further, a multinational like GE can also have ambitions of growing in China that may not be a priority for a small player like Chesapeake Bay Candle.

While it is not surprising that smaller firms play a big role in reshoring, that is also a problem.  (more…)

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Why invest in automation? The answer to that question is often to cut cost — a straight up move to replace labour with capital. That has the obvious implication that firms in high-wage locales like the US should be willing to invest heavily in fancy machinery while those in lower-wage countries like India should be more cautious in doing so. That may not always hold, however. As the Wall Street Journal tells it, there is one Indian industry that is investing heavily in automation and it’s not really about shaving costs. The industry in question is generic pharmaceuticals and the driving force behind the capital investments is maintaining high quality standards (India’s Drug Makers Move Toward Automation, Jun 5).

Despite an abundance of low-cost laborers in India, all of [Dr. Reddy's Laboratories'] plants are moving toward fully automating their production process “to avoid good manufacturing practice pitfalls from regulators,” said Samiran Das, head of Dr. Reddy’s generic drugs manufacturing.

In the past decade, India’s pharmaceutical companies have blossomed into multibillion-dollar companies that now account for 40% of the generic drugs sold in the U.S. Those companies, however, have come under increased scrutiny in recent years from the U.S. FDA, for manufacturing, testing and other safety issues that are often the result of human error.

To ensure that their products don’t get banned from the U.S.—the world’s biggest drug market—many companies that can afford it are spending hundreds of millions of dollars to automate. …

Mr. Venkatanaryan, the head of the Dr. Reddy’s Bachupally plant, says the drive toward automation is meant to make the manufacturing process “mistake-proof.”

(more…)

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Today’s Wall Street Journal has a special section on “Unleashing Innovation in Manufacturing”. Among the more interesting pieces is a report on Roland DG, a Japanese manufacturer of industrial goods like wide format printers, milling machines and vinyl cutters. These all sound like boxes of metal filled with electrical components that should be built up by a team of workers as they move down an assembly line. But that is not how Roland DG rolls. Instead, they have each machine built by one person guided by a computer that displays instructions, makes sure the correct hardware is presented, and monitors what is done through a networked screwdriver (Japanese Firm Uses a Single-Worker System to Make Its Products, Jun 1).

On a recent day in Roland DG’s factory in Hamamatsu, a city in central Japan, one employee was assembling from scratch an industrial printer that ultimately would be more than twice her size and weigh almost 900 pounds. Another worker who had just joined the company’s fleet of part-timers was making a prototype milling machine. Yet another was assembling the dental-crown milling machine.

A computer monitor displays step-by-step instructions along with 3-D drawings: “Turn Screw A in these eight locations” or “Secure Part B using Bracket C.” At the same time, the rotating parts rack turns to show which of the dozens of parts to use. Meanwhile, a digital screwdriver keeps track of how many times screws are turned and how tightly. Until the correct screws are turned the correct number of times, the instructions on the computer screen don’t advance to the next step.

Workers are rarely confused, but when they are, there’s a button to press that will bring the floor manager running to help.

This video gives an idea of the system in actions.

(more…)

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Wearable computing is often talked up as the next big thing. So how hard can it be to build a smart watch? Pebble, an independent (i.e., not owned by an existing tech company) competitor had some significant delays as it moved from Kickstarter campaign to actual product. It essentially underestimated complications of sourcing materials and getting things built. But it doesn’t have to be so hard (Shanzhai: China’s Collaborative Electronics Design Ecosystem, The Atlantic, May 18).

A different story emerges in the burgeoning wearable electronics market of Southern China, one that is based on a rapid, flexible and open ecosystem called shanzhai 山寨.

Take, World Peace Industrial (WPI), a Taiwanese electronic sourcing company located in Shenzhen, as an example. The company’s application technology unit (ATU) spends millions annually to develop reference circuit boards, called gongban 公板 (“public board”). A gongban can be used by a variety of different companies, who either incorporate it in their products directly or build atop it as they please via modifications. ATU develops 130 gongbans annually in areas ranging from smart phones, tablets, smart watches, smart homes, and industrial controls—and distributes the designs for free. WPI then makes money by trading in the boards’ components.

“We call this shanzhai in Shenzhen. It’s a mass production artwork,” explains Lawrence Lin head of the Application Technology Unit at WPI. Thirty some companies in Shenzhen are shipping their own smart watches with gongban from ATU and gongmo (‘public case’) sourced from the massive shanzhai ecosystem, which consists of tens of thousands of companies that manufacture and distribute goods. …

In the emerging area of smart watches, WPI and other solution houses create gongban, which provide common electronic functions including Bluetooth connectivity to mobile phones, and sensors to measure the wearers’ movement, as well as monitor heart rate and other vital bodily statistics. These gongban are designed to fit into a variety of gongmo that are ready to be branded on order. The flexibility to mix and match gongban and gongmo enable companies to quickly put together their own smart watches with customized functions and styles for various niche markets. Today, customers of WPI ship close to 100,000 smart watches per month.

What do a gongban and a gongmo look like? Take a gander:

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(more…)

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When you thing of the auto industry, you likely focus on big players like Ford, General Motors, Toyota and Mercedes. Names like Magna International and Denso may not mean a whole lot to you. But you should know those names. They likely make more of your car than you realize. “Mega suppliers” like Magna and Denso have been growing for years and in the process have been sifting the balance of power in the industry (Age of mega supplier heralds danger for carmakers, Financial Times, May 18).

There are now 16 major car manufacturers that sell more than 1m vehicles a year. But those cars are built from parts supplied by just 10 major component makers – meaning that under the individually styled bodywork, cars are sharing more parts.

Whether a driver chooses to buy a BMW, an Audi or a Mercedes-Benz five-door saloon, the chances are high that the anti-lock brakes will be built by Continental, the battery will come from Johnson Controls, and Denso will have provided the exhaust

Bosch, the world’s largest automotive supplier by revenue, reckons that at least one of its parts is built into almost every new car sold anywhere in the world – regardless of brand, market, price point or geography.

The article goes on to note that the top ten suppliers capture 60% of the revenue generated by the top 100 suppliers.

Given this situation, two questions seem relevant. First, how did automakers find themselves in this situation? Second, what are the implications for how the industry functions? (more…)

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Reshoring has been a popular topic. It’s a lot more fun to talk about optimistic stories of manufacturing and its associated jobs returning to the US (or to high wage developed nations in general) than to focus on companies sending jobs overseas in search of cheaper labor. But how does reshoring go in practice? Once a company commits to bringing work back to the States, how easy it to get a factory up and running?

As the Wall Street Journal tells it, reshoring is not a walk in the park, at least not for United Technologies’ Otis Elevator (Otis Finds ‘Reshoring’ Manufacturing Is Not Easy, May 2).

The company’s move to relocate an Otis elevator plant from Mexico to South Carolina in late 2012 was hailed as a sign of a small renaissance in American manufacturing. The relocation was supposed to save money and help fill orders faster by putting the people who make new elevators next to the engineers who design them, and their customers.

Now, it’s clear the reality hasn’t been so smooth. Production delays created a backlog of overdue elevators. Some customers canceled their orders after being left waiting months, people in the elevator industry said. The plant Otis was leaving behind in Nogales, Mexico, had to stay open for half a year beyond its planned closing date to deal with the backlog.

(more…)

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The buzz in e-commerce has been all about speed. Firms from A to Z (or at least from Amazon to WalMart) have been trying to wring time from their distribution systems. Indeed, just yesterday Google announced it was expanding its Shopping Express same day delivery service. So what are we to make of Zulily, an e-tailer that routinely takes its sweet time to ship stuff?

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For those unfamiliar with the firm, the Wall Street Journal describe it as a “mom-focused discount site” (Zulily Customers Play the Waiting Game, May 5). Like Gilt or Rue La La, Zulily operates on a private sales model with goods being offered at a discount for a limited times to members only. The interesting thing is that their suspect shipping times actually seem to be a conscious, strategic choice. (more…)

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The last mile has long been the bugaboo of e-commerce. Getting stuff from a fulfillment center to a metropolitan area is relatively easy in comparison to putting a box on a particular doorstep. The former allows for scale and efficiency; the latter is necessarily at a smaller scale and requires coordinating lots of little details.

Now we have two stories on how Amazon is dealing with that tricky last stretch — one from the US and one from India. First up is Amazon’s effort to develop its own delivery capability in San Francisco, Los Angeles and New York (Amazon, in Threat to UPS, Tries Its Own Deliveries, Wall Street Journal, Apr 24).

The new delivery efforts will get Amazon closer to a holy grail of e-commerce: Delivering goods the same day they are purchased, offering shoppers one less reason to go to physical stores. With its own trucks, Amazon could offer deliveries late at night, or at more specific times.

The move is a shot across the bow of United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service, which now deliver the majority of Amazon packages. It is also a challenge to Wal-Mart Stores Inc., eBay Inc. and Google Inc., each of which is testing deliveries.

Ultimately, a delivery network could transform Amazon from an online retailer into a full-service logistics company that delivers packages for others, according to former Amazon executives. They caution that any such effort likely is years away.

So why should Amazon want to get into the business of schlepping stuff when there are multiple quite competent firms willing to do the heavy lifting for them?

(more…)

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Why would one firm try to completely copy another firm’s production processes and why would the firm being copied let it happen? If two firms have identical processes, then it is essentially impossible for them to be differentiated. If they are competing for the same customers,  they are basically setting themselves up for brutal price competition. But the Wall Street Journal reports that two big players in the semiconductor industry are doing just this (Samsung, Globalfoundries Agree to Adopt Same Production Process, Apr 17).

Samsung Electronics Co. and Globalfoundries Inc. said Thursday they have agreed to adopt the same production process as they upgrade their chip-manufacturing services, an unusual alliance with implications for many designers of computer chips and other devices, notably Apple Inc.

With the agreement, chips produced by Samsung and Globalfoundries will be essentially identical; companies that design chips could have their products produced in factories operated by either company with no extra effort.

Companies generally prefer to reduce their reliance on a single supplier for components. In this case, the pact between Globalfoundries and Samsung provides a new selling point as the two companies try to woo customers away from Taiwan Semiconductor Manufacturing Co., the biggest of the chip-making services known as foundries.

(more…)

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