I spent this weekend in Miami (OK, Coral Gables) teaching the core Ops class for an executive MBA section. One of the topics we usually cover in the core (especially with execs) is the cash-to-cash cycle. The cash-to-cash cycle (intuitively) measures how long it takes a firm to capture the gain on its investment in inventory. Mathematically, it consists of days of inventory plus days of accounts receivable minus days of accounts payable. Thus when a firm purchases inventory, it takes a while for those goods to sell. It may then need to wait to collect cash from its customers. However, it may get credit from its suppliers so time in inventory may be offset by the time it has to pay its suppliers. Taken together, these measures give an idea of how effectively a firm uses its working capital. It also may suggest where the firm should target improvement. For example, benchmarking might show that its accounts receivable is out of whack with industry norms so that could be a real opportunity to pursue.
Three weeks ago, I had the pleasure to visit one branch of my extended family and BMW Welt (BMW World), the “multi-functional customer experience and exhibition facility of the BMW AG, located in Munich, Germany.” Supposedly, BMW Welt is the second most popular tourist destination around Munich, after Neuschwanstein Castle which inspired Disneylands’ Sleeping Beauty Castle. If you like architecture or cars, you should visit BMW Welt.
OK, but this is the Operations Room, so what else is worth knowing? It turns out that this month, BMW starts selling in Germany its long-awaited i3 (the USA will have to wait until 2014) and here’s some personal pictures to highlight three aspects:
Fancy, luxury handbags start off looking like this:
Not exactly the image of exclusivity and sexiness that the likes of Hermes and Longchamp want to project when trying to convince customers to pony up for a bag but leather starts with hides and hides don’t start off in fancy colors.
The image comes from a Wall Street Journal article on Tanneries Haas, an old-school Alsatian tannery (French Tannery in Demand as Source of Top-Notch Leather, Nov 6). The article walks through the production process (quick: name a use for chromium!) but the interesting part of the story is how the industry of supplying high-end hides has changed. Tanneries Haas remains independent but luxury houses are buying up tanneries.
Until just a few years ago, the tanning business was the least glamorous cog in the designer-handbag industry. But recently Tanneries Haas and other French tanneries have found themselves the object of attention from famous luxury labels jockeying for secure sources of top-notch leather. “When they saw a certain number of tanneries disappear, they had to think about protecting their suppliers,” says Jean-Christophe Muller Haas, a sixth-generation French tanner. …
By acquiring suppliers, luxury goods purveyors hope to get more control over raw material costs. Prices of calf hides have soared in recent years due to Europe’s falling veal consumption. Calves are slaughtered primarily as a source of veal and skins are a byproduct. With fewer calves slaughtered to meet shrinking demand for veal, the supply of skins available for luxury leather goods is also diminished.
It takes car companies about three years to design a sedan, and handset makers can churn out a new smartphone in six months. But an IKEA kitchen takes half a decade to create. …
“It’s five years of work into finding ways to engineer cost out of the system, to improve the functionality,” Mr. Agnefjäll said of the company’s “Metod” kitchen, a new model, during an interview at a store in his hometown of Malmo, located on Sweden’s southwest coast.
The Metod kitchen (translated as “Method” in English), is the brainchild of a clutch of designers sitting near IKEA’s headquarters here. The goal is to achieve “democratic design,” products that will work in homes whether they are located in Beijing, Madrid or Topeka.
IKEA—known for minimalist design—packs enormous complexity into a kitchen. Metod consists of 1,100 different components, and distilling them all into a cheap, green and easily shippable package has proved arduous.
As the Swedes tell it, they go through a lot of steps to get the design just right.
So is the Journal right to label IKEA as slow and plodding? (more…)
Jan has been on a data kick lately (see here, here and, oh yeah, here) so here is a picture he might like:
It comes from a report by the International Council on Clean Transport entitled “U.S. domestic airline fuel efficiency ranking, 2010” that was published earlier this month. (It is also discussed in the Washington Post.) Here is the question that it is attempting to answer: Given that different airlines do different things, how can we fairly compare their ability to use fuel efficiently? What’s cool about the answer is that you see with in the answer firms’ strategic and operating choices.
“We live in a world of speed and cheapness,” says Roger W. Smith, who makes every component of a watch from scratch and by his own hand. It is the ultimate opposite of that other Smith (Adam)’s division and specialization of labor. I believe there is room for both in our world. It takes one watchmaker about 6 months to produce one watch. The result is a masterpiece…
So far, our blogs on offshoring have considered its domestic impact in terms of jobs and competitiveness. Today, I report on the first data I have seen to shed light on the link between production offshoring and domestic innovation. The question is: Do firms that offshore production innovate more or less than firms that do not offshore? This question has led to national debate on competitiveness. Here is some key data and a data-driven answer:… (more…)
I grew up just outside of Manchester, NH, home of the Amoskeag Manufacturing Company. The Amoskeag was once the biggest cotton textile plant in the world. A couple of my grandparents worked there, but by the time I was growing up, the cotton mills were gone as the textile industry bailed out of New England for the South. The old building on the river were beautiful but also a reminder of what had once been.
Of course, the southern textile industry isn’t what it once was. Many of the mills of the Carolinas closed as liberalized trade allowed the work to go overseas. But, as the New York Times tells it, parts of the industry are hanging on — even expanding (U.S. Textile Plants Return, With Floors Largely Empty of People, Sep 19). It’s just that it has required investing in new technology to reduce the number of hands involved.
This is in many ways in keeping with themes we have discussed before: Manufacturing in high wage countries requires a willingness to substitute capital for labor.
But there is another part as well. There have to be customers that value what the American manufacturer brings to the table. (more…)