Managing quality and variety at Lego

When I was a kid, I loved Legos. So I was, of course, pleased when my kids started playing with them. In the last year or so, my kids have outgrown them. And while having all the Legos put away makes it a little safer to walk barefoot across the family room, it does make me a litte sad. Which is why, I guess, I have a soft spot for stories about Legos.

Like, for example, a BBC story asking just how many Legos can you stack on top of each other (How tall can a Lego tower get?, Dec 3). Turns out, you can make a pretty tall tower.

Ian Johnston and the team do two more tests to be sure we hadn’t just happened upon the strongest Lego brick in existence. And in fact they were impressed at the consistency of Lego manufacture.

The average maximum force the bricks can stand is 4,240N. That’s equivalent to a mass of 432kg (950lbs). If you divide that by the mass of a single brick, which is 1.152g, then you get the grand total of bricks a single piece of Lego could support: 375,000.

So, 375,000 bricks towering 3.5km (2.17 miles) high is what it would take to break a Lego brick.

Here’s a graphic to help visualize 375,000 Lego bricks.

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Executive Operations Experience: From Strategy to Execution

For once we are not reporting on external content but on our own: I am excited to announce a totally new approach to executive learning and education on operations. Co-author and co-blogger Gad Allon and I have been working with our friends at McKinsey & Company to design the Executive Operations Experience: From Strategy to Execution.

A new collaboration between the Kellogg School of Management and McKinsey & Company.

Operations executives who are eager to stay current, hone their skills and broaden their networks, take note! In an exciting cooperative venture,  the Kellogg School of Management at Northwestern University in Illinois, USA, and McKinsey & Company will be offering a first-of-its-kind, experiential learning program starting in the fall of this year. Four, three-day sessions taking place at McKinsey’s model factories throughout Europe will provide a curriculum that covers all operational functions, jointly taught by both academics and consultants. Learn if the program might be right for you here.

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Print it: Amazon and books on demand

Many years ago I used to live in Boston and would on occasion wander over to Harvard Square. A frequent stop would be Harvard Book Store a large independent bookstore. A lot of things have changed in Harvard Square since then but Harvard Book Store is still there. Forbes reports that one of the reasons is that a new owner made an aggressive bet on printing books in the store  (The Man Who Took on Amazon and Saved a Bookstore, May 10).

Essentially, Jeff installed a printing press to close the inventory gap with Amazon. The Espresso Book Machine sits in the middle of Harvard Book Store like a hi-tech visitor to an earlier era. A compact digital press, it can print nearly five million titles including Google Books that are in the public domain, as well as out of print titles. We’re talking beautiful, perfect bound paperbacks indistinguishable from books produced by major publishing houses. The Espresso Book Machine can be also used for custom publishing, a growing source of revenue, and customers can order books in the store and on-line.

You can walk into the store, request an out-of-print, or hard-to-find title, and a bookseller can print that book for you in approximately four minutes.

We have written about Espresso Book Machines before. They are a nifty piece of technology and from an inventory management point of view make a lot of sense for lower volume titles.

But here’s the thing: Amazon has the same technology.

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Is Wal Mart Losing Focus?

According to the WSJ, Something is rotten in the state of Walmart (“Wal-Mart Tries to Recapture Mr. Sam’s Winning Formula“)

When it reports earnings on Tuesday, the retailer is widely expected to post its second straight year of declining domestic same-store sales. Wal-Mart’s U.S. comparable-store sales already had fallen for six consecutive quarters, an unprecedented losing streak.

The article puts some on the blame on recent changes at Wal-Mart. In an attempt to attract wealthier customers, they have changed the mix of products they sell with stronger emphasis on organic food and trendy fashion goods. They have also reduced the clutter in the stores and improved what people refer to as servicescape. Wal-Mart also got away from its promise for every-day-low-prices. As growth slowed and Wal-Mart began running out of room to build new supercenters, the chain began running promotions and discounts on select products—Wal-Mart calls them “rollbacks”—while raising prices on other items.

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Print me a Sheep: 3D printing

The Economist had a cover story on the emergence of three-dimensional printing, with the prediction that it will transform manufacturing (“Print me a Stradivarius“)

3D printing is a technology that allows people to transform digital designs into products (see video below). Products are built by progressively adding material, one layer at a time: hence the technology’s other name, additive manufacturing. The technology itself is not new, but the cost of such machines has gone down significantly in recent years.

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But there will always be Thin Mints…

So Girl Scout cookies are very big in my household. Thin Mints in particular. And they are a very big business nationally. Wikipedia says that 200 million boxes are sold per year. However, change is afoot! According to the Wall Street Journal, the Girl Scouts are testing out reducing the number varieties that are offered from eight down to six (Cookie Cutters: Girl Scouts Trim Their Lineup for Lean Times, Jan 27). As is mentioned in this video (that is mostly about the over-professionalization of Girl Scout cookie sales), the goal is to cut cost and raise revenue:

So what the fortunate six flavors? The list starts with the five most popular flavors (this is take from the Girl Scout Cookies FAQ):

25% Thin Mints
19% Samoas®/Caramel deLites®
13% Peanut Butter Patties®/Tagalongs®
11% Peanut Butter Sandwich/Do-si-dos®
9% Shortbread/Trefoils

The sixth flavor is Lemon Chalet Cremes. It along with the other also rans make up just 23% of total sales. The flavors getting the ax include Thank U Berry Much and Dulce de Leche.

Now is it reasonable that this will make a significant difference in the Girl Scouts’ profit?

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Variety at McDonald’s: Growth vs Complexity

The Wall Street Journal had an excellent article on the trend to increase variety at McDonald’s and its perils (“On McDonald’s Menu: Variety, Caution“).

Since early 2003, McDonald’s has posted 30 straight quarters of same-store sales increases.  But at the same time, the chain’s peak lunch-hour business has been flat for several years, according to an email reviewed by The Wall Street Journal. How do they do it?

An increasingly diverse menu, with some items priced at a dollar and others as high as almost $5, has lured more cost-conscious customers while preserving profit margins. That’s a departure from the days when McDonald’s largely catered to so-called heavy users—customers who queue up to eat fast-food several times in a week… The new menu choices are so plentiful that the Oak Brook, Ill., company has been running ads to remind customers that it still sells Big Macs and Quarter Pounders.

This is only one side of the story. As the sales increase, there are of course costs associated with these products. Furthermore, since 90% of the stores are franchised, the costs are incurred by small businesses that are trying to justify the investments required to add these products:

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High tech comes to vending machines

My office sits in Nathaniel Leverone Hall. I never gave any thought to who Mr. Leverone was until on a visit to my parents in upstate New Hampshire I drove past Dartmouth’s Leverone Field House. That got me wondering who the guy was. It turns out that Mr. Leverone was from New Hampshire and went to Dartmouth but made his fortune in Chicago. He was a vending machine magnate.

I got to thinking about Mr. Leverone again because of a Wall Street Journal article on the technological evolution of vending machines (Restocking the Snack Machine, Aug 3). Companies who sell through vending machines, like almost everyone else, has been under pressure of late. Margins are thin and a number of typical sales points (factories and offices) have closed.

The response, at least among those that own a large number of machines, has been to go high tech. Imagine, essentially, an Internet enabled Coke machine that tells its owner what has been selling.

“It’s only natural that, when times get tough, people search for new and better ways to do things and take risks on doing things they might not have done when times were going well,” says John Mitchell Jr., an owner of Treat America Ltd. of Merriam, Kan., which has about 12,000 vending machines in the Midwest.

Treat America’s drivers used to stock machines with the most popular foods in their regions, based on sales tracked manually by category rather than individual items. It was difficult to know how different products were selling in particular machines.

Since January, Mr. Mitchell has outfitted about 40% of his machines with systems that record and transmit real-time sales data in each of a machine’s 45 slots. Mr. Mitchell says he now knows that about 40% of the slots are what he calls “dead spirals,” dispensing less than one item per week.

While packs of Cheez-It crackers sell the most of any item in a vending machine in a Kansas City, Mo., call center, they don’t even reach the top 10 in a hospital three miles away.

“You’re catering to a population that might be as small as 30 or 40 people,” Mr. Mitchell says. “The unique preferences of that population can drive sales significantly.”

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When are there too many choices?

There is a commonly observed phenomenon that consumers can be happier with less choice.  Fewer options makes it easier to decide and customers are generally happier with their final decisions. That is the starting point for a story on Marketplace (Stores offer less so we can spend more, May 13). Customers may be just as happy with less options and firms have been hard up for cash so there is alignment of the stars and retailers have been cutting their assortments. Walmart, for example, has announced plans to cut the number of items in the store by 15%. But as the article notes, this isn’t just huge firms like Walmart.

Lorrain Schuchart is the Head of PR for craft supplier Jo-Ann Fabrics.

Lorrain Schuchart: The retailers were just trying to give the customer everything, and I think now we’re trying to find out what it is that they actually want and let’s not give them 20 selections when they really only want three.

And it’s not just a matter of removing items from shelves; Jo-Ann’s is completely redesigning 75 of its locations this year.

So far, Schuchart says the new stores are outperforming the old ones by 12 percent.

The article goes on to discuss a loyal Jo-Ann’s customer first visit to a redesigned store. She gripes about how her usual store is cramped and that the aisle layout makes no senses. She then gushes that the new store is so much easier to get around etc etc.

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Swedish fashion & Japanese Kit Kats

Two interesting stories on managing product variety.  The first is from the Wall Street Journal and concerns H&M, the Swedish fast fashion retailer (How H&M Keeps Its Cool, May 10). You might think that a firm whose business strategy is all built around quickly churning out hip, new items would be able to handle all challenges in managing variety. Apparently, though, not all challenges are the same:

Fast-fashion retailer H&M is a bit frosty toward warm climates. The trendy company has stores in 37 countries, but none in Texas. Miami shoppers won’t find a place to purchase H&M’s cheap chic clothes, either. The problem isn’t a lack of demand. It’s that the chain’s Swedish parent company, H&M Hennes & Mauritz AB, isn’t sure how to sell clothes in cities that are always warm. … H&M forged its successful strategy in the season-changing Europe it calls home, says Daniel Kulle, president of H&M U.S. Uncertainty about whether that strategy could survive a transplant to warmer regions means while Toledo has H&M, Dallas has to wait.

That quirky concern has a strategic issue at its root. H&M, the world’s third-largest fashion retailer by revenue, still sells pretty much the same products in its 1,900 stores around the globe. Its planning and allocation systems are geared toward turning over merchandise quickly, not tailoring assortments to individual regions. H&M says it is investing in tools and distribution centers to allocate its goods more effectively.

Taken at face value, this is a supply chain issue. A process optimized for rapidly turning over the product line should be easier to run if the same mix of SKUs is going out to every store.  However, I wonder whether H&M really lacks this capability.  The Swedes have stores in Kuwait and Spain.  I suspect that those stores don’t sell the same mix of items stores in Scandinavia or Germany. It may be that the reasons H&M hasn’t pushed into Dallas or Miami are more related to how they are developing their distribution infrastructure.  It may be more cost-effective to go slow and boost the utilization of a facility before moving on to a new geography. It would then make sense to saturate the Northeast or Midwest before turning to Dallas and Miami.  Alternatively, this could be a question of advertising.  Focusing on colder climes means advertising features parkas and boots going into the winter and allows for a unified campaign across all markets.

The second story is from NPR’s Morning Edition and concerns how Japanese firms roll out a wide array of products that they know will have the life span of a fruit fly (Kit Kat Kaleidoscope: Far-Out Flavors From Japan, May 10). The poster boy (or bar as the case may be) is Kit Kat.  You might think that you know what a Kit Kat is, but the Japanese Kit Kat experience is something else. Among the flavors offered in Japan are wasabi, soy sauce, and cantaloupe. Mmmmm, wasabi…

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