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Archive for the ‘Supply Chain’ Category

I cut my academic teeth doing work on supply chain contracting. I consequently found a BBC report on pay-to-stay payments interesting (Premier Foods accused over ‘pay and stay’ practice, Dec 5). The subject of the report is Premier Foods, a large UK manufacturer with several food brands. Premier had the chutzpah to effectively ask its suppliers for bags of cash. Here is what the firm’s CEO wrote.

[Chief Executive Gavin Darby] wrote: “We are aiming to work with a smaller number of strategic suppliers in the future that can better support and invest in our growth ideas.”

He added: “We will now require you to make an investment payment to support our growth.

“I understand that this approach may lead to some questions.

“However, it is important that we take the right steps now to support our future growth.”

But when a supplier raised questions in an email about the annual payments, another member of Premier’s staff replied.

“We are looking to obtain an investment payment from our entire supply base and unfortunately those who do not participate will be nominated for de-list.”

You can contemplate the lovely Britishness of “nominated for de-list” while watching this video on the subject.

I should note that Premier Foods has since backed off its demand after the negative press following this report (see here).

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So what should be more profitable for a retailer, selling from physical stores or selling over the web? That’s the question that a recent Wall Street Journal article considers (How the Web Drags on Some Retailers, Dec 1). At first glance, the answer seems straightforward. Web sellers don’t need to rent stores or have staff cooling their heels waiting for customers. However, the reality isn’t necessarily so clear,

While conventional wisdom holds that online sales should be more profitable, because websites don’t need the pricey real estate and labor necessary to maintain a store network, many retailers actually earn less or even lose money online after factoring in the cost of shipping, handling and higher rates of returns.

For retailers that outsource their Web and fulfillment operations, costs can run as high as 25% of sales, industry analysts said.

Kohl’s Corp. says its profitability online is less than half what it reaps in its store. Wal-Mart Stores Inc. says it expects to lose money online at least through early 2016 as it invests to build its technology, infrastructure and fulfillment networks. Target Corp. says its margins will shrink as its online sales grow. Best Buy Co. said faster growth on its website will weigh on its profitability at the end of the year.

Click here for a video of the reporter discussing her findings.

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We have posted a few times about how miserable it can be to work in an Amazon fulfillment center. (See for example here.) We have also had a few posts on Kiva robots — both before and after Amazon bought the company in 2012. Kiva produces automation systems for fulfillment centers. These are essentially robots that bring shelves to pickers who select what is needed to complete customer orders. At the time Amazon bought them, Kiva’s clients were firms like Crate & Barrel that while significant catalog/web retailers had far less variety than Amazon. Indeed, one of our posts on Kiva was basically asking when the robot hordes were coming to a fulfillment center near you.

According to the Wall Street Journal, those hordes have now arrived (Amazon Robots Get Ready for Christmas, Nov 19). Back in May, CEO Jeff Bezos claimed that they would increase their number of robots from 1,400 to 10,000 over the year. What difference does this change make?

At a 1.2-million-square-foot warehouse in Tracy, Calif., about 60 miles east of San Francisco, Amazon this summer replaced four floors of fixed shelving with the robots, the people said.

Now, “pickers” at the facility stand in one place and wait for robots to bring four-foot-by-six-foot shelving units to them, sparing them what amounted to as much as 20 miles a day of walking through the warehouse. Employees at some robot-equipped warehouses are expected to pick and scan at least 300 items an hour, compared with 100 under the old system, current and former workers said.

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It doesn’t seem that there should be that much innovation in shipping. Man has plied the sea for ages, so can there be anything new under the sun? The answer is, yes, there can. And it is really, really big. The New York Times had an interesting article on the new Triple-E class of ships that A. P. Moeller-Maersk of Denmark has been bringing into service (Aboard a Cargo Colossus, Oct 3). These things are immensely huge — longer than the Eiffel Tower is tall. This video gives an idea of just how large these ships are.

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Radio frequency identification (RFID) chips are small chips that can convey information to a reader even if the reader does not have a direct line of sight to the chip. If a veterinarian ever convinced you to put a chip in your dog just in case Fido wandered off, you have in your house. In the retail industry, RFID chips have long been held up as a godsend — the fast track to more accurate inventory records updated in real time. Or at least they were ten years or so ago. But since then there have been challenges with costs as well as the underlying technology. Now, however, it appears a major retailer, Zara, is taking the plunge into RFID in a big way (Zara Builds Its Business Around RFID, Wall Street Journal, Sep 16).

By the end of this year, more than 1,000 of the 2,000 Zara stores will have the technology, with the rollout completed by 2016, Mr. Isla said.

The scale and speed of the project is drawing notice in the industry. The Spanish retailer says it bought 500 million RFID chips ahead of the rollout, or one of every six that apparel makers are expected to use globally this year, according to U.K.-based research firm IDtechEX. …

One benefit was on display on a recent morning, when store manager Graciela Martín supervised inventory-taking at one of Zara’s biggest outlets in Madrid. The task previously tied up a team of 40 employees for five hours, she said. That morning she and nine other workers sailed through the job in half the time, moving from floor to floor and waving pistol-shaped scanning devices that beeped almost continuously while detecting radio signals from each rack of clothing.

Before the chips were introduced, employees had to scan barcodes one at a time, Ms. Martín said, and these storewide inventories were performed once every six months. Because the chips save time, Zara carries out the inventories every six weeks, getting a more accurate picture of what fashions are selling well and any styles that are languishing.

This all raises the question of whether there is any reason to believe that it will be different this time. That is, is there any reason to believe that Zara’s implementation of RFID will be more successful than other big retailers who have gone done this road? (more…)

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It’s been a long time since we’ve posted about the roll of allocation schemes in supply chains, but they remain one of my favorite topics. Allocation schemes involve a pretty simple issue: Suppose a supplier is selling to multiple retailers and at some point gets more orders than it has capacity to fulfill. How should the supplier dole out its limited capacity to its retailers? At one time or another, this has been relevant for high tech goods, luxury items and a number of other industries. But one place this almost always comes up is automobiles — newly released vehicles in particular. A hot new release is going to sell at its full sticker price (and maybe more) so allocating new cars is like passing out thousand dollar bills. So how should an automaker approach this problem?

Here is how Dodge is approaching this for its new Challenger SRT Hellcat — a muscle car with more horsepower than a Lamborghini (Dodge Challenger Hellcat dealer ordering begins — with a catch, Sep 9).

Dodge will base Hellcat dealer allocation on the total number of Dodge vehicles a dealer has sold within the last 180 days, including everything from Dart to Durango to Viper, brand head Tim Kuniskis said.

In December, a second allocation calculation will be made based on the previous 90-days’ sales performance, as well as a traditional 30-day inventory turn.

The dealer allocation for the Challenger Hellcat rewards the dealers “that are selling the Dodge brand,” Kuniskis said. “You sell a lot of Darts for me, Journeys for me, Durangos for me, I’m going to give you the rights to this one, too, because this is a halo of the brand.”

After the initial allocation, Dodge will also begin to measure the Hellcat’s days-on-lot and use it as a factor to determine the number of Challenger SRT Hellcats a dealer will get, Kuniskis said.

The longer a Hellcat sits without being sold — as it might if it were to have a $10,000 or $20,000 market adjustment on it — relative to those on other dealer lots, the fewer future Hellcat vehicles a dealer will receive, the Dodge brand boss explained.

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Here is an interesting factoid for you: 24% of all the vehicles manufactured right now are built on just ten platforms. What’s more, by the end of the decade that number is expected to grow to 30%. The number comes from an Automotive News article that looks at some of the consequences of the trend (With the push for standard parts, quality is key, Aug 6).

First, why automakers are trying to move in this direction is clear. Being able to build multiple model off one basic platform saves a ton of money in product development as well as tooling and build manufacturing facilities. Further, they benefit from a bit of risk pooling; if one model is not selling particularly well, that may be offset by another that can be built at the same plant. Thus, even if a model slumps, all that expensive capacity is till being used. (See this post from last fall on how Ford is cutting its number of platforms from 15 to 9.) Globalization also plays a part in this. What kinds of vehicles sell well might vary across different continents, but if European, Asian and North American models can all be built on the same platforms, manufacturers with a global footprint can be ever more cost competitive.

But what about suppliers? With purchased components making up a significant chunk of the cost of a vehicle, car makers would like standardization there. In a perfect world, you would have the same break system on every model built on a platform, but that brings challenges.

“The requirement that we face is clearly to develop products from the outset in such a way that they can be used in all the platform derivatives without the expense of making changes,” said Sabine Woytowicz, regional quality director at Valeo in Germany.

But with mass standardization, a part with a quality problem can now be supplied to millions of vehicles. That puts a premium on quality. …

Martin Thier, director of corporate quality management at the Mahle Group, said: “When obtaining an order, we check its feasibility for both product development and manufacturing even more closely.”

It comes down to “knowing precisely what you do, what you can do and how good you are at it.”

For example, he said, there is now a more intense interest in investigating how an inconsequential error in one part would produce an effect in a different component.

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