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Archive for the ‘Supply Chain’ Category

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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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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Shop on Amazon.com and you will find a lot of items sold by lots of different sellers. For many of those sellers, Amazon isn’t just handling acting as a store front; it is also handling the logistics of order fulfillment. Now suppose that Amazon has a particular product which both it and several third parties are selling out its warehouses. How should Amazon physically manage the inventory? Should it keep the inventory it is selling physically separate from that offered by third-party sellers? In many instances, Amazon chooses to do just the opposite, allowing for “stickerless, commingled inventory.” Here is an Amazon video explaining just what that means.

And here is how the Wall Street Journal explains the benefits of the program (Do You Know What’s Going in Your Amazon Shopping Cart?, May 11).

The system has enabled Amazon to make better use of its warehouse space and keep a wide variety of items in stock around the country. The idea is to give Amazon flexibility to ship certain products based on their proximity to customers, speeding delivery times. For third-party sellers, it saves them the trouble of having to label individual items sent to the Amazon warehouse.

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What should determine how much it costs to ship a box? Clearly the weight of the package matters as does the distance it travels. But what about its physical dimensions? Does it matter whether a one-pound object takes up a cubic foot of space or two cubic feet?

Apparently, FedEx thinks it matters and has announced that it will be tweaking its pricing policies accordingly (Web Shoppers Beware: FedEx to Charge by Package Size, Wall Street Journal, May 7).

Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than a third of its U.S. ground shipments. …

[The change] would likely greatly affect bulky but lighter weight items like toilet paper and diapers, which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Banana Republic, and Macy’s.

This graphic gives an idea of the kind of price increases that are in play. Clearly items that are not very dense are going to be seeing a stiff price hike.

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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?

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Gustin

One of my favorite topics to teach is the newsvendor problem, an inventory model for very short-lived products like newspapers and fashion goods. One of the points that gets made in that class is that variability is costly. Having to commit resources before knowing what will sell means risk and risk may be a reason not to be in the business. But that risk also suggests an opportunity: If one can find a way to reverse the order of things and commit resources only after knowing what will be demanded, then an otherwise unprofitable business can be a profitable one.

That is essentially the idea behind Gustin, a maker of high-end jeans. It initially sold its jeans trough boutiques, which bought jeans at a wholesale price near $80 but then marked them up to around $200. Gustin had to front all the cost of production and then wait for stuff to sell. Now, they have reversed the order of things and take orders directly from customers ahead of production. As the founders tell it on Marketplace, they have positioned themselves as a totally crowdsourced fashion company (Burning down the house that Levi’s built, Apr 8). You can hear the story here:

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