Managing supply chain risk and standardizing parts

So how many different radiator models does a global car company need? Clearly it needs enough to accommodate different sized engines and cars. A big pick up with an over-sized cylinder eight-engine is going to need something different from a subcompact with an under-sized four-cylinder engine. But does that translate to twenty-something radiator designs or ninety-something?

Bloomberg reports Toyota has been thinking about this question for radiators and other car parts (Toyota Airbag Cuts Create Opening for Overseas Suppliers, Jun 10).

In one of President Akio Toyoda’s biggest initiatives since taking over in 2009, the carmaker is winnowing the number of parts it uses and increasing common components across models. The plan will cut both the time and cost for creating new models by as much as 30 percent, according to estimates from Toyota. …

In the past, Toyota focused on developing custom parts. It needed 50 types of knee-level airbags because seats for various models had different profiles. By standardizing “hip heights,” as the automaker calls it, across models, Toyota says it can reduce knee airbag variants by 80 percent.

As of last year, the automaker had slashed radiators to 21 models from about 100, according to Shinichi Sasaki, Toyota’s global purchasing chief. And the company is reducing the number of cylinder sizes in its engines to six from more than 18 by 2016, the Nikkan Kogyo newspaper reported June 4. Toyota declined to comment on the report.

“From now on, Toyota will seek the compatibility of certain parts it uses with standard parts used by many automakers globally,” the company said in a statement outlining its Toyota New Global Architecture, or TNGA, in March.

Some of the anticipated benefits here are fairly obvious. For example, the article mentions that standardizing parts like radiators that customers don’t care much about (beyond knowing that the car has one) will free up engineering time to work on body or cockpit design that customers do care about. Similarly, many of the implementation challenges (such as standardizing hip height) are fairly clear. Customers may not care about knee-level airbags per se, but standardizing those means standardizing some aspect of the interior design. Customer may or may not notice.

The most interesting part of this to me is its implications for supply chain risk.

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Making toys in the US

Last Monday I posted about Rethink Robotics’ Baxter robot which can be easily programmed to perform a variety of manufacturing tasks. And that very day, the Wall Street Journal had a story about a firm that uses Baxter robot (A Toy Maker Comes Home to the U.S.A., Mar 11)! K’Nex Brands makes a variety of plastic building sets that snap together to make any number of things. Over the last several years, they have moved much of their production from China back to Pennsylvania. There are a number of strategic reasons for the move.

By moving production closer to U.S. retailers, K’Nex said it can react faster to the fickle shifts in toy demand and deliver hot-selling items to stores faster. It also has greater control over quality and materials, often a crucial safety issue for toys. And as wages and transport costs rise in China, the advantages of producing there for the U.S. market are waning.

Robotics play a roll in this. They use the Baxter for “simple packaging tasks,” which sounds like the kind of thing that it would be impossible to have a human do more cost effectively in the US than in Asia.

But to my mind, the most interesting part of the article discusses the design trade offs that K’Nex has made to facilitate the move.

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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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Two ways to take cost out of cars

We’ve got two stories today that illustrate ways of taking cost out of building cars but they come from very different parts of the auto market. One is about making high-volume, low-cost cars at Renault. The other is about high-end, low-volume electric cars from Tesla.

The Renault story comes from the Wall Street Journal (Renault Takes Low-Cost Lead, Apr 16). Renault launched  a low-cost model called the Logan in 2004 with the intention of selling it in developing markets but subsequently expanded its entry-level offerings (see the graphic) and started selling them in Western Europe. They now account for 30% of Renault’s sales and supposedly sport a profit margin more than double the margins on the rest of Renault’s line.

So how do they do it?

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Carving or printing replacement parts

How do you get replacement parts? In a developed country the answer is pretty simple. For some things (e.g., car parts), you may need to go through a dealer or specialized retailer. For others, you may be able to just stop by a general hardware store. But what if you are in a developing nation? Then you might have to get creative.

Markplace had a fun report about craftsmen in Mozambique carving replacement parts (like the gear above) out of ebony (Ebony woodcarvers learn to craft machine parts, Oct 3).

Young Makonde sculptors apprentice for years, sanding and polishing the works of their teachers. They study the ornate canes and traditional busts that are still a bestseller to tourists. But the expert woodcarvers are also finding a market for more “functional” sculptures. Manuel Xavier is a customer here at the woodcarvers’ collective. He repairs gas stoves for a living but has trouble finding spare parts.

MANUEL XAVIER: Here in the north, there is a lack of equipment for gas stoves.

A month ago, Xavier got a call from an unhappy customer. She said that the knobs on her stove had broken off.

XAVIER: I told the woman who owns the stove, “That part isn’t sold here in the North.” Not in stores, or anywhere else. So I decided to have them made out of Pau Preto.

Pau Preto is what the locals call the wood in Portuguese. In English, it’s known as African blackwood, or ebony. …

And versatile. Sculptors have carve parts for espresso makers, sewing machines, and motorcycles. For film projectors, and even computers. Patterson says that storekeepers in Mozambique don’t have the capital to keep spare parts in stock.

The article goes on to report that doing replacement parts is harder than doing creative sculptures. For the latter, there is no formal standard of perfection. Replacement parts, however, must conform to what they replace for them to be useful.

It’s a cute story, but does it have any relevance in the West? We’ll never have hand carved replacement parts, but what if they could printed on demand?

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Saving pennies on pants

Some eye candy from Businessweek (Cost-Cutting Is Rampant in Fashion, May 26).

So the question is what does it take to save money in apparel? With material costs rising, pennies matter. Eliminating a few features to simplify assembly can make a significant difference in the profitability of the product.

Because only so much can be cut out of a garment, cost savings amount to a few pennies here, a few pennies there: eliminating cuffs and pleats, scrimping on linings inside coats, switching to coarser material for pockets. Fabric comprises as much as 50 percent of a garment’s costs. Cutting it more carefully to reduce waste can reduce by 50¢ or more the cost of a pair of $195 men’s wool dress slacks, Brown says. Zippers that come in a big roll are cheaper than ones custom-made for specific garments.

“For big apparel companies that make hundreds of thousands of men’s suits a year, saving 20¢ or 50¢ a garment is a lot of money,” says Salvatore Giardina, a men’s suit designer and adjunct professor at the Fashion Institute of Technology in New York.

I see two interesting parts to this.

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A Quirky business

A little while ago, we posted about Made.com, a firm that let customers vote about what furniture designs it should produce. Now we get Quirky, a firm that takes crowd sourcing to a different level.

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A round up of updates

Over the last few months we have written on a wide variety of topics and the last few days have seen a number of updates on many of them:

• We have written about net neutrality, particularly with reference to iPhone bandwith issues.  Now a federal court has questioned whether the FCC has the authority to impose net neutrality on ISPs. See Court Skeptical of FCC’s Net-Neutrality Push, Jan 9, Wall Street Journal.
• There has been an ongoing battle of wills between Redbox and Hollywood studios that has led studios to suggest that they may limit anyone from renting newly released DVDs.  Now Netflix has signed just such a contract and it may have implications for their move into movie downloads. See Net Flicks Will Cost Netflix More, Jan 9, Wall Street Journal.
• We have had a couple of post on vertical integration.  Automotive News now reports that Hyundai-Kia have backward integrated into steel production (Hyundai-Kia buck trend, wade into steel production, Jan 9).  That right, River Rouge rides again!  The instigation here is to assure access to some specialty steel at stable prices.  Or to put it another way, to force Hyundai’s steel division to pass up some profits from the open market when specialty steel prices spike.  Not sold on this being a good idea.

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What about design?

One aspect of operations we have yet to touch on in this blog is design. Within operations it is clearest to focus on how to build products or deliver services. But there is an initial question of how do you decide what the specifications of the product are or what the characteristics of the services should be. The answer, of course, lies in design and “design thinking”. Sara Beckman has a piece in today’s New York Times (Welcoming the New, Improving the Old) that describes design thinking as follows:

Aiming to help companies innovate, design thinking starts with an intense focus on understanding real problems customers face in their day-to-day lives — often using techniques derived from ethnographers — and then entertains a range of possible solutions.

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