Supply chain innovation: Flowers by sea

So how much innovation can there be in supply chain design for cut flowers? Once the industry globalizes (as it has), it would seem that airfreight is the only option. Customers value freshness and cut flowers are the essence of a perishable flower. However, there may be more room for process changes than you would think as there is a trend of shipping flowers by sea (Fresh-Cut Flowers, Shipped by Sea?, Wall Street Journal, May 11).

The delicate business of transporting fresh-cut flowers from field to vase is being quietly rearranged, with more and more blooms taking a slow steam by sea from South America and Africa instead of being whisked by air.

Global cut-flower sales approached $14 billion last year and most move by cargo plane, but high jet-fuel costs and improvements in chilling technology are prompting a shift to more ocean shipping, particularly for imports to Europe.

Ocean transport costs can be half those of airfreight, an important consideration for price-conscious supermarkets and florists. Mom is unlikely to notice the difference in her Mother’s Day bouquet. Proponents say certain roses, carnations and other hearty varieties show no ill effects from the sea voyages spent in refrigerated containers a degree or two above freezing.

According to the article, some industry participants say that ocean shipping could account for a significant chunk of the market in coming years. Currently, airfreight accounts for 99% of shipments.

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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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How the New Year in China affects supply chain reliability

An interesting story from today’s Wall Street Journal (Companies Seek to Avoid China New Year Hangover, Feb 21). Basically, the Chinese New Year is complicating supply chain management.

For toymaker The Bridge Direct, Easter now begins in August.

That is when the Boca Raton, Fla., producer of Inkoos stuffed monsters and Justin Bieber dolls has to file orders with its Chinese suppliers to ensure delivery by the spring holiday. It used to place orders closer to the key selling period, which allowed it to get a sharper sense of demand and better manage its cash. But now the greater concern is making sure it doesn’t get left shorthanded because of China’s New Year holiday.

The company is one of many from the U.S. and other countries that are closely watching China as factory workers slowly return this week from the country’s long Lunar New Year holiday. Every year, millions of China’s 250 million migrant workers leave their factories and travel across the country to visit their families at home. The problem for toy and apparel makers in particular is that fewer and fewer workers are returning to the factories when the break is over.

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Dueling with Chinese banjo makers

Some may view banjo music as an acquired taste, but that doesn’t mean the banjo market is not interesting. The LA Times recently published a profile of Deering Banjo, a San Diego based banjo maker (Deering Banjo in a groove, Feb 2). There is also a video accompanying the article.

The banjo market may not be huge but Deering has been generally successful. In 1997 their annual sales were around a million dollars. By 2011, they had weathered the recession and had sales over $3 million. And they have done this as they have faced increasing competition from Chinese banjo makers. In many ways, the way they have gone about this is a playbook for taking on low-wage foreign competition.

First, they have focused on productivity.

The efficiencies wrought from such a unique work space are unmatched in the industry, Deering said.

“We keep track of our man hours per banjo,” he said, “and this past week, it was three hours per banjo. That’s extremely good. One of the longest takes 20 hours. The Chinese can’t build banjos faster than we do.”

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Why is GE bringing appliance manufacturing back from China?

The cover of this month’s Atlantic proclaims Comeback Why the future of industry is in America. It features two articles (The Insourcing Boom and Mr. China Comes to America) on how companies are “insourcing,” moving production back from other parts of the globe (primarily China) to the States. They make some interesting points. The Insourcing Boom focuses on General Electric’s decision decision to repatriate a significant amount of its appliance manufacturing to Louisville, Kentucky. Before you dismiss this as a bit of window dressing to provide some political cover, you should know that Jeff Immelt and company are dropping $800 million to make this happen. I’m sure Mr. Immelt likes political cover and good press as much as the next CEO, but he didn’t get to be head of GE by spending nearly a billion dollars on a whim. They really believe that they can make this work.

The article points out several factors that have come to favor producing in the US.

At Appliance Park, this model of production—designed at home, produced abroad—had been standard for years. For the GeoSpring [water heater], it seemed both a victory and a vulnerability. The GeoSpring is an innovative product in a mature category—and offshore production, from the start, appeared to provide substantial cost savings. But making it in China also meant risking that it might be knocked off. And so in 2009, even as they were rolling it out, the folks at Appliance Park were doing the math on bringing it home.

Even then, changes in the global economy were coming into focus that made this more than just an exercise—changes that have continued to this day.

• Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
• The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
• In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
• American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
• U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.

That’s a compelling list but all in one or another come around to saying that the US is cheaper (or China is more expensive) than you would have thought. But the article also makes the case that there are further benefits. 

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Is Sony dying? Some operations and strategy thoughts…

A great article titled “The Ghosts of Sony” and authored by Jake Adelstein and Nathalie-Kyoko Stucky, came to me via a tweet by my good colleague Robert Swinney.  (That’s one of the reasons I love Twitter!) It surely is worth a read as it prodded a few thoughts:

• History repeats itself: In our Operations Strategy class, we teach two cases that prominently feature Japanese companies both in the same scenario: they attack the incumbent (a Swiss and an American company, respectively) “from below” and gradually move up the food chain.  This follows the typical innovation dynamics that Clay Christensen has promulgated.  After Sony did the same, it became the incumbent and is now under attack by South Korean Samsung Electronic Co.
• Are management professionals good CEOs of tech companies?  We need to see more than a few data-points but Sculley didn’t perform well at Apple either, nor did this work at Sony:

Former Sony executives and current employees blame the fall of the firm on the loss of brainpower and good employees during the reign of Nobuyuki Idei, from 1999 to 2005. Idei was the first Sony CEO to rise up entirely from a management background and in the “Who-killed Sony?” genre of books and articles; he is regularly the prime suspect.

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Process standardization at Ford

How should firms think about designing factories when they have several in their network? Should they let local managers make idiosyncratic choices or should they try to standardize as much as possible? Ford apparently is going the latter route by, among other things, trying to eliminate forklifts from its factories (Going ‘fork free’, 3D scans part of Ford’s gold standard, Reuters, Aug 31).

At its just-opened $450-million factory in Thailand, Ford Motor Co (F.N) prides itself on being “fork-free.”

Eliminating forklifts, which can have big blind spots, from the floor improves worker safety, the U.S. automaker says. Ford instead uses trolleys to bring parts to workers on the line here.

This shift is just one example of the new manufacturing standard that Ford is rolling out at its plants worldwide. Such changes are key to helping Ford cut costs and boost quality as it moves toward building more cars on shared global platforms.

Many of these practices are being tested at Ford Thailand Manufacturing, Ford’s newest factory, where the automaker now builds its Focus compact for the local market here and other countries in southeast Asia.

Over time, Ford expects to export such practices to other plants worldwide, including some in the United States.

“Thailand is the first of a number of facilities that are going to look and feel exactly the same,” said John Fleming, Ford’s head of global manufacturing and labor affairs, in an interview Friday.

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Sustainability and vertical integration

Here’s an interesting story at the intersection of supply chain strategy and sustainability. The LA Times reports that Taylor Guitars has bought an ebony mill in Cameroon (Taylor Guitars buys ebony mill, pitches sustainable wood, Jun 7).

For Taylor Guitars, which has used ebony from Cameroon for many years, the chance to ensure a steady supply of legal ebony was too good to pass up, Taylor said in an interview.

The company teamed late last year with Madrid firm Madinter Trade, which sells tone woods for musical instruments, to buy the Crelicam mill outside of Yaounde, the capital of Cameroon. The purchase wasn’t officially announced until late last month.

Taylor said it’s been a difficult process bringing the mill’s wood sourcing and operations up to what he and his partners consider acceptable. The mill’s subcontractors, for example, typically cut down 10 trees to find one with all black wood, Taylor said. He agreed to boost their pay to get them to deliver that ebony that had been considered undesirable.

There are some interesting motives behind this move. 

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Making American Apparel in America

When you think of the retailer American Apparel, you may first think of racy advertising or a CEO prone to being served with sexual harassment suits. (My mind, of course, goes immediately to a classic Onion piece that combines both of these.) What you may not know is that American Apparel’s apparel is actually made in America. Just how they go about doing that is the subject of a recent LA Times piece (American Apparel fights the ‘made in America’ fight. For how long?, Jun 3).

The company’s seven-story factory, a former Southern Pacific Railway freight depot, is the biggest garment-making facility in the U.S., according to an industry trade group. Here, 4,500 workers staggered over two shifts cut, sew, fold, box and ship clothes to the company’s 253 stores and other clothiers worldwide. …

In addition to the two large buildings downtown, the company owns four smaller manufacturing operations in Southern California. Fabric for the company’s trademark cotton T-shirts, which come in 52 colors, is knit and dyed in those facilities before getting trucked downtown for sewing.

So what steps do they take to make manufacturing T-shirts in the US viable?

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Knitting shoes

Shoes have been around for a long time and the basic manufacturing technique is pretty much fixed. Pieces of material — whether leather, cotton, or whatever — are cut out and sewn together form the upper body of the shoe and that upper is then attached to a sole. All pretty straightforward, but that may be about to change, at least for fancy running shoes (Is Nike’s Flyknit the Swoosh of the Future?, BusinessWeek, Mar 15).

The shoe in question is Nike’s Flyknit, an ultra-lightweight running shoe that is meant to feel like wearing a sock. To make it feel like a sock, they knit the upper like it was a sock — except it’s a real high-tech sock.

In a process Nike calls “micro-level precision engineering,” proprietary software instructs the machine to minutely alter a shoe’s stability and aesthetics. If the toe needs more stretch, the design can be digitally altered instantly to add Lycra-infused thread. For added strength in the heel, the software uses multiple layers of yarn of varying thickness. Nike plans to patent the process.

Because the upper is made in one piece, the Flyknit has 35 fewer pieces to assemble than the popular Air Pegasus+ 28 runner. That makes production quicker with less labor and larger profit margins, Parker says, though the company won’t give precise figures for either. The Flyknit process also fits into Nike’s sustainability push because the amount of material wasted manufacturing each pair weighs only as much as a sheet of paper, or about one-100th of a pound. Nike says the Flyknit produces 66 percent less waste than the Air Pegasus+ 28.

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