Posted in Apparel, global operations, Logistics, Operations Strategy, outsourcing, Supply Chain, tagged Apparel, global operations, Operations Strategy, outsourcing, Supply Chain on December 13, 2013 |
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“Where does that come from?” sounds like an easy question to answer and at a high level it is. Which car models are produced at which plants is public knowledge so whether your Toyota was built in Kentucky or Alabama is easiest enough to figure out. But if you want to take it to another level — to know where different components came from and where the stuff that goes into the components comes from — is a lot harder. That is the conclusion reached in a blog post on Nautilus (The Secret Life of Everything: Where Your Stuff Comes From, Oct 29). Modern, global supply chains are so far reaching and support so much complexity that transparency (at least to the outside world) is lost.
I’d thought of [supply chains] mostly in terms of delivering Amazon orders and keeping Staples stocked. Those are just endpoints, the final few steps of a waiter carrying a meal on a tray. And what I really didn’t get was that supply chains don’t just carry components and ingredients, but synchronize their movements. Shipping a box of pens to Staples is the obvious part. Coordinating the arrival of barrels, caps, boxes, ink cartridges, and nibs (through which ink flows) at the pen factory—and also metal to the nib factory, oil to the plastics-maker, and so on—is the bulk of what supply chains do, and in the most efficient manner possible, with algorithms optimizing everything from shipping networks to the path of pallets through warehouses, with an eye to what happens when one of these many moving parts goes invariably astray.
The problem then is that unless you pick a real simple product — like a T-shirt — it is pretty much impossible to know where all the components come from and where all the various production steps are executed. NPR’s Planet Money took on this challenge of tracking a T-shirt from cotton field through production and shipping to the disposition of used American clothes in Africa. It’s an eye-opening picture of global supply chains.
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At first glance, simple products like metal baskets or paint brushes should not be made in America. These should be simple to make, the product should be standard, so production should go to a low-cost location. But that ain’t necessarily so. A pair of recent articles discusses how some small US manufacturers are managing to compete in seemingly staid, boring industries.
The first story is from Fast Company and focuses on Marlin Steel, a firm that once focused on wire baskets for bagel shops (The Road To Resilience: How Unscientific Innovation Saved Marlin Steel, Jul/Aug). That’s a business that eventually went to hell as cheap imports came into the market. The fortunes of the company changed with an order from Boeing.
The job that rescued Marlin Steel was small–20 baskets, a $500 order. Greenblatt was handling sales in 2003, so he took the call himself. “It was an engineer from Boeing,” he says. “He didn’t think I was in the bagel-basket business. He just needed custom wire baskets.” The Boeing engineer, who had seen a Marlin ad in the Thomas Register, a pre-Internet manufacturing directory, wanted baskets to hold airplane parts and move them around the factory. He wanted them fast. And he wanted them made in a way Marlin wasn’t used to–with astonishing precision. For bagel stores, says Greenblatt, “if the bagel didn’t fall out between the wires, the quality was perfect.” The Boeing engineer needed the basket’s size to be within a sixty-fourth of an inch of his specifications. “I told him, ‘I’ll have to charge you $24 a basket,’” says Greenblatt. “He said, ‘Yeah, yeah, whatever. No problem. When are you going to ship them?’”
It turns out that the guy from Boeing was not alone in wanting custom baskets for use in a factory. Further, lots of other buyers were much more concerned with getting just the right basket really soon than with whether the price was as cheap has possible. The image above is something used in a GM factory to hold pump housings when they are being cleaned. (more…)
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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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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. (more…)
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Posted in global operations, Operations Strategy, outsourcing, Supply Chain, Supply Chain Risk, tagged global operations, Operations Strategy, outsourcing, Supply Chain, Supply Chain Risk on February 21, 2013 |
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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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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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Posted in global operations, Manufacturing, Operations Strategy, outsourcing, Supply Chain, tagged GE, global operations, Manufacturing, Operations Strategy, outsourcing, Supply Chain on December 6, 2012 |
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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. (more…)
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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. (more…)
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