Managing multisite services

How do you grow a service business when growing means adding locations? That’s always been one of my favorite topics in service operations. It poses interesting challenges on what must be standardized and where flexibility should be maintained. The Globe and Mail has an interesting profile of  Toronto entrepreneur who has had to grapple with these issues as he has expanded his takeout restaurant from one location to four (Restaurateur creates winning recipe to manage multiple locations, Mar 8). They’ve gone the emphasize-standardization route.

Over the next seven years, Mr. Ross opened up three more Veda locations, two in buildings on the main University of Toronto campus, in 2007 and 2009, and one this past summer at University and Dundas, close to a group of hospitals. To manage across these locations, he pays close attention to as much standardizing as possible.

Since Mr. Ross believes food consistency to be critical, all the cooking is done in a central location. This means not only that food in all of Veda restaurants is cooked using the same recipes, but that it all comes from the same batch. The cooking takes place in the original, flagship Yorkville location and is distributed to the other locations each morning.

To ensure that the right food is at the right place at the right time, Mr. Ross needs to be able to estimate demand at each location on each day of the week. He has systems in place that allow him to predict that, and to tweak the prediction if there are events, such as large conferences, in the area. As well, he has a driver on call at all times who can deliver food to a location within 10 minutes if there is unexpected demand and something is running out.

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Evolving supply chains

As the New York Times tells it, supply chains are changing (New Hubs Arise to Serve ‘Just in Case’ Distribution, Feb 12).

Major storms like Hurricane Sandy and other unexpected events have prompted some companies to modify the popular just-in-time style of doing business, in which only small amounts of inventory are kept on hand, to fashion what is known as just-in-case management. …

Just-in-case is a response to the vulnerability of just-in-time supply chains, said Rene Circ, CoStar’s director of industrial research. Since the 1990s, just-in-time has made sense for many companies looking to reduce the cost of keeping large inventories on hand. Technology enabled retailers and manufacturers to closely track and ship items to replace merchandise sold or components consumed in production.

This model also reduced transportation costs, because goods would be shipped only as necessary. By combining the just-in-case with just-in-time strategy, Mr. Circ said, companies are trying to strike a balance between “carrying the minimum inventory possible, yet never running out of things, because inventory equals cost.”

I’ve been trying to think what I should say about this article for several weeks. I have felt conflicted because, on the one hand, it hits on some interesting points. On the other hand, it also leads with one of my pet peeves of business reporting. Specifically, it links any change in inventory management to some failure of just-in-time management. However, I am not convinced that is actually a good description of what is going on here.

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Innovation and quicksourcing

Chris Anderson, the former editor of Wired and current 3D printing cheerleader, has an intriguing piece in the New York Times (Mexico: The New China, Jan 27). it deals with his experience running 3D Robotics, a maker of civilian drone aircraft. 3D Robotics competes with firms that sourcing their production in China and hence they have had to find a way to take on competitors with low labor costs. Their answer? Tiajuna, Mexico. 3D is based in San Diego so engineering is done on the north side of the border but assembly is done on the south. Labor costs may higher than in China (but, as the article notes, the gap is closing as Chinese wages rise) but Anderson sees many advantages in his firm’s “quicksourcing” model that depends as much on speed as cheap hands.

First, a shorter supply chain means that a company can make things when it wants to, instead of solely when it has to. Strange as it may seem, many small manufacturers don’t have that option. When we started 3D, we produced everything in China and needed to order in units of thousands to get good pricing. That meant that we had to write big checks to make big batches of goods — money we wouldn’t see again until all those products sold, sometimes a year or more later. Now that we carry out our production locally, we’re able to make only what we need that week.

This point obviously depends on owning one’s own facility in Mexico or having a very tight relationship with the Mexican supplier. If a small buyer doesn’t have much negotiating power with a supplier it will still likely face large minimum purchase quantities when buying from Mexico. Still it is an interesting observation and suggests that some start ups may be making ill-advised trade offs between cost savings and flexibility.

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How do supply chain choices impact California gasoline prices?

California is famous for its car culture but that lifestyle has been expensive in recent months as the price of gas in the Golden State has climbed and climbed. California gas prices are almost always above the national average but in recent weeks the gap has grown more significant than usual.

So what gives? According to the Wall Street Journal, it’s all about supply chain issues (California’s Gas Price: Is There a Villain?, Oct 18).

What’s the lesson learned from California’s recent spike in gasoline prices, which is costing consumers millions of dollars and prompting calls for an investigation?

Probably nothing more villainous than this: In the world of tight supply-chain management, if you live by “just in time,” you on occasion will get hosed by “just in time.” And that’s the price Californians opted to pay, in part because they have goals beyond just access to cheap gas.

As the article goes onto explain, there are two issue here. The first has to do with the features of the market that have operational implications.

The state is an isolated market. Ships deliver oil to California’s refineries, which then make gasoline and pipe it throughout the state and to neighboring Nevada, Arizona and Oregon. There is no major pipeline or rail infrastructure that can quickly deliver large amounts of gasoline or oil from other locales in the U.S. to California—supplies that could mitigate shortages.

How isolated is California? While the rest of the U.S. is consuming less imported oil and more domestic shale oil from fields like the burgeoning Bakken in North Dakota and Eagle Ford in Texas, California is importing more oil from countries such as Ecuador and Iraq—now up to roughly half of what it consumes.

The state also mandates a special blend of cleaner gasoline—with the strictest specifications in the nation—especially in the extended summer months. The cleaner and pricier gasoline, in a driving market that’s larger than many countries, has been a plus for the state’s air quality, a goal Californians sought. But the trade-off is that during emergencies, California stands alone.

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Reserving toys

Every now and then I see a popular press article that I feel is all but certain to generate academic papers. I can just instantly picture a conference six months in the future at which some grad student will cite this story as justifying his or her model. Today, I saw one of those stories. It has to do with a service Toys R Us is offering this holiday season. Here is how the AP (via the Huffington Post) explains it (Toys R Us ‘Hot Toy’ List Allows Customers To Reserve Items In Advance Of Holiday Rush, Sep 12).

In the biggest change, Toys R Us, based in Wayne, N.J., will offer a “hot toy” reservation system starting over the next few days – when the company announces its 50 products on its annual ‘hot toy’ list. The reservation system will run through the end of October.

Toys must be reserved in stores – in order to avoid online scammers, Storch said – and customers have to put down 20 percent to reserve the toy.

Once reserved, customers will receive an e-mail notification when the order is available and have until Dec. 16 to pick it up in store. The idea is to help customers avoid a frantic last-minute search for hot toys – such as 2009′s Zhu Zhu Pets stuffed hamsters and last year’s Leapfrog LeapPad tablet – which often run out of stock later on in the season.

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How fast does Apple turn over its inventory?

We have posted in the past about Apple’s impressive operational expertise  (see here) but now there is a report that puts are hard number to that. Business Insider reports that Apple’s turns are frankly absurd (Wow! Apple Turns Over Its Entire Inventory Once Every 5 *Days*, May 31, see also here)

Apple turns over its inventory once every five days. …

The only company on Gartner’s list of 25 companies that turns over its product faster is McDonald’s, which is not exactly in the electronics business. Dell and Samsung rank two and three in Apple’s category, turning over their inventory roughly once every 10 and 21 days respectively.

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Reducing flow times in supply chains

Here’s an interesting supply chain story in one graphic:

This comes courtesy of a Wall Street Journal story on how 3M has worked to simplify their supply chains (3M Begins Untangling Its ‘Hairballs’, May 17). The product in question here is a simple plastic hook that once logged over a thousand miles crisscrossing the Midwest in the process of being made.

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Macy’s warehouse at the mall

If you order something on-line, where do you think it ships from? If you’re ordering from Macy’s, the answer may be the local mall. The Wall Street Journal reports that Macy’s is planning to dedicate space in over 200 stores to picking and packing orders to ship to customers’ homes (Macy’s Regroups in Warehouse Wars, May 14).

The retailer plans to convert 292 of its 800-plus stores for the task, with expanded storerooms and new technology that dynamically updates the status of every item in every store. The goal is to better manage inventory.

For instance, if stores have too much of an item, the excess can be shifted to the website, where it might be selling better and at full price. Likewise, out-of-stock items won’t disappear from Macy’s website if they can be found in a physical store. Online orders will be filled by stores closest to consumers, saving time and money on shipping.

Before it started shipping from stores, Macys.com removed thousands of sold-out items from its website each week, Mr. Sachse said. When the chain carried a limited-time line from Chanel creative director Karl Lagerfeld last year, half the online inventory sold out in the first day, yet Macy’s stores had to discount the collection to get it sold, he said. If Macy’s had been able at the time to meet online demand with Lagerfeld items shipped from its stores, he said, sales would have been much better.

In the video below, the reporter gives more details.

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How does Lululemon keep from stocking lemons?

Lululemon is undoubtedly on a tear. According to the Wall Street Journal (Lululemon’s Secret Sauce Mar 21), the Canadian retailer has higher sales per square foot than Neiman Marcus and its price to earning ratio is 48. How does it manage this? A lot has to do with its management of its assortment and its inventory. Check out this eye candy:

Also, for those without access to the Journal, the reporter discusses her findings with the annoying British guy.

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What will Ford do with all those cars?

It has been a while since we’ve talked about automobile inventory. A year or two ago there was a lot in the press about automakers in the US finding religion and keeping better control over their inventories. The argument was that greater labor flexibility for the US makers would allow them to keep from accumulating cars and being forced to offer margin-trashing incentives. (See, for example, this post and that post.)

With that background, check out this graphic from today’s Wall Street Journal (Small Cars Test Ford Resolve, Jan 11):

So Ford has a lot of small cars. As the article notes, the party line in the industry is that 60 days is the “right” amount of inventory. Ford currently has 126 days of Fiestas and 92 days of Focuses (or should that be Foci?).

Here is the author discussing Ford’s problem.

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