“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.
I spent this weekend in Miami (OK, Coral Gables) teaching the core Ops class for an executive MBA section. One of the topics we usually cover in the core (especially with execs) is the cash-to-cash cycle. The cash-to-cash cycle (intuitively) measures how long it takes a firm to capture the gain on its investment in inventory. Mathematically, it consists of days of inventory plus days of accounts receivable minus days of accounts payable. Thus when a firm purchases inventory, it takes a while for those goods to sell. It may then need to wait to collect cash from its customers. However, it may get credit from its suppliers so time in inventory may be offset by the time it has to pay its suppliers. Taken together, these measures give an idea of how effectively a firm uses its working capital. It also may suggest where the firm should target improvement. For example, benchmarking might show that its accounts receivable is out of whack with industry norms so that could be a real opportunity to pursue.
Fancy, luxury handbags start off looking like this:
Not exactly the image of exclusivity and sexiness that the likes of Hermes and Longchamp want to project when trying to convince customers to pony up for a bag but leather starts with hides and hides don’t start off in fancy colors.
The image comes from a Wall Street Journal article on Tanneries Haas, an old-school Alsatian tannery (French Tannery in Demand as Source of Top-Notch Leather, Nov 6). The article walks through the production process (quick: name a use for chromium!) but the interesting part of the story is how the industry of supplying high-end hides has changed. Tanneries Haas remains independent but luxury houses are buying up tanneries.
Until just a few years ago, the tanning business was the least glamorous cog in the designer-handbag industry. But recently Tanneries Haas and other French tanneries have found themselves the object of attention from famous luxury labels jockeying for secure sources of top-notch leather. “When they saw a certain number of tanneries disappear, they had to think about protecting their suppliers,” says Jean-Christophe Muller Haas, a sixth-generation French tanner. …
By acquiring suppliers, luxury goods purveyors hope to get more control over raw material costs. Prices of calf hides have soared in recent years due to Europe’s falling veal consumption. Calves are slaughtered primarily as a source of veal and skins are a byproduct. With fewer calves slaughtered to meet shrinking demand for veal, the supply of skins available for luxury leather goods is also diminished.
It takes car companies about three years to design a sedan, and handset makers can churn out a new smartphone in six months. But an IKEA kitchen takes half a decade to create. …
“It’s five years of work into finding ways to engineer cost out of the system, to improve the functionality,” Mr. Agnefjäll said of the company’s “Metod” kitchen, a new model, during an interview at a store in his hometown of Malmo, located on Sweden’s southwest coast.
The Metod kitchen (translated as “Method” in English), is the brainchild of a clutch of designers sitting near IKEA’s headquarters here. The goal is to achieve “democratic design,” products that will work in homes whether they are located in Beijing, Madrid or Topeka.
IKEA—known for minimalist design—packs enormous complexity into a kitchen. Metod consists of 1,100 different components, and distilling them all into a cheap, green and easily shippable package has proved arduous.
As the Swedes tell it, they go through a lot of steps to get the design just right.
So is the Journal right to label IKEA as slow and plodding? (more…)
Jan has been on a data kick lately (see here, here and, oh yeah, here) so here is a picture he might like:
It comes from a report by the International Council on Clean Transport entitled “U.S. domestic airline fuel efficiency ranking, 2010” that was published earlier this month. (It is also discussed in the Washington Post.) Here is the question that it is attempting to answer: Given that different airlines do different things, how can we fairly compare their ability to use fuel efficiently? What’s cool about the answer is that you see with in the answer firms’ strategic and operating choices.
Back in April of last year, we had a post discussing how Tesla managed to set up its Fremont factory on the cheap. Now Wired has a video showing just what happens in the factory (Peek Inside Tesla’s Robotic Factory, Jul 16).
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…)
One of the challenges of growing a business through acquisitions is how the buying firm can create added value that the acquired firm couldn’t create on its own. One possible solution is that the acquirer can bring some operational expertise that the acquired firm lacks. That, according to the Wall Street Journal, seems to be the case with Honeywell (Honeywell’s System Sensor Plant Declares War on ‘Seven Deadly Wastes’, Jul 1).
The article describes the efforts Honeywell has put in to improve operations at a plant in its System Sensors unit that it inherited when it bought Pittway Corp in 2000. So what did things look like when they bought the place?
The 1,000 workers inherited at the St. Charles plant struggled to align output with demand. The facility often produced too much, anticipating demand that didn’t materialize. Overproduction and excess inventory are two of the seven “deadly wastes.”
“You couldn’t see the plant floor because there was so much inventory stacked up,” says Karl Odegaard, System Sensor’s director of manufacturing.
Sounds like classic case of push production scheduling, right? Here are some of the steps that they took to improve the process. (more…)
How should Wal-Mart fill web orders? That seems like a straightforward question. And, given that Wal-Mart sold over $7 billion of stuff on the web last year, you would think they would have figured that out by now. Still as the Wall Street Journal tells it, the retail giant is still working through how best to fill orders (Wal-Mart’s E-Stumble With Amazon, Jun 19).
E-commerce at Wal-Mart is run as a distinct business, with its own headquarters, CEO and merchants who buy items specifically for the website. Every year, executives would start a “five-year planning exercise, but the plans were never executed and management would say the sales weren’t there to justify the investment capital,” says a former online-division executive. “Even now e-commerce is a rounding error in the U.S. market.” Wal-Mart said it expects $10 billion in online sales this year, which would amount to about 2% of its $469 billion in annual revenue.
As Wal-Mart’s online orders grew, it turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs. Wal-Mart’s online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel, analysts say—a big difference considering some of Wal-Mart’s popular purchases are low-cost items like $10 packs of underwear.
As the quotes make clear, this is all about how to match Amazon so Wal-Mart remains relevant as more transactions move on-line. To put the challenge in perspective, check out this graphic of Amazon’s distribution network.