Posted in global operations, Operations Strategy, Pooling, Supply Chain, tagged global operations, Inventory, Lego, pooling, product variety, Supply Chain on December 19, 2013 |
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Have you finished your Christmas shopping yet? You apparently are not alone in procrastinating. Shoppers are buying later and that is causing problems for firms trying to make sure they can get the right items to the right markets. Take, for example, toy maker Lego (Predicting Holiday Sales Poses Issues for Lego, Dec 13, Wall Street Journal).
The Christmas shopping season is getting trickier to navigate as buyers are waiting longer to purchase holiday gifts, Lego’s chief financial officer said Friday, and the trend is creating a need to get more immediate buying data from retailers, particularly in the U.S. …
In a telephone interview, John Goodwin said “this year is going to be the greatest stress test we have ever had.” While a late Thanksgiving contributes to the stress, “people are pushing off their gift buying later and later into their calendars.” …
[A]ccurately tracking buying patterns during the December shopping rush is of critical importance to a company such as Lego, which holds out as long as possible to package its bricks for shipping to individual markets. Many of Lego’s basic bricks are the same, but buyer tastes rapidly change, Mr. Goodwin said. So the company waits to decide what volumes of specific play sets to assemble.
“It increases the importance of getting very good data, so we can supply the retailers with the right products at the right time. We have to be as close to the ultimate purchase as possible in order to respond…nobody wants a disappointed child on Christmas.”
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A few weeks ago we had a post on 100th anniversary of Ford’s moving assembly line. Now the New York Times has an article on how the assembly line has evolved at Ford and other automakers (100 Years Down the Line, Oct 29). What stands out is how Ford and others are seeking to manage variety.
Flash forward to today, inside Ford’s five-million-square-foot, ultramodern Michigan Assembly Plant in the city of Wayne. Nearly 5,000 hourly workers staff the plant in three shifts. The assembly line is three miles long and features more than 900 robots. In the last four years, Ford has spent more than $500 million to refurbish the plant, which dates from 1957.
What makes the plant unusual is the variety of vehicles it makes. Its primary product is the Focus, one of the best-selling cars in the world. But the factory does not just build Focuses with traditional gasoline engines. It can also build them in electric and plug-in hybrid versions.
And the company recently added production of the new C-Max Hybrid — a smallish wagon that shares many parts with the Focus but has an entirely different shape and style.
Recently, as Focuses and C-Maxes hummed smoothly along the line behind him, Mr. Fleming, the Ford executive, said that the company was intent on making all its plants as flexible as Michigan Assembly.
“Within the next five years, our plants globally will be able to produce an average of four different models or derivatives of a model,” he said.
So how is Ford able to manage so much variety on one line? (more…)
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Most of us think of IKEA as “just some oak and some pine and a handful of Norsemen selling furniture for college kids and divorced men” but they also move a boat load of food. The Wall Street Journal reports that with food sales of around $2 billion per year, they are around the same size as Panera and Arby’s (IKEA’s Path to Selling 150 Million Meatballs, Oct 17). Just why and how did IKEA get into the meatball business? Check it out.
And here’s the reporter with a little more information explaining how IKEA has grown its food business.
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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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So Girl Scout cookies are very big in my household. Thin Mints in particular. And they are a very big business nationally. Wikipedia says that 200 million boxes are sold per year. However, change is afoot! According to the Wall Street Journal, the Girl Scouts are testing out reducing the number varieties that are offered from eight down to six (Cookie Cutters: Girl Scouts Trim Their Lineup for Lean Times, Jan 27). As is mentioned in this video (that is mostly about the over-professionalization of Girl Scout cookie sales), the goal is to cut cost and raise revenue:
So what the fortunate six flavors? The list starts with the five most popular flavors (this is take from the Girl Scout Cookies FAQ):
25% Thin Mints
19% Samoas®/Caramel deLites®
13% Peanut Butter Patties®/Tagalongs®
11% Peanut Butter Sandwich/Do-si-dos®
The sixth flavor is Lemon Chalet Cremes. It along with the other also rans make up just 23% of total sales. The flavors getting the ax include Thank U Berry Much and Dulce de Leche.
Now is it reasonable that this will make a significant difference in the Girl Scouts’ profit? (more…)
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My office sits in Nathaniel Leverone Hall. I never gave any thought to who Mr. Leverone was until on a visit to my parents in upstate New Hampshire I drove past Dartmouth’s Leverone Field House. That got me wondering who the guy was. It turns out that Mr. Leverone was from New Hampshire and went to Dartmouth but made his fortune in Chicago. He was a vending machine magnate.
I got to thinking about Mr. Leverone again because of a Wall Street Journal article on the technological evolution of vending machines (Restocking the Snack Machine, Aug 3). Companies who sell through vending machines, like almost everyone else, has been under pressure of late. Margins are thin and a number of typical sales points (factories and offices) have closed.
The response, at least among those that own a large number of machines, has been to go high tech. Imagine, essentially, an Internet enabled Coke machine that tells its owner what has been selling.
“It’s only natural that, when times get tough, people search for new and better ways to do things and take risks on doing things they might not have done when times were going well,” says John Mitchell Jr., an owner of Treat America Ltd. of Merriam, Kan., which has about 12,000 vending machines in the Midwest.
Treat America’s drivers used to stock machines with the most popular foods in their regions, based on sales tracked manually by category rather than individual items. It was difficult to know how different products were selling in particular machines.
Since January, Mr. Mitchell has outfitted about 40% of his machines with systems that record and transmit real-time sales data in each of a machine’s 45 slots. Mr. Mitchell says he now knows that about 40% of the slots are what he calls “dead spirals,” dispensing less than one item per week.
While packs of Cheez-It crackers sell the most of any item in a vending machine in a Kansas City, Mo., call center, they don’t even reach the top 10 in a hospital three miles away.
“You’re catering to a population that might be as small as 30 or 40 people,” Mr. Mitchell says. “The unique preferences of that population can drive sales significantly.”
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There is a commonly observed phenomenon that consumers can be happier with less choice. Fewer options makes it easier to decide and customers are generally happier with their final decisions. That is the starting point for a story on Marketplace (Stores offer less so we can spend more, May 13). Customers may be just as happy with less options and firms have been hard up for cash so there is alignment of the stars and retailers have been cutting their assortments. Walmart, for example, has announced plans to cut the number of items in the store by 15%. But as the article notes, this isn’t just huge firms like Walmart.
Lorrain Schuchart is the Head of PR for craft supplier Jo-Ann Fabrics.
Lorrain Schuchart: The retailers were just trying to give the customer everything, and I think now we’re trying to find out what it is that they actually want and let’s not give them 20 selections when they really only want three.
And it’s not just a matter of removing items from shelves; Jo-Ann’s is completely redesigning 75 of its locations this year.
So far, Schuchart says the new stores are outperforming the old ones by 12 percent.
The article goes on to discuss a loyal Jo-Ann’s customer first visit to a redesigned store. She gripes about how her usual store is cramped and that the aisle layout makes no senses. She then gushes that the new store is so much easier to get around etc etc.
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Two interesting stories on managing product variety. The first is from the Wall Street Journal and concerns H&M, the Swedish fast fashion retailer (How H&M Keeps Its Cool, May 10). You might think that a firm whose business strategy is all built around quickly churning out hip, new items would be able to handle all challenges in managing variety. Apparently, though, not all challenges are the same:
Fast-fashion retailer H&M is a bit frosty toward warm climates. The trendy company has stores in 37 countries, but none in Texas. Miami shoppers won’t find a place to purchase H&M’s cheap chic clothes, either. The problem isn’t a lack of demand. It’s that the chain’s Swedish parent company, H&M Hennes & Mauritz AB, isn’t sure how to sell clothes in cities that are always warm. … H&M forged its successful strategy in the season-changing Europe it calls home, says Daniel Kulle, president of H&M U.S. Uncertainty about whether that strategy could survive a transplant to warmer regions means while Toledo has H&M, Dallas has to wait.
That quirky concern has a strategic issue at its root. H&M, the world’s third-largest fashion retailer by revenue, still sells pretty much the same products in its 1,900 stores around the globe. Its planning and allocation systems are geared toward turning over merchandise quickly, not tailoring assortments to individual regions. H&M says it is investing in tools and distribution centers to allocate its goods more effectively.
Taken at face value, this is a supply chain issue. A process optimized for rapidly turning over the product line should be easier to run if the same mix of SKUs is going out to every store. However, I wonder whether H&M really lacks this capability. The Swedes have stores in Kuwait and Spain. I suspect that those stores don’t sell the same mix of items stores in Scandinavia or Germany. It may be that the reasons H&M hasn’t pushed into Dallas or Miami are more related to how they are developing their distribution infrastructure. It may be more cost-effective to go slow and boost the utilization of a facility before moving on to a new geography. It would then make sense to saturate the Northeast or Midwest before turning to Dallas and Miami. Alternatively, this could be a question of advertising. Focusing on colder climes means advertising features parkas and boots going into the winter and allows for a unified campaign across all markets.
The second story is from NPR’s Morning Edition and concerns how Japanese firms roll out a wide array of products that they know will have the life span of a fruit fly (Kit Kat Kaleidoscope: Far-Out Flavors From Japan, May 10). The poster boy (or bar as the case may be) is Kit Kat. You might think that you know what a Kit Kat is, but the Japanese Kit Kat experience is something else. Among the flavors offered in Japan are wasabi, soy sauce, and cantaloupe. Mmmmm, wasabi…
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It’s apparently fashion week in Milan which gets us a fun article on Italian textile makers (In Italy’s Mills, a New Spin Emerges, Wall Street Journal, Feb 25). There have been some interesting changes in the apparel industry in the last decade or so. Cheap now truly rules. Indeed, some argue that fast fashion retailers have become so adept at mimicking high-end designs that the market for counterfeit designer goods has suffered (see Cheap used to be cheerful, but it is out of fashion, The Times, Feb 15). Focusing on costs has led to moving the assembly of garments and the production of materials to low wage countries.
So what is an old-school fabric producer like Italy’s Lanificio Egidio Ferla SpA to do? Take the high road:
“We are not afraid of making special qualities, special colors,” says Paolo Ferla, grandson of the firm’s founder. … Like other textile makers in the region, Mr. Ferla can’t devalue the strong euro, which makes Europe’s exports expensive, or compete with China’s relatively cheap labor. But he can offer small quantities, special colors, new weaves and patterns, and even new fibers. A decade ago, Mr. Ferla innovated the use of baby alpaca, which is softer than cashmere. He comes out each season with new variations on tweed-like fabrics thrust through with various colors of thread. Italian textile makers have also created techniques such as extra twist in the thread that offers more stretch, new methods of combing bouclé to make it soft, or spinning tiny threads together to make extraordinarily soft wools.
Yet factories in China are proving as adept at copying fabrics as films and handbags, which is pressuring the Italians.
While worried, Mr. Ferla is relying on his quality-focused business strategy. “It’s never more important for us to maintain the quality and the innovation of production,” he says. Then he quotes Dostoevsky: “Beauty will save the world.”
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Wired had an interesting piece on hybrid cars that implicitly asks just how much variety car companies should be offering (‘Forced Features’ Drive Up Hybrid Prices, Jan 28). The rough argument is that if one accepts that hybrid cars are socially good (and let’s not get distracted by whether anything with that many batteries can be good for the environment), shouldn’t they be configured and priced so that as many people as possible can buy one? According to the Union of Concerned Scientists, that ain’t happening:
Trouble is, most [hybrids] are packed with high-end features that inflate the sticker price. So says the Union of Concerned Scientists in its inaugural “Hybrid Scorecard,” a rundown of the gas-electric rides currently available in the United States. Although the union praises automakers for offering hybrids with excellent fuel economy and low emissions, it faults them for stuffing those vehicles with DVD players, keyless entry systems, heated power mirrors and other pricey gadgets. These features are standard equipment, not options, and add an average of $3,000 to the bottom line. That’s on top of the “hybrid premium” that typically adds three to four grand to cover the cost of the electric motor and battery pack.
“Consumers shouldn’t be forced to take features on the hybrids and pay thousands of dollars more because manufacturers don’t want to offer them a choice,” said Don Anair, a senior analyst in the vehicles program at the union. “People are looking for fuel-efficient vehicles, and they shouldn’t be forced to pay thousands more for them.”
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