The dollar has been on a tear over the past year. Check out how much it has appreciated against the euro over the past year or so (A Shakeup in Currencies, Wall Street Journal, Mar 19).
There are some obvious implications from this chart. For example, if you spent spring break in Europe, you have an impeccable sense of timing. Also, if you are US-based manufacturer counting on exporting to Europe, you are going to be swimming upstream (see, for example, Strong Dollar Stands in Manufacturing Sector’s Way, WSJ, Mar 15).
But if a strong dollar hurts US firms, it’s gotta be a godsend for European businesses, right? Well,maybe not. How a weak euro impacts European firms is going to depend on the structure of their supply chains. Check out this eye candy from today’s Wall Street Journal (Europe’s Fashion Retailers Under Pressure From Strengthening Dollar, Mar 24).
Continue Reading »
Posted in Apparel, global operations, Operations Strategy, Supply Chain | Tagged Apparel, global operations, H&M, Operations Strategy, Supply Chain, Zara | Leave a Comment »
My colleagues (and co-bloggers) Jan Van Mieghem and Gad Allon are offering a Massive Open Online Course. Here’s the official description:
Scaling operations: Linking strategy and execution
Over the past several decades, operations strategy has played an increasingly important role in business’ success. In this course, we will equip you with concepts and tools to build operations in a way that not only supports your competitive strategy, but also allows you to create new opportunities in the market place.
Linking strategy and execution is a five-week course dedicated to making strategic decisions that are grounded in operational reality. Together, we will study how to build and evaluate the “operating system” of the firm to maximize value. This involves tailoring the firm’s operational competencies, assets, and processes to a specific business strategy.
Each week, we’ll explore case studies, engage in discussions and examine realistic data. Thanks to our data-driven approach, you’ll be able to implement your learning directly into practice. At the end of this course, you’ll be ready to build an effective, actionable plan to scale your department or organization.
The course runs March 30th to May 3rd.
Click here for more information.
Posted in Education | Tagged education | Leave a Comment »
Wal-Mart made waves last month when it announced that it would increase the starting wages of its workers so that all of its associates would make at least $9.00 per hour. That’s not exactly the kind of pay that makes you rich, but it is 24% higher than the federal minimum wage of $7.25 per hour. TJX followed Wal-Mart’s lead and announced a similar wage policy.
But why should these large firms be upping their pay? That is the question examined in a recent Bloomberg article (Why Retailers Are Suddenly Desperate to Keep Their Least-Valuable Workers, Mar 6). As the article notes, it is not clear that firms need to be paying more. Yes, labor markets have been firming up, but the unemployment rate went up last month because a number of workers returned to the labor force. So there are still a good number of workers available. Why then make a move that’s going to increase costs by a billion dollars per year?
The article’s answer to that question? Turnover!
Turnover in the retail sector has been steadily rising and now stands 5 percent a month. At that rate, if Walmart’s workforce were to hold to the national average, over a full year it would be losing 60 percent of its sales staff. Employee churn at fast-food chains is even worse: Almost 6 percent of all fast-food workers left or were laid off in December, according to federal data. An individual worker won’t ever command anything like the salary-bargaining powers of a baseball player, of course, but service economy employers tend to notice a rising tide of worker defections. Plugging all those gaps in the workforce is hugely expensive. Here’s how the math breaks down:
- The average retail sales employee in the U.S. earns an annual income of about $21,140, or $10.16 an hour, according to the Bureau of Labor Statistics.
- The cost of replacing an employee earning less than $30,000 per year is about 16 percent of that person’s annual wage, according to the Center for American Progress, a left-leaning think tank.
- A retail employer would therefore need to spend almost $3,400 every time a worker defects.
That adds up quickly. Walmart has about 500,000 low-wage employees. The cost of replacing each one, using the rough estimate from above, comes to roughly $1 billion—the cost of the just-announced wage increase to $9 per hour.
Continue Reading »
Posted in Human resources, Retail | Tagged Human resources, Retailing, Wal-Mart | 1 Comment »
The vicissitudes of American manufacturing has been a long running topic on this blog. But whether one focuses on firms that have always kept their production in North America or those that have reshored manufacturing, there is the question of whether China or other Asian countries are going down without a fight. A recent article in The Economist suggests that manufacturing in Asia in general and in China in particular is going to be around for a long, long while (A tightening grip, Mar 14).
First, one has to recognize that the growth in Asian manufacturing over the last 20-plus yeas has been spectacular. Check out this graphic.
As the article notes, these numbers get a little more extreme if one looks at “intermediate inputs,” doohickeys like displays and circuit boards that go into finished products that may be assembled elsewhere. Continue Reading »
Posted in global operations, Manufacturing, Offshoring, Operations Strategy, Supply Chain | Tagged global operations, Manufacturing, Offshoring, Operations Strategy, Supply Chain | Leave a Comment »
Fast Company named American Giant one of its most innovative companies of 2015 (American Giant Guns For Gap By Doubling Down On The USA, March 2015). American Giant is purveyor of T-shirts, sweatshirts, and (most famously) hoodies. We have posted about them several times before. Part of American Giant’s pitch is that they make everything in, well, America. They cut and sew all of their items in facilities in California and North Carolina. This TechCrunch video offers a tour of their Brisbane, CA, facility.
Now one of the challenges of producing sweatshirts in the US instead of overseas is the increased labor cost. Check out this graphic from the New York Times (U.S. Textile Plants Return, With Floors Largely Empty of People, Sep 19, 2013)
Assembling garments in the US roughly triples the labor costs. These are partially offset by lower duties and logistic costs, but they remain the primary reason why a US-made costs about 20% more than an Asian one.
But what can be done to make an American sewer more productive to reduce the labor cost gap? Continue Reading »
Posted in Apparel, global operations, Lean Ops, Manufacturing, Operations Strategy | Tagged Apparel, Lean Ops, Manufacturing, Operations Strategy | 1 Comment »
The West Port labor strife is now over but issues remain. There are still dozens of ships waiting for their turn at Southern California ports and there are numerous bottlenecks in getting containers off ships and to their destinations. The Wall Street Journal has had a couple of recent articles dealing with how these logistical disruptions have affected supply chains as well as how the ports might possibly run better.
First up is how the ports customers are reacting (Ports Gridlock Reshapes the Supply Chain, Mar 5). The West Coast doesn’t have a monopoly on US ports, of course; they are just the most convenient to Asia. However, as the graphic above demonstrates, shipping to the East or Gulf Coasts are an options if you are willing to wait a bit longer to get your goods. Currently, the West Coast handles about half of US cargo shipments but, according to an executive of the Port of Los Angeles, a third of their volume is “purely discretionary” in the sense that it could go to another port. Continue Reading »
Posted in Supply Chain, Operations Strategy, Logistics | Tagged Supply Chain, Operations Strategy, Logistics | Leave a Comment »
Have you ever thought about how drugs get made? Not your Walter-White kind of drugs but proper ethical pharmaceuticals. As the Wall Street Journal tells it, major players in the industry like Novartis and Johnson & Johnson are taking new approach to producing drugs (Drug Making Breaks Away From Its Old Ways, Feb 8).
For decades, drug makers have used cutting-edge science to discover medicines but have manufactured them using techniques dating to the days of the steam engine. …
Under the new approach, raw materials are fed into a single, continuously running process. Many other industries adopted such a “continuous-manufacturing” approach years ago, because quality can be checked without interrupting production—with weeks shaved off production times and operating expenses cut by as much as 50%.
Until recently, pharmaceutical companies have been stuck making drugs the old-fashioned way, mixing ingredients in large vats and in separate steps, often at separate plants and with no way to check for quality until after each step is finished. Any desire to modernize was partly blunted, industry officials say, by the high margins netted on the industry’s string of billion-dollar-selling drugs.
To give you an idea of the scope of what is happening, the article reports that J&J is aiming to have 70% of its highest volume products produced under a continuous-manufacturing approach within eight years. Continue Reading »
Posted in Manufacturing, Operations Strategy, Pharmaceuticals | Tagged Manufacturing, Operations Strategy, Pharmaceuticals | 1 Comment »