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Archive for the ‘Green ops’ Category

Here’s an interesting supply chain problem for you: What do you do when Mother Nature jeopardizes your usual production process?

That may sound a little melodramatic, but it is a relevant question for makers of high-end fashion jeans (Why the California Drought Matters to the Fashion Industry, Wall Street Journal, Apr 10).

The four-year drought in California is hurting more than just farmers. It is also having a significant impact on the fashion industry and spurring changes in how jeans are made and how they should be laundered.

Southern California is estimated to be the world’s largest supplier of so-called premium denim, the $100 to $200-plus-a-pair jeans such as VF Corp.’s 7 for All Mankind, Fast Retailing’s J. Brand and private-equity owned True Religion. Water is a key component in the various steps of the processing and repeated washing with stones, or bleaching and dyeing that create that “distressed” vintage look.

“(The) water issue in fashion in Los Angeles is a big deal,” said John Blank, economic adviser to the California Fashion Association, a trade group. Premium denim “requires water. It is all about that processing. It is the repeated washing to get the premium look. This is what people pay for.”

Southern California produces 75% of the high-end denim in the U.S. that is sold world-wide, Mr. Blank said.

This data from Levi’s highlights the water usage in question.

MW-DJ389_levis__20150409143105_mg

Unsurprisingly, actually growing cotton and consumers washing their clothes accounts for most of the water usage but steps the jeans maker control (e.g., cut, sew and finish) still uses a large amount of water.

So what can a fashion label do?

(more…)

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Flexitanks

I keep an empty wine bottle from Chateau de La Rivière in my office. It says right on the front label “Mis en bouteille au chateau,” that is, that the wine was bottled at the winery. It turns out that at least in the British wine market bottling at the winery is becoming the exception, not the rule. According to the Financial Times, a large numbers of wines imported into the United Kingdom are now imported in plastic bladders (see the image above) and bottled in the UK (Crate expectations, Jan 31).

In the past few years there has been a huge structural change in how wine is delivered to those who drink it. The UK, for example, is the most important market for one of the world’s most enthusiastic wine exporters, Australia. In 2008, fewer than three in every 10 bottles of Australian wine on British shelves contained wine that had been shipped from Australia in bulk rather than in bottle. Four years later that figure was eight in every 10, and the total amount of wine shipped out of Australia in bulk overtook the volume exported in bottle.

Australia is far from the only country to ship substantial quantities of wine sloshing around in a tank inside a container rather than neatly sealed in bottles. Spain and Italy export far more wine in bulk than any non-European wine producer, and 65 per cent of all South African wine exports were bulk last year. (Chile is an enthusiastic exporter of bulk wine and earns the highest average price per litre for it.) According to the OIV, the global wine statistics-gatherer, the total volume of wine shipped around the world in bulk rose 61 per cent between 2005 and 2012 to represent more than 40 per cent of all exported wine.

So what is driving this rapid conversion from bottle to bulk? (more…)

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Three weeks ago, I had the pleasure to visit one branch of my extended family and BMW Welt (BMW World), the “multi-functional customer experience and exhibition facility of the BMW AG, located in Munich, Germany.” Supposedly, BMW Welt is the second most popular tourist destination around Munich, after Neuschwanstein Castle which inspired Disneylands’ Sleeping Beauty Castle. If you like architecture or cars, you should visit BMW Welt.

OK, but this is the Operations Room, so what else is worth knowing? It turns out that this month, BMW starts selling in Germany its long-awaited i3 (the USA will have to wait until 2014) and here’s some personal pictures to highlight three aspects:

(more…)

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In our Operations Strategy MBA class, Gad and I teach and discuss the operations and economics of Internet grocer pioneer Peapod.  Two interesting e-grocer articles appeared this week:

The first, written in Forbes by Tom Ryan, is about AmazonFresh, the grocery overnight delivery service founded by Amazon in 2007, but still only serving the greater Seattle area.  Why?  In class we show the difficulty of this business and I praise the operational focus of Amazon.  If Amazon is using this as a testbed for future expansion, it confirms our findings that this is a slow business where one must build density household by household.  It simply takes a long time to arrive at profitable density: even for Amazon, it’s taking more than 6 years.

In his article, Tom proposes a second raison d’etre of AmazonFresh:

AmazonFresh isn’t about “competing with a small market with razor-thin margins and a checkered history.” It’s all about helping Amazon.com attain the scale to support its ambition to build a national same-day delivery shipping model.

(more…)

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You might not think much about the humble beverage can. You drink your beer or soda and never really worry where the can goes next. As the Wall Street Journal tells it, however, there is an interesting supply chain story behind that can (The Aluminum Can Wars Begin, Sep 25).

The first thing to realize is that the numbers involved are kind of crazy. The US  uses around 90 billion aluminum cans a year (see the graphic at right). A large fraction of those get recycled, so the aluminum you use today may be melted down and back in your hand by December. Using old cans to make new ones is slightly cheaper but notably has huge energy savings.

Used beverage cans usually trade at around 20% less—currently at about 81.5 cents a pound versus $1.04 a pound—than the value of primary aluminum.

The costs of cleaning and processing make cans only marginally cheaper.

Those prices have stayed consistent over the last five years.

Novelis [an Atlanta-based unit of India’s Hindalco Industries] says it believes using more cans will allow it to increase sales in places where lower carbon footprints have a marketing value, and to set itself up to minimize carbon taxes if they are implemented. “It’s a long view, but this helps protect our business from the impact of regulatory changes,” says Derek Prichett, Novelis’s vice president for global recycling.

In a world in which retailers like Wal-Mart want to slap some kind of green-index on all products its sells, sodas in cans from recycled aluminum could be at a real advantage.

That gets to the supply chain question: How does an aluminum producer get used cans? (more…)

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Online retail is exploding with Amazon leading the charge in the long tail, items consumers buy irregularly.  Online shopping and delivery of fast movers like groceries, however, is available to few areas in the US: FreshDirect in NYC and Peapod in Chicago and some east coast cities are the big exception.

An Operations Audit gives the explanation: the costs of covering the last mile are strongly influenced by delivery density which makes large sprawl areas prohibitively costly to serve (as dotcom busts like Webvan quickly learned).   In our operations strategy class, we study Peapod by linking its financial performance to its operational structure and execution.  Such analysis highlights the importance of operational metrics such as stops per hour and pick&pack per hour and revenue metrics such as basket size ($ per order).  Students always suggest to replace the expensive delivery process by a pick-up model.  For companies with a large investment in delivery assets and processes such as FreshDirect and Peapod, however, embracing pickup (which Peapod is experimenting with) then necessitates a hybrid model.  In contrast, pure-play pick-up models such as the French ChronoDrive never invested in delivery assets.

This brings us to Relay Foods which seems to differentiate itself on 3 dimensions:

  1. Emphasize local suppliers, and hence satisfy the “local food movement”.
  2. Local supply allows daily deliveries which minimizes inventory risk.
  3. Focus on pickup approach. (They also offer home delivery at a premium of $10/order.)

Relay foods is based in Charlottesville, Virginia, and also serves Richmond.  It can show nice growth trajectories (see video below) in those two markets and earlier this month announced it raised $1.2 million to expand in to the greater Washington, Baltimore, and Philadelphia areas. (more…)

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What makes for sustainable clothes? That is the focus of a Wall Street Journal article on an index developed by an industry coalition that aims to rank apparel based on a variety of factors (Which Outfit Is Greenest? A New Rating Tool, Jul 25).

The Higg Index (its name doesn’t refer to anyone but was chosen to clear copyright protections in 100-plus countries) looks at the entire life of a product from raw material to disposal. Brands can get points for asking consumers to wash items in cold, rather than hot, water, as Levi’s does, or for using recycled components like Nike’s polyester, made from used water bottles.

The graphic below shows how different fabrics stack up.

The index will initially be available to just industry insiders but the goal is to eventually have clothes in stores with tags that let consumers see the impact of their clothes.

Even in its early form, the Higg index is impacting how firms design and make clothes. (more…)

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