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Archive for the ‘Operations Strategy’ Category

EM-BE840_BARREL_16U_20150512051208Bourbon, as you may know, is having a moment. As the graphic above shows, production and sales have soared in recent years. But the Wall Street Journal reports that supply chain problems may keep the industry from growing further (Bourbon Feels the Burn of a Barrel Shortage, May 11). The specific issue relates to barrels. Federal law requires that bourbon be aged for two years in new oak barrels (Why is there a federal law about bourbon? See here.) and it is getting hard to get enough bourbon barrels.

The shortage reflects a supply-chain conundrum. Upstream, barrel makers face a wave of demand because a half dozen established bourbon distilleries and 300 new, craft distilleries are increasing production amid a bourbon boom. Downstream, they face a shortage of white oak wood used in barrels because the lumber industry hasn’t rebounded from the housing market’s collapse. …

All the growth might have been intoxicating except for a sobering fact: The demand for more barrels coincided with a massive contraction in the lumber industry. As the housing market crashed in 2007, sawmills shut down and loggers abandoned the market. Lumber production shriveled to about 5.9 billion board feet in 2009 from 11.7 billion board feet in 2005, according to the Hardwood Market Report, which tracks the forestry industry.

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When a firm makes something, should it also take responsibility for delivering the product? For many firms, the answer is a firm”no”. They happily hand over the logistic of schlepping products to some third party. Most firms are happy to let someone else own trucks and recruit drivers. That’s what make the story of Ashley Furniture so interesting (A Radical Supply Chain Idea: Own Your Trucking Operation, Apr 29, Wall Street Journal).

Ashley Furniture Industries Inc., the largest U.S. maker and retailer of furniture, has resisted that trend. It owns and operates about 800 trucks and delivers the vast bulk of its own products from factories to stores. “We think it is a core competency,” says Todd Wanek, chief executive of the family-owned company.

Ashley employs about 3,000 people in transport and warehouse functions in the U.S., nearly a quarter of its U.S. head count. Its distribution centers feature racks specially designed to speed loading, and its managers arrange for trucks returning after they deliver their furniture to carry loads for other companies for a fee. Its drivers, dubbed Ashley Ambassadors, are also charged with building customer relations.

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About a year ago, we had a post on Zulily and how they managed their order fulfillment. It featured a nifty graphic from the Wall Street Journal showing just how much longer their delivery times were relative to other interet retailers. Now, the Journal has another story — with a spiffy updated graphic — discussing how their delivery times have gotten even worse (Zulily Nips Business Model in the Bud, Mar 23).

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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).

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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).

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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.

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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. (more…)

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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)

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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? (more…)

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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.

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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.  (more…)

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