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Archive for the ‘Supply Chain’ 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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What’s your address? For most readers of this blog, that is a pretty easy question to answer. You have a street name and a unique number. Throw in a postal code and maybe an apartment number, and you are good to go. For much of the world’s population, however, things aren’t so easy. Whether because they live in rural villages or poorly planned, rapidly growing cities, many people in developing nations don’t have a standard address. This creates a variety of problems. In particular, it cuts them off from many parts of modern commerce. How do you deliver a package to someone who can’t easily write down where they live? Note that this matters for a developing nation. If a country has an under-developed retail market, fostering an e-commerce industry is likely a better solution for many products than building out physical locations — but that cannot happen without some way of locating customers.

Solving this addressing problem is the goal of what3words, a start-up firm profiled in a recent BBC article (Giving everyone in the world an address, Apr 30). Their plan is to match every three-meter-by-three-meter square on the globe with a three-word triplet. Under this scheme, the house I grew up in becomes collapsed.networking.farm — which would only be better if it were collapsed.networking.firm.

The argument is that it is easier to remember three words than, say, a set of random numbers.  The goal then is to come up with words that are simple and unambiguous to use. Here is how their website explains the process.

Each what3words language is powered by a wordlist of 25,000 dictionary words. The wordlists go through multiple automated and human processes before being sorted by an algorithm that takes into account word length, distinctiveness, frequency, and ease of spelling and pronunciation.

Offensive words and homophones (sale & sail) have been removed. Simpler, more common words are allocated to more populated areas and the longest words are used in 3 word addresses in unpopulated areas.

How does this play out in practice? (more…)

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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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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?

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Tight supplies occur in lots of supply chains. Pick any industry with rapidly rising demand and you are likely to see at least the occasional glitch in the supply of a key component or input. Still, the setting described in a recent Wall Street Journal article is fairly unique (Hunger for Organic Foods Stretches Supply Chain, Apr 3).

Nature’s Path is among a number of organic-food purveyors taking steps to tackle supply constraints that are hampering the growth of one of the hottest categories of the U.S. food industry. Companies including soup maker Pacific Foods of Oregon Inc. and publicly traded burrito chain Chipotle Mexican Grill Inc.are digging deeper into the supply chain with such moves as financing farmers, offering technical training and hiring full-time headhunters to recruit organic growers.

The efforts are aimed at ramping up organic-food output that has failed to keep pace with surging consumer demand, due in part to the significant costs and risks that U.S. farmers face in converting from conventional to organic farming. Longer-term, the steps could help bring down organic-food prices that have been bolstered by tight supplies, companies say.

According to the article, retail sales of organic food have tripled in the last ten years and that has put a lot of pressure to increase the output of organic products.

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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).

euro

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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