Category: Chapter 11

Posts relating to Chapter 11

OM in the News: Which is Better–Electric Cars or Electric Trucks?

My blog on Oct.31, 2010 dealt with forecasting the demand for electric cars. Who doesn’t  love the idea of electric vehicles (EVs)?  But as we wrote: “everybody feels that everybody else should be driving environmentally-friendly vehicles”. With gas hovering under $3/ gallon, does it really pay financially for you or me to invest in a $40,000 Chevy Volt?

Maybe not, but logistics managers at such firms as Staples, Frito-Lay, FedEx, and AT&T have come to find that electric trucks make a lot of sense for their commercial delivery fleets. As The Wall Street Journal (Dec.8,2010) writes:” electric delivery trucks…make more sense in many ways than electric cars”. That’s because delivery trucks generally drive  short, defined routes each day–better suited to the limits in range of EVs. And  EVs have lower maintenance costs, a big concern to companies with large fleets.

“We’re a business here”, says  Staples’ VP-Fleet  Services. “They have to justify themselves”. Staples just bought  41 trucks from Smith Electric Vehicles, in Kansas City, and plans to double the order. The trucks have a top speed of  50 mph, and can carry 16,000 lbs. They cost about $90,000, which is $30,000 more than a diesel, but Staples expects to recover that expense in 3.3 years. The EVs have no transmissions; need no fluids, filters, or belts (which cost around $2,700/year); have “regenerative” brakes that last 4-5 years, vs. 1-2 on regular trucks; save $700/year because there is no exhaust system  to maintain; and cut fuel costs by $6,500/year. It all adds up to $60,000 savings over the 10 year life of a truck.

Frito-Lay, with an order for 176 Smith trucks, plans to convert 2,000 more delivery vehicles to EVs. Similarly, FedEx, which has 19 EVs in London, Paris, and LA, expects a proliferation of electric trucks. Its not a “good deed for the sake of a good deed. There is a great return on that investment”, adds a Frito-Lay OM exec.

Discussion questions:

1. Do you think use of electric trucks will spread faster than electric cars? Why?

2. What limits the proliferation of electric trucks?

3. Make the case for the USPS to switch to an EV fleet.

OM in the News: Boeing’s Supply Chain Nightmare

You may have read 2 weeks ago about the latest setback for Boeing’s long-awaited 787 Dreamliner (I may start to call it the “Nightmareliner”) when a fire forced a test plane to land in Texas. But the problems with the biggest advance sales (over 850 on order) plane in history started with its supply chain two years ago. The delays have cost the firm billions in penalties for breaking contract obligations to airlines.

The 787, promised for delivery in 2008, illustrates the complexity of a global supply chain—one that has broken many times on the most complex new plane in decades. The New York Times (Nov.30,2010) now reports “Boeing has had to rebuild crucial parts from foreign suppliers….Boeing executives have acknowledged that they outsourced too much of the design work, and production of the first 20 or 30 planes has been slowed by the need to rework many parts”. Not only did the company face flawed components being delivered, but plane sections made in Japan did not always fit together on the final assembly line in Everett, Washington.

At one point, Boeing was even forced to buy one its its suppliers who simply could not deliver a quality part on time. Over 70% of the plane is built by other companies, including 20 international suppliers in 12 countries. The risk sharing plan originally envisioned is detailed in the Global Company Profile highlighting Boeing at the opening of Chapter 2.

The effect of the delays will cascade for years and make it hard for Boeing to reach its planned production rate of 20 planes a month by late 2013. The latest delay appears to set the 1st delivery back another 6 months.

Discussion questions:

1. What are the advantages and disadvantages of Boeing’s global outsourcing program for the 787?

2. Did Airbus face any similar problems with its A380 superjumbo?

3. What is the impact on customers?

Teaching Tip: Global Trade, Deficits, and Logistics

If the trade deficit is a topic that arises in your OM class, a visual image of the Port of New York and New Jersey is worth 1,000 words. Fortune (Nov.15,2010,pp.14-15) discusses the “Container City” one passes in driving on the NJ Turnpike.

In the first 8 months of 2010, 70,000 more full cargo containers entered the Port  than left it.  In other terms, 45% of the containers exported from the Port are empty, a reflection of the US trade imbalance. Yet a 3rd statistic: 1.80 to 1 is the ratio of imports to exports, up from 1.75 to 1  last year.

Six of the world’s largest ports are now in China, up from two just a decade ago. The largest port in the US in the Port of Los Angeles, the world’s 16th biggest, down from 8th ranked a decade ago.

What all of this means, of course, is that we are running a huge trade deficit, of which the logistics imbalance is one surrogate measure. Who benefits? My cousin Bob is the only one I know. He ships scrap metal to China for recycling and pays only a fraction of the shipping charges he would if he were sending  from China to the US.

Supplier and Risk Monitoring

A good way to help students gain insight into the significance of  supply chain risks (Chapter 11 introduces the issue of supply chain risk)  may be to reference the  Dow Jones Supplier & Risk Monitor.  This Dow Jones approach may help students see that mitigating supply chain risk is a significant issue in the real world. So much so that firms (in this case Dow Jones) sell the service.   The DJ Supplier and Risk Monitor helps companies keep track of and evaluate events that may be critical to their supply chain. Dow Jones claims that they can identify potentially disruptive events, new products, product recalls, reputation problems, product safety issues, and other types of breaking news. Additionally, DJ believes they can help companies uncover potential problems by highlighting news stories by volume and relevancy.  Also available are company performance and financials. The system can provide graphic displays of selected priorities, instant alerting, and emailing.  The idea is to show students that commercial tools exist to expand risk scanning to all of the elements in the supply chain and potential partners.  Monitoring the supply chain and evaluating risk is not just an academic exercise.

Guest Post: Supply Risk Hook – Why Kenya Can’t Stand Iceland!

Like Barry and Jay, I’m a great lover of hooks! A hook can be a little story, a movie clip, or a simple exercise. The key is that they’re short and memorable! Here’s a nice one concerning global supply chain risk that I use in my supply management lecture.

I take in a nice bunch of flowers and ask my students where they come from. In the case of Europe, the most likely origin is Kenya. Horticulture is Kenya’s biggest source of income with 1000 metric tons of produce shipped daily to Europe. (See the photo In Ch.11 of the Heizer/Render text).  In fact, around 30% of all cut flowers sold in the EU are imported from Kenya.

I then discuss all the effort required to get these lovely flowers into our stores every day. Here you can mention the challenges of speed as a key performance objective, the perishability of stock, the extension of the supply chain etc. Then I ask (jokingly, of course!) why Kenya dislikes Iceland right now?! For the period earlier this year when the Icelandic volcano was grounding most flights throughout Europe, Kenya’s flower supply chain was shut down at a cost of approximately $3million per day. Flowers and other fresh produce had to be thrown away because there was no way of getting them to the market other than airfreight.  

This story can be used demonstrate the nature of global supply networks and the risks they face from disruptions that are often well beyond their control. You can then get students to think of other factors that can cause disruptions to supply networks: Natural disasters (Hurricane Katrina or Pakistan floods for example); Geo-political challenges; trade disputes; etc.

 This hook is of course particularly handy if you’re in Europe, because Kenya was so badly affected by the Icelandic volcano in a way that many flower suppliers in the USA weren’t. So, you could simply tell the story as if you were in Europe for that lecture… “So kids, imagine I’ve gone over to England to visit my Grandma and I’m taking her this bunch of flowers. Where do you think they came from?…” You get the idea! Happy teaching!

Prof. Alistair Brandon-Jones writes this guest post from the University of Bath, one of the top five business schools in the UK. Alistair has been active in developing myomlab.

OM in the News: Caterpillar’s New Approach to the Supply Chain

In the past, equipment giant Caterpillar did not have to focus on collaborating with suppliers. Along with Komatsu, it was dominant in its field. But Caterpillar is starting to recognize  what Honda and Toyota have long known, namely that competition is based on the supply chain, not individual companies.The company’s attitude in the past was one of servant-master with suppliers, according to Businessweek (Oct.21,2010).

So Caterpillar decided to partner with supplier Tenneco to design  new emission cutting components, rather than set specs and pick the cheapest vendor, as it had done in the past. The joint effort cut costs on the part by 20%.  The firm’s CEO expects the Tenneco relation to be the new benchmark and will work more closely with 200 companies it believes are critical to its growth.

Caterpillar was not prepared for the global growth spurt of 2006-2008 and saw flat profits even with a 24% sales increase. This was because it paid more for raw materials and faster parts deliveries.

Discussion questions:

1. Compare Caterpillar to Boeing (see Ch. 2’s Global Company Profile) in terms of partnering.

2. How did Caterpillar move to change its corporate supply chain culture?

Teaching Tip: Location, Location, Louisville?

We open Chapter 8, Location Strategies, with a Global Company Profile on why FedEx selected Memphis as its US superhub. But Fortune (Oct.18,2010) expands on this topic, with a feature called “Louisville Flies High”.

It turns out that Louisville has great geography, economic incentives, and high tech logistics that have attracted more than 100 corporations this past decade. The city is within a 2-hour flight to 75% of the US population and sits just 40 miles from the exact center of the continental US on a population density map. Its also one hour below the frost line.

The clear supply chain draw is UPS, whose $2 billion Worldport has 30,000 conveyors and can sort 416,000 packages per hour. Toshiba now trains UPS employees to fix computers on site–and return them within 48 hours. Zappos moved to Louisville to be near the giant UPS facility also. If a package leaves the online shoe retailer (which my wife adores) at 12:45am, UPS will deliver the shoes anywhere in the country the same day.

This makes for a nice discussion in both the Location and Supply Chain(Ch.11) chapters.

OM in the News: Wal-Mart’s Drive to Squeeze the Supply Chain

Wal-Mart trying to squeeze more out of its supply chain? Not exactly shocking news, but here is a new twist in BusinessWeek (Oct. 7, 2010). With the title VP for International Purchase Leverage  (I don’t think I have heard that one before), Hernan Muntaner is convinced he can get even better deals from suppliers by consolidating  Wal-Mart’s purchases with its current partners. For example, Muntaner wants to buy potatoes jointly with Pepsi’s Frito-Lay, so that both can get lower prices.

Although Pepsi doesn’t seem interested so far, and may indeed be more sophisticated than Wal-Mart in procuring raw materials like potatoes, Muntaner has already signed on a sugar supplier in England and a paper supplier in Chile.  “We can do this with anything that is sold”, he says.

Collaborative sourcing, as Wal-Mart calls it, is detailed in a book by that title by Michael Philippart, Christian Verstraete, and Serge Wynen.

Discussion questions:

1. Why might suppliers be wary of the new Wal-Mart push?

2. Look at the Ethical Dilemma in Ch.11 that compares Wal-Mart to Sears. Does this purchasing concept tie in to the ethical issue?

OM in the News(and Video): Ford’s Lean Auto Plant in Brazil

Ford’s most progressive plant in the world may well be in northeast Brazil, where it uses lean manufacturing, sophisticated supply chains, and a vast array of robotics to produce the EcoSport SUV and Fiesta. A  colleague in that country, who is using the Portuguese edition of our text,  just emailed me the link to a video about which he is justifiably proud.  This 3.5 minute video illustrates all 3 concepts: lean, SCM, and automation and makes a nice presentation in Ch11 or Ch.16. (I do need to warn you that the last few seconds are a bit anti-union).

In 2009, the Ford plant produced over 207,000 vehicles. This South American operation brings so much profit to the parent company in Dearborn,Michigan,that the firm was able to turn down federal loans in 2009 that both GM and Chrysler accepted.

Brazil is becoming a leader in lean auto making, with another plant churning out VWs with a similar layout in which suppliers produce, on-site, with their own employees, the parts that are installed in the final vehicle. If you look at the Global Company Profile that opens Ch.16 in our text, you will see a  layout at the Toyota Tundra plant in San Antonio, Texas that also resembles what we see in the video.

Discussion Questions:

1. Why is it doubtful that this Ford plant will be replicated in the US?

2. How does the supply chain differ from most US plants?

3. Why is this an example of lean manufaturing?

OM in the News: BW Cover Article on Foxconn

          Business Week’s cover story on September 9, 2010, provides a detailed look at one of the largest manufacturing companies in the world, that few students have heard of.  But they will know the products it produces under contract – iPhones, Sony Playstations, and Dell computers.  With 920,000 workers at its 20 Chinese factories, Chairmen Terry Gou was thrown into the spotlight after eleven Foxconn employees committed suicide last year.  Although Apple pressured Foxconn to eliminate its triple-decker bunk beds and excessive overtime, Steve Jobs was not about to sever ties with the iPhone being produced at the rate of 137,000 per day. 

Possible class discussion questions:

  1. How diversified is the Foxconn supply chain? 
  2. How did Gou get into the business of making the chassis of Compaq computers? 
  3. What was Flextronics reaction to the Gou supply chain?
  4. Why do workers stay at a company known for it “suicide cluster”?