Category: Chapter 11

Posts relating to Chapter 11

OM in the News: The Supply Chain of the Future

“The supply chain of the future will look like a multiheaded dragon,” said the CEO of a Vietnamese industrial-park. “The era of sourcing from one global manufacturing base in the world is completely over.”

Workers stitching apparel at a factory in Ho Chi Minh City, Vietnam

Under the current U.S. tariff plans (which are subject to change, of course), certain countries with lower tariff rates are set to emerge as relative winners. Mexico, Brazil and India would step up to a bigger role linking China’s vast supply chain to the U.S. market. Those countries would draw investment to replace the current “connector states” in Asia, led by Vietnam and Cambodia.

Products vulnerable to tariffs are toys, videogames, computer parts and smartphones. Vietnam and China supply more than half of the furniture imported by the U.S. Vietnam supplies a third of the sports shoes and a quarter of the solar cells imported by the U.S. China, Vietnam and Thailand make much of the world’s portable computers.

 Businesses such as Apple, HP and Nike have invested heavily in Asian countries outside China and moved assembly there, reports The Wall Street Journal (April 6. 2025). This strategy is termed “China plus one.” It was designed to sidestep tariffs imposed by both the Trump and Biden administrations.

Apple, Taiwan Semiconductor, and the South Korean automaker Hyundai have announced large factory investments in the U.S. this year, in line with the administration’s goal of rejuvenating American manufacturing.

But it would be unrealistic to expect labor-intensive businesses such as apparel to return to the U.S. It lacks workers skilled in those industries and a nearby supplier network to keep costs down. U.S. manufacturing employees earned around $103,000 on average in 2023 (including benefits). That is around four times the wage level in China and 2.5 times that in South Korea. Chinese factories could seek to cut costs by sourcing such components as resistors and transformers from parts of China where labor is cheaper.

Many Chinese factories have already relocated to Vietnam. The next place is jumping to India where tariffs are lower.

Classroom discussion questions:

  1. What is your supply chain strategy if you are an Asian manufacturer?
  2. What if you are a U.S. toy company with most production coming from China?

OM in the News: Supply Chains and Tariffs

For more than a decade, US manufacturing has achieved growth in employment, output, the number of manufacturing establishments, and investment to expand or construct new facilities. This strong growth was driven by a desire to derisk supply chains and establish facilities closer to US customers. Increased supply chain volatility in recent years  has led organizations to shift their supply chain strategy from cost minimization to a focus on balancing cost with resilience.

Some manufacturers have reconfigured supply chains by reshoring portions of  production, by nearshoring—leveraging the USMCA free trade agreement (see Ch.2) to source more from Mexico and Canada—and by growing trade with countries such as India and Vietnam, which offer cost advantages.

And this trend is likely to continue: Over 70% of CEOs plan to alter their supply chains over the next 3-5 years.

President Trump’s policy priorities include cutting taxes, reducing regulations, lowering energy costs, and bolstering fair trade, all of which could accelerate continued investment in the US manufacturing sector. The policies could also drive a shift in supply chain strategy by prioritizing reshoring while potentially disrupting recent nearshoring and global sourcing trends. Tariffs comprise a component of this economic strategy.

Here are some key takeaways from a new Deloitte report (April 1, 2025) called Enhancing Supply Chain Resilience:

1.  US manufacturers import a variety of products, parts, and raw materials from around the world, and supplemental tariffs levied on these items could impact supply chains, costs, and the industry’s profitability.

2. Economically viable opportunities for reshoring production to the US are likely to be higher-value, complex products with strict quality standards, produced with technologically advanced, higher-capital intensity processes, and a workforce with higher-level skills.

3. For labor-intensive or lower-value goods, it might not be as economically viable for manufacturers to reshore. Instead, manufacturers may diversify their supply chains by seeking suppliers in countries that offer labor cost advantages—and minimize the long-term risk of supplemental tariffs, trade tensions, and geopolitical friction.

4. Digital tools and technology will play an important role in any supply chain strategy. For example, simulation, supply chain planning tools, and enhanced visibility can help mitigate risks in global supply chains.

Classroom discussion questions:

  1. What are the advantages and disadvantages of tariff adjustments?
  2. How are nearshoring and reshoring impacted?

OM in the News: Holy Guacamole!

Few companies can match Chipotle Mexican Grill’s avocado appetite. The California-based restaurant chain bought around 5% of all the avocados consumed in the U.S. last year. Since domestic production is limited, most of the roughly 132 million pounds of avocados Chipotle used across its 3,700 locations last year were imported.

Many guacamole lovers flinched when the U.S. threatened a trade fight with Mexico, which accounts for roughly 90% ($3.4 billion worth) of U.S. avocado imports. But Chipotle was ready. For the past 7 years, the chain has been scouring the Americas and the Caribbean, seeking out farms and suppliers that can satisfy its immense demand. In the past, Mexico had supplied 85% of Chipotle’s avocados, leaving the chain at the mercy of the country’s weather and other factors, such as cross-border trade, reports The Wall Street Journal (April 1, 2025). 

Food-industry supply chains can take years to build. Many companies are deciding whether to redraw trade lines to avoid the levies, absorb rising costs or pass them along to customers. Chipotle’s globe-spanning hunt for avocados reflects how firms navigate rapid changes in trade policies. It expanded its supply-chain team, directing the group to find new avocado sources. The team identified half a dozen countries, concentrated in locales near the equator, that could support the sun-hungry plants.

So Chipotle broadened its avocado sourcing to Columbia, Peru, the Dominican Republic, Brazil and Guatemala–and plans to develop new suppliers in El Salvador and Honduras. But diversifying avocado sources creates challenges in Chipotle’s kitchens, too. Chipotle has given restaurant crews leeway to add more lime or lemon juice and salt, depending on the results of guacamole taste tests.

Even with a more dispersed supply chain, about half of Chipotle’s avocados still come from Mexico. It is supporting research on ways to cultivate more avocados in the U.S., including in Florida, where I live. (We have 3 avocado trees in our yard and have such a crop that we give it to all our neighbors).  Company executives said they will continue to scour the world to find more readily available sources to protect its guacamole stocks.

Classroom discussion questions:

  1. Why is Chipotle expanding its supply chain?
  2. What are the operations management complications of sourcing from so many different countries?

OM Podcast #32: Supply Chain Risk Management

In today’s podcast Barry Render interviews George Zsidisin, the John W. Barringer III Professor of Supply Chain Management at the University of Missouri – Saint Louis. George is author of several books on Supply Chain Risk, our topic in this episode.

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Prof George Zsidisin at U. Missouri-St. Louis

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Prof. Barry Render
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our podcasts on your mobile device as soon as they come out!

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our earlier blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/en-us/help-and-support/contact-us/find-a-rep.html

Guest Post: The Egg Shortage and Managing Sourcing Risk

 

Temple U. Professor Misty Blessley raises a timely topic.

Chapter 11 of the Heizer/Render/Munson textbook explores strategies for mitigating supply chain risks. This is particularly relevant in considering the current egg shortage. As companies produce less and purchase more, sourcing agents must fully understand the products they are sourcing to effectively manage risks. It is crucial for sourcing agents to consult experts from various fields to understand the causes of the shortage and anticipate future challenges and opportunities. A recent article describes the egg shortage as a “perfect storm of disease, costs, and demand.” The H5N1 bird flu is a key driver, requiring the depopulation of entire flocks when just one bird is infected, according to the USDA. Inflation has also raised the costs of feed, fuel, and labor, while demand spiked during the holiday season. This occurred when 17 million birds were culled, and replacing lost flocks takes months.

Four mitigation strategies can address the shortage:

1. Increased U.S. Domestic Production: Experts predict that domestic egg production in the U.S. will become more productive. Chickens tend to lay more eggs during longer days, temperate weather, and their first 1-2 years of life—conditions currently prevailing in much of the U.S.

2. Increasing Imports: Turkey is being considered as a viable source to increase egg imports. Turkey as the only country from which the U.S. imports eggs.

3. Reconsidering Broiler Eggs: The use of broiler eggs, which are fertilized eggs laid by chickens raised for meat production, is being reconsidered after being banned since 2009. Experts suggest that since these eggs are pasteurized, they could safely be used for products like cake mixes and salad dressings. Broiler eggs are used in animal feed and those unsold have traditionally had to be discarded. Over 5.4 billion eggs have gone to waste.

4. Improved Storage and Transportation: To preserve eggs, firms can implement safer transportation and storage methods. At 0°C, eggs can be stored for about six months. Fresh eggs are highly sensitive to improper storage and can be spoiled if stored near odorous goods.

By implementing these strategies, firms can mitigate disruptions caused by the egg shortage.

Classroom discussion questions:

·1. What are the tradeoffs with the use of broiler eggs?

·2.What other risk mitigation tactics would you consider as a sourcing agent?

Guest Post: The Natural Gas Supply Chain

Prof. Howard Weiss shares his insights with our readers monthly.

Natural Gas is a resource with several uses and, in fact, almost 50% of U.S. homes use it for heating. This figure shows the supply chain for natural gas.

Resource location Natural gas is extracted from rock formations, wells and coalbeds.

Pareto Principle Natural gas is produced in varying amounts in 95 countries. The U.S., Russia, Iran, and Qatar produce half of the natural gas worldwide. Five states, Texas, Pennsylvania, Louisiana, W. Virginia and New Mexico, produce over 60% of the total natural gas in the US. Thus, both U.S. and worldwide production follow the Pareto principle as explained in the quality chapter (Ch. 6).

Transportation The supply chain chapter (Ch.11) lists six major means of distribution – trucking, railroads, airfreight, waterways, multimodal and pipelines. Unlike oil, before natural gas is processed it can only be transported through pipelines.

Project Management. Building the pipeline is a project with two major parts. The pipeline company does not own the land where the pipeline is, but rather needs to get legal access to the properties. The second part is the construction of the pipeline itself. This involves digging and bending pipes to fit the planned route of the pipeline. Companies install about one mile of pipe per day. The U.S. has more than 300,000 miles of main pipelines, while Russia has more than 100,000.

Quality control After construction the pipeline is testing using water piped at a higher pressure than the gas will be transported.

Processing The gas goes to a compressor station (where impurities are removed) and then is pressurized to move it post-processing.

Post Processing Transportation The gas is then moved at 25 miles per hour through pipelines. Some gas is liquefied by chilling it to -263 degrees Fahrenheit so it can be shipped by special tanker ships and rail cars. Natural Gas is 600 times more in volume than liquefied natural gas. LNG can also be shipped to places that do not have pipelines.

Storage Currently there are 400 storage sites for natural gas in the U.S.

Classroom Discussion Questions:
1. Does your residence use natural gas? If so, what are its uses?
2. Some natural gas that is discovered is not sold but rather is burnt off at the site where it is found. Why do you think the gas is wasted rather than being sold?

 

Guest Post: The Orange Juice Supply Chain

Prof. Howard Weiss, creator of our free software packages, Excel OM and POM, shares his concerns as a part-time Floridian.

In simplest form, the OJ supply chain is very straightforward. It begins with planting orange trees, harvesting the oranges, preparing the oranges for processing, juicing the oranges, packing the orange juice, shipping the orange juice to distribution centers, storing the orange juice and then shipping the juice to retail outlets. The figure below is very similar to the supply chain illustrated in Figure 1.2 of your textbook.

There are, of course, additional aspects to the supply chain. For example, planting and maintaining trees involves supplying fertilizer and water. Packing the OJ requires the manufacturing of containers and, of course, shipping requires trucks, trains, ships and planes.

Supply Chain Risks: It is well-known that orange trees need to be protected from freezing temperatures and that Florida hurricanes can damage crops. There are other difficult problems facing OJ providers. One is the citrus greening disease. This disease causes the fruits to become inedible and eventually the tree dies. In addition, since many farmers have sold their farms to developers, production of oranges in Florida have dropped to just 8% of what production was 20 years ago! Tropicana now uses oranges grown in Brazil, which is the largest producer of oranges.

Your textbook (see Ch.11) notes that environment and natural catastrophes, such as the disease, can affect supply chain risk and suggests using multiple suppliers or alternative sourcing to offset the risk. This is precisely what OJ producers have done by using oranges from other countries, most notably Brazil and Mexico, which crops have not suffered as much damage due to disease as in Florida. In addition, OJ producers have created new products that mix oranges with other fruits such as apples and pears to offset the loss of oranges.

Declining Demand: OJ manufacturers are also facing a decline in demand due to increased prices to consumers, and consumers questioning the nutritional value of orange juice especially considering the large amount of sugar in OJ. Orange juice demand has dropped while sales of teas, coffees, seltzers, energy drinks and bottled water have increased. Consumption is expected to continue to decrease over the next 5 years.

Classroom discussion questions:
1. Over the past 10 years OJ consumption in thousands of metric tons has been 733, 700, 663, 631, 581, 572, 530, 556, 542, 527. Forecast consumption for the next 5 years.
2. At what stage of its life cycle (see Figure 2.5) is orange juice?

OM in the News: Top Five Global Supply Chain Risks

The supply chain landscape continues to evolve at an unprecedented pace. A new report in Material Handling & Logistics (Jan. 15, 2025), identifies the top five most likely supply chain events that could impact companies in 2025. 

Climate Change — 90% Risk Score Driven by shifting climate patterns and record-high temperatures, extreme weather events are a dominant risk to the supply chain. Volatile flooding has the potential for deep disruption. Indications point to the state of ocean temperatures being elevated in 2025 and beyond, with the potential for record-breaking highs.

Geopolitical Instability with Increased Tariff Risk – 80% Risk Score

The following major geopolitical events are likely to impact global trade in 2025:

• Ongoing Houthi attacks on cargo and container ships in the Red Sea continue to lead to longer transit times and equipment imbalance.

• Continued conflict in Ukraine could destabilize manufacturing and trade activities, putting European economies at further risk.

• Increased Chinese military drills near Taiwan could hinder trade through major sea routes, affecting global container shipping flows.

*The automotive, semiconductor, and manufacturing industries are possibly at risk due to proposed tariffs by the U.S.

Cybercrime – 75% Risk Score. Escalating cybersecurity risks in 2025, driven by the growing reliance on AI, IoT devices and interconnected systems include:

• Growing reliance on AI and cloud computing within supply chains is creating new “back door” opportunities for bad actors.

•Cyberattacks via sub-tier supply chains where criminals can more easily exploit common programming errors and vulnerabilities, allowing them into organizations via phishing and software connection links.

Rare Metals and Minerals– 65% Risk Score

• Within a politically charged atmosphere between the West and the major commodity producers – China and Russia – companies will face new tariffs and sanctions on critical metals.

• China could impose broader export restrictions, highlighting the need to diversify sourcing strategies. Lack of supplier diversity complicates procurement, leads to supply shortages and makes the price of affected commodities particularly vulnerable to trade tensions and eventual tariffs or sanctions.

 Forced Labor – 60% Risk Score A growing crackdown on forced labor across industries will increase pressure on companies who are facing scrutiny to manage and eliminate suppliers violating human rights. Anticipated risks in 2025 include: Labor conditions in China, a cascade of legislation to address lax forced labor issues, the global concentration of commodities (like palm oil and vanilla) that originate in countries cited for modern slavery.

Classroom discussion questions:

  1. What can an OM team at a manufacturer do to mitigate these risks?
  2. Do you agree with these rankings? Would you add other risk factors?

 

Good OM Reading: Top 10 Supply Chain Trends for 2025

In its new report, Top 10 Supply Chain Trends, the Association for Supply Chain Management states the supply chain landscape will continue to evolve at an unprecedented pace. To be competitive, companies will consider technological advancements and innovation, geopolitical shifts, and evolving consumer expectations.

Here are the top ten trends:

  1. Artificial Intelligence. AI will be employed for better decision-making, optimized transportation routes, prediction of demand fluctuations and automated quality control inspections. Smart robots work alongside humans to perform packaging and assembly, while automation tools such as computer vision systems identify product defects.
  2. Global Trade Dynamics and Geopolitical Policies. Supply chain organizations will prioritize diversification and contingency planning to address challenges related to global trade dynamics and geopolitics. These companies will spread supply sources across multiple regions and develop backup plans.
  3. Big Data and Advanced Analytics. Tapping into vast amounts of supply chain data, businesses will improve inventory management, supply chain visibility, forecasting of demand and production, transportation and logistics processes, and decision-making. Big data and analytics will also enable better predictive maintenance, digital twin modeling and AI-powered insights.
  4. Cybersecurity. Supply chains will prioritize cybersecurity to protect sensitive data and critical operations.
  5. Agility and Resilience. Organizations will prioritize agility and resilience to adapt to rapidly changing market conditions by implementing flexible manufacturing systems and advanced technologies including robotics and AI. Real-time visibility, diversified supplier bases and robust contingency plans will further enhance their resilience.
  6. Visibility and Traceability. By implementing real-time tracking systems, tapping into IOT-enabled devices and leveraging blockchain technology, companies will better monitor the movement of goods, identify potential disruptions and improve supply chain efficiency.
  7. Digital Integration and Connectivity. To improve efficiency, transparency and resilience, supply chains will implement the latest technologies — particularly AI, robotics and automation, cloud computing, and the IOT, making it possible to streamline operations and  reduce costs.
  8. Strategic Sourcing and Supplier Management. Advanced analytics and AI-powered tools will help identify and assess potential risks, such as geopolitical events and natural disasters. By tracking and analyzing key metrics, organizations will be able to select suppliers that align with sustainability goals.
  9. Workforce Evolution. By upskilling and reskilling employees, businesses will ensure their workforces are equipped to handle the demands of an increasingly automated and digital supply chain.
  10. Risk Management. By mapping networks, evaluating suppliers, forecasting demand and simulating scenarios, organizations will be able to handle potential disruptions.

OM in the News: EV Supply Chain Headaches

Makers and suppliers of electric cars are dealing with diminishing cash and weak sales. Hurdles are ripping through the automotive supply chain, crunching demand for batteries and materials such as lithium that power them, reports The Wall Street Journal (Dec. 1, 2024). “It’s a whole ecosystem that is collapsing. It’s just a disaster out there with consumer demand going down,”  said the CEO of a clean-energy investment bank.

Rivian, which has burned through more than $19 billion since 2021, is facing a shortage of copper wiring for its electric motors, which caused it to slow or shut down assembly lines

Several high-profile companies, including electric SUV maker Fisker, bus manufacturer Arrival, and Swedish-based battery maker Northvolt recently filed for bankruptcy. At least a dozen other startups, specializing in EVs or batteries, are also at risk.

Many of these young companies have been hammered by cooling demand for EVs, rising costs and supply-chain obstacles that have hindered their ability to put out new products quickly. And established Western automakers such as Ford and GM, which have pledged billions of dollars to expand their EV lineups, are now delaying or pulling back some future investment as sales haven’t materialized.

Northvolt was among the industry’s most stunning implosions. The startup, which sought to make batteries with a lower carbon footprint, had raised $15 billion from backers including VW and Goldman Sachs. But the weakening EV market resulted in BMW cancelling a major order.

 Li-Cycle Holdings, a firm that has promised to turn recycled batteries into useful materials, had an approved $475 million government loan to help build out a plant in Rochester, N.Y. But it now only has enough cash on hand to sustain operations through March, 2025 and has paused construction on the factory.

Electric truck maker Canoo is also burning through cash and has laid off a quarter of its workforce in Oklahoma. It had received a $113 million incentive package from the state to create 1,300 jobs at its vehicle and battery plants and had promised to quickly hit $1.4 billion in revenue this year.  “It feels like being punched in the face every morning trying to develop vehicles that have all their components for so long been outsourced to China,” said Canoo’s CEO.

Classroom discussion questions:

  1. What issues are EV component suppliers facing, and how can they deal with them?
  2. What are the implications for operations managers?

Guest Post: The Supply Chains Behind a Strong Holiday Shopping Season

Temple U. Professor Misty Blessley shares her insights today, on Black Friday.

The holiday shopping season is in full swing, and companies are optimistic about their year-end financial performance. Operations and supply chain managers have a crucial role. Chapter 1 of your Heizer/Render/Munson textbook explores how marketing and operations management strategies can drive bottom-line results.

Customer spending is expected to be strong this holiday season. The National Retail Federation is forecasting winter holiday sales to rise by 2.5% to 3.5% over last year. Meeting this demand requires retailers to fulfill orders when, where and how customers want. Companies are strategically using both brick-and-mortar stores and e-commerce platforms to appeal to their customers.

Supply chains have stabilized after years of disruption. Thus, core products have been efficiently moved from warehouses to retail locations to ensure availability for traditional retail customers. Additionally, e-commerce channels are poised to efficiently fulfill customer orders. Many retailers are adopting cost-effective delivery strategies tailored to peak shopping events like Black Friday and Cyber Monday. Instead of defaulting to same- or next-day shipping, retailers are spreading deliveries over several days to reduce costs and balance labor.

Amazon bolstered its labor capacity by adding 250,000 seasonal hires. DHL’s CEO explains why spreading deliveries is a viable strategy – extending shipments by just a few days allows companies to control warehouse costs while still meeting customer delivery expectations.

OM and SCM plays a pivotal role in driving both revenue growth and cost efficiency. By offering customers flexibility in choosing their preferred shopping and delivery channels, retailers enhance the customer experience and boost sales. Simultaneously, costs are reduced by managing product delivery.

Classroom discussion questions:
1. In Chapter 6 of your textbook we learn that customer expectations are the standards against which service is judged. What is the effect of exceeding expectations on contribution? (i.e., same or next-day shipping)
2. Aggregate Planning Strategies are covered in Chapter 11. Which strategies are being used by retailers to support this holiday shopping season?

OM Podcast #28: Thanksgiving in the Cold Food Supply Chain

Happy Thanksgiving!  In our latest podcast, Barry Render interviews Cindy Parker, Director of Operations at Americold Logistics LLC, which offers innovative supply chain solutions and cold storage.  Cindy and Barry discuss the importance of the cold food supply chain, particularly around important events like Thanksgiving.

 

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Have you subscribed to this podcast on Apple podcasts? Just go to your Apple podcasts app, search “Heizer Render OM Podcast,” and subscribe to get all our podcasts on your mobile device as soon as they come out!

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our earlier blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/en-us/help-and-support/contact-us/find-a-rep.html

OM Podcast #27: The Role of Warehouses in the Supply Chain

In today’s podcast Barry Render interviews Paul Delp, President of Lansdale Warehouses, a major warehousing firm located in Eastern Pennsylvania.  Paul and Barry discuss the role of warehouses in the supply chain, third party logistics (3PL), and Landsdale’s offer of “white glove service” to customers.

 

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A Word document of this podcast will download by clicking the word Transcript above.

 

Have you subscribed to this podcast on Apple podcasts? Just go to your Apple podcasts app, search “Heizer Render OM Podcast,” and subscribe to get all our podcasts on your mobile device as soon as they come out!

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our earlier blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/en-us/help-and-support/contact-us/find-a-rep.html

OM in the News: Hurricanes and a Rare-Earth Supply Chain Vulnerability

Hurricane Helene left widespread destruction in N. Carolina a few weeks ago. One of the towns impacted was Spruce Pine, the location of the world’s largest deposit of high-purity quartz, an ingredient used in semiconductor manufacturing. Two mining companies that operate in Spruce Pine had to halt operations due to flooding and damage to infrastructure in the area.

The global semiconductor industry is dependent on Spruce Pine as the primary source for  virtually all high-purity quartz it consumes, as it is one of only a few places in the world where such quartz is known to exist. The quartz is used to create chips that power everything from laptops to automobiles.

The disruption in Spruce Pine is an example of a single point of failure – a situation in which a system is configured in such a way that failure in one part of the system causes the entire system to fail, a topic in Ch. 17. Avoiding single points of failure comes down to practicing good risk management, writes Industry Week (Oct. 24. 2024):

  • Are there any suppliers (or suppliers of suppliers) that are the sole manufacturers of a certain input? (See Ch. 11)
  • How likely a disruption is to occur – and if it occurs, how impactful the consequences will be. (See Supp. 11)
  • There are four categories of risk controls: avoidance, mitigation, shifting the risk to another party, and accepting the assessed level of risk.

One classic risk mitigation strategy is diversification – in the case of the supply chain, this means using multiple sources of supply. Some limited sources of quartz do exist in other nations. Another is holding an adequate cushion of inventory (see Ch. 12) that can ensure operational continuity in case of a disruption of supply.

Further, AI and machine learning can enable companies to gain critical visibility into their supply chains by aggregating data from multiple sources, such as from vendors, open source repositories, IoT sensors, and so on. Such analytics can answer supply chain questions that are descriptive (how many days of inventory are on hand), diagnostic (why isn’t there enough inventory), predictive (what will happen if supply is disrupted), and prescriptive (what is the best course of action to take to mitigate disruptions)–all topics in Module G of your Heizer/Render/Munson text.

Classroom discussion questions:

  1. What other natural disasters in the past 20 years have impacted the computer industry?
  2. What does it mean to “map out your supply chain”?

 

 

Guest Post: What is a Group Purchasing Organization?

Prof. Howard Weiss explains the topic of GPOs, an important supply chain issue.

Your Heizer/Render/Munson textbook discusses purchasing throughout several chapters and, in particular, in the Supply Chain Management chapter (Ch. 11). Obviously, keeping costs low is a major goal in operations. In order to do that, for the first time in their history, Temple U., Penn State U., and U. of Pittsburgh have entered into a joint agreement for the purchase of office supplies.
The cost savings occur due to the increased negotiating power of the three schools. In addition, the transaction/setup/order costs are reduced because it is not incumbent on each university to manage purchasing contracts and orders. Because this is a more efficient process it could likely lead to savings due to procurement employee layoffs.

There are benefits other than costs. Quality and service can improve because vendors do not want to risk losing the larger contracts. Vendor choices are expanded since some vendors have minimum order sizes that individual schools could not meet.

The three universities are not the first to enter into a joint purchasing agreement. The Wisconsin Association of Independent Colleges has 24 members and, in addition to supplies, offers joint purchasing for property insurance. Its members have saved over $100 million since 2003.

Nor are universities the only institutions with cooperative agreements. In the 1980s, Congress endorsed Group Purchasing Organizations (GPOs) for the medical supply market. The reduced costs save the government money for programs such as Medicare. These GPOs are generally run by an organization that is not necessarily the hospitals themselves.

There are several conditions that must be met for the joint agreement to be legal. For example:
 The agreement must not violate anti-trust laws by creating a buyer cartel.
 The agreement must have the benefit of creating economies of scale or avoiding duplication of effort.
 The total amount purchased by the group must be less than 35% of the total market for the items.
 Participating parties must be allowed to make purchases outside of the agreement

GPOs are useful when the products or supplies are standardized. If a company needs custom products, then the GPO may not be able to help. In addition, if the GPO is run by a private company then the clients may not know how the GPO is prioritizing contracts. Finally, the increased demand might eliminate smaller vendors from consideration.