Category: What We are Reading

Good OM Reading: The Algorithm– How Tesla Drives Innovation

Elon Musk calls it “the algorithm,” a distillation of lessons learned while relentlessly increasing production capacity at Tesla’s Nevada and Fremont factories.  And anyone can tap into the powerful management techniques behind Elon Musk’s success. At least that’s the thesis of a new book by former Tesla President Jon McNeill.
“The Algorithm” argues there are five steps that explain how Musk wants his teams at the electric-car company and rocket-maker SpaceX to operate.  “Much of the genius in Musk’s companies come from the legions of smart people empowered by the Algorithm,” McNeill writes. “They’re chasing stretch goals with free license to question everything and innovate boldly.”

 

The 5-Step Operational Algorithm is a structured approach to decision-making, innovation, and efficiency used at Tesla, SpaceX, and other Musk firms. It consists of these 5 sequential steps: 

  1. Question Every Requirement– Identify the origin of each requirement and challenge its necessity, regardless the rank of the person making the recommendation. The goal is to make requirements less “dumb” and ensure they serve the final objective.

  2. Delete Any Part or Process You Can– Remove unnecessary steps or components. Musk emphasizes that if you donot occasionally cut back at least 10%, you likely haven’t deleted enough. 

  3. Simplify and Optimize– Focus on improving only what remains after deletion. Avoid optimizing  processes that shouldn’t exist. 

  4. Accelerate Cycle Time– Speed up processes only after simplification and optimization, ensuring efficiency without reinforcing unnecessary steps. 

  5. Automate Last– Implement automation only after all prior steps are completed to avoid automating inefficiencies.

 

 

Good OM Reading: Supply Chains as a Source of Competitive Differentiation

A new report from the Kearney consulting group (Feb. 4, 2026), called The Top Five Supply Chain Bets for 2026, concludes that as customers punish inconsistency faster than ever, companies that can deliver reliability will expand market share. Kearney offers this analysis:

This forces a shift from one supply chain to a portfolio of capabilities designed around distinct value propositions including speed, reliability, customization, cost-to-serve, and compliance. Where commercial commitments are made in isolation from operations, the consequences surface later through margin erosion, excess inventory, and lost customers.

Supply chain becomes the operating core of the customer promise, and leadership must be explicit about where it will overperform and equally clear about where performance ambition can be more modest by design.

Leading organizations are becoming more deliberate about how they serve each channel, market, and customer, including the trade-offs required and their operational implications. Align those choices with differentiated supply chain capabilities for each segment and translate them into targets for the core KPIs (service, cost, cash, risk). Finally, leverage the integrated planning and execution process to deliver consistently against those objectives.

Another area of concern is AI as it moves along the continuum from experimentation to earnings impact. Kearney offers the following analysis:

In 2026, many pilots will fail to progress beyond experimentation. The root causes are predictable: unclear value cases, poor data quality, fragmented technology stacks, and pilots that were never designed to scale.

AI in supply chains needs to be treated as an industrial capability, with clear ownership, governance, monitoring, and integration into day-to-day processes. Organizations that remain in experimentation are accumulating prototypes and skepticism, while those that focus are translating AI into measurable improvements in cost, cash, service, and risk.

Leading organizations are managing AI use cases as a portfolio, with explicit scale and stop gates. A small number of use cases that materially affect service, cost, cash, or risk are being industrialized, while others are time-boxed with clear exit criteria. Investment is concentrating on priorities with the highest enterprise impact, including decision speed, resilience, and sharpening competitive supply chain advantage.

Classroom discussion questions:

  1. How might AI be used in supply chain management?
  2. Why does Kearney think supply chains are becoming the source of competitive differentiation?

Good OM Reading: Successful Strategies to Deal with Supply Chain Disruption

In today’s volatile global environment, geopolitical upheaval has emerged as a defining threat to supply chain resilience — on par with natural disasters and the lasting effects of the COVID-19 pandemic. From shifting trade policies and tariffs to rising political tensions and regulatory unpredictability, these forces are disrupting global operations, raising costs, and reshaping supplier networks.

A new study conducted by Supply Chain Dive (July, 2025) reveals the
true cost of this disruption — and what leading companies are doing to manage it. The clear consensus: geopolitical risk is rising fast, and most organizations are not fully prepared. Seventy-eight percent of companies studied expect that the risk of geopolitical events will increase in the next two years, with the median revenue loss from supply chain disruption at 5%.

The findings challenge conventional thinking. The most widely used mitigation strategies aren’t necessarily the most effective. In fact, some of the highest-performing tactics are the least adopted — despite being relatively simple to implement.

The report explores the gap between strategy and success, offering a detailed look at how forward thinking companies are building geopolitical agility through smarter partnerships, more proactive policy engagement, and better use of data and technology.

Key takeaways include:
1. Geopolitical disruption is a major, growing threat to supply chains.
2. Financial and operational costs are substantial, as disruptions lead to higher shipping costs, material price volatility, and reduced supply chain efficiency.
3. Many organizations are underprepared for changes like tariffs and other trade policy shifts.
4. Top-performing strategies are often underutilized, these include relocating operations for geopolitical advantage, board-level compliance elevation, and policy-influencing activities.
5. Supply chain adjustments are underway, with half of the companies actively adjusting their supply chains to avoid countries impacted by tariffs, and 79% re-evaluating nearshoring strategies in response to geopolitical shifts.

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.

Good OM Reading: Model Thinking for Everyday Life

Every day operations managers face decisions, some simple and some complex. Our text focuses on these decisions with real world examples and hundreds of mathematical models to help guide decision making. But all too often students look for “the answer” on a search engine (or now on ChatGPT), learning nothing from the process. 

A new book, called Model Thinking for Everyday Life, by well-known MIT professor Richard Larson, asks readers to undertake a major mind shift in everyday thinking. The answer to many operations problems lies in the process that leads us there. Model Thinking helps develop critical thinking skills, using a framework of conceptual and mathematical concepts to help reach full comprehension and better decisions. 

Prof. Larson’s innovative approach to model thinking encourages:

  • Active learning with pencil and paper (no computer), which requires readers to immerse themselves in puzzles and life’s paradoxes.
  • No heavy math – complex technical issues are addressed in a simple, entertaining way.
  • Seeing the world  in terms of models, learning something new every day.

Here is an example: Suppose you need to be on today’s only ferry to Martha’s Vineyard, which leaves at 2 p.m. It takes about 30 minutes (on average) to drive from where you are to the terminal. What time should you leave?

In this example, a key concept at play is uncertainty. Accounting for uncertainty is a core challenge faced by operations managers. We need to see that:

  • an average of 30 minutes would cover a range of times, some shorter, some longer;
  • outliers can exist in the data, like the time construction traffic added an additional 30 minutes
  • “about 30 minutes” is a prediction based on past experience, not current information (road closures, accidents, etc.); and
  • the consequence for missing the ferry is not a delay of hours, but a full day — which might completely disrupt the trip or its purpose.

Without doing much math, we calculate variables, weigh the likelihood of different outcomes against the consequences of failure, and choose a departure time. Larson’s conclusion is one championed by model thinkers everywhere: Leave on the earlier side, just in case.

“Everybody uses models, whether they realize it or not,” Larson says. “When someone is shopping for groceries and thinking about how much of each product they need — they’re basically using an inventory management model of their pantry.”

Good OM Reading: Rethinking Global Supply Chains

Firms have spent the past 30 years trying to make global supply chains as lean and efficient as possible, only for them to break down completely during Covid.  Now, some experts, believe, the case for savings, efficiencies and just-in-time strategies no longer stands up. “The global supply chain is too long,” says the James Richard, author of the new book SOLD OUT: How broken supply chains, surging inflation and political instability will sink the global economy. “When you have that many moving parts, it breaks under its own weight. All the plans put in place by supply chain managers served to cut down on inventory, time and effort but failed to take into account the hidden cost.”

One of the biggest risks is climate change, and this has particular ramifications for supply chains. Extreme weather conditions can lead to material shortages as food, wood and mineable materials are harder to harvest or access. Floods, fires and storms can upset logistics too, causing delays or losses. Bringing supply chains closer to home is one way to make them greener. Some believe there is always a local supply chain that’s readily available. That helps to reduce prices and with logistics. Considering the carbon footprint of having things delivered from hundreds or thousands of miles away and bringing it down to 10, 20 or 30 miles away, there is a huge difference.

Covid highlighted the fragility of these long, global supply chains. As countries, particularly China, shut down in 2020, companies like Jaguar resorted to flying parts over in suitcases as they became harder to source. now many brands are exploring the possibilities of more localized supply chains.

“Globalization failed because we stressed the supply chain too much. It became too long,” says Rickards. He thinks that in 2023, and beyond, companies will become far more selective about which countries they do business in and with. “What we will have is a new world where we will trade with our friends but many countries won’t be in the club,” he says. “Certain groups will trade with each other, outsource to each other, but China won’t be in this club. Anyone not in the club will have to go their own way.”

Supply chain managers will need to seek out new partnerships as sources of raw materials and, wherever possible, find what is needed nearby. It also means that organizations will have to get much smarter about information sharing.

  • Prof. Howard Weiss has graciously agreed to provide Guest Posts in the coming days while I am travelling. Thanks, Howard.

Good OM Reading: Enhancing Sales & Operations Planning with Integrated Business Planning (IBP)

As we note in Chapter 13, Sales & Operations Planning (S&OP) is a critical element in making aggregate planning work.  A recent report by McKinsey & Company advises that the unprecedented challenges created by Covid, the war in Ukraine, and what have become chronic supply chain issues, suggest that S&OP be replaced by a more encompassing approach. They call their approach Integrated Business Planning (IBP).

McKinsey’s more encompassing IBP approach consists of five essentials:
1. A business – focused design that covers the midterm time horizon (3 – 24 months) and enables strategy implementation and target achievement.
2. High-quality process management with cross-functional decision makers empowered to resolve issues immediately.
3. Accountability and performance management with shared metrics to encourage collaboration across stakeholders with set targets and clear direction to resolve the trade-offs among conflicting Key Performance Indicators.
4. Effective use of data, analytics, and technology so timely integrated information is available to optimize real-time decision making.
5. Specialized organizational roles and capabilities with specific process owners to promote functional excellence and cross-functional collaboration.

McKinsey’s research indicates that this more encompassing well-functioning IBP process, can yield one or two additional percentage points in EBIT and increased service levels, while lowering freight costs and capital intensity. Additionally, customer delivery penalties and missed sales are reduced, as well as making planners more productive.

Classroom discussion questions:
1. How does McKinsey’s IBP differ from the standard S&OP discussed in Chapter 13?

2. What are the organizational changes appropriate to move from a S&OP process to an IBP process?

Good OM Reading: The Rise of U.S.-Mexico Cross-Border Manufacturing

As we note throughout our text, supply chains are critical to a successful Operations Management strategy. One component of the supply chain, particularly in the automobile sector, is maquiladoras (free trade zones in Mexico). Here is an interview with with Fabiola Luna, President of the Association of Maquiladoras, in Southwest Economy (First Quarter, 2022):

It is an industry mainly located along the U.S.–Mexico border, making easy the logistics for international trade. All raw materials get to Mexico on a temporary basis and then are used in the manufacturing process and exported back to the U.S. Since Texas borders several Mexican states, it is the main intermediary for U.S.–Mexico manufacturing trade.

Juárez is a particularly important city because it was here where the maquiladora model was born back in the 1960s, and since then it has been the economic backbone of the border region.  Juárez has 320 plants employing 330,000 workers. About 60% of all maquiladora jobs in the state of Chihuahua are in Juárez. Originally, maquiladora plants were in industrial parks close to international border crossings, but currently they are all over the city.

The main maquiladora industry is the automotive sector. It represents 38% of employment. We manufacture all kinds of auto-related products, such as seat covers, seat belts, battery cables and wiring harnesses. So, practically all cars U.S. consumers own have a component made in Juárez. We also manufacture top-of-the-line all-terrain vehicles (ATVs), refrigerators, washing machines, medical surgical devices and even candies. The popular Brach’s candies are made here.

What we produce now is completely different from what we made 50 years ago. Our manufacturing processes have also evolved with new technologies. For example, some of our plants include high-tech robotics; some have automated processes with a good mix of traditional labor and robots.

We are even adopting the technology needed to supply electric vehicle production. We also have plants that manufacture for Apple, including the iPhone, the MacBook and AirPods. We are manufacturing the electronic products that have become essential. The maquiladora industry has evolved. Our industry continues to be labor intensive with a good mix of automation and a more skilled labor force. We have great expectations for the future regarding new technologies and manufacturing processes for electric vehicles. 

Classroom discussion questions:

  1. What is NAFTA and what is USMCA?
  2. Why are maquiladoras an important part of U.S. manufacturing?

Good OM Reading: Supply Chain Trends–2022

Will the supply chain world remain chaotic this year, asks Supply Chain Dive (Feb. 22, 2022)? What about shortages, scarce materials, and delivery expectations? How should companies approach their supply chain strategy in 2022? Here are 7 trends suggested in a new ebook:

TREND #1: LABOR SHORTAGE CONTINUES
The first prediction for 2022 is that the labor shortage in supply chains will continue well into 2022. There’s no area of labor left unturned – be it labor planning, employee retention, labor efficiencies, or robotics. Every strategy and profit impact option must be  rescoped.

TREND #2: NEED FOR REAL-TIME VISIBILITY
Companies are now recognizing the importance of real-time visibility in their supply chain. Disruptions are rampant and costs are soaring. Teams need to be more proactive in the way they handle their processes, people, and products.

TREND #3: RISING VENDOR EXPECTATIONS
Companies are starting to demand more from their vendors in terms of functionality, cost-effectiveness, and reliability. Supply chain teams now need tools that work, use their data in ways that haven’t been done before, and provide a competitive advantage.

TREND #4: DIVERSIFICATION
Companies should be looking at their suppliers and vendors and diversifying across their core product lines. Whether ships are stuck off the coast of LA or there’s a massive demand hike due to consumer behavior that wasn’t forecasted, manufacturers need to be able to source their core materials through other previously developed relationships.

TREND #5: BUILDING RESILIENCE THROUGH ACTIVE COLLABORATION
Teams need to be prepared for anything. Now companies are realizing that all teams (and even customers and partners) having real-time access to the same data helps each perform better.

TREND #6: MORE CONSUMERS WILL EXPECT SUSTAINABLE SUPPLY CHAINS
Consumers are holding corporations more accountable for their environmental footprints. Inefficient supply chains are not only costly, but also hurt the environment more. While the pandemic slowed or stalled many environmental trends in 2020, expect a growing resurgence toward companies investing in building more sustainable processes.

TREND #7: AN ONGOING NEED TO OPTIMIZE WAREHOUSES
Warehouses are expensive to run and maintain. With rising supply chain costs and labor shortages, it has become increasingly important for companies to find new and innovative ways to optimize the warehouse.

Classroom discussion questions:

  1. Which trends are the easiest to address?
  2. How do supply chains become more sustainable? (Hint: see Supp. 5 in your Heizer/Render/Munson text)

Good OM Reading: “Invention-A Life,” by James Dyson

James Dyson wasn’t much of a student at an English boarding school. Yet he would become the founder of a $7 billion global manufacturing empire. Dyson gained fame as the inventor of a revolutionary vacuum cleaner that exploits the principle of the cyclone and never needs a replacement bag.

In Invention–A Life, he tells of the devastating experience of losing patent rights and being ousted from the company he had founded to manufacture his first notable invention- the “Ballbarrow”( a wheelbarrow that had a big red ball in the front instead of a wheel}. Although this  venture ended in failure, the experience helped him succeeding in his bigger quest—the development of the vacuum cleaner.

DC01: The first Dyson vacuum rolled off the production line in 1993

Over a 4-year period, Dyson made 5,127 prototypes of the vacuum cleaner that would transform the way houses are cleaned. He risked all his resources, but out of many failures came success. His products—including vacuum cleaners, hair dryers, and fans and purifiers—are not only revolutionary technologies, but design classics– a legacy of his time studying at the Royal College of Art in the 1960s.

The first dual cyclone bagless vacuum cleaner (the model DC01) was sold initially through mail-order catalogs. It achieved bestseller status in spite of its unconventional features of being yellow; having an exposed, transparent and reusable plastic dust collection chamber in lieu of the traditional concealed disposable bag; and having a price tag several times that of a basic Hoover. After sales clerks and customers had the chance to witness Dyson’s machine pick up the dust conventional vacuum cleaners left behind, however, sales took off. His instincts were correct about how new features would triumph over traditional ones.

Dyson dramatically tells how his own company became one of the most inventive technology firms in the world, always looking to the future. He discusses the continuing obstacles—financial, political, regulatory, sociological, cultural—that frustrated his attempts to expand his manufacturing enterprises within the United Kingdom. This challenge drove him to move the bulk of his business to Singapore.

Dyson writes his success is due to “perseverance, taking risks and having a willingness to fail.” Inventors rarely have ‘eureka’ moments. Developing an idea and making it work takes time and patience. We fail every day. Failure is the best medicine—as long as you learn something.”

This is a great story to note when you teach Chapter 5, Design of Goods and Services.

Good OM Reading: Power Play–Tesla, Elon Musk, and the Bet of the Century

Tesla has earned a prominent place in auto history under the genius of Elon Musk. While the rest of the auto industry sought to protect its internal-combustion business under the assumption few people would buy an alternative, Musk showed that stylish, fast and fun electric cars would prove popular.

Musk’s approach to many manufacturing issues was, and is, keeping the assembly line moving while line problems are being fixed. He’s not a fan of the Toyota method, where a worker can stop the line until the problem is solved. He’s about volume. That may be one reason why the quality of Teslas is so variable. Some owners report their car is perfect; some say they were sold a piece of junk.

In 2016, Musk promised that a self-driving car, a Tesla semi truck and a new, possibly jet-powered roadster were imminent. None are remotely close to production. Since Tesla was founded in 2003, it has undergone a truly hellish 15 years, beset by rivals, pressured by investors, hobbled by whistleblowers, but lauded by its loyal supporters. Musk himself would often prove Tesla’s worst enemy.

Building the Teslas proved much harder than Musk expected, resulting in a” would-he or-wouldn’t-he” drama in 2018 to reach a weekly production level of 5,000 Model 3 cars—the volume needed to make the company sustainable. Problem after problem resulted in money-eating delays that left the Tesla and its employees badly shaken. Musk, often sleeping in the Fremont, California, factory, had dubbed it “Manufacturing Hell.”

Wall Street Journal reporter Tim Higgins had a front-row seat for the drama: the pileups, wrestling for control, meltdowns, and the success. His new book, Power Play, is an exciting tale that deals with a myriad of OM issues. You and your operations management students will find much worth discussing in class after reading Higgins’ book.

Good OM Reading: Jeff Immelt’s “Hot Seat”

Why would Jeff Immelt write a book about his troubled tenure as GE’s CEO from 2001 to 2017? “My tenure had ended badly,” he acknowledges on page 1 of Hot Seat. “My legacy was, at best, controversial.”

Less than a week into Immelt’s tenure, replacing the famous Jack Welch, the 9/11 terrorist attacks shook the nation, and the company, to its core. GE was connected to nearly every part of the tragedy—GE-financed planes powered by GE-manufactured engines had just destroyed real estate that was insured by GE-issued policies. Immelt would lead GE through many more dire moments, from the 2008–09 Global Financial Crisis to the 2011 meltdown of Fukushima’s GE-designed nuclear reactors. He set out to make GE more global, more rooted in technology, and more diverse. But GE struggled. “It became clear right away that my main role would be Person to Blame,” he says.

In Hot Seat, Immelt offers a candid interrogation of his tenure. The most crucial component of leadership, he writes, is the willingness to make decisions. But knowing what to do is a thousand times easier than knowing when to do it. Perseverance, combined with clear communication, can ensure progress, if not perfection, he says.

Immelt rose through the ranks during a largely “tranquil” time when China was a sleeping giant and the U.S. economy expanded at a reliably impressive rate. The world he inherited as CEO, however, was “raucous, volatile and unpredictable,” full of bursting bubbles (dot-com, housing, power), disruptive rivals and increased scrutiny. 

Hot Seat provides interesting OM insights and is worth the read. Here is one quote: “It may sound weird to say it, but I am certain that I would never have become GE’s CEO if I hadn’t first learned to fix refrigerators. In 1989, however, when GE moved me to Louisville to become head of customer service for GE Appliances, I wasn’t so sure it was a promotion. GE’s refrigerators had begun failing at an alarming rate. The problem, we soon figured out, was faulty compressors, which have to work harder when the weather gets hot. So the hotter it got, the more our compressors failed. First, we heard from customers in Puerto Rico. Then Florida. After a little investigation, we determined that every single compressor inside 3.3 million refrigerators was going to fail, one by one, in a wave that would roll across the country from the warmest spots to the coolest. We figured refrigerators in Maine would be the last to give out, but their time would come. Each repair would cost us $210—more than half what customers had paid in the first place. It was a disaster.”

Many critics would say Immelt’s entire tenure was a disaster as well.

Good OM Reading: Quality is Free

This Thanksgiving, 2020, is unlike any in our living past. Yet we are still healthy, continue to teach (albeit differently), and have much to be grateful for. So I thought I would share with you and your students my memories of a friend and mentor, Philip Crosby, who died almost 20 years years ago. Crosby is famous for his dozen books on management and quality, starting with his classic 1979, Quality is Free, published by McGraw Hill.

Crosby guest-lectured in my MBA classes every semester for a decade and I required my students to select any of his books and write a 1-page report on how they personally benefitted from his insights. To this day, if you visit management offices of quality-conscious manufacturers worldwide, you are likely to hear the words “zero defects” and “do it right the first time,” with Crosby’s 4 absolutes of quality as their cornerstones.

Here are his words about that 1979 book: It goes back to how people think about quality. Conventionally, quality is always looked at as goodness, as gold-plating. Quality is viewed as an expense, a trade-off, something that you have to spend money on. But you can’t manage with goodness as your definition of quality. Quality is conformance to carefully thought-out requirements. So quality is free because it is already built-in. The expense of quality is nonconformance.

Crosby believed that workers are not the problem with quality–that they pretty much do what management tells them to do. He wrote: “People think that quality is some undefinable thing that you only know when you see it. Yet quality requirements are clear. They talk about vague things like delighting the customer, but you can’t tell people what that really means, so you can’t manage that way.”

His 4 absolutes are: 1. quality is conformance to requirements, not goodness.; 2. the basic aim of quality management is prevention, not appraisal; 3. that zero defects is the performance standard, not some acceptable level of defects like 6-sigma; and 4. the measurement of quality is the price of nonconformance.

Time flies by, but Crosby’s books are always worth a second read.

Good OM Reading: McKinsey’s Report on Supply Chain Shocks–Part 2

Companies need an understanding of their exposure, vulnerabilities, and potential losses to create resilience strategies for their supply chains, writes McKinsey Global Institute in a new report. Targeted measures taken before an event occurs can mitigate the impact of a shock or speed time to recovery. As more physical assets are digitized, for example, companies will need to step up investment in cybersecurity tools and teams.


One of the most important steps is building more redundancy into supplier networks. Relying on a single source for critical components or raw materials can be a vulnerability. In fact, even if a company relies on multiple suppliers, they may be concentrated in the same place. Taking the time to identify, prequalify, and onboard backup vendors comes at a cost. But it can provide much-needed capacity if a crisis strikes. Auditing and diversifying the supply chain can have the added benefit of reducing carbon intensity, and raising environmental and labor standards.

One way to achieve supply chain resilience is to design products with common components, cutting down on the use of custom parts in different product offerings. Auto manufacturers are perhaps the most advanced in this regard, having implemented modular manufacturing platforms that share components across product lines and production sites.

Physical assets may need to be hardened to withstand natural disasters. In regions that are vulnerable to worsening hurricanes and storm surges, this may involve installing bulkheads, elevating critical machinery, adding more waterproof sealing, and reworking drainage. Plants located in earthquake-prone areas may need seismic retrofitting. Companies can also build more redundancies into logistics.

Classroom discussion questions:

  1. What protections can be added to manufacturing plants?
  2. Refer to Table 11.3, “Supply Chain Risks and Tactics'” on page 450. What additions could you provide relating to the current pandemic?

Good OM Reading: McKinsey’s Report on Global Value Chains–Part 1

In recent decades, value chains have grown in length and complexity as companies expanded around the world in pursuit of profits. Since 2000, the value of intermediate goods traded globally has tripled to more than $10 trillion annually. Businesses that successfully implemented a lean, global model of manufacturing achieved improvements in inventory levels, on-time-in-full deliveries, and shorter lead times.

However, these OM choices sometimes led to unintended consequences.. Intricate production networks were designed for efficiency, cost, and proximity to markets but not necessarily for risk. Now they are operating in a world where disruptions are regular occurrences. “Companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll,” reports the McKinsey Global Institute. This new research study, which we summarize in a two-blog series, explores the profound shocks facing value chains from financial crises, terrorism, extreme weather, and, yes, pandemics.

Some manufacturers will use technology and devise other strategies to come out on the other side of the pandemic more agile and innovative. McKinsey reminds us that the COVID pandemic is only the latest in a series of disruptions. In 2011, a major earthquake and tsunami in Japan shut down factories that produce auto components, halting assembly lines worldwide. It also knocked out production of silicon wafers, on which semiconductor companies rely. 

 Forty weather disasters in 2019 caused damages exceeding $1 billion each. And the number of ransomware attacks doubled from 2018 to 2019. Interconnected supply chains and global flows of data, finance, and people offer more “surface area” for risk to penetrate, and ripple effects can travel across these network structures rapidly. Companies tend to focus much of their attention on managing the types of shocks (like trade disputes, product recalls, data breaches, or logistics disruptions) they encounter most often. COVID is a reminder that outliers may be rare—but they are real possibilities that companies need to consider in their decision making.

Classroom discussion questions:
1. Relate each of the major headings in Supp. 11 (Supply Chain Management Analytics) to the COVID pandemic.

2. What changes might an operations manager make in response to this report?