What We are Reading – Page 5 – The OM Blog by Heizer, Render, & Munson

Announcing Our New Operations Management 11/e and Principles of OM 9/e

Jay and I are thrilled to announce that Pearson has just published the new editions of our Operations Management texts. We think these books are our most exciting revisions ever and we hope you agree! Both the hardcover 11th edition of Operations Management: Sustainability and Supply Chain Management and paperback 9th edition of Principles of Operations Management: Sustainability and Supply Chain Management (which is the same book less six Business Analytics Modules) have an amazing amount of new and updated material. Here are just a few of the changes:

A new chapter called Sustainability in the Supply Chain, which includes two video case studies. Here we focus on corporate social responsibility, the 3Rs of sustainability, and mathematical models for revenue “design for disassembly” and life cycle costing.

A significant revision of Chapter 11, Supply Chain Management, with new examples, graphs, tables, problems, and organization.

A new chapter called Supply Chain Analytics, which expands our SCM coverage with 4 analytic approaches to evaluating supply chains: disaster risk modeling, management of the bullwhip effect, supplier selection, and transportation mode analysis.

Five new video case studies featuring operations management at the NBA’s Orlando Magic and its home Amway Center: “Forecasting Ticket Revenue for Orlando Magic Basketball Games” (Ch.4), “Building Sustainability at the Orlando Magic’s Amway Center” (Supp. 5), “Using Revenue Management to Set Orlando Magic Ticket Prices” (Ch.13), “When 18,500 Orlando Magic Fans Come to Dinner” (Ch.14), and “From the Eagles to the Magic: Converting the Amway Center” (Ch.15). This new series of 8-12 minute videos supplements the 31 other videos Jay and I have created with prior editions. The Magic are also featured in homework problems, examples, and OM in Action boxes throughout the book so students see integrated coverage of this fascinating sports organization.

If you have not received your new copy yet, please email Anne.Fahlgren@pearson.com –or use this locator to contact your personal sales rep:

http://www.pearsonhighered.com/educator/replocator/

Good OM Reading: The China Twist

“Want a challenge,” writes Wen-Szu Lin in his wonderful new book, The China Twist. “Try launching your first business in a foreign country where you aren’t familiar with the language or culture. Launch in a city where you have no connections. Introduce a product category (Auntie Anne’s Pretzels) that is completely new to the consumers. Limit your initial investment to a small amount. Oh yeah, for kicks, let this foreign country be China.” Here are a few takes from the Wharton MBA:

Operations is massively under-emphasized. “MBA classes often emphasized the ‘sexy’ part of the businesses. How it is going to be financed? What is the innovative marketing that changed the course of the business? Operations and implementation is only represented in most classes as a tiny aspect of the overall process; thus creating that impression in the overall value. Sad to say, I was part of that group who looked at operations as ‘beneath’ me. My perspective is completely reversed now. Poor operations will sink any business. Operations is hard and it is a daily grind. If you want to build a great business from the ground up, better start loving the operations.”

A corrupt regulatory landscape. “Our MBA program discussed the implications of the US Foreign Corrupt Practices Act and how large corporations deal with working in corrupt environments. I recall the classes portraying all cases as black and white. How does that translate to an entrepreneur getting shaken down by local government employees, all wanting some ‘favors’?”

How to ethically deal with unethical people. “Our procurement manager took bribes and demanded kickbacks from most of our suppliers. If I were in the US, I would have fired that guy as soon as the first supplier called to complain. However, he was the smartest person on our staff and could get prices lower than what we could, even with his kickbacks built in. And if we fired this manager, there is a good chance that we would face the same issue with the next employee. What we ended up doing was turn a blind eye but we checked the prices periodically to ensure that the prices he quotes are the same or lower than what we ourselves could negotiate.”

Good OM Reading: GE’s American Manufacturing Comeback

For much of the past decade, GE’s storied Appliance Park, in Louisville, appeared less like a monument to American manufacturing prowess than a memorial to it. Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday.

Back in 1951, GE didn’t build an appliance factory so much as an appliance city–a facility so large it got its own ZIP code (40225). By 1955, Appliance Park employed 16,000 workers and by the 1960s, the workforce was turning out 60,000 appliances a week. Employment peaked at 23,000 in 1973, but by 1984, it had fewer employees than it did in 1955. Former CEO Jack Welch suggested shuttering it. Current CEO, Jeffrey Immelt, tried to sell the entire appliance business in 2008, but as the economy nose-dived, no one would take it. In 2011, the number of employees bottomed out at 1,863.

Yet this year, writes The Atlantic (Dec., 2012)– in a great cover story article you may want your students to read–something exciting has begun to happen! Appliance Park opened an all-new assembly line (its 1st in 55 years) in Building 2— dormant for 14 years—to make low-energy water heaters, which had previously been made for GE in China. Then GE opened a 2nd new assembly line, this one in Building 5, to make new high-tech French-door refrigerators that had been made in Mexico.

Another assembly line is under construction in Building 3, to make a new stainless-steel dishwasher. Building 1 is getting an assembly line to make front-loading washers and matching dryers; GE has never before made those in the United States. And a new plastics-manufacturing facilities is now making parts for these appliances.

In the midst of this revival, Immelt made a startling assertion. Writing in Harvard Business Review, he declared that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Just 4 years after he tried to sell Appliance Park, believing it to be a relic, he’s spending some $800 million to bring the place back to life.

Good OM Reading: Ford’s Strategy for Reliability–and Failure

From tires to hinges to helicopter blades, everything breaks eventually. The only question is when, writes Wired Magazine (Nov., 2012). This must-read article, titled “Why Things Fail,” is worth sharing with your students if you are teaching the topic of reliability (Chapter 17). Ford Motor knows product failure, and still recalls the 2000 disaster in which some 192 people died when their Explorers’ Firestone tires fell apart. But it is clear that, in the tragedy’s wake, the company learned something. As it overhauled its testing program, Ford’s warranty costs plummeted, and its vehicles went from having some of the worst reliability scores in 2000 to having some of the best today. From the embers of the Explorer disaster, Ford has become one of the best companies in the world at managing failure–equalling Honda and Toyota.

At Ford, learning exactly when and how things will fail—over many years and across a spectrum of millions of vehicles around the world—now saves billions of dollars (and, of course, many lives). So in Building 4, a massive complex in Dearborn, MI, called Ford’s Tough Testing Center, parts like the gas petal hinge endure a constant torrent–simulating years of use–until they finally fail. Building 4 is a monument to a dark truth of manufacturing: Even the best-engineered products fail. Some percentage of all mechanical devices will break before they’re expected to. “Companies say they want to be 100% failure-free after three years,” says one industry expert. “But that’s impossible. You can’t do it.”

Whenever a new part—like that gas-pedal hinge—is designed, the first question Ford asks is, how long does it need to last? Ford’s standard warranty guarantees parts for 3 years and the engine/transmission for 6. But to ensure that parts easily surpass warranty claims (and hopefully ensure that buyers feel they own a reliable product), Ford aims to have everything last 10 years. Upholstery, transmissions, paint—all of it is built to last at least a decade. Quite a change from the planned obsolescence of my father’s cars of the 1960’s!

Good OM Reading: Michael Porter on Restoring U.S. Competitiveness

“Michael Porter has influenced more executives –and more nations– than any other business professor on earth,” writes Fortune (Oct.29, 2012), in a story on the 65-year old Harvard scholar. Porter’s newest article, with Jan Rivkin, in the same Fortune issue, called What Business Should Do to Restore U.S. Competitiveness, is critical reading for OM professors.

Porter and Rivkin write: “America’s feeble economy reminds us every day that our global competitiveness is in trouble.” Whose fault is that? One camp holds that national competitiveness is the responsibility of policymakers, not business leaders, who need to focus on running their companies. The opposite camp says companies owe loyalty to the country that supports them, and executives who move American jobs overseas are Benedict Arnold CEOs. “Both positions are deeply flawed, reflecting simplistic views of how competition and economies really work,” say the authors.

They explain that the U.S. is competitive to the extent that firms operating here can compete successfully in the global economy while supporting high and rising living standards for the average American. Doing one without the other means we aren’t really competitive. A high-wage economy like the U.S. can achieve both only by being a highly productive location, one where firms can create innovative, distinctive products and produce them efficiently.

“Managers must run their U.S. operations well,” they write. ” This means positioning U.S.-based activities to draw on unique American strengths.” For instance, La-Z-Boy has avoided head-to-head competition with low-wage Asian furniture manufacturers by emphasizing the customization and faster delivery that its U.S. location and worker skills make possible.

But running U.S. operations well does not always mean staying at home, they add. Going overseas often improves competitiveness by allowing U.S. companies to penetrate foreign markets. U.S. multinationals that expand faster abroad also tend to grow faster in America. And well-run companies do bring activities back to America as costs rise overseas and managers feel offshoring’s hidden costs, such as lower foreign worker productivity, quality problems, and loss of intellectual property.

Good OM Reading: Analytics at Disney World

Here in the tourist mecca of Orlando, Disney World reigns as king. With 60,000 employees (called “cast members”), Disney is a driving force not just in our economy, but in the use of operations management tools. Analytics (Sept.-Oct. 2012) has a great piece on the careful planning guests don’t see taking place “behind the scenes” to run the operation smoothly. The article examines the role analytics plays in ensuring the guest experience is maximized. It makes a nice supplement to our text coverage of Disney in both the forecasting (Ch.4) and waiting line (Module D) chapters.

The authors write: “Forecasting serves as the analytical foundation for operations planning at the Resort. It all starts with the park attendance forecast, which lays out the expected attendance at each park. These predictions are strongly considered when setting park hours and performing other strategic planning. More granular forecasts are required for each individual area, such as guest arrivals at the hotel front desks. The company recently launched a new labor demand planning system, which generates forecasts for every 15-minute period at many locations throughout the property, including park entry turnstiles, quick-service restaurants and merchandise locations. These forecasts help the resort plan labor effectively to ensure guest service standards are met”.

Another innovative way the resort uses forecasting is for attraction wait times. The most popular attractions use Disney’s FASTPASS system – a unique virtual queueing system that allows guests to receive a ticket with a designated 1-hour window of time when they can return and skip the regular line. From a central command center underneath the Magic Kingdom, forecasting models are executed every 5-10 minutes to project the return patterns of FASTPASS guests based on entertainment schedules and the number of FASTPASS tickets that have been distributed. The forecasts are posted at the front of the attractions to help guests choose whether to enter the line, take a FASTPASS ticket or return to the attraction later in the day. These wait times are also available on Disney’s Mobile Magic smart phone app, which shares real-time information about the parks throughout the day.

I think your students may also enjoy reading this down-to-earth article.

Good OM Reading: The Power of Logistics Clusters

Everyone understands the concept of industrial clusters that have developed around the world: Silicon Valley (for information technology), Hollywood (for entertainment), and Boston (for life sciences). Strong clusters are ecosystems of venture capital resources, universities, research centers, employers, highly skilled workers and institutions for collaborations.

The MIT Sloan Management Review (Fall, 2012), however, introduces the concept of logistics clusters— local networks of businesses that provide a wide array of logistics services, including transportation carriers, warehousing companies, freight forwarders and third-party logistics service providers. They also include the distribution operations of retailers, manufacturers and distributors. These clusters attract companies for whom logistics is a critical element of their service offering or a large part of their overall costs.

Logistics clusters are located strategically to enable efficient transportation and delivery services to large populations. They are positioned in mode-changing locations such as busy seaports (Rotterdam, Shanghai, Los Angeles), airport hubs (Hong Kong, Seoul, Memphis) and major intermodal yards where freight shipments transfer from railcars to trucks (such as Chicago, Dallas and Kansas City). Some of the world’s largest logistics hubs, including Singapore, São Paulo and Memphis, bring together multiple elements at once. The economics of transportation means that cargo has to travel long distances in bulk, while demand from retailers and JIT manufacturers means that final distribution must be handled locally in small quantities in response to the ups and downs of customer demand.

The Sloan article notes 3 major advantages of logistics clusters:

1. Value additions. For example, UPS repairs Toshiba laptops at its facility in Louisville, next to the UPS Worldport air hub, reducing service turnaround times from 2 weeks to 4 days.

2. Facilitating returns. Miami’s Neptune Lines specializes in refurbishing secondhand pieces of heavy equipment for Caterpillar and Komatsu. It handles about 5,000 pieces of equipment per year.

3. Attracting other industries and jobs. Indianapolis has some 1,500 logistics and related services companies, including distribution centers for Amazon.com, Hewlett-Packard, and CVS Caremark.

This is a nice article to ask your students to read before you discuss the topic of logistics in Chapter 11.

Good OM Reading: Big Medicine vs. The Cheesecake Factory

It was back in January, 2011 that we blogged about Dr. Atul Gawande’s excellent book on health care quality called The Checklist Manifesto . Gawande’s newest piece, “Big Med,”‘ which appears in the New Yorker (August 13, 2012) is an amazing read as you prepare to teach quality management in Chapter 6. He argues that healthcare can must learn from all high-reliable industries, from aviation, to pit crews, to construction, to the Cheesecake Factory.

Gawande writes: “In medicine, we are trying to deliver a range of services to millions of people at a reasonable cost and with a consistent level of quality. Unlike the Cheesecake Factory, we haven’t figured out how. Our costs are soaring, the service is typically mediocre, and the quality is unreliable. Every clinician has his or her own way of doing things, and the rates of failure and complication (not to mention the costs) for a given service routinely vary by a factor of 2 or 3, even within the same hospital. Big chains thrive because they provide goods and services of greater variety, better quality, and lower cost than would otherwise be available. Size is the key. It gives them buying power, lets them centralize common functions, and allows them to adopt and diffuse innovations faster than they could if they were a bunch of small, independent operations. Such advantages have made Wal-Mart the most successful retailer on earth.”

Physicians, though, have been mostly self-employed, working alone or in small private-practice groups. But that’s changing. Hospitals and clinics have been forming into large conglomerates. And physicians—facing escalating demands to lower costs, adopt expensive information technology, and account for performance—have been flocking to join them. Only 1/4 of U.S. doctors are now self-employed—an extraordinary turnabout from a decade ago, when over 50% were independent.

Enjoy Gawande’s description of his tour of The Cheesecake Factory’s kitchen and the disheartening comparison to a hospital’s medical operations. It’s a good 15 minute investment of your time.

Good OM Reading: Health Care Kaizen

Paula’s husband had just come out of open-heart surgery. Laying in the recovery room with a breathing tube in his throat, he was clearly agitated. He motioned at his arms to try sign language, but the limbs would not move. Paula (a nurse at the hospital) began to panic along with him. When the anesthesia wore off, he said his hands and arms were numb–they remained so for weeks. It turns out that when surgeons performed the procedure, they had leaned over the man and put pressure on his arms. With a single, small improvement, a nurse found that arm sled “positioners” could be used to tuck a patient’s limbs in place while removing the pressure.

This story is just one of 100’s in a new book called Health Care Kaizen, by Graban and Swartz, that describes small improvements made by those who do the work. Kaizens are low-cost, low-risk process changes that can be easily implemented. The idea, say the authors, is to challenge and empower everyone in the organization to use their creative ideas to improve their daily work. And what better a place to see improvements than in our health care systems!

It is often said that “people hate change.” But in this readable book, we see that people actually love change when: (1) they are fully engaged in the process, (2) they get to make improvements that help patients, and (3) they don’t fear losing their jobs as a result of the changes. At one hospital, the CEO offered to shave his head if employees generated ideas that saved $3.5 million that year. The staff responded with $7 million in savings (such as $22,000 by switching from paper gowns to cloth ones) and the boss shaved in public.

At another, the neonatal ICU had automated paper towel dispensers. A nurse noticed babies flinching from the ongoing noise and decided to study the impact of what turned out to be a 50 decibel sound. The kaizen result was manual dispensers which allowed babies to get more rest, thereby gaining weight and getting home sooner–saving $2,000/day ICU fees.

Whether you teach health care OM or are looking for great examples of kaizen for class, this is a book worth reading.

Good OM Reading: Apple Doubles Down on Manufacturing in China

Fortune‘s (June 11, 2012) lead article features Apple’s new CEO, Tim Cook, whom the magazine calls “the master of operational efficiency”. The article is a good one for your students to read at the start of a semester or when you treat the topic of supply chains (Ch.11).

Cook joined Apple in 1998 to revamp its badly broken system of factories, warehouses, and suppliers. He quickly strengthened Apple’s cooperation with its contract manufacturers in China. But it was a personal blow to Cook when the New York Times ran a prominent article in January critical of the working condition at Foxconn, the company that assembles most of Apple’s products. Though the criticism wasn’t new, the exposé painted a bleak portrait of the lives of workers in the factories. Cook’s response marked a distinct change in tone from Steve Jobs, who had been dismissive of the severity of the problem. The new CEO not only visited Foxconn personally, but Apple joined the Fair Labor Association, a third-party monitoring group.

The news this week, though, is that Apple is doubling down on its manufacturing in China. Apple disclosed for the 1st time the dollar value of its assets there: $2.6 billion, meaning a massive value of material and equipment Apple has bought on behalf of its suppliers. The firm is risking its own capital, another $7 billion, as a way of financing massive upgrades in its manufacturing capabilities in Asia, even though its partners will operate the equipment.

Apple generally is mum on what the investments are for, but “that’s got to be for volume,” says a portfolio manager at T. Rowe Price. He notes that Apple suppliers like Pegatron and Jabil have been buying sophisticated machine tools and that Japanese drill-bit manufacturers say they are moving into consumer electronics on Apple’s behalf. “The Apple supply chain is doing things no one else can,” given its abundance of cash and manufacturing know-how. Such operational efficiencies have been an underappreciated factor in Apple’s success for the past decade; all the attention has been on its beautiful designs and snazzy marketing overseen by Jobs.

Good OM Reading: Kimberly Clark’s Drive for Sustainability

The latest MIT Sloan Management Review (May 15, 2012) reports on consumer products giant Kimberly Clark’s efforts towards sustainability, an important topic in our OM courses (Supplement 5). The 140 year old company (57,000 employees in 36 countries)has more than a billion people use its products (which include Kleenex, Huggies, and Kotex) every day!

The company has had 4 global five-year goals, looking at energy reduction and energy efficiency, water use reduction and efficiency gains. For 2000, it addressed chemical issues. For 2005, it addressed packaging, and had a 10% reduction in weight in packaging goal. For 2010, it looked at lifecycle analysis of all product initiatives. For 2015, the focus is broader– on people, the planet and products. “That equates to the social, environmental and economic pillars of sustainability. That’s the triple bottom line for us,” says Peggy Ward, director of sustainability.

“On the planet side, we’re still following our traditional focus on energy, waste and water,” she adds, “but we’re pushing ourselves even further. So, we’ve set an absolute greenhouse gas reduction goal of 5%. On the water side, our goal is a 25% reduction in water use. And in waste, our goal is to achieve zero manufacturing waste sent to landfill. About 48% of our mills are landfill-free currently.”

New products at Kimberly Clark include Scott Naturals Tube Free– bath tissue rolls that do not have that cardboard core ( meaning you can use every single sheet of the roll.) The amount of waste that will be eliminated that’s going to landfills is large — basically it’s enough to go to the moon and back two times. Huggies Pure and Natural diapers have a component that has a renewable alternative material in it — instead of a petrochemical-based input. It has organic cotton, it’s fragrance-free and dye-free and it has 20% post-consumer recycled content.

This is a good article to share with your class when you are discussing sustainability.

Good OM Reading: That Used To Be Us

I just finished reading Thomas Friedman’s latest book, That Used To Be Us, his follow up to The World is Flat. In it, Friedman and coauthor Mandelbaum, analyze 4 challenges the US faces—globalization, the revolution in information technology, chronic deficits, and excessive energy consumption—and spell out what we need to do now to sustain the American dream and preserve our power in the world. Here are just a few excerpts to give you a flavor of a book you can read in a few evenings.

1. It’s no longer good enough to have one of the best schools in the US; the country’s educational system must be world class to compete with countries like Singapore, where the biggest complaint from parents is that students are not being challenged enough.

2. In the labor market, we must operate as though “no job is safe.” Not just low-skill jobs are being shipped overseas but highly skilled technical work as well. “There is no job that is America’s God-given right [to keep] anymore,” says former H-P CEO Carly Fiorina.

3. The authors quote the governor of Pennsylvania, Edward Rendell, complaining that the NFL postponed a game because of a snowstorm. “It goes against everything that football is all about. We’ve become a nation of wusses. If this was in China, people would have been marching down to the stadium, and they would have been doing calculus on the way down.”

4. American workers should think of themselves like new immigrants: “approaching the world with the view that nothing is owed to you, nothing is given, you have to make it on your own.”

5. “Thirty years ago, 10 percent of California’s general revenue fund went to higher education and 3 percent to prisons. Today nearly 11 percent goes to prisons and 8 percent to higher education.”

6. “Seventy-five percent of young Americans, between the ages of 17 to 24, are unable to enlist in the military today because they have failed to graduate from high school, have a criminal record or are physically unfit.”

And these are just a few of the problems! For the solutions, read the last chapter of this interesting book.

Good OM Reading: Using LP to Schedule NCAA Basketball Tournament Games

What could be more timely than an article in the Journal of the Operations Research Society called “Team Assignments and Scheduling for the NCAA Basketball Tournament.” The paper, by U. of Alabama professors S.H. Melouk and B.B. Keskin, provides a wonderful example to use in class when you teach linear programming, in Module B.

The authors write: “The buzz of the tournament and the fanatical behavior of the followers of the participating teams serve as our motivation to examine and develop a team assignment model that maintains the integrity of the tournament while also attempting to place teams closer to their campus location, thus making it easier for both fans and teams to travel to the game sites. Observation of game venues shows a decrease in the actual attendance at early round tournament games. In 2010, actual attendance at the early round game sites was, on average, 83.5% of capacity. This statistic is surprisingly low. A likely contributing factor is the long distances that fans must travel to attend games.”

The growing NCAA concern is travel expenses of the participating teams, as the NCAA reimburses each team for their travel to tournament games. Given there are 68 tournament teams, it is a significant expense to transport the players, their equipment, and coaching staffs to game sites. In an effort to curb expenses, the NCAA requires a minimum distance of 350 miles from a game site before air travel is reimbursable.

The article describes the development of an integer LP program designed to optimize team assignments in the sense of minimizing the total distance travelled by teams to game sites. Results of testing the model against actual tournament assignments show consistent and significant cost savings and reductions in distance travelled. In fact, 28,202 travel miles were saved in 2010 with use of the LP model.

Good OM Reading: Value Chain Localization for the “Next Billion”

According to the International Monetary Fund, the growth engines for the years to come will be China and India (with rates of 7.5% and 9% in 2012). Multinationals, according to an article in the new issue of MIT Sloan Management Review (Spring 2012), are stepping up in these economies with more R&D labs and factories that can design and develop locally relevant products and services. In recent years, more than $24 billion has been invested in 1,000 R&D centers in the two nations. The result: more and more goods (like Buick’s LaCrosse in China and J&J’s reusable surgical staples in India) are being designed or built from scratch using local R&D talent.

This means that multinationals now aim to design and deliver goods that are both economical and better suited for the local customer, called “value chain localization.” The profit potential in reaching underserved consumers at the base of this pyramid is so great that the group has been dubbed the “next billion.” This “next billion” may have more disposable income and want more, but it still has limited resources. The designing focus for the group needs to be on affordability: delivering more at less cost.

Creating networks of local and global partners becomes essential for designing products and services for the “next billion.” Local partners help multinationals not only learn about local problems and gain insights into solutions: they also help create affordable access. Nokia, for example, a high-tech multinational pioneer, set up R&D and manufacturing facilities in India more than 15 years ago. Today most of its phones sold in India say: “Made in India” and its tools include a suite of offerings to deliver agricultural information to farmers for $1.20/month. Through its cell phone network, it has also provided mobile banking to 600 million Indian consumers who do not have access to banks. Likewise, GE Healthcare has worked closely with its Indian partners to create products like battery operated ultrasounds, EKG, and ECG machines.

Good OM Reading: The Greening of the Chinese Supply Chain

Given how much of the world’s manufacturing takes place in China, and the damage it has wrought on that country’s environment, more and more multinationals are under pressure to clean their supply chains, writes MIT Sloan Management Review (Winter, 2012). For companies that ignore the problems, the costs can be considerable. Just last August, a group of 5 Chinese environmental NGOs focused attention on our beloved Apple for using suppliers with public pollution problems. The international headlines forced Apple to immediately tackle its–and its suppliers’– act.

This excellent article says that even industry green leaders such as Nike and Adidas may never completely cleanse their supply chains . But rather than just monitoring Chinese suppliers compliance with health, safety, and environmental standards, top US firms are giving them tools and incentives to improve independently, helping use energy, water, and materials more efficiently. They are also reaching deeper into 2nd and 3rd tier suppliers, where the greatest damage occurs. Nike, for example, sends environmental engineers to 40 footwear suppliers to help them set targets to reduce waste and scrap, and improve efficiency. Instead of auditing, the Nike team spends 80% of its time driving new green initiatives.

The MIT Sloan piece points out that audits alone are very limiting, as factories have become adept at hiding problems from auditors. There is even an indigenous consulting industry designed just for that purpose. (Auditors are also commonly susceptible to bribery.) “Corruption is widespread,” says a former rep for Wal-Mart, which has 20,000 tier 1 suppliers in China alone!

The lengthy article includes a 12 point plan for companies to follow to deal with this major supply chain issue. It makes for valuable reading as you cover Chapter 11.