Tag: disruptions

Guest Post: Bees in Supply Chains

Professor Howard Weiss, retired from Temple U., is the developer of the POM and Excel OM software that we provide free with our text.

In late May, a truck carrying beehives crashed and overturned in Washington state near the Canadian border. The crash resulted in the unintended release of 14 million bees. The truck was transporting roughly 450 hives with bee colonies in them with a collective value of roughly $160,000.

Following the accident, two dozen master beekeepers were employed in a coordinated effort to help with the recovery by reconstructing roughly 300 beehives one by one and capturing many of the honeybees. There was not a total loss of the $160,000 but there were significant losses due to the costs of labor for cleanup, restoration of the beehives and capture of the bees.

There was a loss of income for the bees’ services because the accident caused a delay in the supply chain for several different industries. The good news is that the bees that were not recaptured will form hives in the area and re- pollinate in northern Washington. In addition, the accident prompted authorities to create a bee response plan to be written into emergency management protocols.

The Food Supply Chain.  Bees are essential for several reasons. The obvious use of bees is in making honey. All the bees on this truck were to be used in the supply chains for food. Some of the bees on the truck were to be used to produce honey and some hives were to be rented out to farmers to be used to fertilize crops.
Bees are critical for pollinating over 90% of the world’s top crops including nuts, coffee, cocoa, tomatoes and almonds. Without bees, crops would not grow as well, which would mean lower yields and less availability. Crops that feed livestock would also be affected. Without bees, food availability and prices would rise.

The Medical/Pharmaceutical Supply Chain.  Bees and bee-related products have also been used medically for antioxidant, antimicrobial, and anti-inflammatory properties. Some of these uses have documented scientific support whereas others do not.

The Clothing Supply Chain. The textile industry would be affected since bees help with cotton production.

Other Supply Chains.  Beeswax, the wax bees secrete to build honeycombs, has been used for waterproofing, fuel, cosmetics, kitchen wrap, cooking, furniture polish, lubricant, sealing envelopes, bug bite balm and candles.

Guest Post: Forecasting Lessons Using PC Sales

Prof. Howard Weiss presents an interesting, real-world example of seasonality and forecasting.

If we examine PC unit shipments in the U.S. 2013-2023, by quarter, there are a couple of interesting lessons we can learn from the data.

The data are separated into pre-Covid and Covid time periods because it is obvious that the graph looks different before 2020 than at 2020 and beyond. If you look closely at the pre-Covid data, it is very easy to see the seasonality. Quarter 2 is higher than quarter 1, Quarter 3 is higher than Quarter 2 and Quarter 4 is higher than Quarter 3 in EVERY year from 2013 to 2019.

Chapter 4 of your Heizer/Render/Munson textbook discusses Seasonal Variation in Data. Using Excel OM for the method of Example 9 we find that the seasonal indices are as given in the table below for the pre-Covid period. In addition, using regression we find the line that fits the data best is:

Shipments (in millions) = 15.675 – .06*x

where x is the time period from 1 to 28.

Notice that shipments have been decreasing by 60,000 units per year. Using the regression equation, the forecasts for the next 4 periods in 2020 are given in the table

Pre-COVID Percent of Demand Seasonal Factors X value

(2020)

 Forecasts

15.675 – .06*x

 Actual (2020 data)
Quarter 1 21.6% .862 29 13.935 10.83
Quarter 2 25.1% 1.003 30 13.875 15.70
Quarter 3 26.4% 1.057 31 13.815 23.62
Quarter 4 26.9% 1.076 32 13.755 19.03
Total 55.38 69.28

 

Looking at the actual 2020 data, it is obvious that Covid caused a significant increase in PC shipments. The increase is even more pronounced in 2021. This is not surprising as more and more students and workers were working from home rather than in the office or university. Also, examining the graph, the seasonality for 2020-2023 is not as obvious as for the pre-Covid period.

During COVID Percent of Demand Seasonal Factors
Quarter 1 22.3% .893
Quarter 2 26.3% 1.052
Quarter 3 26.8% 1.072
Quarter 4 24.5% .982

 

When forecasts for 2020 were made in 2019 it was impossible to know that Covid would strike and affect shipments as much as it did. But by quarter 2 of 2020 it was clear that quantitative forecasts based on past shipments would have large errors. At this point it would be imperative to introduce a qualitative method into the forecasting process, as discussed in the chapter.

 

 

 

OM Podcast #25: Global Supply Chain Disruptions

In our latest, very timely podcast Barry Render interviews David Panzera, Vice President of Purchasing for FXI, who has 30 years of experience in global supply chains.  Dave and Barry discuss disruptions to global supply chains, including increasingly common weather events and the lingering, long-term impacts they have.

 

 

Transcript

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

 

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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: The Key Bridge Collapse and Auto, Coal and Tofu Supply Chains

A containership plowed into and destroyed a major Baltimore bridge this week, causing deaths and disrupting one of America’s busiest ports. The Singaporean ship, called the Dali, lost propulsion and struck the Francis Scott Key Bridge, sending large sections of the steel truss bridge tumbling into the river below. The collapse severed a part of Interstate 695.

The bridge collapse stands to snarl shipping along the East Coast for months, reports The Wall Street Journal (March 27, 2024). Companies that transport cars and coal, two of the key cargoes that run through Baltimore, are already looking for alternative destinations. The Maryland governor said it would take a “long-term build” to replace the bridge. “There’s no question that this will be a major and protracted impact to supply chains,” said the U.S. Transportation Secretary.

The Port of Baltimore is the 17th largest in the nation. It handled 52.3 million tons of foreign cargo worth nearly $81 billion in 2023, and creates more than 15,000 jobs. Some 800,000 vehicles passed through the port in 2023, making it the top port in the nation for auto shipments. The port ranks second in the country for exporting coal and is a niche port for tofu and soybeans.

All vessel traffic in and out of the Port of Baltimore is suspended. Ports in Norfolk, Va., and the New York and New Jersey area are expected to pick up most of the diverted ship traffic. All East Coast ports have become more important in recent years as the U.S. attempts to boost its trade with friendly nations and reduce geopolitical risks related to trade with China, which generally happens via West Coast ports.

Baltimore port’s suspension is one more disruption in an already-stressed system for the global supply chain.  Cargo will now have to be rerouted to other ports, which means figuring out where there is enough capacity to move things. The biggest problem is the effect on other ports. Many ships stuck in the port were destined to make stops at other U.S. ports to load and unload goods before heading overseas, a complicated logistical dance now scrambled.

Classroom discussion questions:

  1. How can supply chain managers deal with a situation like this (which we call a “super-event” in Supplement 11 of your Heizer/Render/Munson text)?
  2. What other events that have impacted global shipping have taken place in recent years? (Hint: think canals)

OM in the News: The UAW Strike and Supply Chain Tiers

As the United Auto Workers strike continues, risks of disruption are compounding for automotive supply chain managers, reports Supply Chain Dive (Sept. 20, 2023).

The union has already idled production lines at three plants in response to failed negotiations with Ford, GM and Stellantis. As the UAW threatens further work stoppages, supplier health may be at risk.

“Depending on how deep this strike goes, it can be really challenging for the suppliers to stay afloat. Risk is particularly focused on the Tier 2 and Tier 3 suppliers,” said one industry expert. He added: “Tier 1 firms should be talking to downstream suppliers, asking: ‘How are your financials? When we do get out of this, are you going to be able to ramp back up?’”

To be proactive, supply chain managers can streamline various processes which include order intakes, raw material and labor planning.

Order cancellations from the affected assembly plants can bottleneck the entire supply chain. Suppliers can continue to build parts regardless of canceled orders, but if the customer refuses to accept deliveries, then suppliers need to pay to store those parts. Demand for the parts and materials will decrease or even cease as the automakers cancel firm orders for parts and future orders in the coming weeks and even months, depending on the duration of the strike.

As a result, the supply chain will likely feel lingering impacts even when the strike eventually ends. For instance, suppliers who may have furloughed workers might take a while to get operations up and running. If more automaker plants get impacted, downstream suppliers may need to reboot their systems.

Ripple effects will move across the entire supply chain. Tier 1 suppliers with strong balance sheets will be fine. But Tier 2 and Tier 3 suppliers may struggle with cash flow as orders are canceled. Secondary effects are already being seen. GM is temporarily laying off employees at its Fairfax plant — which is not included in the first wave of strikes — as that facility’s operations are disrupted from a lack of stamping parts from the Wentzville facility, which is on strike. While supply chain managers may be able to keep things moving, operations get tricky if the UAW goes after engine plants. Shutting down plants where engines are built will cripple other plants across the U.S., Canada and Mexico.

Classroom discussion questions:

  1. What are Tier 2 and Tier 3 suppliers? Give an example of each.
  2. What are the issues underlying the UAW strike?

Guest Post: How Agility Helped Supply Chains Survive 2020


Our Guest Post comes from Polly Mitchell-Guthrie, VP of Industry Outreach and Thought Leadership at Kinaxis (at https://www.kinaxis.com/en)

Pop quiz: What disrupted supply chains more in 2020, supply or demand?

I posed this question at the start of the many virtual guest lectures I gave to classes in 2020 to illustrate that supply chains are not all the same, but that regardless agility was sure to be a key factor in response.

Some students chose demand, having experienced bare grocery shelves. Some answered supply, thinking of shutdowns in China. I shared stories from customers of the supply chain management software company where I work to illustrate the variation along with the common thread of agility.

Demand skyrocketed for some consumer packaged goods, but less obvious were spikes in other
industries. Biopharmaceutical company Ipsen didn’t anticipate demand shifts, since they make
specialty drugs for oncology, neurology, and rare diseases, but they experienced erratic
increases. A high-tech customer saw demand drop precipitously, but no one foresaw the move
to working from home, which then drove their demand through the roof. In contrast industries
like automotive, aerospace, and apparel saw demand disappear.

Most companies felt supply disruptions, from their own production shutdowns or their
suppliers. Lead times increased, some suppliers were temporarily (or permanently unavailable),
and sourcing new suppliers wasn’t easy. Distance made quality and cybersecurity harder to
manage. And some companies were whipsawed by both demand and supply.

The ability to anticipate disrupted demand, quickly substitute supply nodes, and readjust
balance was critical. Scenario planning usage took off as companies sought to rebalance by
making the best decisions for their entire supply chain, not just by the functional silos of
demand, supply, inventory, etc. Planning cycles shortened from weeks to days. Agility was
critical to survival, which is why agility is one of 3 reasons supply chains can’t afford to wait to invest in building this muscle now.

Good OM Reading: Automating Supply Chain Resilience

supply-chain-risk“Substantial investments in supply chain resilience have enabled companies to vastly improve their capacity for bouncing back after a disruption,” writes MIT Sloan Management Review (Jan. 2017). With the benefit of digital technologies, companies are using Big Data to identify supply chain risks and create early warning systems with much greater speed and precision. A digital supply chain is defined as “a customer-centric platform model that captures and uses real-time data coming from a variety of sources.” If a potential disruption is detected, the system decides on the best mitigation strategy and executes that strategy.

 A recent survey of 30 global companies found that 88% have incorporated elements of the digital supply chain into their business model. All of the companies surveyed were working to adopt game-changing technologies such as the internet of things and robotics. To keep pace, companies need to develop ways to automate resiliency. There are various strategies to make the supply chains more resilient, including diversification of the supplier base, establishing safety stocks, and planning for spare transportation capacity.
 One example is a loaded freight container equipped with sensors that track the temperature and humidity of the goods in real-time. The data is analyzed using business intelligence rules and shared with authorized entities in the extended supply chain. These parties can take action should a problem be detected. For example, if the container readings indicate that perishable cargo has been damaged due to an equipment malfunction, an order is automatically placed for replacement supplies while the damaged shipment is still in transit. Such remedial actions are not confined to logistics; financial and contractual terms can also be adjusted when an unexpected disruption occurs.
 Risk-prone supply chains are generally perceived as less secure by governments, and for that reason are more frequently selected for auditing, control, and inspection. These activities create unnecessary delays in supply chains.

Guest Post: Tackling Risk in Global Supply Chains

 

andreas wielandToday’s Guest Post comes from Andreas Wieland, Assistant Professor of Supply Chain Management at Copenhagen Business School.

Managing risks in a global supply chain can be a difficult task. But there are substantial differences between 2 systems: the company and the supply chain. In a company, it might be relatively easy to get an overview about all the risks that might occur. But a supply chain consists of hundreds, sometimes 1,000s of companies. For example, if 30,000 parts are needed to build a car – many of them coming from different suppliers and suppliers’ suppliers – it should become obvious that the scalability of traditional risk management tools becomes quickly limited.

Identifying and assessing all types of risks from all suppliers, their suppliers, and all raw materials suppliers is simply impossible! Plus, doing this is also not always reasonable: many of the supply chain disruptions that happened in recent years were, in fact, caused by risks that had not appeared on risk category lists. Could we really imagine that a Tsunami in Japan would cause a nuclear accident?  The harmful thing for Japanese car manufacturers was not that it was an earthquake that had happened. It was that many of their redundant suppliers were located in the same region. Worse, even the non-Japanese plants of these companies were affected, as they had failed to make the supply chains of different regions independent.

It’s not just the design of a supply chain that can help a company become more robust. It’s also the product design. Avoiding materials that can only be supplied from certain regions, such as rare-earth materials, or suppliers of non-standardized parts, can help ward off certain types of risk. Modular product design can help to at least semi-finish a product and to add missing modules at a later stage when they become available again. Such systemic solutions help companies cope with risk in the supply chain without paying too much attention on the exact causes of risk.

In my essay in Delivered (the DHL magazine),  Managing the Unknown: How We Should Tackle Risk in Global Supply Chains I list 8 potential ways to increase the supply chain’s ability to avoid and resist risk.

Good OM Reading: Reducing the Risk of Supply Chain Disruptions

MIT SloanFor supply chain executives, recent years have been notable for major supply chain disruptions that have highlighted vulnerabilities for individual companies and for entire industries globally. (The Japanese tsunami in 2011 left the world auto industry reeling for months. Thailand’s 2011 floods affected the supply chains of computer manufacturers dependent on hard disks. The 2010 eruption of a volcano in Iceland disrupted millions of air travelers and affected time-sensitive air shipments.) This excellent article in the MIT Sloan Management Review (Spring, 2014), by Professors Sunil Chopra and ManMohan Sodhi, is worth the 23 minutes it will take you to read it–especially if you teach Chapter 11 and Supp.11 in our text.

Today’s managers, they write, know that they need to protect their supply chains from serious and costly disruptions, but the most obvious solutions — increasing inventory, adding capacity at different locations and having multiple suppliers — undermine efforts to improve supply chain cost efficiency. While managers appreciate the impact of supply chain disruptions, they have done very little to prevent such incidents or mitigate their impacts.This is because solutions to reduce risk mean little unless they are weighed against supply chain cost efficiency. Financial performance is, we know, what pays the bills.

Supply chain efficiency, which is directed at improving a company’s financial performance, is different from supply chain resilience, whose goal is risk reduction. Although both require dealing with risks, recurrent risks (such as demand fluctuations) require companies to focus on efficiency in improving the way they match supply and demand, while disruptive risks require companies to build resilience despite additional cost.

The authors suggest two strategies for reducing supply chain fragility through containment while simultaneously improving financial performance: (1) segmenting the supply chain or (2) regionalizing the supply chain. In many instances, though, reducing disruption risk involves higher costs. The reason executives are reluctant to deal with supply chain risk comes from the perception that risk reduction will reduce cost efficiency significantly. Managers can do much to ensure that loss of cost efficiency is minimal while the risk reduction is substantial by avoiding excessive concentration of resources like suppliers or capacity. And nudging trade-offs in favor of less concentration by overestimating the probability of disruptions can be much better in the long run compared to underestimating or ignoring the likelihood of disruptions.

OM in the News: Supply Chains and Thailand–A Year After the Flood

Disruptions in global chains have moved from an academic subject to a daily topic in the past two years. The Wall Street Journal (Oct.6-7, 2012) headline “After Floods, Businesses Still Wary of Thailand” provides a good classroom topic when you are covering Supplement 11. A year after massive floods in Thailand that disrupted the global supply chain for cars and electronics, most factories are at work again, but not always like before.

Some foreign companies—having learned hard lessons about concentrating too much of their production in one country—are shifting to other parts of Southeast Asia. Thailand’s worst floods in 50 years, coming just seven months after Japan’s earthquake and tsunami, exposed the danger of relying on narrow, concentrated supply chains. So foreign companies are hedging their bets by building facilities and finding suppliers in other regions so they can quickly resume operations if disaster hits.

Western Digital, one of Thailand’s largest foreign employers, moved some manufacturing of hard-disk drive components from Thailand to Malaysia. The company, based in Calif., also asked some suppliers to take similar steps, hoping to avoid a components shortage like last year. Western Digital now employs 25,000 people in Thailand, compared with 37,000 before the floods.

Japan’s Omron Corp. shifted some production of relays—electromagnetic switches for automobiles and motorcycles—to Japan and China. Nidec Corp., also based in Japan, moved part of its production of hard-disk-drive motors to China and the Philippines. This production “will not be coming back to Thailand,” said its president. Yet he added that Thailand has “skill and technology that overcomes other issues.”  Nidec, which suffered damage to eight of its Thai factories last year, has cut production of disk drive motors in the country to protect against another disaster.

Discussion questions:

1. How can firms avoid supply chain disruptions?

2. What can Thailand do to regain manufacturing jobs lost due to the fear of future flooding?

OM in the News: How GM Survived the Japanese Supply Chain Break

Two months after Japan’s devastating  earthquake, Japanese automakers in the US are still struggling with significant supply disruptions. Toyota, for example, which gets 15% of its parts needed for North American factories from Japan, is operating at only 30% of capacity. 

G.M., which spends about 2% of its part’s budget in Japan, identified 118 products that created shortage problems at the start of the crisis. Yesterday’s New York Times (May 13, 2011) documents the dramatic story of how G.M. went through a “white knuckle time” when numerous plants came close to closing. The story ends with the company announcing it is winding down its disaster response operations–the crisis averted. But it did not appear to be anything short of  a catastrophe in early March.

 Four days after the earthquake, G.M. assembled 100’s of employees into a 24-hour-a-day team, in what it called “Project J”. The company idled 2 plants to conserve supplies and found as many alternative sources as possible . Coordinating efforts from 3 “crisis rooms” in Warren, Michigan, the Vice-Chairman realized that existing contingency plans prepared for “nothing on this kind of scale or scope”. Issues with 33 problematic parts did not even become known for 2 more weeks, when G.M. discovered disruptions from sub-suppliers it barely knew of.

One G.M. consultant added: “It’s not just the assembly plant that needs to run, it’s not just the direct supplier. I’ve got to understand every piece at a second tier, a third tier, and a fourth tier below that. We’ve never had to do that before”. With only sparse information available from many suppliers, G.M. sent over 40 employees to Japan to size up the situation–and to offer help getting vital plants reopened. The Japanese culture did not always welcome the offers from outsiders, but in the end, the company resolved all but 5 shortage problems.

Discussion questions:

1. Why is G.M. in much better shape with regard to parts than Toyota?

2. What major lesson did G.M. learn from the disaster?