Tag: distribution

Guest Post: From No Frills to Trendy Food, Fashion and Home, Walmart’s New Product Assortment 

Professor Misty Blessley, at Temple U., cohosts many of our podcasts, as well as sharing her insights with our readers monthly.

 Value retailer, Walmart, known for focusing on price-sensitive shoppers, has moved into premium products and broader brand assortments, with the goal of winning over customers with more buying power. Appealing to higher-income customers (those earning over $100,000), requires the firm to shift from a no-frills mindset. 

The firm remains committed to everyday-low-pricing (EDLP), thus it must continue managing this highly effective strategy while integrating broader lines. This requires a supply chain flexible enough to support both high-turn grocery and slower fashion and lifestyle products, for example. 

On the inbound supply chain side, Walmart diversifies its supply base to procure new products. As is outlined in Chapter 11 of your Heizer/Render/Munson book, this requires identifying, vetting and selecting new suppliers as well as a host of supply-side tasks like vendor and contract management. 

Managing inventory requires additional adaptations. Walmart refreshed the look of its website and stores while avoiding alienating its historical customers. It did so by keeping flagship items in stores and premium lines at distribution centers. Chapter 12 outlines inventory concerns Walmart faces, from the importance of inventory record accuracy to strategies for managing inventory. 

On the outbound side, the firm’s e-commerce and fulfillment operations must be capable of satisfying wealthier customers, who often expect faster, higher-service delivery options, such as same-day delivery or premium curbside pickup. Meeting these expectations puts pressure on Walmart’s fulfillment network for more micro-fulfillment centers and localized inventory pools to reduce delivery times. Facility, inventory, and transportation cost trade-offs are also covered in Chapter 11.

Walmart is an exemplar in omnichannel retailing because it seamlessly integrates its physical stores, online platforms, supply chain, and last-mile services into a unified customer experience. Its customers purchase and receive products when, where and how desired. Walmart is offering frills next to its no-frills strategy.

Classroom Discussion Questions:

  1. How would you call upon Ch. 11 and 12 as a Walmart supply chain manager? 
  2. Some firms target different customer segments under different brand names. For example, Gap Inc. owns Gap, Old Navy, Banana Republic and Athleta. Walmart has chosen a different strategy. How is Walmart capable of serving its price-sensitive and wealthier customers under one brand?

Guest Post: Girl Scout Cookies and Operations Management

 

Prof. Howard Weiss always has an interesting view of OM to share with our readers

We are currently in the middle of the Girl Scout cookie season. Several operations issues discussed in your Heizer/Render/Munson textbook face the Girl Scouts.

Location Only two manufacturers bake Girl Scout cookies. ABC Bakers is in South Dakota and supplies 25% of the cookies while Little Brownie Bakers is in Kentucky and supplies 75%. Six of the nine types of cookies are baked at both bakeries but each bakery also bakes three flavors that the other does not bake. (See the map).

Transportation If the types of cookies baked at the two bakeries were identical then this would lead to a transportation model as explained in Module C of your textbook. The model would include 2 sources (bakeries) and over 100 destinations (Girl Scout Councils). However, each Council can select whichever bakery they want to use which means that there is no attempt to minimize shipping costs.

Forecasting Recently, the Girls Scouts put out a new cookie, Adventurefuls. Forecasting demand for Adventurefuls was difficult because there were no past sales available to help create the forecast, so the quantitative methods in the forecasting chapter (Ch. 4) could not be used. The forecast for the new cookies was considerably lower than the actual demand and meeting demand was compounded by a labor shortage due to COVID. The Aggregate Planning chapter (Ch. 13) lists five methods for handling differences between supply and demand. There was no inventory that could be used; increasing the workforce, using part-timers or subcontractors was not feasible– so the only method left was to influence the demand. The Scouts placed a cap on the amount of these cookies that each troop could order.

Supply Chain In 2023, another new cookie, Raspberry Rally, was introduced and, again, demand was underforecast. This time a major reason for the poor forecasting was that customers could order the cookies exclusively online rather than through a girl scout. The production could not be increased because the manufacturer needed a long lead-time to produce the cookies and there were power outages at the Kentucky plant. A new distribution channel opened as some people were offering up their Raspberry Rally cookies on eBay for $20, $50 or even $200 a box instead of the usual $6 per box.

Classroom Discussion Questions:
1. Suggest a method for forecasting the sale of new Girl Scout cookies.
2. If the Girl Scouts wanted to minimize costs would each council receive their cookies from the nearer of the two bakeries? Why or why not?

Guest Post: An Inside Look at Santa Claus’ Supply Chain Issues

Dr. Misty Blessley provides monthly guest posts from her position as Associate Prof. of Supply Chain Management at Temple U.

Santa Claus “manages the world’s largest customer base, the world’s most complex planning and logistics environment, and the world’s largest manufacturing and distribution center,” reports Richard Howells, VP at SAP software, in a recent LinkedIn article (Dec. 14, 2023). So how does one of the most beloved people of the season bring it all together to deliver Christmas delight?

Here are some of the secrets to Santa’s success:
 Prioritizes Timely and Accurate Information in Decision Making – by relying on digital technologies and old school techniques such as face-to-face meetings
 Understands his Customer’s Needs and Wants – by leveraging feedback from “Elves on the Shelve”, predictive analytics and generative AI, he is able to deal with his customer database of over 8 billion records
 Mitigates Sourcing Risk – by distinguishing key materials and procuring accordingly, one approach of which includes using local suppliers
 Scales Productivity – by having a single production facility where millions of presents are produced daily
 Recognizes the Human Element – by assuring Elf Health and Safety in addition to the corporate culture Santa has long been known to promote
 Manages Distribution and Inventory – by reviewed distribution center locations and setting inventory optimization strategies
 Controls Transportation – by having has own private logistics fleet consisting of one sleigh and 8+1 reindeer
 Promotes Delivery as Promised – by sharpening the sleigh’s runners, helping the reindeer achieve peak fitness, making sure that Rudolph’s nose is shining brightly
 Minimizes His Environmental Impact – by having a practically emissions free means of transportation
 Assures Good Working Order – by stationing elf maintenance teams around the world
 Competes in E-Commerce Like No Other Firm – by having a well-established direct-to-chimney delivery model

Operations managers are responsible for 10 strategic OM decisions that can be implemented in ways that provide a competitive advantage for their firms. Santa has clearly built a world class operations and supply chain management that is unmatched, but his success leaves clues!
No matter what holidays you celebrate, may Santa bring you a Happy Holiday Season and a Happy New Year!

Classroom  Discussion Questions:
1. In your Heizer/Render/Munson text, 10 strategic OM decisions are identified. What actions does Santa take that are instrumental to making sound OM decisions?
2. How are Santa and Amazon’s systems similar? Different?

Guest Post: Walgreens Updates Its Supply Chain Distribution Network in Response to Changing Consumer Behavior

Dr. Misty Blessley is Associate Professor of Supply Chain Management at Temple University.

Consumer behavior is shifting from shopping in retail stores to ordering online. In response, Walgreens says it is going “all-in on the idea that its stores will do double duty as both retail outlets and hubs for home delivery.” Walgreens is able to leverage retail outlets for home deliveries because the pharmacy store chain expects that store fulfillment for its non-pharmaceutical products is more efficient than managing separate distribution networks for e-commerce and in-store sales.

In lieu of e-commerce warehouses, Walgreens’ employees will pick and pack items for same-day delivery, through third-party apps such as DoorDash and Uber Eats. (Walgreens finds that 78% of Americans live within five miles of one of its stores). It has not completely abandoned its 16 distribution centers that restock their stores and its hub stores that operate as small distribution centers, which provide two to four-day delivery via FedEx. However, when placing an order, customers are encouraged to choose store fulfillment for the same shipping cost of $5.99, or free for orders over $35.00. The benefit to the customer is 50 minutes on average delivery, as opposed to waiting for 2-to-4 days.

Walgreens will have its store employees pick and pack items for same-day delivery through third-party apps such as DoorDash and Uber Technologies’ Eats

Walgreens has not stopped short of considering what network would be best for prescription fulfillment, but this class of products must operate under a separate logistics network because of the added complexity of handling pharmaceuticals. While online prescription orders are filled through the pharmacy chain’s 11 highly automated fulfillment centers, the company also offers same-day prescription delivery through DoorDash and Uber Eats, for medications that are ready to be picked up by the customer.

Classroom discussion questions:
1. Refer to Chapter 11’s discussion of Distribution Management in your Heizer/Render/Munson text. What does Walgreens expect the change will be to response time because of moving from warehouse to store fulfillment? What about the change in delivery cost?
2. Why is it important for firms like Walgreens to constantly review their distribution networks to appeal to shifts in consumer behavior?

Guest Post: Walmart Makes Strides in Reducing Scope 3 Value Chain Emissions

Dr. Misty Blessley is Associate Professor of Supply Chain Management and Academic Director of Experiential Learning at Temple University

Walmart is the world’s largest retailer, with an historically strong brick and mortar presence. According to a recent article in Supply Chain Dive (June  2, 2023), “E-commerce is a growing channel for Walmart, and associated waste and packaging are some of the company’s priority areas as it tackles emissions — particularly Scope 3, or value chain, emissions.”

 But what exactly are Scope 3 emissions, how is Walmart tackling emissions in this category, and why it is important to do so? 

Walmart’s paper bag mailer packaging.

According to the World Resources Institute’s Greenhouse Gas Protocol, Scope 3 emissions are those that occur in the upstream and downstream value chain.(Scope 1 emissions are tied to a firm’s facilities and Scope 2 emissions relate to purchased energy). What makes Scope 3 emissions so important to address is that this category is about ten times the magnitude of Scopes 1 and 2, according to Walmart’s Chief Sustainability Officer.

Walmart is tackling Scope 3 emissions in its e-commerce by replacing all plastic mailers with paper mailers. This one change will eliminate the need for 2,000 tons of difficult to recycle plastic over the next seven months. A change such as this has huge longer-term implications. Additionally, Walmart has invested in technology in about half of its fulfillment network that helps create custom-fitted packaging. This change is estimated to eliminate the need for packing filler by 60%. Following through to the customer’s hands, upon placing an order they have the option to opt out of receiving their pick-up orders in single-use plastic bags, which is expected to keep millions of bags out of circulation.

Walmart has pilots for reusable or refillable packaging in some categories. They “have a goal for all global private brand packaging to be recyclable, reusable or industrially compostable by 2025,” and they are making strides. In viewing themselves as one node in a larger supply chain, Walmart also encourages their suppliers to consider their alternatives for reducing packaging waste.

Classroom discussion questions:

  1. In what ways is Walmart practicing good corporate social responsibility?
  2. How has Walmart looked beyond design and production for sustainability, to include product distribution?

OM in the News: The Last Vaccine Mile is a Long One

The U.K. became the first Western nation to start immunizing its residents from the coronavirus this week. But the speed of authorization and implementation of the program are being tempered by the reality of getting the delicate Pfizer – BioNTech vaccine to the most vulnerable, reports The Wall Street Journal (Dec,11. 2020).

Reaching the housebound and those in nursing homes is a challenge that offers a cautionary tale for U.S. health officials as they contemplate their own rollout. The main reason is that the conditions needed for the vaccine’s storage aren’t usually found in long-term care facilities. The vaccine must be kept at temperatures of minus 94 degrees Fahrenheit and once thawed, used within 2 hours if at room temperature–certainly a Chapter 11 logistics management problem if there ever was one. Another challenge is that the vials holding the vaccine come in packs of 975 and must all be used once opened—nursing home providers say no elderly-care residence exists in the U.K. with so many residents.

Michael Tibbs, 99, was given the Covid-19 vaccine Dec. 8th in Portsmouth, England.

The vaccine must be turned upside down—but not shaken— and returned to resting before it is given. The delicate technology it contains, named messenger RNA, is so new that Pfizer is still running stability studies to work out whether it can be stored for longer periods at warmer temperatures. The clock starts ticking as soon as they thaw the vials and they have 12 hours to complete the pack down, label the boxes and then get the vials to the mobile teams and into care homes.

Distributing a biological product, which requires kid-glove treatment, to the hardest-to-reach corners of Britain has “very significant logistical challenges,” said a government minister.

Classroom discussion questions:

  1. A few OM issues are discussed in this WSJ article. Identify other major distribution problems we are sure to face.
  2. What can governments and/or citizens do to assist in implementing/administering the vaccine?

OM in the News: The Race to Build Covid-19 Vaccine Supply Chains

Pharmaceutical companies that are racing to develop vaccines for the coronavirus are already working behind the scenes to build the supply chains needed to deliver their drugs to billions of people as rapidly as possible. To serve global demand once a vaccine is approved, a complicated and high-stakes supply chain would kick into gear on a scale that the drug industry has rarely seen, writes The Wall Street Journal (Aug. 1, 2020). The preparations involve lining up raw materials and factory capacity to manufacture a vaccine in large volumes, and the equipment needed to transport many millions of doses at once through distribution channels that will be subject to tight security and temperature controls.

“Once a vaccine has been successfully developed, how do you get all the production you need, and how do you get it out?” said Senator McConnell.

Some of the companies involved are building this supply chain for the first time. Moderna, which just started final-stage testing of a vaccine, had never sold a product on the market. Neither has Novavax, a drug developer that was awarded a massive federal grant for vaccine manufacturing.

Pharmaceutical companies at the start will need to produce enough of what is known as the drug substance, the primary vaccine ingredient. Once they have produced the final liquid vaccine, they will need to fill vials with it, adding another hurdle to distribution. (J&J alone has bought 250 million vials). Medical glass has been in short supply since before the pandemic,  and that shortage has worsened.

Logistics operators could be another speed bump. They have struggled at times during the pandemic amid upheaval in demand—particularly for consumer products and medical gear—that has left companies scrambling to find warehousing and transportation space. Airfreight capacity, which will be crucial for moving a vaccine in the early days of distribution, has been hit particularly hard because thousands of flights have been grounded since the pandemic began.

Classroom discussion questions:

  1. Why is this supply chain complex?
  2. How will the Covid supply chain differ from the beer supply chain in Figure 11.1 of your Heizer/Render/Munson text?

OM in the News: The End of Just-in-Time?

After a brief recession in the early 1990s, the grocery industry came under pressure to improve profit margins. Companies settled on just in time that aimed to produce, ship and stock as few goods as possible to meet demand. By decreasing the capacity of their distribution centers, retailers saved on rent, utilities and labor. Distributors saved on fuel and wages. Manufacturers cut down on unsold inventory. In the past 2 decades, producers and grocery stores such as Kroger have gone from keeping months of inventory on hand to holding only a few weeks’ supply.

Other industries did the same, from auto making to health care. This finely balanced system works well while goods are flowing steadily. But the coronovirus black swan event blew it to pieces. For many items, supplies sold out in days, exposing the downside of the push to hold less stock in warehouses and operate fewer, fuller trucks.

Now abruptly, manufacturers, distributors and retailers have thrown that strategy into reverse, writes The Wall Street Journal (March 24, 2020). They are making as much food as they can, delivering it as fast as possible and adding staff, all to restock denuded shelves.

General Mills is trying to skip steps in a carefully calibrated process. It is delivering truckloads of Cheerios, flour and pasta straight to stores’ warehouses, instead of first sending products to its own warehouses, to eliminate a link in the supply chain. Retailers, meanwhile, are overriding the sophisticated algorithms that say how much of what products they should buy, after seeing how those models failed to account for the demand surge. Instead, retailers are talking directly to manufacturers and making decisions in real time. “JIT purchasing has been thrown out the window,” said one CEO.

Yet manufacturers run the risk of throttling up production too high if the crush in demand for some products proves to be temporary.

Classroom discussion questions;

  1. Relate this article to the discussion of supplier partnerships in Ch. 16 of your Heizer/Render/Munson OM text.
  2. How does this “black swan” event impact the bullwhip effect discussed in Supplement 11?

Good OM Reading: Surviving the Amazon Effect

“Many manufacturers and wholesale distributors have been profoundly impacted by the Amazon Effect, even if  they don’t compete directly with Amazon,” writes a new report by Oracle. The Amazon effect refers to Amazon’s influence, dramatically raising customer expectations for things like: (1) Frictionless commerce (epitomized by 1‐click checkout and Amazon Go); (2)Extremely fast, low cost, or free delivery, with precise real‐time tracking and easy returns; (3) Nearly infinite selection; breadth and depth of products; (4) Rich product search, filtering, and product information; and (5) Personalization.

In fact, the boundaries between retailers, manufacturers, and wholesale distributors have become ever more blurred. Manufacturers and distributors are increasingly selling directly to the end customer. And existing customers’ expectations have also changed. Customers, whether consumers or businesses, expect to be able to view in‐depth product information, configure, order, check status, and potentially request returns or report issues online 24/7—that is in addition to the traditional channels of interaction.

Now, many retailers are demanding that suppliers hold inventory and drop ship to the retailer’s customers, forcing manufacturers to become proficient at fulfilling a large number of smaller orders consisting of just a few items, in addition to continuing to fulfill a small number of large bulk orders as traditionally done. Those 2 different types of order flows require completely different models for order management, warehouse management, inventory management, material handling, pick, pack, ship, and logistic/transportation management.

In short, running a business the ‘old fashioned way,’ is becoming increasingly untenable. To adjust to these changing expectations, the report suggests a 2‐pronged strategy: 1) differentiate and 2) optimize. (1) It is impossible to ‘out‐Amazon’ Amazon. They have scale, technology, capital, and experience that is hard to compete with head on. So it is vital to provide value that Amazon is unable to. This can take many forms, such as unique customer experiences, products not available elsewhere, specialized technical expertise and advice, and personalized services. (2) Businesses must also optimize their execution. This means: Improved forecasting and Inventory optimization; Fulfillment optimization: and Compressed cycle times/digital supply chain.

OM in the News: Amazon’s New Delivery Strategy

An Amazon Prime Air drone.
An Amazon Prime Air drone.

“Over the last few years, Amazon has left a trail of clues suggesting that it is radically altering how it delivers goods,” writes The New York Times (Aug.11, 2016). Among other moves, it has set up its own fleet of trucks; introduced an Uber-like crowd sourced delivery service; built many robot-powered warehouses; and continued to invest in a plan to use drones for delivery. It made another splash last week, when it showed off an Amazon-branded Boeing 767 airplane, one of more than 40 in its planned fleet.

These moves have fueled speculation that Amazon is trying to replace the 3rd-party shipping companies it now relies on — including UPS, FedEx and the U.S.P.S. — with its homegrown delivery service. Its logistics investments have also fed the theory that Amazon has become essentially unbeatable in American e-commerce.

The company, it appears, has a 2-tiered vision for the future of shipping. First, it’s not trying to replace 3rd-party shippers. Instead, Amazon wants to add as much capacity to its operations as possible, and rather than replace partners like UPS and FedEx, it is spending heavily on delivery services to add to its overall capacity and efficiency. Amazon’s longer-term goal is more potentially transformative. It wants to escape the vicissitudes of roads and humans, going fully autonomous in the sky. The company’s drone program could be combined with warehouses manned by robots and trucks that drive themselves to unlock a new autonomous future for Amazon.

If Amazon’s drone program succeeds (and Amazon says it is well on track), it could fundamentally alter the company’s cost structure. A decade from now, drones would reduce the unit cost of each Amazon delivery by about half.  According to Amazon, we will see drones in action within 5 years.

Classroom discussion questions:

1. Why does Amazon wish to enhance its shipping strategy?

2. What are the advantages and disadvantages of the drone program?