logistics – Page 2 – The OM Blog by Heizer, Render, & Munson

Teaching Tip: Forget Finance–OM/SCM is the Degree to Have

The toilet paper aisle at a Florida pharmacy.

Stores with no toilet paper. Colossal cargo ships run aground in the Suez Canal. Factory shutdowns in Vietnam. Ports closed in China. It almost seems that not a day goes by without reports of another supply-chain snafu wrought by the pandemic, which dismantled JIT inventory systems that couldn’t cope with massive, simultaneous disruptions of supply and demand–topics we cover in Chapter 11 and Supp. 11, SCM and SCM Analytics.

Companies have struggled to adapt, with some taking unusual steps. Walmart and Home Depot are chartering their own private cargo vessels so they don’t get caught short as the holiday season approaches, as disruptions from congested ports won’t end anytime soon. The tumult has forced companies to lavish more attention on their SCM professionals, writes Bloomberg Businessweek (Sept.3, 2021). It’s also prompted B schools to refresh their OM/SCM curricula to make sure the next generation of logistics managers are prepared for future crises. “For years, we had sort of taken logistics for granted,” says the dean of Harvard Business School. “The pandemic caused us to rethink it.”

Incoming business students who once defaulted to finance or marketing now want to explore OM/SCM. This academic year more than 400 juniors in Penn State’s undergrad program have declared their intent to major in it, up from 270 the previous year.

Students who pursue OM/SCM degrees this fall are certain to get an earful about the limitations of JIT inventory systems, which grew in popularity during the 1990s. For some companies, though, getting lean became a religion and their undoing when the pandemic hit and there was no surplus stock to be found. Covid-19 exposed the weaknesses of legacy inventory systems, which typically emphasize cost reduction above all else. At Walmart, U.S. inventory rose 20% last quarter as it doesn’t want product shortages come Christmastime. Still, shuttered factories, port congestion, and trucker shortages have brought more chaos to already overtaxed supply chains, raising prices on groceries and jeopardizing the delivery of millions of presents for the holidays.

Classroom discussions may now delve into the downsides of sourcing too much from China or any single country, while they also explore the role that new technologies like machine learning and AI can play in manufacturing and inventory decisions. “Any company that says they fully understand their supply chain is lying,” says one Harvard prof. “The 20th century was about finance. The 21st century should be about supply chains.”

OM in the News: Car Tires Flying First Class

The cargo operation of Korean Air is busy as an alternative to crowded ocean shipping lanes.

Flying goods by air is the last—and priciest—option for many manufacturers and retailers to move products through a global supply chain already snarled by pandemic-driven closures of Chinese seaports and widespread labor shortages. (Airfreight accounts for less than 1% of global trade by weight but more than 30% by value).

But the global air cargo sector is flying planes at almost 90% of capacity as record amounts of goods crisscross the globe, bound for consumers and parts-hungry manufacturers, reports The Wall Street Journal (Aug. 30, 2021).

Packed planes pose a challenge for shippers, airlines and airports entering the traditional peak U.S. season for moving goods, when demand increases for consumer electronics, household items and clothing ahead of the holiday-shopping spree.

Pinch points include overflowing airport cargo warehouses, spilling goods into off-site facilities and exacerbating the shortage of staff to sort, load and unload jets. Sometimes the cabins of repurposed passenger planes are used for cargo. Car tires packed between the seats of repurposed passenger jets are among the cargo now being flown that once traveled by sea.

“The entire supply chain seems to be full,” says one industry expert. The share of global airline industry revenue for freight traffic has doubled to around 30% from pre-pandemic levels. Soaring shipping prices have made freight a profit center for many airlines, offsetting some of the airline industry losses.

The near shutdown of many airlines in 2020 removed most of the 50% of global air cargo capacity that is usually in the bellies of passenger jets. Cargo carriers pulled idled jets from desert storage, and passenger planes were repurposed to carry goods in cabins to help meet demand for personal protective equipment. The combination of inventory restocking and ocean-cargo logjams boosted the appeal of airfreight.

Auto and machine parts for JIT supply chains, consumer electronics, fresh food and flowers and high-end apparel have traditionally filled planes. Now companies are sending cheaper items with increasing scarcity value. Airfreight prices in recent years have run 5 times that of ocean shipping; the multiple is currently 12.

Classroom discussion questions:

What are the 6 shipping systems outlined in Chapter 11 of your Heizer/Render/Munson text and what are the advantages of each?
Why is airfreight so important right now?

OM in the News: The Rise of the Self-Driving Truck

Whatever type of vehicle arrives at the Bay Area headquarters of Aurora, the team can have it running without a driver in just 12 weeks. The transformation involves pulling apart the dashboard, fitting the vehicle with a stack of sensors and computer systems, then installing a “single umbilical” cord to communicate between the vehicle and the self-driving technology.

Aurora has integrated its robotic “Driver” into eight types of vehicle since its founding in 2017. But its system is proving most successful in heavy-duty trucks, which are now a main battleground for autonomous technology as the mass rollout of robotaxis falters. Partnering with Volvo Trucks, Peterbilt, and Kenworth, with a combined US market share of more than 50%, Aurora is a big force in driverless trucking.

truck2

The business case for disrupting the $800 billion U.S. trucking market is clear, writes the Financial Times (March 31, 2021). Two-thirds of America’s consumer goods are transported to market by truck, but laws limiting drivers’ shifts to a maximum of 11 hours mean longer journeys often take several days.

On average 20% of miles driven are empty and not generating revenue, but still generating gas emissions and pollution. The potential for automation to drive consolidation could be easily as big as for cars, as trucks drive 170 billion miles on U.S. highways every year.

Until recently, Silicon Valley has been slow to react to the opportunity. Since Google launched its self-driving car project in 2009, robotaxis have been the sector’s focal point.

A major benefit of self-driving trucks is that the technology they require is simpler to develop. For a driverless ride-hailing service to exist, the car needs to take passengers anywhere in the city. That would require continual mapping to stay up to date, whereas 18-wheelers spend the bulk of their time on the same highways. “It’s basically a straight road where you’re not really even shifting gears, much less having the opportunity to run into a building,” said one industry expert.

Classroom discussion questions:

Why is the potential so great for self-driving trucks ?
What are the weaknesses in using self-driving long-haul trucks?

OM in the News: The Case for the Electric Delivery Van

When you think of electric vehicles, you might think first of a Tesla. But a more financially rewarding use of the technology could be the vans that deliver your online shopping, reports The Wall Street Journal (Jan. 23, 2021).

Until recently, such unassuming vehicles occupied an easily ignored niche within the multitrillion-dollar automotive industry. That is changing fast. Rivian just raised $2.65 billion to fund its rollout of EVs, including a delivery vehicle for Amazon.com, which holds a stake in the startup. And GM just created a new company, BrightDrop, to focus on selling EVs to the delivery market. It expects to ship 500 units to its launch partner, FedEx, this year.

Electric delivery vans operated by DHL in Germany

Electric vans are at the confluence of two big trends. One is the rise of e-commerce at the expense of bricks-and-mortar retail, to which the pandemic has given a boost. The other trend is vehicle electrification. The likes of UPS, DHL and FedEx have all committed to reducing their carbon emissions and need electric delivery trucks to do it. So has Amazon, which ordered 100,000 electric vans from Rivian, the first of them due later this year.

Logistics operators and small contractors are focused on careful cost calculations, including over the lifetime of their vehicles, as we illustrate in Example S2 of Supplement 5 (Sustainability in the Supply Chain). That increases the attractions of EVs, which tend to have low running and maintenance expenses. One reason such calculations are possible is that vans don’t typically need the long driving ranges required of passenger cars. Vans are often driven around cities for predictable distances and can be recharged overnight at depots.

Another advantage of EVs, as Tesla has shown, is the facility with which software can be integrated into their overwhelmingly electronic systems. Unlike Tesla fans, van owners stand to benefit financially from this advantage. Logistics is a data business. The more tools for cost-efficient routing, driving, loading and the like that manufacturers can offer fleet owners, the more business they will attract.

Classroom discussion questions:

What are the advantages and disadvantages of electric vans?
Why are retailers like Amazon investing in these vans?

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:

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

OM in the News: Hacking the Covid Vaccine Supply Chain

Cyber attackers have targeted the cold supply chain needed to deliver Covid-19 vaccines, reports Financial Times (Dec. 3, 2020). The hackers appeared to be trying to disrupt or steal information about the vital processes to keep vaccines cold as they travel from factories to hospitals and doctors’ offices. The attacks highlight the importance of cyber security diligence at each step in the vaccine supply chain.

Many of the Covid-19 vaccines have to be kept cold to keep them from spoiling. Pfizer and BioNTech’s vaccine must be kept between -70C and -80C, while Moderna’s needs to be transported at minus 20C.

Hackers appeared to be trying to disrupt the vital processes to keep vaccines cold

IBM’s head of threat intelligence said he believed the hackers were either looking to disrupt the vaccine delivery process or steal intellectual property. “One side of it is cyber espionage: How do you get vaccines out? How is the manufacturing process working for refrigeration? How are you managing the entire logistics chain? There’s also potential for disruption, being able to launch attacks that disrupt vaccines, and their distribution to undermine trust in them.” He added that it was vital to treat the vaccine supply chain as “a new type of global critical infrastructure” to help them secure the products that could help end the pandemic. “These refrigeration companies are not going to have the same security tools that advanced financial institutions have.”

No matter who conducted the attacks, they underscore how everything about coronavirus vaccines — how to make them, test them and move them — has become vital information around the globe. A year ago, nations including Russia and China were focusing their covert efforts on stealing secrets about missiles and AI advances; 6 months ago, intelligence agencies shifted their focus to obtaining, or defending, proprietary vaccine research.

Classroom discussion questions:

List all of the major risks that vaccine supply chains face. ( Hint: see Table 11.3 on p. 480 of your Heizer/Render/Munson OM text).
Which of the 10 OM decisions (that the text is structured around in Table 1.2) are involved in vaccine preparation and delivery?

OM in the News: Overcoming Supply Chain Disruptions With Sensors

Supply chains and logistics have seen massive disruptions as a result of COVID-19, creating new challenges for retail and manufacturing operations worldwide. Material Handling and Logistics (Nov. 12, 2020) identifies how sensors can be used to improve and modernize logistics to shore up global supply chain infrastructures.

There are 4 critical points in the logistics process – point of origin, warehousing, transit, and destination – each with a unique set of challenges that impact the efficiency of supply chains, sometimes even leading to complete breakdowns. Things that go wrong in the logistics process include pilfering, asset misplacement, and physical damage due to improper storage conditions and unexpected events.

These challenges will be exacerbated as vaccines become available for COVID-19. Ensuring the right goods are transported in the right quantities, under the right conditions, and delivered to the right place at the right time, will allow society to remain functional to fight the pandemic.

Fortunately, sensors can alert companies to these problems and help them address these issues, sometimes even before they become a problem. IoT sensing solutions are the most promising, as they enhance data visibility and transparency across the entire process and facilitate planning, optimizing, and uncovering other invisible insights.

They can be used to monitor environmental conditions, prevent misplacement, identify damages, avoid accidents, ensure compliance, track location, and reveal real-time conditions. Even without network connections, sensors can still reveal the logistics history of a process, helping to identify events that might have compromised goods. Today, sensing solutions are fragmented, with no standardized solutions available to span the entire logistics journey. Nonetheless, sensors play a critical role in enabling information transparency to facilitate planning, optimization, and risk management in the supply chain.

Classroom discussion questions:

What is IoT and why is it an important OM tool?
What are the complications faced in bringing COVID-19 vaccines to consumers?

OM in the News: When Pigs Fly

When pigs fly—and they are doing so a lot this year—they usually take wide-body jets across the world, writes The Wall Street Journal (Nov. 11, 2020). One of the few bright spots for a global airline industry has been an increase in live animal cargo flights. Cargo planes this year have taken thousands of pigs, goats, alpacas, cats and dogs on international flights, and demand for the fastest mode of animal transportation is rising even as many human passengers shun traveling by plane.

Hundreds of pigs can travel on each cargo flight, with groups in large wooden crates roomy enough for them to move around in, and that fit nicely in Boeing 777s and 747s. Other than the flight crew, the only other humans aboard are the animals’ handlers. They keep an eye on the pigs’ mood, fill up their water sipper bottles and “give them a little bit of encouragement.”

Pigs relax in their crate aboard a Boeing 747 on a flight from Denmark to Russia.

China has been buying lots of pigs abroad after losing many of its own hogs to African swine fever and is expected to import 25,000 live hogs in 2020, compared with 4,000 in 2019. Many of those will fly. Qatar Airways has added 50% more livestock flights this year in response to higher demand. On a typical day, the airline transports 10 horses and 500 farm animals, including cows, goats and sheep.

Some animal flights haven’t panned out. Earlier this year, a Qatar flight to Johannesburg to pick up young giraffes destined for a zoo was forced to return empty. In the 6 weeks it had taken to get all the paperwork sorted before the flight, the giraffes had grown too tall for the 10 foot plane ceilings. (Adult giraffes can be 18 feet tall.)

Pigs grow quickly, too. Earlier this year, 1,300 young hogs that were scheduled to be flown from the U.S. to the Philippines were bumped when their plane was requisitioned by the U.S. government to move PPEs. A new flight was secured 2½ months later, but the original young hogs had become older hogs, and much bigger—too heavy for the 85 tons the plane could handle.

Classroom discussion questions:

Why use planes for these shipments?
What are the OM issues faced when shipping animals?

OM in the News: Drones Seek a Role in Delivery of Covid-19 Vaccine

A handful of drone-delivery startups want to help transport Covid-19 vaccines from distribution facilities to health centers, vying for a logistical role in what is likely to be a sprawling and complex undertaking, reports The Wall Street Journal (Nov. 2, 2020). Several of these businesses have entered into medical delivery partnerships with drug companies and retailers—including Merck and Walmart — that could help position them to take part in the high-profile effort to distribute Covid-19 vaccines. Walmart said the pilot project with DroneUp will help the company learn about the role drone deliveries can play in pandemic response, health-care delivery and retail.

Meanwhile, some startups have discussed with governments around the world their ability to use unmanned aerial drones to transport vaccine doses, mainly in remote areas. The efforts are indicative of drone companies’ ambitions to reshape shipping and logistics. Delivering Covid-19 vaccines would enable drone startups to demonstrate on a world stage their ability to streamline operations and cut costs across distribution networks.

To be sure, using drones to transport Covid-19 vaccines likely would represent a sliver of the overall effort. They would primarily be for hard-to-access regions and fly along fixed routes to move doses in bulk.

Drone fleets can reduce reliance on drivers, increase delivery capacity and speed up the time it takes for supplies to reach patients. These advantages would be valuable in complex and urgent Covid-19 vaccine distribution. Fleets of dozens of drones, for instance, could make half-hour trips delivering thousands of vials each day to health centers in remote areas.

Merck partnered with Volansi recently to fly medicines and vaccines from its manufacturing facility in North Carolina to a health clinic in unmanned drones. Vidant Health System is participating in the program, which is using a Volansi drone capable of carrying 5 pounds of medical cargo to locations up to 50 miles away.

Classroom discussion questions:

What are the advantages of using drones for vaccine delivery?
The disadvantages?

OM in the News: The Megaship Capacity Disaster

In 2006, the Emma Maersk left her shipyard. The length of 4 soccer fields, Emma was far larger and more expensive than any container ship ever before. She was a bet on globalization: By transporting a container more cheaply than any other vessel afloat, she and her 6 sister ships were expected to stimulate even faster growth in international trade, lowering the cost of moving goods through the supply chains that had reshaped the global economy. But the opposite occurred. Emma and the even larger ships that followed in her wake became a nightmare.

Container ships are the workhorses of globalization. Operating on regular schedules— an identical vessel departs Shanghai every Wednesday, stops in Singapore 9 days later and arrives in Antwerp 5 weeks hence, with tight connections to barges and freight trains—intermodal container transport gave manufacturers and retailers the confidence to plan tightly organized long-distance supply chains. Emma and her sisters’ size was expected to give shipping an immense cost advantage. Maersk forecast in 2006 that the demand for container shipping would double by 2016.

The container ship Emma Maersk in Hamburg

But the boom never occurred. Instead, international trade collapsed in 2008-09, and when it picked up again, its growth was far weaker than before. By the early 2010s, there simply weren’t enough container loads to fill all the new capacity, wiping out the cost advantages of larger vessels. And discharging and reloading megaships took longer as well, with more boxes to put off and on, while giant shoreside cranes needed to reach a greater distance to pick up a container. Thousands more boxes multiplied by more handling time per box added days to a port call. Delays were legion.

Once, container ships would have been able to make up those delays en route. But to save fuel and reduce greenhouse gas emissions, vessels must now travel at 17-18 knots instead of 24-25 previously, adding several days to a long ocean voyage. By 2018, 30% of the ships leaving China departed late.

“With proper accounting,” concludes The Wall Street Journal (Oct. 24-25, 2020), “the globalization of manufacturers’ supply chains no longer seems such a bargain.”

Classroom discussion questions:

How would the land side of international logistics be impacted by this issue?
What capacity strategy best fits shipping companies now? (Hint: see Figure S7.6 in your Heizer/Render/Munson text)

OM in the News: The Challenge of Delivering Covid-19 Vaccines

UPS is combining multiple refrigerators at its airport hubs to store vaccines in transit.

Just 2 weeks ago, Prof. Jeff Heyl delivered his Guest Post from New Zealand saying 8,000 fully laden Boeing 747’s would be needed to deliver a single dose of a Covid-19 vaccine to the world’s population. The Wall Street Journal (Oct. 6, 2020) asks: “If just 50 million doses were available today, could we distribute them?” The answer is almost certainly ‘No,’ states the head of the International Air Transport Association.

The pandemic has revealed shortcomings in global supply chains and forced business to make logistics a bigger strategic priority. Nonetheless, the air-cargo industry is making plans for delivering as many as 20 billion Covid-19 vaccination doses, even before regulators have approved any of the treatments under development. (Pharma companies say they expect the bulk of vaccines to be transported by air.)

Carriers such as FedEx, DHL,and UPS have started preparations such as introducing new temperature-monitoring systems to track future vaccine shipments. They are building “freezer farms” combining multiple refrigerators at their airport hubs to store vaccines in transit. Vaccines have to be kept at a very low constant temperature throughout the journey to prevent spoiling.

Cargo flights are fast filling up through February with bookings for consumer electronics, apparel and industrial parts through the holiday season and new year. Cargo executives said they expect it will take 2 years for a vaccine to reach all of the world’s population, with particular challenges in some emerging markets where infrastructure is limited. Fortunately, the air-cargo industry isn’t starting from scratch. Pharma products have been one of the fastest-growing and most profitable cargo types over the past decade.

Classroom discussion questions:

Why is this such a complex logistics issue?
What OM approaches can be deployed to increase the distribution efficiency?

Guest Post: Vaccine Logistics

Today’s Guest Post comes from Dr. Jeff Heyl, at Lincoln University in Christchurch, NZ. He is Associate Academic Dean and Director of the Centre for Lean Education and Research.

Living on islands at the bottom of the world gives one an interesting perspective. If we don’t make it in New Zealand, getting it here can be challenging. So the issue of the distribution of a COVID-19 vaccine, once one is approved and available, is an important question. The International Air Transport Association (IATA) has estimated it will take 8,000 Boeing 747 cargo planes to distribute just single doses to our planet’s 7.8 billion people.

There are several important issues involved in planning the logistics for this massive operation. Overflight and landing approvals will need to be fast-tracked, traffic patterns may need to be altered, temperature-control will be necessary during all stages of the transport, and safety, security, and quarantine requirements will need to be considered.

Ground transportation will be vital at multiple points in the logistics process, but there liability and capacity of these systems varies considerably around the world. Local manufacturing will also help reduce some of the demand for air transportation. But this capability is even more variable than land transportation.

But air transportation may be the biggest hurdle. Due to the diminished cargo capacity that has resulted from the pandemic, networks have been downsized, skilled employees have been terminated, and planes put into long-term storage, frequently in remote locations. Bringing these back online in a timely manner will be critical to effectively distributing any vaccine around the world, no matter where it is ultimately developed. This may well be the biggest and most important logistics challenge ever. The IATA, UNICEF, and the WHO are calling on governments and providers to start planning now for how these problems will be addressed.

OM in the News: Postal Package Deliveries ‘Bogged Down’ With Delays, Backlogs

Surging e-commerce volumes during the coronavirus pandemic are straining the U.S. Postal Service’s parcel network as staffing shortages and backlogs in hard-hit areas slow deliveries, reports The Wall Street Journal (June 1, 2020). The problems have delayed some packages for days and even weeks, shippers and consumers say, holding up orders at a time when many people are shopping more online to avoid infection with the virus.

The slow deliveries have complicated business for e-commerce sellers who rely on the Postal Service to ship packages at affordable rates, and tracking services have added to the frustrations, with some items appearing to get stuck at certain locations or vanishing altogether. Transit times for USPS shipments to customers in some cases doubled or even tripled in recent weeks. Like private delivery giants UPS and FedEx, the Postal Service is coping with unexpected holiday-level package volumes as the pandemic adds to operational and financial stresses. UPS is imposing extra fees to help offset those costs, while FedEx is limiting the number of items some retailers can ship.

Coronavirus has also taken a toll on postal workers. About 2,830 of the Postal Service’s 630,000 employees have tested positive for Covid-19. Between April 19 and May 23, USPS delivered 89.5% of priority mail packages on time, compared with 87.4% the prior month. (UPS delivered 96.5% of business-to-consumer shipments on time that same period). “The parcel volumes have gone up, we are probably working at a holiday volume rate, but we’re doing it with about a 74% staffing level,” said a USPS union official.

Classroom discussion questions:

Why is the USPS struggling to keep up with competition?
What can be done to meet budget deficits?

OM in the News: Supplying and Shipping Take on New Importance

Companies like UPS are experiencing a boom in home deliveries

Just a few weeks ago, many people would have been hard-pressed to talk about the nation’s supply chain, writes The New York Times (April 1, 2020). But with shortages of protective gear for medical workers and basics like toilet paper and hand sanitizer, the inner workings of transporting goods from manufacturers to consumers, medical professionals and other businesses suddenly has taken on new importance.

“Shippers are facing huge challenges to ensure that they have the tools and have capacity,” said the CEO of an online trucking marketplace. “And the truckers had enormous pressure as well because they can’t work from home and are constantly on the road.”

Some manufacturing plants and warehouses are understaffed, so the truckers that went expecting a quick turnaround for loading could wait as much as 15 hours for their cargo. Pennsylvania briefly decided to close all of its rest stops in a move intended to protect travelers, but the closures also impeded long-haul shipping without roadside facilities, so some were later reopened. And there are driver shortages, compounded by the aging population of truck drivers, whom some deem to be more at risk to die from the virus than those who are younger.

Delivery companies like FedEx and UPS are experiencing a Christmas-like boom in home deliveries, while shipments to business, which have closed by the thousands on government orders, have deteriorated. One estimate shows that business-to-business shipments could decline up to 25% for months. Delivering to homes is generally less profitable because drivers ferry fewer packages across many more stops.

Classroom discussion questions:

1. What are the challenges facing shippers?

2. How are each of the six shipping systems described in Ch.11 (in the section on Logistics Management) impacted by the current crisis?

OM in the News: Where Will the Toys Come From?

Toy companies are delaying shipments and new product launches and struggling to fill retail orders as the coronavirus epidemic disrupts the industry’s supply chain, reports The Wall Street Journal (Mar. 2, 2020).

Some toy factories in China, where around 85% of the world’s toys are made, remain closed and others are operating at a fraction of capacity, either because of worker shortages or difficulties securing raw materials and molds to make their products. The disruption is threatening the carefully orchestrated schedule of manufacturing and shipments that delivers Barbie dolls and Nerf blasters to shelves. Some large retailers are searching for alternative products to fill holes in their inventories and considering delaying setting their shelves for the holiday season by a month.

Many toy companies have convened war rooms with daily calls to their Chinese manufacturers for status updates. Some have said they might see their expected output fall by around 25% in the second quarter of the year. Zuru, which makes X-Shot blasters and Bunch O Balloons water balloons, said its factories have reopened in phases over the past few weeks. Zuru installed dividers between workspaces, added extra sanitation stations and implemented other precautionary measures. But the company is thinly staffed due to restrictions on China travel and is operating at just 20% of capacity.

Some larger companies have worked to reduce their dependence on Chinese factories in recent years, with trade disputes recently creating the need for a more diversified base. Hasbro gets about 2/3 of its products from China and aims to reduce that to 50% over the next few years. Mattel makes less than 2/3 of its products in China and most of its two largest brands, Barbie dolls and Hot Wheels cars, are made elsewhere.

Even if the factories start churning out toys faster soon, another challenge will be getting them out of China, as toys will have to compete with iPhones and other consumer products for transportation.

Classroom discussion questions:

What model in Supp. 11 (Supply Chain Analytics) did Hasbro and Mattel follow?
What logistics issues does the article refer to?