Tag: MITSloan Review

Good OM Reading: Rethinking Manufacturing Strategy

The latest MIT Sloan Management Review’s (Winter,2012) article “Is It Time to Rethink Your Manufacturing Strategy” is a great piece to use as you start your new semester. It opens with this line: “For the past 10 years, China was the answer to many manufacturing questions. That’s no longer automatically the case”.

It seems that supply chain disruptions, fuel price jumps, rising labor costs in China, advances in technology, and being closer to customers are leading manufacturers to conclude they may be better off with a regional strategy that may not include China. This doesn’t necessarily mean more jobs for the US, as Mexico is a potential regional site, just as Eastern Europe is an alternative to Western Europe.  But it does mean that optimal manufacturing strategy must include raw materials, the product itself, and the location of the customer base.

While long supply lines were economically feasible 15 years ago because of cheap oil, transportation costs have risen, which has given rise to these 3 new cost-optimization realities:

1. Regional distribution centers have become more attractive as companies add warehouses to minimize distance between DCs and retail outlets.

2. Sourcing may need to move closer to demand, ie, on shore, when a company’s  total landed cost analyses includes not just unit costs, but transportation, inventory, handling, duties, and financing. Firms like Sharp (the Japanese TV maker), for example, started moving manufacturing from Asia to Mexico to be closer to American customers.

3. Supply chain flexibility becomes more critical. While “dedicated manufacturing”, where each plant specializes in producing only a few items, uses economies of scale to keep manufacturing costs down, it can also result in long delivery lags and higher transportation costs. “Flexible manufacturing”, where each plant can produce most or all of a firm’s products, protects operations from today’s economic volatility and supply chain disruptions.

The article concludes “corporate planners are on the verge of a leap from low-cost manufacturing to a more regional strategy”.

Good OM Reading: Sustainability Nears the Tipping Point

Now that your Fall semester is complete and you have some time for holiday reading, we can give you a sneak preview of the upcoming MIT Sloan Management Review (Winter, 2012) article on the  characteristics of companies that are profiting from sustainability practices and the factors that have driven the recent surge in sustainability adoption.The article also highlights the challenges companies face in building a business case for sustainability.

Results from this, MIT’s third annual sustainability survey, indicate that an increasing number of managers and companies are taking sustainable business practices seriously. Two-thirds of respondents said that sustainability is critically important to being competitive in today’s marketplace. And despite ongoing economic uncertainty, many companies are increasing their commitments to sustainability initiatives. In fact, 31% of respondents said their companies are profiting from sustainable business practices. Yet, it should be noted that “green” still ranks only 8th on companies’ agendas for action.

The article also points out that sustainability comes from both internal and external drivers. External factors include regulations, green score cards and other metrics, media, climate change science, resource scarcity, and consumer demand. “Consumers today have higher expectations that brands deliver sustainable products: sustainably sourced, produced and packaged, but remaining competitively priced”, says the head of sustainability at Kimberly-Clark (maker of Huggies and Kleenex).

Yet internal drivers may be more influential than external ones. “I would say the internal drivers are 80% responsible for our sustainability efforts”, states the VP of Clorox, who sees benefits relating to operating costs, revenue growth, brand integrity, and employee engagement.

This is a good article to keep handy when you are teaching Supplement 5, Sustainability.