Tag: pandemic

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.

OM in the News: Globalization in Retreat?

Globalization was a key driver of the world economy in the 1990s and 2000s. But global value chains—the spread of supply networks across countries—ceased expanding after the 2009 financial crisis. This year, the arrival of the pandemic has had a devastating impact on economic activity around the world, writes The Wall Street Journal (Dec. 17, 2020), and global trade has shrunk by 9.2%.

China remains an export powerhouse but has turned inward. Exports as a share of its GDP have fallen from 31% in 2008 to 17% in 2019. China is not alone. Nationalism has become a stronger force around the world, and with it economic nationalism. Indian Prime Minister Modi has a “Make in India” campaign. President Trump touts “Buy American” policies. 

The Indian government offers incentives to large smartphone brands to make their products there.

Other concerns about globalization relate to national security. The U.S.-China relationship has soured partly because of fears that the security of advanced technology products, from drones to microchips, might have been compromised by the Chinese authorities. The U.S. is not alone in worrying that Chinese technology is suspect, as the controversy over Huawei and the security of its telecom equipment shows. Japan has begun investigating how to break its supply-chain dependence on China and produce more at home.

And many countries have been asking whether they have become too dependent on others for essential medical supplies and medicines of which they might be deprived in an emergency. Some temporary export bans were imposed over fears about inadequate domestic supplies of medical equipment, PPEs, and drugs. Attitudes have changed. President Macron of France believes that the coronavirus “will change the nature of globalization, with which we have lived for the past 40 years,” adding that it was “clear that this kind of globalization was reaching the end of its cycle.”

Classroom discussion questions:

  1. In Ch. 2 (p. 33) of your Heizer/Render/Munson text, we identify 6 reasons why companies globalize. Which, if any of these, are changing if this WSJ article is on target?
  2. What are the main factors driving this “retreat?”

OM in The News: We Don’t Need 3 Types of Red

In Chapter 7 we bring up the interesting topic of mass customization. Table 7.1 (on p. 284) illustrates the explosion of variety that has taken place in autos, movies, cereals, and thousands of other products as OM uses rapid, low-cost production to fulfill increasingly unique customer demands. What followed in recent decades is that retailers ramped up choices. They tried to capitalize on the shift toward personalization with a desire to please everyone and added variety to tempt people to buy items they didn’t need.

Now, with choices overwhelming shoppers and clogging supply chains, some brands are moving in the opposite direction, writes The Wall Street Journal (Nov. 22, 2020). They are trimming styles and colors in the hope that by eliminating the decision paralysis that grips customers when they are faced with too many options, they can boost sales and reduce markdowns. For example, Coach is cutting its handbag styles by half. Bed Bath & Beyond is reducing its can opener selection by 2/3. Kohl’s is culling its towel offerings by 20% and women’s dress styles by over 40%. In industry parlance, this is known as “buying narrow and deep” and follows Pareto’s 80-20 rule that 20% of a company’s products account for 80% of its sales.

Coach used to produce 1,000 handbag models each season, but now is only making 500. Instead of making two of the same bag, one with a leather strap and the other with a chain, it might make only the leather version. Coach is emphasizing its 3 best-selling colors and weeding out other shades. “We don’t need three types of red,” said the CEO.

A recent Columbia U. study found that people bought more jam when they were shown fewer choices. Only 3% of consumers who were shown 24 types of jams made a purchase. The purchase rate increased to nearly 30% when consumers were shown just 6 varieties. “We live in a world where we think more choice is better even though we recognize that it’s overwhelming,” said the study.

Classroom discussion questions:

  1. What is mass customization and why is it an OM issue?
  2. Give examples of how consumers can be overwhelmed with choices in a supermarket.