Tag: production processes

OM in the News: The Return of the Twinkie

twinkies2 Debt, pension costs and mismanagement shuttered the iconic Hostess (maker of Twinkies, Ding Dongs, Ho-Hos, and CupCakes) in 2012, writes Forbes (May 4, 2015). It was a cultural moment across the U.S., offering proof of the dire state of American manufacturing. After over a decade of failing health that saw 2 bankruptcies and 5 CEOs, Hostess finally died after the baker’s union pulled the plug with a nationwide strike. The 150 year old firm left behind 36 factories, 5,600 delivery routes and 19,000 jobs, creating something of a national mourning. (Many thought Hostess got what it deserved. Its products–preservative-packed calorie bombs–flew in the face of food trends.) But while you wouldn’t find Twinkies on Whole Foods’ shelves, Hostess had millions of nostalgic fans.

Now, with a new billionaire cake boss, a new factory has arisen in Emporia, Kansas. Tight rows of Twinkies march along the $20 million Auto Bake system with the precision of soldiers in a parade. Yellow robotic arms, which look like they should be welding Teslas, stack snacks with hypnotic rhythm. This 500-person plant produces more than 1 million Twinkies a day, 400 million a year. That’s 80% of Hostess’ total output–output that under the old regime required 14 plants and 9,000 employees.

The recipe was threefold. First, $110 million went to modernizing the remaining factories–everything from automation to improving air flow in the bakeries. Next came a $25 million SAP software system to manage inventory and logistics. But most important was the millions spent at chemistry labs to tweak the recipe formula that would prevent staleness and discoloration. The singular goal: make the Twinkie warehouse-friendly. It’s shelf life was more than doubled, to 65 days. Delivery costs dropped to 16% from 36% of revenue, and Hostess’ retail reach expanded greatly.

In July, 2013–less than 4 months after the new owners took over operations–the Twinkie was back. During the Today show, Al Roker, riding shotgun in a Hostess truck, tossed Twinkies to screaming fans. Fans flocked to stores. Demand was so high that large retailers waived the slotting fees they usually charge brands for shelf space.

Classroom discussion questions:

1. Why did Hostess succeed after its previous failures?

2. List all the OM factors involved in this transformation.

OM in the News: Sharing the Same Production Process at Samsung and Globalfoundries

Two Globalfoundries workers in Albany, NY
Two Globalfoundries workers in Albany, NY

Samsung and Globalfoundries just announced (see The Wall Street Journal-April 18, 2014) that they have agreed to adopt the same production process as they upgrade their chip-manufacturing services, an unusual alliance with implications for many designers of computer chips and other devices, notably Apple. With the agreement, chips produced by Samsung and Globalfoundries will be essentially identical; companies that design chips could have their products produced in factories operated by either company with no extra effort.  Companies generally prefer to reduce their reliance on a single supplier for components. In this case, the pact between Globalfoundries and Samsung provides a new selling point as the two companies try to woo customers away from Taiwan Semiconductor, the biggest chip maker.

The new pact could allow Apple in the future to shift chip orders between Samsung’s Austin plant and a Globalfoundries factory near Albany, N.Y.  “The idea of doing business with multiple suppliers is built right into Apple’s DNA,”  says one industry expert.

The pact also reflects the intense financial pressures associated with pursuing Moore’s Law, Silicon Valley’s shorthand for shrinking semiconductor circuitry to improve chips’ speed and data storage capability. With individual production tools priced at tens of millions of dollars—and complete chip factories costing $5 billion or more—fewer and fewer companies still develop new production processes. In response, companies are now working together to share costs of developing new production recipes.

But the deal goes much further. Globalfoundries agreed to abandon a technology it had been developing for creating chips with circuitry measured at 14 nanometers, or billionths of a meter. It will instead license Samsung’s 14 nanometer process, which has technical benefits, and uses common production tools and materials.

Classroom discussion questions:

1. What are the benefits of shared production?

2. Why is Apple encouraging this concept?