Tag: Supply Chain

Teaching Tip: Examining Supply Chains

In Chapter 11, Figure 11.1, we present a Supply Chain with costs for beer. This figure provides an opportunity to discuss both the value added and the risks associated with each step in the supply chain. And, because students can often relate to the product, beer, the presentation encourages a discussion of not only the multiple tiers, but also the processing delays, logistics, storage, cooling, and where and how costs might be reduced in the supply chain.    Finding other examples of Supply /  Value Chains can be a challenge, but we found very timely and good examples (and perhaps almost as interesting as beer), by PetroStrategies, Inc. —  supply chains of the oil and gas industries.      

PetroStrategies shows both the Crude Oil Value Chain and the Natural Gas Value Chain. The great thing about their presentation is that in addition to the ‘chains’ being shown, so are estimates of Costs, Value (selling price at each stage), Gross Margins, Net Margins, and Percent of selling price for each component in the chain. 

Given the current interest in oil and gasoline prices, a lively discussion of costs and values in the supply chain from wellhead to gasoline pump should ensue. You might note that although the data is relatively recent (2007), gasoline costs are shown at $2.00 per gallon.

Discussion Questions:  

1.  Where are the risks in these supply chains?

2. What can be done to enhance supply and / or reduce the risks?

3. Have you any suggestions about what could be done to reduce costs in these supply chains?

Video Tip: Darden’s Global Supply Chains

Because supply chains (Ch.11) are such an important topic in OM, we have produced 3 video cases on the topic: Arnold Palmer Hospital’s Supply Chain, SCM at Regal Marine, and Darden’s Global Supply Chain. Since I am a regular at Olive Garden (one of Darden’s main brands), filming this 8-min. video was of personal interest.

How is it that I can order fresh fish–not frozen–here in Winter Park, FL, and be eating seafood that was caught off the coast of Thailand less than 48 hours ago? And the same for you at any of the 1,500 restaurants in the Darden family. That’s some supply chain!

Actually Darden has 4 independent supply chains it runs, of which its Seafood Network is one. There is also: the Central Distribution SC  for non-food items (housed in Orlando); its Independent SC  for locally purchased items such as produce and dairy products; and its Direct Distribution System, which uses 3rd party logistics, for other items.

Interviews with Darden’s Senior VP for Supply Management and Purchasing illustrate how critical this function is to every aspect of running a restaurant chain. It also raises the question about the complexity of maintaining 4 distinct supply chains. Should local managers be allowed to make their own purchases? How does a major chain deal with seafood shortages (“overfishing”) that occur more regularly?

More details about the seafood aspects of the supply chain are in our Supp.11 video case, “Outsourcing Offshore at Darden”.

OM in the News: Terrorism and The Global Supply Chain

It’s not every day that The Wall Street Journal publishes an editorial by the US Secretary of Homeland Security, Janet Napolitano, entitled “How to Secure the Global Supply Chain” (Jan.6,2011).  In it, Napolitano writes, “The complex supply chain that consumers and businesses in the US rely on every day is a target for those who seek to disrupt global commerce”. This is certainly a topic we need to consider adding to our discussions of global OM issues in Ch.2 and Ch.11.

Regardless of where a terrorist event takes place, a significant disruption of our supply chain may follow.  An example was the Oct., 2010 plot to put explosives on a UPS cargo flight bound for the US from Yemen. Following that act, the Dept. of Homeland Security required all cargo on passenger planes within the US to be screened. It also screens all US-bound air cargo that is considered high risk (most likely from terror-sponsoring countries, I would surmise).

Napolitano names 3 elements to the US plan:

1. “Preventing terrorists from exploiting the supply chain to plan and execute attacks”. This means working with customs groups and shippers to keep chemicals out of the hands of terrorists.

2.”We must protect the most critical elements of the supply chain, like central transportation hubs, from attack or disruption”.

3.”We must make the global supply chain more resilient, so that in case of disruption it can recover quickly”.

Incidentally, 2 days after this article, the Journal reported that Secretary Napolitano received a small bomb in a package that exploded in her mailroom (WSJ, Jan.8-9,2011).

Discussion questions:

1. In what ways can a disruption of the global supply chain impact a business in the US, such as IBM, GE, or Boeing?

2. What other events, beside a terrorist strike, can effect the supply chain? How?

OM in the News: UPS’ Supply Chain and the No-Left-Turn Rule

For the longest title award, we turn to this week’s Fortune (Dec. 27,2010, pp.44-51) and find Bob Stoffel at UPS. Stoffel is the Senior VP for Supply Chain, Strategy, Engineering, and Sustainability.

With the word Strategy in his title, Stoffel points out that UPS is a lot more than a transportation company. It now has 1,000 engineers who are there just to help customers with their supply chains. Zappos built its whole e-commerce strategy around UPS’ Louisville Worldport. Zappos can take an order for shoes at 10pm and have them in the customer’s hands at 10am the next day.

When a Toshiba laptop comes in for repairs, it is UPS that actually fixes it and has it back to the customer in 24 hours. “It’s a triple win”, says Stoffel. “You’ve saved transportation links, you’ve reduced inventory,… and you’ve reduced your carbon footprint”.

Regarding sustainability, UPS has improved its fuel efficiency by 10% with a fleet of all-electric trucks, hybrids, and natural-gas vehicles. And thanks to telematics, GPS, and other technologies, UPS delivered 350,000 more packages  a day over last year, but drove 53,000 miles less a day. Finally, the firm’s famous “no-left-turn” policy is part of another 20 million miles a year saved through technology by avoiding costly delays from left turns and poor routings. “It drives my wife nuts”, Stossel says. “I won’t turn left (when looking for a gas station).We’ve got to find one on the right”.

My favorite improvement is the new “Eco Responsible Packaging” program to advise shippers how to waste less space in packaging. Just think of all the small items you have received in a big box. “Our vehicles run out of space before they run out of weight capacity”, says Stossel.

Discussion questions:

1. What is UPS’ sustainability strategy?

2. How is UPS part of other firms’ supply chain?

OM in the News: Boeing’s Supply Chain Nightmare

You may have read 2 weeks ago about the latest setback for Boeing’s long-awaited 787 Dreamliner (I may start to call it the “Nightmareliner”) when a fire forced a test plane to land in Texas. But the problems with the biggest advance sales (over 850 on order) plane in history started with its supply chain two years ago. The delays have cost the firm billions in penalties for breaking contract obligations to airlines.

The 787, promised for delivery in 2008, illustrates the complexity of a global supply chain—one that has broken many times on the most complex new plane in decades. The New York Times (Nov.30,2010) now reports “Boeing has had to rebuild crucial parts from foreign suppliers….Boeing executives have acknowledged that they outsourced too much of the design work, and production of the first 20 or 30 planes has been slowed by the need to rework many parts”. Not only did the company face flawed components being delivered, but plane sections made in Japan did not always fit together on the final assembly line in Everett, Washington.

At one point, Boeing was even forced to buy one its its suppliers who simply could not deliver a quality part on time. Over 70% of the plane is built by other companies, including 20 international suppliers in 12 countries. The risk sharing plan originally envisioned is detailed in the Global Company Profile highlighting Boeing at the opening of Chapter 2.

The effect of the delays will cascade for years and make it hard for Boeing to reach its planned production rate of 20 planes a month by late 2013. The latest delay appears to set the 1st delivery back another 6 months.

Discussion questions:

1. What are the advantages and disadvantages of Boeing’s global outsourcing program for the 787?

2. Did Airbus face any similar problems with its A380 superjumbo?

3. What is the impact on customers?

OM in the News: Caterpillar’s New Approach to the Supply Chain

In the past, equipment giant Caterpillar did not have to focus on collaborating with suppliers. Along with Komatsu, it was dominant in its field. But Caterpillar is starting to recognize  what Honda and Toyota have long known, namely that competition is based on the supply chain, not individual companies.The company’s attitude in the past was one of servant-master with suppliers, according to Businessweek (Oct.21,2010).

So Caterpillar decided to partner with supplier Tenneco to design  new emission cutting components, rather than set specs and pick the cheapest vendor, as it had done in the past. The joint effort cut costs on the part by 20%.  The firm’s CEO expects the Tenneco relation to be the new benchmark and will work more closely with 200 companies it believes are critical to its growth.

Caterpillar was not prepared for the global growth spurt of 2006-2008 and saw flat profits even with a 24% sales increase. This was because it paid more for raw materials and faster parts deliveries.

Discussion questions:

1. Compare Caterpillar to Boeing (see Ch. 2’s Global Company Profile) in terms of partnering.

2. How did Caterpillar move to change its corporate supply chain culture?

Teaching Tip: Location, Location, Louisville?

We open Chapter 8, Location Strategies, with a Global Company Profile on why FedEx selected Memphis as its US superhub. But Fortune (Oct.18,2010) expands on this topic, with a feature called “Louisville Flies High”.

It turns out that Louisville has great geography, economic incentives, and high tech logistics that have attracted more than 100 corporations this past decade. The city is within a 2-hour flight to 75% of the US population and sits just 40 miles from the exact center of the continental US on a population density map. Its also one hour below the frost line.

The clear supply chain draw is UPS, whose $2 billion Worldport has 30,000 conveyors and can sort 416,000 packages per hour. Toshiba now trains UPS employees to fix computers on site–and return them within 48 hours. Zappos moved to Louisville to be near the giant UPS facility also. If a package leaves the online shoe retailer (which my wife adores) at 12:45am, UPS will deliver the shoes anywhere in the country the same day.

This makes for a nice discussion in both the Location and Supply Chain(Ch.11) chapters.

OM in the News: Wal-Mart’s Drive to Squeeze the Supply Chain

Wal-Mart trying to squeeze more out of its supply chain? Not exactly shocking news, but here is a new twist in BusinessWeek (Oct. 7, 2010). With the title VP for International Purchase Leverage  (I don’t think I have heard that one before), Hernan Muntaner is convinced he can get even better deals from suppliers by consolidating  Wal-Mart’s purchases with its current partners. For example, Muntaner wants to buy potatoes jointly with Pepsi’s Frito-Lay, so that both can get lower prices.

Although Pepsi doesn’t seem interested so far, and may indeed be more sophisticated than Wal-Mart in procuring raw materials like potatoes, Muntaner has already signed on a sugar supplier in England and a paper supplier in Chile.  “We can do this with anything that is sold”, he says.

Collaborative sourcing, as Wal-Mart calls it, is detailed in a book by that title by Michael Philippart, Christian Verstraete, and Serge Wynen.

Discussion questions:

1. Why might suppliers be wary of the new Wal-Mart push?

2. Look at the Ethical Dilemma in Ch.11 that compares Wal-Mart to Sears. Does this purchasing concept tie in to the ethical issue?

OM in the News(and Video): Ford’s Lean Auto Plant in Brazil

Ford’s most progressive plant in the world may well be in northeast Brazil, where it uses lean manufacturing, sophisticated supply chains, and a vast array of robotics to produce the EcoSport SUV and Fiesta. A  colleague in that country, who is using the Portuguese edition of our text,  just emailed me the link to a video about which he is justifiably proud.  This 3.5 minute video illustrates all 3 concepts: lean, SCM, and automation and makes a nice presentation in Ch11 or Ch.16. (I do need to warn you that the last few seconds are a bit anti-union).

In 2009, the Ford plant produced over 207,000 vehicles. This South American operation brings so much profit to the parent company in Dearborn,Michigan,that the firm was able to turn down federal loans in 2009 that both GM and Chrysler accepted.

Brazil is becoming a leader in lean auto making, with another plant churning out VWs with a similar layout in which suppliers produce, on-site, with their own employees, the parts that are installed in the final vehicle. If you look at the Global Company Profile that opens Ch.16 in our text, you will see a  layout at the Toyota Tundra plant in San Antonio, Texas that also resembles what we see in the video.

Discussion Questions:

1. Why is it doubtful that this Ford plant will be replicated in the US?

2. How does the supply chain differ from most US plants?

3. Why is this an example of lean manufaturing?