supply chains – Page 3 – The OM Blog by Heizer, Render, & Munson

OM Podcast #13: An Interview with DuPont’s Chief Procurement Officer

In our latest podcast, Barry interviews Miguel Gonzalez, Chief Procurement Officer at DuPont. They discuss the increase in uncertainty and the importance of risk management with the growing number of supply chain disruptions caused by things like COVID and geopolitical situations across the globe, and how DuPont has weathered these by relying on strategic relationships.

Transcript

A Word document of this podcast will download by clicking on the word Transcript above.

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our earlier blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/us/contact-us/find-your-rep.html

OM Podcast #8: Operations Management at Red Lobster

Welcome to a very exciting Operations Management podcast! Today, Barry Render and his guest, Executive Vice President of Red Lobster, Horace Dawson, talk about operations at Red Lobster. They discuss the most important operations tasks to get right in any restaurant but especially the world’s largest seafood chain: forecasting, scheduling, supply chains, and quality.

Transcript

A transcript in Word of this podcast is available by clicking on the word Transcript above.

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our August 21st blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/us/contact-us/find-your-rep.html

As a footnote, Horace Dawson was promoted to CEO at Red Lobster on Sept. 21, 2023.

OM in the News: Weight Loss Drugs and the “Cold” Supply Chain

Complex logistics are designed to keep Ozempic and Wegovy cold.

The soaring popularity of weight-loss drugs is big business for some of the largest pharm distributors in the U.S. But the profits aren’t soaring, partly because of the complicated and costly logistics involved in shipping the refrigerated medications, reports The Wall Street Journal (Aug. 22, 2023). Drugs such as Wegovy and Ozempic cost around $1,000 for a month’s supply and are in hot demand, but their operating expenses are higher because of the cold-food supply chain nature of the product.

The medications help patients lose weight by mimicking gut hormones. The drugs are once-weekly injections that patients administer on themselves using a penlike needle, similar to using an EpiPen, that must be stored between 36 and 46 degrees Fahrenheit. For wholesalers, it means arranging industrial-scale logistics designed to keep the medications cold throughout transport and storage, including protecting the injections from unpredictable events such as a truck breaking down in a heat wave.

“You need to have the product in refrigerated trucks going from your point A to point B and then when it gets into a location, time from a material handling standpoint to collect the product and then store it in a refrigerator,” says an industry analyst. Shipping refrigerated products such as medicine and food is more expensive than moving dry goods like apparel or appliances.

Trucking companies handle the drugs on specific trucks that keep the shipments in a tightly controlled environment, ensuring temperatures are stable and the goods are also protected from odors that can affect them. The trucks must carry a higher level of insurance and are outfitted to keep the products secure to prevent theft, a particular risk with expensive drugs like Wegovy and Ozempic that are in big demand and have a high street value.

The challenges highlight the complications drug wholesalers face in building out supply chains for medications in high demand. During the pandemic pharm companies rapidly worked to develop, manufacture and distribute highly fragile Covid-19 vaccines around the world, all while keeping the inoculations at ultracold temperatures. That involved designing special packaging to keep the vials at stable temperatures for long distances.

For additional insights into cold food supply chains, listen to our OM Podcast #7, featuring Temple U. Prof. Misty Blessley.

Classroom discussion questions:

How do “cold food supply chains” differ from traditional supply chains?
List a dozen products requiring a cold food supply chain.

OM Podcast #7: The Cold Food Supply Chain

Welcome to our latest Operations Management podcast! Today, Barry Render and his guest, Temple University Professor Misty Blessley, discuss cold food storage and the importance of this often hidden supply chain. Their talk includes benefits of a well-developed cold food supply chain, an assessment of the U.S. cold supply chain, and a look across the world.

Transcript

A transcript in Word of this podcast is available by clicking on the word Transcript above.

OM in the News: Europe Is Embarking on a Mining Renaissance

Governments and companies around the world are scrambling to secure resources needed to power the energy transition, but some European countries are now thinking it may be better to look closer to home, reports The Wall Street Journal (Aug. 10, 2023). Copper, lithium, nickel, and rare earths are all key minerals crucial to powering wind turbines, electric vehicles and other clean tech, but largely have been imported from abroad in recent decades.

With demand for critical minerals surging, European governments want to exploit resources closer to home.

“No doubt there is a real demand story,” said a mining expert. “We are talking about a 35-fold increase in lithium demand and we do not have any large-scale lithium mines in Europe. It’s a massive problem.” But as governments fast-track approvals on such projects and struggle to convey the importance of efforts to secure materials for the green-energy transition, resistance is growing among locals who stand to feel an impact and environmentalists who urge caution when moving forward with projects in sensitive ecosystems.

In Germany, Vulcan Energy Resources is looking to open a lithium mine, harnessing a new technology for extracting the battery metal from brine. In Sweden, Copperstone Resources is hoping to reopen a brownfield mine site to extract the red metal, while Adriatic Metals has just started mining for silver and zinc in Bosnia, with more projects planned from Finland to Greece. In Portugal, Savannah Resources is planning to dig out one of Europe’s richest lithium deposits.

In Europe, the mining renaissance comes after years of nearly no new mining activity on the continent. Usually, opening a new mine takes 10 to 15 years, often because permitting can take years. Local backlash against new mines isn’t uncommon. The industry has a long history of environmental destruction, poor relations with local communities and deadly disasters. In 2021, local opposition derailed Rio Tinto’s lithium project in Serbia.

However, governments want and need a secure supply chain of metals and minerals. Most critical minerals are processed in a relatively small number of countries with the threat made more apparent last month after China said it would introduce export restrictions to germanium and gallium—two critical minerals used to make semiconductors. Prices skyrocketed as consumers were suddenly unsure if they would have the raw materials needed to make chips for cars, phones and other tech.

Classroom discussion questions:

What is China’s role/position in the rare earths and minerals supply chain?
What is the status of that supply chain in the U.S.?

OM Podcast #6: The EV Battery Supply Chain

Welcome to our latest Operations Management podcast! Today, Barry Render and his guest, Providence College Professor Jon Jackson, discuss an important issue facing the auto industry: the supply chain for electric vehicle batteries. Their talk includes battery end-of-life issues, recycling in the U.S., and a look ahead to 2035 when the E.U. and several U.S. states will ban gas-powered vehicles.

Transcript

A transcript in Word of this podcast is available by clicking on the word Transcript above.

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. Contact your Pearson rep to learn more! https://www.pearson.com/us/contact-us/find-your-rep.html

OM in the News: The U.S. Enters the Lithium Supply Chain

These days, companies in the south aren’t looking to find more oil—they are instead prospecting for lithium, a metal that is increasingly prized around the world as an essential ingredient in electric-vehicle batteries. “If the U.S. is to ease its dependence for lithium on other countries such as China, it may need Arkansas to lead the way,” writes The Wall Street Journal (July 21, 2023).

The lithium geologic band running through the South

Exxon Mobil, a new player in the hunt for U.S. lithium, is planning to build one of the world’s largest lithium processing facilities in southern Arkansas, with a capacity to produce 75,000 to 100,000 metric tons of lithium a year. At that scale, it would equate to about 15% of all finished lithium produced globally. The prospect could have the equivalent of 4 million tons of lithium carbonate equivalent, enough to power 50 million EVs.

To push the project forward, Exxon and two of its announced competitors will have to profitably scale up the technology used to siphon lithium from brine, which has been an elusive goal across the industry. This particular geologic region, called the Smackover Formation, runs from Texas to Florida. It is rich with saltwater brine, which once bedeviled companies drilling for oil. That brine also contains small amounts of lithium, and the companies are now optimistic they can scale up technologies to extract it. Drilling for lithium with this extraction method is cleaner than traditional mining, and faces fewer regulatory risks.

The mining is expensive, though, costing about $1.5 billion to build 25,000 metric tons of capacity. The three proposed projects would create 6,000 jobs– and require 1,600 trucks by 2028.

Exxon believes it can leverage its engineering prowess to become a low-cost domestic supplier of lithium, and has had discussions with battery and EV manufacturers. The company would also benefit from U.S. green-energy subsidies, which allows for tax credits of 10% of the cost of producing lithium. The firm, generally bullish about the future of oil and natural gas, is also preparing for a future less dependent on gasoline. Last year, Exxon projected demand for auto internal combustion engine fuels could peak by 2025, while EVs, hybrids and vehicles powered by fuel cells could grow to more than 50% of new car sales by 2050.

Classroom discussion questions:

Why is lithium an important EV supply chain component?
What is Exxon’s strategy?

OM in the News: Nike Becomes a Supply Chain “Changemaker”

Sportswear giant Nike has cut lead times for orders from 60 days to just 10 days by installing over a thousand automated machines at supplier factories across manufacturing processes. The machines handle cutting, cementing, shoe assembly and solemaking, helping to increase efficiency and reduce labor times. Nike has also developed methods to produce footwear with 30% fewer production steps, and 50% less labor.

These “supply chain responsiveness” innovations are part of what makes the company a retail supply chain “changemaker”, that is, a firm bringing new technology to its supply chain operations. Retailers and brands are trying to overcome the turbulent backdrop of rapid inflation, shifting geopolitical disruption, and fragile global supply chains, writes Supply Management (July 18, 2023).

Nike has adopted radio-frequency identification and QR technologies over the past four years as part of efforts to create a single view of stock across global operations, which helped boost inventory visibility throughout the organization. The switch to more digital-led customer relations granted the company tighter control of its supply chain – now, its product distribution operations are centered around just 40 retail partners, compared to 30,000 at its peak.

Nike has aspirations to compete with Amazon’s delivery model by speeding up delivery times. The premise is of consolidating inventory from stores, retail partners and warehouses – meaning, for example, if a retail partner does not have stock it could connect with a Nike store nearby that does.

“Consumer preferences have changed forever, which will continue to send shockwaves up and down the supply chain. One day it’s out-of-stocks, the next month a glut of inventory is on the books. To get ahead of these supply chain shocks and manage unforeseen black swan events, complete supply chain visibility with trusted data has become a modern mandate,” says one industry leader.

Aldi and Tesco are two other top retail changemakers thanks to their investments in logistical efficiency, their integration of digital solutions, and their focus on reducing waste and emissions across their supply chains.

Classroom discussion questions:

What is a “changemaker” in the supply chain world?
What are some of the challenges of managing supply chains in today’s global economy?

OM in the News: America Is Back in the Factory Business

Manufacturing has always been an integral part of American life. Paul Revere opened a foundry that produced bells and cannons following his famous midnight ride. Ford’s assembly line made cars affordable to the masses. And U.S. industrial might helped win World War II, when nearly half of private-sector employees worked in factories. That portion plunged after the war, thanks to automation and U.S. companies seeking lower costs overseas.

Here is the good news. The Wall Street Journal (April 8-9, 2023) writes: “Record spending on manufacturing construction heralds a made-in-the-U.S. rebound, stoked by green-energy incentives and concerns about foreign supply chains; this is here to stay.” New factories are rising in urban cores and rural fields, desert flats and surf towns. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.

Retailers don’t want to carry excess inventory in their stores, and the U.S. factory allows the company to quickly replenish stock. Time is also of the essence for companies like FutureStitch, which sells socks commemorating events like the NBA Finals or the Kentucky Derby. It has factories in China and Turkey, but just opened a new one in California–the company’s first in the U.S. “There is more and more equity around Made in the USA,” said FutureStitch’s CEO.

Nearly 800,000 jobs were added in the manufacturing sector over the past 2 years. But the industry is actually hurting for workers—about 800,000 more are needed, which has lead to concerns that labor shortages and other bottlenecks could short-circuit the boom.

An despite the surge in factory building, many industries are unlikely to create entirely homegrown supply chains. An automated shoe factory Adidas built in Atlanta so it could get its products to market faster shut down in 2019, two years after its opening. (See our 2017 blog announcing its opening.) The firm moved production to Vietnam and China to achieve what it called “better utilization of existing production capacity and more flexibility in product design.”

Classroom discussion questions:

What factors are driving the manufacturing in U.S. resurgence?
What factors are working against it?

OM in the News: Is “Friend-Shoring” a Solution to Global Supply Chain Challenges?

The onset of the COVID-19 pandemic and Russia’s invasion of Ukraine had profound consequences for the global economy, not least by exposing the fragility of global supply chains, which had to contend with restrictions that prevented goods and raw materials from reaching their end destinations. And while a host of stop-gap solutions have been proposed to counter these issues, the flare-up of geopolitical tensions over the last year has prompted key trading players to look to “friend-shoring”—the manufacturing and sourcing of components from countries with shared political values—to resolve this persistent supply-chain turbulence. This also means countries perceived as economically safe or low-risk, to avoid disruption to the flow of business.

But this potential solution is not without drawbacks, writes International Banker (March 30, 2023). The practice has stoked concern within the international community about the possibility of further geo-political fragmentation and deglobalization of the world’s economy – the decline of interdependence between nations, global institutions and enterprises.

The US government, as an example, has stressed its intention to obtain components and raw materials from ‘friendly’ countries with shared values to increase security of domestic production. US Treasury Secretary Yellen set out the new approach to trade last year, saying: “Rather than being highly reliant on countries where we have geopolitical tensions and can’t count on ongoing, reliable supplies, we need to really diversify our group of suppliers. And we need to deepen our ties with those partners and to work together to make sure that we can supply our needs of critical materials.”

Yellen added that the US is providing $500 million in debt financing to its biggest solar-manufacturing company to build a plant in India to help diversify supply chains away from China. Other American multinationals are also opting for greater exposure to India—an ostensibly friendlier option than China. Tech giant Apple recently made friend-shoring moves, relocating some of its iPhone production to India from China. Currently, only 5% of Apple products are made outside of China, but this could rise to 24% by 2025.

The United Kingdom, meanwhile, proposed the creation of a network of liberty. “The more freedom-loving countries trade with each other, build security links, invest in our partners and pull more countries into the orbit of freedom, the safer and freer we all are,” said the Foreign Secretary.

Classroom discussion questions:

1. Explain the difference between friend-shoring, nearshoring, and reshoring? Where does Mexico fall?

2. What are the advantages and disadvantages of friend-shoring?

OM Podcast #1: Sustainability and Supply Chains

Welcome to our newest Operations Management text feature–bimonthly podcasts on topics we think you and your OM students will find interesting.

Jay and I will be creating 8-9 minute podcasts–posted on this blog. They will be tied to specific chapters in the text. Assignable auto-graded exercises using this podcast (in the form of multiple choice questions) are available in our MyLab OM. To learn more about these assignments in MyLab, contact your Pearson rep at https://www.pearson.com/us/contact-us/find-your-rep.html

Today’s topic relates to Supplement 5, Sustainability in the Supply Chain. In it, we talk about new government regulations, the clothing industry, Apple, and greenhouse gasses. Let us know what you think. The next podcast will be released in two weeks on the topic of Blockchains.

Guest Post: Supply Chains and Transportation Options

Prof. Howard Weiss is providing Guest Posts while I am travelling abroad.

There have been many articles detailing the supply chain problems at the California coast. In particular, this blog has an article detailing the ship backup at ports and an article detailing the recent unclogging at those ports. There are three main methods for manufacturers to acquire capacity for shipping their goods. They can contract out for space from a shipping company; they can charter an entire vessel; or they can own their own container ships.

Several large companies have recently changed from booking space with a shipper to chartering entire vessels. These include Amazon, Ikea, Walmart, Costco, Target and Home Depot for some of their shipping. For example, chartering accounts for roughly 25% of Costco’s shipping from Asia to North America. Chartering a ship gives these companies control over the sailings because as Target states, “As co-managers of the ship, we can avoid delays from additional stops and steer clear of particularly backed-up ports.” Another possible problem with contracting space is that the shipping company may not honor a contract as OJ Commerce, a furniture distributor, found out when Hamburg Süd shipping said it had no room on its vessels even though OJ Commerce had a contract with Hamburg Sud.

To gain even more control, some companies, such as Walmart, are chartering smaller ships in order to be able to use smaller ports. The tradeoff to chartering smaller ships is that it increases the shipping costs, which range in the area of $40,000 per day for vessels carrying 3,000 twenty-foot containers. In addition, some of these companies are also purchasing their own containers, which gives the company more flexibility but is costlier.

Others are going a step further than chartering by starting their own shipping line. For example, Lidl, the giant German retailer (with 11,000 stores in 32 countries and more than 200 warehouses in 30 countries), is starting its own shipping line in order to have more control over the transportation of its goods. It decided that this was preferable to other options. The obvious purpose is to reduce shipping delays but the new line should also reduce freight costs and increase shipping consistency and flexibility.

Classroom discussion questions:
1. Use Google to name Lidl’s major competitors.
2. What is a possible downside of chartering or owning your own ship?

Guest Post: Lumber, Sawmills, and Location Decisions

Prof. Howard Weiss is providing blog posts while I am travelling.

The Location Chapter of your textbook (Ch. 8) notes that “goods for which there is a reduction in bulk during production (such as a sawmill cutting trees to lumber) typically need facilities near the raw material.” While sawmills need to locate near the trees for economic reasons, the lumber industry itself has made location decisions since colonial times for other reasons.

The lumber industry in the U.S. began with New England colonies providing much of the lumber. The lumber was used in the colonies but also exported to Great Britain. By 1830, more lumber was being shipped out of Maine than any place in the world. Lumber is still exported from Canada and the U.S., which account for 12% and 8% of world lumber exports, respectively. China is the number one exporter and accounts for 13% of world exports.

As lumber supplies, i.e. trees, dwindled in New England, logging moved to New York and Pennsylvania and then to the Great Lakes region. By the beginning of the twentieth century, Midwest supplies were not sufficient and logging moved to the Pacific Northwest.

Recently though, the warmer weather in the Pacific Northwest and Canada has led to insect infestations and wildfires forcing lumber producers to move elsewhere, namely, into the South. Since 2021, 4.54 million board feet of capacity have been added to Southern States whereas Eastern Canada, British Columbia and the US West have all lost capacity.

In addition, the replenishment time for forests in the south is 20-30 years, which is less than for other areas. Major lumber companies have also moved south to Alabama, Georgia, Florida, Texas and the Carolinas because wood there is plentiful and inexpensive.

The figure below displays the number of lumber mills closed in the Northwest and the number of lumber mills in the South.

The move from the Northwest to the South means that different trees will be providing lumber. The Northwest forests were mainly Douglas firs whereas the Southern forests are Southern Pine trees. Southern Pine is not as straight as Douglas fir and is more prone to warping. This affects the choices of wood and design by the major users of lumber – the construction industry.

Classroom discussion questions:
1. What are the by-products from a sawmill?
2. Draw a figure of the supply chain for lumber, similar to the supply chain figure for soft drinks given in Figure 1.2 of your Heizer/Render/Munson text.

OM in the News: Port Supply Chains Unclog

Back in January, 109 container ships waited off the California coast to unload cargo in Los Angeles and Long Beach, the nation’s two largest ports. Consumers, stuck at home amid the pandemic, had unleashed an avalanche of orders for goods that overwhelmed factories and ports.

A container ship is unloaded at the Port of Los Angeles

Importers were paying $20,000 to send a single container from China to the U.S. — sometimes more than the goods inside were worth. Businesses had to backorder everything from bedroom furniture to kitchen fryers, if they could get them at all.

These days? No freighters are lingering off the Southern California coast. Containers from China go for just $2,000. Restaurants can order fryers and have them delivered in a couple of weeks.

The supply backlogs of the past two years — and the delays, shortages and outrageous prices that came with them — have improved dramatically since summer, reports AP News (Dec. 7, 2022). “We are in a very different place than we were,” said a supply chain exec. “If you ask, how long does it take to move stuff, there has been notable improvement. If you measure it by how long would it take to get a cargo from Asia to a destination port, dramatically better.”

The web of factories, railroads, ports, warehouses and freight yards that link goods to customers have nearly regained their pre-pandemic levels. The main factor behind the improvement has been diminished demand for manufactured goods. And having splurged on everything from lawn furniture and sporting goods to appliances and electronic gear during the COVID shutdowns, consumers have increasingly shown a desire to venture out and spend on experiences rather than goods. Demand has shifted toward services — restaurant dinners and plane tickets, hotel rooms and entertainment.

At the sprawling Southern California ports, the shipping backup has eased, in part because companies have sent cargo to Gulf Coast and Atlantic ports to avoid delays. Port Houston says its cargo volume is up 18% from this time last year. In addition to the reduced demand that has lightened the strain on supply chains, ports have become more efficient. Additional ships have increased the transportation options.

Classroom discussion questions:

What caused the longstanding backlog at California ports?
What options did operations managers have when unloadings were delayed by many weeks?

OM in the News: What Comes After “Made in China”

Decoupling from China will be slow, difficult and expensive for companies beginning to rethink their dependency on the world’s second-largest economy, writes The Wall Street Journal ( Oct. 29-30, 2022). Some are doing so because of rising tensions between Beijing and Washington, on everything from trade, technology and security to Taiwan.

The differences threaten to unravel decades of economic integration. Washington now wants certain products to be manufactured in the U.S., and has imposed new restrictions on semiconductor exports to China. China also wants to rely more heavily on homegrown suppliers. The supply-chain snarls unleashed by the pandemic and disruptions caused by China’s Covid lockdowns further strained relations between the countries.

Investment by American companies in China was already slowing before the pandemic. U.S. firms invested $15.4 billion in 2012. Investment sank to just $8.4 billion last year.

It isn’t going to be easy for the U.S. to wean itself from China. That country’s share of U.S. imports has shrunk in recent years, mostly as a result of tariffs, but it remains significant. The value of goods taken in from China was 17% of all U.S. imports this year.

The turmoil of recent years was enough for some American executives to diversify their supply chain networks. Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums. Inter Parfums, and GoPro cameras were among the U.S. manufacturers that shifted production to countries outside of China as trade tensions mounted.

Shifting away from China presents numerous challenges, as companies expand into Vietnam, India, Cambodia, Mexico and Turkey. Each option has drawbacks. Cambodia and Vietnam are promising but far smaller in terms of capacity and population. Factories in Vietnam are already jam-packed and have limited available space. Turkey has gleaming, high-tech factories but is beset by rampant inflation, complicating the management of costs and pricing. India has huge potential but needs newer infrastructure, such as better roads. But none of these places can compete with China, says one long-time U.S. CEO with factories in China. He says he has toured factories in Vietnam, India and Mexico where assembly lines are poorly organized and easily-automated tasks such as cutting and polishing sheets of metal are done by hand, limiting the speed of production.

Classroom discussion questions:

What are the arguments for leaving China?
For staying?