Caterpillar and Supply Chain Collaboration

Posted on October 22, 2010 by aviyer2010

Bloomberg News (Oct 20,2010) reports on a collaboration between Caterpillar and a supplier, Tenneco, to improve the overall manufacturing process, and decrease overall costs by 20 %.  The article reports plans by Cat’s CEO to leverage suppliers by decreasing the supply base and increase the level of collaboration and “pull 25 % profit from new dollar sales”.   The new Chief Procurement Officer at CAT is Frank Crespo, a veteran in the industry with a background in supply chain collaboration.  His goal is to change the culture at CAT to increase collaboration by shrinking the large supply base and improving coordination with the smaller number of key suppliers. Will collaboration create new opportunities for profitability at Cat, like Honda and Toyota ? Or will it create headaches, like Boeing’s recent experience ?  Should the goal be set as increasing profits or improving customer service ? Is this article an example of “coordination generated supply chain profits” and is 25 % marginal increase feasible ? Your comments welcome.

Posted in Collaboration, Supply Chain Issues | Tagged , , , | 20 Comments

Expensive iPad case, free iPad

Posted on October 17, 2010 by aviyer2010

The Oct 11 issue of Bloomberg Businessweek has an interesting story of auctions on Yahoo by companies in Taiwan. Apple currently does not sell the iPaDs in Taiwan. But savvy companies are selling iPad cases for over $ 1000 and proving a free iPad with the purchase. Including sales in countries where Apple has yet to launch the product generates sales of around 8 million units of the product. Should Apple crack down on such sales in unapproved markets ? Is the flexibility of providing the product free make it a legal global supply chain ? Is this another instance of the expected global supply chain leakage depriving a company of targeting its entry timing into new markets ? Your comments are welcome.

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Quidsi, Diapers.com and $ 500 million of diapers

Posted on October 17, 2010 by aviyer2010

Bloomberg Businessweek (Oct 11, 2010) has a story about Quidsi, the holding company that owns Diapers.com and Soap.com. The story reports on how a focus on diapers, with low 5-7 % margins, has enabled the company to build a loyal customer base by offering two day delivery for orders above $ 50. It describes a focus on quantitatively measurable metrics, optimized purchasing or items by SKU, synchronized with probabilistic demand forecasts.   The company hopes to sell 100.000 SKUs as it expands.  Can Quidsi manage its supply chain, with free delivery, to build a sustainable business ? Will the 25,000 SKU Soap.com site require different warehouse management skills than the Diaper.co site ? And can the company create algorithms to position its inventory to coordinate supply with impending demand in local regions ? The success of this second wave of ecommerce companies may tell us how parameters have changed in this today’s landscape ? What is Quidsi doing right that the Webvan’s of the past could not manage ? Your thougts.

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“The New Oil” privatizing global water supply chains

Posted on October 17, 2010 by aviyer2010

The Oct 18, 2010 edition of Newsweek has an article titled “The New Oil” and describes a private supply chain to take water from Sitka, send it to a bottler near Mumbai, India for sale to customers in the Middle East. The article goes on to describe several examples of private companies managing water resources and identifying the most desirable customer globally. Given that humans need water to survive, reducing consumption cannot happen beyond a point.  The consequent price changes thus generate a disproportionate impact on poor customers.  Will water become the commodity to cause conflict in the future ? Should the focus on conservation, market based solutions, technology to desalinate etc become as desirable as the current emphasis on sustainability ? Will global supply chains enable or increase the complexity of creating an effective market for water ? What do you think ?

Posted in Global Contexts, Supply Chain Issues, Sustainability | Tagged , , , , | 1 Comment

iPad Sales Growth and Global Supply Chain Impact

Posted on October 13, 2010 by aviyer2010

iSuppli (weblink http://www.macrumors.com/2010/07/20/isuppli-boosts-ipad-sales-estimates-through-2012-to-nearly-100-million/) suggests a three year demand for iPads of 100 million units.  Even from the start of the year 2010 through the end, for a product whose category did not exist before its launch, the estimate is close to 10 million units. How should Apple satisfy this demand ? The article cites increased production capacity rampup of “LCD panels and NAND flash” by suppliers. It also describes the iPad as the “Tickle Me Elmo” of the 2010 holiday season.  Imagine being faced by such a demand surge, how should Apple respond ? Is it a good idea to increase prices to soften demand ? Should large capacity commitments and risk be taken by the supply chain to chase demand ? Imagining how to harness such demand surges changes the supply chain’s role to be a key player in driving top line growth – from its distant past as a cost driver alone. What would you suggest for Apple’s global supply chain ?

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Supplier Diversification and survival

Posted on October 13, 2010 by aviyer2010

A Financial Times article (“Suppliers Shift Gears to Survive”, FT, Oct 5,2010) describes small to medium sized firms struggle for survival. But it brings up an interesting issue – can firms that monitor participants in the supply chain (that they are part of) take advantage of opportunities to grow during the downturn. It quotes a manager of Maxi Container – the company expanded into new industries to survive. Another firm mentioned is Keats Manufacturing – that company took over a plant and moved into the defense industry. Yet other companies, such as Industrial Specialties, expanded into global markets in Brazil and India.  Can a focus on capabilities, rather than current products, coupled with nimble decision making, increase the odds of survival of small firms ? Should careful monitoring of the entire OEM supply base enable a small firm to seize opportunities by minimizing disruption for the OEM ? What do you think ?

Posted in Global Contexts, Operations Management, Supply Chain Issues | Tagged , , , , | 1 Comment

Baristas at Starbucks – “No More than two Drinks”

Posted on October 13, 2010 by aviyer2010

A Wall Street Journal article (Oct 13,2010) reports current plans at Starbucks to improve the quality of drinks by making them fresher. The new process cuts batching – requiring milk be frothed separately for each order. It also restricts barista to no more start the next drink while finishing the first, reduces moving around etc. Many baristas in the article suggest that customer wait times may be longer and that some drinks make take longer. Will slowing down and visibly communicating that more time and attention is being paid to the drink result in higher quality and tolerance for the higher consequent waiting times ? Or will such “lean” processes result in learning, fewer errors and better customer satisfaction ? What do you think ?

Posted in Operations Management, Service Operations | Tagged , , , | 1 Comment

Forever 21 and dual sourcing

Posted on October 10, 2010 by aviyer2010

The Oct 5 edition of the Wall Street Journal described “fast fashion” at Forever 21, a chain started by Korean immigrants in Los Angeles. The store was reported to have revenues of over $ 3 billion in 2010. The company uses local manufacturing sources in Los Angeles for their fashion products and lower cost sources, with long lead times, for their basic products. Such a strategy has enabled them to both react to trends and compete on price. The article focuses on the company’s expansion plans in Europe and going global.  At the heart of their strategy is the ability to carefully manage the supply chain to have both, as Marshall Fisher describes in his HBR article, “responsive” and “efficient” supply chain structures to offer”functional” and “innovative” products (quotes refer to Fisher’s article on “What is the Best Supply Chain for your product” – Harvard Business Review”). Is Forever 21 a model of the future of retailing ? How should the company balance its ability to source locally for stores all over the world ? Your thoughts

Posted in Global Contexts, Supply Chain Issues | Tagged , , , | 1 Comment

Tod’s – “A Shoemaker that walks”

Posted on October 10, 2010 by aviyer2010

The New York Times (Oct 8,2010) reported on Tod’s an Italian shoemaker that has maintained manufacturing in Italy, and does all of its design and development based on the founding family’s instinct for comfortable design. The company focuses on its distinct style, high quality materials, old fashioned tools that are less technology intensive and more focused on fashion instinct. By cultivating a loyal customer base, the company maintains margins by passing along the cost of materials to customers. Despite the recession, the company has remained profitable. The owner says in the article that reducing costs by moving offshore would destroy credibility in the eyes of its customers. Is demand affected by the production and design source ? Is a slow and focused approach that denies use of technology a reasonable model ? Your thoughts

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Outsourced Legal Services

Posted on October 1, 2010 by aviyer2010

A recent New York Times article described the outsourcing of legal work to lawyers in India. The concept of splitting white collar work into a standard and a customized component is interesting. A careful splitting of such work requires coordination of the two parts and assumes that the reports generated can be pieced together in a modular format.  Does this change the way legal reports will be produced ? Will the back and forth between the customized and standard parts of the report ruin any cost efficiencies ? What are the limits to such work process adjustment ? Which industry will be next – and, more importantly, how will this apply to higher education.

Posted in Global Contexts, Service Operations, Supply Chain Issues | Tagged , , , , | 1 Comment