Walmart: technology and inventory.

Theme of the week of our Supply Chain Management course is “Inventory.” Inventory management is a crucial step for the entire SC of a company. Its goal is to fulfil suitable levels of customer service while keeping inventory costs within reasonable boundaries.

Focusing on the inventory, Walmart has been able to stand out among similar stores, becoming “the world’s largest and arguably most powerful retailer with the highest sales per square foot, inventory turnover, and operating profit of any discount retailer (see here).”

A considerable percentage of its success is based on technology, starting back in 1975, with the first utilization of an electronic cash register, which was able to keep track of each purchase, providing a constant update of the inventory. In 1983 came the bar code for scanning POS (point-of-sale) data. After almost 20 years, RFID (radio frequency identification) technology literally revolutionized Walmart’s inventory management.

Let’s start with the introduction of bar codes. With the utilization of barcodes, Walmart was able to track “what is being sold … [and] what prices are popular” (see here) obtaining competitive advantage and leverage over its suppliers. As pointed out in the article mentioned above, Walmart’s strategy was quite powerful: 'We want to sell this at a certain price. You make it at a certain price, or we're not going to work with you.' This approach affected Walmart’s SC in two ways: it allowed them to buy products at a lower price and to revise the inventory based on customers’ demand (stocking up on products loved by customers while reducing the not-so-loved ones).

Then, in the early 2000s, RFID technology burst into the scene and immediately had a strong effect on Walmart’s inventory management. The technology was able to identify and track any object, transferring its information from the tag directly to the biggest and most powerful computer in the world involved in inventory management. In this way, there was a substantial  cut of “the volume of excess inventory in Walmart’s massive supply chain,” “by almost one-third,” according to this article, thus decreasing the inventory costs. 

                                                                                                      

What other technology will Walmart embrace in the next future in order to maximize the result of its SC? Walmart knows the products that its customers buy now, so it might focus on what its customers would like to buy tomorrow.

References:

http://www.usanfranonline.com/wal-mart-successful-supply-chain-management/

http://www.usanfranonline.com/rfid-technology-boosts-walmarts-supply-chain-management/

http://www.pbs.org/wgbh/pages/frontline/shows/walmart/secrets/barcode.html

http://www.cio.com/article/147005/45_Years_of_Wal_Mart_History_A_Technology_Time_Line

Silly Walmart And Other Stories.

First, I would like to talk about the Walmart article. It seems to suggest that Walmart got almost everything right in its supply chain: from demand forecasting to ensure that adequate quantities of inventory got to its store locations, to good inventory management practices ensuring timely resupply orders – all operations optimized to laser-like precision. But… in the end it failed to foresee or plan for how its staffers would actually get the merchandize languishing in backrooms to the shelves? Hmm.

The causal relationship between out of stock and layoffs developed in the article is flimsy at best and not very well developed. How much of the stock out costs that have been calculated in the article can be traced solely to the inadequate staffing at stores, right at the end on the downstream end of the supply chain, and how much of it can be attributed to other factors? The comments section for that article was very interesting. One of the comments was by a Walmart store manager explaining how stock outs occur most frequently at the beginning of the month when low-income families get their SNAP (Supplemental Nutrition Assistance Program) benefits, which would seem to suggest that these stock outs occur due to product flying off the shelves. This creates a problem where there isn’t enough staff on hand to rapidly replenish the shelves from the back room. This is a problem, but then I suppose most businesses would like to be in a position where they have to rapidly replace product on their shelves. As one meme would have it:

Going off on a tangent, the Walmart website says that, “today, Walmart operates more than 11,000 retail units under 69 banners in 27 countries” (http://corporate.walmart.com/our-story/our-business/locations/). It would have been interesting if the author of the article had commented on whether there was a similar trend in other locations around the world. With locations in Africa and South East Asia, where labor costs would be lower, I imagine it would not be as big a problem as here in the United States.

Summing up on the Walmart article, in my opinion, it is somewhat naïve to assume that an organization like Walmart, known to be smart about its supply chain planning, using optimization methods that factor in variables like shortest delivery routes, would overlook something as simple as investing another $448 million in additional staff at the stores for a return of $ 1.29 – 2.58 billion.

Moving on to the article on building flexible supply chains for uncertain times, with its emphasis on having an agile, dynamic, proactive, collaborative and responsive supply chain planning process that revolves around a low-response time decision-making process that responds quickly to demand volatility by having cross functional teams, that provide a cohesive and organization-wide, holistic response to changing market dynamics and price fluctuations across supply chain components, made for sensible reading. Mostly – except for the advice to “…deal with changing conditions by making production processes more flexible—shifting manufacturing locations quickly as shipping costs change, for example.” Written in March 2009, with the global crisis of 2008 still underway, and with most organizations engaged in aggressive cost reduction strategies, this sage’s advice to them, about potentially investing millions in moving capital equipment around or setting up new manufacturing locations is a bit hard to swallow.

Furthermore, this article and the article, Ten Ways To Improve Inventory Management, for me, overlook a critical factor – critical for any supply chain that is global at least. And that is the relationship between international trade dynamics and inventory management – how one impacts the operational effectiveness of the other.

In The World Is Flat, Thomas L. Friedman talks about globalization forces and technology as one of the great enablers that flattened the world, making it more interconnected and transparent across borders. There are other factors which have contributed to the globalization drive. The work done by organizations such as the World Trade Organization, United Nations Conference on Trade and Development, World Bank, along with the evolution in global trade in terms of bilateral and regional trade treaties, free trade agreements and the rationalization of tariff structures (which have traditionally been used as a tool of trade regulation by countries, geared towards protectionist policies). All of these factors combined have given us a world where trade across borders – the movement of goods and, today, even services, has become more fluid.

Resultantly, organizations have been able to take advantage of expanding globally, and by extension, taking their supply chains across borders to take advantage of economies of scale made possible due to labor differences – both in cost and productivity. However, there still remain many impediments to a truly free global market, unconstrained by borders. Different rules and regulations surrounding import / export requirements, inefficiencies in say port operations, geopolitical uncertainty, border delays, inadequate infrastructure and even blatant and ubiquitous corruption, are just some of the factors that play a major role in hampering the free flow of goods and services through global supply chains – and by extension have a cascade effect on how nimbly organizations with global supply chains are able to plan and manage their inventories. 

Comparing whole foods and Trader Joe’s supply chain

Comparing whole foods and Trader Joe’s supply chain

This blog post is with respect to articles relating to supply chain techniques in the first two weeks, based on a report that I had come across and based on company structures that was discussed on week #2. 

Whole foods Market, founded in the year 1978 is a company that only sells organic and natural foods. Now, with its 284 stores across the United States and a couple of stores in Canada and Great Britain it has grown to be a successful business with revenues of about 8 billion dollars in the year 2009. Whole foods has a totally decentralized back end. (The company consist of 12 geographic divisions, a national headquarters, regional distribution centers, meat and seafood processing centers and a specialty coffee/tea procurement operation.) The stores operate under minimal governance and are given maximum freedom to source a product mix that is appropriate for their location. The only governing rule put in place by the corporate office is that, stores must not purchase products with artificial flavors, preservatives, colors, sweeteners, or anything that is not naturally raised or produced. Store managers at Whole Food market, are empowered to make a decision on what products and how much to buy; therefore differentiating itself form other grocery stores. 

The overall approach of whole foods is about sustainability since, Whole Foods chooses suppliers from farms that perform organic agriculture that builds soil quality, safeguarding water quality (by preventing harmful runoff from using pesticides), and overall, protects the safety of crops produced. Apart from crop produce,  meat and animal products (milk, etc.)  are sourced from suppliers that prohibits the use of synthetic growth hormones and antibiotics.

Another such company that mostly sells organic products, Trader Joe’s started in the year 1958 sells their products a little different from their direct rivals. It is often tag lined as the 'neighborhood store' selling premium products at low prices.  Even though they manage a very secretive and a trustworthy relationship with their suppliers, Trader Joe’s are a supplier’s dream on many accounts. The company always pays their suppliers on time, offers a transparent procurement process, and doesn't charge shelving fees like traditional grocers. 

Trader Joe's limits its supply chain by selling their own in-house brands that they have created and thereby effectively reducing the number of its suppliers leading to a more controlled and efficient supply chains. The added advantages along with it is reducing its marketing costs and the number of SKUs in its stores (A typical Trader Joe would carry around 2000 SKUs compared to typical grocery store that carries around 30,000) . Trader Joe’s also maintains its payroll down by having lower head count in each location per dollar sales than its competitors. But, it makes up by investing a significant amount in employee relationships making it one of the most popular places to work in the country. It offers for its employees, the higher than usual compensation and cultivates a work culture that is based on collaboration, autonomy and fun.

Upon comparing the two companies gaining market share with their unique strategies, there's another company that is a mix between companies discussed above and amazon. 

Abe's market.com is a company that sells natural products online. A company that is exploding given the current demand for organic foods, helps connect actual buyers seeking natural products with companies that make them. Abe's market has witnessed an amazing double digit growth for the past 5 years straight. 

A question to be answered would be with retail sales of organic food increasing from 3.6 billion dollars in 1997 to 21 billion dollars in the year 2008. Which of these companies would actually do better than the rest over a long term? 

Source:

[1] http://ocw.mit.edu/courses/sloan-school-of-management/15-768-management-of-services-concepts-design-and-delivery-fall-2010/projects/MIT15_768F10_paper05.pdf

[2] http://www.traderjoes.com/about/

[3] http://www.wholefoodsmarket.com/company-info

[4] http://www.wholefoodsmarket.com/sites/default/files/media/Global/PDFs/2012GreenMissionReport.pdf

[5] http://www.abesmarket.com/abe-story

[6] http://www.forbes.com/sites/chrisversace/2013/06/26/looking-at-the-intersection-of-amazon-com-and-whole-foods-market/

Ikea Supply Chain: Sustainability

This week, we read about Ikea's "sexy" price tags and the way they are developed. First a product matrix is used to identify missing products, then a price-point is determined, a design is made, and a supplier is selected. Often times products don't become a whole until their parts are purchased in a store (i.e. a chair and it's cushion, etc). However, this article did not mention sustainable initiatives within the supply chain, which is a core concern of the company as evidenced by this case.


Ikea uses an "e-wheel" to assess the environmental impact of their products by identifying what stage of life the resources for a particular product may be in. For instance, some products require raw materials like wood, while others may be shards of fabric used for rugs, recycled plastics, etc. Additionally, Ikea holds it's suppliers to an environmental code of conduct called "IWAY". IWAY complies with international regulations and implements minimum environmental regulations for all suppliers who work with Ikea.

Internally, Ikea designs it's products to use as little materials as possible. Thus chair legs are often  hollow and tables are often filled with a honeycomb texture instead of being completely wood. Additionally, Ikea has created partnerships with several organizations including UNICEF (in an effort to prevent child labor) and the World Wildlife Fund (to promote sustainable forestry and procurement).

In the end, Ikea's supply chain is more sustainable than what meets the eye. Sustainability starts with raw material procurement, supplier standards, internal design, and shipping (as mentioned in the course reading).


Does Ikeas' sustainable supply chain change who their potential customers are? What about its sustainable design, which some consumers may regard as low quality (hollow legs, tables, etc.)? Is Ikea doing enough to promote sustainability as one of it's core concepts to the public?


Case/Article link: http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/introduction.html#axzz2dw7usjj9

Image taken from http://businesscasestudies.co.uk/ikea/building-a-sustainable-supply-chain/the-primary-sector.html#axzz2dw7usjj9

Survey Article: Supply Chains in Health Care

In my search for resources to help me begin to gain an appreciation of how order and inventory management are addressed in health care (particularly on the level of large systems) I stumbled on a working paper by Manuel D.Rossetti, Ph.D., P.E., Professor of Industrial Engineering at The University of Arkansas. Inventory Management Issues in Health Care Supply Chains [1] is a concise and approachable article that describes the current state of the health care value chain, problems with the current model (where opportunities for streamlining to the benefit of the health system might exist) and ways in which these problems might be mitigated.

Rossetti looks briefly at the two ends of the spectrum, e.g. Mercy Health System in St. Louis, comprised of 31 hospitals across 4 states [2] which manages its warehousing and in-system shipping entirely in-house thereby cutting overhead from distributors, and the Nebraska Medical Center, a single hospital which outsources its inventory management entirely to Cardinal Health, a very large ($103 billion) healthcare supply chain company. [3] He then goes on to survey the literature from the past decade or so, and finally suggests topics for future investigation.

This paper is a nice survey of current thinking in the field of health care supply chain management and is an excellent introduction for anyone wondering what kind of infrastructure is behind their physician or nurse’s ability to reach into a cabinet for a needed item at any given time.

As an aside, it is worth taking a look at the 2011 Healthcare Supply Chain Top 25, wherein Gartner “strives to identify organizations that use their supply chains to improve the patient care experience.”[4]

Question:

Hospitals need to stock consumable items across a broad cost-range, e.g. alcohol prep pads costing pennies or less per unit to teeny-tiny drug-eluting stents for your plugged coronary arteries costing more than $1000 each. How do they optimize ordering and inventory so that the overhead for items across the cost range is optimized? Remember that a “stock-out” condition for a stent could be devastating or lethal for a patient who presents acutely with a heart attack. Delivery the next morning before 8 a.m. won’t cut it.

References:

[1] Rossetti, M.D., (June 5 2008). Inventory Management Issues in Health Care Supply Chains http://www.uark.edu/~rossetti/reports/healthcare_supply_chain_rep.pdf accessed 10 September, 2012.

[2] Mercy Health System website, http://www.mercy.net/newsroom-mercy-quick-facts accessed 10 September 2012.

[3] Cardinal Health website http://ir.cardinalhealth.com/ accessed 10 September 2012.

[4] Blake, B., O’Daffer, E., et al. 9 (30 November 2011). The Healthcare Supply Chain Top 25 for 2011 http://www.gartner.com/resources/227200/227253/the_healthcare_supply_chain__227253.pdf accessed 10 September 2011

Green Supply Chain

Vivian Cheung
Feb 3rd 2012

As the public becomes more and more concern about the sustainability of our planet, consumers are asking more and more questions about the products they are purchasing. Despite of the public’s focus on the environment, benefits of reducing a company’s carbon footprint is the least of the concerns of most companies. Most
of them are unaware of the linkage between environmental performance and financial gain. Little do they know, their companies can find cost savings by reducing the environmental impact of their business’ supply chain, from purchasing, planning, and managing the use of materials to shipping and distributing final products. Some companies have already ridden the green supply chain wave to make their contribution in reducing carbon footprint.
In 2008, Burton, world’s leading snowboard company, automated its B2B e-commerce transactions with customers. By doing so, the company not only reduced its paper usage significantly, but also decreased its cost for postage, paper and envelopes.[1] Companies such as General Electric (GE), Toyota Motors, American Airlines cargo, Maersk Line have started using environmental accounting - a process that evaluates the effectiveness of environmental activities from the perspective of cost. In particular, General Electric has a program called "Ecomagination" where they are focused on growing their revenue stream from environmentally friendly products to the tune of 20 billion dollars by 2010. [2] General Motors has also reduced disposal costs by 12 million dollars by establishing a reusable container program with suppliers. Other high profile companies such as Wal-Mart and Apple have also made attempts to reduce the environmental damage caused by not only their companies, but also their suppliers in US and overseas.[3]
Another more recent attempt would be from IKEA, who announced in the beginning of this year to use cardboard pallets to replace for wooden pallets for shipment of their products. A major environmental issue with wooden pallets is that they are vulnerable to insects’ attacks. A wooden pallet needs to be fumigated before it is shipped across national borders, and the chemicals cause ecological
problems when the wood is recycled into paper. Cardboard pallets do not have the same problem. The company has developed a new way to fold cardboard in the manner that would provide the same strength as wooden pallet. Cardboard pallets weights only 10 % weight of the wooden pallet, which will save the company $193 million a year in transportation expenses. The cardboard pallet will be discarded after single use and recycled in the same manner as wrapping paper, protective cardboard corners and such packing material used with IKEA products.[4]
The popular belief has led us thinking that being environmentally friendly will increase expenditure. However, there are lots of companies out there that have proved to us it is possible to improve both financial and environmental performance. So, to all the supply chain executives out there, do not hesitate to think green, because you are out of excuses.



References
[1] "Introduction to the Green Supply Chain." Supply Chain Management.
Web. 03 Feb. 2012.
<http://logistics.about.com/od/greensupplychain/a/green_intro.htm>.

[2] "Best Practices." Green Supply Chain. Web. 03 Feb. 2012.
<http://greensupplychain.com/best_practices.html>.

[3] Gupta, Deepak. "Green Supply Chain: Is Going Green a
Cost-conscious Decision?" Management Comes Alive ! Web. 3 Feb. 2012.
<http://www.som.iitb.ac.in/live/greensupplychain.html>.

[4] "IKEA Swaps Wooden Shipping Pallets for Cardboard Ones to save
Money." Ecofriend - Promoting Eco Friendly Lifestyle to save the
Environment. Web. 03 Feb. 2012.
<http://www.ecofriend.com/ikea-swaps-wooden-shipping-pallets-cardboard-save-money.html>.

Predicting the Unpredictable: Challenges of Planning Demand and Supply of LPG in Indonesia

These are some of the headlines from local news in Indonesia for the past couple of days:

• LPG (of type 3 kilogram) is Scarce in Majalengka (Friday, February 3, 2012 via seputar-indonesia.com - in Indonesian)
• Supply Interrupted Due To Bad Weather, LPG is Scarce in Lombok (Friday, February 3, 2012 via detiknews.com - in Indonesian)
• LPG (of type 3 kilogram) is Scarce in Kendal (Thursday, February 2, 2012 via kompas.com - in Indonesian)
• LPG is Scarce in Palopo (Wednesday, February 1, 2012 via tempo.co - in Indonesian)

LPG sub-agents queuing at LPG distributor agents in Kendal, Central Java (via kompas.com)

From Kerosene to Liquefied Petroleum Gas (LPG)

Over US$6 million is budgeted by the Indonesian government every year to subsidize oil fuel in the form of kerosene, low-octane petrol, diesel fuel and LPG for household consumers. Kerosene receives the largest amount of subsidies (over 50% of the budgeted funds for oil fuel is spent for kerosene).

Kerosene is majorly used by lower class household consumers in rural areas of the country, in which  the population is mostly composed of. Most of them relied on kerosene as a main source of fuel for cooking because it is cheap. Since it is affordable, people became dependent on kerosene. This is causing trouble for the government because global oil prices are rising and consequently inflating the government's budget.

As a solution, in 2007 the government established a program to convert household consumers from using kerosene to LPG. LPG is also subsidized, but not as much as kerosene. In short, the government can save a lot of money by diverting household consumption to LPG.

Apart from that, converting to LPG triggers the growth of equipments industry for LPG related appliances, such as stoves and gas cylinders. Growth of industry means growth of employment, which subsequently helps the economic development.

Kerosene to LPG conversion program (via pertamina.com)

Challenges in Supply Chain

5 years since the deployment of the kerosene to LPG conversion program, problems are starting to arise. Pertamina (State Oil and Natural Gas Mining Company), as the sole producer of LPG in Indonesia, are facing problems in their supply chain. As described in some of the news headlines, LPG in some areas of the country are scarce. Demand for LPG in these areas are not fulfilled.

Looking at some of the areas mentioned above, they are not concentrated in a particular region of the country. Majalengka and Kendal are both located in the populous island of Java. Majalengka is a regency located in the western part of Java, while the location of Kendal is in the central. Lombok and Palopo on the other hand, are located in the eastern area of Indonesia, which is not as populous as Java. Lombok is an island in the south east of Indonesia, while Palopo is a regency in the island of Sulawesi in the north east. This shows that location has little to do with the shortage of supply in LPG.

One area of supply chain of LPG that are facing some problems is shipment. In the case of Lombok and Palopo, bad weather was the main reason for the insufficient supply of LPG to those areas. Ships were unwilling to sail because it was too risky. Pertamina did not anticipated the interruption of shipment, as a result, LPG in Lombok and Palopo were short in supply because the stock of LPG in these areas were depleted while demand were constantly growing.

In the case of Kendal, one of the reasons for the lack of LPG mentioned in the article was the sudden increase in demand. At one point, plenty of people were using wood to cook. Then came the rainy season. Those who were still using wood to cook are now finding it hard to find dry wood to burn. Because of that, they had to switch to LPG. In this case, weather did not interrupt the shipment process. However, it suddenly increased the demand for LPG, while the amount of stock of LPG did not change.

Two large tankers filling up petrol and LPG at one of Pertamina's depot in Tanjung Uban, Bintan island, the province of Riau islands. Petrol and LPG from this depot are shipped and distributed to the island of Java. (via antarafoto.com)

Forecasting is key

Planning demand and supply in a supply chain is vital. Pertamina could have done better in preventing the LPG scarcity problem had they predicted variables such as the weather. However, that is the problem, weather these days are unpredictable.

Alternatively, Pertamina could have made use of weather forecasting technologies to at least have a better estimation of what may happen in the future. After all, it is the welfare of the people at stake. 

Sources:

1. http://www.seputar-indonesia.com/edisicetak/content/view/466195/
2. http://us.detiknews.com/read/2012/02/03/153615/1833649/10/pasokan-terganggu-karena-cuaca-buruk-elpiji-langka-di-lombok?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+detik%2FkgMZ+%28detikNews%29
3. http://regional.kompas.com/read/2012/02/02/16421489/Elpiji.3.Kilogram.Langka.di.Kendal
4. http://koran.tempo.co/konten/2012/02/01/263245/Elpiji-Langka-di-Palopo
5. http://gasdom.pertamina.com/produk_dan_services_elpiji_konversi.aspx

A Supply Chain Puzzle

While I was listening to Car Talk on NPR this past weekend, I couldn't help but notice that the previous week's "puzzler" was supply chain relevant (as you may know, this is not always the case). As it is the end of the semester, I thought it might be a good opportunity to put everything we've learned so far together, and also kind of fun to try to solve this supply chain case study.

The story goes like this: in the late 60s/early 70s, Ford released a new car model. It was fairly well-received, but like any new car model there were some initial 'bugs' that people discovered, and there was one problem in particular that the good people at Ford could not figure out. Dealerships were reporting that exactly one out of every six cars they received from the factory arrived with a dead battery.

Ford's engineers tested the wiring in the cars for faults, but couldn't find anything. They spoke with the battery supplier, and tested incoming batteries to see if one in 6 were faulty, but again: the batteries themselves were fine.

So Ford hired outside consultants and experts who ran tests on the different things... even the interaction of chemicals used in this particular model, but none of the outside people could pinpoint exactly what was wrong. For three months the mathematical equation held: the dealership could expect exactly one of every six cars to arrive with a dead battery.

Finally, a quality control engineer went to the factory that produced this particular car model and walked the entire line, talking to workers at every single stage of assembly. He followed a number of cars all the way to the Final Testing area, and every single car assembled would start up just fine and be driven to the holding lot.

Finally, "He... explained to the tester the situation and asked him if he could think of a reason why one out of six batteries were always dead on this particular model. The guy stared off into the distance. He pondered. He scratched his butt. And then he smiled, and he said he knew EXACTLY what the problem was."

Since we are all supply chain experts at this point, what was the problem? (Hint: This was the old days, when cars were big.)

For the answer, highlight the hidden text below.

[answer]

Here's the answer: As I mentioned, at this time, American cars were BIG. And the trucks that carried the cars could only carry SIX cars. As a result, one of the cars was always at such an angle that the mercury switch for the trunk light (which was the standard at the time) was turning the trunk light on the entire time the car was being was transported, which drained the battery.

[/answer]

So, given what we've learned this semester, what elements of supply chain management were successful in resolving this problem? Ford was able to learn from this mistake, but what lesson could be applied to future problems?

You can listen to the problem here, and the answer here. Or, if you're really adventurous, listen to the whole show here. (note: the answer is not revealed in that show.)

3-D Printing Revolutionizes Production Of Quality Assurance Materials In Auto Manufacturing

RapidFit+ (a product of Materialise) has used 3-D printing technology to transform the quality assurance process for manufacturers, enabling the production of previously difficult or even unthinkable designs and making the entire process cheaper, faster and more responsive to design changes.

I believe that this technology has been primarily used in the automotive industry, so far. In these supply chains, smaller manufacturers produce parts that are put into larger parts by other manufacturers, which may be added to even larger components by another manufacturer, and so on until the final components are installed by the automaker in a vehicle. These supply chains can be incredibly complex, and if one manufacturer anywhere on the chain produces parts outside of a very strict set of specifications the whole system quickly falls apart.

In the past, individually machined (and very expensive) aluminum or steel relief-molds were used by manufacturers to check the accuracy of parts being produced. When a part was produced, it could be slipped into the mold and checked for accuracy. Today, the introduction of new hyper-precise 3D printing technology and the ubiquity of the Internet mean that custom 3D printed objects can be used to verify parts as they move though the manufacturing process.

At RapidFit+, an original equipment manufacturer (OEM) can use an online platform to upload 3D and engineering data who then works out a precise rig that can accurately check the dimensions of the finished part within +/- 0.05 mm. At any time the OEM can use the online platform to approve the design or make changes to the parts if necessary. Once approved, a fixture is produced and the precision calibration units are 3-D printed (These are orange things you see in the photo at the top of this post.) and sent to the part manufacturer.

This technology brings numerous advantages to the supply chain. As previously stated, these quality assurance rigs were traditionally made from a solid block of metal. Aside from the huge expense of creating it, these rigs were only accurate for a single part, possibly on a single model of car. With the adoption of 3-D printing, adjustments can be made when small changes are ordered, or for similar parts between different models. Further, these new quality assurance rigs can be produced cheaply, quickly, durably (tests have shown that even after 10,000 cycles wear is limited to only a few microns) and as previously stated the OEM can send design changes in real time. And because the rigs are built on a modular structure, and only the precision "locators" are custom printed, a rig can be configured in multiple ways for multiple parts depending on needs of the part manufacturer.

Currently, RapidFit+ uses this technology in-house, but it is not impossible to see a future where individual part manufacturers invest in 3-D printing technology and their customers are able to upload design specifications directly.

Question: Within the field of supply chain management, for what other applications could 3-D printing technology be suitable?

RapidFit+ using 3D printing to check mass produced parts

Even Without Two Turntables or a Microphone, Reverse Logistics are "Where It's At"

Reverse logistics appears to be all the buzz these days, as many firms look to expand their supply chain beyond the traditional one-way flow that ended when a product got to a consumer's hands.

DIESL, the logistics arm of the Tata Group we discussed in class, has announced it will begin placing a greater focus on reverse logistics across India in order to complement its current supply chain services. The effort is a part of the company's overall commitment to environmental responsibility, and executives expect that this renewed focus will help minimize overall costs for reverse logistics as well as maximizing value from returned items.

In the United States, Ryder System, Inc. (a name you may recognize from its seemingly omnipresent fleet of moving trucks) recently announced it would be expanding its reverse logistics capabilities to include co-location solutions. According to the announcement: "By co-locating the distribution management of finished goods with returns processes such as technical repair, refurbishment, and repackaging in the same facility, this solution offers companies the ability to achieve greater speed to shelf, visibility, and cost-savings." In plain English, this is actually similar to the Dell technicians (if I remember correctly) who could operate out of FedEx's distribution hubs, as mentioned in class. So the idea is not a new one, but it does appear that Ryder is opening those capabilities up to a much wider range of clients.

Specifically, co-location as a part of reverse logistics can help a company with its sustainability goals, reduce its carbon footprint, save money on fuel costs and reduce total inventory levels through a quicker turnaround of returned product. (This is especially critical in high-tech industries where product life-cycles tend to be short.) The environmental impact of reverse logistics is so pronounced, in fact, that Steve Sensing, Vice President and General Manager of Hi-Tech/Electronics for Ryder Supply Chain Solutions said: "An effective reverse logistics strategy is actually the ultimate recycling process."

Question: do you find the environmental or financial incentives from developing an effective reverse logistics program to be more compelling? Why?

The Reverse Logistics Association

If You Don't Want to Get Hit by the Bullwhip, Examine Your Forecasting Technique

In supply chain management circles, "Inventory" continues to be the single issue driving discussions among managers around the water cooler. In fact, "Inventory Management and Planning" was listed as the #1 concern for senior decision makers, as reported by Crimson & Co.'s list of top supply chain concerns for 2011.

On this topic, one of the ideas discussed in class this week was the bullwhip effect, and Supply Chain Managers have been looking for ways to manage their inventory in a way that can minimize its impact on inventory levels throughout the supply chain. The consequences of the effect can be severe. It results in each level of the supply chain retaining additional safety stocks in order to be prepared for anticipated demand. This can also lead to inefficient production and/or excessive inventory. And if a supplier fails to meet production quotas, this can also result in contractual penalties.

The effect can be minimized in a supply chain if there is a good system of information sharing among the members, which translates to coordinated action. To further minimize the bullwhip effect, supply chain managers have sought to reduce uncertainty, variability, and lead time in placing orders. (While these sort of strategies can all have broad effects on reducing inventory cost, a paper published in the International Journal of Information Technology & Decision Making argues that it is more variability in lead time, rather than mean lead time, that affects inventory policy and total supply chain cost.)

One way to demonstrate the bullwhip effect is a simulation generally called the "beer game". (For fun, play the beer game here!) This simulation, which takes the form of a simplified beer supply chain, consists of a single retailer, a single wholesaler who supplies the retailer, a single distributor who supplies the wholesaler, and a single factory with unlimited raw materials that brews beer and supplies the distributor. To further simplify things, each component in the supply chain has unlimited storage capacity, and there is a fixed supply lead time and order delay time between each component.

Some new research has taken inspiration from this simple game and created a series of much more complicated simulations in order to try and explain which factors affect the magnitude of the bullwhip effect the most. "Supply Chain Networks With Multiple Retailers: A Test of the Emerging Theory on Inventories, Stockouts, and Bullwhips" (.pdf) published in the Journal of Business Logistics, shows:

"that particular supply chain networks have an impact on the bullwhip effect. Furthermore, the impact of supply chain networks on the bullwhip effect is moderated by the demand forecasting technique used. Finally, supply chain networks, forecasting techniques, and their interactions are found to influence on-hand inventory levels and stockout rates for firms within the supply chain. Results also suggest that no one particular type of supply chain network dominates in terms of dampening the bullwhip effect, lowering on-hand inventory levels, or reducing stockout rates. The optimal network depends on the forecasting technique used and other supply chain factors."

What I found most interesting in the article's conclusion was that eliminating forecasting eliminated a bullwhip effect in the supply chain. I also noted that the article concludes that, "when a proper forecasting technique is used, adding retailers to a supply chain does not mitigate the bullwhip effect; however, when using last-period forecasting, adding retailers helps to alleviate the bullwhip effect."

Questions for Discussion:
Based on our class discussions of the Bullwhip Effect, were any of the conclusions of this last article surprising to you?

Further, if you did play the Beer Game, did you see evidence of the bullwhip effect in your simulation? (I will admit: I did, and I was not only aware of the bullwhip effect but consciously trying to avoid it)

Finally, based on what we know about this subject, what is your intuition as to the most effective way to mitigate a bullwhip effect as a supply chain becomes increasingly complex?