Increasing operational efficiency for both customers and suppliers

After reading the articles of how to improve operational efficiency in the supply chain, I found a research of this topic. In the research, it says that the final achievement of a supply chain is to satisfy customers’ demands. According to this week’s reading, this statement is true. In the IKEA’s case, why IKEA wants to reduce the products’ prices by saving the cost from manufacturing, designing and shipping etc. It is because customers want low price products and, of course, satisfying quality. One of the most important aspects of how to reduce the product’s price is improving operational efficiency. In the IKEA’s case, the article mentioned how IKEA increased operational efficiency by making the suppliers compete with each other. From a different point of view, this research focused more on how suppliers increase their operational efficiency by forming a cooperative service agreement with their customers. This situation is most common in manufacture industry. By forming this kind of relationship, the suppliers can become partners of their customers and take responsibility for their customers’ processes while customers can focus more on their main business.

The following pictures indicate how the relationship between suppliers and customers change using the supply chain and demand chain. VOP is value offering point. OOP is order penetration point.

This kind of relationship can help customers reduce the time span between when they make an order and when the suppliers finish shipping the requested products to customers because the suppliers will analyze the current situation and give prediction about the future. In the meantime, not only the customers’ operation efficiency is increased but also the suppliers’ operation efficiency is amplified. The suppliers have more opportunity like centralize the inventory to reduce their cost by forming the cooperative relationship with their customers. Also, because the suppliers can analyze the demand of their customers, they can produce products which fit the demand correctly. This can cut the waste of suppliers’ material and time so that the operation efficiency is improved. From all aspects, the suppliers should change their roles in the business. But how to analyze the demand of the customers correctly is the main problem to suppliers. Although the suppliers can have a better view of customers’ demand, they need to transfer the demand into useful information.

After reading this research, one problem comes into my mind. If the suppliers take responsibility of planning and making sure the right operation, then the suppliers will have stronger bargaining power according to porter’s five forces model. In my opinion, this is a disadvantage for the customers to reduce their products’ prices. How to manage the balance between outsourcing some services to suppliers and maintaining a low bargaining power of suppliers is a critical problem for customers.

reference: http://lrg.tkk.fi/logistics/publications/Op_efficiency_through_customer_service.pdf

Getting buy-in for process improvement projects

While so much of the focus and research within the supply chain management arena revolves around technologies, networks and processes, I think it's interesting to think about the topic from another, perhaps more "fluffy" but nonetheless important, perspective. In reading about process improvement efforts at both Starbucks and at various hospitals around the country, it was interesting to note that the resistance to such projects seemed to come primarily from the staff and employees near the bottom of the organizational hierarchy. While administrators and c-suite executives were quick to tout the bottom-line impacts and quality improvement outcomes of process improvements projects, the staff carrying out the day-to-day operations of the businesses seemed to be the ones expressing concern over either real or perceived  effects on their ability to deliver personalized service. 

This raised a few questions in my mind -- first, should executives be concerned about such beliefs if the data tells them that the process improvement efforts are achieving the desired goals? Why or why not? Additionally, is there any way to address or combat this resistance? And finally, should executives take into account whether or not such improvement efforts really do affect the employee experience?

It would seem to me that without the buy-in and support from the individuals directly responsible for the processes in question, it would be almost impossible to achieve the maximum benefit from any improvement efforts. So often, the best ideas come from those with the intimate, first-hand knowledge of the tasks being evaluated. Finding a way to engage those individuals in the improvement process would seem to be a critical factor to success. Perhaps this could happen in the form of representatives from all levels of the organization working in cross-functional groups or an internal team competition for employees working together to come up with the most innovative or impactful process improvement. Whatever the method, I do think its critical for organizations to consider this idea, especially if they are a customer-service oriented organization or are operating in a field that has not traditionally used process improvement techniques. While more and more industries begin to adopt these practices, it is important for them to balance the new approach while still remembering their core mission. 

Lean in the UK Public Sector

Sometimes, as we venture from the realm of business to public service there can be significant push back to efforts for change and increased efficiency. There is a battle between data driven analysts and on-the-ground practitioners. But when millions of clients depend on these non-profit and public agencies, adopting lean practices can be the difference between serving those in need and falling short of the mission.

So we have to ask ourselves,

When do lean business innovations work in the public sector?

Fresh ideas for Britain's largest public service agency

The Department of Work and Pensions provides welfare, pension, and child poverty support to more than 20 million people in the United Kingdom.  For them, the leanest business innovation turned out to be capitalizing on the reservoir of human capital already at hand in their 120,000 employees. [1]

It was called Idea Street and in just one year it saved over 20 million pounds.

The agency instituted an idea management system and invited all employees to contribute. Although just 1.4% of ideas contributed were implemented, the average savings to the agency per idea was over 317 thousand pounds. But it didn't stop there. The agency, recognizing the value of insight from workers on the front line, further empowered empowered their workforce to participate in the implementation of their own ideas.

As of January 2013, the Idea Street system, initiated as part of DWP's 2011-2012 Capability Action Plan, had been adopted by two other UK government agencies. [2]



"Square peg, round hole"?

In this paper Murphy and Simpson explore the notion of "adopting" versus "adapting" lean business and manufacturing practices to the public sector, acknowledging concerns are raised that the efforts for efficiency reduce the skill of workers to mechanized actors. Pair analyze three case studies and conclude that Lean policies do work for increasing process efficiency, but fall short when it comes to improving customer service and changing organizational structure. [3]

 


Does this set an endpoint for the utility of Lean practices in the public sector? Or did Idea Street achieve the kind of embedded organizational success that Murphy and Simpson thought unlikely?


 
[1]  http://www.managementexchange.com/story/britain%E2%80%99s-largest-public-agency-links-innovation-lean-practices-and-saves-millions 
[2] http://www.dwp.gov.uk/docs/dwp-capability-action-plan-2011-to-2012.pdf
[3]  http://www.medifas.net/IGLS/Papers2012/Paper068.pdf
 

Sportswear Li Ning Faces Inventory Crisis

We are all familiar with successful supply chain management stories in the clothing industry, such as Zara. But clothing companies in some emerging markets are facing inventory crisis caused by business expansion.

Li Ning (HKEX: 2331) is a sportswear company established by former Olympic gymnast Li Ning. In this article I read, it describes how Li Ning shops in China are eager to dump their inventory by large sales events, including discounted price for the new collections. (http://www.scmp.com/business/china-business/article/1066663/sportswear-retailer-li-ning-faces-harsh-winter)

Excessive inventory is a serious challenge for other Chinese mainland sportswear companies as well. The industry went through a boom after the 2008 Olympics, and companies like Li Ning were expanding rapidly to take a share of the market. However, the overexpansion finally led to excessive inventory, which is caused by the slowing down of the economy as well as poor supply chain management. By 2012, Li Ning has shut down 1,200 stores in mainland China and Hong Kong, which is a substantial amount of cost, but there seems to be no better solutions.

Poor inventory management puts Li Ning in a very awkward situation. On the one hand, the company has to offer huge sale to get rid of its inventory. On the other hand, as the price of its products plunges, its brand value will also shrink, making it even harder for Li Ning to compete with global sportswear brands such as Nike and Adidas in China.

Question to consider: In emerging markets, when sportswear or clothing companies expand aggressively to establish an advanced position in the market, what strategies can be used prevent excessive inventory?

http://www.scmp.com/business/china-business/article/1066663/sportswear-retailer-li-ning-faces-harsh-winter

http://www.scmp.com/business/money/markets-investing/article/1135809/chinas-li-ning-issue-241-mln-convertible-securities

http://www.reuters.com/article/2013/01/25/lining-funding-idUSL4N0AT8UK20130125

Nike Strikes Gold with Lean

Every company aims for maximizing their profits and the best way to do is by cutting cost. However, in present times when prices and costs are so volatile and dependent on other factors, merely cutting cost will not suffice.  Companies would have to streamline their whole process, reduce waste and at the same time improve quality. Enter Lean, a very simple and practical concept, initially developed and implemented in Japan. Mostly derived from the Toyota Production System, lean manufacturing principles are a more refined version of the earlier efficiency efforts and processes introduced by manufacturing giants like Toyota and Ford. It basically involves designing, manufacturing, delivering and supporting products more efficiently and at lower costs while systematically identifying and eliminating waste all the way through the product life cycle. ‘It uses a just in time system that gives internal and external customers what they want, when they want it, and at the lowest possible cost’. 

 

In 1990's Nike faced issues with their manufacturing supplies. On investigation it was discovered that the situation was very complicated. Nike didn't own any factories and relied on contracted suppliers who were spread throughout SE Asia. The workforce that the suppliers employed was mainly made up of people migrating from the rural farming communities with little to no manufacturing experience. With intense competition from rival firms like Adidas, Reebok and Puma, Nike didn't want to take any chances and so decided to implement Lean manufacturing processes throughout its supply chain. The results were impressive.

According to their FY10/11 Sustainable Business Performance Summary document, Nike, by adopting lean manufacturing throughout its factories, showed tremendous results in eliminating waste, time loss and material loss from its processes. The report highlighted that after introducing Lean methods of manufacturing, factories managed to cut defect rates by 50 percent more than before. It revealed that delivery lead times from lean factories were, on average, 40 per cent quicker. It further mentioned that the productivity increased by 10 to 20 per cent and the time taken to introduce a new model reduced by 30 per cent.

Source:http://www.nikeresponsibility.com/report/content/chapter/manufacturing

Nike has been encouraging and providing resources to contracted factories to support their transition to the lean approach. It has provided training, coaching and technical assistance to the employees hired by those factories and helped them to become skilled workers. 'By the end of FY11, within the NIKE Brand, 80 percent of footwear, 57 percent of apparel and 11 percent of equipment were made using processes meeting the minimum baseline definition of lean'. However there is also a flip side. Lean manufacturing processes may decrease cost in the short term, but there is no denying that by standardizing processes and components they also enforce a trade-off which increase risk. How should Nike or for that matter, any company implementing Lean be prepared to mitigate those risks? In the wake of  problems, recently surfaced in companies like Toyota and Apple, is Lean Manufacturing in crisis?  

References:

1. NIKE, Inc. - Sustainable Business Report. Rep. N.p., 2011. Web. 04 Feb. 2013. <http://www.nikeresponsibility.com/report/content/chapter/manufacturing>.
2. Leach, Adam. "Nike Reduces Lead times through Lean Manufacturing." Purchasing and Supply News, Law, Analysis and Resources. N.p., 12 May 2012. Web. 04 Feb. 2013. <http://www.supplymanagement.com/news/2012/nike-reduces-lead-times-through-lean-manufacturing/>.
3. Jenkins, Maureen. "Boeing Frontiers Online." Boeing Frontiers Online. N.p., n.d. Web. 04 Feb. 2013. <http://www.boeing.com/news/frontiers/archive/2002/august/cover.html>. 

Levi's Goes Eco With WaterLess and WasteLess Jeans

During the production process, an usual typical jeans product takes an average of three to 10 spins in washers and dryers to give it its unique appearance. Roughly 42 liters of water is being used during the finishing process alone. In action to represent ongoing commitment for sustainable design, Levi Strauss & Co. introduced Water<Less jeans in 2010. The company created a finishing technique that reduces water use in the finishing process by average of 28 percent less water and up to 96 percent for some styles. To slash water use, Levi's use a single wet-cycle process to replace the multiple wash cycles. The company also incorporated ozone processing and stone washing to produce the product. Techniques by using ceramic stones, rubber balls and changing the filtration system in the washing machines, made jeans finishing process to use only four liters of water to achieve the distressed look. Levi's claimed that the Water<Less collection saved more than 360 million liters of water so far. It is just equivalent to the volume of 144 Olympic-size swimming pools.

As part of Spring 2013 collection, Levi's is launching a new line of jeans product that feature plastic bottles crushed up and blended through the product. Waste<Less jeans are composed at least 20% recycled plastic. On average, eight 12 to 20-ounce bottles will be used per jeans. Used plastic bottles and food trays are collected through municipal recycling programs across the United States. They are sorted by color, crushed into flakes, and made into a polyester fiber. Next, the polyester fiber is blended with cotton fiber, which is finally woven with traditional cotton yarn to create the denim used in the Levi’s Waste<Less jeans. The color of the bottles used created a unique finish in the final product by adding a beautiful undertone to the denim fabric. The first batch of Waste‹Less jeans has already used 3.5 million plastic bottles all together.

  

James Curleigh, president of the Levi’s brand, believes that any reduction in Levi’s cotton use, however small, is worth it. He said “Cotton is the single most volatile commodity in the apparel industry. Never mind sustainability for a minute. If I could come up with a way to put 20 percent of something else that is cost-neutral and has a reliable source, I would probably take it anyway.”

So is it true that Levi's is trying hard to pursue sustainability in its supply chain? Or this is just another good publicity for the company. What are customer responses about these products? Do they like these products? Yet Levi's didn't mention about its financial benefit related with these products. What do you think?

References:

1. http://www.ecouterre.com/levis-debuts-waterless-jeans/

2. http://inhabitat.com/airwash-waterless-washing-machine/

3. http://en.wikipedia.org/wiki/Stone_washing

4. http://www.businessweek.com/articles/2012-10-18/levis-goes-green-with-waste-less-jeans#p1

5. http://www.levistrauss.com/news/press-releases/8-bottles-1-jean-levi-s-brand-introduces-wasteless-denim-collection

6. http://www.environmentalleader.com/2012/10/22/sustainable-fit-jeans-levis-waste/

7. http://theweekendedition.com.au/gentleman/levi-wasteless-denim/

Lean Warehousing

After all of these readings on lean and just in time manufacturing, I came across this article which discusses a newer line of the lean manufacturing tree: lean warehousing.

http://search.proquest.com/docview/201489184/13C0C2088596D0E017A/5?accountid=9902

Basically, lean warehousing deals with the uncertainty and predictability of storage of components.  I found it particularly interesting in light of the article about Dell pressuring its suppliers to give them parts in real time, so Dell's suppliers therefore need to also implement lean practices in order to continue profiting from a contract with so little wiggle room for error or delay.

The basic idea here is that being lean is worthless if you can't also be agile in the face of uncertainty (like Dell was with keeping up to date with its suppliers to charter planes to fly extra parts in in the face of production shortages).

Supply Chain Management under Globalization

In today’s environment, as the world gets flatter, supply chain management requires more strategic thinking and decision with considering trade-offs among a lot factors.

Although one of the primary driven incentives of supply chain management is to reduce operational cost which may include labor cost, procurement cost and inventory cost, there is more complicated issue behind the scene. For example, transaction cost is imposed on the procurement cost.[1] In the case of lowering labor cost, Toyota decided to shut down its California plant, while a lot other firms do so by outsourcing such as Cisco.

In order to reduce the cost of procurement, the management board need to consider more than just objective factors such as direct costs of acquisition, transport costs, and training costs, they need to take subjective factors into consideration as well. The brand value of the firm, corporate culture or political concerns are also core issues which need to be considered when making decisions for supply chain operation. As the world is becoming flatter, a disaster happened in Japan will affect the whole world.[2] This is especially true for outsourcing operations. Due to cultural, legal and social differences, cooperate normally need to work harder to make the right choice of the companies’ strategic position.

The ultimate objective of a company is to make money continuously. Thus, the trade-off between long-term and short-term outcome is also crucial. Take Walmart as an example, instead of continuously spend on operation costs, it takes its own initiative to innovate the way of supply chain management they want and invest in it for the long run.

Moreover, the trend of globalization also makes the demand forecasting more difficult. For example, the 21^st century dot-com bubble trapped a lot of telecom companies. A lot of telecom companies lay down too much optical fiber under the sea due to false forecasting.

Outsourcing makes the decision even more complicated because of bullwhip effect[3], since the firm had to works with vendors overseas more closely to adjust the demand and supply. Cooperation between different firms will need contact, control and compliance.[1] It is really troublesome when dealing with people.

In the book, “The World is flat: A Brief History of the Twenty-First Century”, Thomas Friedman analyzed globalization in many aspects. It also points out the supply chain Wal-mart used as the best example of using technology to streamline item sales, distribution, and shipping.[4] Reading this book will also give us a clearer view about how technology (such as workflow software) shape the new world. This book also stresses the issue of innovation. In the super dynamic environment, we need to keep ourselves up to date and innovate to develop. The book mentions ten “flattener” includes a lot of techniques. But when speaking of innovation, it is not just about patterns or new techniques such as cloud computing, it also involves how to make work more efficiently such as the Tata’s case.

Nevertheless, as the world is flat, everyone has our own responsibility for the world’s health. More and more attention has been placed on the environment issue all over the world. As such, companies become more aware of the green supply chain to adept to climate change. There is a case, “Climate change risks and supply chainresponsibility”, studying what climate change means to three companies: Starbucks, Marks & Spencer, and the Body Shop. Results show that how climate changes affect producers: increasing their costs; threatening the quantity and quality of production; and making decisions about planting and harvesting increasingly difficult.

Here, I want to stress the action taken by the Body shop about how they achieve the goal of green supply chain.[5] They take action on their partnership strategy, IT strategy, waste minimize strategy, and transportation strategy. For partnership strategy, they prefer suppliers who are environmental friendly and cooperate with them to improve their environmental management and performance. As a result, it yields a competitive strategic position with healthy partnerships. For the IT technology, using E-commerce would largely reduce the material waste while enhancing communication and information sharing which in turn increase the profit. In addition, the Body Shop do hold an ethic value about contributing to the world’s wellbeing by protect the planet and defend human rights.

With all the understanding of globalization, the questions remains that how you collect relevant information and apply those in demand forecasting or other operation decisions.

1.             den Butter, F.A.G. and K.A. Linse, Rethinking Procurement in the Era of Globalization. MIT Sloan Management Review, 2008. 50(1): p. 76-80.

2.             LOHR, S., Stress Test for the Global Supply Chain, in The New York Times2011.

3.             Nair, J. and M. Datta, Demand Forecasting and Inventory Management in the Supply Chain, 2007, IBS Center for Management Research.

4.             Friedman, T.L., The world is flat : a brief history of the twenty-first century. 1st Picador ed. 2007, New York: Picador/Farrar Distributed by Holtzbrinck Publishers. x, 660 p.

5.             Li, T., Y. Li, and Q. Ye. The green supply chain-the case of The Body Shop. in Logistics Systems and Intelligent Management, 2010 International Conference on. 2010.

Full Speed Ahead: onward and upwards towards the impossible

The comment of seeking enlightenment in last Tuesday's class caught my attention. Supply chains - especially those of today - are super complicated. They are so many moving parts, relationships, and contextual constraints depending on political, geographical and social factors. The world is so complicated that even trying to balance the information related to personal life is overwhelming. And advances in information technology make it ubiquitous and convenient. This convenience allows rationality to get even messier. But there's assurance in the movement towards big data, analysis and modeling. Although some people posit that computers will make the decisions for tomorrow, the article: Clearing the Crystal Ball by Tim Laseter et al. reveals a perspective of balancing the chi of forecasting and being comfortable with uncertainty and scrutiny. Organizations should support a culture of diversity and openness so decisions are informed by broad perspectives. Computer models process lots of inputs, but each is dependent on a set of conditions that often rely on intuition. Rather than deferring to a model for an answer, we should use the model to answer what its simulations ask. The culture of uncertainty and scrutiny does not have to be cynical, but instead structured to get closer to perfection.

The example below shows how assumptions can mislead.
http://news.nationalgeographic.com/news/2013/01/130122-interactive-asteroid-mining-metal-abundance/

This National Geographic article compares the value of an average pound of earth to the average pound of asteroid by amount of precious metals found. And yes, there are definitely more precious metals found in an asteroid than your backyard. And although the average total value of 100 tons of asteroid is worth $12,844 while dirt is $85 - as professor Jonathan Caulkins put it: "At $13,000 per 100 tons, comes to about 0.06 cents per pound. A carrot at the store is worth  more than that." Despite asteroid's value over dirt, this depends on the assumption that precious metals hold value and that average dirt is comparable.

Although this example is not directly related to supply chains it shows how data and technology can be implemented for useless analysis. Models can be made with complex algorithms and flawless logic, yet if they are not understandable by decision makers - how useful can they be? Managers and executive decision makers must be able to understand how the models apply and ask the following question. Does this help me answer the right question?

The perspective of being comfortable with uncertainty and scrutiny supports imperfection. However, managers would like to be close - and much more often than not. So when we consider supply issues like the bullwhip effect. (Which is the aggregating surplus cushion developed by each supplier following the consumer's indication of demand. So at the end of the "telephone-game" chain the last one holding the can phone is left supplying with cushion multiplied by the surplus ordered by each before them.) If we know this happens, and can supply chain managers need to resist the temptation and stay as close as they can to the source.

Here's a fun strip showing how perfect information can be perfectly wrong:
http://search.dilbert.com/search?w=spreadsheet+columns&view=list&filter=type%3Acomic

With advances towards automation, simulation, un-head-wrappable data, and demand for guaranteed forecasting - I wonder: What is the future position of the supply chain manager? How will they balance and sift through mountains of data and be sure the data answers the right question and they don't become guilty of Type III error?