IKEA’s intelligent packaging implies LEGO’s bricks

I still remember the first day I walked into an IKEA store in Singapore 4 years ago. It looked like a massive warehouse with an area of exhibition and another area of giant shelves with tons of tidy arranged boxes. What amazed me the most was how IKEA transformed all the eye-catching, complicated-and-beautiful-looking furniture into sturdy rectangular boxes. At that time, I already figured some reasons of IKEA’s decision to break down its product into smaller, easy-carrying packages. The reasons should have been easy enough for a 19-years-old-boy to understand, for example, the purpose was to assist customer to bring the boxes home, even carry them in a bus or put it nicely in a car. It was easy to carry home so it must have been easy to stock and display. That’s how I was thinking when I first purchased my studying table, which had been broken down into 3 boxes (one for the surface and the other two for the legs). I was able to carry all of them on the train during peak hours without any complaint about occupying too many spaces.

After the discussion in the class of Supply Chain Management yesterday, I have found out there are a lot of more reasons IKEA does it that way. Tim Zak, the lecturer, pointed out a few advantages of breaking down a product into flat packages:

1. To maximize the use of space inside shipping containers. 
2. It would lead to the excellent way to reduce the shipping cost while IKEA could transport more items in a single trip. (Based on “How Ikea Design Its Sexy Price Tags” by Lisa Margonelli, the shipping cost could be reduced by 60%, which is a significant savings)
   
   
   
   
   Flat packaging maximize the use of space inside a container 
3. To gain efficiency in the distribution network. IKEA has 28 distribution centers and 11 customer distribution centers in 16 countries. Anyone who manages transportation, for instance, will identify with the point Collins (a journalist from The New Yorker) makes about IKEA’s famously dense, no-waste packaging: “The company’s goal is to design products that can be packed as tightly as possible, minimizing damage and maximizing profit as they are transported over the oceans. Its motto: ‘We hate air.’” 
4. To cut cost because IKEA does not need to assemble all the products. It lets the customers do it by themselves. 
5. Most interestingly, I also discovered by myself that broken-down packaging enables IKEA to outsource globally and resourcefully. For example, based on Christopher Sciacca’s story, when he bought his table and chair from IKEA, he found out that the shelves were from Russia, the computer desk from Poland (pictured below), the chairs from Thailand, the screws from China, and the carpet from India.
   
   
   “The point is, just like in outsourcing and services delivery, you go to where the talent and skills can be found or to complete my analogy you can get the best natural resources. And IKEA seems to have a very good understanding of that, because if they didn't they would be shipping everything out of China and Sweden, which would have a serious impact on quality and cost.”
   (by Christopher Sciacca, from <http://supplychainsrock.blogspot.com.au/2008/03/ikea-and-supply-chain-super-hero.html> )

In conclusion, The IKEA supply chain is mainly make-to-stock (MTS) and only a few products are made to customer orders. Gaining efficiency and cutting cost in supply chain play an important role in IKEA’s low price strategy. Imagine each package of an IKEA’s product like a brick of the LEGO’s toy, when it joins each other to build beautiful furniture.

 

By Phong Nguyen

Source:  

<http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.html>

<http://supplychainsrock.blogspot.com.au/2008/03/ikea-and-supply-chain-super-hero.html>

<http://www.joc.com/packaging-ikeas-supply-chain>

Mumbai's Dabbawalas Go Hi-Tech

The following article caught my eye. It talks about how the Dabbawalas of Mumbai (Bombay) are planning to use information technology to expand their business. It makes for an interesting read.

In class we learnt that the Dabbawalas have a system that has been tweaked over time to produce an efficiency of  99.99%  without the use of IT. So now they plan to use IT, not to improve their efficiency but to expand their business with the help of the Internet and Text Messaging.

Source :- http://www.physorg.com/news70641995.html

For over a century they delivered hot lunch in packages to thousands of Bombay's working people with almost faultless efficiency without the help of information technology. But now Bombay's ubiquitous Dabbawalas deliverymen have realized that they need to go high-tech after all -- not only to expand their business but also for their social security.

Indeed the Dabbawala's method of lunch delivery is unique. Their origin dates back to the 1890s, a period when Bombay saw an influx of people from various communities and regions of India migrating to the city to seek livelihood. According to the Association, there were no canteens or fast-food centres then, and those who could not take a packed lunch from home since they had to leave early invariably had to go hungry.

Besides, different communities had different tastes and preferences that could only be satisfied by a home-cooked meal. Recognizing the need, a migrant from the Indian state of Maharashtra called Mahadeo started the lunch delivery service with about 100 men, and the rest is history. For over 115 years these lunch deliverymen who were subsequently started to be called Dabbawalas have been collecting lunch packed in three or two-tier metal boxes (called dabbas) from subscribers' homes and delivering them to their workplaces.

Today the 5,000 Dabbawalas make about 200,000 lunch deliveries in the city and have become famous for their clockwork precision and efficiency. Reportedly their mistake rate is just 1 in 16 million deliveries, which caused the Forbes Global magazine to award its Six Sigma certification in 2001. According to Forbes the Dabbawalas work with 99.999999 percent accuracy.

But besides the accuracy rating, the Dabbawala supply-chain system has also attracted interests from global educational institutions and think tanks for its complexity.

In fact, some even say that the Dabbawalas work like the Internet. Just like the Internet, where voice or data files are sliced into tiny packets with their own coded addresses that are then ferried in bursts, independent of other packets and possibly taking different routes, across the world, the Dabbawalas too work with packets in a similar manner.

They collect lunch boxes from homes in the morning and take them to the nearest railway station. From there each of the boxes that is coded according to the station of origin, the Dabbawala team at the collection and delivery point, and the destination, are sorted out and taken to the next intermediary stations, where they are sorted out again for area-wise distribution and delivery. So a single lunch pack could change hands three to four times in the course of its daily journey, "yet they get delivered without a mistake since they are so well coded," says Manish Tripathy, the chief information officer who looks after the Association's technology functions.

Small wonder then, that the world in general too finds the Dabbawalas fascinating. For instance the Berkeley University in California teaches the logistic system of Dabbawalas as a case study in one of their business management programs and many Indian business schools and industry associations have the Dabbawala logistics system in their case-study agenda.

In 1998 two Dutch filmmakers, Jascha De Wilde and Chris Relleke, made a documentary called "Dabbawalas, Mumbai's unique lunch service" and in 2001, the Christian Science Monitor, the Boston-based newspaper, covered the Dabbawalas in an article called "Fastest Food: It's Big Mac vs. Bombay's Dabbawallahs."

The British Broadcasting Corporation and the Australian Broadcasting Corporation have done features on the delivery system as well, while Prince Charles was so impressed with their service that he had even invited a few Dabbawalas to his marriage with Camilla Parker in London.

Yet these Dabbawalas have remained poor. "Nowhere in the world would you find a lunch delivery service that costs as little as $9 a month," says Talekar. The charges for this complex delivery system have remained dirt-cheap ever since its inception, and still the maximum rate that a Dabbawala charges (depending on the distance carried) is about $11 a month.

Which is why technology is needed to improve their lives, says Tripathy. "No doubt a major driver for establishing a Web-based and mobile phone ordering system was the need for a central ordering facility where one can call for a Dabbawala's service by just hitting the Web site or through an SMS," says Tripathy, "but the other equally important driving force was to expand business."

The Bombay Tiffin Box Suppliers Association, have finally started their own Web site and a text messaging order taking system that enables them to bag orders real time instead of depending on secondary sources like references or word-of-mouth.

"The world is moving ahead on technology," said Gangaram Talekar, 61, the Hindi-speaking secretary of the Association, "and we have to move with times too. So we decided to take advantage of technology to expand our business."  Talekar, who has been a Dabbawala for 40 years, admits that he has never operated a computer and doesn't know the language of text messaging "that well. I can just read the name, address and the telephone number of the sender in an SMS (short messaging service)," he says. "But I know that to grow and make our lives secure we must use technology."

Until recently business has come just through word-of-mouth or from contacts made in local railway stations. "But ever since we introduced the SMS-based ordering service we have been getting about 15 new orders every day," said Tripathy.

The Web site (www.mydabbawala.com) has also enabled the association to solicit donations and sell merchandise, the proceeds of which go towards creation of a social security fund to pay for the Dabbawalas' life and medical insurances.

"The use of IT would not stop there," says Tripathy, "we would be stretching its use soon to enable the Dabbawalas to add additional lines of business." According to him the next plan is to gear the Dabbawalas with the ability to sell groceries and other daily necessities, the orders of which could be taken through their mobile phones.

Other related articles –
 http://www.rediff.com/money/2006/jun/26dabba.htm
 http://www.sify.com/news/mumbai-s-dabbawalas-learn-english-use-of-computers-news-national-kjgrkejejha.html

How Should We Face the Phenomenon of “Double Standard” in Global SCM?

– A Second Thought on Apple’s 2012 Supplier Progress Report

In this week’s article, “Outcome Driven Supply Chains”, we discussed six supply chain outcomes that a successful supply chain manager need to take into consideration. They are: “Cost, Innovation, Sustainability, Responsiveness, Security, and Resilience”. The issue of sustainability caught my eye and reminded me some related problems in those global popular manufacture origins. For instance, maintaining sustainable development is always a hot slogan in China; however, the actually implementation is still taking a slow step.

Later in the weekend, I read a piece of recently released news about Apple’s 2012 Supplier Progress Report. It is said that Apple had conducted an internal audit on working conditions within all its alignments on how well its contractors were treating workers that making iPhones and iPads. Below is a chart showing the percentages of suppliers which passed or failed the audits across a number of labor related standards. (You could find this news by:

http://www.scdigest.com/ONTARGET/12-01-25-1.PHP?cid=5424&ctype=content)

Source: Apple Supplier Progress Report 2012

Despite the justice and reliability for the results of this reports, or the uncertain scope of sampling population, the passing rate of 74% shows that Apple along with its parterres seems to maintain a good job. Also in this report, Apple claims that it is committed to driving the highest standards for social responsibility throughout their supply base, and it requires all its suppliers to “provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made."

However, in practice, Apple still need to spend more effort to improve their Labor right (especially its working conditions) as well as their sustainability strategies in the developing countries like China, given the bad news in recent years. For example, Chinese environmental groups accused Apple Inc of turning a blind eye as its suppliers pollute the country in 2011. Not mention the famous worker suicides in 2010 that put Apple’s name at risk – as many as 18 employers killed themselves at an Apple assembly plant in China run by contract manufacturing giant Foxconn, leading people to question about how employees were being treated there.

As we all know, many of the world’s famous manufactures are distributing their plants and networks in different countries and multiple cities. Building manufacture centers and assembling plants in developing counties like China, Vietnam and Korea is a common practice in supply chain management. It is a good strategy to take the advantage of the cheap and massive labor productivity, large land, benefit policies for foreign companies and even sometimes, the weak guidance and non-strict laws.

Standing at the management side, it is true that as the plants spread all over the world and different parties involved, a company will find it harder and harder to guard and maintain its high standards and rules. For one thing, you can’t monitor what happens on the other side of the world. While on the other hand, it would be better to let the domestic management group keep an eye and make strategies considering the differences in culture and market needs.

However, should that be a strong excuse for a global manufacturer to have double standards? How should the supply chain manager balance the three A’s (Agility, Adaptability, and Alignment) principles? What strong measures could be used to avoid such messy problems both internal and external? Certainly, a research or an internal audit report is a good start, but far from enough.

Can you think of any successful examples or excellent strategies in existing companies? As the supply chain management is shifting to cross-enterprise in a global scope, I really hope we could discuss some good solutions and practical tactics in class.

Reference for news of Apple:

http://www.scdigest.com/ONTARGET/12-01-25-1.PHP?cid=5424&ctype=content

http://www.guardian.co.uk/environment/2011/jan/20/apple-pollution-supply-chain

http://www.reuters.com/article/2011/08/31/us-apple-china-idUSTRE77U4M620110831

For the full version of Apple Supplier Progress Report 2012, please follow:

http://images.apple.com/supplierresponsibility/pdf/Apple_SR_2012_Progress_Report.pdf

Agility, Adaptability and Alignment (The 3 As)

Best value supply chains have a different approach in managing the 3 As of supply chain management. Agility is the capacity to respond quickly to dramatic changes in supply and demand.It not only seeks to increase the capacity of the buffers throughout the supply chain but also optimize the total cost of buffers used. Agility has a shorter more real time context whereas adaptability is a more strategic concept, related to how quickly a company can implement stategies and initiatives based on market changes, customer requirements, new opportunities.



Agility is largely dependent on the speed of information flow in the supply chain. Mostly large companies have integrated supply chains from distributors to raw material suppliers. A well integrated supply chain is the key to attaining competitive advantage in recent times. One of the competitive advantages enjoyed by Dell include 90% of its supplies being ordered through online integrated websites of suppliers and Dell (B2B). Also, Alignment is necessary to improve coordination among supply chain partners. Approximately 95% of Dell's suppliers are situated very close to the assembly plant hence coordination is much easier.

An adaptive supply chain network is also dependent on real time integration. The sharing of critical business events, as they occur, among people and systems is the vital link to adaptive supply chains. This requires the implementation of an enterprise integration strategy that drives real-time integration across the supply chain portfolio. HP introduced its online e commerce channel in collaboration with FedEx. The challenge was to integrate HP's order management and inventory management system with FedEx. This eventually enabled FedEx to handle the logistics of products being shipped to HP's customers in US. FedEx had a comprehensive distribution network and was a prime choice for handling the distribution of HP's online sales.

Seven Eleven Stores are the largest convenience stores in Japan with $23.3 billion annual sales. Seven Eleven's agility is based on the following model.



Their Information system network is integrated using an ISDN network. It allows smooth flow of information among all players and makes their store more responsive to changes in demand.

Agility has also allowed companies to bring speedy NPI (New Product Introduction) with collaboration. In November and December 2005, Xbox launched Xbox 360 simultaneously in N America and Europe, beating Sony’s Playstation 3 by close to a year. Their effective collaboration with parts manufacturers and distributors allowed them to reduce their "time to market" compared to Sony.

In conclusion Agility, Adaptability and Alignment are winning strategies to counter challenges such as
- Increasing demand and supply uncertainities
- Shortening product and technology cycles
- Having multiple outsourced partners and aligning all their interests and needs.

REFERENCES

1. http://www.scmworld.com/blogpost/610997/131164/Supply-Chain-Enabled-NPI-through-Agility-and-Adaptability.html
2. http://www.slideshare.net/amit_kumar1/dell-supply-chain-presentation
3. supplychain.bizzreview.nl/portal/info-item/get-link.cmd/id=158/
4. http://www.slideshare.net/tung148/hp-supply-chain

The two sides of Apple’s Supply Chain

The two sides of Apple’s supply chain

Late last year I came across an article with the title “Apple's Supply-Chain Secret? Hoard Lasers”¹. The article discussed who Apple gains competitive advantage through its supply chain. It gave a particular example of how when design required light to shine through the metal casing of laptop without making holes in the casing which could be done with the help of  modified laser equipment used in microchip manufacturing, Apple signed exclusive agreement with the laser manufacture and bought hundreds of such laser. With over $80 billion in cash reserves Apple can spend exuberantly whenever necessary, investing in long term capacity commitment and then reaping the benefits from greater volumes in the long run. With Apples approach of looking further ahead in time for its resources, capacity and transport needs it has been able deliver its products to millions of customers across the world with little delays.

Close to product launch dates Apple’s manufactures a kept busy producing the millions of units of the product that is expected to be sold across the world.  Even in the retail store the demand is monitored by the hours and changes made in the supply chain as necessary. In the latest quarterly report Apple stated that it shipped 37 million iPhones and 15.4 million iPads with an average volume of 402 thousand iPhones and 165 thousand iPads per day².

Apple’s large product launches can severely impact competitors supply chains, such as in the case of iPhone 4 launch when manufactures such as HTC were facing shortages of LCD screens, and glass for the touch screens of their mobiles since Apply had already made large orders for the suppliers to fill.

With such efficiency in procurement, manufacturing, and delivery it no wonder Apple’s supply chain has been ranked No. 1 in the world for the last three years by Gartner³.

Behind this efficient and streamlined supply chain that is presented to the world is a much darker side of Apple’s supply chain, a side which until recently got little exposure. To gain the competitive advantage it has through its supply chain Apple has been known to be ruthless with its suppliers, striving to get the most out of them at the lowest cost and shortest time. Some suppliers are so dependent on the Apple’s business that they forced into agreements which promise minimal returns. To increase their profits suppliers cut corners and use child labourers, inhumane working conditions, low wages, and poor safety standards. Workers often live at the factory in overcrowded dorms, have 60 hour work weeks, and are punished with physical labour and withholding of wages. Reports of worker strikes, suicides, and deaths from factory accidents keep emerging from Apple suppliers such as Foxconn. Apple has to reply on the Chinese manufactures in order to keep the price of their products low enough to be competitive. Moving production facilities to America will significantly increase the price of the products, and put them out of competition against products from companies like HTC, and Samsung.

Apple does have a code of conduct for its supplier but to which extent it is enforced is uncertain. On Apple’s website it mentions that Apple requires suppliers to commit to the principles and standards of their Code of Conduct, and that it has an auditing program in place across their entire supply chain to ensure that the suppliers are upholding to the Code of Conduct.⁵

As consumer it’s a moral dilemma for us; are we willing to ignore the inhumane conditions of the factory workers as long as we can get our gadgets at affordable prices, or do we take a stand and boycott such products and pay higher prices for products that are produced in factories with better standards.

References 

1-http://www.businessweek.com/magazine/apples-supplychain-secret-hoard-lasers-11032011.html

2- http://www.theferrarigroup.com/supply-chain-matters/category/supply-chain-strategy/

3- http://www.gartner.com/technology/supply-chain/top25.jsp

4- http://www.apple.com/supplierresponsibility/

5- http://edition.cnn.com/2012/01/31/tech/gaming-gadgets/apple-boycott-commentary/

Shifts and Trends in Supply Chain

The Latest State
The supply chain has changed significantly in the last decade. Demand is changing due to new business model with global trends and market. Information Technology then creates the opportunities for companies to serve this new business needs.

The shift in business focus

There is a new shift from an individual company to a whole view of a supply chain, cross multi companies in the network. The old thoughts about supply chain are to fulfill the orders, in other words, to deliver the right products in the right time. However, this new shift has made an impact. Now, supply chain strategy involves from product design, introduction, promotion, fulfillment and recycling.

This trend has shifted the business focus to new things: from cross-functional department to cross-enterprise, from supply focus to demand focus, from single-company work to collaborative and concurrent works from different companies. One key of this shift is to change the focus of a business from cost reduction to best value creation for customers. This not only includes better customer service or product design but also tailored offerings and new business models to serve customers better.

Figure: The New Supply Chain Process
Source: The Supply-Chain Management Effect, Kopczak L., Johnson M.

Required Attributes for Companies
To make this shift successful, Ketchen, D 2008 (Best value supply chains: A key competitive weapon for the 21st century) analyzed that there are 4 aspects: speed, quality, cost and flexibility. The competition game between companies is to try to balance these 4 aspects to attempt for the best value supply chains. One critical example is the competition between K-Mart and Wal-Mart in the late 1990s. K-Mart tries to challenge Wal-Mart by a price competition but then it failed soon after that. Wal-Mart has a very powerful and sophisticated supply chain and logistics network that helps them to withstand the war and win K-Mart.

Moreover, there are some key concepts that managers in supply chain need to understand and apply successfully: agility, adaptability, alignment, strategic sourcing, logistics management, information system and relationship management. If the companies can make a good system with these attributes, the company can maintain a good supply chain network that offers the best value.

How it applies in reality

In reality, there are human and natural disasters that affect strongly these supply chain networks.

Figure: Chip Manufacturing in Japan
Source: http://www.spacedaily.com/images-lg/chip-tech-spix-lg.jpg

The latest earthquake and then nuclear disaster was an example. Right after these disaster happened in Japan, managers immediately go into the meeting room and consider what the impact can be in their supply chain.
Japan plays a vital role in the semiconductor industry, chips and lightweight flash memory used in smartphone and tablets. Therefore, the impacts on any company’s supply chain were big and there was no certainty when these Japanese factories reopened.
However, HP and Apple reacted quite quickly to the situation with their own big inventories that can help them survive for the short time. In the long time, they have switched the suppliers to their backup suppliers in some few days. This helps these companies to survive this “Global Stress Test”.

Herman Miller ahead of the curve, but at what cost?

I just finished reading the case study on Cradle-to-Cradle design at Herman Miller and it got me thinking not only about the appeal to the producer to apply these techniques, but also how to control waste throughout the supply chain.

What is the appeal of C2C to a producer like Herman Miller? Clearly, the company was visionary, as they were already planning these steps for the Mirra chair in the early 2000's. We have seen the importance of environmental sustainability become more important to corporations as more strident legislation and public opinion have deemed it necessary. The case doesn't mention a great deal about the cost-benefit analysis of working with "Green" products instead of those on the "Red" or "Orange" list. While corporate responsibility is important, I wonder at what point actual profit must supercede the combined social/environmental externalities. The case does mention some expected "green publicity", which will undoubtedly help sales of the new product.

I also found a recent article about Great Britain's difficulty in achieving adequate decreases in product and packaging waste throughout the supply chain.

(http://www.edie.net/news/news_story.asp?id=21799&title=ANALYSIS%3A+Retailers+fall+short+in+tackling+supply+chain+waste+ )

This quote was what most interested me-"Tackling waste further down the supply chain is proving much harder, not least because the more complicated and lengthier the chain is, the less control a retailer has over it. And for those companies that have several different tiers of suppliers, it can be something of a headache."

This seems to be just what Herman Miller was dealing with over a decade before this article was published! The case details the options for the company to receive the older, used chairs in order to recycle them for use in newer products. They mentioned shipping them back to Herman Miller, letting the distributors/retailers do the same thing, and even setting up leasing agreements for the furniture, rather than selling it outright. Regardless of the ultimate decision, it is much easier to control waste internally than when it leaves the manufacturing facility, as the linked article also states.

Combining the two questions I made, it seems as if it is necessary for further education and interest from the consumer in order for any waste reduction to occur down the supply chain. The article mentions that consumers continue to be confused regarding sustainability, with conflicting messages precluding the ability to make the right decision.

P.S. You IT guys are much better at formatting blog posts than I am. I stink.