The following is a lecture from Raghuram Rajan, a finance professor at the University of Chicago’s Booth school of business, uploaded in December 2010. Skip to 10:05 for his analysis on Germany’s economic recovery and the current Eurozone crisis. It is not directly related to Operations Management, but I believe it is relevant information for any manger working in a global economy.
After researching inventory management more extensively, I came across an article that was based on a Q&A session with senior director, Meeta Kratz, at Grainger, an industrial supply company. Meeta says that she has noticed that more and more manufacturers are switching to “just in time” inventory to reduce extra costs associated with holding excess inventory. She says that this is an important shift because companies are now learning that switching to “just in time” inventory is allowing them to be more efficient with their inventory management systems and taking excess costs out completely out improving their profit.
While I understand the approach that “just in time” inventory helps to reduce costs associated with excess inventory if a company were to have good data to make good forecasts this problem would exist. The problem with “just in time” inventory is the need for a strong supply chain to make sure that you will receive the products just in time but on time. Failure to have strong suppliers will make a company’s customers unhappy due to their shortage or late shipments due to the original suppliers. This problem would be eliminated by taking the time to analyze the previous data and make accurate forecasts for future orders. Relying on “just in time” inventory, while can be effective” is risky if a company’s supply chain is weak and has no experience dealing with this kind of inventory system before.
When asked about the elements of a good inventory management system, Meeta responded, “Customer-centric, Based on actual usage data, Flexible, Supported by Experts.” These key elements simply cannot be achieved effectively with “just in time” inventory. If you want to be customer-centric you must be able to be flexible with your customers needs. Different customers may have different needs. The fact that actual usage data should be used in a good inventory management system shows that forecasting is essential to good inventory management. If you use data appropriately you can make sure you have enough products in stock at any time without extreme costs.
While I understand that some companies, such as Dell, have great success using “just in time” inventory I still believe that switching to this type of inventory puts a company at risk for not being able to supply their customers with the products they need and risk having shortages and losing customers. Looking at element four, “supported by experts,” this proves that if you have experts looking at your data and double checking forecasts then having “just in time” inventory is less effective and riskier than having a regular inventory replenished frequently.
Do you guys think “just in time” inventory is a good system to move to, just to reduce costs? What are the risks associated with it?
We’ve all heard the same story time and time again, about the issue of procrastination. We hear it from teachers, regardless of subject or year, from employers, coworkers, parents, fellow all-nighters: procrastination is bad, addictive, and unwise. But if that is true, how are people able to perform in a crunch and, at times, do a remarkable job at the very last minute? A new book titled, “Wait: The Art and Science of Delay” by Frank Partnoy of the University of San Diego, attempts to overturn our verdict on procrastination and re-examines the actual results of procrastinating.
A recent article in The Economist discuses the book and other studies from John Hopkins University and argues that in actuality people make better decisions when they have longer to stab at problems. This translates into waiting to work on or finish projects until the last minute before the deadline. Partnoy argues that procrastination can lead to improved productivity and increased insight into the project (depending on the project).
They also emphasize that people who take longer to make decisions often make much more ethical decisions than those who make snap decisions. He uses the example of the financial services industry, where time is everything and people in fast-pace positions makes quick decisions, but not always the right ethical decision.
Does procrastination actually improve productivity or is it just a ploy for those people who are lazy?
Schumpeter. “No Rush: In Praise of Procrastination.” The Economist. 07.07.12
It seems clear that Google is a company that will last into the undeterminable future. It feels this way because Google develops people with abilities to create and perform at levels that are undeterminable. Google’s strategy seems attainable at the rate which it creates these people. Just recently a former Google Tech Manager was giving a position to head Yahoo Inc. as president and CEO, Marissa Mayer. Marissa Mayer has a great reputation from her work at Google and on the Board of Wall Mart. She is an exceptionally hard working woman who defies the stereotype and brings a special way into encouraging and motivating future women leaders. Her time at Yahoo will not be easy, the company has been in serious reconstruction of it’s strategically pursuance of survival in a world dominated by Bing, Google and Facebook. For Yahoo adding some previous Google employees would seem to be a good thing for the company. Twitter for example a thriving social media company has taken some on. According to the Wall Street Journal, “Some former Googlers have said they have taken what they have learned management-wise from Google to their new jobs. Twitter’s Mr. Costolo said in January that about 80 to 90 Twitter employees previously worked at Google, the biggest feeder for the start-up, which has more than 900 employees.” Although we learned about product quality, having a quality management system created by employees will most likely create a quality product. Most products even the most innovative ones need a strong functions management team behind it. This is what employees at Google offer. According to the WSJ, “In a 2010 interview, Mr. Armstrong said he also has tried to apply many valuable lessons learned from working at Google under Mr. Schmidt. Those include keeping in mind how much of Google’s success came from a willingness to make bold moves in its early days, as when the company dramatically revamped its AdWords online search advertising program roughly a decade ago, forming what would serve as a key source of revenue, said Mr. Armstrong.” The quality and strategy that former Google employees take away from working at Google is fascinating, I am not sure whether it’s because of their “open” company culture or Google’s continuous education programs, you can answer that in the comments if you would like. But what I have learned from reading about Google is that the characteristics of managing quality are supported by their ability to generate growth through all sorts of demanding tasks.
I learned a variety of different topics in the second half of management 301, but the one that caught my eye the most was the idea of quality control and improvement. In particular, I related to ISO 9000 because of its personal relation to my own experiences. As I mentioned in my earlier blog post, I have no experience in actual managerial position where I’ve overseen supply chains and physical projects. I have however, experienced a wide variety of accounting projects and process improvement is one of the biggest things that managers are constantly on the look out for. The difference is that the customers we are trying to satisfy are not outside consumers, but rather ourselves.
ISO 9000 was interesting to me because the basic premise of process improvement was very similar to what I did in my last accounting internship. We were trying to improve a reconciliation process with all our international branches due to the fact that the current method was too time costly and slow. In order to improve it, we basically did what the ISO 9000 says to do.
1. Document your processes: We sat down with our superiors and meticulously traced our workflow from beginning to end. We then found areas that were redundant or extraneous and simplified them into single lumps. In other areas we completely cut out certain parts that we realized were not necessary.
2. Follow your documents: We then documented our new and improved process into an easy to understand work flow chart. I, as the intern, then did much of the leg work that would be needed to convert the old process to the new.
3. Be consistent: Finally, we jump started the new process into action. We were careful to make sure that the new process was as standardized as possible, so that random variability (such as different ways to categorize the same thing) was reduced close to zero.
4. Audit your results and improve your processes: After about a month, we did a quick audit to see where we stood. The members of the team had been writing down any errors or problems we had discovered over the course of the month and shared them with our superiors. The process was then further refined.
The end result was that what was normally a monstrous and time consuming reconciliation/international month end close was substantially stream lined. Many processes that were originally manually done had been transformed into quick, automatic updates by the computer.
It was interesting for me to learn that what I thought about as simply “process improvement” actually had a name like ISO 9000 (sounds like something from Space Odyssey).
Question: What process improvements have you made at your job?
There are some many things that every phone company uses that are similar and its apple that is making the claim in most cases.
Do you think that Apple is getting scared of their competitors because they know other companies are on the rise as well, or do they have a legitimate claim against the other companies?
Shortly after the economic downfall in 2008 began, Tom Sesti started Bandals, a new footwear company through which he introduced a line of women’s sandals with interchangeable multi-colored tops – their slogan being “Changeable by design.” The sandals were an instant classic and the five employee company was suddenly facing manufacturing and raw materials cost increases of 15-30%. Sesti knew he needed to figure out a strategy to deal with this issue – and two strategies he came up with involved moving the company overseas or introducing a new product.
Tom Seski took a look at how to improve the quality of his product and the strategy of where to locate his business. He gave a lot of thought about how to penetrate new markets. He realized if he could take something like sandals, which are sold mainly in warm months, and make them something one can wear year round, then they wont only sell for one season. Two ways he did this were by adding jewelry that could be taken off and used with other shoes such as boots in the winter, and also expanding his company to new countries where the weather was warm year round.
It took a lot of hard work and research, but Testi was able to figure out how to effectively manufacture his product as well as expand it to multiple countries. He estimated the cost of making his jewelry in China, the cost of promoting strategies, and assessed how many items he could sell and determined it was possible to break even in a year. He also estimated the costs of expanding his company to 15 countries overseas. These strategies had a high chance of being successful, so he decided to go about implementing them.
Tom Sesti’s operation strategies proved to be successful. Through the use of focus groups, multiple designs, bio-mechanicals, market research, marketing campaigns, location strategies, and design of goods and services, Bandals was able to improve revenues by 250 percent and more than triple annual profits. Sesti figured out cost effective strategies that addressed two major obstacles he saw within the seasonal footwear industry and made the right decisions on how to put his plans to action.
Living in the City of Chicago, I am sure that almost all of us have been on or at least seen some sort of CTA transportation in our daily lives. I know as a fact that I use both the Train and the Bus lines as a way to travel around the city that is a much more inexpensive option that taking a taxi cab or driving myself then parking and having to pay a premium for that parking spot. The CTA is the second largest public transit authority in the United States, and on an average day there systems of trains and buses provide transportation to over 1.6 million people on a daily basis.
Obviously with such as large amount of people that can be affected there is plenty of room for improvement within the system. I know that on more than one occasion I have been on a train that has broken down or been stopped because they train in front of them has broken down. This quickly will lead to delays in a City where people hate to be late and don’t have all that much spare time on their hands. So recently the CTA has selected the Trapeze Group to give there Operational Systems an overhaul. This groups main focus is going to look into improving the upkeep of the hardware used on a daily basis. This ultimately may lead to more improvement on the tracks as well as speedy service. How many times have you seen someone cram themselves onto an already crowded train just because they know the next train won’t be to the station in time to get them to work.
So my question is there anything other than maintenance that could be improved by the CTA that would make your commute more efficient? Remember 1.6 Million opinions could make some big changes.
Amazon and what it is one of the most innovative inventory techniques.
PLEASE WATCH THE YOUTUBE CLIP BEFORE READING:
Amazon is such a huge global online store. It started as a bookstore, yet today you practically can buy anything. One of the main reasons why Amazon has become so successful is because of their inventory tactics and fast delivery. They have partnered up with UPS which brings out a great example of a business to business model.
In class, we focused on two questions that ties down to inventory:
1. How much to order?
2. When to order?
In addition, we discussed 4 types of inventory:
Amazon strictly deals with finished goods. What makes them so successful is the way the business operates. Many people would not think of amazon as an assembly line, in fact, it sort of it. The way it works is that an order is being placed. One person would tag the box with the order, the second would go around the warehouse and packaged the order goods, 3rd would label the box and drop it off at the shipping station.
In addition, many of amazon products are at your home. Customers have the option of selling their books and more through amazon. This way, amazon acts as the middle man. You are solely responsible for shipping your good. Amazon will charge you a small fee for using them as the selling vendor. Because of the way Amazon does business, they are extremely efficient when it comes to inventory related costs. Correct me if I am wrong, but one of the only costs that Amazon may be concerned about for some items are Holding or Carrying costs. Some of the products will never sell. Will Amazon just drop the price of the product or completely destroy it because the carrying costs exceed the projected revenue?
Many of you may not know, however, Amazon was the inventor of the “Shopping Cart.” What a great invention that almost every online vendor took advantage of.
Lastly, I believe that Amazon sparked the popularity of online shopping. Because of the world wide shipping, convince and such a wide variety of product and low prices, there is no reason for you to leave your house to order your favorite book or DVD. Amazon actually, is one of Wal-Mart’s main competitors. I think that one day, the popularity of online shopping will exceed the need for BestBuy and Wal-Mart. It’s only the matter of time.
Elkhart, Indiana is the heart of the Unites States “RV Country,” and is home to HL Enterprise, the premier manufacturer of park trailers, travel trailers, and 5th wheels. The company began in 1986, when industry experts Mel Hyman and Peggy Flager founded the company, but then decided to retire in 2006 and sold Evolve Capital. Evolve Capital pushed the company into financial ruin in 2011 and the two previous owners, along with a new partner, Randy Hoff, repurchased the assets and rights to the product name in order to again bring success to the company.
HL Enterprise has a strong customer-centric focus with the idea that “H L understands what you want…and our goal is to build your dreams.”
“Their park trailers are somewhat similar to the traditional Hy-Line product lines, but with many new upgrades, Hoff explained. “The triple slide trailers feature island kitchens, Corian countertops, thermopane patio doors, cherry wood cabinets and all-tinted windows. Most of what we’re doing now is dictated by the market,” Hoff said. “A lot of the interiors are more plush and there is more of a residential appeal in construction. We also went to a higher ceiling. It’s no longer a travel trailer (84-inch) ceiling. Now it’s a 96-inch ceiling.”
With 32 production line employees working out a 2 building, 35,000 square foot factory, this small business works hard to roll out 4 trailers daily are a retail price starting at $30,000. The new owners, who are actually the founders, are now working hard to bring the company back to the success that it once was.
“We’re doing a lot of damage control from the previous owners,” Hoff said, without elaborating. “We didn’t buy the liabilities, but we’re working with the dealer base and customers in trying to restore their confidence.”
Recently, the company has gone global with a dealer base in 40 states, along with Canada, England, and Australia; currently the company is also looking to create operations in China!
I found the three attached articles to be very interesting because it completely focused on moving the company back into the direction of their original goal. Creating a quality product that is desirable to the customers, while making an adequate profit. Yet the Evolve Capital did not follow through with this goal, and in turn failed.
Do you think that most ownership companies are truly knowledgeable about the products that they are producing, or are they just hungry to acquire and build capital? Also, how do you think the company evolves, no pun intended, when a new management team takes over and does not hold true to the original idea of the company or corporation? It appears that stories like this seem to repeat themselves constantly in business, including Dell, Starbucks, Apple, and so many others.