Author: w13justin

Boeing Proves More Issues with the Dreamliner

Posted on by w13justin

Business Week this past week posted a story about Boeing’s 787 Dreamliner and the most recent issue that occurred. Whether it has been issues with the batteries catching fire or the most recent fire on the Ethiopian Air 787, it appears to me that poor project management is to blame. We continue to talk about risk management in our class, but if the Boeing project manager for the 787 was doing the job properly, then I would guess that the issue would have been fixed in January when the initial fire occurred. The article stated that Boeing redesigned the lithium ion battery packs, but last week’s fire on the 787 proved that their are possibly still issues with the 787 Dreamliner.

The incident last week caused Heathrow Airport to temporarily close some runways and re-route some flights. The costs for this latest incident will be large, not only due to the re-routing and delays, but to the share price in Boeing stock. It did seem like the response to the issue was very quick, so perhaps the risk management plan was ready for this type of scenario with a backup strategy in place. Officials were sent right away to check out the issue in person and tweets were sent right away to confirm that no one was hurt and calm the public.

On a side note, it was interesting to learn that the Boeing 787 Dreamliner was not built in the traditional manner, but instead completed subassemblies from suppliers were delivered to Boeing. The use of pre-installed systems shaved off time for the final assembly of the airplanes. In an industry where delivery time is huge, this can account for a large cost savings in the final project, especially since this could limit the amount of extra labor needed to complete a project on time. It doesn’t appear that this was a cause of the issues that the Dreamliner has seen, but it can be difficult to manage quality when you are sourcing from an outside company. As a manager you to decide between shorter time period of final project to market versus the extra costs incurred, but you also need to look at the extra risks that can occur as a result of outsourcing or shortening the time of individual activities in the production process.

I wonder what the Boeing risk management process was and if it was amended after the last fire that occurred as a result of the ion batteries used in the plane. Do you think that Boeing could have eliminated the risk of the most recent fire? Do you think that the Boeing project managers have worked through these technical issues with the 787 Dreamliner or do you expect that this will happen again?

http://www.businessweek.com/articles/2013-07-12/boeings-787-dreamliner-in-trouble-again-at-heathrow

http://www.usatoday.com/story/travel/flights/2013/07/12/london-airport-runway/2512393/

Wal-Mart’s Need for E-commerce

Posted on by w13justin

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In a recent Wall Street Journal article, “Wal-Mart’s E-Stumble”, Amazon was confirmed as the leader in online sales due to its large U.S. warehouse network, but Wal-Mart is trying to find ways to compete. Although Wal-Mart is not only building its warehouse network and looking at other opportunities to lower logistics and distribution costs, Amazon posted web sales of $61 billion, compared to an estimated $7.7 billion for Wal-Mart. It was stated by former Wal-Mart executives that Wal-Mart was late to the e-commerce game. By taking this “wait and see” approach into the e-commerce business, Wal-Mart lost valuable market share to its competitors that it has not been able to regain. As more consumers purchase items via the internet it will be even more necessary for management to be creative in finding new ways to pick-up customer business.

In an attempt to compete in e-commerce Wal-Mart will either ship from warehouses, have workers package products and send from individual store locations or even in certain store locations set up in-store lockers for e-commerce customers to pick-up items. Wal-Mart may be able to take advantage of same day delivery for grocery items that other companies started to try and promote. Currently the store isn’t set up for same day delivery of fruits and vegetables, but stores like Amazon have started to build there infrastructure for shipping same day perishable items. Recent acquisitions by Wal-Mart, including the company’s purchase of Chinese online retailer Yihaodian, have helped to increased this years fiscal global e-commerce earnings. I believe that it will take more of these acquisitions for in order to increase at the pace to pick up market share. This could be in the form of warehousing, logistics or even software.

I find it strange that a company as large as Wal-Mart has not been able to be more competitive in e-commerce and that management took a backseat early on in this quickly growing market. Not only in the U.S. but in markets like China you are seeing huge e-commerce business by companies such as Costco and Macy’s. These companies have found that this can be a way to limit risk and costs by not needing to have stores, but just have warehouses in low rent areas. Using the vast supply chains of these companies will continue to push them to increase their e-commerce sales.

Over the past few years I have used e-commerce for its convenience and ease of searching for products. In terms of groceries I still like to go to the store in-person to make my choices, but for pretty much anything else, I’ll shop via e-commerce. From the articles I’ve read and people I’ve spoke with it appears that this is the trend in the marketplace.

Do you think it’s necessary for Wal-Mart to increase its e-commerce market share in order to excel? Do you expect that the current ideas Wal-Mart has to increase e-commerce sales will work or are there other ideas that would work better for Wal-Mart’s business model?

 

http://online.wsj.com/article/SB10001424127887323566804578553301017702818.html?mod=WSJ_hps_LEFTTopStories

http://www.forbes.com/sites/clareoconnor/2013/04/23/wal-mart-vs-amazon-worlds-biggest-e-commerce-battle-could-boil-down-to-vegetables/

How do you Plan for a Union Strike?

Posted on by w13justin

The U.S. economy is still weak and U.S. port strikes are not helping matters. The LA/Long Beach clerical union strike that lasted 8 days in late November-early December, 2012 shutdown a total of 10 container terminals, and caused a vessel and container backlog that showed its affects 2 weeks after the strike ended. The strike cost companies an estimated $1 billion in lost revenue per day of the strike. At a time when the last of the holiday imports are arriving to the U.S. and as stores are trying to make last minute sales, product/parts delays of any kind limit those U.S. sales.

On December 29, 2012 we may see a U.S. East Coast union strike, costing companies billions more in lost revenue since import/export containers will be delayed at the ports. As stated in the article, “Potential US East and Gulf Coast Port Labor Strike Could Further Destabilize International Trade”, in the maritime-executive, “Those not prepared for such disruption could face adverse operational and economic impacts including increased expenses, decreased revenues, loss of market share, and reputational damage due to their profit-driven strategy of keeping inventory levels low and the sudden and severe backlog and rerouting pressures caused by a work stoppage”. So those companies who were trying to limit carrying costs of inventory and who have moved production overseas, now may see a disadvantage of this strategy as potential port strikes become a reality.

Now many companies are looking at options to build up inventories and keep imports moving into the U.S. Since the issues on the West Coast are cleaned up and the strike has ended, some importers have moved vessels to the West Coast instead of the East Coast, causing extra transportation costs and shipment delays. Some U.S. companies have been building supplies of inventory in their warehouses, at the possibility that a strike could happen. A major factor in limiting supply chain delays will be increased visibility throughout the companies supply chain. Perhaps in the future companies will invest in warehousing at multiple port locations in order to create options in case of strikes or even use this as a reason to either keep factories in the U.S. or this will make a company think twice before outsourcing production overseas.

In the end union strikes are difficult to plan for, especially as there are extra costs in order to manage these possible risks. However, by having proper risk management in place and being ready for this type of situation a prepared company can take market share from those who are not prepared.

 

Sources:

 

An East Coast Port Strike Could Have Devastating Impact

http://investorplace.com/2012/12/an-east-coast-port-strike-could-have-devastating-impact/

California Ports Strike Disrupts Holiday-Shopping Cargos

http://www.businessweek.com/news/2012-11-29/strikers-close-much-of-los-angeles-port-complex-for-a-thi

L.A. Port Workers Reach Agreement to End Eight-Day Strike

http://www.bloomberg.com/news/2012-12-05/california-port-workers-reach-agreement-to-end-eight-day-strike.html

Potential US East and Gulf Coast Port Labor Strike Could Further Destabilize International Trade

http://www.maritime-executive.com/article/potential-us-east-and-gulf-coast-port-labor-strike-could-further-destabilize-international-trade

Worries mount about possible East Coast port strike

http://money.cnn.com/2012/12/14/news/economy/east-coast-port-strike/

“We’re Happy with our Return on Investment”

Posted on by w13justin

So many companies have taken a similar approach to the continued weakness in the world economy of downsizing that it was a nice change of pace for me to hear about a local Chicago-based company, William Blair, who has taken the approach of increasing in size. This company’s approach of staying debt free and staying away from risky trading strategies has kept it profitable even in this time of economic uncertainty and William Blair continues to expand its staff in order to increase business and serve its customers better. “What fed William Blair’s growth spurt”, an article in Crain’s Chicago Business, explained this approach and stated, “We’re happy with our return on investment”. This statement seemed strange to me as many companies think that profits are most important, no matter the costs. This could contribute to some of the issues that we are currently facing with our economy.

Lehman Brothers and MF Global are examples of companies that used excessive debt and risky trading strategies to try and make excessive profits. These companies seemed to have never been “happy with their returns”. By overleveraging and having risky trading strategies that did not provide a correct risk hedge, these companies went bankrupt. In turn customers lost their life savings, jobs were lost, and some clients will probably forever have trust issues with banking institutions.

It is my experience in the grain industry that many customers are willing to pay extra for great customer service and this service from a trustworthy company can be well worth any extra cost. I have also noticed from my trading experiences that although excessive debt and risky trading strategies can produce huge profits and be very sexy when receiving a salary these short-term profits can affect the long-term strength of the company. This can affect perhaps the strength of the industry as a whole.

In the end, companies in the current market seem to be hesitant to hire more people with the complete uncertainty in the world economy. While companies, such as William Blair, are taking a strategic approach of sucking up talent in this market and have given up short-term profits by keeping debt low and limiting risk for that of a solid return on their business strategy, others have chosen the opposite and are now suffering the consequences. The question becomes do short-term profits justify possible long-term negative effects as shown by MF Global and Lehman Brothers? I think it’s refreshing to see a company with management willing to give up these short-term profits. To me it almost becomes an ethical question, where a manager can decide what is most important to the company.

 

Sources

  1. Marek, L. “What fed William Blair’s growth spurt”. Crain’s Chicago Business. 26 Nov. 2012

http://www.chicagobusiness.com/article/20121124/ISSUE01/311249989/what-fed-william-blairs-growth-spurt

  1. “Lehman, MF Global Dominate October Claims Trading”. WSJ. 29 Nov. 2012

http://blogs.wsj.com/bankruptcy/2012/11/29/lehman-mf-global-dominate-october-claims-trading/