FORD is really “Shifting into Gear!”

Recently, Ford Motor Company has a announced they are putting a greater focus on their SUV and crossover cars to prepare for the future. You might ask, why? Well according to forecasts by IHS Automotive, one in five cars sold around the world annually in 2018 will be either a SUV or crossover. There is about 14 million vehicles sold world wide annually and a specific model taking up 20% of an entire market is a very large number.

Now after reading this article, I almost felt like I was ready the weekly courier, and analyzing the market conditions report from our simulation. Its really remarkable how this article pertains to the methods and leanings of the game we played in class.

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Ford’s SUV and crossover sales were up 37%, which also outpaced the industry increase of 17%. This is exactly what we tracked in the statistics segment of the segment analysis. Ford is clearly putting a focus on a specific segment of the market, or in our game “product type.” The amount of models of SUVs and crossovers has risen from 180 to 370 from 2000 to the current day. This market is becoming very competitive and in the simulation we would have to go into R&D and tweak our product to become better and have an edge. We would also encounter situations where we would have to buy more capacity in our plant to account for higher demand. Ford is doing exactly this. The article states, “…Where it is spending $700 million to expand.” Ford has announced it will continue producing their crossover product, The “Edge”, and expand its production capacity by spending $700 million dollars in Oakville, Ontario where the car is produced. Ford ships this model to over 60 countries, which obviously can be concluded the demand is very high. This scenario right here is exactly like the decisions we had to make within the simulation, adjusting capacity to meet demand and forecasts, along with the segment demand fluctuations.

Just to show exactly how intense this increase in market demand for these SUV’s and midsized crossover is, utility cars sales grew 10% and crossover sales grew 16% last year totaling about 2.2 million units…but that’s just in North America! In 2000 1.8 million units of utility vehicles were sold outside North America, today that number is now 10 million!

Obviously the future of the automotive industry is leaning in a specific direction. I think it is very interesting to see how Ford Motor Company is planning all of this now, and how closely this scenario relates to our simulation. How do you think this market preference for SUV’s and crossovers will affect the industry as a whole? Do you think this will create entry points for new automotive companies? What do you think will happen to all the inventory of the less preferred sedan and cope model type of cars?

Article Source: http://www.usatoday.com/story/money/cars/2014/02/16/ford-world-suv-shift-from-cars/5497343/

-Evan Meador

Ice Cold Beer Here! (in the U.S)

 

20-jp-BEER-tmagArticleHave you ever wondered, just how much it costs to import the “better quality” beer from around the world like Corona, Modelo or Heineken or where exactly does the beer I drink come from? Most likely you drink a product either made by or distributed by Anheuser-Busch and InBev (ABI) considering they currently have aver 39% of the market share for the American Beer Industry. But just recently ABI has taken actions that will give them a majority of the market share for the American Beer Industry, which includes a 20 billion dollar acquisition of the Groupo Modelo Beer Manufacturing Company of Mexico.  This includes expanding the company internationally to Sounth America and adding the brand names of Modelo, Dos Equis and Corona.  This merger was so large that the Department of Justice filed a lawsuit against the company in fear of them reaching a stage of monopoly and market leader.  The result of this was for ABI to sell a 50% share of Modelo’s share to the Constellation Corporation, who currently owns about 20% market share of the American Beer Market, for only $5.5 billion.  DOJ says that this will allow for less consolidation and more competition in price in the markets.

Rob Sands, president of the Constellation Corp. says that this is the most transformational deal in the company’s 86-year history. The results of this merger range in variety and benefit both ABI and Constellation.  ABI will now have 46% market share after the acquisition as well as gaining all rights over the Brand Corona and its factories in Mexico.  Granted that they Corona accounts for over 20% of beer sales in some regions ABI distributes to, they will being seeing substantial growth in capital output and profits in the coming years.  Constellation also stands to see a similar amount of growth in the coming years.  They have aquired the brand of Modelo. Constellation makes wines from Robert Mondavi and Clos du Bois, as well as Svedka Vodka. Although they have never brewed beer before Constellation is excited about this endeavor. They will build a new state of the art facility for brewing the Modelo brand on the Texas-Mexico border. This will result in the plants capacity doubling in a matter of a few months. How do you think that these actions will affect other beer manufactures output such as Miller Coor’s? Also how do you think that this acquisition will affect beer prices of domestic, imported and micro brew beer companies?

http://dealbook.nytimes.com/2013/04/19/anheuser-busch-reaches-deal-with-antitrust-regulators/

Hog-wild for Factory Farming: Hot Dogs Made in China

As the Chinese population and economy continue to grow, safer and more efficient industrialization practices are necessary to keep up with the demands of a hot dog hungry China. This is not an exaggeration as China is “the world’s largest consumer of pork.” A recent takeover of Smithfield Foods by Shuanghui Holdings Ltd., “China’s biggest meat processor,” will provide valuable insight into industry practices that are commonplace in the U.S. Current processing methods in China lack quality control as the majority of meat is produced by small farms that process less than 500 hogs per year.

From Hog to HotdogThese “conditions on smaller farms can be squalid, with a lot of physical contact between farmers and animals, which can transmit disease.” This type of environment can become a breeding ground for contamination leading to outbreaks of diseases like swine flu and foot-and-mouth disease, having major health implications on Chinese consumers. Authorities blame irresponsible farming practices and the disjointed meat processing system that is not easy to “regulate and makes it more difficult to avoid bad practices.”

In contrast, the highly sophisticated and streamlined systems of pork production in the U.S. is often viewed negatively by Americans and referred to as “factory farming.” Smithfield’s facilities have the “capacity to slaughter as many as 110,000 hogs a day,” and most U.S. farms are much larger than their Chinese counterparts, raising over 2,000 hogs annually. Ironically, these modern processing techniques are the envy of Chinese authorities who are looking to utilize the “expertise of Smithfield’s management team to enhance its pork-processing facilities.” Skeptics claim that the Shuanghi-Smithfield partnership “will exacerbate such problems as complex supply chains and food-contamination risks.”

Although the trend in U.S. agriculture is to go “back to the start” as expressed in marketing campaigns by environmentally conscious companies like Chipotle Mexican Grill, this is not the reality in China. As health out-breaks are more widespread in this Asian country and regulation lacking, efforts to “control food safety” and create more modernized processing methods are a welcomed site.

In such an industry, operational expertise will prove essential in restructuring the pork processing system in China. They will likely face challenges like determining adequate process and capacity design for farming facilities and distribution channels; forecasting to meet the demands of a growing population; Slaughter Pigs in Chinaand improving inefficient and broken supply chains. Improved product quality will likely be most prominent and follow a manufacturing-based definition as increased standards will ensure a safer finished product.

On a personal note, I am an advocate for more naturally produced food in smaller farming environments, yet I understand that the demands and current conditions in China are quite different from the U.S. All criticism aside, the majority of the U.S. population relies on the safe meat supply provided by corporations like Smithfield to ensure peace-of-mind at the dinner table. How do you think that the new deal between Shuanghi and Smithfield will impact Chinese and U.S. consumers, respectively. Will the Chinese citizens have a similar sentiment toward industrialized farming practices in future decades?

Article Source

 

 

Chocolate: The Road to Luxury

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For all of you chocolate lovers out there beware: there may be a flaw in Western chocolate manufacturers’ supply chain management of cocoa. Productivity is not at the levels it needs to be to satisfy manufacturers and consumers. To better put this into perspective, Mars has found that if the levels of productivity remain the same as today, by the year 2020 there would be a shortage of 1.1 million tons of cocoa. If this occurs and current productivity levels of cocoa trended into the future, the cocoa farming business will not be headed in a promising direction.

The disconnect lies within cocoa faming itself. There is little incentive for cocoa farmers to continue in their line of work because of the competitive rubber industry. It is considered a less uncertain industry with a longer crop season by about four months. On top of this, the wage for both types of farming is roughly the same.

The other constraint of the industry is the high risk for disease outbursts. This is partly due to the inadequate access of much needed fertilizers for the cocoa crop.

Cocoa-farmers do not come anywhere near the crop’s capacity since their utilization is only around 60%. Cocoa manufactures have recognized the scarcity as a sincere problem since in many growing areas more than 40% of the cocoa crop is destroyed due to vermin and disease.  One would hope that this type of scarcity could be due to assignable variation that can be improved by subtracting bad causes.

How would you react if chocolate turned into a luxury good instead of an affordable snack due to flaws in the supply chain management?

Chocolate manufacturers are looking to provide solutions for productivity in the cocoa-farming realm. Many companies like Mondelez and Mars have invested millions in education programs in hopes to increase productivity and decrease disease-ridden crop. Mondelez has gone as far as hiring students from universities for these cocoa programs to target efforts toward younger generations. This seems to be an efficient approach, given the fact that peer motivation is a convincing form of motivation.

Another potential solution was Ivory Coast’s decision to set a price minimum for cocoa. This was an astonishing action that stresses how essential cocoa farmers are in the industry.

It is hard to believe that the issue has gone this far. In my opinion, action should have been taken much sooner. The uphill battle is much worse now that efficiency levels have sunk so far below maximum capacity.

Do you think that these efforts put forth by chocolate manufacturers will be enough to save the chocolate industry?

What else can be done to improve the supply chain management and productivity in the industry?

Have you noticed any other flaws in the cocoa/chocolate industry besides the supply chain management?

Which action will have a greater affect on the industry: a price minimum or cocoa farming education programs?

http://online.wsj.com/article/SB10001424127887324412604578513140098292744.html?KEYWORDS=operations+management+supply+chain

 

Sweet Mandy B’s Sweet Success

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Most students at DePaul University have encountered the delicacy of Sweet Mandy B’s at some point during their college education, whether directly or indirectly. There are the die hards (as often as they can get there, they do), the excuse makers (I don’t want to write this paper anyways, so lets go get cupcakes), the “I earned it” girls (who can justify the indulgence since they worked out), the special occasions (birthdays, weddings, the works), and the rest have either simply tried Mandy B’s or heard other students discuss it.

The number of students that Sweet Mandy B’s draws in on a daily basis is astounding; and students are only a portion of their customer base. There are people all over Chicago who are willing to make the trip to Lincoln Park in order to get Mandy B’s. In food and confection related industries, the quality is top priority since that is what consumers are truly after when they go in for a treat. In order to sustain such high quality management and fresh cupcakes, cookies, and specialty foods, just in time inventory is a must. Nobody wants to walk all the way there to spend money on a cookie that is stale or doesn’t satisfy that sweet tooth. Managing the way that baked goods are created, decorated, and stored in order for maximum freshness for the maximum amount of time appears to be something that Sweet Mandy B’s management has mastered, from my experience at least.

Another aspect of operations that is essential to consider in this industry is capacity. When people place orders for cakes, it is typically for a special occasion, in which case they need the cake at a specific time on a specific day. Cake orders and order patterns must be closely analyzed in order to increase staff during busy ordering times such as holidays or time of large events like graduation. Space and oven scheduling is another consideration, for only so many cakes can be baked as there are ovens. Sweet Mandy B’s seems to have this under control as well, for the entire second half of their store is available should they need to utilize that space, yet the don’t waste money keeping it lit or stocked when they are able to limit baking to the main kitchen.

Location strategy is interesting in this case, for Sweet Mandy B’s does not follow the typical “Location is everything” mantra. Rather it makes a product that is too good to resist, and people have no problem travelling from all over the city to pick up their pre-ordered cakes or stop by for a snack. However, their location is, in fact, intelligently placed because many college students do not drive, and the proximity to campus is a major plus. Its convenience also encourages students to stop by when they probably would not have made the trip if they had to actually plan for it and catch a train. With its thriving success, is there anything that could drastically hurt Sweet Mandy B’s sales?

 

Elimination of Enrollment Bottleneck: Graduates Who Don’t Do Science.

Bottleneck
Source: xda-developers.com

In class, we learned that a bottleneck is the longest activity that is the limiting factor in operations management. Managers want to match capacity and design while still maintaining the greatest efficiency possible.

Education is no different as it follows basic business rules. Schools increasingly want students to graduate, get jobs, and eventually donate back as alumni. Universities across the country have a problem with so called “bottleneck courses,” which prevent students from graduating. California State University (CSU) reports about 30 such courses that have a high rate of failure, including math, science, and history. Those courses distract students from their major studies and often cause failing or withdrawing, if not dropping out of college altogether.

science-lab
Source: brightlandcollege.in/

CSU wants to address the bottleneck courses by providing science labs online and moving away from traditional in-person classes, especially for students who do not major in science. CSU does not have sufficient capacity to match demand for bottleneck classes due to limited lab space. Virtual labs are a way of offering more lab sections and thus increasing enrollment and moving more students through the system (increasing the rate of graduation).

Low cost of such classes coupled with high demand means more money the school will earn and able to re-invest. However, CSU’s solution to bottleneck science courses raises concerns over the quality of education given. In-person classes are especially important for science labs; a biology department chair at CSU, Jeffrey Bell, says, “my biggest concern, especially with freshman classes is you don’t want students seeing reality as a video game—a key thing in science is we investigate reality.”

Before we can argue about the quality of such courses, let’s ask ourselves: “what is the real value of education?” The content that is learned in science classes is available online. Therefore, the content is not the sole value of education, but rather a college experience: the ability to interact with the professor and peers on one-to-one basis. But just how important is the experience for non-science majors who just want to pass the class to graduate?

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Source: biofluff.files.wordpress.com

CSU’s demand far exceeds school’s effective capacity, mainly due to struggling students repeating the class. School’s solution to increase the capacity through online sections to match enrollment demand is one way of managing the problem. School could also manage demand by increasing capacity—building new science labs and hiring more professors. This long-term solution would ensure that struggling students are offered adequate in-person help, rather than let them pass without a sufficient knowledge of science.

CSU’s tactic for managing bottleneck science lab courses is rather new, thus raises concerns about its quality, especially in the time when U.S. students lag behind in science and math compared to other countries. Is removing this bottleneck sacrificing or improving the quality of science lab courses? Will this decision eventually lead to graduates who do not have sufficient knowledge of science or scientific thinking? Can you think of other solution to tackle the bottleneck course problem?

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Source: www.scpr.org
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“Lets Cap Up!” -Ford

Ford has increased their production capacity for the second year in a row in order to meet their production demand for their cars, trucks, and utilities. The Chicago assembly plant, one of the many plants included in the plan, will play a critical factor in the company’s production capacity who seeks to increase total production by 200,000 units. It seems like the company will for now only focus on their more popular automobiles which include the Ford Explorer, Ford Fusion, and the Ford F-Series. Ford plans on increasing the production capacity by only allowing one-week summer shutdowns which in turn will produce 40,000 new units. Currently Ford’s stock is listed at $14.49 per share, while General Motors is trading at $32.87.

General Motors is also planning on increasing their production capacity, however they are focusing on introducing 23 new cars and trucks to their automobile portfolio. Ford states that the company is planning to add 1,300 hourly jobs this year alone and it is planning to offer 12,000 hourly jobs by 2015. Ford’s revenues increased 10.5% to $35.8 billion.

The automobile industry has been considered America’s backbone for many years and we have heard of the struggles it went through especially during the recent recession with needed government aid. I understand that the industry as a whole is looking to increase capacity however Ford has not mentioned any new automobiles to be added as part of the plan. We have all heard of the phrase, “just because everyone’s jumping off a bridge does not mean you have to.” I believe that this is a risky move for Ford with what they plan on doing with their production right now and we all know the costs that run along with production and storage.

The company states that in plans to increase hourly jobs. However, adding these hourly jobs does not completely mean that hourly workers would be able to work full-time hours. The company has yet to declare whether or not these workers will be working full-time and the type of benefits they would receive. I believe Ford is eager to increase their production due to what other companies are doing and because of their recent growth. However, in the automobile industry, bad forecasting can be very costly for many reasons. For example, if revenue drops for the next year or two, then the company is stuck with a large number of vehicles in their storage centers. No company wants to report new hiring and then go downhill with reported job cuts and firings after.

In Ford’s case, is it too soon to increase this production capacity and plan on new hires? Does one good fiscal year call for changes in operational management for next year? And quite frankly, can Ford compete with the innovation that General Motors is adding to their portfolio?

 

Source: http://finance.yahoo.com/news/ford-enhances-production-capacity-141502358.html

Breakfast for Dinner!? McDonald’s Doesn’t Think So…

At some point, everyone has wished that their favorite breakfast foods could be served all day. Maybe not everyone, but that is only because they’re not fans of crispy bacon, syrupy pancakes, and perfectly crafted, flavor-filled breakfast sandwiches. McDonald’s has begun entertaining this idea of 24-hour breakfast and has discovered many logistical issues.

A former McDonald’s restaurant owner and current restaurant franchisee consultant explains, “It’s been tried and failed repeatedly. It just makes the operation too complicated.” McDonald’s offers breakfast until 10:30 am on weekdays and 11:00 am on weekends. Their breakfast accounts for 25%of their sales, but dominates the fast-food breakfast market. Making these items available all day doesn’t seem that hard, right? Unfortunately it is just not that easy. As we discussed in class, capacity always comes into play. It is not about storage of the food, it is about grill capacity. Cooking meats and eggs require different temperatures on the grill. For breakfast, bacon and sausage is cooked ahead of time, and the grill is set to a higher temperature to cook the eggs until 10:30 or 11. The current grills do not have the capacity to accommodate this difference. The company would have to figure out a way to match the required capacity to the anticipated demand. Another strategic issue would be labor. Since the scrambled eggs need to be stirred constantly, it would be difficult to make them during peak lunch and dinner hours. Since 65% of customers come through the drive-thru, speed is of the utmost importance.

McDonald’s is also worried about losing profits as well. The breakfast sandwiches and meals are cheaper than those for lunch and dinner. If they are all offered at the same time, people may trade down to the cheaper products, hurting McDonald’s earnings. Good things can come from enacting this too. Most of the breakfast items are healthier than the greasy burgers and fries, giving customers lower calorie and more beneficial options.

One thing to take into consideration is how to estimate demand. Will people actually buy these items throughout the day, or is it just nice in theory? People tend to want what they can’t have, and once it is made available, it may not be as popular as originally expected.
There are discussions of meeting somewhere in the middle. One option is only serving the breakfast sandwiches and not worry about giving the scrambled eggs the attention they require. Another option would be to test demand by serving breakfast until noon.If the company needs to make major changes to grill capacity and labor, then they must know if profits will make up for those costs.

Is it about time McDonald’s serves breakfast all day? Based on demand and current statistics, would it be worth it and have the potential to succeed, or should they keep operations as they are?

References:

http://www.businessweek.com/videos/2013-05-06/whats-for-dinner-big-mac-or-egg-mcmuffin#r=most popular

http://www.businessweek.com/articles/2013-04-29/an-afternoon-mcmuffin-mcdonalds-is-still-considering-it

Managing Capacity Through School Closures

The Chicago Public Schools system, commonly referred to as CPS, has received some harsh criticism after declaring that there would be massive school closings before the 2014 school year.  The CPS school district has decided to close 53 elementary schools in the Chicagoland area.

As a result of the school closings, hundreds of teachers will lose their jobs or will be transferred to a school that will receive the students from nearby closures.  Not only are the teachers affected by CPS’s decision, but parents have also begun to express their concerns as well.  The current students of closing schools will experience travel distances that are almost double their current commutes which parents believe will add unnecessary danger.

Parent reactions to the school closures have mostly been concerned with the safety of their children.  The surrounding communities have also expressed similar concerns to CPS about overcrowding in the receiving schools and the costs of improvements that will have to be made to these schools. The largest protests have come from the Chicago Teachers Union.  The union is fighting against the massive layoff that will follow the closing of 53 elementary schools and has filed a lawsuit against CPS.

Even through a lawsuit from the Chicago Teachers Union and overall disapproval from the surrounding communities, CPS continues to stand behind their proposal to close the 53 schools.  Why is CPS adamant about the need for closing the 53 schools?  CPS has stated that currently the district schools have the capacity to serve 511,000 students.  However, during the 2013 school year, only 403,000 students were enrolled in the school district.

According to these statistics, the CPS school district is only utilizing 78% of the possible capacity.  The shortage of student enrollment has been very costly for the CPS school district and a problem that needed to be addressed.  In any industry, not utilizing 22% of possible capacity would be a concern.  In such a situation, many companies would try to minimize this shortage.  Two strategies for reducing costs and matching capacity to demand are making staffing changes and closing facilities.

Capacity is a major factor that must be addressed in order for a company to remain profitable.  The Chicago Public School system is attempting to minimize costs and is responding to this situation just as any other business would.  The strategies CPS has elected to implement are generally accepted in many other industries.  The closing of facilities and employee layoffs happen quite frequently throughout the country, but the CPS system is facing much more opposition than other companies usually experience.

 

Do you think that CPS is facing unfair criticism?

After seeing the enrollment figures, do you believe that the CPS system is acting appropriately in closing the schools?

If not, what would you recommend as a better solution to the issue?

 

http://articles.chicagotribune.com/2013-03-22/opinion/ct-edit-closings-20130322_1_cps-chief-barbara-byrd-bennett-cps-estimates-school-buildings

http://www.chicagotribune.com/news/education/ct-met-ctu-school-closings-march-20130514,0,2593875.story

For GE: old school is new school

 

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General Electric (Ticker “GE”) Fortune Magazine World’s Most Admired Companies at rank 11.  GE is the single surviving company from the 1896 Dow Jones Industrial Index and currently has  roughly 305,000 employees and over 140 billion dollars in revenue last year [GE 10-K for the year ending March 31, 2013].  I believe it is safe to say these guys know what they are doing.  They are in the business of designing and manufacturing appliances plus energy, health, aviation, and transportation equipment in addition to operating a financial services company.

Due to GE’s aggressive and hard pressed past, there are very few companies with the same or even similar brand recognition, especially as they have had such a long standing track record.

Though a mammoth company, GE too had troubles fighting down turns in 2008.  GE’s financial services wing, GE Capital, found itself holding just about half of GE’s profits.  GE Capital was having difficulties and thus GE had to cut its dividend which was a huge blow to its image.  All of this finance/business aspect of the company then affected how GE would then change its ways operationally.  GE realized it needed to simplify, and was most definitely a task involving and most reliant on its operations management team.

Most interesting for me was the refocus on a portfolio of the company to refocus on its traditional core industries.  That is, they are now going to focus and dominate at what they are good at.  For example, in 2012 GE began to make water heaters which was its first new product in 50 years.  The site that it was built on was named Appliance Park, KY (notice any connection?) though this site had been used less and less due to favorable overseas factories which were much cheaper.  Interestingly, in 2009 GE shifted toward moving those overseas jobs back into the domestic light.  This process is just being finalized and in full swing.

The result?  A cheaper and much more rapid production thanks to an efficient domestic supply chain perfected by the company.

Another interesting note about this company’s changes: GE is spending money on investments in the “industrial internet” in order to take hold of ‘big data’ to make more efficient machines.

Things to think about:

-How do you think GE asses’ its ‘utilization’ and ‘efficiency’ for its production facilities now that there is a fully implemented shift into domestic production for this large company.

-We discussed in our course lecture the concept of ‘planning over a time horizon’.  How do you think GE will have to change the way it plans its capacity or the upper limit or ceiling on the load that an operating unit can handle?

-We have seen virtually all large companies using automation and focusing on capacity.  We just discussed this in the course lecture last week.  How do you think GE’s focus on investing in the “industrial internet” will change the efficiency of their production machines?  Do you think this will be a drastic change? Something they won’t see for a long period of time?

Link to this CNN Money Article: http://money.cnn.com/2013/05/06/leadership/general-electric-industry.pr.fortune/index.html