Last week in class we discussed the importance of managing inventory and managing suppliers. It has been stated in class many times that a company is only as strong as its weakest supplier. Simply stated, suppliers can make or break your business.

An interesting article on MSNBC (click here) discusses how J.C. Penney is revamping its inventory’s pricing with discounts of at least 40%. What exactly does this mean? As the title of the article simply points out, lower prices and fewer sales.

The article discusses how many Penney shoppers usually capitalize off the many sales the store offers, however, the frequency of the sales were confusing many consumers. Now, instead of all the sales, Penney will just have drastically cheaper products. The company is trying to make itself more like WalMart and Target.

The article doesn’t explain how exactly Penney plans on cutting the prices, but if it is adopting methods used by the likes of WalMart, it can be assumed that they’ll be cutting costs directly through suppliers. WalMart is the leader of supply chain management, which is how it has managed to keep prices so low.

One of the issues that the article mentions that may backfire against Penney is the loss of the customer who enjoys sales. Personally, I think it could be a very interesting psychology essay to go on and research how consumers think when it comes to sales. Personally, I don’t necessarily go out and look for sales, but when I do find out I’ve saved money due to being at the right store at the right time it makes me happy.

What do you all think? Is J.C. Penney making the right decision? Can it begin to compete with the likes of WalMart and Target, or is the company just a liability?

Last week we discussed how important it is to effectively manage inventory levels for any business.  Inventory can dramatically affect the bottom line (profits) of a business. Sometimes businesses may have too much inventory and end up having to absorb cost such as holding or carrying cost. At other times, businesses may encounter stockouts or shortages which can also play a vital role in the loss of profits.

When businesses encounter potential profit loss due to holding/carrying cost or stockout/shortages, they often look towards some type of ABC analysis.  ABC analysis provides business with the ability to provide certain items different levels of inventory based on the importance of the item. So how is a an item classified as important?  Items are assigned into 3 different buckets, A, B or C.   A items are usually those items that are most important to a business and provide higher annual dollar volume when compared to other items within the manufacturers portfolio. B items, are usually items that provide the business with medium annual dollar volume and C items are those whom fall into the lower annual dollar bucket for a business.

So your next question is …….  (What does this have to do with the Retro Air Jordan Concords?)

On December 23, 2011, two days before Christmas 2011 and the beginning of the NBA season,  Nike re-released the Air Jordan XI Concords shoes.   Masses of sneaker head fans camped out at stores throughout the United States in hopes of getting their hands on a pair of the coveted Air Jordan XI Concords.  However, quantities were very limited and only a few of those whom stood in line for days/hours were able to purchase a pair.  A few hours after the release, stockouts sent sneaker fans into outrage and stories of violence due to the lack of inventory of the Air Jordan XI Concords began to spawn in different areas of the country.  People were literally killing each other over a pair of theses shoes. There was even a story of a mother who left her two young children in the car alone, while she stood in line waiting for the possibility of getting her hands on a pair. 

 This scenario really got me thinking of the different effects that inventory can have not only on the bottom line of a business, but on the safety of the community itself.   From a business standpoint, I’m sure Nike did very well (in terms of profit and inventory) by releasing only a limited amount of the Air Jordan XI Concords.  However, many of its loyal customers/fans were left with the short end of the stick due to the limited quantities.

Based on the ABC methodology, what bucket do you think Air Jordan’s fall under within Nike’s inventory model?  Do you think Nike intentionally sets stockouts on Air Jordan’s to make them more attractive to consumers?  Do you think Nike ever considered the trickle effects that stockouts would pose to the community? 

 Below is an article from the Charlotte Observer that covered the story of the Air Jordan XI Concords release within the Charlotte area: 

http://www.charlotteobserver.com/2011/12/23/2871323/area-mall-shoppers-squabble-over.html

We can all recall a time in our life when we walked into a store looking for a product, only to find out that the product is out of stock. Today, the retail market is extremely competitive and thus the slightest advantage can have a meaningful impact. As we discussed inventory management last class, we were presented with our own challenge to see just how difficult it is to manage inventory; however, we did learn that there is an optimal amount of inventory. Optimal is an interesting word, because optimal doesn’t always mean right.

Let us take a moment to examine a few companies where inventory management has taken a sour turn. Research in Motion (RIMM), better known as the makers of BlackBerry products, has had a tremendously difficult time dealing with inventory. As recently as two months ago, RIMM had to devalue its inventory significantly, further hurting their already deteriorating business. The trouble is stemming from fierce competition from rivals such as Apple, and inferior products. The sales of BlackBerry PlayBook have been dismal, forcing RIMM to drop the price 60 percent. This in turn, forced RIMM to cut the value of its inventory, directly impacting their bottom line.

Best Buy has also caught itself in various troubles regarding inventory management, some of which have caused people to be fed up with the retailer. Last year, Best Buy ran out of the popular smartphone Nexus S, but continued to inform their customers that the phone was in stock. Or what about the incident this year, which resulted in many people not receiving their Christmas gifts on time? As we can observe, Best Buy is having a difficult time managing their inventory. From the information I have been able to gather, people are saying that Best Buy’s inventory management system is greatly inferior to other inventory management systems.

One doesn’t have to go further than Amazon to showcase what great inventory management is all about. Amazon shows you how many products are left in stock, and it even goes to inform you when the product will be in stock if it is currently unavailable. When a company is willing to go this far to inform and satisfy their customers, it speaks great volume.

Over supply or insufficient stock are major problems for companies that carry inventory. Take Best Buy’s recent troubles with over supply of HP TouchPads, which forced them to cut the price and take a hit on the value of their inventory. While over supply is certainly a cause for concern, under supply is also a major problem. The recent story about AirBus taking it to Boeing because of the significant delays of the 787 Dreamliner shows how insufficient supply can give your competitors the upper hand. Take a moment and reflect on the times you were shopping for a product and were told it was out of stock. Additionally, can you think of other companies who struggle or thrive when it comes to inventory management?

 

http://www.foxbusiness.com/technology/2011/11/22/rim-trims-300-from-blackberry-playbook-prices/

http://news.consumerreports.org/electronics/2011/08/best-buy-struggling-to-sell-its-inventory-of-hp-touchpads.html

In our last class we learned firsthand how a company successfully forecasts demand and maintains the proper inventory to ensure that costs are minimized.  Toyota, the  long time high volume automobile retailer was faced last year with two major setbacks that completely disrupted its just-in-time (JIT) supply chain.  The Japanese worldwide industry leader felt the blows from both the earthquake and tsunami on its native soil and also the floods in Thailand later in the year.  Toyota utilizes the JIT inventory method and from this it benefits largely in the bottomline of itsbalance sheet and income statment because of the advantage of more cash on hand.   When the supply chain is disrupted, however, the results are astonishing.  Just as you would imagine from the results of our in class activity, when demand is neither known or constant opportunity costs rise and could quickly set a company behind.  Toyota has been praised for its prized forecasting abilities but when these natural disasters set them back for months they were not able to recover in time. 

 Toyota looks to quickly forget about the problems that it faced last year, the year brought them the aforementioned supply issues in addition to many recalls and an overall slump in automobile sales.  The article notes that the manyfacturer is now building 400,000 less cars that in 2007.  If you think about how this trickles down that is the output equivalent of one plant per year.  Toyota looks to rebound and take back the market share it lost to American rivals but it will be an uphill battle with the likes of Ford and GM recovering strong from their recession woes.

What do you think about Toyota’s mishap? Could it have been avoided or handled differently?  Should Toyota and others do away with just-in-time inventory?

The above post was derived from this article:

 http://www.forbes.com/sites/michelinemaynard/2012/01/20/more-proof-that-toyota-faces-a-tough-climb-back/

This week in class we learned about supply chain management. The most important thing I learned about supply chain management is the strategic importance of it. The strategy companies employ is the integration of activities to procure resources and transforming them into goods. One company that clearly has a superior supply chain strategy is Apple. However, in an article from Bloomberg, “Apple’s Greatestness and Its Shame” raises important issues regarding Apple’s supply chain strategy.

Last Tuesday, Apple reported 4th quarter revenues of $46 Billion and profit of $13 Billion. A week prior to the earnings release, Apple released their report disclosing their audit of suppliers. The results from that report identify issues in their supply chain. One important question the Bloomberg article raised is whether management should increase shareholder value at all costs. Should Apple reduce profits to improve working conditions in their supplier’s factories? Remember, suppliers are separate companies.

I think that this is an ethical dilemma that some companies can only dream about having to make. I know this sounds odd, but think about it. Apple has doubled in value in about three years. Most companies can’t have that kind of growth in a decade. It is a dream for companies to have to question if they are paying their suppliers too little. A company is in business to provide goods and services to consumers. Management’s role is to increase shareholder value.

Just to play devil’s advocate, I ask, if a company makes any profit should it reduce profits and voluntarily pay suppliers more? If a business reduces profits by allowing suppliers to increase their costs, (i.e. higher wages, more workers, additional safety equipment, added employee benefits), would a company continue to do business with them?

When would an altruistic approach to selecting supplier contracts go too far? Should a company ensure that all employees of a supplier are paid minimum wage commensurate with the foreign nation? Should a company pay for the supplier’s employee vacation and retirement plans?

I think these questions should be considered when a company weighs the risk of their supply chain. These questions are likely to fall under political and currency risks. In my opinion, a company should consider the working conditions and employee wages when choosing a supplier. I think this should be applied universally regardless of the profitability of the company. Lastly, I think companies should select suppliers that operate efficiently. The more efficient a supplier is they will be able to reduce manufacturing costs and the more cash they will have to ensure the employees are taken care of.

Inventory management is an integral part of a company’s ongoing internal activities. It allows a business to keep track of spending on inventory and also providing an accurate account of inventory or stock on hand. Although, most of us see this concept as something that we might not encounter often, it in fact affects us on a daily basis.

Last class we learned about this vital business concept. This made me think about my experience as a consumer dealing with poor inventory management. It all started last week when I went to a store to purchase a new flat screen TV. Prior to doing so, I had went on the company’s website to look up the price of this item and to see if they had it in stock at the store location nearest to my job. According to them, they did. However, when I was there I could not find the product on display or on the shelf. Fortunately, I printed the item information in advance and proceeded to ask for assistance. The customer service representative looked up the item and found that there were 3 remaining. Although it appeared to have been in stock, we look all around the electronic department and we had no luck finding the particular flat screen TV I wanted. Perhaps, it was misplaced or lost in the huge store? Regardless of where it went, the fact of the matter is I left the store with nothing. As a result, this cost the business money and a potential customer.

This experience along with what I learned in class made me realize the importance of inventory management. Not only can managing inventory help a company run things smoothly, but it can also provide customer satisfaction. By having an accurate account of products in stock and be easy to locate, items can be identified and given to the customer. Although inventory management software is important to have, it is also crucial to be able to know how to use it in order to be effective and efficient. Has anyone experience this situation before? If so, was it at a large or small store?

This weekend was the 50th Anniversary Rolex 24 at Daytona, a 24-hour sports-car endurance race, at the great Daytona International Speedway.  Each entry requires 3-5 drivers to trade shifts, as well as a host of mechanics, technicians, and engineers.

In a 24-hour race, there is bound to be many caution flags and technical issues.  Throughout the race, car after car was set back by, or even dropped out of the race due to engine, transmission, and gear box troubles.  And I began to realize why there is so much emphasis on the manufacturer of the winning team, as Ford swept the podium this Sunday.

As I watched Ford take home 1^st, 2^nd, and 3^rd, I remembered an article I read in the Wall Street Journal a couple years ago – “At Ford Racing, Quality (Control) Is Job One.” (I would suggest to read it if you have the chance!)  The article discusses the impact Mary Ann Mauldwin has had as the director of operations at Roush & Yates Racing Engines, Ford’s primary NASCAR-engine builder.

Ms. Mauldwin has worked with Pelton & Crane (a dental equipment company) and Thorlo (a sock manufacturer) – both of which have a little or nothing to do with automobiles.  And apparently she is part of a larger trend in NASCAR.  (See article, “For decades, the sport was dominated…”)

I saw this as testament to the universal application of the operations management principles we have learned in class.  Ms. Mauldwin had said, “building engines was no different from making athletic socks.”  A lot of what she had done is basic inventory management.  She created a new inventory tracking system, standard bill of materials, and an improved forecasted inventory demand.  Her new system has cut the time it takes engine builders to gather parts from four hours to 45 minutes, which would be a 533% increase in laborer productivity.  She also improved supply chain management, as she worked with suppliers to improve the quality of parts and turned their used-parts sales into a lucrative business.

In class we stressed the importance of standardization.  She utilized standardization to identify whether a change represents a real & consistent improvement.

“She required engine builders to submit an engineering change form if they wanted to alter anything in the building process… Mr. Yates, the CEO, also started to see improvements in the quality and the consistency of the company’s engines. His five primary engine builders had each put an engine together a little differently. After Ms. Mauldwin standardized the process, “we were turning out nearly identical engines in terms of performance and reliability,” he said.”

What other advantages are there to a standardized process?

Lastly, due to the topic & since this will be my last post, I felt inclined to post a couple other NASCAR related operations questions:  What do you believe is the usual bottleneck of a pit crew?  What do you think they can/already do to remove this bottleneck?  Also, how might inventory management come into play for a pit crew?

 

Are you smarter than a CEO?

After “The Gaming Company” I realized that every decision affects your company’s overall success. One decision can also dictate your company’s future performance. During the activity, I made an error on the evaluation sheet, which prompted me to suggest we not order for a second week. Unfortunately, we got hit with significant inventory costs for the next week.

This leads me to my question:

Are you smarter than a CEO?

Wait, before you answer that, ask yourself this:

Could you take over Apple, Microsoft, Google, or Facebook and keep them as leading innovators?

Hold on, do you have the experience?

As much as it may hurt your ego, the answer is NO. That is not to say that it is impossible. Steve Jobs, Bill Gates, Larry Page, and Mark Zuckerberg all started their companies with little to no experience.  What happened before their companies reached the status of instant recognition?

All the companies listed above have faced critical decisions, where missteps could have cost them greatly.  Management, especially at the CEO level, is the driving force to a company’s success. An example of this is a company that may have the best Accountants, with one problem, their accounting for a lot of losses and debt. Management is a very broad word which has many approaches that may be effective. I think what all successful managers have in common is the ability to adapt.

I also noticed the importance of leadership/management at my company’s 4Q earnings report meeting. My company’s management has historically taken a decentralized approach to the management of its various entities. One analyst was concerned that he was beginning to see the company becoming more centralized. Of course as business students we all know that this would give more management control to the corporate level of the company. This could effectively change the entire way a company operates, which may lead to increased or decrease production.

So do you think you are smarter than a CEO?

Remember one last factor, there is millions of dollars on the line, not a pack of Starbursts!

If you do, give me the reason in one sentence.

In class we learned about statistical process control and how it helps a person distinguish between common cause and special cause variation. The example in class where we had to write our name 5 times and then again with the opposite hand was an example of special cause variation. Some kind of an event happened to make our writing look so messy the second time around.

Special cause variation can always be traced to a specific reason. This happens because of unusual circumstances. In order to manage special cause variation, the problem needs to be identified and removed. It is easier to remove special cause than common cause from the system because it can be identified.

Whereas common cause cannot be traced to a specific problem because there are multiple causes contributing to the problem. It affects every outcome, so in order to control common cause variation something in the process needs to be improved. Common cause is inherent in the system. Only management could be blamed for common cause in their system.

These topics made me think about how one little thing can change the way we act, the process time, and the look of something. Writing with my left hand took a lot longer, looked a lot messier, and felt funnier. It would be an identifiable fix if I wanted my writing to look better.

This made me think about how some academic textbooks are written. There are so many incomprehensible concepts that the meaning and the purpose of the article gets lost. We have all had a class where the professor does not teach, but assigns readings, which will be tested on. I believe everyone can interpret readings differently and could get way off base on what the real idea is supposed to be. That is the class where 80% of the students get below a C. The students blame the professor because there is no identifiable cause to why everyone failed. When in reality it is insufficient training.

Then there are the professors that teach the class and give out assignments and questions to make sure students understand the concept. Everyone has the same thought process and understands what the professor wants and what the class entails. The common cause of misinterpretation has turned into a special cause, which can be fixed with proper instructions and understanding.

In this common cause variation, is a professor better than a textbook?

Now that we’re nearing the end of this course, I’ve been reflecting on everything that we’ve learned, trying to tie things together in preparation for the final. We started our very first class with the Paper Puppets activity, which demonstrated that, amongst other things, quality control was a huge part of the operations process. It seems like the idea of quality has been mentioned nearly every class period since that day, and it is certainly a concept that has stuck with me. I have thought about the quality aspect of many transactions I have made since then, thinking about what is being done well and what could be improved upon. So when I heard that Starbucks was going to add alcohol to their menu, I was interested in finding out more about their decision.

An article in Bloomberg Businessweek presented a cogent point that is not only true about Starbucks but any organization in almost any industry; continuity and change are forces that simultaneously work with and against an organization and must both be acknowledged. The article goes on to differentiate between traditional organizations, which are built for continuity, and organizations that are designed for adaptability. An organization that is purely focused on continuity may face problems when it is forced to change with the times, and an organization based in adaptability needs to focus on creating some form of stability to appeal to customers. It is obvious that a combination of continuity and change is best for a company rather than thinking of the two as opposites.

Starbucks’ motive behind offering alcohol is to increase sales in the evenings. They also hope to give customers a place to relax after work with a drink and some friends. What’s more important, however, is the fact that they did not compromise the image that they have created for the public. Rather than just being in the business of coffee, their main selling point is the culture and atmosphere that they have created (in which they just so happen to sell coffee). By knowing exactly what their business really is, it’s not as much of a risk to add a product that may be a little less conventional so long as they stay true to that community environment that they have fashioned. When it comes to continuity and change, Starbucks has found the perfect mixture, staying consistent in their values and maintaining quality, while keeping up with the changing world around them.

Have you ever experienced or witnessed a failed attempt at balancing continuity and change, in any way, that may have led to a decrease in quality? And do you think it’s possible to honor a mission statement that may be a bit naïve or antiquated given the ever-changing society we live in?