E-commerce and challenges in O.M

Recently in class we talked about operations strategy in a global environment as well as the challenges in Operations management, we touched on some of the reason why companies decide move their headquarters elsewhere and the advantage that globalization brings. One slide from the PowerPoint presentation jump out at me as I was contemplating on what to write for my second blog post. The slide was about the cultural and ethical issues that these companies experience when globalizing, and immediately one company came to mind, Nordstrom. From research that I have done, Nordstrom’s focus is to provide “fair” treatment wherever they do business. Nordstrom expects his business suppliers to comply with the applicable laws and regulations of the United States as well as having set up an internal risk department that conducts annual risk assessments through internal audits. These risk assessments help to identify areas of potential risk in Nordstrom supply chain. This assessment includes monitoring for human trafficking and slavery risk within the supply chain.

Nordstrom is one of those companies that work through an e global commerce provider, border free, that allows them to offer international shopping. Through this global commerce provider, Nordstrom customers are allowed to convert from American dollars to any local currency they also show the customer all the duties and taxes that need to be paid by that customer, they comply with customs; making sure that packages are Customs-friendly and meet all the requirements both in the U.S. and around the world, and they are aware of product restrictions. This e global commerce provider facilitates Nordstrom’s communication with the rest of the world, it facilitates business transactions and it provides a good understanding of Nordstrom product to other people who are not familiar with their products.

This global expansion has been very successful for Nordstrom. In 2012, it increased e-commerce sales 42.4% to $1.3 billion from $913.0 million, and they are expecting in growing web sales to 6 billion in 2020. E-commerce sales account for part of 25% of total revenues for Nordstrom.


Today, Nordstrom continue to increase with web sales growth of 33% in their first quarter. According to Mike Koppel Nordstrom executive vice president and chief financial officer, they plan to invest 3.9 billion in capital over the next five years, the main focus being on serving more customers through store and online growth.


Nordstrom has also taken one of the new challenges in operations management, which is sustainability. People today are more concern with “protecting the planet” as well as recycling. Boxes given to customers when there is a purchase are made from 100% recycled fiber, saving 400 tons of paper annually. Bags are made of 80 percent recycled content and are recyclable, catalogs too, comes from certified sustainable managed forest and it also comes from paper already used. Their restaurants are local, healthy and ecofriendly.


My questions is:

Do you think that the operations management challenges such as sustainability is increasing Nordstrom e-commerce?

The Dark Side of Globalization


One of the repeated topics we talk about in class is globalization and how it helps companies in a variety of different aspects of their business, such as improved products and operations, as well as reducing costs. However, what if globalization impacted a company negatively? That is exactly what happened to JanSport Apparel. JanSport previously supplied Cornell University with all of its branded school attire. Everything was going well, until a group of students, led by the group United Students Against Sweatshops, boycotted the apparel company and demanded that the university cut ties with the clothing company over its factory safety, or lack thereof. VF Corp., which owns JanSport, did not sign the “Accord on Fire and Building Safety in Bandladesh, [which is] a set of standards for improving factory safety in the country.” Of course, VF claims that their factories are safe and has instead joined the Alliance for Bangladesh Worker Safety.

The Alliance has a smaller population than the Accord, only 26 American and Canadian companies as opposed to 150 companies, but they do not necessarily have the same standards. Factory workers in the Accord, for example, “[have] a broader role in factory reviews.” According to the Alliance, though, “[it] has a Board Labor Committee that advises on the group’s efforts, [and] to imply that workers are not at the heart of our initiative is a direct contradiction of the facts.” The Alliance is also a smaller operation than the Accord because the Alliance inspected only 600 of its members’ companies, as opposed to the 1,100 factories inspected by the Accord.

Cornell University is not VF’s only concern. Prior to Cornell terminating their contract with VF, fourteen other universities, including schools with huge populations such as Arizona State, Penn State, and Syracuse have already terminated their contracts with VF due to the incidents that occurred in late 2012 to early 2013. During that time, a garment factory collapsed and killed over 1,100 workers, and another fire killed 112 workers. The incidents put Bangladesh factories on the international news and created an international movement in order to protect the country’s factory workers. Bangladesh factories supply some of the world’s largest clothing companies and is the “second-largest garment exporter in the world.”

This relates directly back to our class discussion. We always talk about the positive impacts of globalization, and there are certainly ways to globalize in an efficient, safe manner. However, with globalization come certain risks. International companies do not have control of their factories anymore. Instead, they are relying on managers in foreign countries to make sure their goods are being made and the manufacturing process is being executed in a safe, reliable manner. Some of these managers, though, do not always make the best decisions regarding their employees, but instead base their decisions on the bottom line and their productivity.

Would you consider boycotting a clothing company if you heard they were treating their factory workers poorly, or another incident in a factory occurred? What should American companies that export their labor do to ensure that their factories are safe and their employees are taken care of? How do you think these incidents would be handled in the U.S.?






The ‘Walmarting’ of the Airline Industry

Norwegian Air Shuttle’s ambitious plans involve some complex logistics
Norwegian Air Shuttle’s ambitious plans involve some complex logistics

Many companies choose to employ a global strategy where different pieces of the process are completed in different regions of the world. These global processes can be accomplished in numerous combinations and it is up to the company to find the most effective one.

In this article, Norwegian Air Shuttle, an airline that specializes in low-cost flights around Europe, is bringing it business model to the United States and Asia, to the dismay of U.S. airline companies.

Their strategy is a complex one that has different cost-effective parts. Norwegian is “moving its long-haul operations from Norway to Ireland, basing some of its pilots and crew in Bangkok, hiring flight attendants in the United States, and flying the most advanced jetliner in service — the Boeing 787 Dreamliner.” Other airlines have tried but failed to do a low-fare approach on long-haul flights.

Bjorn Kjos, Norwegian’s CEO, is confident that they can offer fares that are 50 percent cheaper than the competition’s, which will ultimately drive out competition. American Labor groups, “see it as a backhanded attempt to outsource cheaper labor and undercut competition” as well as taking advantage of the open-skies agreement made with the EU (even though Norway isn’t part of the EU).

“United Airlines and American Airlines said the low-cost airline wanted to skirt labor laws by resettling its long-haul operations in Dublin, while using a Singapore-based company to hire pilots on its behalf in Thailand. The result would give it ‘a competitive advantage on trans-Atlantic routes in direct competition with U.S. carriers.’”

In class, we talked about competitive advantages in relation to globalization. According to the lecture there are many reasons to globalize:

  1. Improve the supply chain
  2. Reduce costs
  3. Improve operations
  4. Understand markets
  5. Improve products
  6. Attract and retain global talent

I think that the way that Norwegian Air Shuttle is globalizing falls in line with these points and it is effectively improving supply chain, reducing costs, and improving operations better than their American counterparts. They improve the supply chain by finding the most beneficial process to establish their airline. They lower direct and indirect costs by eliminating unnecessary expenses and finding the cheapest way to provide labor, and reducing taxes and tariffs. They also improve operations by understanding differences in how business is handled in different countries, and using it to their advantage.

There are also strategies for competitive advantage: differentiation, cost-leadership, and response. I believe that the Norwegian Air Shuttle company is competing on cost; they are they are providing the maximum value as perceived by the customer at the lowest cost and it is creating the most demand.

Do you think that the way Norwegian Air Shuttle handles their business model is considered a strategic competitive advantage or is it an unfair advantage? Why?

Source:  Long-Haul Expansion by a Norwegian Carrier Upsets U.S. Airlines

American Security and the Supply Chain

A recent report for the Alliance for American Manufacturing claims that the U.S. is risking its national security with its growing reliance on raw materials, parts and finished products purchased from sometimes unreliable foreign sources.  It concludes that the Pentagon relies too heavily on imports to keep the armed forces equipped and ready.


  • The U.S. solely relies on a single Chinese company for the chemical Butanetriol, needed to produce the solid rocket fuel used in HELLFIRE missiles.
  • The U.S. imports 91 percent of the rare earth element lanthanum, needed to make night-vision devices, from China.
  • Production of Neodymium-Iron-Boron magnets has migrated offshore, where China now fabricates 75 percent of these high-tech magnets.
  • The U.S. share of semiconductor fabrication has decreased from 50 percent to 15 percent in the last 30 years.

The disappearance of a U.S. industry for many of these products has eroded U.S. leadership in patents and our ability to design new applications.  The reliance on foreign suppliers for critical defense materials undermines the ability to develop capabilities needed for the future.  The risk here is that a vulnerable supply chain will cause us to lose our technological advantage over time.

It also raises quality concerns as it puts commercial and military products at risk for counterfeiting and higher rates of defects.  These could very well be intentional depending on which suppliers we pick as well as the current and future conflicts we choose to involve ourselves in.  Suppliers in other countries may be unsympathetic the causes of the United States.  The U.S. must also be prepared for the future if there ever comes a time when we must rapidly equip our armies.  Foreign suppliers may not be ready or willing to provide for our increased needs.

We talked in class about the recent push to globalize in operations management.  There are many good reasons for globalizing.  The most important being reduced costs since foreign locations with lower wage rates can lower direct and indirect costs.  Globalization should also, in theory, improve the supply chain as facilities are closer to unique resources.  Because of objective characteristics of goods, we could also expect better quality goods.

The United States spends more on defense than any other country on the planet; about $690 Billion dollars per year.  U.S. defense spending accounts for 40% of the world, and is greater than the European Union, China, Russia, United Kingdom, Japan, India, and Saudi Arabia combined.

It also needs to be noted that China and Chinese corporations are in fact our largest suppliers of raw materials, parts and finished products used in U.S. Defense.  Is there a reason for us to be concerned about China having so much power and influence in supplying for U.S. Defense?

Is it worth risking American Security to save a billion dollars?  How about 100 billion dollars?

Is it important that this report was prepared for the Alliance for American Manufacturing?






2015 = First US Lexus Production Plant

Many people know that Lexus is the luxury brand that Toyota owns. The company is planning on opening a new production plant in 2015. The plant will be located in United States. Although, Toyota does have plants make Toyota brand cars, this will be the first US plant that Lexus will open. It will also be the very first time the Lexus ES will be produced outside of Japan. This is very interesting because most companies would look to go to countries with cheap labor and flexible labor laws. In the US, there are a lot of regulations that protect workers. What would cause Toyota to bring Lexus in the US?

Just as we learned in class, there are a couple reasons why companies would globalize. Some of the reasons are to reduce costs, improve their supply chain, and provide better goods and services.

It is reported that “[Lexus] will receive as much as $146.5 million in tax credits, significantly bringing down the overall cost of the investment. Bloomberg reported earlier this week that Toyota would have to invest $531.2 million and add 570 full-time jobs in order to yield the full value of the package”. The tax credit is definitely one of the main reasons why Lexus would want to come relocate in America. This move will help reduce costs such as shipping the cars from overseas by improving their supply chain. Also it will help provide a better service for Lexus owners because the plant is not located domestically.

Not only does Lexus benefit from this new plant but so does the people of Kentucky. In order to be efficient and complete their goal of producing 50,000 per year, they will need to hire a lot more workers. This will create a lot of new jobs for the people of Kentucky. Everyone seems to be pleased with the move and there have been no ethical problems with it. Even the state governor said, “This is a great day for Toyota and for the commonwealth of Kentucky”.

Toyota is also looking to retain its title as the “world’s biggest carmaker” because Volkswagen is closing the margin between them. If the opening of the North American Production Plant, this will give them the edge they need. Hopefully with the success of the new US plant, this will cause more companies to relocate here.


Do you think this was a will be a smart move for Lexus to produce their cars for the first time outside of Japan? What would some of the concerns be for the carmaker?

Do you think the US government is giving these large tax credits to help stimulate the economy by creating new jobs?

Will other carmakers follow?





What’s in your Coffee Cup this Morning?

Intelligentsia is a coffee and tea company that directly sources coffee from coffee bean farmers, such process can also be referred to as direct trade. Direct trade is completely different from what most companies do, which normally consists of buying coffee through brokers at the lowest market prices unaware of the coffee beans exact source. The direct trade label is also regarded as more effective than labels like fair trade, in which a 3rd party is involved to determine quality,  a process that has received a lot criticism. In an article about direct trade in the New York Times it was stated that, “Direct trade coffee companies…see ecologically sound agriculture and prices above even the Fair Trade premium both as sound business practices and as a route to better-tasting coffee.” On Intelligentsia’s website it explains their buying philosophy as believing in the quality of coffee and doing so by working closely with actual producers. Intelligentsia explains that in order to manage such exceptional quality they must follow the direct trade criteria. The direct trade criterion not only defines Intelligentsia’s quality but it also shows who is responsible for it, which demonstrates managing quality. The 6 points of criteria, as listed on their website, are as follows. 1. Coffee quality must be exceptional. 2. The grower must be committed to healthy environmental practices. 3. The verifiable price to the grower or the local coop not simply the exporter, must be at least 25% above Fair Trade price. 4. The grower must be committed to sustainable social practices. 5. All the trade participants must be open to transparent disclosure of financial deliveries back to the individual farmers. 6. Intelligentsia representatives must visit the farm or cooperative village at least once per harvest season, understanding that we will most often visit three times per year: pre-harvest to craft strategy, during harvest to monitor quality, and post-harvest to review and celebrate the successes. As we’ve learned in class it’s important to globalize companies for many reasons, a few include reducing costs and improving supply chain management which will naturally overlap with the critical decisions, like management quality and again supply chain management. Not all companies who globalize, manage the quality of their source and instead look for the cheapest prices, inter this can result in sourcing from places with unethical practices. In my personal opinion to reduce costs by sourcing from a source that under pays their employees or doesn’t ensure a safe a work environment, is not a justifiable or ethical trade-off. I believe examples of company’s operations like Intelligentsia can demonstrate ethical and responsible globalization, not only in quality but also within the supply chain. Of course the price of their coffee doesn’t come cheap, it is more of a luxury, but in perspective not more of a luxury than buying Starbucks daily.









A weak link in the chain

Companies all of the world have created enormous supply chains to meet the ever increasing demand of the public. These supply chains are global and consist of manufacturers from many parts of the world. As we have learned in Chapter 2, Globalization is a big part of the operations strategy for many companies as it is a great way to increase profits and grow your whole company. Improving a supply chain is usually done by locating facilities closer to unique resources which in turn lowers the costs of production and allows for more profits. Steve Culp, the author of the article “Supply Chain Risk a Hidden Liability for Many Companies”, explains that  global supply chains have a risk factor involved that companies should pay attention to. This risk factor is what creates the weak link in the chain.

The risk factor is created by the possibility of disastrous events. Whether it be an earthquake, a flood, or a tsunami, the results are devastating. As an example, the article states that the flooding in Thai created shortages in hard drives that lead to millions of dollars worth of losses for electronics manufacturers. Surely this can null any previous savings that are established by outsourcing part of the production process, but at the same time this risk needs to be looked at face value. Companies need to balance the efficiency and low cost that they desire with the risk that they are willing to take. The article gives a couple of suggestions on how to assess this supply chain risk. Out of all of the points, one stands out the most. Companies should integrate risk management into operations planning and management. This would allow risk to flow into key supply chain decisions. If supply chain risk is accounted for, companies could even set some of their profit aside as a way of dealing with the potential loss in the future.

It is all seemingly  based on luck. Take two hypothetical companies, Company A and Company B. Company A only focuses on low cost and chooses suppliers based on that factor while Company B chooses suppliers based on cost and risk. If no tragic events happen, Company A will be in the better position in the marketplace and make more profit. However if tragic event halt the production of Company A’s suppliers, Company A could possibly lose millions of dollars which could result in a net loss during the current period. Because of the random factor of these events, I think that many companies will opt to just ignore the risk involved and focus on making as much profit as they can. In my opinion, ignoring this risk would be a big mistake.

What do you think, should companies incorporate supply chain risk into their key decisions on which suppliers to use?

Source: http://www.forbes.com/sites/steveculp/2012/10/08/supply-chain-risk-a-hidden-liability-for-many-companies/