Can You Have Your Cake and Eat It Too

As I’m lounging on the sofa in the family room watching my husband decorate the cakes that he baked for both our moms on Mother’s Day, thoughts about how he plans the whole process are running through my head. While my husband wasn’t enthused about the interruption, I was busy asking him multiple questions regarding how to forecast future demand, how to manage quality and quantity, and finally what inventory method is used by businesses that produce wedding cakes.

Forecasting is a critical aspect of the business to effectively manage overhead costs, ingredient inventories and most importantly, volume projections to meet demand while maintaining a profitable business. To achieve desired profitability, the business should deliver a wide variety of designs at competitive prices.

In class, I had learned about five quantitative forecasting methods. The simplest method to forecast how many wedding cakes will be produced next month is looking back at the last month’s production quantity. Another forecasting model is using the moving averages forecast method. This method uses an average of the most recent periods of data to predict of how many wedding cakes need to be produced next period. For example, the bakery may use a 3-month moving average by adding the last 3-month production of wedding cakes and dividing by 3 months. However, to use this method, we would assume that the market for wedding cake demands is quite stable.

Next important aspect for a Wedding Cake business is how to efficiently manage the quantity and quality of the cakes. Higher quality of ingredients used during production will lead to a better reputation for the business and create higher customer satisfaction, leading to repeat customers. Moreover, business would save ingredient costs by purchasing larger volumes.

This reminded me of what I had recently learned in my class about product focus. Some bakery businesses focus on producing high volumes and low variety. For example, one business can focus on a niche market and produce only wedding cakes that will deliver a high volume but limited designs. But such a business will need to be highly completive in the market in order to be successful. On the other hand, another bakery might produce low volume of cakes, but cater to a much broader customer base such as birthdays, graduations, anniversaries, Bar Mitzvahs, etc.

Managing inventory of raw ingredients as well as finished goods is another critical aspect that has to be closely managed. The perishable nature of the products makes it very important to effectively manage inventory of seasonal products, while maintaining stocks for rush orders. Also, inventory management is crucial in maintaining business profitability by reducing waste of both raw ingredients and expired finished products.

Although I learned a great deal regarding the wedding cake industry from my husband, I”m still left with a few questions: What is the best way to forecast wedding cakes? What process strategies should be used by bakeries? Would it be more profitable to use process focus or mass customization strategy?

http://smallbusiness.chron.com/examples-management-strategies-cake-bakery-business-12208.html

You Get What You Pay For.

Is the long dreaded statement, “You get what you pay for” true? Or is it just a coined phrase that consumers overuse?

The recent numbers for the business quarter were released by Wall Street Journal and Costco’s numbers were nothing less than impressive while Walmart’s numbers were nothing spectacular. Costco experienced an 8% increase from last year’s benchmark and a 5% increase in same-store sales. These impressive numbers that Costco released may reveal that consumers are sick of receiving a shoddy service from corporations such as Walmart.

This grocery superstore (Costco) does charge a member fee; however with the 8% increase this quarter it doesn’t seem to be stopping anyone from coming and ditching Walmart. Walmart is known for its unbelievable cheap prices and record-breaking deals, but are these numbers revealing that consumers may be sick of it and switching to Costco?

The article suggests that the reason for this downfall at Walmart may be related to the minimal wage it pays its employees. On the other hand, Costco pays its employees a decent wage where they can afford even the extra remedies in life. Where a Walmart employee can barely afford to take their kids to the doctor. Even if the average employee at Walmart finds a loophole to squeeze a little more pay out of the company Walmart Corporation won’t hesitate to cut that stores employment roster by nearly one and a half percent.

As a result of these minimal wage efforts to their employees their quality of service has significantly decreased. Employee moral is down because there is an extreme lack of motivation between workers when they know pay is extremely low. Inventory remains pilled up in warehouses around the country and customer services line are metaphorically speaking “running out the door.” To add to another fall back Walmart is experiencing, is that when customers do want their products, they are nowhere to be found.

Walmart is experiencing these sales hit and we can see that they may be directly related to poor compensation received by their employees. Staff and salary cuts at Walmart have been occurring since the recession while customer service continue to drop. Yet Walmart still continues to open retailers around the world.

With the decrease in the quality service that Walmart is providing maybe it is time to revamp some of their strategies and move away from extremely low prices. They need to invest some of this money into paying their employees properly because with low wages we can see employee turnover and sales are at a low.

Personally, I have experienced Walmart’s poor quality service and am not a firm supportive of how they treat their employees; however I do enjoy their extremely low prices.

Will following Costco’s employee wages support team moral and inadvertently improve company sales at Walmart?

What quality tools can Walmart use to design a new business model to ensure this won’t continue to happen?

You get what you pay for; do you think Walmart provide shoddy quality service?

 

http://www.forbes.com/sites/rickungar/2013/04/17/walmart-pays-workers-poorly-and-sinks-while-costco-pays-workers-well-and-sails-proof-that-you-get-what-you-pay-for/
http://hbr.org/2004/12/outsmarting-wal-mart/ar/1
http://www.costco.com/employee-website.html

“Inventory Is Evil”


Apple, Inc. is one of the largest, most innovative companies in the world, selling not only electronic gadgets for users of all skill levels, but also how it manages inventory and forecast for its demand. The company has devised new inventory management strategies that have become a benchmark in the electronic industry and examples to many other companies worldwide.

These newly implemented benchmarks not only minimized inventory costs, but simultaneously helped Apple smoothly sail through high profile product launches without giving scope to competitors or allow them to catch up with competitively similar products. The case not only covers inventory management techniques at Apple, but also provide basis for calculating the internal fund requirements of the company based on projected sales.

In the electronics business, companies desire to minimize inventory storage as much as possible to avoid the risk that it won’t move to consumer hands. However, when a company underestimates the anticipated demand of a product and produces fewer units than expected, this results in a shortage of inventory, leading to a loss in both customers and market share. Therefore, a fundamental practice for a manufacturer is to keep as little inventory on hand as possible. As Apple’s agenda is perceived, they try to keep the right balance of inventory in all of their stores to satisfy customers demand.

Marketing products quickly saves the company storage costs and avoids the devaluation of products due to the continuous improvement of technology both internally and by new innovations from competitors. The best way to keep the inventory at minimized level is to invest and focus on supply chain and marketing continuously. To increase production, it is wise to hire contractors for manufacturing equipment instead of owning one. By doing so, the company will focus on promoting the inventory management in order to sell that specific line of products speedily at the fixed price.

Tim Cook, the manager of Apple, believed inventory loses somewhere between 1-2% of its value each week under standard conditions, the same way milk goes bad soon after the carton is opened. Operating under this philosophy, he put Apple in front of other competitors, such as Dell, by improving the way of moving inventory, where he claimed that “inventory is evil”.

There are a few ratios that show how quickly companies can liquidate inventory. For instance, the “days of inventory” ratio measures a company’s performance and provides a better idea to investors of how long a company takes to turn its inventory into sales, with shorter periods being better. Likewise, “inventory turnover,” shows that a low turnover can mean poor sales and thus products will be sits in a warehouse losing their value; on the other hand, high turnover means strong sales and relatively empty warehouses.

 

 
What sort of inventory management practices can other companies learn from Apple, Inc.?

 

 

 

Sources:
H., Victor. “Apple’s Secret Sauce for Success Is Inventory Management.” Phone Arena. N.p., 29 Mar. 2012. Web. 28 Apr. 2013.
http://www.phonearena.com/news/Apples-secret-sauce-for-success-is-inventory-management_id28558

Niu, Evan. “Does Apple Have a Little Inventory Problem?” (AAPL). N.p., 5 Mar. 2013. Web. 28 Apr. 2013.
http://www.fool.com/investing/general/2013/03/05/does-apple-have-a-little-inventory-problem.aspx

“What Is Apple’s Inventory Management Secret? | QuickBooks Manufacturing Blog.”QuickBooks Manufacturing Blog. N.p., 17 Apr. 2012. Web. 28 Apr. 2013.
http://quickbooksmanufacturing.wordpress.com/2012/04/17/apple-inventory-management-secret/

 

How Six Flags could learn from this class

http://socal.catholic.org/images/local_ad/2010024016magic.jpg

Six Flags Entertainment Corporation filed for bankruptcy protection in 2009 after years of being in devastating amounts of debt, poor management and multiple changes in who owned the company. This initiates the first issue as there is no way there can be a good way to manage a large company like this with so many changes in leadership. By the time the people that work for Six Flags got used to the new style of leadership, the ownership changed again therefore messing up the whole system again. A long-term plan should have been established with somebody that would be there the whole time this be through the different stages of ownership.

The company started doing a little bit better again in mid-2010, and today in 2013 analysts say that the company can have a good season ahead of it as it has new attractions that can improve the attendance and therefore the revenue. Through finally having good management again the company has improved season pass sales, less discounting and more financial income through parts of the business such as dining. What the earlier owners and managers should have realized is that forecasting plays a huge role in how their business is doing. They should have realized that discounting is good but definitely can not be the end all be all as it may attract people, but there has to be a line draw to make sure it is still profitable for the company and therefore the employees.

The fact that there are a lot of new rides and attractions posts a lot of opportunity in terms of that a lot more people will start showing up. One of the reasons that Six Flags Corporation had been struggling is that old customers were getting saturated with the rides and attractions that were available to them because they had been to the parks so often. With the new rides a lot of the long-time goers will start going again and the season ticket sales will go up again.

Management also mentioned that this will not be the old Six Flags ever again as it will establish a new business plan and “has willingness to rethink its business model and track record of success.” It seems as if this new set of management knows how to promise the company future success, but the question is if it will actually be able to successfully implement all of these new strategies to guarantee they won’t slide into losses again. The keys to success for a company like Six Flags are good forecasting for what needs to be done in order to get a lot of tickets sold, good management of the employees and facilities, along with making sure the rides and attractions provide variety and do not get boring.

http://www.businessweek.com/ap/2013-04-19/credit-suisse-initiates-coverage-of-six-flags

A Craft Beer Pioneer Begins Again

As I was browsing through last week’s edition of Bloomsberg Businessweek magazine, I stumbled upon an interesting article entitled “A Craft Beer Pioneer Gets a Second Chance,” detailing the rebirth of one of the original American craft beers.

During the 1970s, Jack McAuliffe, a former submarine electrical technician in the U.S. Navy, began his own brewery. Jack tasted flavorful beers in Scotland while serving and was no longer satisfied with the selection offered in America. McAuliffe began New Albion Ale in 1976, using dairy equipment and Pepsi-Cola syrup drums. While in business, the brewery offered pale ale, porter, stout and draft ale, all of which sold quickly. The problem was that Jack McAuliffe had not planned for such success, which forced him to spend the brewery’s cash on an expansion plan. To his demise, no investor would finance such an outlandish concept. The craft brewery, New Albion, filed for bankruptcy in 1982 and left McAuliffe searching for stability. Could bankruptcy have been avoided if Jack McAuliffe had created a better business plan, strategy or operational structure?

The first microbrewer in America turned away from the beer industry after filing bankruptcy. For years, he designed control systems for sewage treatment facilities and manufacturing factories.  Although his brewery failed, he served as motivation, courage, hope to the founders of the 2,360 U.S. microbreweries in business today. Because McAuliffe failed, Jim Koch, founder of Boston Beer, “realized he needed to quickly produce a lot more beer if his company was to survive and prosper.” He also produced Samuel Adams beer in his facility before beginning his own brew, so that he would have plenty of financial resources once he began his own line.

Koch recently contacted McAuliffe, informing him that Boston Beer had purchased the New Albion trademark and wanted to assist McAuliffe in restarting the beer production. Koch felt as though he owed his success to McAuliffe and planned to offer him all profit from the New Albion beer. Sadly, McAuliffe’s spirits were crushed by the beer industry when his original brewery failed, so it took persistence for McAuliffe to agree to Koch’s proposal. In January, McAuliffe and Boston Beer produced and shipped 6,000 barrels of New Albion Ale, more than was ever produced by the original brewery. Jack McAuliffe is now leaving the brewery in the hands of his daughter. It is her turn to learn from her father’s original mistakes.

I believe that Jack McAuliffe made an incredible impact on the American microbrew industry, bankruptcy or not. He stepped out as an entrepreneur, and created something on which our country is still building. If he had initially focused on items like facility location and size, inventory management and process and capacity design, New Albion would have been successful. If he had started with more knowledge of operations management, New Albion would not need a second chance. What hurt McAuliffe’s brewery most significantly? Would a stronger knowledge of operations management have kept the brewery alive? Should he have entered into the industry again after failing in the past?

Leonard, Devin. “A Craft Beer Pioneer Gets a Second Chance.” Bloomsberg Businessweek April 8-April 14, 2013: 17-18. Print.

Getting Better with Age?

 

While on a trip to Willamette Valley Vineyards in France, I tasted a wine that was aged for ten years, and I found that aged wines have a unique taste than newly produce wine. However, while consuming the wine, my mind started wondering how the end- to -end process flow works, what are the critical process controls, what are the priorities of operation managers, and finally how to manage the inventory.

First, I would like to share how the process flow works. Below is the end-to-end diagram that explains that process.

Many steps need to be completed in order to have an aged bottle of wine. My mind was wondering about all the steps because what I had recently learned in the class about network diagrams. For example, the vineyard, crusher, fermentation, and aging need to be completed first in order to have bottling and packaging operation. To find the critical path analysis, it is important to know how long it will take to complete each activity. In addition, it depends about the variety of grape, what kind of wine we need to produce and how long it needs to be aged before the final activity occurs. For example, with most Merlots, it could be aged between 2-12 years.

There are important critical process controls in the operational flow for achieving high quality of wine. Factors, such as crap quality, sorting, fermentation, aging, and filtration process all quality of wine. All these processes are controlled carefully as any deviation can lower the quality of the final product.

In addition, critical areas to focus on the superior customer response time or service are distributor, retail, and tasting rooms as direct sale. These were chosen because wine industries can receive instant feedback from the customers in order to provide exceptional customer service. By getting the customer feedback, wine businesses will be able to respond and react fast enough to correct or solve the issue. Also implementing an information system to streamline and automate data flow for business processes will improve performance and gain access to real time data.

Operation Management is another integral role in the process. Close attention to the areas of labor, equipment, raw material, and inventory must be paid to insure the success of the production operations. Focus on achieving the highest efficiency in production operation is very critical to wineries because of the highly competitive nature of the industry. Inventory control system is another area that requires a lot of attention because a huge stock of inventory needs to be held for aging. The quality of these inventories need to be closely monitored and highly managed in order to generate desired revenue and profit.

What kind of inventory method wineries are using? Is it worth paying more money for aged wine? Is wine getting better with age?

 

http://www.ourtribune.com/article.php?id=15070

http://www.takepart.com/article/2013/03/25/what-are-green-wines-sustainable

http://www.smartplanet.com/blog/business-brains/how-winery-domain-chandon-got-smarter-about-customer-habits/22189

 

Hurricane Sandy Causing Problems for Small Businesses

When compared to major corporations, small businesses have it rough.  They don’t have the staff, resources, or logistical capabilities of larger companies.  Imagine, then, the nightmare that so many small business owners awoke to after Hurricane Sandy devastated the East Coast.  It’s for this reason that I’ve decided to discuss small businesses and the logistical difficulties they are facing after Hurricane Sandy – especially in regard to their supply chains.  The following New York Times article is one of the few I found that exposed the grim reality so many small businesses will face in the coming months.  Below is a synopsis.

______________________________________________________________________

A small business owner stands amongst the devastation caused by Hurricane Sandy.  Click the image to be taken to the article.

The article begins with a story that perfectly illustrates the dire circumstances so many business owners found themselves in after Hurricane Sandy passed through the East Coast.  Kristy Hadeka and Sean Tice – co-owners of Brooklyn Slate Company, a company that produces slate cheese boards – had been preparing for the holiday season when Sandy hit.  As a small business, the company depends on the revenue generated during this time of the year.  According to the article, holiday sales typically make up 75% of the company’s annual revenue.  Instead, they found themselves dealing with a litany of other issues – a depleted staff, damaged inventory, halted UPS shipments, and even customer emails requesting arrival times for orders.  Kristy and Sean even had to locate missing merchandise that was being transported to a Whole Foods store in Massachusetts.

Another small business, Linda the Bra Lady, had a similar experience. While the company did not experience any physical damage, co-founder Carl Manni explained that they did suffer financially as a result of the storm.  Manni explained that due to damage sustained to several of his vendors’ warehouses, he was unable to procure the inventory he needed to fill online orders.  He consequently had to back out of the orders – a decision that will cost him approximately $50,000 for this week alone.

Outside of lost inventory and stifled supply chains, the looming issue is that many of these business owners did not have insurance that covered a disaster of this nature.  Consequently, many small businesses will have to file for bankruptcy if they do not receive disaster relief funds from the government.

Ultimately, I feel that small businesses have a much harder time dealing with catastrophes of this nature.  Whereas large retailers can reroute their supply chain or reorganize resources to soften the punch Sandy packed, small businesses do not have the necessary resources to reroute orders or replace inventory – especially given the current state of the economy.

* The information provided in this post was drawn from the following New York Times article:

http://www.nytimes.com/2012/11/08/business/smallbusiness/after-the-storm-business-owners-assess-damage-and-ponder-lessons.html?smid=pl-share

Questions to Consider

  1. How do the logistical challenges faced by small businesses differ from those faced by major corporations?
  2. In the aftermath of Sandy, who has the rougher road – large corporations or small businesses?
  3. Put yourself in the shoes of a small business owner, how would you have reacted to a disaster of this nature?
  4. Should the government help small businesses recover from this disaster?

Walgreens Inventory Management System

 

As early as 1994, Walgreens has been ahead of its competitors regarding inventory systems. Taking on new technology, which is defined as SIMS technology (strategic inventory management systems), which previously had not been applied to the pharmaceutical sales industry. This early technological approach to dealing with issues of inventory, such as over and under stocking, greatly benefitted Walgreens in the long run. This benefit was able to be transmitted to consumers as well as net profits for Walgreens due to their ability to track their inventory in all facets of its movement. The systems implemented by Walgreens allowed it to eliminate a great deal of its excess as well as virtually eradicate under stocking. However ultimately, what was most significant is what this process allowed Walgreens relative to its consumers. Walgreens, as a result, managed to cut its customer wait-time in half.

Walgreens has been able to use this basis of efficient to expand to over 4000 locations in ten years. Moving from a locally recognized Chicago pharmaceutical retail company to a major corporation, which many argue in large part is associated with its focus on inventory management. Because Walgreens monitors its inventory through every step of its process it is more difficult for anything to be lost in addition this data collecting process, which is becoming more and more utilized allows Walgreens to stay ahead of the curve.

Walgreens has been able to become the company it is today as a result of its constant revising and tireless focus on technological internal opportunities in the inventory and customer care sectors. It is this technological focus that has lead Walgreens to become a major market share holder per the NAICS able to hold it’s own against CVS and RiteAid while acquiring smaller scale pharmaceutical retailers.

 

http://www.fundinguniverse.com/company-histories/walgreen-co-history/

http://www.hollandcs.com/retail2.html

 

Black Friday vs. Black Thursday !!!

 

 

It’s that time of the year again Black Friday deals. I never understand why so many people sleep outside all night to get something that is limited to very low number like five or ten pieces and the person there whose number eleven just got nothing but waited all night in cold weather. Last year I decided to try and shop at midnight I went to Macy’s waited in line for about two hours and when we finally got into the store I honestly didn’t find any good deals so I think it was not worth it for me to wait in cold weather for noting. I just wanted to experience it and I did but I don’t think I would repeat it again. Well I found this interesting article that talks about opening as early as 8:00pm on Thursday this year that means Thanksgiving will be cut short for a lot of people. Wal-Mart was the first one to announce that they will be opening as early as 8:00pm this year. And this is when competitors come in to place Sears also announced they will open at 8:00pm. Now Wal-Mart has to worry about their competitors and what they are offering to beat their prices.

Wal-Mart also announced that they will have enough inventory from 10:00-11:00pm for customers to get the same deal as they would get in store online. Now inventory managing will be a big part of this they will have to make sure that inventory will remain available and the numbers of inventory are accurate so that no problems will occur with consumers. Wal-Mart has to make sure that their entire inventory will come on time with correct amount to avoid any problems. The best way to make sure inventory is accurate is to forecast their inventory and make sure the demand numbers are correct. Some customers are already unhappy because they will have to cut their Thanksgiving with family and friends early to go shopping so that’s why inventory has to be done correctly so that customers will be satisfied. But what happens to those poor employees who want to spend some quality time with their family and friends on Thanksgiving Day? Now they have to come to work early but will the quality of employees towards customers be the same? Of course not employees will be unhappy and quality will go down. This is where Wal-Mart and Sears need to work on quality management system so that they will make sure their employees are happy so that customers will be satisfied and happy also. So maybe paying them double on that day will make their employees happier. So opening early is good but Wal-Mart and Sears need to make sure that quality, and inventory is in good shape for customers to be happy and for them to make good profit.

Do you think opening early this year is a good idea? And will quality and inventory be in good shape or will there be a problem?

la-fi-walmart-black-friday-20121108,0,376002.story

la-fi-thanksgiving-shopping-protest-20121110,0,4704988.story

 

Preventing Supply Chain Disruption Like Hurricane Sandy

Hurricane Sandy in the East Coast resulted in roads to be closed and shortages of gasoline and groceries in some areas of New York and New Jersey. The damages cost approximately $50 billion. Moreover, the storm also impacted the supply chain of products, which can determine success or failure of retailers during the upcoming holiday shopping season.

A high transparency of supply chain management system from procurement to warehouse to transportation is very important, for the reason that it allows businesses to quickly respond to the unexpected or disaster. According to The New York Times, before the Hurricane Sandy, economists expected 1-2 percent growth of the fourth quarter. After Sandy, they expect that the growth will be reduced by half a percentage point, and this may cause “ripples throughout the holiday season” (Knotts).

However, the storm is no longer an outlier of the supply chain disruption it caused based on a study by the Business Continuity Institute. This is because 85 percent of respondents worldwide experienced at least one disruption mainly associated with weather. The disruption becomes worse and worse “with the increase in megastroms worldwide and the growing complexity of international supply chains and E-procurement” (Knotts).

It is interesting that one third of the respondents do not know where disruptions occur due to the fact that the full supply chain is not being analyzed. A half of respondents said productivity is decreased due to the disruption, and a third said that they lost revenue. Fortunately, automating command and controlling of supply chains can mitigate losses.

The following lists are what companies need to take into account to create an effective supply chain management.

  • Inventory: Businesses need to focus on stock quantity, location, shelf life and expiration, which will help businesses avoid costly mistakes.
  • Asset: Businesses can use software to “accurately account for all assets across each facility from procurement to retirement with real time data available anywhere you have access to a browser or mobile device” (Knotts).
  • Transportation: Transportation process should be automated including route planning and status notifications.
  • Work orders: Businesses can use software to track all details of goods and services. Good work orders help businesses enforce accountability, timely response and work quality.
  • Warehouse management: It should be automated for full transparency. By using software, it helps businesses “map the warehouse for maximum storage effectiveness and schedule enough workers to receive shipments, among many other capabilities” (Knotts).

This article relates to supply chain management topic from our class lecture. As we know, supply chain management is very important in today’s competitive market place since competition is among supply chains not companies.  Therefore, it is crucial that companies have a good understanding and manage their supply chains effectively to avoid risks and costly mistakes that may happen.

Question:

What other factors other than those listed above do you think that companies should consider when it comes to effective supply chain management?

Source:

view?url=http%3A%2F%2Fblog.apptricity.com%2Fbid%2F241154%2FSupply-Chain-Disruptions-Like-Hurricane-Sandy-Are-No-Longer-Outliers