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Main
Industry
Collaboration
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Build-to-Performance – The
Boeing 787 Dreamliner
“We underestimated how long it takes to do someone else’s work”
– Pat Shanahan, the 2nd
general manager of the 787 program
In September 2011,
the first Dreamliner was finally delivered to All Nippon Airways, Japan,
the launching customer of the Boeing 787 program, after a 40-month of
agonizing delay. Boeing’s executives, in particular, the 3rd
manager of the 787 program, Scott Fancher
(he replaced Pat Shanahan who replaced Mike Bair), finally got a
relief from the huge pressure under the share-holders, suppliers and
customers. Looking back at the delays and the damages to the company’s
reputation and the profitability of this program, Scott felt lucky, as the
situation could have been much worse.
Reviewing the 787 development
process, Scott can hardly believe how many delays there were and how long
they took, how many embarrassing mistakes were made, and how much effort
and expense that Boeing has to pay to bring the program back on track.
Although the pain seems over, he cannot help but thinking how such delays
could have been avoided in the first place?
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Pandemic Influenza –
Just-in-Time vs. Just-in-Case Strategies
On a beautiful sunny day in October 2009, Michael Johnson, the
vice-president of manufacturing at CSP Corporation’s influenza vaccine
division, is planning for the 2010-2011 flu season for the U.S. market.
Michael’s job is to come up with a production plan that optimizes the
company’s bottom-line and meanwhile promotes public health.
Having been in this industry for more than 20 years, Michael knows
the most predictable element of the influenza vaccine market is that it is
always going to be different. While the chance of a moderate or severe flu
pandemic is very small, its impact on human life and the economy would be
devastating. With a life-cycle of only
three months (October through December in any year), selling flu
vaccine is much like selling turkeys the week before Thanksgiving – some
stores will surely throw away turkeys on Friday, but they have already made
enough on turkeys sold, and don’t want to run out. However, unlike turkeys
for Thanksgiving, influenza vaccine has always been a very cheap product,
and the sales may not cover the company’s losses if too many vaccines go
unused and must be thrown out.
While Michael feels that he must make a conservative plan for the
best interest of the company, he knows that in case of even a moderate flu
pandemic, the supply chain of flu vaccine under such a plan is sure to
break down. Demand may double or even triple over its normal size. The thin stockpiles at all levels will soon run out. Vaccine manufacturers
won’t be able to resupply in 6 months. Truck routes could be blocked and
borders may be closed, particularly perilous at a time when 80% of raw materials
for U.S.
drugs come from abroad. In the absence of medicine, hundreds of thousands
of people could lose their life while millions could be hospitalized. It is
a painful decision to make: just-in-time supply with no just-in-case
preparation.
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Valentine’s
Roses – Supply Chain Strategies
In late December 2006, the floral department of
WKT stores, a major supermarket chain serving the northeast U.S., was
planning for the upcoming Valentine’s Day on February 14th 2007. Demand for
fresh cut flowers is highly seasonal with Valentine’s Day sales accounting
for roughly 36% of the yearly sales. While the gross margin of fresh cut
flowers is high, the number of floral variations is enormous and the demand
varies significantly from year to year. WKT can get a guaranteed supply at
a discounted price from wholesalers, but must place the order two months in
advance because the flowers are imported from South America (Colombia and
Ecuador). Not sure how much to order two months before Valentine’s Day, WKT
used to postpone its orders until the last minute after the demand is
revealed. However, doing so often led to a painful competition between WKT
and other retail florists for the scarce supply. At the end, WKT frequently
bought locally grown flowers at a much higher price. WKT felt that the
wholesalers always carried too little inventory and had requested them to
stock more, but they were reluctant to do so without a commitment from WKT.
WKT felt that the last-minute ordering strategy is not sustainable and has decided
to look for fresh ideas to implement for 2007. WKT heard that Wal-Mart is
heading a new strategy to bypass the wholesalers and buy directly from the
overseas growers. While this sounds promising, WKT is unsure whether to
follow.
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From Farm
to Cup -- The Coffee Supply Chain in Kenya
Wanjiku, a small-scale coffee
grower from Central Kenya, lives with her four children on a one-acre plot
of land. Wanjiku once appreciated her coffee
trees, but not anymore. Instead, she says that the trees are causing her
more trouble than they're worth. Wanjiku
¨C who began farming coffee in 1975, and used to own 300 trees ¨C has
watched helplessly as the once vibrant coffee sector withered, with
particularly devastating consequences for small-scale coffee growers like
herself. In the 1980s’, the 300 trees would give her more than 714 US
dollars a year. This later dropped to about 285 US dollars a year in the
1990s, and now it is about 100 US dollars which she gets paid one year
after she delivers her output. “I cannot afford to take all my four
children to school because the proceeds from the coffee are barely enough;
I cannot even afford food for them to eat. I put in a lot of money to
produce the coffee, but what I reap in the end does not match what I have
put in,” she laments.
In addition, the government farm input loan programs that
allowed small-scale coffee growers to buy fertilizers and other farm
equipment at affordable prices from coffee factories has collapsed. This is
mainly due to the liberalization of the coffee industry in 2002 and the
reduced government involvement in coffee matters. Because high interest
rates make growers fearful of taking loans for farm inputs, the quality of
coffee has declined. “Is it not better if I do away with the coffee
completely, and in its place plant maize or bananas so that my children can
eat?” argues Wanjiku. In fact, Wanjiku has already started to cultivate alternative
crops by cutting down 100 of her 300 coffee trees and planting maize
instead. “This is a stupid job,” she adds. “You don't know how much your
coffee was sold for; you don't know what exchange rate they used at the
bank. You are powerless once you hand over your coffee at the factory. If
coffee farming does not become more lucrative soon, I will chop down all
the trees.”
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ImportHome LLC -- A B2C Small Business Model
Jack Chen is the owner of a B2C
e-Business company named ImportHome LLC. He
imports Kitchen products from China and sells to the markets of North
America and West Europe. At December 27th, 2008, Jack is looking
at his just arrived products of a full container in his garage which was
ordered 3 months ago based on his forecast for the holiday season. The
sales in this holiday season are much slower than expected. He wonders how
he could sell these products in the coming year of economic downturn. Jack
is also wondering if there is any way to avoid such a situation in the
first place.
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Yaka Pharmaceuticals -- Drug Distribution Contracts
Yaka Pharmaceuticals, a large North American
pharmaceutical manufacturing company, is facing four distribution
options. The first option is the buy-and-hold contract, which was used
by Yaka Pharmaceuticals and their distributors up
until 2004. They moved away from this contract at that time as the
government issued a new law ¨C the Sarbanes-Oxley Act, restricting the
channel-stuffing accounting practice and distributor¡¯s investment buying.
Since then the Fee-for-Service (FFS) contract, initiated by the
Big-Three distributors¨C AmerisourceBergen,
Cardinal Health, and McKesson ¨C has been the contract that is in
place. Under the FFS contract, Yaka
pharmaceuticals pays a fee to the distributors for their distribution
services while everything else remains more or less the same as under the
buy-and-hold contract. Executives at Yaka
Pharmaceuticals are not happy with the additional fee for almost the same
service they previously received free of charge. The third option is
to work with 3rd party logistics service providers on
distribution. Although it looks promising, Yaka
may be traveling down uncharted waters as the 3rd party
logistics providers are just emerging in the pharmaceutical industry and
have yet to be widely accepted. Finally, a consulting company
suggested the Fee-for-Distribution contract, which allows Yaka pharmaceuticals to work with existing distributors
but under a different relationship which resembles that of a third party
logistics contract. Gregg Cullen, the Vice President of sales and
distribution at Yaka Pharmaceuticals, must select
the distribution strategy that is the best for the company.
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Panda
Express -- Restaurant Chain Material Management
Nine o’clock at a Monday morning in March, Lily
walked into the Panda Express restaurant located at Newport Center Mall in
New Jersey and turned on her computer. Every Tuesday, Panda Restaurant
Group corporate office sends out a Panda Food Model Report to each
store. The report quantified the weekly variance between the standard usage
and actual usage at the food/commodity item level according to dish
recipes. Lily was anxious to read this report to find out how efficiently
her store had managed its food items last week, and identify potential
areas for improvement. The weekly report showed each store¡¯s top five over
and under used food items compared to its standard. She found that while
the chicken breast bites were overused by more than 327%, chicken meat dark
was underused by 59%. ¡°Where could we be wrong in our food handling
process?¡± Lily asked herself while she went through
the report. A mismatch between the computer records and the actual
usage indicates unobserved waste and poor material management as the
reorder quantities are based on computer records.
Lily, the General Manager of this Panda Express store,
had earlier managed a Panda Express store on the west coast for 18 months
which had comparable annual sales. This was her second week here, and she
was still getting to know her new associates and their working
process.
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C&H Logistics
-- Distribution Network Design
Despite earning a good reputation for the quality
of its products, C&H Handbags Inc. is facing an issue of long shipping
time and high shipping cost to retail stores in the US. Up to 2008, C&H
served the entire US market by one distribution center (DC), located in
Jacksonville, Florida. The management was convinced that something needed
to be done to reduce the shipping time and cost, and to improve service to
retail stores. For this purpose, the management has committed $10 million
to expand the current distribution network by adding new DCs. The question
is: How many new DCs are needed and where to locate them so as to best
utilize the committed resources?
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ICM Inc.
-- Construction Resource Management
Mihir is a new
assistant project manager at Intercontinental Construction Management Inc (ICM), a New Jersey based engineering/construction
company. As his first task, he assists in managing and planning for the
west point project which starts in January. In February, he got a
call from the structural steel supplier that delivery to one of new
buildings at the site will be delayed by one week. This means one week
delay of the new building if no action is taken. Usually, ICM
expedites some tasks to avoid project delay at the cost of construction
labor.
Looking at past projects, Mihir noticed that the same kind of structural steel is
used in all ICM’s military projects. Given about 25 weeks of total project
duration, the lead time of structural steel is relatively long (4-6 weeks)
and varies quite significantly. Mihir wonders
what else he can do to better match material delivery with project schedule
except passively expediting tasks when a material delay occurs. Mihir also realizes that this problem is connected to a
more challenging issue: A few major competitors are bidding against ICM on several
construction projects. The customer, US Military, has made it clear that
the winner must provide superior project schedule and competitive cost
structure.
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CTR
Clinical Research -- Clinical Trial Supply Management
James
Collins is a project manager at SPRI Pharmaceuticals Inc. supervising
clinical trials. One of the current clinical trials under his supervision
is on the experimental medicine SPRINT-HC for treating Hepatitis C. The
clinical trial commenced on Oct. 1st 2009, and now it has been
six months into the study. A third party company CTR-PHONE, a
subsidiary of CTR Clinical Research, is hired to track and manage drug
inventory for this trial.
Since the
beginning of this clinical trial, James has received a number of complaints
from the research sites, while some said that CTR-PHONE sent shipments quantities that
exceed their inventory capacities, others said that CTR-PHONE is not
supplying enough medicine. Insufficient inventory at research sites is of
great concern to James as it risks losing the effectiveness of the drug and
invalidate the trial. Having the subjects coming in for an unscheduled visit just to
distribute the needed medicine is practically possible but expensive. James
notices that similar complaints are filed in other clinical trials
that he and his colleagues supervised. He wonders what can be done to eliminate these problems
encountered by CTR-PHONE.
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Pakistan Energy Crisis – Breaking the
Vicious Cycle
“Pakistan has one of world’s
biggest untapped coal reserves, …, Pakistan to tap
coal riches to avert energy crisis.” – Reuters, April 13, 2012
Ali is a plant manager in a large textile firm in Lahore, Punjab
province, Pakistan. The textile industry, the back bone of Pakistan’s
economy, had a total export of 5.2 Billion USD in 2010. Ali was educated as
a textile engineer and has ten years of industrial experience. Till 2007,
Ali was very satisfied with his career and the industrial growth in the
textile sector. But now things have changed drastically – the textile
industry is facing severe problems due to the power shortages. There are
8-12 hours of electricity load shedding on a daily basis in major cities
and industrial sectors of the county. The textile industry is unable to
meet the export targets as the daily production is disrupted by long hours
of electricity shortage. About 28 million people (38% of the total labor
force) associated with the textile sector are facing unemployment due to
the power outrage. [1]
The overall economic condition of the country is even worse and it
is becoming increasingly difficult for Ali to cover the expenses of his
family of two children. Even with 8-12 hours of electricity load shedding, the
electricity bill has risen to 25% of his monthly salary. The inflation rate
has risen to 17% (2010 est.) and the prices for food items have increased
by 33% over a period of two years. Official figures indicate that there is
a 20% increase in crime rate due to the increase in unemployment (6% in
2010). [2]
“Is it better to leave the country as everything seems to be in a
mess?” Ali says. “There is no job security even in one of the key
industrial sectors of the country; expenses are too high and standard of
living is deteriorating every day. I see neither a promising career for
myself nor a bright future for my family in this country,” he laments.
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