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Panera Bread Strategy – Keep Spending in Recession

November 10th, 2010 Comments off

When tough times hit, lots of companies curl up inside a shell and slash spending on things like research & development and expansion thinking that doing so will be the way to survive. Often, though, companies would be better served to pursue strategic plans that focus on growth rather than merely survival during economic downturns. Companies with access to cash and with strong strategic plans have more options with regard to location and competitors that are weak will not be in a position to respond during periods of recession.

Panera Bread Company is a great example of a company that didn’t just survive — it thrived — during the recession. 

Panera has, for a very long time, played for the long term and stayed consistent. Going into the recession, we said, “This is a time to continue with our strategy.”Almost every single one of our competitors said, “We need to pull costs out.” As a consumer, if you walk into their restaurants, the lines are longer, the waits are longer. You have a table next to you with dirty dishes. That is the effect of increasing labor productivity. It has to come out of somewhere.

We’ve continued to invest in labor in our cafés and the quality of our people. We’ve invested in the quality of the food. When everybody pulled back and we did more, the difference between us and our competitors went up.

And we’ve been taking market share. We had near double-digit [same-store sales] for over a year now. The stock has tripled in the recession.

BusinessWeek has the rest of the interview with Panera Executive Chairman and founder Ronald Shaich on its website: http://www.businessweek.com/investor/content/nov2010/pi2010118_183529.htm

Volkswagen to make U.S. push

October 5th, 2010 Comments off

The Wall Street Journal today has an excellent front-page article documenting some missteps made by Volkswagen in the United States market that has resulted in VW claiming a paltry 2.2% market share along with plans to turn that around in an effort to become the world’s largest automaker by the end of the decade. One of the ideas being implemented is designing, for the first time, a car to specifically meet American tastes rather than selling what works in Europe in North America in nearly identical form.  This is interesting to me because I’ve read elsewhere that Ford is taking the opposite approach trying to produce car models that are virtually identical no matter where in the world they are sold.  VW also risks, in the process, alienating the small but devoted following that it currently has.

“A lot of people worry that we are going to start making VWs for the masses,” says Mark Barnes, VW’s U.S. chief operating officer. “I like to say we’re going to bring the masses to VW.”

The retooled compact sedan marks the first time VW engineers have designed a model specifically for the U.S.

Next year, a new family-size sedan is scheduled to roll off the assembly lines at a newly built $1 billion plant in Chattanooga, Tenn. It is VW’s first U.S.-made car since the 1980s. On its heels comes a revamped New Beetle.

“I am fully aware that Volkswagen was too cautious for too long in North America,” Volkswagen Chief Executive Martin Winterkorn said at a test-driving event for the new Jetta in San Francisco this summer. His remark was a nod to the car maker’s decades-long penchant for deploying cars designed for European tastes across the Atlantic. That left its U.S. operations with models too small and expensive to go head-to-head with Asian and American rivals. Now, he vowed, “we have turned that upside down.”

Adding to the challenge is the constant change at the top in VW’s American operations:

Adding to the challenge is an unanticipated switch at the helm of VW’s U.S. operations.

In June, Stefan Jacoby, a blunt-spoken German who took to wearing cowboy boots to dealer meetings and car shows, left his post as U.S. chief to become Volvo Cars’ new chief executive. His departure came just a week after he presented the new Jetta at a splashy launch party in Manhattan’s Times Square featuring pop singer Katy Perry. VW bosses scrambled much of the summer to fill the void left by a key architect of its American comeback strategy.

Mr. Jacoby’s replacement, former General Motors executive Jonathan Browning, is new to the U.S. market, having spent most of his career at GM’s European operations and managing Jaguar under Ford Motor Co.

Some U.S. dealers complain that the revolving door of U.S. chiefs—Mr. Jacoby was the third to go in five years—reflects a culture at VW’s headquarters in Wolfsburg, Germany, that views the U.S. as a career way station, or worse, graveyard.

Assuming that the leadership and design challenges can be met, there is still the issue of getting Americans to notice.  Marketing has been ramped up to target certain demographics such as Hispanics and families, but the results thus far appear to be mixed.  Before reading this article, I didn’t even know that Volkswagen offered a minivan even though my family purchased a Toyota Sienna less than a year ago. In an interesting partnership with Chrysler, VW rabadges the American van as it’s own with some minor tweaks but production had to be halted due to low sales.

After dropping plans for a modern version of its Microbus for fear it would be too niche and costly, it signed a deal with Chrysler to modify and rebrand the U.S. car maker’s Town & Country minivan under the VW Routan name. VW tightened the minivan’s suspension, gave it a sleeker front end and kept it in the same price range as the Chrysler. With an ad blitz featuring Brooke Shields, it aimed to capture 5%, or 45,000, of the 700,000 annual minivan market.

But the Routan’s launch coincided with the auto industry’s nose dive in late 2008. So many of them sat unsold on VW dealer lots last year that the auto maker asked Chrysler, which builds them at its Windsor, Ontario, plant, to temporarily halt production. While much of the rest of the minivan market has rebounded, Routan sales have slipped 0.8% to 12,539 vans so far this year, one-seventh of the number of Town & Country sales in the same period.

VW officials argue that the Routan has enabled them to sell to a key new customer segment. The company still expects the Routan’s market share to grow as more consumers become aware of it as a minivan option.

But Casey Gunther, VW’s top-selling U.S. dealer, says the Routan isn’t what people expect from VW.

“It’s like someone trying to sell you a piece of chicken and claiming it was a steak,” Mr. Gunther says.

VW, he argues, could achieve its 800,000 sales target, “but we need to elevate the brand with products that play up our heritage,” such as the Microbus concept or VW’s sporty Scirocco, which it sells only in Europe. “There are so many people out there who love the lifestyle VW represents,” Mr. Gunther says. “I’m worried we’ve turned into a follower and not the leader.”

There are countless other great examples in this article that address things we discuss in class like strategy, international competition, product design, and more.  It is not a short piece, but is well worth the read when you have 10-15 minutes.  Seeing where things are at in 2, 5, or 10 years will be even more interesting.

Volkswagen Aims At Fast Lane in U.S.. Vanessa Fuhrmans. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 5, 2010. pg. A.1

How Tim Hortons will take over the world

September 24th, 2010 Comments off

This is a great article that highlights a lot of the topics we cover in class.  It is quite long, but worth your time if you have 15-20 minutes to read and think about a variety of things including:

  • The strategic decision made by Tim Hortons to take control of coffee roasting by moving that operation in-house.  Like we discussed in the early chapter of the Blocher textbook, sometimes controlling quality (probably the biggest factor for this company), delivery schedules, etc. necessitates a move in-house even when it may cost more.

If you were a Tim Hortons devotee back then, you might have noticed that the coffee in, say, Halifax didn’t taste quite the same as it did in the chain’s spiritual home base of Hamilton. That’s because the chain bought its coffee from third-party roasters. Then-CEO Paul House decided the company needed to take control of the consistency of its brew, and to that end built a lab at the firm’s Oakville HQ.

  • The tweaks necessary when a successful company moves to new markets.  In Canada, Tim Hortons is the king of the market.  The article references, though, difference between Western Canada and Eastern Canada and then spends a lot of time looking at ways that they are trying to crack the American market as they expand into new areas in the East & Midwest.

In 2008, Tim Hortons undertook what David Clanachan, Tim Hortons’ jovial head of U.S. and international operations, calls “a deep dive,” surveying tens of thousands of people about what would get them through the door of a Tim Hortons. The company built a full-sized model store in a warehouse in Oakville, spending months testing and refining the concept before rolling it up, so to speak, to the gates of Troy.

The result is a cross between the likes of Starbucks and the Tim’s Canadians know. “Not that I’m gonna hang around, write poetry and sing songs,” says Clanachan, “but I am gonna feel comfortable.”

  • The focus on quality as a competitive advantage as highlighted by the frequent “cupping” sessions that even involve some senior executives.  The management team realizes that without quality, Tim Hortons has no competitive advantage:

Consistency is key—both Schroeder and West never tire of that axiom. Achieving it is tricky, since coffee from a particular mountainside will not taste the same from season to season. Flavours change depending on the weather: too much rain or too little, more sun or less. The mercurial nature of the bean means that Tim’s coffee team is constantly revising the secret blend to maintain its trademark flavour.

  • The breakeven-point ramifications of the “Always Fresh” program where the cost of individual products (the article mentions donuts) is higher on a per-unit basis, but the hope was that the benefits of not running out of goods and with not having to discard stale product would offset this.  It seems like that hasn’t happened, at least in the eyes of some franchisees.

For 37 years, standard Tim Hortons stores were equipped with in-store kitchens, where staff bakers produced batches of fresh, hot doughnuts twice a day. Shortly after Joyce sold his Tim Hortons stake in 2001, the company brokered a deal with Ireland’s IAWS Group to build the $75-million Maidstone facility. Then-CEO House promised franchisees that the conversion—which cost store owners between $35,000 and $50,000—would boost their bottom line. Instead of letting unsold doughnuts go stale during downtimes, operators would be able to zap new batches as needed, in a glorified microwave oven. Voilà—“fresh-baked” in two minutes. And though the cost of producing one doughnut would change from eight or nine cents to 12 cents, that increase would be offset by a reduction in operating costs—no highly paid bakers on the payroll, less discarded product.

  • The value-chain relationships between Tim Hortons and its franchisees.  There are pending lawsuits between the parties and it is interesting that two groups that are so dependent on each other find themselves locked in these kinds of battles.

Still, it’s clear some franchisees have become disillusioned with Always Fresh. Arch Jollymore, a former high-ranking executive at Tim Hortons (and Joyce’s cousin), is seeking certification of a class-action lawsuit against the company. At issue: the impact of the Always Fresh conversion on franchisee margins. Jollymore and his wife, Anne (who owns a store in Burlington in her own right), are alleging breach of contract, negligent misrepresentation, and breach of the duty of good faith and fair dealing. They are seeking damages of $1.95 billion.

  • The decision to centralize or decentralize decision-making.  Most franchise systems rely on strict centralization with standard signage, colors, marketing,etc.  Tim Hortons is selectively decentralizing certain things:

De Nardo leads a tour of Riese’s four other Tim Hortons counters at Penn Station, proudly pointing out the New York-only promotions—the only instance of non-standard advertising allowed in the chain. “It’s the New York mentality. We like to be a little on the edge.” Whenever he can, he steers clear of earnest in favour of funny. “Hell,” he says, “it’s doughnuts and coffee.” Hence Tea and Timbits (T&T—it’s dynamite!) and $5 dozens after 5. “And for New Yorkers, $5 is basically free.”

  • The impact of sourcing raw materials globally and the potential cost changes due to weather in parts of the world where coffee is grown:

“Central and South America are coming off the worst crop in 44 years,” West says as he slaps a sack of beans. And Colombia was deluged with rain for 16 months straight, diminishing crops. That has helped drive standard-grade coffee to a 12-year high of $1.75 (U.S.) per pound. The top-quality beans Tim Hortons buys—West says they compete with Starbucks for the finest Arabica beans on the market—are much pricier.

To read more (and please do!), visit this link: How Tim Hortons will take over the world – The Globe and Mail.

Why is labor ignored in Theory of Constraints?

July 28th, 2010 1 comment

One question I get a lot from students is “why do we ignore variable labor costs when we are looking at Throughput Contribution?”  I’ve bumbled through lots of answers but will leave it to someone else to explain this better than I’ve been able to so far:

In many companies direct labor is not really a variable cost. Even though direct labor may not be paid on an hourly basis, many companies have a commitment–sometimes enforced in labor contracts or by law–to guarantee workers a minimum number of paid hours. In TOC companies, there are two additional reasons to consider direct labor to be a fixed cost.

First, direct labor is not usually a constraint. In simplest case constraint is a machine. In more complex cases, the constraint is a policy (such as a poorly designed compensation scheme for sales persons) that prevents the company from using its resources more effectively. If direct labor is not the constraint, there is no reason to increase it. Hiring more direct labor would increase costs without increasing the output of salable products and services.

Second, TOC emphasizes continuous improvement to maintain competitiveness. Without committed and enthusiastic employees, sustained continuous improvement virtually impossible. Since layoffs often have devastating effects on employee morale, managers involved in TOC are extremely reluctant to lay off employees.

Read more at this useful site:

Apple Knew of iPhone Antenna Glitch – WSJ.com

July 15th, 2010 1 comment

Apple Knew of iPhone Antenna Glitch – WSJ.com

See the link above for more detail about an interesting real-world example of how quality can impact the image of not just a product but of a company.  The timing here is great since we just discussed in class the idea that money spent on prevention/assessment can save a company from embarrassment that comes from having external failures.

It also seems that some of the secrecy that these days surrounds product-launches such as the one for every revised iPhone may have contributed to the antenna issue not being caught.

The iPhones Apple sends to its carrier partners for testing are “stealth” phones that disguise a new device’s shape and some of its functions, people familiar with the matter said. Those test phones are specifically designed so the phone can’t be touched, which made it hard to catch the iPhone 4’s antenna problem.

Apple has a news conference planned for Friday to address the antenna problem and perhaps that will take care of this issue.  If not, Microsoft is already jumping on the bandwagon to ridicule their competitor by calling the iPhone 4 “Apple’s Vista.”

And as if Microsoft bashing them isn’t enough, even Congress wants to get involved in the Apple debacle.

The mounting iPhone 4 controversy has hit a receptive ear in Washington, as Sen. Charles E. Schumer (D., N.Y.) Thursday wrote to Mr. Jobs urging Apple to come up with a “permanent fix” to the problem at no cost to customers. Mr. Schumer asked Apple to provide customers with a clearly written explanation of the cause of the iPhone 4’s reception problem and “make a public commitment to remedy it free of charge.”

Really? Is this the best thing they have to do over  in the Senate?  Aren’t there wars to handle? Isn’t the economy still fragile?  Chuck Schurmer wants to make sure all the people that can afford iPhones get their problems fixed?!!

Toyota Changes How It Develops Cars

July 11th, 2010 Comments off

Here is a very timely article about how Toyota is challenging its engineers to focus on quality at the design phase to avoid issues later on.  As mentioned in class with regard to quality and costs, often the best (or only) place to make changes that have a true impact is at the design phase.

Toyota Motor Corp. is stretching out how long its new models are tested before they go into production and reducing the number of outside engineers it uses in a bid to overcome a spate of quality problems.

Randy Stephens, a senior Toyota engineer based in Ann Arbor, Mich., said company executives recognize that there were quality issues with the last generation of vehicles, which were developed while the company was in a global-growth mode. Executives began talking about making changes nearly a year ago, he said, but the recent recall problems have spurred the company to act.

Toyota is going to increase the lead time for development but also simply the number of options (on such things as engines) to make the focus of the engineers.  Interestingly enough, the article mentions that costs will increase but obviously Toyota feels that the benefits of increased quality will outweigh this cost increase.

In addition to extending product-development lead times, Mr. Uchiyamada and his engineering team have decided to cut the number of engine and other key-feature variants and options to simplify and narrow the scope of engineering work, allowing engineers to focus more on quality.

Toyota may also further reduce the use of virtual engineering and begin using more vehicle prototypes. Doing so extends development time and increases costs.

And finally, my last observation is with Toyota bringing certain work back in-house that they have been outsourcing.  Recall that when we talked about decision making and make/buy situations that quality concerns were one of the non-financial factors that companies need to consider before decided to outsource.  It seems that Toyota feels that they can do a better job themselves rather than farming out this work.

The company is also working to bring development work that had been sourced to outside engineers back inside. Some outside engineers actually work side by side with Toyota’s engineers inside Toyota research and development centers. But using contractors has led to a breakdown in communication and potential misunderstandings, Mr. Stephens said.

Toyota Alters Car Development — After Quality Problems, It Stretches Out Testing of New Models, Cuts Number of Outside Engineers. Mike Ramsey, Norihiko Shirouzu. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 6, 2010. pg. B.1

Delay in Response Led to Rift Between Toyota and U.S. Regulators

February 17th, 2010 Comments off

More blame is being placed on the corporate culture for the slow reaction by Toyota to recent safety concerns with many models.

Toyota had known about the gas-pedal problem for more than a year. Its silence with U.S. regulators, and other newly uncovered details from the crisis enveloping Toyota, reveal a growing rift between the Japanese auto maker and NHTSA, one of its top regulators. Regulators came to doubt Toyota’s commitment to addressing safety defects, according to interviews with federal officials and industry executives, and accounts of Toyota and NHTSA interactions the past year.

The heart of Toyota’s problem: Its secretive corporate culture in Japan clashed with U.S. requirements that auto makers disclose safety threats, people familiar with the matter say. The relationship soured even though Toyota had hired two former NHTSA officials to manage its ties with the agency.

Interestingly, some of the blame in this article is also placed on culture within which regulators in the United States operate.

Toyota for years has been one of the most difficult auto makers for regulators to deal with because it is resistant to being told what to do, said Joan Claybrook, a former NHTSA administrator who later became president of consumer-advocacy group Public Citizen until stepping down last year. But she also blamed the agency’s collaborative approach for undermining its role. “They have tremendous power and authority but they don’t tend to use it.”

Secretive Culture Led Toyota Astray. Kate Linebaugh, Dionne Searcey, Norihiko Shirouzu. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 10, 2010. pg. A.1

Toyota’s Brake-Safety Crisis: Made in Japan

February 16th, 2010 Comments off

This essay places some of the blame for the botched handling of the recent Toyota quality issues with cultural and legal environments found in Japan.  Admitting to mistakes and acting swiftly and publicly to rectify them is unheard of to the point that crisis-management is not considered in planning in Japan as it is elsewhere.  Despite the global nature of our economy, it is interesting to see the impact of culture and legal environments on company practices…even a company the size of Toyota, the #1 auto-maker in the world.  Failure to plan for these kinds of situations might be enough to drop them back to #2…by the sounds of it, Toyota management might welcome that if they could reestablish their image as quality-king with consumers.

Essay: A Crisis Made In Japan. Jeff Kingston. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 6, 2010. pg. W.1

Flight Times Grow As Airlines Pad Schedules

February 3rd, 2010 Comments off

I made a similar post last year as I had noticed that flights I was on frequently left late but “made up time in the air.”  A USA Today article (linked in the prior post) had some interesting statistics and it seems that the trend of padding schedule to be “on-time” has continued at airlines in recent months.  The most interesting comparisons in this article are with nearly identical flights from 1996 on the same type of aircraft.  One would expect that keeping those things constant would reveal very similar flight times, but that isn’t the case.  Even in most of those cases the flight times had increased, often dramatically.

Delta Air Lines Flight 715 from New York to Los Angeles now takes more than seven hours to fly across the country, according to the airline’s March schedule. That’s an hour longer than the same flight in the same type of aircraft took in 1996. A Phoenix-Las Vegas flight at Southwest Airlines that used to be scheduled at 60 minutes now gets 80 minutes. What was once a two-hour American Airlines trip from Chicago to Newark, N.J., now is two-and-a-half hours, according to the airline’s schedule.

Despite the fact that much of this is obvious to travelers, the relevance here is that it is important to keep on-time performance in context since very often the people/companies being measured set the schedules and keep the statistics themselves.

The Middle Seat: Why a Six-Hour Flight Now Takes Seven. Scott McCartney. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 4, 2010. pg. D.1

Toyota Image as Quality King Takes a Blow

January 27th, 2010 1 comment

With the announcement that Toyota was suspending production and sales of eight models in the United States and Canada (including the Camry, the most popular car in the US) the image of Toyota quality being the pinnacle of the industry is starting to crumble.  Although it appears that a single defect is responsible for this move, how Toyota responds to it in the coming days/weeks/months will impact the company’s image for years to come.  Below are a few recent links, but much of this story has yet to be written and this will be interesting to watch as things play out.  Are we looking at this decade’s Tylenol scare/recovery?  Will it go as badly as it did for Ford/Firestone?  It remains to be seen…

Toyota Halts Sales Over Safety Issue. Jay Miller. Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 27, 2010. pg. B.2

In a stunning and unprecedented move, Toyota Motor Corp. on Tuesday halted sales of most of its popular models in the U.S. in response to growing concerns that possible defects may cause the vehicles to accelerate unintentionally.

The Japanese car maker, which long has been viewed as the leader in automotive quality, said it told its dealers to stop selling eight models, including the Camry and Corolla sedans, two of the biggest sellers in the U.S. market. Other models affected by the move include the RAV4 and Highlander sport-utility vehicles and the Tundra pickup truck.

The eight models represented 57% of Toyota’s 2009 U.S. sales. Toyota also said it will stop producing the affected vehicles at several North American plants for one week starting Feb. 1.

Toyota: Make or Brake.  From the Economist Online.

Toyota’s dash to become the biggest carmaker may have had unfortunate consequences. The pursuit of volume seems to have dented the company’s enviable record for reliability. In 2006, after another bout of recalls, the company promised a “customer first” strategy to restore its slipping reputation. But recalls continued and Toyota started to slide in customer-reliability polls while Ford, VW and others such as Hyundai, which added to sales in America last year, caught up.

Toyota Sales Halt Raises Quality Questions

Toyota Motor Corp.’s unprecedented decision to halt sales on its most popular models in the U.S. underlines the biggest question dogging the world’s No. 1 car maker: whether it has sacrificed quality in its quest to capture global market share.

The Japanese car maker, which long has been viewed as the leader in automotive quality, told dealers in the U.S. and Canada on Tuesday to stop selling eight models, including the popular Camry and Corolla sedans, in response to growing concerns that possible defects may cause the vehicles to accelerate unintentionally. The eight models represented 57% of Toyota’s 2009 U.S. sales.

Supplier Perplexed by Toyota Recall

When asked why Toyota would stop millions of its selling and producing some of its best-selling models if the problem identified only affected eight vehicles, Mr. Walorski said CTS officials were perplexed.

“We don’t know. You have to hit them up with that question. They’re they ones who did the recall,” he said.

He added that the story has attracted enormous media hype, which may have contributed to Toyota’s bold move Tuesday.

“Every day a new article comes out. There is a lot of hype out there,” he said. Of Toyota public relations strategy, he said “either they’re brilliant or they don’t know how to handle it.”