Connecting the classroom to the "real world"
Value Chain
Caterpillar Joins ‘Onshoring’ Trend – WSJ.com
2 years ago
This article has been sitting in my brain for a few weeks now and I’m finally getting a few minutes to share it. It involves heavy-equipment maker Caterpillar and their approach that may result in moving some manufacturing production back to the United States. Several factors including foreign exchange pressures, quality issues, transportation costs, and inventory management are making “onshoring” an attractive concept to many companies that only a couple years ago were moving manufacturing operations overseas.
Many of these factors such as quality and logistical concerns are similar to those we looked at in make or buy situations and they come into play as well in value chain situations. It just so happens that for these companies the decision is entirely within their own organizations but it could just as easily be about deciding to source materials locally vs. from overseas. Some important things to keep an eye on in the coming months and years.
Caterpillar Joins ‘Onshoring’ Trend. Kris Maher, Bob Tita. Wall Street Journal. (Eastern edition). New York, N.Y.: Mar 12, 2010. pg. B.1
Caterpillar Looks Forward to Increased Production
2 years ago
I referenced this article in class last week when speaking about how companies have to plan for different scenarios in our discussion of “sensitivity analysis. ” It isn’t enough anymore to arrive at one long-term plan and ride it out to the end. To be competitive today (or, in fact, to survive sometimes) companies need to engage in several “what if” plans so that they are being proactive when the inevitable surprises arise rather than scrambling to keep up. Caterpillar is not only planning for their “most likely” scenario, but they are also planning in case other scenarios occur.
Caterpillar says that even if demand for its equipment is flat this year—an unlikely projection it calls its “Great Recession scenario”—it would still need to boost production in its factories by 10% to 15%, just to restock dealer inventories and meet ongoing customer demand.
Meanwhile, output at Caterpillar’s suppliers would have to rise 30% to 40% in this scenario, because Caterpillar would also be refilling its shelves.
Caterpillar is also expanding their planning process to be inclusive of their suppliers and their customers (including dealers) so that everyone is on the same page. We no longer cover the “value chain” concept in as much depth as we have, but working beyond the legal boundaries of Caterpillar to engage these other participants is growing in importance and moves like should work in the favor of companies that make them.
Going forward, a big question is how well suppliers are positioned to ramp up production. Bottlenecks and other headaches may occur as spot shortages cause unexpected price hikes and hamper companies’ ability to meet demand.
That’s why Caterpillar took the unusual step late last year of visiting with key suppliers to ensure they had the resources to quickly boost output. In extreme cases, the equipment maker is helping suppliers get financing.
‘Bullwhip’ Hits Firms As Growth Snaps Back. Timothy Aeppel. Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 27, 2010. pg. A.1
Boeing Takes Control of Dreamliner Plant – WSJ.com
2 years ago
I wrote about Boeing before with respect to the increased control they were seeking (and efforts they were making to acquire it) when it comes to their suppliers. The Wall Street Journal once again had a piece the other day about another supplier that Boeing was buying.
Corporate News: Boeing Takes Control of Plant. Peter Sanders. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 23, 2009. pg. B.2
Companies More Prone to Go ‘Vertical’ – WSJ.com
2 years ago
Interestingly, today’s Wall Street Journal contained a trio of articles that all relate to how companies are handling their value chain partners and positioning themselves for the future. I’m going to make a post for each article because it will make it easier for me to tag/categorize but I think reading all three and understanding how these moves relate to each other is quite interesting.
The first article from page A1 is about how companies are embracing vertical integration — a practice that fell out of favor in recent years. Specifically mentioned are Oracle’s purchase of Sun Microsystems and Pepsi buying back some bottlers it had spun off a decade ago.
Mr. Ellison is among the executives reviving “vertical integration,” a 100-year-old strategy in which a company controls materials, manufacturing and distribution. Others moving recently in this direction include ArcelorMittal, PepsiCo Inc., General Motors Co. and Boeing Co.
The reasons vary. Arcelor, the world’s largest steelmaker, wants more control over its raw materials. Pepsi wants more authority over distribution. GM and Boeing are moving by necessity, to assure quantity and quality of vital parts from troubled suppliers. Some are repurchasing businesses they only recently shed.
Companies More Prone to Go ‘Vertical.’ Ben Worthen, Cari Tuna, Justin Scheck. Wall Street Journal (Eastern edition). New York, N.Y.: Nov 30, 2009. p. A.1
Sharp’s New Plant Reinvents Japan Manufacturing Model – WSJ.com
2 years ago
The second article from today’s Wall Street Jouranl includes some elements of equipment-replacement decisions with value chain strategies in looking at Sharp Corp’s newest LCD television manufacturing plant in Japan. Sharp made the decision to build a massive new facility to save costs by doing things on a larger scale and also by moving many suppliers into the same building.
The facility, considered the most expensive manufacturing site ever built in Japan, started churning out liquid-crystal display panels last month, and Sharp’s new flagship televisions featuring the energy-efficient LCD panels go on sale in the U.S. next month. Sharp moved forward the factory’s planned opening by six months, saying the new plant would help it be more competitive.
“When you look to the next 10 or 20 years, the existing industrial model doesn’t have a future,” Toshihige Hamano, Sharp’s executive vice president in charge of the Sakai facility, said in an interview. “We had to change the very concept of how to run a factory.”
Sharp aims to streamline the costly LCD-panel production process by moving 17 outside suppliers and service providers inside its factory walls to work as “one virtual company.”
In the past, Sharp kept suppliers within driving distance. Supplies are sent not by truck from a nearby factory but by automated trolleys snaking from one building to another.
The suppliers, which include Asahi Glass Co. and Dai Nippon Printing Co., built and paid for their own facilities and are renting the land from Sharp.
Despite their location inside the plant, Sharp says its suppliers are permitted to sell their products to other companies.
At Sakai, Sharp has also linked its computer systems with suppliers so an order to the factory alerts suppliers right away. In the past, Sharp would email or call suppliers and place orders, creating a longer lag time.
Sharp wouldn’t disclose how much, if any, cost savings will result from manufacturing LCD panels at Sakai, but analysts estimate a 5% to 10% savings.
Corning Inc. the world’s largest maker of LCD glass substrates, built a factory next to Sharp’s Sakai plant. Corning says the arrangement reduced total order cycle time from an average of one to two weeks to a matter of hours. Corning also says the proximity reduced the damage risk in transporting massive glass sheets on trucks.
Sharp’s New Plant Reinvents Japan Manufacturing Model. Daisuke Wakabayashi. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 30, 2009. pg. B.1
Wal-Mart works with suppliers to shore up financing
2 years ago
Similar to what Sara Lee did a few months ago, Wal-Mart is working closely with suppliers to make sure that they have ample financing. Recognizing that if a supplier (or several) were to fail their own costs would rise, Wal-Mart is working closely with their value chain partners to make sure that doesn’t happen, especially in light of the recent bankrupty of CIT Group, a major supplier of financing to small/medium businesses. You might even look at this as Wal-Mart creating a new value chain connecting its suppliers of merchandise with its suppliers of cash (Wells Fargo and Citibank).
Wal-Mart helps apparel suppliers secure financing. Nicole Maestri and Lisa Baertlein. Reuters. Fri Nov 13, 2009 4:35pm EST
More on Microsoft’s collaboration efforts in developing Windows 7
2 years ago
CBS News echoes many of the same things mentioned in my previous post regarding the design/deployment of Windows 7 and the unprecedented cooperation between Microsoft and PC manufacturers.
Windows 7 Born from Vista’s Frustrations. Vista’s Headaches Prompted Microsoft to Change How They Do Business. October 22, 2009.
Microsoft eliminates barriers in Windows 7 development
2 years ago
A hidden article in today’s Wall Street Journal about the benefits of collaboration within a company and also working with other value chain members. In this case, Microsoft knocked down some barriers that had placed workers into different silos that they felt led to issues with development of Windows Vista to prevent the same issues from occurring again in Windows 7. They also worked with key PC manufacturers to avoid similar pitfall with external entities. By all accounts, the launch of Windows 7 and future sales and reviews will be much more positive than the same experiences with Wind0ws Vista several years ago.
To Rebuild Windows, Microsoft Razed Walls — Three-Year Effort to Create Latest Version Meant Close Collaboration Among Workers to Avoid Vista’s Woes. Nick Wingfield. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 20, 2009. pg. B.9
HP Simplifies Designs & Leverages Their Value Chain
2 years ago
The second section of today’s Wall Street Journal had a piece about the efforts of HP the past few years to develop a cut-rate laptop computer that sells for $298 at Walmart. Clearly pulling this off required substantial thought and careful analysis of costs to make sure that such a product didn’t lose money. A couple things in the article, in particular, caught my eye as being strongly related to the concepts we discuss in class.
First, at several points in the HDFRI textbook, we discuss the idea that there are costs that are “designed-in” or “locked-in” during the design stage. Decisions about how many parts there are, how those parts get assembled, the materials that are required, any special tools that are needed, etc. all are made very early in the process and once those costs are “baked-in” they can not be eliminated/reduced. In HDFRI Chapter 12, specifically, we talk about the fact that very often the design of a product needs to be entirely retooled to effectively reduce costs to any great degree.
In the Value Chain module, we discuss the cooperation between value chain members and the advantages such cooperation can have for multiple parties — an advantage that could not be leveraged by one one firm acting alone.
H-P laid the groundwork for its move into the low-end of the PC market two years ago, said people familiar with the matter. At the time, H-P changed how it ordered PC parts and how it ships PCs to sellers, among other things, these people said.One change was to reduce the designs used for the skeletons of notebook PCs, said these people. “Simplifying the specifications of the product” saves money by allowing contract manufacturers to make large numbers of the same product, said Lorcan Sheehan, a consultant with ModusLink, which advises H-P and other PC makers.
Another change H-P made was to work more closely with retailers like Wal-Mart to forecast PC demand. By getting orders in earlier, H-P could save on component and manufacturing costs, which are cheaper if they’re ordered far in advance.
Another aspect of the article is that Walmart wanted to sell computers at very low prices, but rather than just accepting whatever the PC manufacturers offered at those prices, they took the time to learn the features that customers valued and those that they didn’t and they made trade-offs of eliminating some features in order to meet their price targets. There are elements here of Target Costing, which we also discuss in Chapter 12.
Wal-Mart specifically wanted to sell a full-size PC for back-to-school-season at around the price of a netbook, which are sub-$500 mini-laptops, said Wal-Mart’s Mr. Nzigamasabo.
Wal-Mart surveyed customers to see what kinds of tradeoffs in performance they were willing to make for a discount machine, said Mr. Nzigamasabo. For example, he said, students were willing to give up battery life, but not a CD drive.
Wal-Mart passed on its findings to PC companies and later reached deals with Dell for a sub-$400 laptop, and Toshiba Corp. and Acer for sub-$350 laptops. H-P beat those vendors with its $298 machine.
Once again, often times looking at “real life” scenarios makes the concepts that we discuss in class and through the textbook easier to understand. I think this article does that for several things that we will cover this semester.
H-P Wields Its Clout to Undercut PC Rivals. Justin Scheck. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 24, 2009. pg. B.1
Sustainable Business Truths: Perception is Reality
2 years ago
Here’s a short piece from Harvard Business Publishing that makes the case that regardless of any arguments that can be made about whether or not global warming or climate change is real, the fact is that the business community needs to treat it as such. The author of this piece has written a book called Green Recovery that may interest some of you as well. His three main points in dealing with green business concepts are that resources are not infinite, the value is in the value chain, and climate change is a business and political reality.
Sustainable Business Truths: The Least Your Employees Need to Know. Andrew Winston. Harvard Business Publishing. Wednesday August 26, 2009
