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Posts Tagged ‘quality’

Fiat plays double or quits with Chrysler

November 28th, 2010 Comments off

Photo credit Familie Gevaerts on Flickr

Auto makers tend to get more focus in strategic management accounting discussions than participants in any other industry.  They also seem to take paths that have led before to failure so it is kind of like watching a slow-motion train wreck at times.  Fiat’s flirting, engagement, and soon-to-be full-fledged marriage to Chrysler could be another disaster in the making…or it could be pure genius as two borderline competitors join forces to latch onto economies of scale currently enjoyed by bigger players.

Returning to a country from which Fiat was driven out by poor quality—Americans used to quip that its name stood for “Fix It Again, Tony”—is a big risk. But the reward is to get back into one of the world’s largest markets and gain the scale that will promote Fiat from a smallish European firm (albeit with a successful business in South America) to the ranks of global carmakers. Its home market in Italy is too small, and its operations there too uncompetitive, to provide the basis for long-term survival. Merging with Chrysler will mean sharing development costs and technology, but will also mean having to turn around an ailing firm with competitiveness problems of its own. In sum, Fiat is playing double or quits.

The Economist has a nice summary of the current position of Fiat and some of the risks involved in the near-term.  With Fiat’s plans to open dealerships (inside existing Chrysler dealers) to sell the Fiat 500 next year, this will be interesting to watch in the next year or two and I’m sure the executives at former Chrysler suitor, Daimler, are scratching their heads (or perhaps laughing).

Read more at the Economist:

Carmakers: Fiat plays double or quits with Chrysler | The Economist.

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

How Companies Can Make Better Decisions

October 31st, 2010 Comments off

Here is an interesting video from HBR that explores decision-effectiveness within companies.  Marcia Blenko is a co-author of Decide and Deliver: Five Steps to Breakthrough Performance in Your Organization and she shares the framework of some concepts in the book in this video.  In particular, there is a 4-point framework to measuring companies on decision-making skills:

  1. Quality decision making
  2. Quick/timely decision making
  3. Executing decisions
  4. Effort spent on decision-making and execution

Most of our course is about decision-making and it really is what separates the winners from the losers in the “real world.”  Too many companies focus on decision-making as an afterthought or a necessary evil rather than an opportunity to excel.  Setting up the corporate culture to foster strong decision-making and execution is important to long-term success.  Many companies focus on “big decisions” but the cumulative effect of all of the daily decisions is probably a bigger place to focus and effectiveness in this area needs to “just happen” as the result of systems encouraging it.

http://blogs.hbr.org/video/2010/10/how-companies-can-make-better.html

Starbucks Baristas Told “Two Drinks at a Time”

October 13th, 2010 Comments off

Starbucks continues to tweak policies and procedures for its employees to heighten the quality of its coffee while still efficiently using the time available to employees.  Last year, there was an article about the time-and-motion studies that were being undertaken by the coffee giant to squeeze extra seconds out of the preparation of each cup of joe, but an article today seems to put the brakes on that by outlining a new poliicy that requires more specialized work such as steaming milk for each drink individually and never working on more than one drink at a time. 

The new methods have “doubled the amount of time it takes to make drinks in some cases,” according to Erik Forman, a Starbucks barista in Bloomington, Minn., who says his store began making drinks under the new guidelines last week. Longer lines have resulted, says Mr. Forman, who is a member of the IWW Starbucks Workers Union.

Startbucks insists that eventually these kinds of policies will actually speed up the process of making drinks, but the employees quoted seem to the the opposite will be true. 

Starbucks insists the new procedures will eventually hasten the way drinks are made and lead to fresher, hotter drinks. Steaming milk for individual drinks, for example, “ensures the quality of the beverage in taste, temperature and appearance,” the company documents state, while focusing on just two drinks at a time “reduces possibility for errors.”

Instead of focusing on these changes in terms of time savings, if I were Starbucks I would put all of the focus on increased quality.  If people want fast coffee there are plenty of outlets for that (like McDonalds) but Starbucks should focus on differentiating itself to again be the town gathering place that just happens to serve coffee as well.  Their stores should cater to the “experience” rather than the product.  In other words, the experience should be the product. 

Over the last few years, Starbucks has been applying to the coffee counter the kind of “lean” manufacturing techniques car makers have long used as a way to streamline production, eliminate wasteful activity and speed up service. The company has deployed a “lean team” to study every move its baristas make in order to shave seconds off each order.

That team discovered that many stores kept beans below the counter, leading baristas to waste time bending over to scoop beans, so those stores ended up storing the beans in bins on the top of the counter. To boost the freshness of the coffee and to bring back some of the “theater” that had been lost, the baristas also started grinding beans for each batch of coffee, instead of grinding the day’s beans in the morning.

While they seem to be trying to focus on the quality and atmosphere, I thnk they risk confusing people as to where they fit into the marketplace by also discussing the time it takes to make each drink.  The article from last year (linked above) indicated a desire to go in that quality-focused direction. and today’s article mentions it too, but I’m not sure it offsets the dissatisfaction from the employees quoted in the article.  Of all the parties that need to be convinced that this is the right move, I’d say the #1 group is the employees.  Without their buy-in with the new policy it is likely to be ignored or followed in such a way that employees (and eventually customers) are dissatisfied.

At Starbucks, Baristas Told No More Than Two Drinks. Julie Jargon. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 13, 2010. pg. B.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.

Vertical Integration is Back in Style

August 8th, 2010 Comments off
monopoly-outsource

Courtesy of Scott Ingram Photography on Flickr

I’ve written before about companies like Boeing and Pepsi that have sought more control over their products with the result being that they have purchased other value chain members.  Credit goes to a current (for another week) student, Kevin Hoese, for pointing out an article in today’s Star Tribune that focuses make vs. buy and vertical integration opportunities at Minnesota companies like Arctic Cat, 3M, and Toro.

Arctic has manufactured ATVs since 1995, but has been making the engines in Minnesota for only about four years and at the St. Cloud plant since 2007. The previous supplier, Suzuki Motor Corp., still makes Arctic’s snowmobile engines, but that too is about to change. Arctic has plans to move production of those engines, now built in Japan, to St. Cloud as well — a move that will add a still undisclosed number of jobs to the plant’s roster of 35 workers.

That control is even more difficult when plants are in far-flung corners of the world. “In a volatile economy like this one it is hard to be flexible when you’re sourcing things from half a world away,” Zimmerman said.

That was the case for Bloomington-based Toro Co., which used to buy wheels and tires for its snow throwers and mowers from a Chinese supplier but now produces them at a Toro facility in El Paso, Texas. “Over the past two years, with demand fluctuating down and then up, we need suppliers that are flexible and responsive in shorter windows,” said Judy Altmaier, vice president of operations. “Some of our off-shore suppliers are capable of supplying us with quality products at a competitive price, and are flexible in meeting our changing schedules. Others are not,”

Factors range from quality concerns to flexibility issues to rising costs of transportation, but whatever the reason, it seems that too many companies overestimated the ease with which they could outsource work to the other side of the globe.  Chances are that they overestimated the cost savings as well.  It will be interesting to watch the economy to see how much of this continues to happen in the next few years.  There certainly are skilled laborers in the United States that are looking for work and perhaps “onshoring” will be part of the answer to the high unemployment figures we see right now.

Of course there are some local companies that are hurt when their customers move some work in-house.  So the fact that more companies are doing work themselves isn’t the cure-all for everyone:

The move by manufacturers to do more work in-house has hurt some businesses that have been suppliers. Permac Industries, a Burnsville-based company that makes precision-machined parts for a variety of industries, saw its sales fall about 40 percent in 2009 partly because customers were doing more of that work themselves, said CEO Darlene Miller. She said she knows of other precision parts makers that experienced the same drop-off in business.

Still, for all the reasons we talk about when we discuss make or buy decisions it is important to weigh all of the factors before making business decisions about where to locate work.  For each company that has outsourced only to find that it isn’t working I suspect that there is a company doing something in-house that they really aren’t doing that well.  Sometimes it is better to focus on core competencies and let others do whatever falls outside that boundary.

Read more at:

In a shift, more companies deciding to make, not buy: Many manufacturers are reversing the decades-old outsourcing trend, preferring to build more parts in-house. Susan Feyder. McClatchy – Tribune Business News. Washington: Aug 8, 2010.

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

Caterpillar Joins ‘Onshoring’ Trend – WSJ.com

April 10th, 2010 Comments off

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

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