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Posts Tagged ‘suppliers’

General Mills’ Supply Chain Scorecard

June 6th, 2011 Comments off

It seems that sustainability is the hot buzzword these days in marketing and accounting circles.  Locally-based giant, General Mills, is taking the sustainability push beyond its legal borders and using a scorecard to track its suppliers:

General Mills has been pushing on green issues since about 2005, Lynch explained, and is steadily seeking to expand its reach on sustainability. The company began its sustainability initiatives with a focus on its manufacturing plants, simply because that was the area where the company has the most control over its operations.But in tracking its internal and supply-chain emissions, Lynch said that GM has come to a few realizations about where its impacts come from.

“The vast majority of our inputs come in through suppliers who provide value to us here in sorting or milling or roasting or adding flavor and it’s in very few situations that we’re buying directly from farmers,” Lynch said.

Read more at:

 

Is Chrysler Destined to Repeat Errors?

November 22nd, 2010 Comments off

The Wall Street Journal today had a piece about an effort by Chrysler to market it’s new Fiat 500 model by offering so many options for customers that they may be creating excessive strategic risks as a result. 

The car, which goes on sale in January, will be available in three versions—”Lounge,” “Sport” and “Pop”—offering 14 exterior colors, 14 seat colors, six wheel styles and a range of graphical designs that can be applied to the car’s body panels, allowing customers to make their Fiat just about the only one of its kind.

All told, there will be about a half a million combinations, Chrysler says.

The title of the article includes the phrase “options overload” to describe this situation.  The decision to offer customization of the Fiat is to try to appeal to those that want a car that is an exact fit for their wants or needs.  It ignores, however, the fact that most customers want to take their new car home with them immediately.  If that were not true, car dealers would not have 500 cars each on their lots tying up capital.  It sounds like Chrysler has done a nice job redeploying an existing plant to allow for greater customization, but they will still produce cars that are not special-orders to keep the plant running and that is where the risk lies. 

Too many choices also can leave dealers holding lots of cars but not the exact one a particular customer is looking for — a recipe for losing a sale, said Mark Rikess, an auto dealer consultant based in Los Angeles. That’s because most customers don’t want to wait for the model they want to be shipped from another dealer or custom-made at the factory.

“We are an instant-gratification society,” said Mr. Rikess. “About 80% of car buyers expect to drive off the lot with their new car that day.”

For the last several years, car makers have tried hard to bundle features so they can produce a dozen or so versions of a vehicle that will satisfy most buyers. That limits the complexity on the factory floor and dealership lots.

To allow customers to order specialized models, Chrysler has retooled the plant in Mexico where the 500 is being built. Scott Garberding, Chrysler’s manufacturing chief, said the factory has been set up to move special orders to the front of the manufacturing queue.

Suppliers have be asked to keep more parts on hand so they can more quickly build a seat or interior combination and ship it to the plant within a few hours, Mr. Garberding said. The plant also will use a paint system that will allow a faster changeover in colors.

Still, some customers may have to wait 30 days or more to get their custom-ordered car.

For those who don’t want to wait, the company plans to hold a pool of the most popular versions that can be customized with features added at dealerships, such as stripes and checkerboard decals on the roof.

Read more of today’s article at:

Options Overload for Fiat’s 500 — Buyers Offered 14 Colors, Six Wheel Styles, Decals; Will It Leave Orphan Cars? Jeff Bennett. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 22, 2010. pg. B.1

Furthermore, I was reminded of a couple articles from 2007 when I read about Chrysler’s plans in today’s paper.  I managed to dig these up thanks to D2L not being purged yet from way back when.  Both of these are examples of car companies not being focused on customer wants/needs…we’ll have to see if Chrysler can execute its strategy today to avoid the errors exhibited only a few short years ago.  Read these pieces for some examples of what has happened before when car companies have tried to guess what customers wanted and “orphaned” models lingered on dealer lots as a result (to be sold only after massive discounting).

Lots of Vehicles — Big Dealer to Detroit: Fix How You Make Cars; AutoNation CEO Sees Inventories Rising Fast; The Big-Wheel Problem. Neal E. Boudette. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 9, 2007. pg. A.1

 One of the toughest problems facing the ailing U.S. car industry stems from Detroit’s century-old business model, which dates to Henry Ford’s mass production of millions of largely identical Model T’s. Rather than build cars to suit customer tastes, U.S. auto makers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers.

Another piece about the auto industry not being focused on the customer.  This one is a letter to the editor that was in the Wall Street Journal in February 2007.  Same song, different day…

I Wrestle Chrysler for a Wrangler, Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 24, 2007. pg. A.5

BlackBerry Torch & CVP/Breakeven Analysis

August 23rd, 2010 Comments off

There is a group of educators that closely watches Wall Street Journal articles related to different disciplines (accounting, international business, technology, economics, etc.) and that put together discussion questions based on a few articles each week.  I receive these emails and from time to time there is one that pretty much sums up what I like to do with this blog and I post it verbatim here.  This is one of those times.  The BlackBerry Torch was recently released and many are calling it Research In Motion’s answer to the Apple iPhone.  See the material below that relates the Torch to some concepts we cover in class including the value chain and cost-volume-profit (breakeven) analysis.

Piece by Piece: The Suppliers Behind the New BlackBerry Torch Smartphone
by: Jennifer Velentino-Devries and Phred Dvorak
Aug 17, 2010
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com

TOPICS: Cost Accounting, Cost-Volume-Profit Analysis, Managerial Accounting

SUMMARY: The article was written based on analysis and component price estimates by research firm iSuppli after dismantling Blackberry’s new Torch smartphone. The product was assembled in Mexico from parts made by at least 7 companies headquartered in the U.S., South Korea, the U.K., Germany, Japan, and Switzerland. Questions ask students to identify manufacturing cost components, determine gross profit, and consider what manufacturing costs are not separately identified when a company buys completed components for assembly.

QUESTIONS:
1. (Introductory) What are the three components of cost for any manufactured product?

2. (Introductory) What is the total cost of the components of the new BlackBerry Torch as estimated by iSuppli?

3. (Advanced) Assuming that the cost shown in the article comprises all of the cost identified in your answer above, what is the gross profit earned on each sale of the Torch? What is the gross profit rate on this product? In your answer, define the difference between each of these amounts.

4. (Advanced) What other costs might be included in the cost of selling this product beyond the component costs shown in this article? What other costs will Research in Motion (RIM) incur in selling this product that are never included in product cost? In your answer, define the terms period cost and product cost.

5. (Introductory) View the video that is affiliated with this article. How many Torch smartphones were sold on the opening weekend for this product? What is the possible result of this sales level?

6. (Introductory) According to the related video, what is the lowest price at which this new phone is offered? Recalculate the answers you gave to question 4 above based on this selling price.

Reviewed By: Judy Beckman, University of Rhode Island

Caterpillar Looks Forward to Increased Production

January 29th, 2010 Comments off

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

December 25th, 2009 Comments off

boeing_logoI 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

Wal-Mart works with suppliers to shore up financing

November 15th, 2009 Comments off

walmartSimilar 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

Sara Lee Shells Out to Save Suppliers

June 19th, 2009 Comments off

I mentioned this situation in class Thursday night this week in the context of qualitative factors affecting decisions, one of which was the health/reliability of suppliers.  Sara Lee has taken active steps to ensure that their key suppliers remain in business and are able to function efficiently during the economic downturn.  Recognizing that suppliers are key to the success of an enterprise is a relatively new phenomonon since in the past suppliers were looked at in a more adversarial manner, but these days  cooperation is expanding in both directions (suppliers and customers) as people realize the value of strong value chains.

To compensate, the food maker has reached deals with some of its critical suppliers that they can literally take to the bank. For instance, Sara Lee may promise in writing to give certain sow and turkey farmers up to two years’ worth of business in order to encourage those suppliers’ bankers to lend. To be sure, the act isn’t a selfless one: “One supplier can really change not just the availability of your product but the price of that product,” Chappelle told a roomful of finance executives at the CFO Core Concerns conference in Boston today.

Sara Lee Shells Out Sales to Save Suppliers. The food maker may give sow and turkey farmers up to two years’ worth of business to encourage their lenders to loosen credit. By Sarah Johnson – CFO.com. June 17, 2009