Reducing the Risk of Supply Chain Disruptions

APRIL 20, 2014

MIT SloanFor supply chain executives, recent years have been notable for major supply chain disruptions that have highlighted vulnerabilities for individual companies and for entire industries globally. (The Japanese tsunami in 2011 left the world auto industry reeling for months. Thailand’s 2011 floods affected the supply chains of computer manufacturers dependent on hard disks. The 2010 eruption of a volcano in Iceland disrupted millions of air travelers and affected time-sensitive air shipments.) This excellent article in the MIT Sloan Management Review (Spring, 2014), by Professors Sunil Chopra and ManMohan Sodhi, is worth the 23 minutes it will take you to read it–especially if you teach Chapter 11 and Supp.11 in our text.

Today’s managers, they write, know that they need to protect their supply chains from serious and costly disruptions, but the most obvious solutions — increasing inventory, adding capacity at different locations and having multiple suppliers — undermine efforts to improve supply chain cost efficiency. While managers appreciate the impact of supply chain disruptions, they have done very little to prevent such incidents or mitigate theirimpacts.This is because solutions to reduce risk mean little unless they are weighed against supply chain cost efficiency. Financial performance is, we know, what pays the bills.

Supply chain efficiency, which is directed at improving a company’s financial performance, is different from supply chain resilience, whose goal is risk reduction. Although both require dealing with risks, recurrent risks (such as demand fluctuations) require companies to focus on efficiency in improving the way they match supply and demand, while disruptive risks require companies to build resilience despite additional cost.

The authors suggest two strategies for reducing supply chain fragility through containment while simultaneously improving financial performance: (1) segmenting the supply chain or (2) regionalizing the supply chain. In many instances, though, reducing disruption risk involves higher costs. The reason executives are reluctant to deal with supply chain risk comes from the perception that risk reduction will reduce cost efficiency significantly. Managers can do much to ensure that loss of cost efficiency is minimal while the risk reduction is substantial by avoiding excessive concentration of resources like suppliers or capacity. And nudging trade-offs in favor of less concentration by overestimating the probability of disruptions can be much better in the long run compared to underestimating or ignoring the likelihood of disruptions.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Queuing Up For TSA’s Fast Security Line

APRIL 18, 2014

The TSA wants to speed up this line. Really.

Fliers gripe that getting through airport security lines can be too slow. Now, it may be fliers who are slow to sign up for a program to speed them through the lines. The Transportation Security Administration is aggressively trying to encourage more people to sign up for TSA Precheck, reports The Wall Street Journal (April 17, 2014). 

Precheck, launched in 2011, is much-loved among travelers because they don’t have to take off their shoes and jackets, don’t have to pull liquids and laptops out of baggage, and can walk through metal detectors without a full-body scan. By doing background checks on Precheck enrollees and scanning law-enforcement databases, TSA offers what is essentially pre-9/11 screening to “trusted travelers.”

TSA wants lots more people enrolled in Precheck to make better use of its designated security lanes, which currently number 590 at 118 U.S. airports. “It’s one of the last great bargains the U.S. government is offering,” TSA Administrator John Pistole has joked. To entice travelers into Precheck and test TSA’s ability to handle more people, the agency has been selecting regular passengers to go through Precheck security lanes and get it printed on their boarding passes. Selection is based on criteria like passengers’ travel history and the route being flown. TSA officers trained in behavior detection also can move passengers they deem low risk from regular queues into Precheck lanes.

Pistole said he has heard the complaints about Precheck lanes getting clogged, and TSA has already decided to stop moving travelers 75 years of age and older into Precheck service, unless they are enrolled, because they sometimes can take 10 minutes to move through. “It used to be great, but recently the Precheck lines have been the slowest of all the lines,” said Northeastern University OM Professor Fred Van Bennekom, who has timed TSA lines. “Sometimes there’s almost no one in regular lines and we’re all backed up at Precheck.”

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

The Customized Bicycle Industry

APRIL 16, 2014

bike custom

The vast majority of bikes sold in the US are made in Asia and a handful of companies dominate the market, writesThe Atlantic (April 3, 2014).  Custom-made bikes are a very small slice of the industry. “But right now is the Golden Age in custom frame building,” says one industry expert. “There have never been more builders producing, and the quality has never been higher.” Though thriving, the 100 or so builders in the hand-built bicycle scene make up about 3.3% of the overall U.S. bike industry, valued at $6.1 billion and is sourced almost completely overseas. Almost 99% of bicycles sold in the U.S.are assembled in Asia—93% in China and 6% in Taiwan.

Additionally, just four companies—Dorel, Accell, Trek Bicycle, and Specialized Bicycle—own about half of the 140 bicycle brands available in this country. Technology, though, is very accessible to a one-person or two-person shop or frame builder. A lot of the innovation and creativity comes from the thinking that smaller companies can produce. Technology has made the production side more important by lowering the cost of reaching customers. The internet opens up selling opportunities–and more competition. So production and design capabilities are critical.

Unlike production bicycles that come off the rack in standard shapes and sizes, custom bikes are designed specifically for their owners’ bodies, riding styles, and aesthetic preferences. In determining the angles, rigidity, and flex of the frames they construct, hand builders take into account dozens of measurements and factors—everything from customers’ inseams, arm length and hip flexibility to whether they prefer a stiff ride for efficiency or a softer ride for comfort. The customer also has a say in the bike’s finish, color scheme and design. Ranging in price from $3,000 to more than $15,000, the primary market for custom bikes is affluent people in their 40s or 50s—more men than women—who are steeped in the cycling lifestyle and already own one bike, if not 10.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.