Category Archives: Domestic Business

Apple Decides That Two Suppliers Are Better Than One

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JUNE 1, 2013

Pegatron began making iPad minis (left) recently, while Foxconn still assembles the larger iPads (right)

Pegatron began making iPad minis (left) recently, while Foxconn still assembles the larger iPads (right)

For years, nearly all of the world’s iPhones and iPads rolled off the assembly lines of a single company: Foxconn. It was a famous partnership between two outsize personalities— Steve Jobs, Apple’s intense and mercurial co-founder, and Terry Gou, the Taiwanese manufacturer’s equally demanding chairman. But under current CEO Tim Cook, reports The Wall Street Journal(May 30, 2013), Apple is dividing its weight more equally with a relatively unknown supplier, giving the technology giant a greater supply-chain balance. Pegatron will be the primary assembler of a low-cost iPhone expected to be offered later this year. Foxconn’s smaller rival across town became a minor producer of iPhones in 2011 and began making iPad Mini tablet computers last year.

Pegatron’s rise means an end to the monopoly that Foxconn, the world’s largest electronics contract manufacturer—has held over the production of Apple’s mobile products. There are strategic reasons for the shift: risk diversification after Foxconn’s manufacturing glitches last year with the iPhone 5 that resulted in scratches on the metal casings, and Apple’s decision to expand its product lines amid growing competition from Samsung and others. Pegatron also has been willing to accept thinner profits as it courts Apple’s business.

Ironically, Foxconn’s cost advantages from scale have waned as it works to improve factory conditions after a spate of high-profile worker suicides and accidents in recent years. Foxconn, in its growing heft as the world’s largest electronics contract company, was also getting more difficult for Apple to control, with incidents such as changing component sourcing without notifying Apple.

Pegatron, which has about 100,000 employees in Taiwan and China, expects to increase its China workforce in the second half of the year by around 40%. The staffing increase is largely due to expected production of low-cost iPhones.

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

Serving Fries 24 Hours a Day at McDonald’s

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MAY 29, 2013

mcdonalds salesI find the issue of running a restaurant 24 hour/day interesting. The Wall Street Journal (April 30, 2013) writes that “fast-food chains are hanging a lot of hopes on night owls and early birds.” With a lean economy squeezing their sales, thousands of restaurants are extending their hours to try to get more people through the door.

About 45% of McDonald’s 14,100 U.S. locations are now serving customers around the clock, up from about 30% in 2005. Dunkin’ Donuts has doubled its number of 24-hour restaurants over the past decade to nearly a third of its 7,000 U.S. outlets. Taco Bell implemented a breakfast menu for the first time last year, and today 825 stores open between 7 a.m. and 9 a.m., instead of the usual 10 a.m.

For many franchisees, extending hours is an alluring idea, since it lets them bring in more revenue without boosting fixed costs like rent. It can also simplify other operations issues: Outlets that stay open around the clock, for instance, can eliminate procedures for opening and closing the restaurant.

But the practice doesn’t always bring big payoffs. Even though fixed costs don’t rise, there are added expenses such as higher utility bills and extra pay for hourly employees working the graveyard shift. Simply finding people to work those hours can be a struggle. “It is always difficult to get people to work overnight. It’s just contrary to the body,” says one consultant.

Meanwhile, the boost in sales can be meager. Consumers still prefer to eat at fast-food joints during traditional hours. Noon to 1 p.m. is the busiest time of day for quick-service restaurants, accounting for about 15% of customer visits last year. In contrast, the hours between 9 p.m. and midnight represented just 6% of visits, and the hours from 1 a.m. to 4 a.m. less than 1%.

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

Fill ‘Er Up…With Natural Gas

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MAY 23, 2013

LNG pump at Blu filling station in Salt Lake City

LNG pump at Blu filling station in Salt Lake City

If you drive down I-15 in Beaver, Utah, you’ll see a 30-foot-tall silo with white letters that spell out “Blu.” Next to it is a truck stop. It is no ordinary truck stop. The silo contains liquefied natural gas (LNG) chilled to -200° F and ready to fuel specially outfitted 18-wheelers. The facility is owned by Blu Transfuels, which expects to build 50 natural-gas filling stations nationwide this year, according to Fortune (May 20, 2013).

Drawn to the vast potential of America’s fracking boom, Blu plans to convert natural gas into a liquefied form and use it to power the country’s fleet of 8 million heavy and medium-weight trucks, which account for 15% of U.S. oil consumption. The company’s partner, ENN, already operates 238 natural-gas stations in 59 cities in China. Blu’s VP of sales says, “LNG will allow our transportation fleet to save money and at the same time reduce its carbon footprint by 25%.”

Blu is not alone. Clean Energy, a company backed by T. Boone Pickens, says it will have about 150 natural-gas stations in 33 states by year-end. Shell’s first LNG station opened in April in western Canada. Shell’s president says, “LNG has the potential to transform the transportation sector in a big way.”

The new LNG trucks should cost only $30,000 to $40,000 more than diesels. Given that a typical 18-wheeler travels 100,000 miles a year at 5 mpg and that LNG is about $1 to $1.50 a gallon cheaper than diesel, a driver can save as much as $30,000 a year in fuel — a one-year payback. Many trucking companies lock in their fuel costs for five years, which would provide a total savings of $120,000 over the life of the contract.

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