Kevin Meyer

Life and leadership at the nexus of lean and zen.

The Last 100 Feet of Walmart’s Supply Chain

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By Kevin Meyer

I've written a lot about Walmart, in particular their supposedly glorious supply chain.  To be honest, they execute a traditional supply chain exceptionally well.  They source from cheap labor countries, put it on big ships, and distribute it to thousands of stores incredibly efficiently.  For a traditional supply chain.  They still run into issues with too much inventory floating on slow-moving ships, arriving after that particular style has lost favor.  And they beat the crap out of their suppliers to get every last penny of margin out of them, and then claim they deliver that to their customers.

If they actually get the product to their customers.  Something Walmart is apparently forgetting is that the supply chain is not complete until the product is in the hands of their customers.  That last hundred feet from the store's big back room to the shelves has become an issue.

During recent visits, the retired accountant from Newark, Delaware, says she failed to find more than a dozen basic items, including
certain types of face cream, cold medicine, bandages, mouthwash,
hangers, lamps and fabrics.  The cosmetics section “looked like someone raided it,” said Hancock, 63. “If
it’s not on the shelf, I can’t buy it,” she said. “You hate to see a
company self-destruct, but there are other places to go."

As I mentioned, it's only a hundred feet away.  If that.

It’s not as though the merchandise isn’t there. It’s piling up in
aisles and in the back of stores because Wal-Mart doesn’t have enough
bodies to restock the shelves, according to interviews with store
workers.A
thinly spread workforce has other consequences: Longer check-out lines,
less help with electronics and jewelry and more disorganized stores,
according to Hancock, other shoppers and store workers.

At the Kenosha, Wisconsin,
Wal-Mart where Mary Pat Tifft has worked for nearly a quarter-century,
merchandise ready for the sales floor remains on pallets and in steel
bins lining the floor of the back room — an area so full that “no
passable aisles” remain, she said. Meanwhile, the front of the store is
increasingly barren, Tifft said. That landscape has worsened over the
past several years as workers who leave aren’t replaced, she said.

Of course Walmart has a different perspective…

“Our in stock levels are up significantly in the last few years, so the
premise of this story, which is based on the comments of a handful of
people, is inaccurate and not representative of what is happening in our
stores across the country,” Brooke Buchanan, a Wal-Mart spokeswoman,
said in an e-mailed statement.

A lot of good that does you if you can't get it onto the shelves.  Perhaps that spokeswoman should talk to some Walmart execs.

Last month, Bloomberg News reported that Wal-Mart was “getting worse” at stocking shelves,
according to minutes of an officers’ meeting. An executive vice
president had been appointed to work on the restocking issue, according
to the document.

Ouch.

“When times were good and people were still shopping, the lack of
excellence was OK,” said Zeynep Ton, a retail researcher and associate
professor of operations management at the MIT Sloan School of Management in Cambridge, Massachusetts. “Their view has been that they have the lowest prices so customers keep coming anyway. You don’t see that so much anymore.”

Shoppers
are “so sick of this,” said Ton, whose research, published in Harvard
Business Review, examines how retailers benefit from offering good wages
and benefits to all employees. “They’re mad about the way they were
treated or how much time they wasted looking for items that aren’t
there.”

In Walmart's eyes it's apparently those pesky workers again.  What a "cost"…

Retailers consider labor — usually their largest controllable
expense — an easy cost-cutting target, Ton said. That’s what happened
at Home Depot in the early 2000s, when Robert Nardelli,
then chief executive officer, cut staffing levels and increased the
percentage of part-time workers to trim expenses and boost profit.
Eventually, customer service and customer satisfaction deteriorated and
same-store sales growth dropped, Ton said.  “When you tell retailers they have to invest in people, the typical response is: ‘It’s just too expensive,’” Ton said.

Wal-Mart is entangled in what Ton calls the “vicious cycle” of
under-staffing. Too few workers leads to operational problems. Those
problems lead to poor store sales, which lead to lower labor budgets. “It requires a wake-up call at a higher level,” she said of the decision to hire more workers.

As opposed to the cost – and not just in sales – of empty shelves.

Like the rest of us, even Walmart is only as good as the last 100 feet of its supply chain.  Sometimes all it takes is the "cost" of another human or two.

Piping One Piece at a Time

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By Kevin Meyer

I was thumbing through some old magazines that had built up in the mayhem of the past month and came across an interesting article in The Economist on freight transportation.  It was actually one of the first lines that caught my attention:

Enthusiasts of the digital economy sometimes forget that bits are not everything. However important information is in transforming business, most of what is actually bought and sold is still physical goods, and those goods need to be delivered to the customer.

That comment triggered some memories.  Way back in 2000, during the heat of the first internet boom, like many I was enamoured by all the new business models and concepts of "value" that were floating around.  Then I bumped into a guy at an AME board meeting who said "soon we'll realize that business rules are business rules."  I scoffed and said it was a new economy.  But soon we did realize – about a year later the bubble popped when all those rationalized pretzel-esque business models became accountable to the same concepts of profit and loss that have existed for centuries.  I bumped into him again about three years ago and we got to talking about the soaring stock market and he casually said "You know, something just doesn't feel right.  I've gone all cash."  Once again I laughed and continued to invest.  We all know what happened soon thereafter.

Next time I'll probably listen.  Promise.  Or is it already next time?  How is Facebook worth billions?  Really?  Hmmm… But back to our story on freight. 

Unlike information technology, though, freight transport has not evolved much during the past few decades. It takes only a few seconds to choose and buy something from an online store, but several days for it then to reach the purchaser. That process also burns oil, contributes to traffic jams and makes the planet’s atmosphere a little warmer by releasing carbon dioxide. Freight transport could thus use some fresh ideas.

Big trucks, big trains, big ships.  A misfocus on so-called economies of scale.  At the same time digital online stores and even some manufacturers have learned about the power of one – single piece flow.  Agility, lower inventory, less cash tied up, lower risk of a quality problem being discovered too late.

Counterintuitive, but proven in every industry.  Including a forgotten method of moving small parcels a hundred years ago.

In the late 19th and early 20th century, underground tubes were used in many cities to speed up the transport of mail between post offices and government buildings. Letters were put into capsules, the capsules into the tubes, and compressed air was then used to push the capsules from one station to the next. It was not uncommon at the time to think that pneumatic post of this sort would develop into a wide network, like telephony or electricity.

Now someone is resurrecting the idea.

Pipenet, a system Dr Cotana patented in 2003 and has been developing since then, is based on a network of metal pipes about 60cm (two feet) in diameter. Instead of air pressure, it uses magnetic fields. These fields, generated by devices called linear synchronous motors, both levitate the capsules and propel them forward. The capsules are routed through the network by radio transponders incorporated within them. At each bifurcation of the pipe, the transponder communicates the capsule’s destination and the magnets pull it to the left or the right, as appropriate. Dr Cotana calculates capsules carrying up to 50kg of goods could travel at up to 1,500kph—so you could be wearing a pair of jeans or taking photographs with a new camera only a couple of hours after placing your order.

One piece flow of consumer and industrial goods.  Yes of course it's a wild idea, just like many others.  You might be surprised at the cost.

The novelty of Dr Cotana’s approach is that by scaling things down from passenger trains to small capsules, that expense [compared to existing large scale maglev trains] is drastically reduced. Also, the tubes could use existing rights of way alongside roads and railways. In these ways, the cost could, Dr Cotana reckons, be kept below €2.5m per kilometre ($5m per mile). That is a fifth to a tenth of the cost of building a high-speed railway.

The team has, however, completed a feasibility study for a pipeline network in Perugia, a medieval city whose narrow, steep streets make existing means of goods delivery particularly inefficient. This study suggests the system would repay the cost of building it within seven years.

Still skeptical?  Yes I am too.  But at least it's a real proposal to change how real things are delivered in the real world.  Unlike the current, second, dot-com boom.

The Value of 0.07 Seconds

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By Kevin Meyer

What is a day or even a week of manufacturing disruption worth to you?  How about 0.07 seconds?

A split-second power disruption at a Toshiba Corp. factory in Japan could hurt shipments and raise prices for one of the world's most widely used computer chips, a mainstay of devices like smartphones, tablet PCs and digital music players.

Toshiba said the power outage could cause a 20% drop in its shipments over the next two months or so of chips known as NAND flash memory, which are used to store music, photos and data in products such as Apple Inc.'s iPhone and iPad.

I can just see the cubes filled with engineers, perhaps one of which noticed the lights flicker, going "what the…?"  We've all been there, but probably not with this level of fear and trepidation.  Yes they had safeguards, sort of.

Toshiba's troubles started early Wednesday when, according to power supplier Chubu Electric Power Co., there was a sudden drop in voltage that caused a 0.07-second power interruption at Toshiba's Yokkaichi memory-chip plant in Mie prefecture.

Even the briefest power interruption to the complex machines that make chips can have an effect comparable to disconnecting the power cord on a desktop computer, since the computerized controls on the systems must effectively be rebooted, said Dan Hutcheson, a chip-manufacturing analyst at VLSI Research in San Jose, Calif.

For that reason, chip companies typically take precautions that include installing what the industry calls uninterruptible power supplies. Part of Toshiba's safeguards didn't work this time because the voltage drop was more severe than what the backup system is designed to handle, a company spokesman said.

Power outages frequently cause damage to chips, which are fabricated on silicon wafers about the size of dinner plates that may take eight to 12 weeks to process, Mr. Hutcheson said. Wafers that are inside processing machines at the time of an outage are often ruined, he added, though many that are in storage or in transit among those machines are not.

That must really have been a severe 0.07 second drop.  The old-fashioned analog engineer in me, who remembers the original fascination with how a tape recorder could send data to a Radio Shack TRS-80 at 60 bits per second if the volume was adjusted correctly, has a hard time fathoming how such a minute interruption can cause so much havoc.  But it obviously did.

So what is that potential for an 0.07 second disruption worth?  Is it even possible to prevent at any reasonable cost?

Costco vs. the Just-in-Time Consumer

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By Kevin Meyer

Behold!  The financial crisis has helped the U.S. consumer understand the value of just-in-time!

Nearly three years ago I told you about my efforts to avoid buying in bulk, preferring to adopt the more European practice of purchasing goods and foodstuffs just when they're needed.  I received considerable backlash from folks that reminded me I could save a lot of money by buying more less frequently.  Yes, those were supposedly lean folks.  Total supply chain cost anyone?  Storage space cost?  Obsolescence (ie "Daddy, I don't like Capt'n Crunch anymore!")?

This morning The Wall Street Journal tells us about a new trend triggered by the financial crisis: the "just-in-time consumer."

The Great Depression replaced a spendthrift culture with a generation of frugal savers. The recent recession, too, has left in its wake a deeply changed shopper: the just-in-time consumer.

For over two decades, Americans bought big, bought more and stocked up, confident that bulk shopping, often on credit, provided the best value for their money. But the long recession—with its high unemployment, plummeting home values and depleted savings accounts—altered the way many people think about the future. Manufacturers and retailers report that people are buying less, more frequently, and are determined to keep cash on hand.

"Consumers are saying, 'I'm going to buy what I need for a specific period of time,' rather than loading up and buying two or three extra units just because they can get a good price on it," says Richard Wolford, CEO of Del Monte Foods Co. He calls the phenomenon "need it now."

Pantries are a-thinning!

Over the past two years, the number of items kept in American pantries has fallen about 20%, according to a recent SymphonyIRI survey. Consumers are also cutting back on the range of goods they stock.The average household had 369 unique items in its medicine cabinets, pantries and cosmetics bags this year, compared with 404 in 2006, the survey found.

P&G expects consumers' leaner, pickier shopping habits to last. "There's almost a confidence and pride in the ability to make tailored choices for themselves," says Joan Lewis, P&G's global consumer and market knowledge officer.

The value of cash – and how to better use cash tied up sitting in a pantry for a year.  So how are retailers reacting?

Executives peddling wares from canned goods to cashmere say the shift in consumption habits is prompting them to change how they produce, package, price and deliver their goods. Food and household-product manufacturers, including Del Monte and Kimberly-Clark Corp., are rolling out smaller package sizes for consumers who would rather buy a week's worth of toilet paper or dog food than stock up for a month.

Grocers are trying to accommodate smaller but more frequent shopping trips. Supervalu Inc. is changing displays more often. BJ's Wholesale Club Inc. is going after a new clientele of families and individuals by selling eggs and margarine in smaller lots. Apparel makers and retailers such as Elie Tahari and Net-a-Porter.com are changing their production and selling schedules for shoppers who increasingly want to buy their clothes in season rather than ahead of time.

But what about cost?

Smaller unit sizes, for example, generally mean higher prices—and therefore higher profit margins for manufacturers. Still, the phenomenon is so new it hasn't shown up broadly in earnings. A Kimberly-Clark spokeswoman notes that potentially higher profits on smaller packages can be offset by higher manufacturing costs.

So if consumers begin to want smaller unit sizes more frequently, doesn't this also present an opportunity for retailers and manufacturers?  After many long years of being slammed by the likes of Wal-Mart and Costco, could the small corner store finally have some leverage?  The larger operations will have to learn how to be more efficient in smaller and smaller batch sizes.

The new shopping behavior is having a big effect on club stores, the ultimate pantry-filling destinations, which offer low prices but require bulk purchases. Some, including Costco Wholesale Corp. and BJ's, have reported increased shopping-trip frequency and decreased transaction sizes. To adjust, some discounters are rethinking their businesses.

BJ's, based in Natick, Mass., began courting new customers two years ago to expand its membership, including smaller households and empty-nesters. It began shrinking its package sizes, in part to lure shoppers more interested in weekly purchases than monthly stock-ups. Now, the chain of 191 stores sells cartons of 18 eggs, instead of only five-dozen egg packages. It offers two containers of margarine of nearly two pounds each instead of only five-pound buckets.

Some manufacturers are capitalizing on the trend – including Newell Rubbermaid, which has been working with lean for many years.

As a result of delayed buying, Newell overhauled its manufacturing process and simplified its product portfolio. This will enable it to better handle last-minute surges in demand for popular Christmas gifts like its Irwin pliers and Calphalon cookware. "It's better for our inventory situation and our manufacturing to be able to produce and ship in a more even pattern, rather than all at once," Mr. Ketchum says.

Isn't it amazing what you learn when you focus on cash – and what you can do with it if you find it hidden in the pantry – or on the high seas?  Perhaps some housewives could teach some outsourcing-loving CFOs some lessons!

The Perils of Batch Air Transport

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By Kevin Meyer

Over three years ago I wrote a short piece comparing the new Airbus A380 to the new Boeing 787 Dreamliner from a batch vs. one piece flow perspective.

The A380 represents a bet-the-house wager on one of the most disliked same-old models of air travel: the hub-and-spoke. The A380 is built around the assumption that airlines will continue to fly smaller planes on shorter routes (spokes) into a few large hubs, then onward to the next hub on giant airplanes.

Basically the A380 was batch – the illusion of efficiency by processing large volumes at one time – vs. the "smaller batch" of the smaller 787.  Sure that was a stretch analogy, but so be it.

And the issues with batch processing came home to roost yesterday when one of Qantas' A380s had an engine problem, and the airline decided to ground its fleet of six of those aircraft.  Actually "engine problem" is putting it lightly – when a big chunk of it blows off it could be disastrous.

So contemplate that for a minute – six monster planes out of service, each transporting about 440 people on multiple flights per day.

What does that do to flow?  How do you recover?  How do large process monuments contribute to supply chain risk?

It takes a lot of smaller machines to recover from the loss of one big machine.  The loss of one big machine also creates a major disruption to the flow through the rest of the system comprised of smaller machines – the smaller planes connecting to and from the hubs served by the A380s.  I wouldn't want to be in Qantas' scheduling center right now. Or its customer service operation.

So think about your own operations.  Are you following the conventional wisdom that says larger machines with more capacity are better?  Or are you considering risk and less tangible potential cost attributes and looking at flexibility and ability, perhaps by larger numbers of smaller machiens, to recover from problems?

The Bane of Complexity Part 2: The Rube Goldberg Supply Chain

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By Kevin Meyer

I've blathered at length about Rube Goldberg-esque supply chains at Boeing and other similarly outsourcing-entranced companies.  So nothing new this fine Sunday morning, except that's the first thing that came to mind when I saw the following video – song by Ok Go and contraptions by NASA engineers presumably in their free time.  Here's the background story as well.

Enjoy your Sunday!  The real world begins anew tomorrow.  (Here's the link to YouTube – video may not embed correctly due to size constraints).

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