A great big thanks to the team behind the Wool Innovation day held a couple of weeks ago in Christchurch, New Zealand. They gathered a range of participants from over the country with interest in technology and innovation + an enthusiasm for wool! It was a pleasure to be part of the forum and, I hope, have contributed to the progression of the industry and products. It was very pleasing to have an invitation to the event and be able to participate.
A design thinking approach was used to develop and assess several ideas. The participants all had a great deal of fun and everyone came away richer for the experience.
I will be watching this space with interest to see how the ideas develop!
The effect of slack, diversification, and time to recall on stock market reaction to toy recalls
My team and I have just had our research accepted into the International Journal of Production Economics after several rigorous reviews and revisions – published as Wood, Wang, Olesen, and Reiners (2017). The article is titled: The effect of slack, diversification, and time to recall on stock market reaction to toy recalls
In this work, we used event study methodology, which has been used in the Operations Management literature to study demand-supply mismatches (Hendricks & Singhal, 2009), medical device recalls (Thirumalai & Sinha, 2011), product introduction delays (Hendricks & Singhal, 2008), and food recalls (Salin & Hooker, 2001) among other topics. The calculations gave us an abnormal return value for each event that we then used in a cross-sectional regression to test a series of hypotheses that relate to the operational decisions that managers can make. Specifically, we were looking at geographic and business diversification; financial, inventory, and capacity slack; how long a product is on the market for before it is recalled; and whether reactions to the recalls change appreciably over time.
Past toy recalls have led to an increase in consumer concerns while toy manufacturers and retailers increasingly outsource and create longer supply chains, making it more challenging for them to ensure toy safety. This article examines firms making toy recall announcements to assess the impact operational characteristics have on the negative stock market reaction to the announcement. 135 toy recall announcements in the U.S. from 1979 to 2016 were analyzed using event study and cross-sectional regression. While a toy recall announcement results in a negative stock market reaction, our results show that greater levels of business diversification, inventory slack, and a longer time to recall are all associated with a less negative stock market reaction. In contrast, greater capacity slack is associated with a more negative stock market reaction. We find no evidence that geographic diversification or financial slack influences the stock market reaction, nor have reactions changed appreciably over time. This article contributes to the product harm and product recall literature by focusing on these operational elements. Managers should be aware of the benefits of greater slack and business diversification while planning their business, and the impact of a longer time to recall.
Hendricks, K. B., & Singhal, V. R. (2009). Demand-supply mismatches and stock market reaction: Evidence from excess inventory announcements. Manufacturing & Service Operations Management, 11(3), 509–524. https://doi.org/10.1287/msom.1080.0237
Thirumalai, S., & Sinha, K. K. (2011). Product recalls in the medical device industry: An empirical exploration of the sources and financial consequences. Management Science, 57(2), 376–392. https://doi.org/10.1287/mnsc.1100.1267
Another fun week and we were running the Littlefield Labs simulation in two of our operations management classes. First, in the Postgraduate Diploma class on Supply Chain Management, with a focus just on management of capacity with a scenario focused on queuing and leadtimes. Second, I run a scenario with my Global Operations Management class (in the Business Masters programme), focused on capacity management and the use of appropriate contracts given operational performance. It’s a great group of talented students so I’ve given them a reasonably challenging situation to keep them busy in the session. We run the in-class session over a 120-minute team-based learning (TBL) session, giving us plenty of time to get into the simulation. All the best to the students – it should keep them busy and entertained over the session!
This is the first day of a 24-month project to improve operations and supply chain management education – the nDiVE project (www.ndive-project.com and www.facebook.com/ndiveproject). In essence – the objective is to represent more data and information within a virtual environment to enable learners to better understand supply chain complexity, particularly where there is a separation of time and/or space between the cause-and-effect. This can be particularly pertinent in supply chain quality or health and safety.
Watch this space – it should be an interesting 24-month project improving operations and supply chain education.
Lately I’ve had quite a few chats with folk in the industry. Is there a future without supply chain workers? Would that be so bad?
The work itself is often repetitive and dangerous (think of all the heavy equipment and significant inertia). Getting people out of the ‘movement’ part of the supply chain might be quite a good idea. Accidents and deaths should decrease, leaving happier families.
Where are we at?
Ports – the containers themselves are regularly shaped and sized. The environment can be tightly controlled and planned. A great candidate for automation.
Mines – certain activities are very repetitive and in tightly controlled environments. This includes the repetitive cycles for certain vehicles. Those in underground environments can be relatively easily designed to work without human intervention, moving through the tunnels.
Warehouses – quite a bit more difficult. Yes, things are repetitive, but the environments are less-tightly controlled, and the products themselves often vary in size, bulk, and fragility. Lots of automation can be used to aid humans working in this environment. Some firms manage to standardize much of the packaging. Yet, at present, there still seems to be a large role for employees in these environments.
Manufacturing – this depends on the nature of the products and workplaces. I’ve seen many facilities that are absolutely chaotic, where automation would fail and would never be considered. Some products are inherently difficult for robots to manage (think about flexible pips or tubing, flopping around), making the work suitable for human worker with a little training.
So – many materials handling jobs can be replaced with technology. Those jobs that involve irregular working environments or irregular products are less amenable to displacement. Thus, work involving a variety of external conditions (e.g., managing materials on construction sites sites) or a variety of product shapes and customer-facing roles (e.g., courier delivery) may be safe.
What sort of role should you be looking for in supply chain management? Where do you want to be in the future? I suggest that there are some types of jobs that you should be careful about as you may find – at some point in the future – that the job disappears out from under you!
We were talking about ‘lean’ and some of the associated benefits. Yes, it was an aside but still quite related to what we were talking about in regards to the production process decisions that need to be made.
I don’t often get into the culture stuff in my operations management (OM) classes – I find that they are often challenging enough, particularly where I have students that haven’t been at university in a while. Sometimes, however, it seems unavoidable.
Why do some implementations of ‘lean’ fail? Do the Japanese have some cultural advantages in making this work? The organisational behaviour and organisational change fall beyond the scope of my OM class, yet I’m no stranger to the concepts (see some of my publications on my staff page).
Simply having a manager decide “Right, we are going to totally change the way we run our operations” is NOT going to have a good outcome. Switching from the way many of our operations have been structured, to transition to a lean environment, represents a significant shift. Sure, implementing one or two tools or techniques can be easily accomplished, but it’s like ‘bolting on’ these techniques to our existing philosophy. Probably, it’s not going to work, and may even be harmful. To really make a success out of lean we need to drill all the way down to our culture and philosophy, which we probably have never even considered so explicitly before.
Like much of what I talk about in OM, congruence and alignment will be necessary to derive the benefits, fully. Simple words; yet, congruence is fiendishly difficult to achieve in a real operating environment.
Can we change the culture? Yes.
Can we do this easily? Not that *I* know of.
Hiring policies, effective candidate screening, intensive meetings and workshops, pilot studies to demonstrate feasibility and benefits, and time, time, time …. Changing the culture enough to implement lean is a challenging proposition. Even if you do succeed, a lean system is not going to be appropriate for every organisation in every situation. The key to success is matching the operations management approach with your business context.
What makes for good service? While in the UK/Europe we rented a vehicle. Fully covered with RAC. Great – until we actually DID break down. Who you going to call? RAC of course. At the time we were outside of Dingle, in the South West of Ireland. Quite an isolated spot and we break down around 4pm on a Saturday. Call RAC. Nope – that’s not us (RAC Europe). Huh? Well, surely we are not covered by RAC UK. After talking with folk at both RAC Europe and RAC UK, we determined that there is a separate number for callers in Ireland (like us!). Eventually we DID get the help we needed. (but they seemed unaware of what benefit or help they could provide as they weren’t sure what was detailed in the contract. But – they can’t help us out until the vehicle has been inspected. We are towed on a Saturday evening in a small town, they can’t look at it until Monday, and we are stuck with no accommodation in a tourist town on a weekend during the summer – no help form the RAC!)
Closer to home – think about the average, small, single-office businesses. How difficult is it to manage the processes? Processes in large firms, stretched over multiple continents, must be carefully mapped and managed. Small firms seem to think that they are able to just skip that stuff. As a customer or a consumer it doesn’t inspire confidence when a firm cannot manage their processes, manages to have information disappear, two employees aren’t talking with one another, or people simply don’t call you back or contact you. A little bit of work, understanding their processes, mapping them out, identifying points where the processes may ‘fail’ (information is passed onto the right people, forms are lost, and no-one in the office even notices?), can help the firm improve their processes, reduce wastes, respond more quickly, and ensure that consumers or customers receive the best possible treatment.
In contrast: RAC Australia – breakdown, they give you an estimate of the time it’ll take to get there, calls when they get close, follow through. As a customer, every step of the way you know what’s going on, there is a fast and efficient response, and you can certainly feel confident everyone knows what is happening. Required information is shared between the parties. Great stuff and kudos to RAC in Australia J
Get the processes right – impress the customers. Effective processes and careful management provide the foundation for great service.
What is capacity? Is this important? Why would we care in our business?
Capacity – the ability to meet demand, receive guests, produce products; expressed as an amount per time period. A hotel has a certain capacity of guests they can serve each night. A manufacturing has the capacity to make a certain number of products per week.
Is this important? Yes. We need to have a good idea of our capacity for planning purposes. But – what is capacity? How easy is it to measure? If we have a small restaurant, with four tables each able to seat four individuals – will we always have 16 people sitting and buying food? No – sometimes we’ll have a couple at a table or a group of three, and we are not making full use of our capacity. If we run a production facility and a machine breaks down, capacity is ‘lost’ and unavailable.
How much capacity do we plan for? In manufacturing the question is addressed strategically, then through sales and operations planning (S&OP), then balanced in the short-term through adding staff or running extra shifts.
Service firms have a slightly more difficult job. Demand can vary significantly. How much capacity should we plan for?
Capacity costs MONEY. Is it going to be sensible for a service firm to plan capacity to meet the maximum demand? Probably not. Many service firms use some form of ‘demand management’ to influence demand patterns and ‘shift’ demand from a busy period to a quieter period (promotions, special discounts). If we planned for peak demand much of the time we have paid for capacity that will never be used. However, some service organisations may still plan to meet peak demand where there is a crucial reason to do so. Hospitals are an example; they need to be able to serve large numbers of sick or injured people during epidemics or disasters.
Excess capacity consumes resources that could be better used elsewhere in the business. Fixing suitable levels of capacity can be tricky but can provide a firm with a long-term advantage (suggesting, of course, that examination of competitor actions may also be crucial).
Welcome to SCM – a place to learn about and discuss supply chain and operations management. I’ll be discussing topics that are of interest to operations and supply chain professionals as well as students. Both real-life issues will be addressed, especially those of interest in the media, as well as thoughts regarding other topics. Research and education in operations and supply chain management will also be addressed.
All the best – Lincoln.