Corporate Strategy And The Speed Of The Supply Chain
April 24th, 2007
One of the best business speakers I have ever heard present is Mike McBreen, formerly of Nike and now with Furniture Brands International based in St. Louis. I was fortunate to be invited to a lunch on campus where Mike spoke to us about himself and his work at Nike, and we could ask him questions. A very humble man you could not help but like and respect. Mike also spoke at our winter undergraduate Orfalea College of Business graduation ceremony and did a great job.
One of his points during that lunch that resonated with me and still sticks in my mind … successful corporate strategy, at least in his industry, is becoming more and more tied to the supply chain and how quickly and efficiently goods can be moved from creation to the customer.
As one of his examples, he indicated that the retail “shelf life” of a T-shirt is/was about 33 days. Yet, it takes 28 days just to ship a shirt from a port in China to Nike’s intake facility on the US East Coast. Thus, if consumer taste takes a big swing while the ship carrying your T-shirt is going through the Panama Canal, you are not in a terribly enviable position. Future victory, then, at least for those in the T-shirt or other textile sales business, may hinge more and more on who can cut that 28 days down to, for example, 10 days — and Mike talked about how he is seeing some T-shirt production starting to move back to the US from abroad.
If so, does this make one of the books that a number of you read to help prepare you for the China trip, The Travels of a T-Shirt in the Global Economy, outdated? Just a thought.
Man, the world of business changes at light speed and that is one of the things I love about it. I hope you do too. No day is the same or boring in business.
For more information on the supply chain issue, check out MIT’s Center for Transportation and Logistics web site, where the techies there go nuts over this supply chain stuff.
This issue also relates to the Port (or a similar one) we may possibly visit in China (depends on our ultimate travel plan and details).
Professor Carr March 13, 2008 addendum: See this related post I just made, Gone Baby, Gone … Even From Mexico.
4 Comments Add your own
1. Andrea Muntzel | December 22nd, 2008 at 11:09 am
There have been several articles that discuss manufacturing moving back to the United States for one reason or another. I’m skeptical. Like the “Gone, Baby, Gone…Even from Mexico” post, labor costs and manufacturing costs in the United States are too high to make up for any cost savings achieved by—well—anything. I can see how the supply chain issue is important but I don’t see it changing anything. Really, moving production to the United States would solve the issue of getting the products to the customers while causing another problem in getting supplies (which would likely still come from China) to the manufacturing facilities. The one-product towns in China have important economies of scale and seem to be an excellent way to manage the supply chain and keep supplies in a localized area.
Increased attention to supply chain management has another important implication for us as MBA students; when the job market is lacking vigor, skills in supply chain management could give us a competitive advantage. I’ve already ordered the book Travels of a T-Shirt in The Global Economy for my spring book review so I can learn a little more about this subject. If my synopsis is correct, the ports in China should be very busy.
2. Morgan O'Hara | December 22nd, 2008 at 11:28 pm
Doh! (That was a Homer Simpson doh) And I doh because just the other week in Toastmasters, Dr. Olsen gave a speech on how to speed the supply chain. My excuse for not remembering much of what was said – one, it was 6:30 in the morning, and two, he gave a demonstration, and I was one of the cogs on the supply chain, and I had to focus on passing out boxes.
Poor excuses, I know. But I’m going to gracefully pass this onto Dr. Olsen and see if he won’t shed some light on supply chain efficiency.
3. Eric Olsen | January 2nd, 2009 at 2:04 pm
Morgan is referring to a little “push versus pull” demonstration that I do with classes to demonstrate the relationship between inventory and time. There is even a law that governs the relationship. It is called, “Little’s Law”. It states that the total cycle time for a supply chain is equal to the inventory divided by the ship rate. For example, for a supply chain needs to consistently deliver (ship) 1000 shirts a day and the travel time from China is 28 days, then the supply chain has to have 28,000 t-shirts in transit (inventory). Moreover, it gets worse. Because inventory does not instantaneously appear and get sold, a shipment of 28,000 t-shirts needs to be supported with stockpile of t-shirts on each side of the Pacific. If the manufactures make t-shirts at a rate of 1000 per day and they are sold at a rate of 1000 per day, then the average stockpile on each end is one half the shipment volume or 14,000 t-shirts. The net result is that you need 56,000 t-shirts in supply chain inventory to support a customer demand of 1000 t-shirts a day. This is not good if the shelf life is only “33 days” and you have 56 days of inventory in your supply chain. It also begs the quest ion of who would risk 56,000 t-shirt dollars of capital to run this supply chain? No wonder some companies are figuring out ways to bring manufacturing back to the US!
4. Chris Carr | January 2nd, 2009 at 8:36 pm
Good points. Thanks for check in, Eric.
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