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Demoulas and Market Basket: An Extrordinary Retail Drama and Case Study

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With an office in the suburbs of Boston, Supply Chain Matters has observed and experienced an extraordinary event, the power of a workforce that has no real hierarchy and loyalty. Our readers residing in the United States may have already heard or read of the developments concerning Demoulas and Market Basket supermarkets within the New England region. The story has become viral. It is a chain of supermarkets with no equal.  Workers decided to express loyalty to a CEO by refusing to work until that CEO was re-instated, which turned out to be a five week long standoff. The Boston Globe described the situation (paid subscription required) as “truly a breakthrough for middle-class workers” and provides a detailed account of the event.   Demoulas

In a capsule, this was about a private company that has an ample share of family focused dysfunction that spilled over in business relationships.  It is a story of cousins, Arthur T. Demoulas (Arty T.) and Arthur S. (Arty S.) Demoulas at odds, and years of power struggles for control of the supermarket chain. Arty S. with a philosophy of seeking maximum return of profits and equity, assumed control of the Board of Directors earlier this year. Arty T., the operational CEO, who led with a philosophy that workers should be treated as true equals and share in the benefits of success with paid health benefits and profit-sharing, was removed in June.  He was admired by the employees.

Employees, not belonging to any organized labor union, with many having multiple years, some decades, of employment history began figuring what was at stake.  They surmised potential moves toward sale may have been in the works and elected to support their fired CEO by refusing to work.  Arty S. hired two new co-CEOs who asserted themselves early in the game by dismissing eight organizers of the protests. The move galvanized workers and hardened opposition. Solidarity among both workers and customers was astonishing and again, there was no organized union. The next five weeks bore witness to an extraordinary meltdown of business with revenues reported to be down nearly 90 percent. Many believed, including this author, that the situation would end badly. It was a standoff that ultimately prevailed in favor of Artie T. and his management philosophy.

We often shopped at the local Market Basket store. The prices were far below any other outlets.  We were by no means, alone. The shopper loyalty was extraordinary and became a key factor in the past five weeks of standoff. Market Basket employees often demonstrated commitment and caring for what they were hired to do.  If you did not find an item, store clerks were more than willing to search the store or seek out a manager. Store managers listened and accommodated requests; including stocking a new item if there was local demand.

From this author’s supply chain management lens, this local chain was extraordinary.  Highly competitive pricing fueled remarkable volume inventory turnover per store which translated to buying power directed at food suppliers.  At certain times, the physical volume of shoppers in the store made navigation in the aisles a challenge. It often seemed that navigating within the store was of equal peril to navigating through the parking lot. Yet, in spite of this volume, a stock-out of an individual item was not as bad as one would think.  Even more extraordinary for today’s retail culture, if you asked the store manager when an item would be back in-stock, he or she had an immediate answer.  Managers demonstrated intimate knowledge of their individual stores and were not bashful to lend a hand in bagging or at checkout aisles.

The true scope of Market Basket’s supply chain prowess actually came to be appreciated during the work stoppage.  As thousands of shoppers sought alternative competitive chains, it became apparent that many of these chains were ill-equipped and ill-staffed to accommodate shopper volume surges. Check-out lines were slow.  Stock-outs were plentiful and replenishment was painfully slow. We speculate that the reason was that other chains were regionally based retailers serviced by distribution centers located in other states. In contrast, the main distribution center for Market Basket was located in the town of Tewksbury, about a 40 minute drive north of Boston, close enough to accommodate same-day deliveries.

Centralized planners and buyers of competitive chains initially seemed not to be aware of a local condition. We speculate that replenishments were pegged to normal shopping volumes, not to the extraordinary opportunity unfolding for competitive chains.  As replenished inventory arrived, it was quickly consumed. By our observation it was near the fourth week of the Demoulas shutdown before competitors were able to muster an adequate supply response.

Now that the Market Basket crisis has been resolved, the test will be how many former loyal shoppers return.  We visited our local Market Basket on day two of the resolution.  While the store lacked a full complement of inventory, a good amount of shoppers were buying and the store was fully staffed. Once more we received multiple personal greeting from store employees, management and clerk alike: “Thanks for supporting our cause and thanks for being a loyal shopper.

How many times have you experienced that greeting in this era of online mass retailing?

Bob Ferrari

 


Supply Chain Matters News Capsule-August 29; McDonalds, Boeing, Oracle E-Business Suite

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It’s the end of the calendar work week and the prelude to the Labor Day Holiday weekend in the U.S… This commentary is our running news capsule of developments related to previous Supply Chain Matters posted commentaries or news developments.

In this capsule commentary, we include the following updates:

Report that McDonalds is Reevaluating its China Supplier

Boeing and a Major Supply Chain Partner Land a Big Order

Oracle Announces Release of E-Business Suite 12.2.4

 

Report that McDonalds is Reevaluating its China Supplier

A few weeks ago, Supply Chain Matters highlighted a Wall Street Journal report that indicated that in the light of China’s food regulators finding the existence of certain expired meat products within the McDonalds supply chain in China that the restaurant chain was going to give the benefit of doubt to its long-time supply chain supplier of 59 years, OSI Group, who’s China based subsidiary, Shanghai Husi Food Company was allegedly implicated in the expired meat mis-labeling investigation.

This week, the WSJ published a follow-up report that now indicates that McDonalds is reconsidering its prior relationship with OSI Group. The report quotes a corporate spokesperson as indicating that in the past six weeks, the OSI partnership for supply of China outlets has been suspended. After due-diligence investigation by McDonalds, the chain suspended all cooperation with Shanghai Husi as of July 20th, which precipitated a near three week shortage of meat products for outlets in China and Hong Kong. The chain is instead positioning alternative suppliers Cargill and Keystone Foods to increase supply capacity within China.

Considering both WSJ reports spanning a month, its somewhat confusing to ascertain if McDonald’s has indeed been standing by a loyal supplier. We can only speculate that due diligence either uncovered troubling labeling practices or the restaurant chain feels an entirely new supplier slate is needed for China and other Asia outlets.

 

Boeing and a Major Supply Chain Partner Land a Big Order

In our ongoing Supply Chain Matters commentaries directed at commercial aerospace supply chains, we have echoed the new buying influence of airlines and leasing operators supporting emerging market regions such as China and greater Asia.

This week, Boeing and Singapore based BOC Aviation, a leading aircraft lessor in Asia, announced a near $9 billion order, at list prices, for a total of 82 new aircraft. The order includes 50 of Boeing’s 737 MAX 8s, 30 Next-Generation 737-800’s and two 777-300 Extended Range aircraft. These new aircraft are destined for expansion or replacement needs for a number of unnamed airline operators across Asia with deliveries spanning the time period from 2016 to 2021. According to a published report by Bloomberg and The Seattle Times, the estimated order is more likely to be $4.2 billion when discounting is factored. That is obviously a reflection of buyer power.

The Boeing order follows a mid-July announcement from BOC Aviation of an order from Airbus consisting of an additional 43 A320 and A321 series aircraft with deliveries extending through 2019. Airbus had additionally landed a sale of $11.8 billion of new aircraft from Japan based lessor SMBC Aviation. The Bloomberg report quotes a spokesperson as indicating that BOC Aviation projects receiving an average 27 planes a year starting in 2015, while also disposing of 20 to 30 annually.

In the adage that a rising tide raises all supply chain boats, another major beneficiary of the bulk BOC Aviation order involves the aircraft engine consortium of CFM International, the joint venture between General Electric and Safran.  CFM was the recipient for orders involving 100 LEAP-1B and 60 CFM56-7BE engines that is valued at $2 billion at list prices.  The engine orders additionally include longer-term, multi-year service and maintenance considerations.

 

Oracle Announces Release of E-Business Suite 12.2.4

Oracle recently announced the release of Oracle E-Business Suite 12.2.4. According to the announcement, this latest release provides an updated user experience, significant customer-driven enhancements across the applications suite, with added integrations to Oracle Cloud Solutions.

This particular release has many enhancements related to the support of various supply chain procurement and customer fulfillment technology enhancements. Highlights include:

Oracle Procurement: Web ADI–enabled spreadsheet creation and modification of purchase order lines, schedules, and distributions to improve buyer productivity when dealing with large orders.

Oracle iProcurement: A streamlined single-step checkout flow allowing employees to quickly complete shopping activities and initiate the requisition approval process.

Oracle Procurement Contracts: Improved buyer efficiency from auditing of contract documents by reviewing details of policy deviations and net clause additions.

Oracle Services Procurement: Enhanced capabilities provide buyers with greater flexibility to support a broad range of complex order scenarios.

Oracle Channel Revenue Management: Improved volume offer capabilities and a streamlined user interface enable users to quickly adapt to changing business conditions.

Oracle Order Management: A long overdue new HTML user interface addressing improved usability, greater flexibility, and a more modern user experience.

Oracle Yard Management: A new solution enables manufacturing, distribution, and asset-intensive organizations to manage and track the flow of trailers and their contents into, within, and out of the yards of distribution centers, production campuses, transportation terminals, and other facilities.

Oracle Manufacturing: Significant usability improvements in the Oracle Manufacturing Execution System (MES) help improve operator productivity by simplifying time entry and quality collection. New capabilities to manage the auto-de-kit (disassembly) of serialized products supports customer returns and internal reuse of component parts.

Oracle Enterprise Asset Management: Enhancements to support linear assets in industries, such as oil and gas, utilities, and public sector, help improve productivity and retire costly integrations and custom code.

Oracle Service: Enhanced spare parts planner’s dashboard provides rich user interaction to improve planner productivity.

Oracle Value Chain Planning: Numerous enhancements across multiple products include deeper industry functionality, such as minimum remaining shelf-life enhancements for the pharmaceutical and consumer goods industries, multistage production synchronization for process industries, and integration between Oracle Service Parts Planning and Oracle Enterprise Asset Management for asset-intensive industries. New promotions planning analytics in Oracle Advanced Planning Command Center improve business insight.

 

 


In Automotive Industry, Mexico is Indeed Becoming A North America and Export Production Center

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In a previous Supply Chain Matters commentary in early July, we noted a rising tide of production sourcing investments in Mexico among global based automotive OEM’s.  Automotive OEM’s BMW, Honda, Mazda,Volkswagen’s Audi Group, and a partnership among Nissan and Daimler had each announced Mexican production sourcing decisions that amounted to billions of dollars of investment. In our commentary, we pointed to significantly more attractive direct labor rates, tariff-free access to markets, foreign currency challenges and global logistics as all contributing to the attractiveness of Mexico as a prime product export center.

This week featured news of yet another global based automotive producer electing to source production in Mexico. South Korea based Kia Motors, an operating division of Hyundai Motor, announced its intention to also invest in a $1 billion automotive assembly plant in Mexico with capacity to produce upwards of 300,000 vehicles. 

Obviously, such a trend implies that a global production strategy is at-play within these moves.  Despite a large amount of excess production capacity across Europe, European automotive OEM’s elected to invest. We can now observe that Asia based OEM’s, are joining the sourcing tide for electing Mexico. Additionally, when a concentrated group of OEM’s make such significant investments in a particular geographic region, the supply chain supplier ecosystem follows, creating the basis of a self-contained value-chain ecosystem that further contributes to cost and supply chain efficiencies for the region.

As noted in July, with the current strategic sourcing attraction of Mexico, global automotive OEM’s gain even more flexibility in determining the most profitable supply chain sourcing and production paths to support global demand or offset currency fluctuations.  Mexico itself has the opportunity to evolve as a major global hub of automotive exports beyond North America.

The obvious loser in this tide is expansion of U.S. based automotive production. While U.S. based OEM’s such as Ford and General Motors balance their production investments among the specific global region supporting a consumer market, they have not tended to position U.S. manufacturing capability as an export weapon. Global based OEM’s have attracted to the U.S. southern region where local governments and their political leaders have provided very attractive monetary incentives and promises of right-to-work laws that inhibit organized labor unions.

The current wave of announcements targeting Mexico is now a clear sign of a far broader wave of strategy unfolding, since such sourcing spans previous smaller, low-margin models and now includes a broader range of production sourcing that include mid-range and luxury models.  Thus U.S. manufacturing resurgence concerning automotive production is tempered by the rising tide of Mexico which will become a far larger global production and export presence.  Cudo’s to Mexico’s leaders in providing the incentives and infrastructure to fuel such attractiveness.

Do not misconstrue that in this commentary, our intent is to not advocate pro or con organized labor, or legislative incentives that lure automotive OEM’s to certain regions, but rather to point out how such considerations can and do motivate sourcing decisions.

There is obviously a lot of learning to be gained for U.S. and local state legislative leaders and perhaps that learning is too late when it comes to global automotive supply chain capability.

Bob Ferrari


Breaking: Report Indicates Apple is Preparing to Launch 12.9 Inch iPad in Q1

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In mid-July, business and social media was abuzz with the announcement that two long-time rivals, Apple and IBM, would team-up in an alliance to create business apps leveraging Apple’s iPhone and iPad devices.  Under the alliance, IBM will create what it terms as “simple” business productivity apps leveraging the respective Apple mobile devices.

Today, Bloomberg released some somewhat stunning news which many are speculating is directly related to above announcement. Supplier sources informed Bloomberg that Apple is preparing to manufacture the largest model iPad ever, a 12.9 inch screen device, with production scheduled to commence in the first quarter of 2015. That is 6-9 months from today.

As we have echoed in previous Supply Chain Matters commentaries, the Apple supplier network is feverishly ramping-up production volumes for new models of iPhones and iPads for the all-important upcoming holiday buying surge period. Apple’s three key suppliers of LCD screens are especially challenged due to a rather late design change incurred on the new iPhone 6 model.

According to the Bloomberg report, this rather large iPad screen model is being positioned to compete in the business applications arena as an alternative device for business tasks currently performed by laptops. The Q1 timing is especially noteworthy since that is the time when Apple’s China based suppliers and contract manufacturers temporarily shut-down for celebration of the Lunar New Year as workers return to their homes and families. It is a period where suppliers recover from the hectic end-of-year scramble.  The fact that Apple is targeting yet another product release in this period is a probable sign that the IBM-Apple discussions were already in the planning stages prior to the official announcement last month. Both parties are aggressively planning to take advantage of the alliance opportunities.

Apple’s supply chain, S&OP teams and value-chain partners are once again going to be put to the test of simultaneous volume production ramp-ups involving a multitude of products including a new iWatch as well as phones and tablets.  There is obviously little room for snafu’s and LCD screen suppliers may well be the critical linchpin to pull-off a series of simultaneous successful product launches.

Bob Ferrari


Napa Valley Assesses Damage to Wine Inventories and Production Equipment

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Business owners in the Napa Valley area of California woke up today to the after-effects of the 6.0 magnitude earthquake that struck the region on Sunday.  The Napa Valley was very close to the epicenter of this earthquake and we all know and appreciate what this region’s most important commercial product is, namely great wines with global brand identity.

Reports indicate that the wine industry may have suffered some significant damage as a result of the quake and its aftershocks.  A report produced by business network CNBC features video and reports of damaged wine caskets and bottled inventory among growers and distributors, some of very expensive varieties. According to a report by CNN, the damage was isolated, some wineries being hit very hard, others not so. Wine producers and wholesalers are in the process of assessing overall damage along with trying to save stored aging wine.  Wine within damaged barrels will need to be transferred to other safe, secure, temperature-controlled facilities and the challenge is securing both additional barrels and available controlled storage that was not damaged. While insurance can compensate for lost inventory, exquisite wine cannot be replaced, and the harvesting and aging process must begin anew.  Larger producers may be in the position to sustain losses than smaller, specialized producers. That may well leave a hole in future revenues or cause a supply and demand imbalance, depending on the varietal product. The market for wine itself has its own challenges and is very much dependent on variety and brand.

Last week, we ran across a a syndicated AP published story regarding the bourbon industry.  Similar to wine making, it is an industry where long-term bets are made concerning current and future market demand. Distillers fund inventory aging for millions of gallons of product over a 2-5-10-15 year horizon. Super premium brands, currently the most popular, can often fetch large profits, but have to age 6 years or more.  The overall market for bourbon is booming, and distillers and distributors are banking on the continued boom in international demand to continue over the longer-term horizon.  Imagine your supply chain’s overall inventory averaging over multiple years. We observed that dynamic when earthquakes impacted the parmesan cheese producing areas of Northern Italy in June of 2012.

Wine and spirits supply chains feature unique challenges in long-term inventory management and associated supply and demand pricing strategies. Risk is an inherent factor, and major supply chain disruption caused by a natural disaster can be devastating to short and longer-term business results. They also add a new and far different aspect of product demand management challenges.

Napa wine producers will continue to recover from this natural disaster and hopefully, all producers, large and small, will be able to recover.  However, our community has yet another reminder of the fragile nature of today’s industry supply chains which can be significantly disrupted by a single natural disaster or event.

Bob Ferrari

 


Report of Apple iPhone 6 Supply Chain Scramble with Late Product Design Change

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Supply Chain Matters has featured previous commentaries reinforcing the critical dependence of product design and new product introduction (NPI) with supply chain network decision-making. We now have another real-world reminder of the challenge that many high tech and consumer products focused supply chains continually encounter in the constant dependency and alignment of NPI decisions with the external supply chain network.

Reuters, in an exclusive report, indicates that LCD suppliers for the pending Apple iPhone 6 product NPI launch have been scrambling to scale volume production, after a late product re-design disrupted supplier production plans. The Reuters report cites two supply chain sources as indicating that the backlight design of the LCD panel was supposed to feature a single layer instead of the standard two-layers of film. Apparently the new design was not bright enough to meet Apple’s product management expectations and was sent back to design to fit in the extra layer. That step is reported as “costing precious time and temporarily idling some screen assembly operations.”

While Reuters indicates that out is now back on track, suppliers Japan Display, LG Display and Sharp are working flat-out to make-up the lost time.

As noted in many prior reports, Apple is a task master in incorporating constant changes in product design up to the last minute.  This culture stems from the passion of Steve Jobs and his relentless pursuit of product perfection. However, Apple’s value-chain ecosystem and production volume requirements are far larger in scope.

An engineering or product-driven culture can certainly be an important factor in delighting customers.  However, when such design changes occur in a highly outsourced supplier network involved in the critical phase leading up to new product production ramp-up, information and assessment related to the implications of such product design changes is equally important. Apple has a unique culture, and the firm’s suppliers are well aware that the ability to scramble at the very last moment is an expected and required capability.

Dynamic tension among product design and supply chain teams is a normal occurrence. This latest takeaway for our community is that even one of the top-rated supply chains has its own challenges in synchronizing product design disruption in critical new product ramp-up phases. It is yet another reminder of the critical importance for taking a broader supply chain business network perspective in information integration, assessment and decision-making.

Bob Ferrari


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