Jan Husdal

Logistics is all around us

Posted by Jan Husdal Aug 28, 2011

Watching Irene hammering down on the US East Coast from a safe distance and the comfort of my couch and my TV tuned to CNN, I became aware of another CNN program: The Gateway.

 

Hosted by news anchor Becky Anderson, the CNN Gateway is a series that goes behind the scenes of the world's major transport hubs, revealing the logistics that keep goods and people moving. We may not always give it much thought, but supply chains are all around us, and logistics is what makes the world tick. Our global world would not be possible without these hubs, the technology they emply and the people who work there.

Ever wondered how long it takes from the time a rose grower cuts the stem in Kenya to when it hits the stalls at your local florist? Or how cocoa from West Africa ends up in Hamburg's port warehouses, ready for distribution to Europe's chocolate makers? The Gateway reveals all.

While "reveals" may seem like a promotional exaggeration, after watching the videos I cannot stop marvelling at how logistics and supply chains pervade almost every spot in our modern world, and how what we take for granted as we go about our business would not be possible without some fairly advanced background orchestration.

 

Even if you consider yourself fairly knowledgable in logistics and supply chain management, I bet there are still new things to learn from watching this series, and here are some of the highlights:

 

The Aalsmeer flower market is the world's largest flower auction and where 60% of the worlds flowers on a daily basis, much of this flown in from Kenya and South America, making Amsterdam Schiphol airport an important hub for flowers coming into Europe.

It's quite impressive to watch the video and to see the sheer size of the premises, let the alone the array of several hundred traders buying their share of flowers with the push of a button.

 

The Maschen railyard outside Hamburg is Europe's largest rail marshalling yard, and perhaps Europe's most important transport hub for rail containers, processing some 3500 waggons or 150 trains up 700 metres long..each and every day.

Goods containers arrive at Hamburgh port, Europe's second largest container port, are unloaded from the ships and transported 10kms to Maschen, where an army of some 800 people makes sure that every container is loaded onto the right train for its next destination.

 

Interestingly, Hamburg has changed from being an import hub to being an export hub, with China today being the EU's second biggest export market, usurping the likes of Japan and Russia and biting at the heels of the United States -- for decades Europe's biggest customer. Apparently, Germany -- whose total exports to developing Asia recently overtook those to the U.S. -- has been much more successful at adapting to a world where "there will no longer be a single pole of attraction, but multiple poles."

 

A couple of reports are centered on Vladivostok, Russia's major Pacific port and gateway to Asia, where Tokyo Bejing and Hong Kong are closer in reach than farway Moscow. For sure, Vladivostok is Russia's commercial capital, situated as it is at the crossroads of international shipping corridors and only a two-hour drive away from China, imports from China are booming. Unsurprisingly there are perhaps more cars with their steering wheel on the right (i.e. Asia-imported cars) than cars with their steering wheel on the left (i.e. Europe-imported cars).

 

While I cannot present all the videos, I do recommend you to follow the link and to watch every one on the official Gateway site. It's good stuff and full of hands-on knowledge every supply chain professional can and should learn from.

 

Link

cnn.com: The Gateway

Are bad management theories are destroying good management practice, and are business schools to blame? While reviewing a recent article by Fawcett and Waller (2011) in the Journal of Business Logistics on how a different (better) theory is needed to produce richer explanations and practical applications in supply chain research, I came across another interesting article by the late Sumantra Ghoshal (1948-2004), one of business academia's finest thinkers.

 

In what was perhaps his last paper before his all too sudden death, he blamed business schools for the demise and corruption of good business ethics, because it is obviously scientifically easier to teach shareholder value maximization at the expense of everything else than to argue for (let alone calculate the value of) corporate social responsibility as a driving force in business and supply chain management.

Obsessed as they are with the "real world" and sceptical as most of them are of all theories, managers are no exception to the intellectual slavery of the "practical man" to which Keynes referred.

According to Fawcett and Waller, "people too often perceive theory (and academic business research) as cryptic, enigmatic, impenetrable, or unfathomable—that is, something beyond the interest and comprehension of the typical decision maker. More often than not, theory is often confused with mere conjecture, hypothesis, presumption, or speculation—perhaps not worthy of serious, thoughtful consideration in the real world".

 

No wonder then, that managers prefer practice over theory, and this is perhaps also the reason, so Ghoshal, why many business schools are more influenced by pragmatic ideology than actually founded on sound theory:

In courses on corporate governance grounded in agency theory we have taught our students that managers cannot be trusted to do their jobs - which, of course, is to maximize shareholder value - and that to overcome "agency problems", managers' interests and incentives must be aligned with those of the shareholders by, for example, making stock options a significant part of their pay.

 

In courses on organization design, grounded in transaction cost economics, we have preached the need for tight monitoring and control of people to prevent "opportunistic behavior".

 

In strategy courses we have presented the "five forces" framework to suggest that companies must compete not only with their competitors, but also with their suppliers, customers, employees and regulators.

 

MBA students are not alone in having learned, for decades, these theories of management. Thousands of executives who have attended business courses have learned the same lessons, although the actual theories were not presented to them so directly. Even those who never attended a business school have learned to think in these ways, because these theories have been in the air, legitimizing some actions, delegitimizing others, and generally shaping the intellectual and normative order withing which all day-to-day decisions are made.

 

Indeed, the picture he draws is not very uplifting, because whatever we (managers) think, it is all based on negative assumptions, which in the end, naturally enough, do nothing else but reinforcethemselves and our already tainted view of the world:

 

ghoshal-bad-management-practices.jpg

Ghoshal puts it quite harshly when he says that

academic research related to the conduct of business has had some very significant and negative influences on the practice of management. These influences have been less at the level of adoption of a particular theory and more at the incorporation, within the worldview of managers, of a set of ideas and assumptions that have come to dominate much of management research [...] By propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility.

and he is particularly hostile towards Milton Friedman for his postulation that "Few trends could so throughly undermine the very foundation of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money as possible for their stockholders." Infact, Ghoshal questions the very basis for this assertion, and I am inclined to side with Ghoshal on this matter, as this post on corporate social responsibility on my other blog will tell you more about.

 

Ghoshal contends that we only have ourselves to blame:

Combine agency theory with transactions costs economics, add in standard versions of game theory and and negotiations, and the picture of the manager that emerges is one that is now very familiar in practice: the ruthlessly hard-driving, strictly top-down, command-and-control-focused, shareholder-value-obsessed, win-at-any-cost business leader.

Essentially then, if I follow Ghoshal's train of thought, we have fallen victim to our own theories, perhaps incapable of acknowledging any other reality, i.e. theory, where - in Ghoshal's own words - companies actually survive and prosper when they simultaneously pay attention to the interest of customers, employees, shareholders, and perhaps even the communities in which they operate.

 

Luckily, and what bodes well for the future, some academics are in fact beginning to see business management in this light. Unfortunately, they are up against the mighty enemy of mainstream economics which is not yet ready to accept such new ideas. Is it going to change? I hope so.

 

While Ghoshal's article is well written and not difficult to read, it is not easy to fully understand without a solid academic background. That said, it is perhaps the best argument I have come across for sustainable management practices, and I am inspired to include more sustainability related articles on my blog. It really is a loss to the advancement of business that Ghoshal isn't among us anymore, so he cannot continue to sow more of his seeds among researchers. He would have found fertile ground in me for sure.

 

Reference:

Ghoshal, S. (2005). Bad Management Theories are Destroying Good Management Practices. Academy of Management Review 4(1):75–91.

Jan Husdal

Diaper wars at home

Posted by Jan Husdal Aug 7, 2011

Sadly, there hasn' been much time to participate in this community recently, but gladly the reason has been my two-month old baby daughter, who every day teaches me the value of supply and demand.

 

The problem with babies is that they are unable to communicate and voice their demand clearly, and it's impossible for me or my spouse to know which supply that is required to satisfy the demand, that as already mentioned, isn't even clearly articulated. Currently, any discomfort or crying could mean anything. So here we go...Milk? No. Holding? No. Holding while walking? No. Diaper change? No. Stomach pain? No. Eventually, and not necessarily in that order, demand is met and the baby is soothed, at least for the next half hour or so. Luckily, in real life, matching supply with demand is somewhat easier.

 

Regardless of my current time contraints, and in total disregard of a two-month backlog of unsatisfied sleep demand, I just finished reviewing Designing and managing the Supply Chain by David Simchi-Levi, Philip Kamisky and Edith Simchi-Levi. Despite being 4 years old and in its third edition, with a fourth coming soon, this  500+ page volume seems to contain everything I ever needed to know and perhaps more than I ever wanted to know about how-to everything in supply chains.

 

One chapter in the book is devoted to the so-called bullwhip effect, a term made popular, among others, by Hau Lee et al. in their 1997 article in the MIT Sloan Management Review, citing the discovery that Procter & Gamble made when analyzing how diaper demand reverberated up the supply chain from the store to their manufacturing units and suppliers.

Not long ago, logistics executives at Procter & Gamble (P&G) examined the order patterns for one of their best-selling products, Pampers. Its sales at retail stores were fluctuating, but the variabilities were certainly not excessive. However, as they examined the distributors’ orders, the executives were surprised by the degree of variability. When they looked at P&G’s orders of materials to their suppliers, such as 3M, they discovered that the swings were even greater. At first glance, the variabilities did not make sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variabilities in the supply chain were amplified as they moved up the supply chain. P&G called this phenomenon the “bullwhip” effect.

 

What puzzles me is the statement that "babies consume diapers at a steady rate". True as that may be, why then is there no standard size for the different diaper size packages? Size #1 has 35 pieces, size #2 has 39 pieces, a jumbo 2-in-1 #2 may have 44 in each package, size #3 has 32 and so on. If I switch brands get another range of package sizes. So even though the consumption may be steady, my inventory level cannot be filled at a steady rate, meaning that as the baby grows older I have to buy diapers at a changing rate, simply because the package sizes vary. Perhaps I should invest in some inventory software?

 

Adding to the confusion, different stores will have different prices, and different loyalty programs and sales campaigns, buy one get one, or buy three get one, and so on, and since I, the price-conscious parent, like to have a unit price for comparison, I find myself spending to much time in front of the diaper shelves comparing and deciding which brand/package that offers most value for money. Luckily there are only two diaper brands in Norway, Libero and Pampers, besides the no-name generic brands, but still, it takes time. Perhaps I should hire a procurement specialist?

 

Perhaps it is a result of some sort of "smart pricing" scheme, a topic that is also covered by the above book. Purposely confusing the consumers so they don't know what to buy and hopefully choose the package with the biggest profit margin?

 

Anyways, this brings to mind another smart pricing issue: Decreasing size and increasing price. You know, you may have noticed how your favorite chocolate bar sheds a few grams now and then, while the price stays the same, or perhaps even increases? In fact, the actual retail price increase that this weight reduction represents, is often much more than the increase in production cost the factory has had, and why is it that bite-size chocolate costs far more per gram than the giant jumbo plates? It can't cost that much more to manufacture the small bags...but that's another story for another post for another day.

Filter Blog

By date:
By tag: