Improving the milk supply chain

June 30, 2008

Do you think the milk supply chain has been optimized? Think again! Deliverying milk is an old business, but apparently there is still room for some kaizen. WalMart has redesign the milk jug to be made of cardboard and with a rectangular shape. Rectangular means they stack on top of each other, thereby eliminating the cost of milk crates, the cost to clean them, the space they occupy and the weight they contain. They claim that these features allow them to reduce the number of deliveries to each store per week – from 5 to 2 – but I don’t think they fully explain why nor do I think such a reduction is due entirely to this redesign.

Milk is a dense item, so I suspect trucks “weigh out” before they “cube out”, i.e., the amount of milk a truck can carry is constrained by the weight of the load rather than the volume of the load. Hence, saving on volume doesn’t allow you to transport more milk. Therefore, the extra capacity per truck must be from the reduced weight of not having to carry milk crates. But to reduce the number of trips per week from 5 to 2 requires a 5/2 = 250% increase in carrying capacity per truck, which doesn’t seem realistic. Note, this assumes total demand at the store is assumed to remain constant and trucks make dedicated deliveries to stores. It is the latter assumption that may be the source of the discrepancy. Suppose before the change each truck delivered to 5 stores and each store sold the equivalent of one truckload per week. Because each store receives 1/5 of a truck per delivery, it needs 5 deliveries. Now change the routing so that each truck delivers to only 2 stores per trip, but keep the truck capacity constant. Now the store needs only 2 deliveries per week. Hence, a reduction from 5 deliveries to 2 probably only could happen if they change their routing given that a 250% increase in capacity is unlikely. Although the new milk containers increase capacity per truck, and this reduces costs, it does not reduce the total number of needed deliveries by 40%. If we could figure out how to do that, then we would really save a lot of fuel.

NY Times 6/30/2008 – Solution, or Mess? A Milk Jug for a Green Earth


Steve & Barry’s Cheap-Chic

June 26, 2008

If you don’t know Steve & Barry’s, you should – they sell fashionable celebrity-branded clothes at prices that are absurdly inexpensive.  They will often undercut WalMart by half! And their quality is apparently good too. How do they do it? Manufacture in low labor cost countries (but others do that). Don’t advertise (that is different for a fashion retailer). Locate in underperforming malls (definitely not the Zara strategy). And an obsession with coping with razor thin profit margins. Unfortunately, the article doesn’t describe more of their operations, but they provide a nice compare and contrast with other cheap-chic purveyors, like Zara.


NY Times, May 1, 2008, TIGHTENING THE BELT, Is This the World’s Cheapest Dress



Cutting capacity when demand slows

June 23, 2008

June 24, 2008: GM Offers Incentives to Clear Backlog

It is no surprise that GM has too many large vehicles that are far less popular than they use to be given the current situation with fuel prices. Unfortunately, capacity is not very flexible in the auto industry. Nevertheless, they need to find ways to cut back on production.  This article suggests GM will  “…reduce shifts, reduce assembly line speeds and temporarily idle seven factories.”  Reducing assembly line speed will reduce capacity in smaller increments than reducing an entire shift, but it is an odd option because it introduces a change to the production process.  An alternative would be to operate at the same speed but only for a portion of a shift.


Revenue management at Amtrak

June 23, 2008

The rise in fuel prices is sending passengers to Amtrak and Amtrak is using “airline-style yield management” to increase revenue…