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Despite initial concerns about the electronic reverse auction process, Casturn Director of Control Systems Miguel Haro decided that he was going to put all his weight behind the initiative and ensure that it succeeded, even if it was only to answer all the questions about how to run auctions. After a series of initial missteps, Haro began building a convincing business case for the auctions. A strategic mistake would erode any remaining support for auctions as a sourcing tool.

The president of Image Pipeline Services, a pipeline flushing and inspection firm, is taking a step back from the past few weeks, where he has spent virtually all his waking time working on his new business in Edmonton’s oil sands industry. A few months after starting his business, he controls virtually the entire market, but competitors will be encroaching soon. One competitor has offered to purchase his business and the president wants to weigh his options before agreeing to sell or continuing to compete.

A printer and paper converter produces customized packaging used by industrial customers to deliver promotional materials, software, luxury beverages, and gift food and candy. The company specializes in creating innovative packaging solutions for its customers and providing full service from design through final delivery. Even though revenue has tripled, performance has been declining and the firm posted its first loss in over 10 years. The new VP of Operations has been hired to address operational problems resulting in cost overruns, quality problems, and late deliveries. He tours key departments including quality control and sales and visits the various work centers in the plant as he investigates the challenges in the current production process. This case can be used in a first-year MBA-level course in Operations Management. Students are asked to create a process flow diagram and perform break-even, capacity, utilization, and yield analyses before making their final recommendations for improving the firm's performance.

Spreadsheet Supplement for Product #4420.

PRIDE Industries made a $2.6 million capital appropriation request to replace older electronics surface mount technology with newer and more capable machinery. PRIDE, a non-profit enterprise that hired workers with disabilities, wished to earn business and reputation based on the universal measures used by customers worldwide — price, quality and delivery — while maintaining its social mission. The proposal looked good on paper, and the company predicted that it was the only way to keep PRIDE’s current electronic manufacturing services customers happy as well as capture new business. One of the other important pieces of the capital expenditure analysis was to study trends in the manufacturing sector, especially evidence that manufacturing was returning to the United States from offshore. Yet, the investment represented a risk for PRIDE if the projected new business opportunities did not materialize.

This year, television service provider Oz TV's financial figures are troubling, despite steady demand. Is operational performance hurting financial performance? Oz customers rent a set-top box when they buy their programming package. Set-top boxes drive Oz's key performance indicator: utilization. Students examine Oz's box-return process in order to discover the link between financial performance and operational flow measures.

Material requirements planning (MRP) systems have been widely used by manufacturing firms to maintain an optimum flow of inputs for best production results. By using an MRP system, a firm can prepare a production plan that specifies the number of sub-assemblies that go into the final products along with the exact timeline of an order, from placement to completion. This case analyzes how Sunita Menon's adoption of an MRP system at A-CAT Corp. (A-CAT) has improved the production-planning process. To make one unit of A-CAT's main product, P0110, requires two P0X units and two P0Y units; in addition, each P0X unit needs two types of subparts: four P1X1 units and three P1X2 units. The case examines the intricacies of procurement, warehousing and processing costs of various material components by critically evaluating different techniques in practice. Using situational scenarios, the case presents lot-sizing techniques - including lot for lot, economic order quantity, least total cost and least unit cost - for balancing costs such as set-up costs, ordering costs and inventory-holding costs.

The magnitude 9.0 earthquake that struck Japan in March, 2011 caused extensive damage to Renesas Electronics wafer fabrication facility, a critical link in the global automotive supply chain. Many OEMs sole-sourced customized microprocessors from the fab so its shutdown forced the "Big Three" of Detroit and Japan to shutdown production as well. Data from two automotive customers in particular, allowing the instructor to look at issues of delayed differentiation, sole-sourcing decisions, and/or Renesas' market position as a producer of low-volume customized components, in the context of supply chain disaster recovery. The two OEM's had different strategies with respect to cross-utilization of components between product lines. Therefore, a simple numerical assignment will show students the power of delayed differentiation in components. The OEM with higher cross-utilization (lower customization of components between product lines) had more flexibility in which vehicles they stopped producing during the shortage. Similarly, students can look at the impact of delayed differentiation at the product level by looking at the production process within the fab itself. Here Renesas's customization causes early differentiation. Again numbers are provided to work examples. Finally, broader questions around the viability of Renesas's market position can be discussed. How should they respond to the disaster in the short term? How can they assure customers they can handle future disruptions differently? And from the OEMs' perspective, do they need to change their product design to allow for the incorporation of alternative parts? Such parts have downsides of their own. The findings in the two numerical examples can be used to drive this discussion, or a general strategy framework may be applied.

This is an MIT Sloan Management Review article. Companies that are able to radically change their entrenched ways of doing things and then reclaim leading positions in their industries are the exception rather than the rule. Even less common are companies able to anticipate a new set of requirements and mobilize the internal and external resources necessary to meet them. Few companies make the transformation from their old model to a new one willingly. Typically, they begin to search for a new way forward only when they are pushed. This raises two important questions for corporate managers: (1) Is decline inevitable? (2) Do companies really need a financial downturn to galvanize change, or can they adopt new ways of doing things when not under pressure? Management theorists have observed that decline, while perhaps not inevitable, is at least very likely after a period of time. For this reason, the authors argue, it's important for organizations to develop new dynamic capabilities deliberately rather than relying entirely on their historic capabilities. In their attempt to understand what makes for successful organizational transformations, the authors studied 215 of the United Kingdom's largest public companies. The article focuses on three companies that transformed themselves-Cadbury Schweppes in packaged goods, Tesco in grocery retail and Smith & Nephew in medical devices. It compares them with three other companies from similar industries that were also successful but hadn't been required to make a dramatic shift. The authors found that the companies that transformed themselves had three fundamental advantages over their peers. First, they were able to build alternative coalitions with management. Second, they were able to create a tradition of constructively challenging business as usual. And third, they were able to exploit "happy accidents"to make strategic changes. Together these advantages helped them establish a virtuous cycle of strategic transformation.

This is an MIT Sloan Management Review article.

It was the cold winter of 2010 in Shanghai, and Dr. Zeb Feng was becoming increasingly frustrated. As procurement director for Asia at British Petroleum (BP), Dr. Feng was acutely aware of the growing burden that quality control imposed over his company's global operations. Chinese suppliers were masters of cost-cutting, but quality often suffered as a result, which led in turn to increasing needs for inspection and development efforts. Almost five years ago, Dr. Feng's company established an international procurement office (IPO) in Shanghai, which served as a shared service centre for internal customers throughout the BP organization worldwide. Since that time, the IPO had been mainly sourcing non-hydrocarbon goods and services, such as manufacturing equipment and materials, packaging, catalysts, chemicals and additives, marketing products and retail equipment, as well as drilling services and well-completion services. After a corporate board meeting with Christina De Luca, the vice-president of procurement and supply-chain management for BP's downstream operations, it had been decided that the company would start to enhance its global competitive sourcing. As the number one supplier market in the world, China was naturally highly prioritized for further exploration. The pressing point that concerned Dr. Feng was whether Chinese suppliers were sufficiently ready to supply mission-critical supplies for oil drilling, extraction and refining. During a recent conference call, De Luca had reiterated, "Zeb, our competitors are way ahead of us in their sourcing operations, and they have achieved much lower costs. We've got to do something!" Dr. Feng put down the receiver and went back to his office to gather his team for a planning meeting. He knew that supply quality was the key issue, but how could it be resolved?

Nordea Bank has emerged as the largest financial group in the Nordic region. As part of their consolidated approach, Nordea top management has made the strategic decision to outsource a number of the company's peripheral activities, such as catering, security and cleaning, in order to focus more on the core business, banking. In Denmark, Finland and Sweden, the peripheral activities have been outsourced to one of the leading players in the facility management (FM) market, the global service provider ISS. The relationship between Nordea and ISS on delivering of facility services has a long history, but a new contract was successfully concluded by the end of 2010. Consequently, ISS was chosen as Nordea's FM partner and would continually be providing Nordea with a scope of supportive services across 20 locations in the Nordic region. From 2010 and onwards, a significant switch was made to an output-based focus in the contract, where it was the quality of the delivered services that were specified rather than how to achieve this level of quality, i.e. the input. The change into an output based contract was seen as a new beginning of the relationship that required significant changes on both sides in terms of mentality, organization of work, governance structures and, not least, adjustments of expectations. Both the view of the customer (Nordea) and the supplier (ISS) are presented and contrasted in the case.The case examines the financial, organizational and managerial challenges met by an international company outsourcing peripheral activities to a global facility service provider. Many of the tensions related to the collaboration and the different aims of the two companies are illustrated in the case, and so is the mutual learning and building of trust in the relationship.

In the winter of 2010 in Shanghai, Dr. Zeb Feng, procurement director for Asia at British Petroleum (BP), was acutely aware of the growing burden that quality control imposed over his company’s global operations. Chinese suppliers were masters of cost-cutting, but quality often suffered as a result, which led in turn to an increased need for inspection and development efforts. Almost five years ago, Feng’s company had established an international procurement office (IPO) in Shanghai, which served as a shared service centre for internal customers throughout BP worldwide. Since that time, the IPO had been mainly sourcing non-hydrocarbon goods and services. <br><br><br><br>After a corporate board meeting with Christina De Luca, the vice president of procurement and supply chain management for BP’s downstream operations, it had been decided that the company would start to enhance its global competitive sourcing. As the number-one supplier market in the world, China was a high priority for further oil exploration. The pressing point that concerned Feng was whether Chinese suppliers were sufficiently ready to supply mission-critical supplies for oil drilling, extraction, and refining. During a recent conference call, De Luca had reiterated, “Zeb, our competitors are way ahead of us in their sourcing operations, and they have achieved much lower costs. We’ve got to do something!” Feng had to gather his team for a planning meeting. He knew that supply quality was the key issue, but how could it be resolved?

In May 2009, High-Tech Metal Components (HTMC) inaugurated its brand new production plant of forgings and castings for automotive supplies in Suzhou, a city of 13 million close to Shanghai, China. After the successful installation of machinery and placement of workers, the company was prepared to begin production. A month later, the general manager of the Chinese division of HTMC received a phone call from the chief operating officer of its German headquarters; it was decided that it was necessary to cut costs for 2009 by more than five per cent. The cost structure was way too high, with many components imported from Europe. How could cost-cutting be done with the existing supply chain design in China? What long-term measures could be taken to realize the goal?

Protagonist leads an apple industry association that hopes to develop a market for New England apple slices to improve demand for apple products. Apples grown for slicing have characteristics that differ from most apples grown in New England. Case allows students to examine whether it makes sense for a farmer to begin to grow apples for slicing. The case also describes the distribution of apples and apple products so that students can examine how a market for sliced apples might get developed and which industry participants might enjoy a position of power in the market.

The director of warehousing and logistics at Volkswagen Group Canada (VGCA) had been tasked with analyzing the capacity of the Toronto parts distribution center to support an aggressive growth plan that involved a series of new product launches and product facelifts. Expecting that expansion of the facility would be necessary, the director needed to establish the additional warehouse capacity required, when it would be needed by and which expansion option made the most sense.

Mobile C.A.R.E. Foundation is a Chicago-based nonprofit that provides chronic asthma care to inner-city public school students using a community outreach model. The organization faces a lot of uncertainty in future funding, and executive director Steve Samuelson wants to undertake an operational improvement drive. Samuelson now faces the challenge of deciding which operational metrics most closely correlate with the organization's mission metrics and also have the usual desirable properties of process measures: actionable, real-time, and disaggregate.

Too many U.S. companies base decisions about where to locate production largely on narrow financial criteria. They don't consider whether keeping manufacturing at home makes more sense strategically or take into account the impact it might have on their ability to innovate. The result has been an exodus of manufacturing from America, which has weakened the capabilities that domestic firms need to keep inventing high-quality, cost-competitive products. One problem is that it's hard to tell when moving production far from R&D will do damage. To make that determination, say Harvard Business School's Pisano and Shih, executives need to examine two things. The first is modularity, or the degree to which product design can be separated from manufacturing. When modularity is low, product designs can't be clearly specified and design choices affect manufacturing processes in subtle, difficult-to-predict ways (and vice versa). The second is the maturity of the manufacturing process. Immature processes are ripe for innovation, but over time opportunities for improvement become incremental. Viewed through the modularity-maturity lens, relationships between manufacturing and innovation fall into four quadrants: pure product innovation, pure process innovation, process-embedded innovation, and process-driven innovation. In the first two quadrants, locating design near production isn't critical, but separating the two functions is risky in the third and fourth quadrants. This framework will help business leaders make better sourcing decisions and reinvigorate America's innovation-driven economy.

Incoherent U.S. energy and climate policies have cast a pall over the entire economy and are putting U.S. companies at a serious global disadvantage. The authors offer 10 prescriptions for reforms, two of which they describe in detail. First, they argue that the U.S. should impose a gradually increasing carbon charge; this would help internalize environmental costs, drive investment in energy efficiency, encourage innovation in renewable power, and raise substantial revenues that could reduce the national debt. Second, they say, the government should curb or redirect unwise energy subsidies and increase funding for clean-energy R&D. Environmental stewardship need not be an economic burden, they emphasize; on the contrary, investing in sustainability can enhance corporate and national competitiveness.

Jamie Bailey, owner and president of C. R. Plastics, had successfully grown his business every year since 1994 when he began producing recycled plastic outdoor furniture. This rapid growth had provided its own challenges in terms of constrained financing and by summer 2010, Bailey was desperate for a new source of cash. He subsequently auditioned to be on Dragon’s Den, a television show where entrepreneurs could pitch their business to a group of venture capitalists, who could then choose to invest their own cash in exchange for a share of the business. With a week remaining before he had to present his final pitch, Bailey had to make a difficult prediction: How much money would he need to meet the growing demand into 2011? Complicating his analysis were competing proposals to fundamentally change how production was managed. In addition to reconfiguring labour allocation, one method required significant investment in equipment, while the other increased inventory during the off-season. Which alternative would allow the company to retain a greater share of the equity when Bailey pitched his business to the Dragon’s Den panel?