Knowledge@Wharton -- Operations Management

The Lean Evolution: From Factory Floor to Service Centers -- and Beyond

Wed, 11 Nov 2009 13:33:29 EST

Toyota's legendary lean production system emerged after World War II and transformed the auto industry. Since then, lean principles have moved into every area of an organization and every industry. One Wharton professor remembers trying to talk with hospitals about lean initiatives several years ago. "They thought I was evil. They said, 'We're doctors. We help people. We are not Toyota!' Now these same institutions have chief medical officers saying, 'We want to run this place like Toyota!'"

Pay for What You Get: Putting Performance-based Contracting to the Test

Wed, 14 Oct 2009 15:33:51 EST

Every company wants to improve the efficiency and cost-effectiveness of its supply chain, but what's the best way? Since 2004, the United States Defense Department has required its suppliers to adopt performance-based contracting so that it pays them a fee based on the amount of time big-ticket items like F-22 fighter jets are in use without requiring repairs. But is that better value than more traditional contracts that charge customers for time and materials when products break down? According to a new study co-authored by Wharton researchers, the answer is yes.

Rethinking the Long Tail Theory: How to Define 'Hits' and 'Niches'

Wed, 16 Sep 2009 16:45:37 EST

The Long Tail theory suggests that the Internet drives demand away from hit products with mass appeal, and directs that demand to more obscure niche offerings. Yet a new research paper by Wharton professor Serguei Netessine and doctoral student Tom F. Tan challenges that theory using data from the movie rental company Netflix.

The Economic Incentives of the 'Store-within-a-Store' Retail Model

Wed, 02 Sep 2009 16:37:02 EST

The sign above the entrance may say Macy's, Nordstrom or Neiman Marcus, but the salespeople at the cosmetics counters inside do not work for the store at all. Instead, they are employed by brand name cosmetics manufacturers which lease space from the marquee retailers. In an arrangement that is common in stores across Asia and in other parts of the world, U.S. department store retailers often cede the cosmetics category to branded manufacturers in return for fees paid to occupy prime retail real estate. New Wharton research looks into the dynamics of this model.

Raising the Bar: Can China Meet the Quality Challenge?

Wed, 03 Jun 2009 16:43:40 EST

After being stung by consumer backlash and stiffer penalties for piracy, counterfeiting and contamination, China is working hard to overcome its reputation for poor quality. Many experts see quality issues as the simple growing pains of an accelerating economy. After all, China already makes high-quality products such as iPods. The challenge today for foreign partners: How to set and enforce effective quality benchmarks.

Chinese Manufacturing in an Age of Resource Price Volatility

Wed, 03 Jun 2009 16:43:34 EST

China is slowly moving away from energy subsidy policies that hold down prices -- especially for industry. Those subsidies protected exporters from devastation when energy prices shot up to record-setting levels in 2008 and helped to keep social unrest somewhat under wraps. No one knows for sure how far China will go in reducing energy subsidies for business in the future, but China could use subsidy policies as a tool in pushing particular industries away from low-value exports that generate a lot of waste to higher-value goods that produce less waste.

Is This Madness? How Losing by Just a Little Can Help a Team -- or Company -- Win

Wed, 18 Mar 2009 16:34:51 EST

Pay attention to the first-half scores in the early rounds of the NCAA basketball tournament, which began yesterday with 64 college teams vying for the National Collegiate Athletic Association championship. According to recent research by a pair of Wharton professors, teams that trail by a little at the half actually have a better chance of winning the game than the squad in the lead. The findings, they say, apply to the business world, too.

The Race for Energy: What Will It Mean for Western Firms?

Mon, 22 Sep 2008 16:33:05 EST

Rising energy demand from China and India has unleashed a worldwide race to secure access to scarce fossil fuel resources, a more difficult proposition with the emergence of national oil companies in the resource-owning countries. While Western companies will likely feel the pain of increasing energy costs, there is a potential upside to global energy scarcity, according to experts from Wharton and The Boston Consulting Group: Renewable and nuclear energy present huge opportunities for investors and entrepreneurs.

Procurement -- Performance-based Logistics

Mon, 14 Jul 2008 11:13:41 EST

These days, when the U.S. Department of Defense buys a fighter jet from Lockheed Martin, it doesn't simply pay Lockheed for the physical product. Instead, the government has a "performance-based contract" with the defense supplier, according to Serguei Netessine, professor of operations and information management at Wharton. This contract says, in effect, that the government's reimbursement to Lockheed hinges on the jets' performance -- that is, how often the planes are able to fly. In this interview, Netessine describes how performance-based contracts are becoming more common in a variety of industries.

Procurement -- Managing Commodity Risk

Mon, 07 Jul 2008 12:59:43 EST

Managing commodity risk has emerged as a key issue in today's economy. Consider airlines, which have seen fuel costs rise seven-fold over the last few years, says Bob Tevelson, a partner and managing director at BCG. In this interview, Tevelson says commodity risks are associated with both price volatility and supply availability. More and more companies may wish to turn to hedging strategies to manage commodity risk, he notes, but such strategies can pose risks themselves unless they are properly implemented.

Procurement -- Subcontracting and Product Quality in China

Mon, 30 Jun 2008 10:23:30 EST

Marshall W. Meyer, professor of management at Wharton, has made many trips to China to research the rapid growth of its economy and the successes and difficulties it has had in growing so quickly. In this interview, Meyer discusses the recent controversy surrounding China's exports of substandard toys and pharmaceuticals to the United States, and the implications for supply-chain management.

Procurement -- China Sourcing

Mon, 23 Jun 2008 14:27:36 EST

Multinational corporations have been sourcing from China for years, but that doesn't mean that all the questions have been answered about how to engage in procurement activities in the world's fastest-growing economy. In this interview, David Lee, a partner and managing director at BCG, says that plenty of challenges remain. Among them: finding good suppliers that offer products at relatively low costs, and being willing and able to outsource a sufficient volume of one's business to Chinese suppliers.

Procurement -- Customer-Supplier Relationships

Mon, 16 Jun 2008 12:21:09 EST

In the never-ending quest for cost savings, many companies have reduced the number of suppliers they use, consolidated their purchases, and negotiated better prices. So, where can chief procurement officers and other managers now turn for savings? In this interview, Bob Tevelson, a BCG partner and managing director, says firms must segment suppliers to identify those that can deliver what he calls "partnership value" by establishing relationships that move beyond the transactional level.

Procurement -- Global Supply Chain Strategy

Mon, 09 Jun 2008 14:00:56 EST

Marshall L. Fisher, director of Wharton's Fishman-Davidson Center for Service and Operations Management, has been researching issues related to retail supply chain strategy for many years. In this interview, Fisher highlights some of the challenges facing global procurement, and he discusses the example of Luen Thai, a Chinese company that built a giant "supply-chain city," becoming a one-stop shop for clothing manufacturers looking to outsource to low-cost producers.

Procurement -- Challenges Facing Procurement Organizations

Mon, 02 Jun 2008 10:01:11 EST

Procurement has become an integral part of corporate performance and is drawing increased attention from senior management. In this interview, Andreas Gocke, a BCG partner and managing director, spoke with Knowledge@Wharton about the most critical challenges facing procurement organizations over the next five to 10 years, including training and employee development, managing global sourcing offices and ensuring collaboration across corporate departments.

Procurement -- The Strategic Perspective

Wed, 28 May 2008 17:09:26 EST

Procurement has taken on greater strategic importance in multinational companies in recent years -- and it will assume even greater significance in the years to come, according to Hal Sirkin, senior partner and managing director at The Boston Consulting Group and global leader of BCG's operations practice. In an interview with Knowledge@Wharton, Sirkin discusses procurement in the context of global business, and the ways in which companies from rapidly developing economies are challenging traditional multinationals.

What Does It Take to Compete in a Flat World?

Wed, 31 Oct 2007 13:49:19 EST

When Thomas Friedman wrote his popular book, The World Is Flat, one of its central arguments was that geography might soon become history. The proliferation of information technology and telecommunications networks has integrated the world in ways that were unimaginable in the past -- and this has transformed how companies produce and distribute products and services. One result of this transformation is the rise of networks of companies that are bound together through IT and logistics. How can firms strive for and gain competitive advantage in such an environment? Victor and William Fung, group chairman and managing director of Hong Kong-based Li & Fung, and Yoram (Jerry) Wind, a professor of marketing at Wharton, deal with this issue in their new book, Competing in a Flat World: Building Enterprises for a Borderless World. They recently spoke with Knowledge@Wharton.

Out of Stock? It Might Be Your Employee Payroll -- Not Your Supply Chain -- That's to Blame

Wed, 04 Apr 2007 15:13:23 EST

Attention, shoppers: Did you find everything you were looking for? Retail customers who answer "yes" to this question might very well represent the Holy Grail to retail operators who want to increase their sales with only a modest increase in costs or, in some cases, increase sales by merely reallocating staff within a store at no extra cost. Impossible? Not according to a new study on retail store execution by Wharton operations and information management professors Marshall L. Fisher and Serguei Netessine, and Wharton doctoral student Jayanth Krishnan.

'Power by the Hour': Can Paying Only for Performance Redefine How Products Are Sold and Serviced?

Wed, 21 Feb 2007 14:55:13 EST

Imagine paying for your car only when it works. Or your television. Or even your high-end toaster. That might sound far-fetched, but it could be the future model for purchases requiring service over time. According to research by two Wharton professors of operations and information management, Morris Cohen and Serguei Netessine, and doctoral student Sang-Hyun Kim, this new approach to service supply chains is already reshaping customer-supplier relationships in defense and aerospace contracting under the name "Performance-based Logistics" (PBL). It could have implications for certain retail sectors as well.

A Tale of Two Sectors: What Can Indian Telecom Firms Teach the Power Industry about Reforms?

Thu, 15 Feb 2007 15:24:51 EST

In India, the road to better infrastructure has been bumpy so far: While sectors like telecom have boomed and transformed the business landscape seemingly overnight, others, such as energy, have been highly visible failures. According to experts at Boston Consulting Group and Wharton, the failure of power sector reforms and the success of the telecom industry underscore the importance of foreign investment and competition in India's infrastructure upgrade. In a related sidebar, these experts discuss what's next on India's infrastructure agenda.