Tuesday, June 24, 2014

Diageo, Celebrating Life, Everyday, Everywhere

Diageo, Celebrating Life, Everyday, Everywhere

 By Juntong Lu and Jon Drury


Diageo is an alcohol beverage company that is headquartered in London, England. It is the largest producer of spirits and sells its wide array of products in over 180 countries worldwide.  Their most notable brands contain Smirnoff vodka, Johnnie Walker whiskey, Bailey’s Irish liqueur, Jose Cuervo tequila, and Guinness stout.

Because Diageo is so immense in size and due to the specific nature of their product, they must source their materials from approximately 30,000 businesses through varying supplier relationships. The relationships with these suppliers are hugely important, because effective logistics and distribution at the local and regional level is the key in the drinks industry.  By using and cultivating these mutually beneficial relationships, Diageo effectively employs the CPFR model, and thus, is able to achieve success within its supply chain.  Additionally, Diageo has pledged to actively manage the moral and social risks within its local supply chain communities through a 4-step process laid out on their website, which includes continuous reviews and audits of its suppliers.  More recently, Diageo has revamped its supply chain strategies in an effort to more effectively take advantage of the available data in information streams in hopes that it “will play a more integral role in how the company plans to enter new markets faster and more efficiently” by improving “overall oversight and visibility” (Diageo).  Looking at their customers, Diageo actively seeks the reviews of its customers in an effort to maintain the best possible service and increase their customers’ returns.  In all aspects of their multidimensional supply chain, Diageo places a heavy emphasis on community, environmental, and ethical responsibility.

Although the company was just founded in 1997, Diageo has experienced a rapid growth and now become the leader of the drinks industry. People trust one of the main reasons why it can have such a booming development within only 17 years is because the company has a very efficient management team, which they called the "Operational Excellence Team". The management team’s responsibility is to develop the four core supply chain processes --- ‘Plan’, ‘Make’, ‘Move’ and ‘Technical’. In each area, the management team will try to draws on both external and internal practices and find out the best standards to follow in that market. The team’s director, Gerry O’Hagan has said that “the Operational Excellence Team is just like the glue to hold the strategy and performance improvement processes for the supply chain whole” (O’Hagan). As the company goes from a regional corporate to a global organization, Diageo is always trying to establish a capability development program to enable its managers to understand the possibilities of outstanding and efficient supply chain management, and helping them understand the governance requirements.

With the rapid expansion over these years, Diageo indeed meets some threats. One of them is the sustainable development problem. As a global enterprise, Diageo believes that the main threat for a company is the violation of the balance of the social ethics and company profits. Because of this, Diageo has focused on establishing a structure to monitor these risks and work with suppliers to mitigate the influence. Diageo has set up a global framework to process the raw material sourcing. It has also created a sustainable agricultural sourcing guideline to managing particular supply chains more effectively. It aims to contribute to the economic sustainability of local communities with a policy of sourcing ingredients from local farmers. Diageo has spread throughout over 180 different countries in the last decade, and the growing demand in these emerging economies has caused Diageo to rebuild their production and distribution networks. As a precautionary, Diageo has regionalized its supply chain into several large districts to help companies reduce the costs for the impact of disruptive events such as war, earthquake, hurricane and tsunami. If something happens suddenly, those affected areas can be served temporarily by supply chains in neighboring regions and the company's market share will not be affected.



References:
http://en.wikipedia.org/wiki/Diageo
http://www.youtube.com/watch?v=tn0RRhoZsnw
http://www.diageo.com/en-us/csr/valuechain/Pages/suppliers.aspx
http://sloanreview.mit.edu/article/reducing-the-risk-of-supply-chain-disruptions/
http://www.logisticsmanager.com/Articles/21560/Diageo+moves+supply+chain+closer+to+the+customer.html
http://info.lightwellinc.com/blog/bid/145795/Diageo-plans-supply-chain-visibility-and-reporting-enhancements
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Texas Instruments, Engineering the World

Texas Instruments, Engineering the World
By Anthony Edgecomb and Zhenfei Wu

Originally an Dallas based oil company from 1930-1951, Geophysical Service Inc. invented the reflection seismograph, giving way to a growing manufacturing, research and development sector. To get out from under a name that seemed to restrict the brand to geophysics, the manufacturing and R&D sector became Texas Instruments Inc. (TI) in 1951, founded by Eugene McDermott, Cecil H. Green, J. Erik Jonsson, and Patrick E. Haggerty. In 1958 employee Jack Kilby invented the first integrated circuit – revolutionizing the electronics industry (Texas Instruments Timeline). For the discovery, Kilby won the Nobel Prize in Physics, National Medal of Science, and National Medal in Technology. The industry skyrocketed from $24 billion to $1,175 billion over a span of 40 years.
Today the name is most recognizable to the public as an education technology firm developing calculators and portable learning aids. However, in the manufacturing world the name is synonymous with electronics innovation. TI manufactures over 100,000 products including 10 billion semiconductors each year which are used in an extensive range of devices from wireless phones and gps-watches to cars and computers (TI Innovation). Although in past decades a majority of the company’s electronics chips have been used in computers, in recent years, distribution has been nearly 50% in communication devices while only 30% have been allocated to computers.
The nature of the electronics and technology industries pose some threats to TI. Inventory is a high risk investment in these industries due to the turnover of new products. To reduce the risk of inventory obsolescence, TI maintains inventory levels that would only satisfy 90 days of demand. This low level of safety stock contains its own set of risks. TI’s early semiconductors were produced in a fabrication facility, assembled, tested, and packaged in a second facility, then shipped to their end user. It was a simple process. As the products have evolved the process has gotten exceedingly more complex, often utilizing four to six facilities. According to CSCMP’s Supply Chain Quarterly, there is an eight month lead time from sourcing materials to getting the product to the end user (Delivering the Goods). With an eight month lead time 90 days of inventory leaves very little margin for error, so TI uses a tool called CETRAQ to measure and compare suppliers. CETRAQ is a scorecard that measures: cost, environmental, technology, responsiveness, assurance of supply, and quality. For the past fourteen years, TI has seen great success using CETRAQ to evaluate suppliers every six months to reduce risk to their supply chain (How TI uses CETRAQ).
Managing risk is not the only thing that differentiates Texas Instruments’ supply chain from the competitors. TI also wins with distribution. With more than 3,000 customers worldwide, TI uses a distribution network that connects four main regional distribution hubs to 70 small hubs. While TI owns these distribution centers, they hire specialized third-party logistics providers (3PLS) to manage and operate them. Some product does not move through the DCs, however. A smaller portion of goods are shipped directly from factories to customers or to a warehouse near customers’ factories as consignment.

References:
http://www.industryweek.com/leadership/texas-instruments-tackles-supplier-risk-widens-analog-market-share
http://www.supplychainquarterly.com/topics/Global/scq200801texas/
http://www.ti.com/corp/docs/company/history/timeline/popup.htm
http://www.ti.com/corp/docs/company/company_whoweare.shtml
http://youtu.be/5CvzXkdITOo


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Dow Chemical Company - The Supply Chain of the Human Element



By Adam Kundinger & Brady Lehman
Dow Chemical Company is a leader in the innovation and manufacturing of different chemical products to be used as raw materials by other companies. Dow’s chemicals serve many different sectors including packaging, electronics, water, coatings and agriculture. As far as size, Dow serves customers in 180 different countries and is located in 36 different countries. It employees 53,000 people and had 2013 sales of around $57 billion. (Statistics from Dow Corporate Profile)  Dow’s market capitalization is $63.68 billion, meaning it has a huge impact in the industry. (Stat from Dow Profile on Fidelity) It also has the ability to have huge impacts on the environment, since many of its products seek to prevent pollution and improve eco-efficiency. On the flip side however, a disaster involving such a large chemical manufacturer could lead to an environmental disaster. 
Dow puts a lot of focus on the resilience, flexibility, security, profitability, and responsibility of their supply chain. They manage 3 million shipments per year, keep products in 300 warehouses and 100 terminals, and ship using water, air, pipe, and truck. From a supplier perspective, Dow obtains 100 billion tons of raw materials from over 1,000 different suppliers around the world. (Statistics from U.S. Resilience Report) This puts in perspective the size and methods of transportation Dow uses on a daily basis. 
       The big weakness of Dow's supply chain is that disruptions in the supply chain process could have devastating effects on value creation as well as tremendous safety concerns for the environment and individuals within any effected area. Since a vast majority of the supply chain process involves chemical solutions and hazardous materials any risk of failure in these processes could result in environmental contamination and health threats to individuals within the surrounding area. This would result in a costly liability, damaging in both the bottom line and in the headlines. Other such threats on a global scale and in the interest of national security involve tampering with supplies. Since Dow Chemical has a vast global network of suppliers and shipments, the threat of both domestic and foreign terrorism is of growing concern. Given the nature of Dow’s chemical solutions and hazardous raw materials, the risk of these products being stolen and turned into weapons or devices used to cause harm is elevated. Dow Chemical also runs the risk of system failure. Many chemical solutions are transported by pipeline between productions centers, with a simple infrastructural breakdown the supply chain could become delayed, resulting in fewer finished goods. Dow‘s production is sensitive to the nature of its raw materials and input materials. If these supplies are even slightly altered within the shipping process or the storage process they will not be satisfactory in the production of their finished goods. With high demands on production, Dow strives to eliminate these risks to the best of their ability. (U.S. Resilience Report)
         Considering the heavy penalty of supply chain disruptions specifically applicable to Dow, they recently implemented a unique supply chain model that was developed at Ohio State University called Supply Chain Resilience Assessment and Management (SCRAM). This model works by putting
greater focus on all the risks in the supply chain with the use of models to detect how possible disruptions would affect customer service. A key to this SCRAM method is to first identify the strengths and weaknesses of the supply chain, which are then used with a disruption simulation to give a score. This score then tells how well a supply chain is able to deal with disruptions. The simulation also gives greater insight into how a given disruption affects one specific component in the supply chain more so than another. (Dow Chemical Adopts a New Model for Supply Chain Resilience)
        Dow "wins" using this supply chain model because it directly combats their weakness of disruption disasters by improving resilience and flexibility. They are able to foresee the result and probability of disruptions much better than other organizations. Another piece to note is that while the model improves the supply chain, it also has had an effect on their business strategy in some cases. The fact that business success has been found solely because of this model exceeds the expectations that the model was previously designed to fulfill. Dow also shows success when preventing security and environmental threats through other practices in the supply chain. For example, they have the ability to maintain 100% visibility over assets tagged as highly valuable, highly hazardous, or highly regulated. (Fact from U.S. Resilience Report)
       Dow Chemical is one of the world’s largest chemical manufacturing companies in the world. With this high demand for inputs in creating their finished goods, an efficient supply chain is critical. As stated before, Dow both ships and receives shipments from around the globe at a high rate using various modes of transportation. During the production process, many of these chemical solutions are transported through pipelines networking throughout the manufacturing facility. Efficient flow of this network to avoid potential delays caused by bottlenecks increases their value creation at production centers. According to a presentation conducted by Dow Chemical Company’s Global Supply Chain Director, Darren Gross, there are key essentials and attributes valued by Dow Chemical within their supply chain. Efficiency and productivity feed into the overall objective of profitability. Gross describes attributes that help Dow attain this goal through their supply chain as, "optimized distribution networks, used alternative modes of delivery, maximized payloads, maximized backhauls, and improved productivity." By utilizing the maximum levels of these attributes within their supply chain, Dow can assure they are maximizing value creation efficiently to yield greater profitability. (Darren Gross Presentation)

Additional Links

Human Element and Sustainability Commercial 



Dow Supply Chain Videos





References:


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