I have a friend that works for Yum! Brands out of Louisville, KY and she is continually concerned about the impact new marketing promotions have on the ability to supply company-owned stores with chicken; as well as the overall availability of chicken throughout the supply chain. Imagine a customer showing up at a KFC and not being able to purchase chicken - simply unacceptable. Redundancy and day old chicken in the supply chain however are also not acceptable. Bob Parker, group vice presi
Impacts to the supply chain leave companies with a key realization: lean is not always best. As noted in a recent study conducted by professors from the University of Toledo and McGill University and reported on in the Journal of Operations it was determined that resource efficiency, with a level of redundancy built in, drives higher financial returns – based on the financial performance of all publicly traded US firms from 1991 to 2006. While this finding might initially be viewed as somewhat self-evident, the dilemma goes right to the heart of supply chain risk management. Do I build in redundancy, 'slack' as McGill called it, with its accompanying short-term costs; or does the inherent chase for cost efficiency cause me to strive for the highest possible utilization levels and 'hope' that nothing major goes wrong?
Apple addicts – I mean enthusiastic users (and yes I’m one of them) – will wait the extra weeks to receive their iPad 2. However, Apple shares decreased by approximately 5% when customers found themselves waiting even longer due to Apple’s inability to fill orders. The earthquake, and resulting tsunami in Japan, caused direct disruption to the supply chain and therefore slowed down iPad 2 production and delivery to customers. Expected wait times increased from 3-5 days to 4-5 weeks. I drove past the Apple store on Michigan Avenue in Chicago nearly two weeks after the official release date of the iPad 2. There was a line around the block – I would guess at least 50 deep. I’m not sure if they were just hoping stock was replenished, they had a question for the genius bar, or if Vince Vaughn was in town for the Cubs opening day – but regardless there was a line. Apple will likely survive this disruption as it did when wait times increased for the iPhone 4. Apple’s overall strategy may be to keep demand ahead of supply, but in this case an unforeseen event severely crippled the supply chain – leaving a negative financial impact on Apple. These are complex supply and demand issues, but prove some redundancy throughout the supply chain may provide the extra buffer needed to meet customer and investor demand – even in trying times.