NextGen technology: lights out inventory planning at Intel – Sean Willems

Sean Willems, Visiting Professor, MIT Sloan School of Management

From Supply Chain Management Review

Inventory is a universal headache at most companies – with the potential for significant impacts, both good and bad. Too little inventory puts sales revenue at risk. Yet, having too much inventory sitting around increases costs. And, for inventory planners, getting it wrong can be a career-ending move. Through a unique project with Intel, my colleagues and I built a tool to help companies get inventory right.

Through its deployment, Intel transformed inventory management into a fully automated “lights-out” process that generates inventory targets that planners accept more than 99.5% of the time. It’s also reduced the time required to commit to customer orders from months to one day and generated over $1.3 billion in increased gross profits since 2014.

Our engagement began as a research project in 2005 that was designed to help Intel improve its forecasting and inventory processes in one division. The 9 years between the launch of the research project and the beginning of a payback period may seem like a long time. The short answer is that the math had to catch up to its use in the field; then, once we began to deploy it, we made refinements to the tool before it began to deliver results. When I present this research along with Matthew Manary, who was then at Intel, we joke that practitioners can’t believe we did the project across an organization as large as Intel in just 9 years; my academic colleagues wonder what took us so long.

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Whole Foods CEO’s poor excuse for poor performance – Jose Alvarez and Zeynep Ton

Harvard Business School Senior Lecturer Jose Alvarez

At a town hall meeting announcing Amazon’s purchase of Whole Foods, a Whole Foods employee had this question for CEO John Mackey:

“I have a question about Whole Foods’s commitment to those win-win-win-win partnerships with our suppliers, with our team members— and how that’s going to live on once this merger is complete.”

Mackey’s response was curious, to say the least:

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

“I think, sometimes, our company’s gone a little bit too much team-member focus at the expense of our customers. And that’s one definite evolution that’s gonna happen. I love the passion these guys [Amazon] have around the customer. They put the customer first in everything they do and think backwards. And— we— we’re gonna be the same way.”

If Mackey thinks that investing in people is part of the reason for Whole Foods’s poor performance, he’s wrong. From what we see, the real problem is a lack of operational excellence. Whole Foods may be paying its employees more than competitors do, but it has not created an operating system that leverages that investment. You can’t put premium gas in a clogged-up engine and expect to win a race.

Whole Foods strikes us as an organization that doesn’t standardize where it needs to and doesn’t empower where it needs to. Five stores within a city may have five different people purchasing from the same local farm in five different ways. Their information systems are mediocre at best.  John Mackey’s own words about Whole Foods technology are useful here: “So I think that we can expect that we’ll go to the front of the class, eventually, in the grocery business, from … the class dunce to… the class valedictorian.”

Poor systems and lack of appropriate standardization mean lower labor productivity and higher costs. At the same time, frontline team members appear to have little empowerment to satisfy customers. One of us recently wanted to return a $3 Whole Foods reusable shopping bag that had broken the first time it was used.  You would expect the cashier to just exchange the bag for a new one.  Instead, she called for her manager to resolve the problem.  It was a waste of time for all, including the other customers waiting in line. Paying team members more than competitors do won’t pay off if you don’t empower them to make a $3 decision! Lack of empowerment reduces not only motivation but also customer service.

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Asst. Prof. Karen Zheng: When a handshake is enough–the role of trust in supply chain management

MIT Sloan Asst. Prof. Karen Zheng

Trust is important to our relationships with friends, family, and acquaintances. Less understood, though, is the role trust can play in business relationships. When businesses deal with each other, their first impulse often is to summon their lawyers. But I have found in my research that there are many situations in which trust can be an effective replacement for costly and time-consuming contract negotiations.

To understand the role of trust in business, I and two colleagues, Ozalp Ozer of the University of Texas at Dallas and Kay-Yut Chen of Hewlett-Packard Laboratories, conducted a series of computer laboratory experiments that simulated one of the most vexing problems in supply chain management: The tendency for manufacturers to issue overly optimistic forecasts.

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Financial Times on why MIT’s new executive MBA is worth a 12-hour commute

MIT Executive MBA '12 Tim Pearson

I recently spoke to a reporter at the Financial Times about why I travel six hundred miles round trip, an international journey that often takes between eight and 12 hours one-way, to attend Sloan’s new MIT Executive MBA program.  The article identifies a trend in the number of EMBA students willing to travel long distances to earn their degrees from the most competitive business schools, and highlights recent research by the Executive MBA Council that shows an increase – from 6 percent in 2005 to 18 percent in 2010 – in the number of EMBAs traveling more than 250 miles to their program of choice.

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