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Operation(s) Room

11/17/2008 --

Tauber conference highlights opportunities in operations management.

ANN ARBOR, Mich.— The economy may be slowing and the world may be grappling with a financial crisis, but cars still need to be built and soap still needs to be on stores' shelves. Demanding customers aren't likely to give companies a free pass or want to hear excuses about tight credit or high fuel prices.

Enterprising operations experts sense opportunities in these challenging times. Executives from manufacturing, transportation, IT, shipping, and consulting firms outlined some of those opportunities during the second annual Global Operations Conference at the University of Michigan. The Nov. 7 event was hosted by the Tauber Institute for Global Operations and the Operations Management Club at the Ross School of Business.

The Tauber Institute is a joint effort between the business school and U-M's College of Engineering; it offers students a multidisciplinary education on the business and technical aspects of operations. Industry leaders agree that Tauber graduates are entering the job market at a tumultuous time in light of the global financial crisis. But that is only part of the picture. More people around the world are reaching income levels that spur discretionary spending, so the pressure is on to make products and develop supply chains that serve this new market.

As a result, operations expertise is more critical today than ever for a company's success, said institute benefactor Joel Tauber during his address to conference attendees. The current environment "creates unbelievable opportunities for those who are creative and understand what is occurring," he noted.

Change it up

The world today is defined by rapid change. A consumer products company, for example, might want a supplier to change its plastic lipstick case in two weeks, which affects manufacturing and supply chain management.

Integrating real-time consumer trends into a company's operations is where the action is today, said Alex Kormushoff, senior vice president of field operations of SPSS, during a conference panel discussion. SPSS collects real-time customer data for companies looking to better gauge their market. Many companies may understand their products and supply chains well, he noted, but they don't understand their customers.

"The consumer does have a lot more power today than 20 years ago," Kormushoff said. "Integrating the supply chain and the business process with the front end is where we're seeing a lot of activity today."

The idea is to go beyond producing data reports and, instead, use real-time knowledge of customer demand to drive the back-end of the business.

That's going to become a vital skill as the world economy is expected to produce more consumers despite the current slowdown, said Hans-Werner Kaas, director at McKinsey & Company. In India, for example, cell phone usage is skyrocketing. The consumers there are hungry for new technology and innovative features. Selling an older model at an 80 percent discount isn't going to work, but most buyers in that market also are unwilling to spend $150 or $200 for a new device.

"So what are the affordable and intelligent ways to put those consumers into quicker positions to spend?" Kaas asked. "It goes beyond loans or making credit available. It will require new thinking in terms of making those new customers accessible."

Companies also will have to understand how to develop operations in countries with cultural and language differences and still produce and deliver cutting-edge, affordable products for new customers in emerging markets, said John Antone, MBA '86, corporate vice president of Applied Materials.

"They will come into a buying economy but with cost structures that are still substantially less, and we have to react to that," he said.

A Matter of Discipline

Good operations and engineering discipline clearly help a company survive and thrive in tough times. The automotive industry is going through one of the worst patches in its history. Yet BorgWarner Inc., a supplier of engine and transmission systems, is well-positioned and in good financial shape, a rarity in that sector. In fact, Chairman and CEO Tim Manganello said the company is looking to acquire technology companies that add a new dimension to its product line.

Technical leadership and must-have products define the company, but operational excellence is another pillar, said Manganello, a U-M engineering alumnus.

BorgWarner has built new campus-like facilities around the world. Its operational strategy calls for centralizing such back-house functions as purchasing and IT, while presenting a decentralized face to customers.

"It's a somewhat difficult balance having centralized and decentralized systems, but when done correctly, it's a big advantage," Manganello said.

The company also collaborates with research universities around the world. BorgWarner sponsored two Tauber Institute teams for summer consulting projects this year, one optimizing logistics in China, and another working to improve processing transmission products in Germany. The team in Germany developed ideas that immediately were implemented on the shop floor, Manganello said.

Fuel Economy

Another new wrinkle thrown at operations managers, especially those running supply chains, is the issue of high fuel costs and sustainability. The whole supply and logistics chain is impacted by fuel prices and companies are under pressure from shareholders to reduce fuel consumption, said Thomas Jones, senior vice president and general manager of supply chain solutions for Ryder Systems Inc.

"Whether it's GM or Proctor & Gamble, the same themes come back," he said. "Everybody wants to talk about sustainability and flexibility."

For Ryder systems, fuel went from being the No. 3 cost--after labor and equipment--to the No. 1 cost in a year. Meanwhile, customers still demand quick reaction to changes in consumer behavior.

"It's about getting the Burt's Bees on the shelf when you need it, matching the flow of material to what the customer wants," he said.

To keep up with that while diesel fuel prices skyrocketed, Ryder reduced truck speeds, cut idle time, and increased load factors so that only full trucks were running.

The result: $20 million in savings.

But that kind of nimble reaction takes talent and a multidisciplinary approach.

"You can't just be a logistics or engineering specialist," Jones said. "You have to collaborate with sales, finance, purchasing, IT, and manufacturing. It takes strong technology, leadership, and business skills. You have to anticipate what's coming in the future."

—Terry Kosdrosky

For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847,