Some thoughts about Santa Claus operations and supply chain

Son – Papa! What are you doing the whole evening at your desk? Can you play with me and Lightning McQueen?
Dad – I’m studying, son! Like you I go to school and as you’ll know soon enough, there are exams …
Son – What are exams, papa?
Dad – That’s when your teacher ask you questions to see if you understood correctly.
Son – Oh, like when Madame Danielle is asking if we read our book?
Dad – Mmmmm, kind of …
Son – And what are you reading?
Dad – Operations Management and supply chain
Son – And what is Operation supply chain?
Dad – Well, son, you see …

Damn, how to explain what you are studying to your 4-years-old son? Operations management? That’s when one try to optimise the delivery of goods to the supermarket where the family goes shopping on Saturday? Huh? Well, I tried and it doesn’t work. However as Saint-Nicholas came on December 6th, it was a good opportunity to explain how the real world works …

5176 Guess Whooo's coming to town! (My Number 1) All time as of  11/24/2012 - 2,419 ViewsSaint-Nicholas or Santa Claus are facing approximately the same issues in terms of operations, supply chains and logistics. However Saint-Nicholas chose to restrict his market focus to mainly the Benelux only. This made things easier for him. For instance he did not need to find a large warehouse (or at least not at large as Santa Claus’) as he only has to deliver to fewer children. This choice was very clever because such large warehouse would have immediately attracted attention in such crowded countries like Belgium. Another important difference is that nobody really knows who is working for Saint-Nicholas. For Santa Claus, it’s easy: elves are working for him. But maybe Saint-Nicholas choose to have a Triple A supply chain where he operates only the last segment (the warehouse) (or not even the warehouse!). There would then be nobody working for Saint-Nicholas – everything is outsourced! So let’s focus on Santa Claus (most of the discussion below also applies to Saint-Nicholas however).

There are two main features about Santa Claus: The Goal and inventory.

Santa Claus did indeed read Eliyahu Goldratt’s “The Goal” (you know, son: one of the thick books on papa’s desk). He must also have followed Prof. Boute‘s class as everybody can clearly see that his strategic position is on Time and Variety/Flexibility. He’s not really interested in price (neither his customers btw): he’s giving what children request to him (after all, he’s not the richest man on earth for nothing). And quality is not necessarily a major criteria for Father Christmas’ gifts: children (and people in general) are mostly happy because they receive something (it probably has something to do with the fact it prooves the world they were kind during the last 12 months). This allowed him to send gifts manufactured in China (althought I think now all toys are manufactured in China nowadays).

And despite this Santa Claus still has a major issue regarding operations. He indeed still have a myopic view on value creation. As we will see below, he is only focusing on resource utilisation while he most probably completely forgets about sales growth and margin. There we come back to an element already mentioned: no financial incentive. Hence no real financial measures possible. How can you improve then? (another question is: does Santa Claus really need to improve his operations as kids receive their gifts on time and usually / sometimes what they requested so why bother?)

walmart distribution centerBut a major divergence from the course is about inventory! In Anupindi’s book, the first sentence of the summary on inventory is: “Inventory accumulates whenever there is a mismatch between supply and demand”. And the chapter goes on on how to reduce this mismatch (as part of Prof. Vereecke‘s classes). But actually Santa Claus needs this mismatch. Just because he only needs to deliver his goods during the overnight of December 24. Not before, not after (especially not for Easter!). In my opinion Santa Claus needs to accumulate this inventory during the year in order to be ready to distribute everything in one night. Then you can debate if he has a ultra-secret, ultra-large, ultra-modern warehouse next to the North Pole (which is nice because you can reach most US and European countries easily) or if he has a cloud of flexible warehouses dispatched around the world. Given the number of Santa Claus that we start to see at each corner of a street, I would favor this last option – these little Santa being responsible for a small subset of the delivery chain. I guess their performance is measured in terms of seconds being in advance / late for delivery or the number of children they delivered on time (again I guess no P&L responsibilities).

The content of this stock as well as the way it is built also depart from any classical business. Indeed although the product range is quite wide (and also varies from country to country), there are some broad categories that you can classify in the different types of inventories. For instance, you can classically think of perishable goods as obsolete stock (however why bother since Santa Claus would certainly not poison children with goods perished since last year). But you can fill Santa Claus’ safety stock with classical toys like Lego, Playmobil, Fisher-Price, puppets, cars, etc. And Santa Claus’ cycle stock would consist of toys like Buzz lightyear, Lightning McQueen (and other toys for girls that I’m not aware of). The build up of these different stocks could be schematically represented as the following:

121211-SantaClaus-InventoryTypes

If now we look at the little information we have about operations inside Santa Claus headquarters (see movie below), we see that he is indeed the jolly man we know.

Althought the first seconds show you a highly enthousiastic, qualified and kind of “clonable” workforce (the elves), the first step of the operation is a nightmare. Santa Claus is indeed reading each and every letter. This is a happy confirmation for all the kids. But from an operation perspective, this creates a huge bottleneck and this is clearly visible with the amount of letters on the floor! After this step, the work is fortunately segregated between several lines of production where the specialisation of each elf is well put forward. On top of that it seems elves worked very well to reduce waiting times to nearly nothing between each station. Did they apply the lean methodology? It is hard to say: it might as well be the result of years of refinements.

Then we realise there is again another bottleneck at QC/QA, done by Santa Claus himself. However, althought it seems the throughput of production of the different toys is quite fast, only a few of them arrive at QC per minute. What happened with the other toys? Are there other lines of QC but not managed by Santa Claus himself (so they did not dare to show them)? Of is the defect rate quite high that only a few reach the final QC?

The inventory management seems also to be quite disorganised. Fortunately every toy seems also to be aware of its role and its own destination. So they finally end up in Santa Claus’s big bag!

Finally given the lack of order in the bag but also given most children will apparently receive what they asked (talk about customer focus! – except for Billy Brown who will receive a cake of soap), DHL, UPS and other (fast) postal services might have some lessons to take from Santa Claus in terms of speed and reliability ;-) But how exactly Santa Claus does that is still highly debated amongst scientists in the world (others also tried to put numbers e.g.):

Anyway, have a Merry Christmas (a few days in advance) and enjoy the holidays break!

Photo credits: 5176 Guess Whooo’s coming to town! (My Number 1) All time as of  11/24/2012 – 2,419 Views by bsabarnowl, on Flickr (license CC-by) and walmart distribution center by Mr. Wright, on Flickr (licence CC-by-nc-sa)

Vlerick programs now 14th in the FT European rankings – should I worry?

Yooohoo! After the (very) bad performance of the EMBA this year, a rebranding exercise and a new website, the whole schoool is back at the 14th position in the FT rankings for 2012! The Academic Dean can of course be very proud of his cursus. As usual let’s have a look at the numbers …

14So, Vlerick Business School is at the 14th position, a stable position on a 3 years average (up from 16th last year however). There are of course big names before Vlerick: HEC Paris (2nd), London Business School (3rd), INSEAD (4th), IMD (7th), etc. But there are also big names after Vlerick: Cranfield (16th), Imperial College (18th), ESSEC (19th), London School of Economics (27th), etc.

Compared to other Belgian business school, Vlerick is better placed (than for the EMBA rankings e.g.):

  • Antwerp Management School is climbing from an average 52nd to the 40th rank;
  • Solvay Brussels School of Economics and Management goes down from a 42nd to the 46th rank;
  • IAG-Louvain School of Management goes down from a 52nd to the 59th rank.

So if I take again my table from the previous “ranking” post (best of each row in bold):

Ranking Vlerick B.S. Antwerp M.S. Solvay B.S.E.M. IAG-L.S.M.
FT European Business School Rankings 2012 14 (=) 40 (↑ av. 52) 46 (↓ av. 42) 52 (↓ av. 59)
FT EMBA Ranking 2012 90 (↓ from 77) 50 (entry)
FT Global MBA Ranking 2012 70 (↓ from 71)
The Economist Full time MBA ranking 66
Aspen Institute Beyond Grey Pinstripes Vlerick

The methodology used by the FT is well explained. There you will learn that this ranking assesses the performances of 4 MBA programs in each school. And it looks at the breadth but also quality of these programmes. So indirectly it represents the aggregate of lots of parameters (see here for the list on Vlerick). But is seems to put some emphasis on the salaries (at program entry and after) as well as the number of female, international and PhD faculty.

So – back to the title – should I worry? ;-)

Well, just go to the previous post about rankings and read the conclusion ; I haven’t changed since. But congrats anyway to the Vlerick team for this good performance!

Photo credit: 14 by xiaming, on Flickr (licence CC-by-nc-sa)

Thank you, partners!

I have a confession to make: I never really believed in the MBTI profiling as a whole. Some parts of it can be very useful in order to understand some traits of personality (and act upon them). But definitely not the whole. IMHO. YMMV. But! (because there is alwaus a “but”) But I must admit that very organised people and very process-oriented people are great assets in a team. And I want to thank the very organised people I had the opportunity to work with recently for their relentless efforts to make our group papers a success. We all have strong and weak points. One of the strength very organised people bring is that they force the group to start to work early on the project, to have a clearly defined plan (even for a few pages or slides) and to stick to it. More “creative” people may find this annoying – but it works! So thanks for bringing this in the team!

A second category of people I want to thank are spouses/boyfriends/girlfriends. They first accepted we start this part-time MBA and they kept their anger quiet when they realised what meant “being absent 2 evenings a week (including Friday evening = no outings anymore) (and maybe more)”. They support us in case of doubts. For some they even support us financially (maybe not directly but 35k€ for an MBA is 35k€ you cannot spend on clothes, travels, outings, dinners, hi-tech gadgets, etc.). But they will anyway greet us with a smile when we come back after a whole evening (and part of the night) in class. And they also realise that if we started this MBA, it’s not to play the housewife/househusband after – with a fake smile they hint you they understood it will continue later. It may seems we are too preoccupied to notice but we are very well aware of all the sacrifices you are also doing and we thank you for your support and attention!

121201-businesswoman-5PM

Happy Halloween! (Pharma Q3 results and job losses so far)

Jean-Etienne's blog

Happy Halloween! It’s the season for Q3 reports a bit everywhere so also in Pharma: Abbott (↑), Elan (↑), Eli Lilly (↓), Bristol-Myers Squibb (↓), Sanofi (↓), Novartis (↓), Shire (↑), AstraZeneca (↓), Merck & Co (↑), Novo Nordisk (↑), GlaxoSmithKline (↓), …

At approximately the same time came a FirstWord List about the largest layoffs in Pharma so far (2012) … I just plotted the losses so far below. Spooky!

Layoffs in Pharma so far (2012)

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A status about Vlerick rebranding

Christian Spurling - Loch Ness Monster (1934)They kept us in suspense for more than a year (and Apollo 2012 for even more!) but September 12th should put an end to it: Vlerick Business School will finally unveil its new brand during the official opening of the academic year 2012-2013! It is about time, we were beginning to think of the rebranding of Vlerick as a kind of Flemish Loch Ness living in the river Dijle!

Vlerick is usually good at Twitter (much better than at corporate blogging) but here again: complete silence. We have to rely on professors in order to know more … For instance Prof. David Venter departed from tweeting famous sentences written or said by famous people and sent these three messages on August 31st and later (there was a “Vlerick Integration Seminar” on August 30rd where the new brand was presented to professors Brand Ambassadors):

Vlerick not only talks renewal and change, it walks its talk. A highly creative, internationally focused new identity will soon startle us. 

Vlerick may not be the biggest school, but by virtue of its highly gifted, world-class faculty and staff punches far above its weight! 

Radical innovation in action: Vlerick reiventing itself and the business school space. Exciting days ahead! 

Prof. Marion Debruyne also tweeted there will be a new visual identity but resisted at least twice to disclose anything. For instance:

@Tim_Debonne Sept 12 opening of the academic year we launch it to the outside world

There will also be a new website and the content was started to be migrated beginning of last month (there were just too many people involved to start trying to bribe them to know more – the only thing we know is that it was done by some lost boys in Belgium):

Migration of content of Vlerick website on Facebook - August 2012

New name, new branding, new website, … and new classes that are starting soon! We’ll have to sleep (*) 4 more nights to sit again in our “pimpedout” campus and 9 more nights before the opening ceremony …

(*) if possible, given other circumstances – but this is another story

Photo credits: Christian Spurling – Loch Ness Monster (1934) by luvi, on Flickr (licence CC-by-nc-nd)

The value of pop stars as business role models

Michael Jackson 1958 - 2009This morning I read GOOD’s post about a new class titled “Michael Jackson: The Business of Music” that will start at the MBA of Clark Atlanta University. Veteran entertainment attorney James Walker will teach how Michael Jackson “negotiated and his tours, recorded deals, and merchandising“, as well as “how he revolutionized legal practices related to entertainment copyrights, trademarks, licenses and more“.

That’s not the first attempt to leverage Michael Jackson’s fame into something that can be taught. For instance last year and Zack O’Malley Greenburg from Forbes is currently writing a book titled “Michael Jackson, Inc“. Joseph Vogel also tried to give Michael Jackson entrepreneur-like qualities: vision, willpower, considering new products (sic – I thought music was a cultural thing) as events, etc.

So one day we will have an entire MBA dedicated only to past (preferably dead) stars … At Vlerick, we already had

  • “How to Negotiate like in Mandela‘s days?” with Prof. Venter (Negotiation Skills)
  • “How to eat and energize yourself like Dominique Monami?” at a closing seminar
  • “How to understand economics like Yves Leterme?” with Prof. Gerooms (Economics)

And I am wondering if we will have the following classes this year:

  • “How to excel in marketing like God Steve Jobs” with Prof. Debruyne (Marketing)
  • “How to avoid Field Marshall Rommel‘s operational mistakes in North Africa” with Prof. Boute (Operations management)
  • “How to think like Daniel Lebeau, CIO of the Year 2010?” with Prof. Viaene (Value-Added Enterprise IT)

Now I am wondering if one really needs those star-oriented classes? Of course having real-life example is really nice – especially if you are fan of Steve Jobs or Michael Jackson. But a whole course on how someone was good in some particular topic (or -worse- on every business topic)? We saw last year that students were fed up with a little bit of Steve Jobs everywhere for everything and anything. In a general MBA course, my opinion is that we need more examples from different industries first. Once the basics are acquired you can of course have specific session per industry. IMHO – YMMV.

Photo credits: Michael Jackson 1958 – 2009 by bernissimo, on Flickr (licence CC-by-nc-nd)

Bringing a bad news to a consultant

You want to manage projects? Ending contracts with nice people is part of the job!

UntitledYou can read whatever books you want, you can follow whatever HR course you can, ending a contract with a nice person is not easy (same goes for firing people, breaking a bad news, etc.).

The theory says that it’s best to have a third person in the room, that the news should be broken in the morning preferably, to find humane ways to tell the truth upfront, meeting in a neutral location, keeping it clear, describe what comes next etc.

Practically, there are mainly three points I would emphasize …

Objectivity is key. For this first point I hesitated between objectivity and preparedness. But both go hand in hand. First keep aside he is a good guy, your relationship will inevitably suffer. Align what was the objectives and what was achieved. Describe quantitatively how objectives were achieved. Leave room for discussion on how you measure achievements and how the other person would perceive his achievements – but in the end you are supposed to know your business and the reasons why you stop this contract. Just be sure to put objectivity behind your decision. Strive to keep the atmosphere businesslike and free of emotion. But also listen to the other party.

“What should you do in my shoes?” or let him come with alternative solutions. Both approaches will put some lights on “reasons” that might not be directly on the table but played a (maybe minor) role nonetheless. Shedding light on these aspects might make people realize they personally are not to blame (if it’s the case) but other factors exist. On top, they’re more likely to adhere to what the solution is.

Have a plan for the future. After hearing bad news, people might find it hard to believe that the you care about them. But you should be prepared to give employees tips on how to avoid the problem in the future (if it’s appropriate). It’s easier for consultants as by definition they should not stay in the same job for long periods of time – but knowing your cv is kept in the database for specific jobs can be interesting in the long term. Also knowing what to improve for the next job assignment can be useful. Don’t overdo this however – giving advices for the future when you just brought bad news might look like being obnoxious (rightfully).

What are your thought on firing someone?

Photo credits: Untitled by Danny Guy, on Flickr (licence CC-by-nc-nd)

Restoring confidence, investing in growth

Or so was nearly the title of the EU presentation Pablo sent to me recently. The exact title is: “Restoring growth. Investing in our future.” (slides in English and in French).

The presentation was done by J.M. Barroso, President of the European Commission, to the European Council of 28-29 June 2012. GDP, the EC measure of growth, was more or less constant since 2011 so restoring that growth is seen as a “pressing priority”. Other indicators are not that good (to say the least): recovery is limited, unemployment reached high levels, performances were already weak before the crisis, there are large current account imbalances, etc. So the future EU budget must be a “growth budget”. Then you have a list of actions that the EU (co-)promoted, sponsored or simply saw as very positive in the EU.

The very nice thing with this type of presentation is that you see in action “things” you may have thought are very theoretical and far from daily practise. This time, we’ll take the Economics class. Remember Economics? It was one of the first classes we had during academic year 2011-2012, with professor Hans Gerooms (by the way Prof. Gerooms was/is also a long-standing financial adviser to Yves Leterme, now at OECD). OK, I see you don’t remember ;-) Anyway … So for example the link between exchange rate and competitiveness … The only country that, each year, had a relative gain in competitiveness is … Germany (what a surprise!). Spain, Portugal, Ireland, Italy are all on the other side of the bar (another surprise!). The only absence in this carefully selected chart is Greece … Is that a Freudian slip from the EC? ;-)

Another interesting slide is the one about the big differences between a European budget and a country budget. On top of the difference in total amount, the EU budget:

  • is multi-annual (7 years),
  • can never be in deficit or run up debts,
  • hasn’t any tax raising power,
  • has only very few own resources (payments come mostly from member states),
  • forecasts less than 5% for administration and 1% for pensions,
  • and has grown much slowly than national budgets (however I wonder if this last item shouldn’t be considered as a consequence of the tight rules before rather than a spec in itself).

Before letting you dive into the presentation, I would just highlight one last slide. French are considered to be chauvinistic – why can’t we be a little bit ouselves? On slide 18 the EC lists the top 20 organisations participating in the 2007-2013 EU FP7. By “top organisations” the EC means the ones that get the most fundings (in hundreds of millions of Euros). The more you get/spend money may be an indirect indicator of the more excellent and competitive you are (at least that is what is implied here – but for having seen the requirements for FP7 in a previous life, that might be the case). Well, I digress again … So, in these top organisations, the first Belgian organisation is the KULeuven: 11th (and 5th top university). Yes! :-)

GSK to acquire Human Genome Sciences: a timeline

Sometimes news gives you the opportunity to observe what you learn in theory in class. Take mergers and acquisitions, for instance: since a few weeks I am following with some interest the story between GlaxoSmithKline (GSK) and Human Genome Sciences (HGSI). This story started a long time ago so let’s go back in time …

Human Genome Sciences discovered the now-called Benlysta drug decades ago and SmithKline Beecham (now GlaxoSmithKline) supported the research efforts. The bid was considered bold at that time because it was one of the first drug to use data mining and genome mining to discover and develop new medicines.

For information, Benlysta is a bioengineered antibody that blocks a protein called BLyS. This protein is elevated in lupus and other autoimmune diseases and is believed to contribute to production of cells that attack blood vessels and other healthy tissue. Benlysta was approved by the FDA in March 2011, by the European Commission and by the Canadian regulator in July 2011.

In April 2012 GSK made an unsolicited offer to acquire HGS at $13 per share in cash, valuing HGS at around $2.6 billion (more than 80 percent premium to the average stock’s closing price of April 1818, the last day before the private offer was publicly disclosed). HGS rejected the offer saying it did not reflect its inherent value. HGS board authorised the company to seek other “strategic alternatives”. At that time I was wondering what other company would buy HGS, given that GSK would have most probably secured the control of Benlysta as well as other drugs that they financed, would they be produced by HGS or any other company. Other people noted that HGS might have partly reacted out of concern for shareholders who purchased shares at an average price that’s higher than the offer.

Nevertheless GSK started its tender in May 2012 and ran it until June 7th (later extended to July 16th). GSK took the offer directly to shareholders and apparently did not participate in the auction HGS designed to counter GSK offer.

At approximately the same (May 2012) HGS adopted a shareholder rights plan, or “poison pill“. The effect would indeed be that if a third party attempt to buy up 15% or more of its stock without the board’s support, holdings will be automatically diluted. This would reduce the interest in the takeover (apparently). Some shareholders did not agree with that provision and sued HGS. Of course GSK asked shareholders to defy HGS board and even prepared a new board.

Corporate Cliche Shot No. 57 - 'The Handshake' Finally, beginning of July, we could read that talks were held behind closed doors to reach an agreement between GSK and HGS. And in the end HGS accepted GSK offer of $14.25 per share share, which values HGS at approximately $3.6 billion. The official press release mention that the tender offer will last until July 27th.

Matthew Herper from Forbes already drew three lessons from this acquisition and FT Lex made general comments on big pharma -vs- biotech. I wonder if this step (that could be seen as natural given existing collaborations) will attract much more attention than that but it was a nice game to follow.

Disclaimer: GlaxoSmithKline is my current employer but I have no stake in this deal nor was/am I involved in any way. All information disclosed here is publicly available. Opinions are mine only.
Photo credits: Corporate Cliche Shot No. 57 – ‘The Handshake’ by Drew Levy on Flickr (CC-by-nc-nd)

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