Executive Briefings

Of Zippers, Matzos and Closed Supply Chains

We like the term "supply chain" because it suggests a tightly interlinked series of steps that results in the uninterrupted flow of product from the raw-materials stage all the way to the consumer. But the word "chain" also evokes a burden, and that's how many companies have come to view their operations in recent years. Hence the mania for outsourcing everything from design and manufacturing to logistics.

Not everyone, though, has been so afflicted. There are scattered examples of companies that have bucked the trend, by retaining tight control over key aspects of their supply chains.

Exhibit 1: YKK, the ubiquitous Japanese manufacturer of zippers. It has managed to stave off countless competitors through a relentless focus on quality. And it's done so by keeping virtually every stage of production - including brass smelting, materials fabrication, thread spinning, cloth weaving and dyeing, and metal forging - in house. It goes without saying that the company manufactures its own zipper-making machines; it also makes the boxes in which the product is shipped. The result: a quality product that outsells less-expensive options and is relied on by apparel makers all over the world. What's more, the strategy has paid off in ways that go beyond the upholding of quality standards and the crushing of cheaper rivals. Because of YKK's aversion to outsourcing, the company was relatively unaffected by last year's earthquake and tsunami in Japan.

Exhibit 2: Manischewitz, the world's leading baker of matzo, or unleavened bread. Here's a product whose manufacture is almost impossible to outsource. It's subject to strict kosher law, which dictates every step of production. The line includes a 150-foot-long oven equipped with more than 100 burners, a large holding tank for water, a clock that counts down the 18-minute deadline for mixed dough to enter the oven (to prevent it from rising), a dumping lever to be employed by kosher inspectors who are dissatisfied with any product, and four rolling machines for softening the sheets of dough. Needless to say, it's not a setup that can be easily duplicated by an outside contract manufacturer. Yet Manischewitz has been able to take what appears to be a huge disadvantage - painfully exact production specifications with absolutely no margin of error - and turn it into a plus. The company's stellar reputation for quality has given it a comfortable lead in the marketplace, as well as an opportunity to expand the product's appeal to non-Jews and everyday consumption.

Exhibit 3: Apple. Yes, it relies heavily on outsourced manufacturing. But the company has found ways to assert direct control over multiple aspects of its supply chain, to the detriment of its competitors. It's not about to let outsiders make key decisions on the acquisition of raw materials or the pace of production. Remember back in 2009, when it bought up a good portion of the world's supply of flash memory to support the next-generation iPhone? That's just one example of a strategy that was deployed repeatedly by Tim Cook, the logistics and procurement guru who oversaw worldwide operations for years. (And who was rewarded for his efforts with the title of chief executive officer upon the death of Steve Jobs.) Other examples: Apple cornered the market on airfreight from Asia during the Christmas shipping season of 1998, to ensure retail availability of the latest model of the iMac. It bought up large quantities of screens for the iPhone4, and drills needed to machine the internal casing of the iPad2. It signed an exclusive agreement with a manufacturer of laser equipment that could make tiny holes in the casing of the MacBook, so that a green "on" light could be seen through the closed aluminum shell. And, of course, Apple has its own retail stores, which give it total and instant visibility of consumer demand, so that production and shipping cycles can be adjusted accordingly. Expect more of the same in future; Apple is doubling spending on its supply chain this year, to the tune of $7.1bn.

Exhibit 4: Zara. This worldwide apparel retailer is a favorite of supply-chain academicians. The reason? It boasts an unmatched ability to alter product lines according to real-world consumer demand. Forget about that old-fashioned notion of "seasons" - Zara's assortments are always changing. Within weeks of the debut of a top designer's collection, it will have knock-offs in the stores. As with Apple, the company relies to a large extent on contract manufacturers, but it reserves a good portion of production for in-house manufacture as well. That allows Zara to slash the cycle time from designer's sketchbook to store shelves. With a good slice of production located close to the company's distribution facility in Spain, Zara can ship more frequently in smaller quantities, reducing the risk of excess inventory that would otherwise have to be sold at a discount.

Four companies with four wildly different products - but all sharing the strategy of emphasizing control and agility over price. Judging from the spate of reports of companies rethinking their reliance on China as the primary source of low-cost manufacturing, they might be on to something.

Next: Closed or Open Supply Chains - What's the Trend?

- Robert J. Bowman, SupplyChainBrain

Comment on This Article

We like the term "supply chain" because it suggests a tightly interlinked series of steps that results in the uninterrupted flow of product from the raw-materials stage all the way to the consumer. But the word "chain" also evokes a burden, and that's how many companies have come to view their operations in recent years. Hence the mania for outsourcing everything from design and manufacturing to logistics.

Not everyone, though, has been so afflicted. There are scattered examples of companies that have bucked the trend, by retaining tight control over key aspects of their supply chains.

Exhibit 1: YKK, the ubiquitous Japanese manufacturer of zippers. It has managed to stave off countless competitors through a relentless focus on quality. And it's done so by keeping virtually every stage of production - including brass smelting, materials fabrication, thread spinning, cloth weaving and dyeing, and metal forging - in house. It goes without saying that the company manufactures its own zipper-making machines; it also makes the boxes in which the product is shipped. The result: a quality product that outsells less-expensive options and is relied on by apparel makers all over the world. What's more, the strategy has paid off in ways that go beyond the upholding of quality standards and the crushing of cheaper rivals. Because of YKK's aversion to outsourcing, the company was relatively unaffected by last year's earthquake and tsunami in Japan.

Exhibit 2: Manischewitz, the world's leading baker of matzo, or unleavened bread. Here's a product whose manufacture is almost impossible to outsource. It's subject to strict kosher law, which dictates every step of production. The line includes a 150-foot-long oven equipped with more than 100 burners, a large holding tank for water, a clock that counts down the 18-minute deadline for mixed dough to enter the oven (to prevent it from rising), a dumping lever to be employed by kosher inspectors who are dissatisfied with any product, and four rolling machines for softening the sheets of dough. Needless to say, it's not a setup that can be easily duplicated by an outside contract manufacturer. Yet Manischewitz has been able to take what appears to be a huge disadvantage - painfully exact production specifications with absolutely no margin of error - and turn it into a plus. The company's stellar reputation for quality has given it a comfortable lead in the marketplace, as well as an opportunity to expand the product's appeal to non-Jews and everyday consumption.

Exhibit 3: Apple. Yes, it relies heavily on outsourced manufacturing. But the company has found ways to assert direct control over multiple aspects of its supply chain, to the detriment of its competitors. It's not about to let outsiders make key decisions on the acquisition of raw materials or the pace of production. Remember back in 2009, when it bought up a good portion of the world's supply of flash memory to support the next-generation iPhone? That's just one example of a strategy that was deployed repeatedly by Tim Cook, the logistics and procurement guru who oversaw worldwide operations for years. (And who was rewarded for his efforts with the title of chief executive officer upon the death of Steve Jobs.) Other examples: Apple cornered the market on airfreight from Asia during the Christmas shipping season of 1998, to ensure retail availability of the latest model of the iMac. It bought up large quantities of screens for the iPhone4, and drills needed to machine the internal casing of the iPad2. It signed an exclusive agreement with a manufacturer of laser equipment that could make tiny holes in the casing of the MacBook, so that a green "on" light could be seen through the closed aluminum shell. And, of course, Apple has its own retail stores, which give it total and instant visibility of consumer demand, so that production and shipping cycles can be adjusted accordingly. Expect more of the same in future; Apple is doubling spending on its supply chain this year, to the tune of $7.1bn.

Exhibit 4: Zara. This worldwide apparel retailer is a favorite of supply-chain academicians. The reason? It boasts an unmatched ability to alter product lines according to real-world consumer demand. Forget about that old-fashioned notion of "seasons" - Zara's assortments are always changing. Within weeks of the debut of a top designer's collection, it will have knock-offs in the stores. As with Apple, the company relies to a large extent on contract manufacturers, but it reserves a good portion of production for in-house manufacture as well. That allows Zara to slash the cycle time from designer's sketchbook to store shelves. With a good slice of production located close to the company's distribution facility in Spain, Zara can ship more frequently in smaller quantities, reducing the risk of excess inventory that would otherwise have to be sold at a discount.

Four companies with four wildly different products - but all sharing the strategy of emphasizing control and agility over price. Judging from the spate of reports of companies rethinking their reliance on China as the primary source of low-cost manufacturing, they might be on to something.

Next: Closed or Open Supply Chains - What's the Trend?

- Robert J. Bowman, SupplyChainBrain

Comment on This Article