Staying Just in Time for the Holidays

North Pole Workshops is faced with a multitude of demand planning, production and logistics problems. With just five weeks left until their annual delivery due date, they are under pressure to resolve short-term issues in demand fluctuations and capacity constraints, but Santa and his team are also concerned about the long-term feasibility of delivering cheer to a growing population of believers. North Pole Workshops has room to improve in all areas of the SCOR model; that is, the plan, source, make and deliver functions need to be addressed in order to improve the overall performance of the supply chain.

The short-term production issues for this holiday season involve the increasing demand for the Timmy CD and the possibility of a drastic decrease in demand for the Meowrrr. However, Santa’s elves are also aware of increasing demand from China and Eastern Europe, and since those markets are assumed to be unaffected by the negative commentary on the Meowrrr, the excess product can be used as safety stock for those growing regions. Because they already have more Meowrrrs on hand than predicted demand, the production capacity of Meowrrrs can be completely turned over to the other products based on the next trend. This may be the number 2 and number 3 items for that age group (girls 8-15), but they should also do some quick analysis of TV ads in North America to determine any up-and-coming trends in December for that region. To handle the increase in demand on Timmy CDs, Santa’s elves should immediately look into outsourcing part of the production, since CDs are easy to produce and do not require elfin craftsmanship. Instead of delivering the CDs to the North Pole for distribution, the CDs can be stored locally in the region where they are outsourced to, and be picked up by Santa’s sleigh for distribution in that region on Christmas Eve.

Santa is concerned about the speed and handling of the sleigh with increasing air traffic, weather conditions and more deliveries to make. Rather than replacing his traditional team of reindeer with nimbler reindeer or motorization, smaller loads can be delivered to each region. Additional teams of reindeer and additional sleighs would be required to do this. Then, the elves can help drive the sleighs to a rendezvous point in each region (in true Just-In-Time fashion). Santa and his team will thereby be carrying less-than-sleigh-loads (LSL) for his deliveries in each region. At the designated rendezvous points and specified times, Santa and his reindeer can simply swap the sleighs, and the elves can return to the North Pole with the empty sleighs. With a lightened load, Santa’s sleigh would be faster, more nimble and able to maneuver around the increasing traffic. Santa’s path can be optimized by flying with the prevailing tailwinds, namely, hitting North America, South America, Africa, Europe, Asia and Australia in that order. Additionally, postponement can be used to produce toys for the Asia market later, since they don’t have to be ready when Santa takes off from the North Pole; only the gifts for North America need to be ready and loaded. Finally, the sleighs should be loaded to allow hot-hatching, where the first in are the last to be delivered. A related issue keeping Santa up at night is the increasing demand on Santa’s Christmas Eve run. With the improved distribution system described above, they can also subcontract part of the deliveries to Mall Santas in specific regions.

To address long-term production constraints, there are a number of things North Pole Workshops can consider. First of all, there are too many SKUs. Instead of satisfying every child’s wish with a unique toy, they can create multi-functional toys that satisfy more children. Forecasting is more accurate at the aggregate level, so this will enable better forecasting. Toys can be standardized, using well-known manufacturing processes from previous years, and enhancing and customizing the design through postponement at the end of the manufacturing process. This would also allow for the standardization of components as well as end items. Postponement can be used in painting, dying, programming and customization processes.

Even with these changes, it is likely that demand volatility will still require more flexible production. For these reasons, the North Pole Workshops should reserve capacity with contract manufacturers worldwide, perhaps through the highly responsive company Li & Fung, who maintains strong relationships with its manufacturers. By reserving this capacity, the North Pole Workshops can reduce its utilization, improving the performance of the manufacturing processes by reducing wait times, thus reducing WIP and increasing flow time.

Demand planning is clearly one of the biggest issues North Pole Workshops faces, and it seems to be getting harder every year. Some of the team’s recommendations in software improvements would help alleviate this issue, including the multilingual scanners to keep demand data current, a better linkage between demand planning and manufacturing, and the CRM module to learn more about children’s preferences and demand patterns. Additionally, they should look into receiving Point-of-Sale information from stores (perhaps the Mall Santas can assist in that data collection) to see what is trending in sales. One issue is that the wish lists are arriving later and later, so to supplement the data requirements for accurate demand planning, they should also monitor the number of TV ads played by region and by product. Mrs. Clause also points out that Santa has an intuition about what children want, so his intuition should be qualitatively applied to the forecasts instead of planning purely based on quantitative data. Finally, there is room for improvement in the naughty and nice database, which is key to demand planning, since this determines the total supply of presents required, and also the supply of standardized components to source. The naughty and nice database can be linked to report card systems and other school reporting tools to improve accuracy of the number of children rated good or better.

As Mrs. Claus reassured Santa, they will always find a way to make the children happy. In order to do this, however, the supply chain needs to become more responsive. One solution is not enough to improve the overall supply chain performance. Using the SCOR model, North Pole Workshops needs to address the source function through standardized components, the plan function with improved forecasting through technology and Santa’s intuition, the make function with outsourcing and postponement, and the delivery function through improved distribution methods. With these recommendations, the short-term and long-term feasibility of Santa’s workshop is insured.