The weakest link in the Karma battery

This is just too relevant for quality management to pass by. Plus it is about a nice car, which makes it even more difficult to ignore. The car is Fisker Karma, the plug-in hybrid with a massive battery pack. The issue is with the battery pack, supplied by A123 company. This piece from Bloomberg provides a fairly comprehensive overview of the case, but here are couple of excerpts that are particularly interesting:

Five customers are potentially affected by the defects, David Vieau, the company’s chief executive officer, told reporters today in a conference call. The root cause of a $107,000 Fisker Karma model shutting down in tests this month by Consumer Reports is associated with A123’s defective batteries, Vieau said, without naming other customers.

 

The cause of the defects described today was faulty calibration of one of four welding machines in the Michigan plant that caused misalignment of a component in some cells, Vieau said today. The flaw could cause an electrical short, which could result in premature failure of the battery or decrease performance and reduce battery life, he said.

 

While the rate of total cells welded by the faulty machine is “a fraction” of the product A123 made in the Michigan plant, the probability is “very high” that a module or pack contains a defect because of the number of cells that go into them, Vieau said. “We feel that virtually all the product that we produce in this facility has been effectively contaminated by this particular defect,” he said.

First, it is commendable that A123 has identified the root cause and were able to nail it down to a particular production step, and they’ve done so pretty quickly. Second, the case underscores the importance of quality management when there is a massive interaction between components in a product. One faulty part out of a thousand can trigger a chain reaction, thus leading to the failure of the entire product. In this case, it is surprising that such possibility was not prevented by the design of the battery.

A123 seems to be doing well in terms of damage control though. For one thing they are undertaking the replacement of $55M worth of batteries made at the Michigan plant. Also they are upping warranty terms on Karma’s batteries, clearly betting on the future demand. Such level of interaction between the companies is remarkable. Probably it has to do with the fact that A123 holds a stake in Fisker who is its major customer.

 

ABC retailing

Letters ABC have a special relationship with retail. For instance, there is a chain of grocery stores called ABC Stores on the islands of Hawaii, that sells delicious chocolate covered macadamias. They are so widespread in Oahu, that some people say that “ABC” there stands for “all blocks covered”. They are also pretty often photographed, and for that reason for some people it stands for “always bring camera”.

Another meaning of “ABC” in retailing comes from inventory analysis – it is a classification system often used for products sold at a store – those that are “Type A” generate the most revenue, “Type B” generate some, and “Type C” – would be some obscure stuff kept on bottom shelves. And while those macadamias are surely Type A for the Hawaiian chain, the question is what are the type A products for a typical American grocery store?

Shipping Apples around the globe!

Today is a big day for Apple, with a launch of the new iPad and possibly Apple TV. It is also a bonanza day for shippers. In anticipation of the launch Apple booked a large chunk of air cargo capacity to bring boxes from China into the States. According to this article the shipping rates over the last week went up by as much as 20% (hat tip to Zach Chahalis for the link).

Apple is certainly enjoying its status of a big boy in a sandbox here. For smaller companies though it means a struggle to get the goods from China. But there is also an opportunity. Since the cargo is flowing mostly into the States (and probably Europe as well), there must be excess capacity for shipping goods in the opposite direction. I wonder if anybody has decided to capitalize on this.

Managing this flow imbalance also presents a challenge for shippers. Of course with $100B in cash Apple probably paid them the return-ticket fare, but still looks like some money could be left on the table if they fly back completely empty.

What could the Fed learn from GM?

This is another topic I wanted to write about for a fairly long time – Quality. When I think about quality – the first thing that comes to mind is cars. In fact just about 10 years ago (I was buying my first car back then) the quality was a big issue. I took some comfort though in knowing that there are lemon laws were around, and got a relatively trouble-free Nissan.

The situation has much changed since then. As this article reports:

The newfound emphasis on quality has closed the gap between best and worst in the industry. In 1998, J.D. Power and Associates, which surveys owners about trouble with their cars after three years, found an industry average of 278 problems per 100 vehicles. By this year, the number fell to 132.

In 1998, the most reliable car had 92 problems per 100 vehicles, while the least reliable had 517, a gap of 425. This year the gap closed to 284 problems.

As the car industry seems to have solved its quality problems, they still emerge at other, sometimes unexpected fields. This one is from Federal reserve and has to do with brand new $100 bills.

Jobs creation in the Apple ecosystem

Being the largest public company it is hard to avoid scrutiny of business decisions. The story has begun a couple of months ago with the series of articles about work conditions at the Apple contract manufacturers in China and the impact of Apple’s outsourcing on the US economy. So here comes another batch of numbers related to the Apple’s jobs creation, this time from Apple itself.

To queue or not to queue?

I wanted to write about this for a while. Our economy has become more service oriented than ever (in fact 76.7% of its GDP is services, about 1% is agriculture and the remainder is manufacturing). The problem with services is something called simultaneity, that is they are consumed as they are being provided. It typically means that a server can serve one customer at a time and if there are more customers, well, they have to wait.

Waiting is not very pleasant. So companies go all sort of distances to reduce it or at least manage the perception of waiting. A classical example (and a success story) is Disney’s fast pass where you can basically take a ticket and come back at a pre-specified time to enjoy an attraction. What is interesting is that retailers have joined the pack and now they use something called “queue busters”. They have been doing snaking lines, express lines, and self check-outs for a while, but queue busting goes beyond this. This WSJ video and article explains how (hat tip to Richard Gaines, alum of my 351 class, for this link). It also has a quite nice infographic.

Vodpod videos no longer available.

First, two facts from psychology of waiting. It turns out if men wait for more than 2 minutes  our perception of wait actually doubles. For women such inflation happens after 3 minutes of waiting. And if we feel like we are waiting a lot we may skip the purchase altogether. What do retailers do about it?