April 2015 – The OM Blog by Heizer, Render, & Munson

OM in the News: The Disney MyMagic+ Revolution

The cost of each band has dropped from $35 to under $5

It was February 2011, and Disney’s CEO, Bob Iger, gathered his board of directors. Iger set his sites on his boldest gamble yet: to reinvent Disney’s iconic parks. He planned to pump $1 billion into MyMagic+, a sweeping plan to overhaul the digital infrastructure of Disney’s theme parks, which would upend how they operated and connected with consumers. At the core was the MagicBand, an electronic wristband that could digitally carry everything a guest might need—park tickets, photos, coupons, even money. It would give guests entry to Disney World, pay for goods at retail shops, and unlock their hotel room doors. “It would be a virtual key to the Magic Kingdom,” writes Fast Company (May, 2015).

Iger’s effort would prove to be monumental. Disney World isn’t an amusement park: It’s a metropolis. Sprawled across 25,000 acres of Orlando, it contains 4 theme parks, nearly 140 attractions, 300 dining locations, and 36 resort hotels. Its 15 mile monorail system has a daily ridership of 150,000. The parks have their own power plant and security force, plus some of the world’s largest laundry facilities.

More than 28,000 hotel doors needed their locks replaced in order to connect wirelessly with the MagicBand, even as the rooms were occupied. Two dozen workers spent 8 months upgrading 120 doors per day. The company rolled out 6,000 mobile devices to support MyMagic+ in the parks. More than 70,000 cast members got MyMagic+ awareness training. Disney World’s physical infrastructure, which was first built in the late 1960s, also needed major capital improvements. Park-entry touch points (283 of them) needed to be upgraded. As much of Disney World lacked a Wi-Fi connection, the company had to install more than 30 million square feet of coverage. It was a huge effort to wire a communications infrastructure the size of San Francisco.

Not surprisingly, the project did not go smoothly. The rollout did not hit until mid-2014. But now that it is place, MagicBand has cut turnstile transaction time by 30%. Park capacity has also increased, and over 5,000 more people fit into the park each day. And guests say MagicBand is a lifesaver; they couldn’t imagine going back to the old system, with all the paper tickets and FastPasses.

Classroom discussion questions:

1. Are there any operations downsides to this new technology?

2. Can this technology be easily expanded to all theme parks?

Good OM Reading: Global E-Waste Reaches New Levels

The amount of global e-waste — discarded electrical and electronic equipment — reached 41.8 million tons last year, according to a new United Nations University report (April 20, 2015). The report provides an unprecedented level of detail and accuracy about the size of the world’s e-waste challenge, ongoing progress in establishing specialized e-waste collection and treatment systems, and the outlook for the future.

The bulk of global e-waste in 2014 (almost 60%) was discarded kitchen, laundry, and bathroom equipment. Personal information and communication technology (ICT) devices — such as mobile phones, personal computers, and printers — accounted for 7% of e-waste last year. The-waste comprised:

12.8 million tons of small equipment (such as vacuum cleaners, microwaves, toasters, electric shavers and video cameras);
11.8 million tons of large equipment (including washer/dryers, dishwashers, electric stoves, and photovoltaic panels);
7.0 million tons of cooling and freezing equipment;
6.3 million tons of screens;
3.0 million tons of small ICT equipment; and
1.0 million ton of lamps.

This e-waste represented $52 billion of potentially reusable resources, yet little of it was collected for recovery, or even treated/disposed of in an environmentally sound manner. Less than 1/6 is thought to have been properly recycled or made available for reuse. While e-waste constitutes a valuable “urban mine” — a potential reservoir of recyclable materials — it also includes a “toxic mine” of hazardous substances that must be (but too-seldom are) managed with extreme care.

The report estimates that the e-waste discarded in 2014 contained 16,500 kilotons of iron, 1,900 kilotons of copper, and 300 tons of gold as well as significant amounts of silver, aluminum, palladium, and other potentially reusable resources. It also contained substantial amounts of health-threatening toxins such as mercury, cadmium, chromium, and ozone-depleting chlorofluorocarbons. Just two countries — the US and China — discarded 1/3 of the world’s total e-waste.

This valuable report contains several graphics about the recycling process that you can use when teaching Supplement 5, Sustainability in the Supply Chain.

OM in the News: GM Turns to Long-Term Supplier Contracts

An auto worker assembles an SUV chassis at the Arlington, Texas, GM plant

General Motors’ purchasing chief said the nation’s largest auto maker aims to sign new parts contracts for two vehicle generations, or as long as a decade, to cut costs and gain access to advanced technologies. GM is gearing up for big investments in luxury cars, electric vehicles and other projects, and expects to sign hundreds of billions of dollars in new supply contracts over the next 2 years. By locking suppliers into longer-term contracts and looping into vehicle designs earlier in the process, the auto maker expects suppliers to share more innovations and better processes that help save money. “We want them to double down on us,” the purchasing head stated.

Recently, GM asked about 30 of the auto maker’s biggest parts makers to help relieve supply bottlenecks so the company can crank up production of its highly profitable pickup trucks and sport-utility vehicles. In some cases, GM promised to help suppliers cover additional costs to get the needed parts.

“The change is part of a technology arms race in the industry, with auto makers vying to be first with self-driving features for vehicles or propulsion technologies that reduce emissions,” writes The Wall Street Journal (April 15, 2015). GM’s CEO recently implemented a strategy aimed at improving relationships with suppliers; she believed that the auto maker was overly optimistic in its planning assumptions or too forceful in its cost-cutting mandates. The firm is attempting to undo decades of damage caused by poor relationships with suppliers that had curtailed its early access to new innovations.

Classroom discussion questions:

1. Describe GM’s prior relations with suppliers.

2. Why the change?

3. Research the history of the famous GM VP-Purchasing, Jose Lopez. (See Supply Chain Digest (July 7, 2009)

OM in the News: The Dangers in Measuring Hospital Quality

One of our definitions of quality in Chapter 6 is user based: “quality lies in the eyes of the beholder.” The Atlantic’s article (April 17, 2015), titled “The Problem With Satisfied Patients,” states though, that a misguided attempt to improve healthcare has led some hospitals to focus on making people happy, rather than making them well. When healthcare is at its best, hospitals are 4-star hotels, and nurses, personal butlers at the ready—at least, that’s how many hospitals seem to interpret the government mandate by the Department of Health and Human Services. DHHS announced that 30% of hospitals’ Medicare reimbursement would be based on patient satisfaction survey scores. The goal: transparency and accountability, which would improve healthcare.

But a recent study revealed that patients who reported being most satisfied with their doctors actually had higher healthcare and prescription costs and were more likely to be hospitalized than patients who were not as satisfied. Worse, the most satisfied patients were significantly more likely to die in the next 4 years. As one MD said: “Patients can be very satisfied and dead an hour later.”

The concept of “patient experience” has characterized patients as customers and nurses as automatons. Some hospital job postings advertise that they are looking for nurses with “good customer-service skills” as their first qualification. By treating patients like customers, hospitals accept the cultural notion that the customer is always right. But hospitals, too, can offer poor care and still get high patient-satisfaction ratings. A study of poor performing hospitals found that 2/3 of them scored higher than the national average on the key patient question; “YES, they would definitely recommend the hospital.”

Research has shown that hiring more nurses is the true key to patient satisfaction. Higher staffing of nurses has been linked to fewer patient deaths and improved quality of health. Failure-to-rescue rates drop. Patients are less likely to die or to get readmitted to the hospital. Their hospital stay is shorter and their likelihood of being the victim of a fatigue-related error is lower.

Classroom discussion questions:
1. What are the definitions of quality (see Chapter 6) and how do they relate to hospitals?

2. What are the flaws, if any, in surveying patients to measure hospital quality?

Teaching Tip: Group Projects in Your Online OM Course

As you introduce the group project to the students in your new online course, you can hear their screams through your PC! Why? Why? There are several reasons you did so: Students will have an opportunity to develop team skills, improve communication skills, and leverage their own personal interests and experiences to contribute.

But group projects may also cause both students and instructors additional work due to the issues that may arise during the course of the project. Issues often involve questions and concerns around grading, equal distribution of work, communication pitfalls, and managing expectations. Here are 5 guidelines for smoothly running the online group project that are recommended by Faculty Focus (April 20, 2015):

1. Define the Project – The project should be integrated into the course objectives and not be viewed as an extra assignment or busy work.

2. Establish Milestones – The project should include specific milestones during the course. For example, require an outline, a project scope, a requirements document, and other pertinent deliverables.

3. Use your Learning Management System (LMS) – You can offer private group discussion areas, chat areas, and other collaboration tools that will encourage both communication and participation. You can choose to monitor these as well if needed.

4. Simplify and Clarify Grading – You need to establish clear grading expectations for the group project. You may choose to grade each participant separately or, preferably, provide one grade for each project deliverable and apply that grade to all participants.

5. Provide Encouragement – Encourage and communicate the specific details of the project, and encourage each member of the group to utilize his/her strengths. Ask each group to submit an outline or summary for approval as well.

OM in the News: The Latest Robots Take Hold–Deftly

German Chancellor Merkel and Indian Prime Minister Modi with the new YuMi robot

A new generation of robots designed to work safely alongside people and take on tasks such as assembly of small parts that require more dexterity than older robots can muster, is here, reports The Wall Street Journal (April 14, 2015). The Swiss firm ABB just introduced YuMi, which with a starting price of about $40,000, can help assemble such products as smartphones, laptops and tablet computers that have been assembled largely by hand by workers in lower-cost countries like China.

The small robots, called collaborative robots, are more flexible, much easier to program and safer for humans. Older types of robots, designed to do such tasks as weld or hoist heavy objects, are so fast and powerful that they need to be surrounded by fences to avoid injuring workers. The newer robots have sensors and cameras, telling them to slow down or halt when people get too near. They can be used for quality inspections and packaging.“We have taken the robot out of the cage,” said ABB’s CEO. YuMi is dexterous enough to thread a needle, he added.

YuMi is designed to work with small parts weighing as much as 1.1 pounds. German robot maker, Fanuc, by contrast, has built the CR35iA, which can pick up items weighing as much as 77 pounds. That new robot is expected to be used for such things as stacking boxes on pallets, moving materials into place for assembly, and driving in screws. Many repetitive tasks in factories are still done by people because they require a delicate sense of touch and dexterity that eludes most machines. Robot makers say they are making progress toward matching human dexterity, though. The German Kuka LBR iiwa robot, for instance, can install a tube inside a dishwasher.

Classroom discussion questions:

1. Why is this new generation of collaborative robots important to operations managers?

2. What is the restriction that older and larger robots face?

OM in the News: GE’s Engines and Additive Manufacturing

The GE90 is a family of turbofan engines built for the Boeing 777 long range wide-body aircraft

I don’t often share articles from American Machinist, but this one on General Electric’s development of a new generation of jet engines (April 15, 2015) struck close to home. My 2nd job out of college was at this very plant near Cincinnati, where I worked as a designer for the massive CF-6 engine, back in the early 1970s. (My 1st job was actually as an engineer at McDonnell Douglas, in St. Louis, on the design team for the DC-10–which used the CF-6).

Now, 45 years later, GE reports that its GE90 will be the first of its commercial jet engines to be manufactured with a housing component produced by additive manufacturing. The GE90, the world’s largest turbofan engine, was the first jet engine to incorporate composite fiber polymeric material on its front fan blades when it was introduced 20 years ago. Additive manufacturing is quickly gaining acceptance in jet engine production, for its design flexibility, material selection, and production cost advantages.

The term refers to various production methods, including stereolithography for polymer materials. GE is using laser-powered 3-D printers, 3-D “inking” and “painting” machines, and other advanced manufacturing tools, to make parts and products that were thought impossible to produce and which sometimes verge on art. It has also been in the forefront of companies adopting additive manufacturing for high-volume production. “Additive manufacturing has allowed GE engineers to quickly change the geometry through rapid prototyping and producing production parts, saving months of traditional cycle time without impacting capabilities,” says the GE program manager.

GE’s production rates for jet engines and components are setting new records for volumes: Its total backlog for jet engines exceeds 15,000 units, representing more than $135 billion for equipment and services.

Classroom discussion questions:

1. What is additive manufacturing and why is it important to GE?

2. What is stereolithography?

OM in the News: Blue Jeans and Sustainability

“The four-year drought in California is hurting more than just farmers,” reports The Wall Street Journal (April 10, 2015). It is also having a significant impact on the fashion industry and spurring changes in how jeans are made and how they should be laundered. Southern California is estimated to be the world’s largest supplier of so-called premium denim, the $100 to $200-plus-a-pair of designer jeans. Water is a key component in the various steps of the processing and repeated washing with stones, or bleaching and dyeing that create that “distressed” vintage look. Southern California produces 75% of the high-end denim in the U.S. that is sold world-wide. The area employs about 200,000 people, making it the largest U.S. fashion manufacturing hub.

Now that water conservation is a global priority, major denim brands are working to cut water use. Levi, with sales of $5 billion, is using ozone machines to replace the bleach traditionally used to lighten denim. It is also reducing the number of times it washes jeans. The company has saved more than a billion liters of water since 2011 with its Levi’s Water Less campaign. By 2020, the company plans to have 80% of Levi’s brand products made using the Water Less process, up from about 25% currently.

Traditionally, about 34 liters of water are used in the cutting, sewing and finishing process to make a pair of Levi’s signature 501 jeans. Nearly 3,800 liters of water are used throughout the lifetime of a pair of Levi’s 501. A study found cotton cultivation represents 68% of that and consumer washing another 23%. So Levi is promoting the idea that jeans only need washing after 10 wears. (The average American consumer washes after 2 wears.) Levi’s CEO recently urged people to stop washing their jeans, saying he hadn’t washed his one-year-old jeans at the time. “You can air dry and spot clean instead,” he said.

Classroom discussion questions:

1. Why is sustainability a major issue in the fashion industry?
2. What else can manufacturers do to cut water usage and waste?

OM in the News: 3-D Printing Heads for the Moon and Mars

The European Space Agency's proposed moon colony to be built on site by a robotic 3-D printer using lunar dust as ink — The European Space Agency’s proposed moon colony to be built on site by a robotic 3-D printer using lunar dust as ink

Dutch television producers chose 100 contestants in February to vie for a one-way trip to Mars. If all goes as advertised, winners might be landing there sometime in 2027. They’ll quickly need permanent shelter. The nearest Home Depot will be 140 million miles away. The only readily available construction material on Mars is sand.

That might be all they need if a plan by NASA works out, reports The Wall Street Journal (April 13, 2015). NASA is experimenting with a 3-D printer that would make bricks suitable for airtight buildings and radiation-proof shelters using the grit that blows across Mars’s red surface. In Huntsville, NASA’s 3-D printer is starting to print curved walls and other structures using imitation Martian sand as an ink.

And engineers at the European Space Agency (ESA) are exploring ways to use lunar dust as an ink to print out an entire moon base. On a recent trial run, ESA used a 3-D stereo-lithography printing process that can print objects up to 19 feet long on each side. They mixed simulated lunar dust with magnesium oxide and printed out stone-like building blocks weighing one-and-a-half tons each. That could reduce the need to launch raw materials into orbit at a cost of thousands of dollars per pound. “It would be economically impossible to send all these bricks from Earth to the Moon,” said an engineer at ESA.

And if astronauts ever do reach Mars, they may survive the journey by eating pizza made with a 3-D-printed food system for long duration space missions. Aboard the international space station last December, one astronaut printed out a ratchet wrench—the first tool to be printed in orbit. Typically, an astronaut might have to wait a year or more for a new tool to be shipped into orbit. In all, the crew printed 25 experimental parts.

Classroom discussion questions:

1. Will 3-D printing revolutionize space travel?

2. How can this technology be used by operations managers on earth?

OM in the News: Stuck in Seattle With Big Bertha

Megaprojects almost always fall short of their promises—costing too much, delivering underwhelming benefits, or both, reports BusinessWeek (April 6-12, 2015). Yet from the London-Paris Chunnel to Boston’s Big Dig, cities still fall for them, seduced by new technologies and the lure of the perfect fix.

Back in Seattle, everything about the new project to build a tunnelled roadway though the heart of the city is gargantuan, starting with the underground drilling machine called Bertha. Bertha is as tall as a 5-story building. Her job is to bury a highway that runs on a structurally unsound elevated road smack in the middle of an earthquake zone. The viaduct, as it’s called, follows the shoreline, effectively barricading downtown Seattle from what could be a beautiful waterfront. Bertha runs on a 25,000-horsepower motor and has a head weighing 1.7 million pounds, with 260 steel teeth designed specifically to chew through Seattle’s silty soil.

But Bertha broke abruptly in December 2013 after boring through just 1,000 feet, a small portion of her job. Her seals busted, and her teeth clogged with grit and pieces of an 8-inch steel pipe left over from old groundwater tests. She stopped entirely. Now the tunnel, with a budget of $1.4 billion and originally scheduled to be finished in November 2015, is 2 years behind schedule. The contractor has spent months digging to reach Bertha and crane her to the surface, where a weary Seattle awaits. After Bertha got stuck, she couldn’t back up because she builds the concrete walls of the tunnel as she drills forward.

Bertha may be a lemon, but there is no Plan B. The state and the contractor say they’re not abandoning ship. Bertha has become too big to fail. Nine times out of 10, though, massive infrastructure jobs go over budget. Tunnels on average cost 34% more than anticipated. No country or state is any better at predicting costs, and over the past 70 years, less than half of the world’s megaprojects have delivered their promised monetary benefit.

Classroom discussion questions:

1. Why do large projects tend to run late and over budget?

2. What tools in Chapter 3 can be used to control projects better?

OM in the News: Hunger for Organic Foods Stretches Supply Chains

Last year, organic cereal maker Nature’s Path Foods grew so frustrated with organic-grain shortfalls that it took a radical step: It bought a farm. In this example of backward integration, the Canadian company plunked down $2 million for 2,800 acres of Montana cropland. Its goal was to seize greater control of its supplies of wheat, oats and other ingredients. Nature’s Path is among a number of organic-food purveyors taking steps to tackle supply constraints that are hampering the growth of one of the hottest food categories, reports The Wall Street Journal (April 3, 2015). Companies including soup maker Pacific Foods and burrito chain Chipotle are digging deeper into the supply chain with such moves as financing farmers, offering technical training and hiring headhunters to recruit organic growers.

The efforts are aimed at ramping up organic-food output that has failed to keep pace with surging consumer demand, due in part to the significant costs and risks that farmers face in converting from conventional to organic farming. High land costs, for example, make starting an organic farm expensive, and switching to one is onerous. Conventional cropland and dairies can become certified as organic after a 1-3-year transition period in which farmers eschew pesticides, genetically modified seeds, and synthetic fertilizers and hormones. Organic farmers also have greater trouble securing bank loans, and organic crops don’t have forward or options markets, which ease the risks of wide swings in prices for many conventional farmers.

Nature’s Path began wrestling with acute supply shortages in the late 2000s that forced it to import some ingredients on short notice from Sweden, driving up its costs. It plans to dedicate at least $2 million each year to purchase additional conventional farmland that it can then convert to organic production in order to fill 1/4 of its grain needs over the next decade. Two years ago, Chipotle, which said it seeks to purchase as many organic ingredients as practical, began providing financial incentives to help farmers of black beans transition from conventional to organic production. Pacific Foods, worried its organic chicken supply could run short, started building its own chicken-raising sheds.

Classroom discussion questions:

1. What is backward integration– give other examples of it in industry.

2. Why is the organic food industry more complex than conventional production?

OM in the News: It’s Ikea’s World

At Ikea’s distribution center in Älmhult, Sweden, pallets are stacked and retrieved through a fully automated process.

In a stunning global expansion, the Swedish home furnishings giant has been quietly planting its blue and yellow flag in places you’d never expect. “Pay attention, Wal-Mart:” writes Fortune (April 6, 2015), “You could learn a few things.” Ikea, it seems, is a genius at selling Ikea—flat packing, transporting, and reassembling its quirky Swedish styling all across the planet. The furniture and furnishings brand is in more countries than Wal-Mart, Carrefour, and Toys “R” Us.

In an industry where the product is often passed down from generation to generation, Ikea has shaken up the paradigm. It kept its prices down with an obsessive focus on costs. It might skip an extra coating of lacquer on the underside of a table that people never see or use. The company has also stripped out as much labor as possible from the system, pushing tasks that were once done by traditional retailers onto the customer. Flat packed furniture made it easier for customers to take purchases with them, cutting out the expense of stocking and delivery. (Ikea figured out flat packing in 1956, when a designer took the legs off a Lövet table to get it in his trunk.) The magic of flat packing allows goods to be jammed into shipping containers without wasting any space. Wasted space means wasted money and is also environmentally unfriendly. “I hate air,” says Ikea’s head of packaging.

The firm’s success, in large part, is based on improving its product design. As much as it has doubled down on market research and logistics, Ikea has been relentless in its focus on design. Ikea comes up with some 2,000 new products every year. Products under development go through rapid prototyping in the pattern shop to provide a sense of what they will actually look like in the flesh. During Fortune’s visit, one of the four 3-D printers was outputting a toilet brush. If air is the enemy in shipping, it is the ally in design. “The more air in our products, the better,” says Ikea.

Classroom discussion questions:

1. What operations strategies are key to Ikea’s success?

2. How pleased are students who have had to assemble the products themselves?

OM in the News: Troubleshooting Intel’s Supply Chain in the Congo

American manufacturers have for years been under pressure from Congress to avoid buying “rare earths” and minerals from rebel held mines in the Congo. Government commanders and rebel militias in the Democratic Republic of the Congo earn about $185 million annually through the illicit trade of gold and so-called 3T minerals (tin, tantalum, and tungsten)—crucial elements in consumer electronics such as cell phones and tablets. The revenue has financed a brutal ongoing conflict resulting in the deaths of millions of innocent people. Intel no longer wanted to contribute to an economy of suffering. Just recently, reports FastCompany (April, 2015), Intel became the first company to build microprocessors entirely from conflict-free minerals.

But controlling the supply chain process at Intel was not at all simple. Identifying how conflict minerals entered its supply chain was key to eliminating them. Smelting plants, where raw ore is refined, offered one place to trace the origin of minerals, if only the facilities would comply with a transparent auditing process.

Over five years, Intel’s supply chain director, Carolyn Duran, and her team visited 91 smelters in 21 countries, using Intel’s purchasing power to put pressure on smelters to develop and implement an auditing system to track minerals so corporate buyers can source responsibly. The result: Nearly half the world’s 3T and gold smelters have now passed conflict-free audits, shrinking the market for illegally traded minerals and reducing warlords’ profits. Intel hopes to be able to declare its entire product line conflict-free by 2016, inspiring other firms to do the same.

Classroom discussion questions:

1. Why are rare earths critical to the supply chain and which countries supply them?

2. Why did Intel try to set this precedent?

Guest Post: My North Carolina View of Incentives

Our Guest Post today comes from Coleman Rich, at Elon University, in North Carolina. Coleman is Chair of the Department of Marketing and Entrepreneurship and Senior Lecturer in Operations and Supply Chain Management

Being a Textile Management grad from North Carolina State U., I have seen that incentives played an important role in NC to secure the textile trades from the North. Many towns would pool their money to help secure a mill which would move individuals closer to town and give workers a steady wage. The mills provided housing and staples for their employees.

Fast forward to 2 decades ago. North Carolina was in the running for the Mercedes plant. The Governor met with the Mercedes representatives at Alamance Community College near I-40/85 to discuss incentives for the plant. There was a 1,000 acre site with rail, and Duke Energy would run the power to the plant. The Governor offered over $100 million. But the Germans went to Alabama. We can only imagine how different this area would be if Mercedes had chosen this site.

That one plant created an entire industry cluster in the Alabama and Mississippi area. Since Mercedes announced the Alabama plant in 1993, Honda, Toyota, Hyundai

Dell's 2012 closing of this manufacturing plant put more than 900 people out of work. — Dell’s 2012 closing of this manufacturing plant put more than 900 people out of work.

and Kia also opened factories in that region. I believe incentives rarely work, but you have to “pay to play.” As a state, I would be willing to offer incentives to a large manufacturing company because I believe there is more economic value in supply chain companies locating in close proximity to the manufacturer. Alabama’s network of auto suppliers now tops 130 companies.

Here is a mistake the State made with Dell in Kernersville, NC. Virginia and NC were both bidding for the Dell plant. Virginia offered incentives in the $30-37 million range. Local and state incentives from NC were about $242 million. But the Dell plant closed after 5 years. Why did NC offer more than Virginia in incentives for the Dell plant? After all, as technology was changing and consumers moving toward laptops, this plant was making desktops. Also Dell began to change its business model to compete with HP. Maybe the economic models that the state of NC uses also need to consider product life cycle of the product that will be made in the plant.

But if it wasn’t for incentives, NC would not have been shaped by the tobacco, energy (Duke Power), furniture and textile industries. Those industries could have moved further south to SC and Georgia. As I teach Chapter 8 in the Heizer/Render text, I share all of these points with my class.

OM in the News: Toyota’s New Modular Design

Toyota just announced a revamped manufacturing process—built on sharing components among vehicles—that the world’s best-selling auto maker says will produce half its vehicles by 2020 and slash costs. But its unveiling follows a path blazed in recent years by German rival VW—a reversal for the Japanese pioneer, whose production system was for decades seen as the gold standard, giving the world such manufacturing concepts as “just-in-time inventory” and “continuous improvement.”

As Toyota developed its new manufacturing process, it found itself chasing Volkswagen, which in 2012 launched vehicles built on its own new global manufacturing platform, reports The Wall Street Journal (March 27, 2015). VW’s effort to lower the huge development costs for 9 car brands produced a building-block system that allows it to develop platforms on which multiple brands can be built in the same factory and often on the same production line, a savings over designs that often required one factory per model. “It used to be: one plant, one line, one model,” said VW’s CEO. The system sets specifications for the basic underpinning of a vehicle and for attaching components from brakes and powertrains to engines.

The effort will save Toyota 30% of the upfront development costs of a new vehicle. Its so-called MQB platform allows multiple models, body styles and brands to be built in the same factory, reducing costs in several ways. The introduction of smaller manufacturing lines, for instance, is expected to reduce initial plant investment by approximately 40%. And the company’s new production process is built on much more expansive component sharing than its existing platform-sharing strategies. Toyota said it plans to increase the use of same or similar components, regardless of vehicle size and styles, allowing it to order parts in bulk and save costs through greater economies of scale.

Classroom discussion questions:

1. Why is the modular design so important?

2. What is the MQB platform?