February 2017 – The OM Blog by Heizer, Render, & Munson

OM in the News: Global Sourcing Creates a Giant Backlog at Boeing and Airbus

“The aviation industry is bulging with orders for new planes,” writes The Wall Street Journal (Feb.24, 2017). If only it can get them made. There were so many almost-finished jetliners, missing their engines, piled up at an Airbus factory last May that executives joked they were in the glider business. It ceased to be funny when a frustrated Qatar Airways canceled orders for 4 planes that were months overdue.

Airbus and Boeing must build 30% more planes annually than they do now to meet existing orders, in one of the industry’s steepest production increases since World War II. The scale of the ramp-up is putting companies to the test.

Suppliers of seats, toilets and engine parts are stretched to the limit and sometimes falling short. In one of the worst holdups, Pratt & Whitney informed Airbus in September it would ship only 75% as many engines in 2016 as planned. P&W struggled with making the engine fan blades, which initially took twice as long as expected. French aviation-parts supplier Zodiac Aerospace was late delivering business-class seats, which cost about $100,000 each, for new Boeing 787s headed to American Airlines. Zodiac also was late delivering seats and lavatory doors to Airbus for its A350 long-range jet, at a time when Airbus was sharply raising production of that plane in 2015.

Both Boeing and Airbus are making adjustments to cope, retooling factories and tightening oversight of their globe-spanning supply lines. Airbus may dedicate more resources to “supporting and understanding proactively possible hiccups with suppliers in the future,” said its CEO.

Classroom discussion questions:

Why are the supply chains so hard to manage?
Can Airbus and Boeing bring more manufacturing in-house?

Video Tip: Watching UPS’s Drones Deliver

A drone-equipped UPS van, seen from above — A drone-equipped UPS van

“Both the drone industry and federal regulators are years away from actual legal drone deliveries in the U.S.,” writes USA Today (Feb. 21, 2017). But that’s not stopping UPS from testing possibilities, both to get the visual of a drone with their logo out in front of the public and to see what works. The firm this week ran a test of a truck-launched drone delivery system for rural areas in Lithia, Fla. The drone-equipped vans would only be used on rural routes, says UPS.

Imagine a triangular delivery route where the stops are miles apart by road. The van-top drone would allow a UPS driver to make one delivery at the lower-left of the triangle, after launching a drone that would autonomously fly and deliver to the top of the triangle. While the drone is making its delivery, the driver would continue to the next stop, make another delivery by hand, and the drone would then rendezvous and recharge on top of the UPS truck.

UPS’ aim isn’t to replace drivers but to make them more efficient by allowing one driver to more quickly and efficiently deliver to several homes near one and other. The drone is fully autonomous. It doesn’t require a pilot. So the delivery driver is free to make other deliveries while the drone is away.

UPS estimates that reducing the distance its truck drive by just one mile per driver per day over one year could save the company up to $50 million. Rural delivery routes are the most expensive to serve, due to the time and vehicle expenses required to complete each delivery.

Here is a very short video your class will enjoy!

OM in the News: Technology and the Oil Recovery

A control room operator for Pioneer Natural Resources in Midland, helping manage all of the company’s drilling sites in 21st-century style — A control room operator helping manage all of Pioneer Natural Resources’ drilling sites

We blogged a few weeks ago about changes in the oil drilling industry and how automation is creating a new demand for high-tech workers. It is in the news again. “Despite 163,000 lost oil jobs since 2014, U.S. oil production is galloping upward, to 9 million barrels a day from 8.6 million a few months ago,” reports The New York Times (Feb, 20, 2017).

Nationwide, with only 1/3 as many rigs operating as in 2014, production is down less than 10% from record levels. Wells that 3 years ago required a breakeven oil price of $60 a barrel now need $35, well below the current price of $53.

Much of the technology has been developed by the aviation and automotive industries. Now most oil firms have organized teams of technicians that collect well and tank data to develop complex algorithms enabling them to duplicate the design for the most productive wells and to repair parts before they break down. The result is improved production and safety, but also a far smaller–more brain-oriented–work force.

Texas’ Pioneer Natural Resources has slashed the number of days to drill and complete wells so drastically that it has been able to cut costs by 25% in wells completed since 2015. The typical rig that drilled 8-12 wells a year just a few years ago now drills 16. Last year, the company added 240 Texas wells without adding new employees.

With the loss of manual jobs has come a transformation in the job force, with demand growing for more data analysts, math scientists, communications specialists and robotic design engineers. In the last 2 year, Switzerland’s ABB has opened two plants in Houston for assembling robotics into oil field operations.

Classroom discussion questions:

What are the implications of increased productivity in this industry?

2. How is OM changing the drilling industry?

OM in the News: Understanding South Korea’s Chaebol System

The heads of South Korea’s most powerful chaebol companies at a recent parliamentary hearing in Seoul as part of a corruption inquiry.

I was just chatting with my coauthors, Jay and Chuck, about our coverage of keiretsu networks in Chapter 11, Supply Chain Management. We don’t mention the somewhat similar system of interconnected companies in S. Korea in that chapter, but the New York Times (Feb. 18, 2017) just published an article called “Inside the Chaebol of S. Korea” that is worth sharing. Chaebols, a handful of family-controlled companies dominate economic life in South Korea. Some, like Hyundai, LG and Samsung, are well-known outside their home country. But domestically, they all wield immense power — and are coming under increasing scrutiny. The word comes from the combination of the characters for “rich” and “clan.”

Chaebol are generally conglomerates of affiliated companies. LG, for example, makes smartphones, televisions, electronic components, chemicals and fertilizer. It also owns Korean baseball and basketball teams. Hyundai, which makes the Hyundai and Kia cars, also makes elevators, provides logistics services, and runs hotels and department stores.

Chaebol rose from the ashes of the Korean War. After the conflict ended, officials steered relief funds and cheap loans to businessmen who promised to rebuild the country. The government also protected homegrown industries from foreign competition to help them develop. The recipe proved to be potent: Chaebol played a major role in South Korea’s rise as an industrial giant in the following decades.

But the recipe also created imbalances. Money meant for the common people often ended up in the hands of the wealthy families, creating resentment that lingers to this day. Chaebol became sprawling businesses that held a nearly 2/3 market share in S. Korean manufacturing by the end of the 1990s. The Asian financial crisis at that time stirred worries that the cozy relationship between chaebol member companies could lead to severe damage across multiple businesses and supply chains if one failed.

Classroom discussion questions:

What is the difference between Japan’s keiretsu networks and S. Korea’s chaebol?
Why is chaebol a potential supply chain issue?

Guest Post: Four Ways to Make Your Online OM Classroom More Interactive

Our Guest Post today comes from Dr. Amy Peterson, who is Senior VP of course design, development and academic research at Pearson, which publishes our OM texts.

The convenience and flexibility of the online learning environment allows learners to develop new skills and further their education, regardless of where they live. However, it can sometimes feel isolating for students and faculty.The question is: how do you build a sense of community in your online OM course? Here are 4 practical tips:

1. Integrate real-time interaction There is often limited interaction between you and your students and class members with each other. Consider how impromptu conversations outside the traditional classroom forge relationships, clarify ideas, and spark new insights. Try setting up webconferencing opportunities for class members to meet online synchronously both formally and informally.

2. Get creative with discussion boards In an online environment, you can structure your discussions so that everyone contributes, plus they’ll have more time to consider what they want to say before responding. In a larger class, you can set up smaller discussion groups of 20 so that students can get to know their fellow classmates. You can also create even smaller groups (5-7 people) for more intimate interaction.

3. Maximize engagement with non-task interaction Non-task interactions are those exchanges that are not part of the direct learning, but help create a supportive learning community. You can facilitate these types of interactions by leveraging the social networking capabilities that are available in many LMSs, such as chat and webconferencing.

4. Use multiple communication tools In addition to external social networking tools, such as Facebook, Telegram, Slack, and WhatsApp, students can meet each other in real time on Skype and Google Hangouts. Preprogrammed communication, such as introductory videos (like the ones created for the Heizer/Render/Munson text), content presentation, and email, are still important components of online learning, but student interaction can take the learning further, faster.

Guest Post: Problem-Based Learning for SPC

Today’s Guest Post comes from Dr. Dan Bumblauskas, who is an assistant professor and the Hamilton/ESP International Fellow for Supply Chain and Logistics Management at the University of Northern Iowa. Dan is also VP at PFC Services, a consulting firm dedicated to helping businesses improve process efficiency.

If you’re reading this blog I am sure that you, like me, have experimented with and deployed a variety of teaching techniques in OM courses over the years. Today I’d like to share one such initiative I embarked upon a number of years ago: the development of a problem-based learning module for statistical process control (PBL-SPC). Along with faculty and graduate students from both the colleges of business and education, I developed a web-based simulation in which students immerse themselves in a Frito-Lay factory environment based on Jay, Barry, and Chuck’s cases provided in their textbook.

The motivation for the PBL-SPC was that I found this to be a challenging topic to cover which students often find difficult to relate to and/or boring. Three different poor quality scenarios are provided (crushed chips, stale chips, and poor tasting or nasty chips) and students, as individuals or in teams, must traverse the simulated environment to assess the situation. By “speaking” with the fictitious characters created in the simulation the students get varying perspectives from the manufacturing supervisors for each area of the plant. In addition, some stations have data sets that can be downloaded as MS Excel spreadsheets to be further analyzed using SPC techniques.

Here is the link to the PBL-SPC: https://sites.uni.edu/bumblaud/ where you can access various menu options by hovering over the “Home,” button or clicking on 1 of the 3 scenarios. Under the “Home,” button, you will find the mission statement, production line schematic, staff profiles, an operational overview and a production video produced by Jay and Barry (Pearson) a few years ago.

For more information and materials, such as the team-based rubric created in conjunction with the PBL website, contact me at daniel.bumblauskas@uni.edu or 319-273-6793.

OM in the News: Can Sneaker Makers Come Home?

“A new Trump administration has industry players who import almost all their sneakers from low-cost locales in Asia talking about their efforts to switch more production to the U.S.,” writes Businessweek (Feb. 6-12, 2017). They already know that manufacturing closer to home would lower the time it takes to get products to market. Now, sneaker makers’ efforts to manufacture here could also help deflect attention from the fact that they overwhelmingly are in the business of designing and marketing made-in-Asia footwear for American consumers.

Nike’s products are made by 1.1 million workers in 645 factories located across 42 countries. About 400,000 of the workers are in Vietnam, with 202,000 in China. Only 7,000 are in the U.S. Footwear companies are hoping for incentives for manufacturing onshore to speed up their made-in-America ambitions. But as they look to bring production back to the U.S., shoemakers are embracing a new kind of worker: robots. Sneakers, with lots of pieces stitched or glued together, are labor-intensive. That’s one reason so many plants are located in low-wage nations. So automating is key for any shift.

Still, getting U.S. production to account for more than a tiny fraction of their global totals will be tough. Nike employs 1,300 at factories in Oregon and Missouri, and says it plans to invest in advanced manufacturing to bring production to the U.S. Even if many shoe factories were to get built in the U.S., most of the jobs they’d bring would likely go to industrial robots or 3D printers, not people. Adidas, for example, says its upcoming “speed factory” in the Atlanta area will initially employ only about 160 people. And Under Armour uses just a dozen workers to make its 3D-printed shoes in New Hampshire.

Classroom discussion questions:

Why does the U.S. want shoe jobs back?
Will Nike ever leave its plants in China and Vietnam?

OM in the News: Intel’s $7 Billion Arizona Chip Plant

“New chip plants are tremendously expensive,” writes The New York Times (Feb. 9, 2017), “requiring large tracts of land, reliable electricity and water, and a skilled work force that includes people with doctorates in chemistry and technicians who can repair a malfunctioning robot.” Sophisticated equipment is necessary to deposit and etch microscopic layers of material on silicon wafers, which are then cut and packaged into the microprocessors that run PCs, servers, smartphones and, increasingly, other electronic devices.

Countries compete to land such plants, especially modern factories that produce the most valuable chips and bring high-paying R&D jobs. Government subsidies are common, with China vowing to spend tens of billions of dollars to expand its domestic chip industry. While most technology manufacturing, such as computers and smartphones, has moved overseas, American factories still account for 1/7 of global chip production and produce many of the most valuable computer chips, including Intel’s flagship processors. Seventy-six chip plants are scattered across the U.S., from Maine to California.

Intel’s new $7 billion, 3,000 employee, chip plant in Arizona plant will build ultradense chips that Intel refers to as 7 nanometer, with transistors packed more closely together than in the chips the company now builds. The tighter spacing allows for faster, more energy-efficient chips. “This factory will produce the most powerful computer chips on the planet,” says Intel’s CEO, who adds: “the company had decided to proceed because of the tax and regulatory policies we see the (Trump) administration pushing forward.” Intel also has factories in China, Ireland and Israel.

Classroom discussion questions:

Why are chip factories important to the U.S?
Why is chip manufacturing a tough business to enter and succeed in?

Teaching Tip: Helping Your OM Students Assess Their Progress

Faculty Focus (Feb. 6, 2017) suggests that before midterm exams you enable your OM students to assess their performance and set goals, as well as to ask questions of and provide feedback to you. One way to do this reflective opportunity is through an online journal assignment in which students do the following:

Report their overall grade in the course
Report their attendance record (when attendance is required)
Reflect on their performance, whether it meets their expectations
Provide goals for the rest of the course (often in the form of a GPA, but can also be learning outcomes)
Provide feedback and ask questions
Try to do this about a 1/3 of the way through a course so that underperforming students can still change trajectory. They can take 50-400 words to complete the assignment. Their posts range from brief conclusions that they are exactly where they want to be, to detailed descriptions of problems and questions about how to move forward. You won’t grade the assignment, but students will be required to complete it.

Here’s what you need to know before you implement the progress report assignment.

Instructor requirements. (1) Students must have already completed some graded assignments, and (2) they must be able to see the individual grades and understand how they contribute to the course grade.

Large classes? This activity would not take long for the tremendous benefit it provides to the class dynamic, student success, and your end-of-semester evaluations, because many reports do not require a lengthy response.

Non-tech version. If homework is given through the university’s LMS, it is easy to give an online assignment for this progress report. If you prefer an offline version you can allow students to type or write their progress reports and turn them in during class.

This small activity can have a big impact on students and on your OM teaching. It also builds strong rapport at critical points early in the semester.

OM in the News: The End of Employees?

UPS employees at a facility in N.H. pack jet-engine parts bound for Pratt & Whitney factories. The work used to be done by Pratt employees

No one in the airline industry comes close to Virgin America on a measurement of efficiency called revenue per employee. That’s because baggage delivery, maintenance, reservations, catering and many other jobs aren’t done by employees. “We will outsource every job we can that is not customer-facing,” says Virgin’s CEO.

“Never before have American companies tried so hard to employ so few people,” writes The Wall Street Journal (Feb. 3, 2017). The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry. This “contractor model” is so prevalent that Google, ranked as the best place to work for 7 of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees. About 70,000 temps, vendors and contractors test drive Google’s cars, review legal documents, make products easier to use, manage marketing and data projects, and do other jobs. (They wear red badges, while regular employees wear white ones).

The biggest allure of outsourcing employees, of course, is more control over costs. Contractors help businesses keep their in-house staffing lean and flexible enough to adapt to new ideas or changes in demand. At large firms, 20-50% of the total workforce often is outsourced. Bank of America, Verizon, P&G, and FedEx have thousands of contractors each. In oil, gas and pharmaceuticals, outside workers can outnumber employees by at least 2 to 1.

Janitorial work and cafeteria services disappeared from most company payrolls long ago. But a similar shift is under way for higher-paying, white-collar jobs such as research scientist, recruiter, operations manager and loan underwriter. Few companies or economists expect this trend to reverse. Moving noncore jobs out of a company allows it to devote more time and energy to the things it does best. Businesses currently spend about $1 trillion a year on outsourcing.

Classroom discussion questions:

What are the disadvantages of this massive outsourcing?
Would students want to take “contract” jobs?

OM in the News: IKEA’s New Product Development and “Open Sourcing”

“IKEA is making it easier for people to hack its furniture,” writes The Wall Street Journal (Jan. 30, 2017). The Swedish retailer plans a 2018 roll out of its first “open source” sofa—a piece of furniture designed to be easily customized to fit a space, or change functions entirely over time. It is called Delaktig, Swedish for “being part of something.” Delaktig’s design will allow third-party designers to create complementary products that can attach to the sofa or modify its use.

The move is a further embrace of a long inspired online community of “hackers” who share ideas for how to modify IKEA products. They have fashioned wall hangers from IKEA’s wooden bed slats, turned dressers into desks and raised IKEA beds using its kitchen cabinets and drawers.

IKEA didn’t encourage the tinkering, but nor did it actively discourage the trend. A niche industry has now grown up making everything from sofa covers to decorative table legs fitted just for IKEA’s particularly shaped furniture. Sweden-based Bemz AB, for instance, makes covers for IKEA sofas, footstools, headboards and armchairs. They can sell for more than the furniture itself. Prettypegs AB makes decorative furniture legs for IKEA beds, tables and stools.

IKEA said Delaktig was inspired by Apple, which helped create today’s app universe by allowing developers to create them for the iPhone. The company is also taking a page from the car industry, building a common, resilient platform upon which to create different models.

Classroom discussion questions:

How would you describe IKEA’s product strategy (see Chapter 5)?
What are the advantages and disadvantages of open sourcing?

OM in the News: The Automation of Oil Drilling

As the global oil industry begins to climb out of a collapse that took 440,000 jobs, anywhere from a 1/3 to 1/2 may never come back. “A combination of more efficient drilling rigs and increased automation is reducing the need for field hands,” writes Businessweek (Jan. 30-Feb. 5, 2017).

Automation, of course, has revolutionized many industries, from auto manufacturing to food and clothing makers. Energy companies, which rely on large, complex equipment for drilling and maintaining oil wells, are particularly well-positioned to benefit. “It used to be you had a toolbox full of wrenches and tubing benders,” says one south Texas professor. “Now your main tool is a laptop.” During the boom, companies were too busy pumping oil and gas to worry about head count. The two-and-a-half-year downturn gave executives time to rethink the mix of human labor and automated machinery in the oil fields.

Nabors Industries, the world’s largest onshore driller, says it expects to cut the number of workers at each well site eventually to 5, from 20, by deploying more automated drilling rigs. Rigs have gotten so efficient that the U.S. oil industry needs only 1/2 as many workers as it did at the height of the shale boom in 2014 to suck the same amount of oil out of the ground.

The systems, that is all the processes involved in drilling and fracking a well, will be the key. That means an engineer can design an oil well at his desk. With the press of a button, an automated system would identify the equipment needed from a supplier, create a 3D model, send the details to the rig, and tell the rig to do the job.

Classroom discussion questions:

Why the industry push for automation?
What are the plusses and minuses for the U.S?