There have been early signs of Amazon’s interest in autonomous-vehicle technology. The firm just won a patent for coordinating autonomous vehicles in a roadway. Over the past few years, Amazon has been building out its supply chain and logistics network, aiming to deliver more of its own packages. It also envisions transporting goods on a large scale for other companies, one day competing with delivery giants UPS and FedEx.
The company is leasing 40 planes and has bought thousands of branded truck trailers. Tractor trailers have long been considered a likely first target for implementing widespread driverless technology, in part due to how regularly they drive the same stretches of highway–so Amazon is very interested in autonomous trucking. Humans have a 10-hour limit when driving, but a self-driving truck could drive through the night. Instead of taking 4 days to drive coast to coast, it will take a day and a half.
The biggest portion of Amazon’s spending and energy has gone toward another type of autonomous means of transport: drones. That 2013 initiative is further along and is expected to continue to be the major focus of the company. Drones could communicate or pair up with driverless vehicles, for example, to coordinate deliveries.
Classroom discussion questions:
Describe Amazon’s driverless ideas.
Why does the firm want to get more involved in transporting goods?
An electrician checks her blueprint at Baltimore’s Blueprints Robotics factory.
“The future of U.S. homebuilding may depend on robots,” writes Businessweek (April 24-30, 2017). With construction workers in short supply and demand rising, builders are turning to “fast factories” that can build houses like cars on an assembly line, using robots to fire 1,000s of nails into studs each day without missing. Other machines cut, sand, drill, and insulate. The plants enable developers to fill the labor gap by having houses and apartment buildings manufactured off-site, for less money and in a fraction of the time. Even Marriott Hotels is increasingly turning to modular construction.
Builders hire the factories to manufacture homes in sections, which are transported on trucks, then laid down on foundations by cranes, like giant Legos. Sometimes the modules are fully framed rooms, complete with tile showers and gourmet kitchens. The house is 60% complete when it arrives. The idea of transporting homes in prefabricated sections has roots in the early 1900s, when homesteaders could buy kits from a Sears Roebuck catalog for assembly on their newly acquired plots of land. In the 1980s and 1990s, it became increasingly popular to build lower-cost homes in factories.
Today’s plants are capable of producing bigger buildings with more elaborate designs. The Blueprint Robotics factory in Baltimore is one of the first in the U.S. to use robots. Taller multifamily buildings, dorms and hotels are increasingly being manufactured indoors. And so are mansions that sell for millions. Having an indoor facility means weather delays are rarely a factor. Each worker is given a narrow concentration, like tiling floors or sanding drywall, which increases production speed. People without any background in construction can become skilled laborers in 2 weeks.
Classroom discussion questions:
Provide 2 other examples of fixed position layout (see Chapter 9).
What are the disadvantages of this automated, modular approach?
“Surgery checklists save lives,” reports The Washington Post (April 18, 2017). Hospitals in South Carolina that completed a statewide program to implement the WHO’s Surgical Safety Checklist had a 22% reduction in post-surgical deaths. The study, to appear in the August 2017 issue of Annals of Surgery, is one of the first to show a large-scale impact of the checklist on the general population.
Surgical care requires careful coordination of a variety of skilled health-care providers in a complex infrastructure using specialized tools. “Safety checklists are not a piece of paper that somehow magically protect patients, but rather they are a tool to help change practice, to foster a specific type of behavior in communication, to change implicit communication to explicit in order to create a culture where speaking up is permitted and encouraged and to create an environment where information is shared between all members of the team,” said the Harvard Medical School prof directing the study.
A total of 14 hospitals completed the program, representing 40% of the total inpatient surgery population in the state. Researchers compared the 30-day post-surgery mortality results between the checklist hospitals with those of the rest of the hospitals in the state. The report includes major inpatient surgical procedures from various specialties, such as neurological, cardiac and orthopedic surgery.
The 19-item checklist encourages surgical teams to discuss the surgical plan, risks and concerns. Most of the items are simple, such as “does the patient have a known allergy” or “is essential imaging displayed.” Following surgery, patients are at risk of complications and death from a variety of causes, such as infection and organ failure. The checklist ends with a requirement for a conversation among the surgeon, anesthetist and nurse about the patient’s recovery and management plan. As a whole, the checklist items create an operating room communication culture that improves overall surgical care and safety before, during and after an operation.
Classroom discussion questions:
What other tools described in Chapter 6 could be used in operating rooms to improve quality?
Why are checklists so valuable? What other industries use them regularly?
The lightest metal on the periodic table of the elements and a superb conductor, it’s what gives the lithium ion batteries in our cell phones, laptops, Priuses, and Teslas the ability to recharge more times, last longer, and provide more energy per weight or volume than other battery chemistries. (The lithium in a Tesla costs around $500). It’s also what makes devices explode if their battery-management systems aren’t working properly, as in many hoverboards or Samsung’s Galaxy Note 7.
How is lithium changing transportation? Chinese battery and auto manufacturer BYD just build its first American bus factory near LA. The buses are lithium-intensive; each uses about 8 times as much as an average electric vehicle, which in turn uses about 10,000 times as much as an iPhone. The vehicles are more expensive than ones that run on diesel or natural gas, but only initially. After 3 to 5 years, customers save $50,000 to $75,000 per year per bus on fuel and maintenance.
In Shenzhen, 20 miles north of Hong Kong, thousands of electric buses draw wind power from the grid overnight, when residential and business customers aren’t using it, and then disperse it during the day as they drive around the city. A shift toward electric vehicles is under way in Europe, as well. BMW and Daimler have each invested hundreds of millions of dollars in electrifying their fleets, moves that help drive the European Union’s policies. And China’s broader electric auto market will soon dwarf them all. Although electric vehicle adoption has been slower in the U.S. than expected, the price of battery packs has been dropping fast, to the point that electric cars are poised to become cost-competitive with gas-powered vehicles.
Classroom discussion questions:
Why is lithium so important in manufacturing?
Lithium prices have increased from $4,000 per metric ton in 2014 to $20,000 today. Why?
It was Amazon that drove America’s warehouse operators into the robot business, writes Businessweek (April 5-12, 2017). Amazon’s acquisition of Kiva (as we discussed in several earlier blogs) set off an arms race among robot makers and shippers across the U.S. who scurried to keep up with the e-commerce giant. For decades, warehouse operators were focused on the task of loading pallets and shipping them to retailers, who broke up the shipments and routed them to retail locations. Fulfilling online orders, on the other hand, requires shippers to pack boxes with a diverse set of individual items and route them on to customers’ homes.
That shift has given way to what people in the business call collaborative robotics, in which a human warehouse worker toils alongside an autonomous machine.
What that means for warehouse humans is an open question. There are almost 1 million people working in the industry recently, up 44% over the past 10 years. The rise of e-commerce has created a need for more hands to pick items and pack boxes. Amazon’s rapid shipping times have taught customers to expect goods on their doorstep in 2 days or less, fueling a warehouse boom as retailers scramble to amass distribution hubs closer to their shoppers.
Logistics firms can have a hard time hiring enough people, particularly during peak shopping seasons. Adding robots should ease some of the seasonal shortages, and may make the work less physically demanding.
Many instructors like to start the semester with a bit of OM history (see Figure 1.4). Your students will enjoy this 5 minute video featuring the Ford Model T, which changed the way Americans live, work and travel. Ford’s revolutionary advancements in assembly line automobile manufacturing made the Model T the first car to be affordable for a majority of Americans. More than 15 million Model Ts were built in Michigan, and the automobile was also assembled at a Ford plant in Manchester, England, and at plants in continental Europe.
The Model T was built from 1908 until 1927. It quickly became prized for its low-cost, durability, versatility, and ease of maintenance. Assembly line production allowed the price of the car to be lowered from $850 in 1908 to less than $300 in 1925.
The Model T was offered in several body styles. All bodies were mounted on a uniform 100-inch-wheelbase chassis. The car was mass-produced in only one color—black. The engine was simple and efficient, with all four cylinders cast in a single block and the cylinder head detachable for easy access and repair. The engine generated 20 horsepower and propelled the car to top speeds of 40–45 miles per hour. The engine was started by a hand crank. The transmission, consisting of two forward gears and one reverse, was controlled by foot pedals. Throttle was controlled by a hand lever on the steering column. The 10-gallon fuel tank was located under the front seat. Because gasoline was fed to the engine only by gravity, and also because the reverse gear offered more power than the forward gears, the Model T frequently had to be driven up a steep hill backward.
Zara and H&M are the world’s two largest fashion retailers. Not by coincidence, they’re also the pioneers of fast fashion. Zara is able to take a coat from design to the sales floor in 25 days, and it can replenish items even more quickly. In the past couple of decades, the two companies have steadily trounced much of their competition, outdoing them on price and speed to claim an ever-larger share of shoppers’ spending. But both are being beat at their own game by even faster competitors.
Goldman Sachs charted the correlation between supply chain lead times and like-for-like (LFL) sales growth, and the results show just how much speed matters. It allows brands to respond to the market quickly, which means they can adjust their inventory to match trends as they happen, and it keeps them from having to produce a large amount of stock in advance that then risks not selling and being discounted.
H&M is aware it’s falling behind, announcing plans recently to invest in and rethink its supply chain. Most of its manufacturing takes place in Asia in order to keep prices down, but it’s considering moving more production closer to Europe, to countries such as Turkey, which would let it get items to stores more quickly. That proximity is key to the speed of its faster rivals. Even Japanese retailer Uniqlo, which emphasizes that it isn’t driven by trends, has acknowledged that it needs to speed up.
Classroom discussion questions:
How are supply chains at the heart of this issue?
Why is speed of new product development so important in this industry?
Alabama has been trying on the nickname “New Detroit.” Its burgeoning auto parts industry employs 26,000 workers, who last year earned $1.3 billion in wages. Georgia and Mississippi have similar, though smaller, auto parts sectors. This factory growth, after the long, painful demise of the region’s textile industry, would seem to be just the kind of manufacturing renaissance the U.S. needs.
“Except that it also epitomizes the global economy’s race to the bottom,” writes Businessweek’s cover story (March 27-April 2, 2017). Parts suppliers in the American South compete for low-margin orders against suppliers in Mexico and Asia. They promise delivery schedules they can’t possibly meet and face ruinous penalties if they fall short. Employees work ungodly hours, 6-7 days a week, for months on end. Pay is low, turnover is high, training is scant, and safety is an afterthought, usually after someone is badly hurt. Many of the same woes that typify work conditions at contract manufacturers across Asia now bedevil parts plants in the South. In 2015, the chances of losing a finger or limb in an Alabama parts factory was double the amputation risk nationally for the industry, 65% higher than in Michigan and 33% above the rate in Ohio–both union states.
Korean-owned plants, which make up roughly a quarter of parts suppliers in Alabama, have the most safety violations in the state, accounting for 36% of all infractions and 52% of total fines, from 2012-2016. According to OSHA, one of them, Matsu Alabama, had provided no hands-on training, routinely ordered untrained temps to operate machines, sped up presses beyond manufacturers’ specifications, and allowed oil to leak onto the floor. “Upper management knew all that. They just looked the other way,” said a staffing specialist. “They treated people like interchangeable parts.”
Classroom discussion questions:
The Ethical Dilemma exercise in Chapter 10 describes Johnson Foundry. Have your students read this Businessweek article and compare the two stories.
What does the article mean by “race to the bottom?”
The question of standing versus walking flared up recently in Washington, D.C. after the Metro said the practice of walking on the left could damage the escalator. The escalator company Otis said this is not true, but passengers should not walk on escalators, as a matter of safety.
The Metro is not the first mass transit operator to try to address this issue. Last year, the London Underground tried to change passengers’ behaviors and get them to stand side-by-side riding — not walking. The Underground had concluded that in very tall stations, much of the left side went unused, causing blockages and lines at the bottom. It campaigned to fill the available space on the escalators with people, rather than leaving the left side of each step largely empty, except for those who chose to hike up. It found that standing on both sides of an escalator reduced congestion by about 30%. Walking up the escalator took 26 seconds compared with standing, which took 40 seconds. However, the “time in system” — or how long it took to stand in line to reach an escalator then ride it — dropped sharply when everyone stood.
When 40% of the people walked, the average time for standers was 138 seconds and 46 seconds for walkers. When everyone stood, the average time fell to 59 seconds. For walkers, that meant losing 13 seconds but for standers, it was a 79-second improvement. The length of the line to reach and step onto an escalator dropped to 24 people from 73.
The OM field will soon face a major change in the way we make decisions. Big data, data analytics, and business intelligence are all skill sets our OM students will need. The Gartner Group has just issued an interesting report on these concepts. Gartner identifies 4 core skill sets to support the successful adoption of analytics: Data engineers who make the appropriate data accessible and available for data scientists. Supply chain expert analysts who understand supply chain requirements and priorities to ensure the right tools are used. Data scientists who create predictive and prescriptive models. Citizen data scientists who are lighter versions of a data scientist who can build or choose models, but within a platform.
There is, of course, a shortage of data scientists. This is compounded for supply chain, which might not be viewed as attractive as finance, sales and marketing. But analytical platforms can alleviate this shortage. This is because within the platform environment, “citizen data scientists” can build new apps and solutions.
As the line between the physical and digital world blurs in business, the algorithmic supply chain affords companies the ability to leverage massive data from increasing connections among people, businesses and things. This allows them to respond quickly and profitably to changes in market demand. In an algorithmic supply chain, decision-making relies on the company’s intellectual property (IP) that captures data and encapsulates it into reusable, unique and optimized information assets. Embedding this IP in supply chain processes, the company can solve large-scale, dynamic problems and create competitive advantage.
UPS provides a powerful example of using analytical platforms to build On the Road Integrated Optimization and Navigation (ORION) to support its core business processes. ORION generates daily routing manifests to 55,000 UPS drivers. The platform incorporates optimization, heuristics, predictive analytics and custom mapping. It generates $300-$400 million in annual benefits, based on reducing fuel consumption by 10 million gallons, carbon emissions by 100,000 metric tons and driven miles by 100 million, annually.
However, Starbucks has a problem. The uptick in mobile orders is creating congestion inside stores for mobile order-ahead customers trying to pick up their coffee and food at hand-off stations. This not only affects customers who are picking up items, but also potential customers who may notice the in-store traffic and end up not purchasing anything.
“We’re going to redesign new stores and existing remodels to reflect the fact that MOP is obviously going to be a significant part of the business,” said Chairman Howard Schultz. In response, Starbucks is adding dedicated stations for mobile order-ahead customers, distinct from existing in-store registers. There were 1,200 stores in the U.S. that saw more than 20% of transaction volume come from MOP during peak hours last quarter.
TheStreet’s Jim Cramer said that if Starbucks can solve “the throughput problem with mobile ordering, then its stock can go much higher. Starbucks has to become a technology company that gets your coffee to you without a throughput problem.”
A proposed border tax could fracture the industry’s sophisticated global supply chain and force American hospitals to pay more for vital necessities. Hospitals in the U.S. rely on bandages and surgical gloves from China, suturing needles and artificial joints from Ireland, and defibrillators and catheters from Mexico. Annual imports of medical devices has reached $43.9 billion, with Mexico as the leading supplier, ahead of Ireland, Germany and China. Tijuana houses the highest concentration of Mexico’s medical device firms, 70% of which are U.S.-owned.
The high-tech operations emerged after Nafta helped transform Mexican border factories, called maquiladoras, into industrial powerhouses. Now, instead of being garment sweatshops, many maquiladoras in Tijuana employ a new generation of Mexican engineers and skilled technicians to make medical devices. Technicians at these factories earn $14 an hour, compared with $25 an hour for technicians at U.S. factories.
Mexico’s medical device industry buys much of its raw materials and capital machinery from American suppliers. The American-owned Integer plant in Tijuana, for example, buys 90% of its raw materials, duty-free, from the U.S.: stainless steel to be stamped into cups used for hip replacements and plastic to be molded into catheters. Then half of the factory’s output is shipped back to the U.S. and much of the rest to American-owned companies elsewhere. The company, like many others here, is seamlessly integrated: Employees in Tijuana videoconference with R&D teams in the U.S. to fine-tune product designs.
Classroom discussion questions:
What factors appear to threaten this supply chain?
Why is it hard to move the medical factories to the U.S?
