Month: May 2018

OM in the News: Best Buy’s New Supply Chain Strategy

Best Buy is changing its supply chain, adding more automation and more distribution centers closer to population centers

Best Buy believes it needs to stock more inventory if it wants to sell more electronics, reports The Wall Street Journal (May 25, 2018). The electronics giant reported its inventories rose ahead of even its fast-surging sales in its most recent quarter, as the company sought to drive more sales by having goods in place both online and in its physical stores even at the expense of higher supply-chain costs. Inventories on a per-square-foot basis—an important measure of supply-chain efficiency for retailers—were up 9% from a year ago.

Best Buy says the figures show the company is getting its inventories lined up with an “improved customer experience,” which means having goods available wherever consumers are shopping, even if that increases short-term supply-chain costs. Getting the right amount of goods in the right place has become a growing concern for retailers as online sales have exploded, undercutting longstanding strategies aimed at keeping supply chain costs down by keeping stocks lean.

Many store owners are wrestling with the need to have inventory on hand in stores and at warehouses for online fulfillment, and retailers including Target and Walmart have turned to having their stores do double duty by shipping online orders from the sites or having customers pick up their orders at the sites. Best Buy is undertaking what the company calls a “multiyear transformation” of its supply chain, which will include more automation and more distribution centers closer to population centers.

Classroom discussion questions:
1. What are the advantages of Best Buy’s new inventory strategy?

2. Why are other chains increasing store inventory levels?

Teaching Tip: The Benefits of OM Student Study Groups

Maybe we should be making a stronger pitch for student-led OM study groups. There’s all sorts of research documenting how students can learn from each other, reports Faculty Focus (May 16, 2018). In one recent study (of 463 students at 38 colleges), students said they opted to study with others because the professor encouraged it and their peers invited them. Their groups handled all the meeting logistics and members decided collectively what they would do during the session.

Here’s what’s impressive: the top 3 study strategies students reported using in these groups were asking each other questions, discussing course materials, and quizzing each other. Those are evidence-based strategies. Asking questions and discussing the content are activities that deepen learning, and testing with questions enhances memory by providing retrieval practice. Each of these has substantial empirical support with regard to benefits for long-term retention, falling into the category of “desirable difficulties.”

And there’s more good news. The data showed that a student’s GPA correlated positively with how frequently study strategies such as making outlines, flashcards, study guides, and short, but frequent, group meetings took place. Students said they chose to study with others in hopes it would improve their understanding of the material. And most of them reported that it did. More than 60% said their level of learning in study groups was somewhat more or a lot more than they learned when studying individually. Almost 70% said that being in a study group increased their motivation to study.

Some tips for your students: (1) use small groups (3-5 max); (2) studying with friends is good, but bringing in outsiders deepens understanding; (3) meet often, but for short periods; (4) expect group members to come prepared; (5) explain things to each other and practice doing problems; (6) don’t just “go over” or reread class notes or text material, and don’t recopy notes.

Guest Post: Free Your Classroom from Cell Phones

Today’s Guest Post comes from Dr. Albena Ivanova, who is Associate Professor of OM at Robert Morris University in Pennsylvania.

Last semester I found this article on the APA website: https://www.apa.org/ed/precollege/undergrad/ptacc/no-mobile-phones.pdf

The professor, whose name is not listed in the paper, uses a positive reinforcement strategy to provide a disincentive for the students to use cell phones during class. He/she gives an opportunity for the students to earn bonus points if they leave their cell phones on the front desk for the entire class the entire semester.

I tried this technique in one of my classes this semester (see the photo with each student’s spot numbered) and it worked well. I surveyed the students at the end of the semester and 84% stated that they did not miss their cell phones during class, 84% did not feel anxious during class without cell phones, 84% did not feel disconnected from the world without cell phones, 68% stated they were able to focus better, and 68% said were able to take better notes.

I will definitely use this technique again in my future classes. However, if the class relies too heavy on computer use, then the computer itself becomes a distraction. That is why I would recommend using this technique only if the computer usage in class is minimal.

OM in the News: Target Tests Retail ‘Flow Center’ for Faster, Nimbler Distribution

The company hopes to send shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products.

“Target is testing a new distribution strategy aimed at speeding up its restocking and making the retailer more nimble as it competes with rivals like Amazon and Walmart”, reports The Wall Street Journal (May 15, 2018). The aim is to pare Target’s replenishment cycle from days to hours and reduce inventory at stores. The approach, now in pilot mode at a warehouse in N.J., also uses the same pool of inventory to replenish stores and fulfill online orders, a departure from Target’s existing supply chain.

Under the operation, through a “flow center,” the company sends shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products. That could mean shipping “five bottles of shampoo, a case of ketchup, two polo shirts on hangers and a pallet of water, all prepared to move out directly to the sales floor,” said the Supply Chain VP.

Target is also creating a new warehouse management system intended to better integrate its distribution and fulfillment operations, which now use separate systems. The logistics effort comes as Target is investing $7 billion in improvements as it adjusts to the changing consumer shopping patterns that have buffeted the retail world. The explosive growth of e-commerce has put a premium on rapid delivery to online buyers and pressured traditional retailers to make better use of their “big box”real estate.

Target has been expanding its use of stores to fulfill online orders, and nearly 70% of its online volume is handled by stores. With less inventory held at stores, “we can dedicate more room to digital fulfillment. Shipping more orders from our stores reduces our costs, while allowing us to move faster,” said the COO. Stores supported by the flow center have reduced back-room inventories “to a fraction of the norm.”

Classroom discussion questions:

  1. Describe Target’s existing and new distribution strategies.
  2. What is a “flow center?”

OM in the News: The Fashion Industry Goes Green

In a factory the size of an airport terminal, laser cutters zip across long sheets of cotton, slicing out sleeves for Zara jackets. Until last year, the scraps that spill out into wire baskets were repurposed into stuffing for furniture or hauled off to a landfill near the plant in northern Spain. Now they’re chemically reduced to cellulose, which is mixed with wood fibers and spun into a textile called Refibra that’s used in more than a dozen items such as T-shirts, trousers, and tops.

The initiative by Inditex, the company that owns Zara and 7 other brands, highlights a shift in an industry known for churning out super cheap stuff that fills closets for just a few months before being tossed into the used-clothing bin. Gap promises that by 2021 it will take cotton only from organic farms or other producers it deems sustainable. “One of the biggest challenges is how to continue to provide fashion for a growing population while improving the impact on the environment,” says H&M’s CEO.

The $3 trillion fashion industry consumes vast amounts of cotton, water, and power to make 100 billion accessories and garments annually—3/5 of which are thrown away within a year, writes Businessweek (May 7, 2018). And less than 1% of that is recycled into new clothes. “The equivalent of a dump truck filled with textiles gets landfilled or incinerated every single second,”  says one researcher. To tap into this trend, H&M is seeking to make all its products from recycled and sustainable materials by 2030, up from 35% today.

Inditex last winter started disassembling old clothing to spin into yarns for fashions it markets as “garments with a past.” “We’re trying to find a more sustainable version of all materials,” says an Index exec. Today’s recycled jeans, he says, are typically only about 15% repurposed cotton, because the fiber “gets worn down and we have to mix with new.”

Classroom discussion questions:

  1. Why does this industry consume so many resources?
  2. What are the driving forces for change?

OM in the News: H&M Stocks Stores With AI

The retail industry is undergoing another major shift — to e-commerce.

The world’s largest clothing brand is turning to artificial intelligence to win back shoppers, reports The Wall Street Journal (May 8, 2018), as it works to reverse one of the worst sales slumps in its history. H&M retail chain is ramping up its use of data to customize what it sells in individual stores, breaking with its longstanding practice of stocking stores around the globe with similar merchandise. A spike in online shopping has led to fewer customers visiting stores, and digital startups are putting up fierce competition. H&M has repeatedly slashed prices to clear out $4 billion of unsold inventory.

H&M, like most retailers, relies on a team of designers to figure out what shoppers want to buy. Now, it’s using algorithms to analyze store receipts, returns and loyalty-card data to better align supply and demand, with the goal of reducing markdowns. As a result, some stores have started carrying more fashion and fewer basics. But H&M’s strategy of using granular data to tailor merchandise in each store to local tastes, rather than take a cookie-cutter approach that groups stores by location or size, is largely untested in the retail industry.

Getting every store right is a mammoth task given H&M’s size. The brand has 4,288 stores, compared with Zara’s 2,127 and Gap’s 1,301. To detect trends 3-to-8 months in advance, H&M is analyzing data on a large scale from blog posts, search engines and other sources rather than relying on staff. With the help of 200 data scientists and analysts, H&M also is using analytics to look back on purchasing patterns for every item in each of its stores. The data pool includes information collected from 5 billion visits last year to its stores and websites, along with what it buys or scrapes from external sources. The chain uses algorithms to take into account factors such as currency fluctuations and the cost of raw materials, to ensure goods are priced right when they arrive in stores.

Classroom discussion questions:

  1. How can AI and data analytics help firms like H&M?
  2. What is the impact of AI on inventory control?

OM in the News: Ford Discovers a Damaged Supply Chain

“Ford expects to lay off several thousand workers temporarily at a Michigan factory that assembles its top-selling F-150 pickup truck after a fire last week damaged the premises of a parts supplier,” reports The Wall Street Journal (May 9, 2018). The blaze, which occurred at a Michigan plant operated by Meridian Lightweight Technologies, has already disrupted production of Ford’s pickup trucks at a factory in Missouri. Meridian is an automotive-interiors supplier owned by China’s Wanfeng Auto Group, which makes components for Ford and other car makers. Ford’s F-150 factory in Dearborn, Mich., is expected to run out of Meridian-supplied parts and halt production as early as Wednesday.

Ford’s other main F-150 plant, in Kansas City, Mo., would be idled this week because certain parts are in short supply after the fire. The two plants, which together employ 7,600 people, could face several weeks of down time as the auto maker seeks ways to make up the parts shortfall.

The F-150 is Ford’s best-selling vehicle and generates the bulk of its global profit. A prolonged shutdown of the plants could dent revenue and profit. The two plants combined produce 10,000 to 15,000 F-150s a week. The company would face cost pressures from paying workers during idle time and while ramping back up to offset lost production. The fire also disrupted production at a Fiat-Chrysler Automobiles minivan plant in Windsor, Ontario, and a BMW sport-utility factory in South Carolina.

Classroom discussion questions:

  1. What are the advantages and disadvantages of a single-source supplier?
  2. What strategy (see Supplement 11) might Ford employ?

OM in the News: Japan’s Cow-Milking Robots

It’s milking time at the Kato farm in Japan, but when a Holstein ambles into the milking pen, nobody is there. A robot shoots out 4 arms and attaches a suction tube to each teat while she enjoys a tasty treat. Within 10 minutes, it is the next cow’s turn. The Kato family invested $2 million to build a shed that relies on a pair of $230,000 robots to milk some 90 cows and an $18,000 robot (the size of R2-D2) to help feed them. Here in Japan, 500 of the robots have been enlisted in recent years because human help is hard to find, reports The Wall Street Journal (May 7, 2018).

The milking robot is the size of a small truck. Before milking, a unit extends under the cow and cleans her udder; tubes carry the milk to a refrigerator. The machine also checks the cow’s identity from tags on her ears and stores data on each cow’s production. Kato said he was working from 4 a.m. to 9 p.m. every day before introducing the robots. Now the cows in the robot shed require only 3-4 hours a day of care.

Getting robots to milk Elsie-san is the kind of investment that just might rescue Japan. The country is struggling to deal with its declining population, and there is a problem even with those who are still working: They are only about 2/3 as productive as Americans, on average. Agriculture is at the bottom of the heap, with the average American farmer producing 40 times as much as the average Japanese farmer. Now a labor crunch is forcing Japanese businesses of all sizes to step up capital spending on robots and other information technology to speed everyday tasks such as delivering packages and taking sushi orders at conveyer-belt restaurants.

Classroom discussion questions:

  1. Why is farm productivity much higher in the U.S. than in Japan?
  2. In what other areas can Japan turn to robotics to replace an aging workforce?

 

OM in the News: Seven Jobs Robots Will Create

People are needed to oversee the work of machines to make sure they’re doing their jobs properly.

As machines get smarter, will millions of people will be left obsolete and jobless? Yes, jobs will be lost, and many people will be forced to learn new skills. But “AI opens up opportunities for many new jobs to be created—some that we can’t even envision now,” writes The Wall Street Journal (April 30, 2018). McKinsey predicts that artificial intelligence and automation could add 20-50 million jobs globally by 2030. Here is a look at 7 of them:

AI Builders There will be a greater need for people who can develop the underlying systems that make AI work. Other fields will need people with knowledge of how to integrate their work with AI.

Customer-Robot Liaisons  Companies that make AI applications use “customer success managers” to help ease clients into working with the systems, answering complaints and making adjustments. This is currently among the most sought-after jobs on ZipRecruiter.

Robot Managers  Even though AI can be amazingly smart at some jobs, its judgment can be very limited compared with a person’s. Hence the job someone who oversees the work of machines to make sure they’re doing their jobs properly, and intervenes if the AI asks for help in a tricky situation.

Data Labelers For AI to properly understand the world, it needs humans to explain what things are—meaning, the data that the AI absorbs need to be labeled. That could mean identifying objects in images.

Drone-Performance Artists Drones are  starting to work their way into the arts, where they act as dynamic light installations and flying props. And there is a growing need for artists who can customize those drones.

AI Lab Scientists Experts are needed to teach AIs about the life sciences or chemistry so that computers can surface novel ideas. Technicians, who test the results that AI comes up with to see which are valid and which aren’t, are also needed to help make machines smarter.

Safety and Test Drivers Most self-driving vehicles aren’t fully capable of working on their own just yet—and that means opportunities for people who help the vehicles do their jobs safely.

Classroom discussion questions:

1.Which of these jobs will fall under the purview of operations managers?

2. What kind of jobs will be lost in the AI revolution?

 

 

OM in the News: “Reefers” and the Fresh Food Supply Chain

The Jules Verne unloading reefer containers with live lobsters at the port of Dunkirk, France, after sailing from Nova Scotia

One of the shipping industry’s hottest markets is cold boxes. Demand to ship fresh food across the oceans is twice as high as it is for other products. The reason is twofold: (1) Refrigerated containers known as “reefers” can keep food fresh for more than a month, allowing distributors to safely send everything from orange juice to lobsters around the world.  And (2) the growing affluence of the global population, especially in Asia, has boosted demand for more-expensive foods.

“For the growing middle class, basic food like rice is no longer enough,” said the head of one French shipping giant. “They want their fruit, vegetables and fresh meat, and that’s pushing the industry to move more and more products under cold management.” Ten years ago, you could find strawberries in Denmark for only 3 months a year. Now, writes The Wall Street Journal (April 30, 2018), it’s year-round, thanks to reefers, and everyone from the smallest to the biggest shippers can join the supply chain.

It takes as long as 18 days to ship grapes from Peru to Philadelphia. The fruit “is put to sleep” in a controlled atmosphere that delays the ripening process before it’s distributed to supermarkets across the East Coast. Until the late 1990s, fresh produce was shipped on break bulk ships—general cargo vessels with big refrigerated spaces—from the production site to a single destination. Cargoes were usually limited to bananas, with the ships being operated by major distributors like Chiquita. Smaller producers that couldn’t afford to hire such vessels confined themselves to local markets.

Classroom discussion questions:

  1. What is the role of “reefers” in the global fresh food supply chain?
  2. Why have they proliferated?