January 2020 – The OM Blog by Heizer, Render, & Munson

OM in the News: Hotel Chains Ditch Travel-Sized Toiletries

Accor Hotels is the latest global hotel chain to eliminate travel-sized toiletries from its rooms. The company, which owns 40 brands including Ibis, Novotel, the Fairmont and Mondrian, is removing individual tubes of shampoo, conditioner and bath gel from its 340,000 guest rooms. It’s part of Accor’s broader environmental campaign that includes getting rid of all single-use plastic items at its 5,000 properties.

Accor is replacing the plastic toiletries with either wall dispensers or glass, bulk-sized toiletries by the end of 2020. The chain is also replacing a number of common hotel items usually made from plastic, including keycards, laundry bags and cups, with materials made from “relevant alternatives.” More than 200 million single-use plastic items are used annually at Accor’s hotels. The changes are part of its effort that focuses on “reducing environmental impacts and strengthening efforts to combat plastic pollution of the world’s oceans and other natural environments.” Accor is joining a growing list of hotel chains have been making changes to benefit the environment.

Businesses are facing disruption from climate change and customers are increasingly demanding that products and services are environmentally friendly, reports CNN Business (Jan. 22, 2020). Last year Marriott said it was ditching personal toiletries from its more than 1 million guest rooms starting in 2020. The chain, which also owns Ritz-Carlton and W Hotels, said it expects to reduce its plastic disposal by 30% annually. IHG, which owns Kimpton Hotels and Crowne Plaza, is also in the process of replacing individual plastic toiletries with bulk-sized ones across its 843,000 rooms. So is Hilton, which has more than 950,000 rooms globally. That hotel chain also has a number of other environmental initiatives in place, including participating in the Clean the World soap program and improving energy efficiency.

Classroom discussion questions:

1. What are other examples of product design improvements discussed in Supp. 5 of your Heizer/Render/Munson text?

2. How will this movement help sustainability?

OM in the News: Apple Believes in Squeezing Its Supply Chain

To understand Apple’s evolving place in the tech world, consider that one of its most important executives today is a guy whose job is badgering suppliers to get costs down. Tony Blevins, VP-Procurement, will stop at little to get a favorable deal. He has paraded manufacturers past competitors in Apple’s lobby and spurned a UPS contract by sending it back to UPS executives through FedEx. He persuaded subcontractors not to pay a chip maker that Apple was in litigation with, depriving the chip company of $8 billion.

The supply chain was always a critical piece of the Apple formula—alongside, if duller than, its magic designs, writes The Wall Street Journal (Jan. 24, 2020). CEO Tim Cook built the supplier network and instilled rigorous frugality in it as he did so. Today the supply chain looms larger than ever at Apple. Slowing iPhone sales, combined with the increasing cost of new features, make the job of hammering down expenses critical.

The result is a company less identified with visionary leaders and more of an operations juggernaut with rich profit margins it intends to keep. Blevins enforces manufacturing deadlines that help the company fill orders on time around the world. He manages semiconductor suppliers, making him the bearer of bad news if Apple sets out to replace their chips with an in-house product. Under Blevins, Apple pays Intel $10 per modem chip, roughly 50% less than Samsung pays Qualcomm. Blevins even rotates staff members every few years to keep them from developing supplier relationships that might dilute their focus on saving Apple money.

Apple believes that saving 10% on the cost of parts could boost profits more quickly than selling more computers, exactly the point we make in the text on page 7 in Table 1.1, “Options for Increasing Contribution.”

Classroom discussion questions:

Why is Blevins so important to Apple?
Explain the implications of Table 1.1.

Guest Post: China Delivers Belt and Road Project to Reshape Global Trade

Dr. Steven Harrod is Associate Professor in the Department of Management Engineering at Technical University of Denmark.

China is the world’s manufacturing heartbeat, and its“ One Belt, One Road” seeks to maintain that dominant position. China has 1.4 billion people (vs. 327 million in the U.S.) and 9.38 million square kilometers of land (larger than the U.S., and twice as large as the EU). In spite of recent U.S. import tariffs against China, many manufacturers have not “reshored” production because some processed materials and components are simply not available anywhere else in the world.

The Chinese Belt and Road Initiative (BRI) was launched in 2013, and is a comprehensive plan to, by 2049, expand and strengthen international land and maritime transportation connections. The program is criticized by some for its investments in ports and transport infrastructure in other countries, especially if those countries are financially weak.

A significant component of BRI is to expand the use of railways to trade with Europe. Already today, BMW ships one full trainload of car parts to China daily for final assembly. This is a game-changer, because since the opening of China in the 1970s, China trade was synonymous with ocean shipping. A famous HBS case, Sport Obermeyer, demonstrates the supply chain problems that follow from a 30-day transportation link. Rail service today is able to deliver freight containers to Europe in half that time, and forecasts are that traffic in the EU-Asia corridor will quadruple by 2027.

In addition to the faster speed, rail service between China and Asia offers a potentially more sustainable transport service. Even though ocean ships are very fuel efficient, they still run on fossil fuels.. Railways on the other hand can easily be 100% electric. Such a large increase in traffic from China would have a dramatic effect on the EU’s railway network, which is already operating with very heavy traffic. In response, the EU also has an infrastructure development policy for freight, called TEN-T. Together, these two economic powers, China and the EU are taking steps to bring their manufacturing and consumer bases closer, and to grow their mutual trade.

OM in the News: Tesla Attacks Germany’s Auto Establishment

It’s Tesla’s first entry to European production, having selected a site that will churn out as many as 500,000 cars a year, employ 12,000 people and pose a serious challenge to Volkswagen, Daimler, and BMW, reports Industry Week (Jan. 20, 2020). The frantic activity underway to quickly set up Tesla’s latest assembly plant is a daring attack on the German auto establishment.

The project represents a second chance for the quiet town of Gruenheide, just southeast of Berlin. Gruenheide lost out on a similar factory two decades ago, when BMW opted for Leipzig. That missed opportunity helped town officials to move quickly when Tesla expressed interest in entering Europe, with a plot set aside for industrial use and offering easy access to the Autobahn and rail lines. “The investment is a unique opportunity,” said the mayor. “It gives young people with a good education or a university degree the possibility to stay in our region.”

The plant will make batteries, powertrains and vehicles, including the Model Y crossover, the Model 3 sedan and any future cars. The factory will include a pressing plant, paint shop and seat manufacturing in a building that will be 2,440 feet long—nearly triple the length of the Titanic. There’s space for four such facilities.

Tesla is taking its fight for the future of transport into the heartland of the combustion engine, where the established players long laughed off Tesla as a feeble upstart that couldn’t compete with their rich engineering heritage. “No other foreign carmaker has done that in decades given Germany’s high wages, powerful unions and high taxes.” said an industry analyst. Building a factory in Europe’s largest car market is a major test of Tesla’s global ambitions, a place where buyers are loyal to local brands. Meanwhile, labor costs in Germany’s auto sector are 50% higher than in the U.S. and five times what they are in Poland, just an hour’s drive away from Gruenheide.

For Gruenheide, the planned investment has suddenly transformed the town of 8,700 people into a sought-after location.

Classroom discussion questions:

Why did Tesla select this European site?
What is your SWOT analysis of this location decision? (See Chapter 2 in your Heizer/Render/Munson text)

OM in the News: Nestlé Tries to Tackle Big Food’s Plastic Problem

Nestle just pledged to cut its use of plastic made from fossil fuels by 1/3 in 5 years and said it would invest $2 billion to find more recycled material, a particularly big challenge for the food industry. Sellers of everything from soap to soft drinks are under pressure from consumers and regulators to use less fossil-fuel-based plastic, as well as prevent plastic trash ending up in the ocean. In response, some big consumer-goods firms, like P&G and Unilever, have rushed to promise reductions in plastic, saying they will switch to recycled material, use refillable containers or scrap packaging entirely.

But changing to recycled plastic is especially challenging for companies that need high-quality material that is safe for direct contact with food, writes The Wall Street Journal (Jan. 16, 2020). Recycling the packaging typically used for coffee, instant noodles or candy bars is difficult and expensive because it is often made from multiple types of material, like plastic melded with aluminum or paper. Sellers of fresh food also rely on plastic film—used to wrap cucumber and broccoli—and thin plastic bags for loose items, that often can’t be recycled.

Even when plastic is technically recyclable, it often isn’t collected and recycled. That is partly because, until recently, there has been little demand for recycled plastic, so even highly recyclable plastic—like drinks bottles—leak into the environment. Nestlé’s target of reducing the 1.67 million tons of plastic it uses is a challenge. Just 2% of its plastic packaging is currently made from recycled material.

To date, there is almost no market for the hard-to-recycle material often used in food packaging. Recycling efforts are being further challenged by China’s ban on scrap imports. For decades, the country took many of the world’s recyclables and turned them into new products. Its absence from the market has hit demand and raised costs for municipalities, propelling some to scrap their recycling programs entirely. This important topic is discussed in detail in Supp. 5 in your text, Sustainability in the Supply Chain.

Classroom discussion questions:

Why has China reversed its position vis a vis importing plastics?
What suggestions do students have for dealing with this serious issue?

OM in the News: Let Slower Passengers Board Airplanes First

Physicists demonstrated that there really is an optimal boarding process for airplanes.

Commercial airlines often prioritize boarding for passengers traveling with small children, or for those who need extra assistance—in other words, those likely to be slower to stow their bags and take their seats—before starting to board the faster passengers. It’s counter-intuitive, but it turns out that letting slower passengers board first actually results in a more efficient process and less time before takeoff, according to new research in ARS Technica (Jan. 15, 2020).

Physicists have been puzzling over this particular optimization problem for several years now. While passengers all have reserved seats, they arrive at the gate in arbitrary order, and over the years, airlines have tried any number of boarding strategies to make the process as efficient and timely as possible. Flight delays have a ripple effect on the complex interconnected network of air travel and often result in extra costs and disgruntled passengers.

The new study found it’s actually 28% more efficient to let slower passengers board first. As boarding progresses, those at the tail-end of the slow group will still be getting settled as the first influx of fast people begins boarding. For instance, 3 or 4 fast people might take their seats in the time it takes a single slow person near the back of the aircraft to sit down. Having all the fast people board first means the last fast passenger is already seated before the first slow passenger gets settled.

To illustrate, use the well-known analogy of trying to pack rocks and sand in a jar. Put the sand in first and there won’t be much room left for the rocks. Put the larger rocks in first, and you can then pour in plenty of sand to fill in all the gaps around the rocks. “That’s the lesson of this latest result,” said one of the researchers. “If you’re going to pour a bunch of passengers into a vessel like this, and you’re dividing them up into slow people versus fast people, it’s better to get the slow people out of the way first and then let the fast people trickle in.”

Classroom discussion questions:

What other approaches have airlines attempted to speed boarding?
What process analysis tools discussed in Ch.7 of your Heizer/Render/Munson text do you think could be used to tackle this problem?

OM in the News: Delta Air Lines and the Exoskeleton

Delta Air Lines is partnering with Sarcos Robotics to explore new employee technology fit for a superhero—a mobile and dexterous exoskeleton designed to boost employees’ physical capabilities and bolster their safety, reports New Equipment Digest (Jan. 15, 2020). Sarcos, the world’s leader in exoskeleton development, has developed a battery-powered, full-body exoskeleton designed to increase human performance and endurance while helping to prevent injury.

This robotic suit, designed for employees to wear, does the heavy lifting. By bearing the weight of the suit and the payload, the exoskeleton may enable an employee to lift up to 200 pounds repeatedly for 8 hours at a time without strain or fatigue. The Sancos model is designed for use in industries where lifting and manipulation of heavy materials or awkward objects are required and aren’t easily handled by standard lift equipment. (This is a topic we discuss in the Ergonomics section of Chapter 10 in our text).

Potential uses at Delta could include handling freight at Delta Cargo warehouses, moving maintenance components at Delta TechOps or lifting heavy machinery and parts for ground support equipment. Exploring how advanced tools and tech can better support employees is one way Delta aims to improve workplace safety.

In addition to enabling superhuman strength for extended periods, the robotic suit may also level the playing field in terms of physical capacity. Roles that have historically been limited to those who meet specific strength requirements could potentially be performed by a more diverse talent pool, thanks to wearable robotics.

Classroom discussion questions:

Discuss the OM implications of such an exoskeleton.
Identify other potential industries/applications.

Guest Post: Student Perspectives on the MyOMLab Inventory Management Simulation

Wende Huehn-Brown is Professor of Supply Chain Management at St. Petersburg College in Florida. She continues her review of our five OM simulations.

In prior guest posts, I evaluated 3 of the 5 simulations that are available free in MyOMLab with the Heizer/Render/Munson text. Today, I look at the Inventory Management simulation. I like that it deals with the retail industry, from the store manager perspective, because students feel more comfortable thinking about the physical needs of products in a retail scenario. The simulation quickly takes them from that initial comfort level as they get calls, emails, etc. about issues to manage decisions. Finding that balance between too much and too little inventory to achieve profitability goals is key in this simulation, just as in many real businesses.

This simulation requires students to apply holding and ordering costs, as well as watch for sales trends and think about forecasting orders. Many students often buy too much or too little until they start to think about EOQ and ROP to find a rhythm. They also see how their decisions impact profits as they work toward a $1 million goal. While difficult, students often say it is the best of the 5 MyOMLab simulations. Some even use the word fun!

Why? Because they feel the practical aspect of a simulation experiencing the needs and issues in these kinds of positions, with a chance to practice and not impact actual money. Inventory is always a delicate balance to keep customers happy and align to profit goals. Students often do this simulation more than once to challenge themselves to get the best results–building pride and confidence in making these managerial decisions.

Many students have work experiences in retail or hospitality and easily relate to this simulation. For example, this product does not perish as food items, so the cost of having too much inventory is a bigger challenge for them. Others find the simulation helps to refresh their skills or builds on past experiences to further learn some key skills employers need. Be sure to include these simulations in your lessons!

OM in the News: Walmart’s Grocery Robots

Walmart’s Alphabot machines are designed to up efficiency and cut labor costs.

In the backroom of a Walmart store in Salem, N.H., is a floor-to-ceiling robotic system that the retailer hopes will help it sell more groceries online. Workers stand on platforms in front of screens assembling online orders of milk, cereal and toilet paper from the hulking automated system. Wheeled robots carrying small baskets move along metal tracks to collect those items. They are bagged for pickup later by shoppers or delivery to homes.

Walmart is using automation to improve efficiency in a fast-growing but costly business that comes with a range of logistical challenges, reports The Wall Street Journal (Jan.9, 2020). The backroom robots help cut labor costs and fill orders faster and more accurately. They also unclog aisles that these days can get crowded with clerks picking products for online orders. Walmart can’t “disadvantage our most-profitable customer, which is the one who drives to the store and does all the work themselves,” said a company exec.

A store worker can collect around 80 products from store shelves an hour. The robotic system, called Alphabot, is designed to collect 800 products an hour per workstation, operated by a single individual. Workers stock the 24-foot-high machine each day with the products most often ordered online, including refrigerated and frozen foods.

Walmart has become an online grocery heavyweight by offering a service from thousands of stores that lets shoppers pick up online orders from store parking lots without leaving their cars. It also offers home grocery delivery from more than 1,000 stores. Online grocery sales are growing fast, but the logistical and profit challenges of filling shoppers’ orders and delivering fresh food to homes have retailers battling to find a model that pays off.

Using store workers to fill orders with products already on shelves isn’t only costly, it makes it hard to tell online shoppers exactly what’s available at any given moment. “The whole problem with picking inventory from the shelf is inventory is never where it’s supposed to be,” said an industry analyst.

Classroom discussion questions:

What are the advantages and disadvantages of the Alphabot system?
Chapter 2 of your Heizer/Render/Munson text lists 3 approaches to achieving competitive advantage. Which one(s) does Walmart employ?

OM in the News: Using the Factor Rating Method to Pick an Apartment in NYC

Terese Lawry and Jacob Falkovich in their new apartment

I have often told my students that the factor rating method (covered in both Chapters 2 and 8) is one of their most versatile OM tools. But it was still interesting to see The New York Times article (Jan. 6, 2020) how one young NYC couple, needing to find a new home in a rush, used the model to expedite their search. Here is their tale:

When Terese Lawry and Jacob Falkovich suddenly found out they had to move, Jacob suggested they turn to a time-honored method for making hard choices: factor rating. The couple identified 22 factors to consider in selecting an apartment and, after much discussion, assigned each one a different weight.

“Without weighting criteria, people just start being like, I refuse to live without a dishwasher.” Falkovich said. Their model featured basics, like cost, as well as size and layout. Factors also included subletting and pet policies, lease duration, physical elements like windows, lighting, water pressure, outdoor space, A/C and whether the building had an elevator or a doorman or a gym. Sometimes they disagreed. Falkovich didn’t mind walking up 3 flights of stairs, but Lawry pressed him. They agreed to assign an elevator a weight of 4; the size of the apartment, by comparison, was weighted as a 10, while laundry was given a 1.

For location, they calculated the score based on the mean duration of 10 weekly work commutes. They also included neighborhood features like proximity to grocery stores and parks, as well as aesthetics. When they toured their current apartment, a 2-bedroom, 2-bathroom duplex in Brooklyn, that rents for $3,300 a month, it scored a 238 —” 2 deviations up” from the other listings, which ranged from 180 to 215.

It’s not the first time he has relied on factor rating, Falkovich confessed. He used the same method when he was single and trying to decide whether to continue dating Lawry or another woman he began seeing around the same time!

Classroom discussion questions:

Name 3 other potential applications of the model in your personal life.
What are the strengths and weaknesses of the model?

OM in the News: 150 Shades of Red Drown Mattel’s Supply Chain

Mattel has gotten to the heart of one of its problems: Too many reds aren’t a good thing. The company’s designers until recently could choose from about 150 types of red when making Barbie dolls, Hot Wheels cars or other toys in its stable. Each variation added storage costs and downtime at factories for cleaning equipment to swap out shades.

“Complexity is really a killer,” said Mattel’s chief supply-chain officer. Mattel has chopped the choices of reds by more than 1/3 and is doing the same for other colors, part of a broad edict to simplify the company’s supply chain. The goal is to improve, modernize and ultimately tame a sprawling supply chain that operates 13 factories, employs 35,000 people and delivers toys to 375,000 retail locations world-wide, reports The Wall Street Journal (Jan. 2, 2020). “Supply chain had become one of our handicaps,” adds the CEO.

Mattel says it plans to keep factories that are “strategically important” or that can make certain products at a better quality and lower cost than a third party could, while consolidating plants that are underused. The company already changed how it sells and fulfills orders to retailers. In Europe, Mattel implemented an automated, online ordering system for wholesale orders, eliminating the need for its sales team to manually process orders. It also increased the minimum order size so that it wasn’t shipping orders valued at just a few hundred dollars into a fragmented retail market.

More broadly, Mattel is using new algorithms to tie its manufacturing output more closely to demand, helping the toy maker to gauge the right number of toys for the holidays. Mattel also will be making fewer products. The company is planning to cut the number of items it sells by 30%, targeting the 45% of the items it sells that only make up 6% of its revenue.

Classroom discussion questions:

Why does Mattel have so many plants? So many colors?
What inventory strategy is Mattel using to cut SKUs (see Ch. 12 of your Heizer/Render/Munson text)?

OM in the News: In Tech Years, 2010 Was Eons Ago

Abbott Lab’s flash glucose monitoring device.

Now that was a decade! Ten years ago we wore analog watches, had landline phones, hung out in bookstores, and even hailed taxis, we are reminded by The Wall Street Journal (Dec. 30, 2019). Ah, the good old days. (Mind you, TV remote controls are only a few decades older).

In 2009 Apple started selling the iPhone 3GS. For $199, it had a 3½-inch screen with a 480-by-320 display—less than half the resolution of a 20th-century TV set. The hot feature was a “built-in digital compass.” In 2019 the $999 iPhone 11 Pro has a 5.8-inch screen and a 2,436-by-1,125 display. It features 30,000 infrared probes that can read your face.

The Boeing 787 Dreamliner, which we feature in the Global Company Profile in Chapter 2, can fly nonstop from just about anywhere to anywhere. Streaming radically changed how cable companies and studios deal with customers. Almost all of Netflix’s growth in streaming movies took place in the past 10 years. The Brookings Institution projects that advances in logistics and food distribution have reduced poverty in most of the world—from 550 million poor outside Africa in 2009 to fewer than 100 million today.

Epitomizing the 2010s is the glucose monitor that reads from a patch with a small sensor stuck under your skin and update a smartphone app. The app also lets caregivers follow patients’ readings, replacing finger pricks, pens and phone calls—all to the benefit of the 30 million Americans who suffer from diabetes.

This decade has proved that progress is relentless. Expect it, even though we should never take it for granted. Property rights, an educated workforce, fair tax codes that enable capital formation, and light-touch regulations are essential ingredients. It’s why the U.S., not China, has driven global innovation (again) in the 2010s.

Classroom discussion questions:

Referring to Figure 2.5 in your Heizer/Render/Munson text, where do you think the following products will be on the product life cycle curve in 2029: iPhone 11, Boeing 787, glucose monitor?
Where will the products shown in that figure be in 2029?