Month: March 2020

OM in the News: Retail Haves and Have-Nots

Whole Foods gears up

The coronavirus pandemic has led many retailers to close stores temporarily and millions of Americans to do nearly all their shopping online, writes The Wall Street Journal (March 25, 2020). Particularly crippled have been retailers that haven’t embraced e-commerce or sell nonessential items such as fashion. Online sales for apparel and footwear retailers plunged this month.

By contrast, online sales at general-merchandise retailers have soared, jumping 50% in one day, March 13, compared with a year ago. Giant sellers such as Amazon and Walmart have struggled to keep up with the surge in demand, and those 2 companies are among a dozen large retailers looking to hire roughly 500,000 people in coming weeks.

The reliance on e-commerce is poised to grow as efforts to stem the virus have darkened stores and limited travel. Foot traffic to U.S. stores fell 58% in March. Roughly 1/3 of U.S. households now say they have used online grocery pickup or delivery. More than 40% tried it for the first time this month (including myself today with a grocery order to Whole Foods. It arrived in perfect shape in one hour!) Some retailers, though, that appear to have well-oiled e-commerce machines have been overwhelmed by rising demand. Grocery delivery time slots are hard to find at Walmart and Amazon in many markets.

“Impulse purchases will be lost,” said an industry exec. “Walmart and Target will do well as people stock up on supplies. But fashion retailers will be hurt.” One exception: lounge wear. As more people work from home, they are stocking up on comfy clothes including sweatpants and robes! (The number of sold-out tracksuits rose 36% this year). But for now, most shoppers are staying away from stores unless they are buying groceries or other essential items.

Classroom discussion questions:

  1. Which of the 8 techniques for improving service productivity in Table 7.3 in your Heizer/Render/Munson text are being implemented by the on-line shopping changes?
  2.  Table 1.2 summarizes the 10 OM decisions around which your text is based. How is each impacted by the current operations environment?

Guest Post: Waiting Lines and the Coronavirus

Our Guest Post today comes from Howard Weiss, Professor of Operations Management Emeritus at Temple University.

A couple of thoughts have come to my mind recently with respect to the coronavirus.

As more citizens become infected with a virus, fewer citizens are available to become infected. This is identical in principle to the arrival rate in a finite population waiting line system. Consider, Example D7 from your Heizer/Render/Munson textbook. There are 5 printers that each break down at the rate of .05 per hour. Thus, if all five computers are working, the system arrival rate is 5*.05=.25 while if all 5 are broken down the system arrival rate is 0. Over time, the arrival rate changes depending on the number of printers that are working and we can compute the weighted average arrival rate, which we term the effective arrival rate. The Excel worksheet for this example, available on MyOMLab, computes the effective arrival rate as .218 printers per hour. This effective arrival rate is similar to the effective reproductive number that epidemiologists use for viruses.

Data Results
Arrival rate (l) per customer 0.05 Average server utilization(r) 0.436048
Service rate (m) 0.5 Average number of customers in the queue(Lq) 0.203474
Number of servers 1 Average number of customers in the system(Ls) 0.639522
Population size (N) 5 Average waiting time in the queue(Wq) 0.933264
Average time in the system(Ws) 2.933264
Probability (% of time) system is empty (P0) 0.563952
Effective arrival rate 0.218024

 

An interesting graphic related to the virus spread is at this Washington Post web site.

Observation: I recently had the opportunity to attend a concert at the Amalie Arena in Tampa. At intermission, the men’s room had a long line. This is not unusual. However, the line was not for the urinals or stalls but rather for the sinks. This was unusual. The design of the bathrooms was clearly for normal use rather than for a situation like the one we currently have with increased demand for handwashing. I was wondering what an arena might do to handle the increased sink demand.

OM in the News: The Plastic Bag Controversy

The NY ban on plastic bags has forced customers to use bags of paper, cotton, or more durable plastics.

Reusable shopping bags are “petri dishes for bacteria and carriers of harmful pathogens,” read one warning from a plastics industry group. They are “virus-laden.” The group’s target?  Countless Americans increasingly using natural fiber bags instead of disposable plastic bags.

The plastic bag industry, battered by a wave of bans nationwide, is using the coronavirus crisis to try to block laws prohibiting single-use plastic, reports The New York Times (March 26, 2020). “We simply don’t want millions of Americans bringing germ-filled reusable bags into retail establishments putting the public and workers at risk,” said an industry campaign ad. The Plastics Industry Association went so far as to request the US government to declare that banning single-use plastics during a pandemic is a health threat.

The science around reusable bags and their potential to spread disease is contentious. One study found that reusable plastic bags can contain bacteria, and that users don’t wash reusable bags very often. A government study found that coronavirus can remain on plastics for up to 3 days.

What is clear, however, is that single-use plastic bans have become a growing threat for the plastics industry. Packaging  makes up 1/3 of end-use demand for plastic resins as a whole. Before the coronavirus outbreak, the nationwide move to ban plastic bags had reached California, Hawaii, New York, as well as cities like Boston, Boulder, Chicago, and Seattle. But now disposability, once a dirty word, has become a selling point as hygiene takes priority over sustainability. Because plastic is made from fossil fuels, plastic prices track oil prices — which have slumped. That has made recycling plastic less economical.

Ironically, the bag ban in California in 2016, which led to elimination of 40 million pounds of single-use plastic bags, led to a 12 million pound increase in larger trash-bag purchases.

Classroom discussion questions:

  1.  Make the case in support of single-use plastic bags.
  2.  Make the case against them.

OM in the News: The End of Just-in-Time?

After a brief recession in the early 1990s, the grocery industry came under pressure to improve profit margins. Companies settled on just in time that aimed to produce, ship and stock as few goods as possible to meet demand. By decreasing the capacity of their distribution centers, retailers saved on rent, utilities and labor. Distributors saved on fuel and wages. Manufacturers cut down on unsold inventory. In the past 2 decades, producers and grocery stores such as Kroger have gone from keeping months of inventory on hand to holding only a few weeks’ supply.

Other industries did the same, from auto making to health care. This finely balanced system works well while goods are flowing steadily. But the coronovirus black swan event blew it to pieces. For many items, supplies sold out in days, exposing the downside of the push to hold less stock in warehouses and operate fewer, fuller trucks.

Now abruptly, manufacturers, distributors and retailers have thrown that strategy into reverse, writes The Wall Street Journal (March 24, 2020). They are making as much food as they can, delivering it as fast as possible and adding staff, all to restock denuded shelves.

General Mills is trying to skip steps in a carefully calibrated process. It is delivering truckloads of Cheerios, flour and pasta straight to stores’ warehouses, instead of first sending products to its own warehouses, to eliminate a link in the supply chain. Retailers, meanwhile, are overriding the sophisticated algorithms that say how much of what products they should buy, after seeing how those models failed to account for the demand surge. Instead, retailers are talking directly to manufacturers and making decisions in real time. “JIT purchasing has been thrown out the window,” said one CEO.

Yet manufacturers run the risk of throttling up production too high if the crush in demand for some products proves to be temporary.

Classroom discussion questions;

  1. Relate this article to the discussion of supplier partnerships in Ch. 16 of your Heizer/Render/Munson OM text.
  2. How does this “black swan” event impact the bullwhip effect discussed in Supplement 11?

OM in the News: The Intelligent Tire

Goodyear’s intelligent tire uses a sensor, machine-learning algorithms and cloud computing.

The tire, once the most basic of automobile parts, is getting a tech upgrade. Goodyear Tire & Rubber is developing a so-called intelligent tire outfitted with a sensor and proprietary machine-learning algorithms.

The hope is that the tires will help self-driving cars brake at a shorter distance and communicate with autonomous driving systems, reports The Wall Street Journal (March 20, 2020). “We see the tire playing a more important role than ever,” said  Goodyear’s CEO. “With the onset of autonomous vehicles, the role of the tire in the performance and safety of the vehicle would increase if we can make that tire intelligent.” (Researchers estimate that 10% to 30% of all vehicles will be fully self driving by 2030).

Goodyear already sells tires that can measure temperature and pressure. The company’s “intelligent” tires have a more advanced sensor to track dozens more measurements such as tire wear, inflation and road-surface conditions. The data is tracked continuously, sent to the cloud and analyzed in real time. The goal is for a self-driving vehicle to adjust and respond to the measurements instantaneously.

For example, if the tire senses that the car is driving over a slick road in cold temperatures, the vehicle will be able to automatically slow down and avoid sudden steering movements, while factoring in the tire’s tread and wear. Experiments showed that self-driving vehicles using Goodyear’s intelligent tires can shorten the stopping distance lost by wear-and-tear on a tire by about 30%. Goodyear’s new technology is expected to be used by consumers by 2021.

Classroom discussion questions:

  1. Referring to Chapter 2 in your Heizer/Render/Munson OM text, how does Goodyear plan to achieve competitive advantage?
  2. What external factors might slow the introduction and success of this new tire?

OM in the News: Companies Retool Operations to Assist in Coronavirus Fight

From a Kentucky distillery to a French bluejeans maker, companies are retooling to produce medical equipment for overloaded hospitals and slow the spread of coronavirus, writes The Wall Street Journal (March 19, 2020). Christian Dior perfumes has started making hand sanitizer. A car-parts company is producing hygienic masks. Luxury hotels are becoming makeshift quarantine shelters. An earthmoving-equipment maker and other manufacturers are examining whether they can help make ventilators, the key life-support machines.

As the pandemic grips the West, global demand for a range of goods and services has faltered—from handbags and tourism to cars. That has freed capacity for industries to produce medical equipment in short supply. World leaders have framed the crisis as a wartime struggle, and hark back to World War II, when nations on a much larger scale repurposed factories to make weapons and supplies. “We are at war,” says the French President.

Both GM and Ford are examining whether they could put their idled factories to work making medical equipment. Tesla’s Elon Musk stated: “We will make ventilators if there is a shortage.” The German government is considering redeploying unemployed workers such as waiters to harvest its fields. French whiskey giant Pernod Ricard is making sanitizer at plants in Kentucky, W. Virginia, and Texas.

The French bluejeans producer, 1083, saw demand plummet when stores across the country were forced to shut last week. Within hours of the government proclaiming a shortage of sanitary masks, 1083’s sewing machines were stitching together masks. “It’s much easier to make masks than jeans,” says the CEO. With tourism drying up, Israel has repurposed two luxury hotels to serve as quarantine shelters, the oceanfront Dan Panorama in Tel Aviv, and the Dan Hotel overlooking Jerusalem’s ancient skyline.

Classroom discussion questions:

  1.  How can companies that specialize in logistics redeploy their workforces to help fight the epidemic?
  2.  Why is it hard to shift manufacturers to produce the needed medical equipment?

OM in the News: As Country Shuts Down, Amazon Hires Up

Amazon plans to hire an additional 100,000 employees in the U.S. as millions of people turn to online deliveries at an unprecedented pace and Americans continue to reorient their lives to limit the spread of coronavirus. It will deploy the new workers to fuel its e-commerce machine and is raising pay for all employees in fulfillment centers, transportation, stores and deliveries in the U.S. and Canada by $2 an hour. (Amazon now pays $15-per-hour as a starting wage and has 800,000 employees). Amazon also expanded its sick-leave policy to include part-time warehouse workers and set up a relief fund, with an initial $25 million for delivery partners such as drivers affected by the outbreak.

The tech giant’s decision to go on a hiring spree and boost worker pay shows the dual challenge companies such as Amazon face as they seek to meet surging demand for food and key household items and also take care of employees at the front lines of the pandemic. Large, well-capitalized companies such as Amazon are moving to meet an extraordinary uptick in orders, writes The Wall Street Journal (March 17, 2020). “Amazon is big enough and powerful enough and decisive enough to take up a significant amount of the slack being caused by all of the shutdowns,” said the former CEO of Sears-Canada. Amazon accounts for 39% of all online orders in the U.S.

The 100,000 new Amazon jobs come at a time when broader retail is contracting and retailers rethink operating physical stores during a pandemic. Apple, Nike. and Lululemon, among others, have announced store closures. With people trying to limit their exposure, customers will rely on companies with e-commerce arms and the ability to rapidly replenish inventory more than ever. Execution so far has been spotty. Struggling with demand, many retailers have had to cancel portions of online orders or significantly delay shipping dates of some items.. The delivery-time windows of online grocers has surged to more than a week in many cities where customers were accustomed to next-day delivery.

Classroom discussion questions:

  1. Referring to Ch. 2 of your Heizer/Render/Munson text, how is Amazon achieving competitive advantage?
  2. What are Amazon’s key success factors and core competencies?

 

Good OM Reading: Learning Painful Supply Chain Lessons–Again

After the 2011 earthquake and tsunami in Fukushima, Japan, many multinationals learned painful lessons about the hidden weaknesses in their supply chains — weaknesses that resulted in loss of revenue and market cap. While most companies could quickly assess the impacts that Fukushima had on their direct suppliers, they were blindsided by the impacts on 2nd– and 3rd-tier suppliers in the affected region.

Almost 9 years later, it seems the lessons of Fukushima must be learned anew as many companies worldwide scramble to identify which of their “invisible” lower-tier suppliers — those with whom they don’t directly deal — are based in the affected regions of China. “Many companies are probably also regretting their reliance on a single company for items they directly purchase”, writes this interesting Harvard Business Review (March 5, 2020) article. Supply-chain managers know the risks of single sourcing, but they do it anyway in order to secure their supply or meet a cost target. Often, they have limited options to choose from, and increasingly those options are only in China.

Risk management principles (which are summarized in Table 11.3 of your Heizer/Render/Munson text) should be applied, at a minimum, to tiers 1 and 2 in company supply chains. Beyond tier 2, the risks should at least be understood. In some cases, it will not be possible to find multiple sources for certain parts or materials. For example, a supplier may possess unique intellectual property; sometimes volumes aren’t sufficient to justify two sources; or multiple sources are simply not available. In these cases, companies need to supplement their traditional sourcing practices with new sources of data and new approaches to understand and mitigate the risks they take on.

When companies have advance knowledge of where the disruption will come from and which products will be impacted, they have lead time to execute avoidance and mitigation strategies immediately — like
shaping demand by offering discounts on substitutes, buying up inventory, booking capacity at alternate sites, or controlling inventory allocations.

This epidemic again teaches that a robust supplier-monitoring system is a basic requirement for today’s supply chain managers.

MyOMLab: More Help for Going On-Line with Your OM Course

For many instructors, student assessment is one of the most labor-intensive components of teaching an on-line class. Our MyOMLab assessment tool allows for automatic grade responses to algorithmic homework and test questions, to multiple choice questions, and to video and OM in the News questions.  In addition to simplifying assessment, the use of this tool  amplifies student engagement and helps students learn more efficiently. (MyOMLab also automatically calculates metrics for every question, including number who attempted it, number correct, number with partial credit, number incorrect, and average time spent).

Well over 60% of our text adopters have implemented MyOMLab into their OM courses. It’s easy to do (learning takes less than an hour) and Pearson’s reps are available for one-on-one training. Live training sessions with Pearson Faculty Advisors are scheduled for Mondays at 11:00 a.m. ET and Tuesdays at 3:00 p.m. ET  Register by clicking here.

Because of the coronavirus class cancellations, Pearson is providing MyOMLab free to you and your students for the next few months. Here is a link to locate your local Pearson representative:  http://www.pearsonhighered.com/educator/replocator/.

Pearson is also providing help with screencasting by clicking here, and with tips for moving your class on-line quickly with this link

Blackboard is also offering a series of tutorials, which you can access  by clicking here.

And, of course, the full array of supplementary material that comes with our text (from Powerpoints to company videos to Solved Problem videos, etc.) is loaded into MyOMLab.  Jay, Chuck, and I are also available to help. Don’t hesitate to contact us at: ProfRender@gmail.com; Munson@wsu.edu; and JHeizer@tlu.edu.

Teaching Tip: Going On-Line with Your OM Course this Week

Jay, Chuck, and I put our 100+ years of teaching experience together to try to help as we all begin this transition to a coronavirus semester. If you are not using MyOMLab yet, we strongly encourage you to sign your students up (90 day free period if you are using our Heizer/Render/Munson texts). More ideas will follow this week.

  1. Teaching online is not the same as teaching face to face. Be proactive with communication, schedules, and assignments.
  2. Accept that your course will not be exactly as you planned….. and adjust.
  3. Details we assume in the classroom become important with remote students: Maintain context; identify the question, the problem, the post, include the date and time.
  4. Consider how your course material might best be captured: assigned readings, written out mini lectures, screen captures, short videos, etc.
  5. Videos:  If you make and post a video, shoot for 6 minutes or less. Or instead consider using the videos that come with our text (46 company video case studies, 90+ Solved Problem videos, 12 recent grad videos about OM careers).  It’s also possible to have students post their own videos, either recorded through Panopto or even their own phones. This allows for mini-presentations that other students could comment on.
  6. Don’t reinvent the wheel: Use existing resources that come with the text; Power points, videos, existing problems, etc.
  7. Participation: There are multiple ways of encouraging participation online: skype; face time;  group work through discussion forums; Zoom video conference.
  8. Make a schedule … your schedule and the student’s schedule. Be specific about deadlines. be clear about content and time expectations for their posts to each other in discussion forums. Let students know how they can raise questions and when you will be responding. Any online synchronous activities should be scheduled at the same time that the live class had been meeting prior to moving to distance.
  9.  Hybrid approach  You might try recorded lectures for more quantitative content but still have the class meet through Zoom, say, once per week for more discussion-based topics. Zoom’s screen share feature works quite well during a live class. Students primarily focus on the instructor’s computer screen with a small video of the instructor in the corner. And it’s easy to switch from a Power Point slide to Excel to showing a video, etc.
  10. Communications: Remember, the students may be new to this too, so continuing communication is important. Check your email more often than usual. Students may be asking questions at any time of day.

Guest Post: Being an Understanding Professor Under Extreme Circumstances

Our Guest Post today comes from Howard Weiss, Professor of Operations Management Emeritus at Temple University.

Nearly 50 years ago there was a nationwide student strike due to the shooting deaths of 4 students at Kent State University, with over 450 campuses shut down. The similarities between May, 1970 and today are striking. I was a student in 1970 and what I remember most is that all of my professors understood the circumstances and tried to accommodate students while maintaining as much academic rigor as possible.

The transition today from face-to-face classes to online classes is a difficult process. In addition, many students have been displaced and may not have reliable high-speed internet access at their new location. Some will not be familiar with web conferencing technology such as WebEx or Zoom.

Assignments An obvious way to reduce student apprehension is to extend the deadline on written assignments.  Students can submit Word documents through email and you can grade them using Word’s Review tab. If you have been collecting homework problems in class from your students then it is an easy change to have MyOMLab grade the homework. (Pearson has just made the MyOMLab available free for 90 days to all Heizer/Render/Munson adopters). If you usually have students solve problems by hand, consider allowing them to use the text’s free problem-solving software such as Excel OM or POM.

Exams If you have been giving exams that you have written yourself, consider instead using MyLab. The distribution of the exam would be simple and the randomness in the question order and the random numbers in the questions help mitigate students cheating.

Classroom discussions are much different than discussions using a Discussion Board. It is very easy for student replies to overrun the Discussion Board and for students to ignore other students’ responses. Control of the responses is of extreme importance. In addition, students may expect you to be monitoring the Discussion Board 24/7.

Lessons It would be useful for every professor to develop and teach an online course in order to be prepared in the event of any situation, ranging from a minor interruption to the current emergency. The main lesson though is that students and faculty all need to be understanding and compassionate during this troubling time.

OM in the News: Tesla Searches for a New Location

Tesla is looking for locations in the central United States to build a new factory for the company’s electric pickup truck. Cybertruck, a wedge-shaped pickup, is expected to go into production in late 2021 and start selling for a price of just under $40,000. By publicizing Tesla’s plans to construct a factory for the truck, the firm is repeating a strategy used in 2014 to score a $1.3 billion incentive package from Nevada. The state lured the company’s massive battery factory there after Tesla held a bake-off in which Arizona, California, New Mexico and Texas were the finalists that came up short.

States with right-to-work laws that prohibit unions from requiring prospective hires to join their membership are likely to be contenders for Tesla’s facility, writes Industry Week (March 11, 2020). Government incentives will also play a role in Tesla’s decision-making on a plant location, along with logistics costs, access to big, talented workforces, and quality of life.

Tesla recently completed construction of its newest plant in China and started delivering locally assembled Model 3 sedans to consumers in January. It’s also planning a factory near Berlin.

Last month, Elon Musk hinted that Tesla could build a factory in Texas. The Texas Enterprise Fund, created by the state’s legislature, has become one of the largest payers of economic-development incentives in the nation. Texas offered $2.3 million to entice SpaceX, the rocket company Musk founded and runs, to locate a launch facility in Brownsville.

Classroom discussion questions:

  1. What are the most important location factors for Tesla’s new plant?
  2. What kind of incentives did Amazon seek when it announced its search for a second HQ last year? (Hint: see our post on the topic).

Teaching Tip: Coronavirus and Your OM Class

It might be premature, but Chuck, Jay, and I have a suspicion that numerous live classes across the country may be pushed online after students return from spring break infected with the coronavirus. They’ve already done that for at least two weeks at the University of Washington and Stanford. Here are our thoughts about how our MyLabOperations Management can help.

 MyLab is actually perfect in situations like this. Not only can homework, quizzes, and tests be assigned and graded, but instructors may want to turn to other tools to help replace some normal classroom content. This could include the simulations but also assigning quite a few more of the company videos with cases and even referring students to our Solved Problem videos to help explain some of the mathematical content.

Self-contained Powerpoint slides are also available to all students and could be easily accessed. Instructor notes for those slides are contained in our Instructor’s Resource Manual (which is available to instructors on-line through the resource center), as are a number of suggestions for assignments outside of the classroom. Instructors might also wish to use features that they may not have in the past, such as our Active Learning Modules. For discussions and potential real-time interactions with students, instructors can access the MyLab Discussion Board feature or explore the possibilities of “virtual clickers” and other features available within “Learning Catalytics” (see the bottom of the home page in each MyLab course).

We believe that most students would be adaptable enough to move to an online course in the middle of a semester. And we are here to help instructors make the transition. If the switch to online eventually occurs at your school, MyLab has many features that can help.

Here are our emails if you need some help along the way: ProfRender@gmail.com; Munson@wsu.edu; and JHeizer@tlu.edu.

OM in the News: Wearable Technology is Changing Ergonomics

“The future of industrial ergonomics isn’t a person with a clipboard checking workers’ posture,” writes The Wall Street Journal (March 6, 2020). Warehouse operators and manufacturers are now testing wearable technology intended to stave off injuries from repetitive tasks like lifting boxes that can exact a significant toll on workers’ bodies over time. Overexertion in lifting or lowering was one of the most common events leading to occupational injuries.

Companies including Walmart and Toyota are experimenting with sensors that identify when workers engage in risky movements—say, bending their backs without squatting—and prompt them to change their form in real time. The devices also collect data that employers can use to assess how new equipment, tasks or changes in production volume affect worker safety. “It’s not about productivity or pick rates or any of that,” says an Australian exec. “It’s about reducing the chance of people getting hurt.”

Kinetic is a startup whose pager-like sensors clip on to workers’ belts to measure their body mechanics. Document-storage company Iron Mountain began using Kinetic’s devices 3 years ago to reduce at-risk postures that contribute to sprains and strains among warehouse staff and drivers who collect paper for shredding or storage. The technology takes the motion of the wearer’s hip and uses artificial intelligence and algorithms to reconstruct what that person’s body must have done to make it move that way, then determines whether the motion is high risk. Iron Mountain says it has experienced a 45% reduction in at-risk postures with the devise.

Direct observation, which we discuss in Chapter 10,  isn’t as precise because it can cause people to alter their movements.

Classroom discussion questions:

  1. Why is ergonomics so important in many jobs?
  2. Some firms are also testing “exoskeletons,” which we have blogged on recently. How do these exosuits differ from the sensor approach?

OM in the News: Ships Turn Into Floating Storage Units

Shippers are warehousing fuel on the high seas as the coronavirus epidemic cuts China’s demand for fuel.

A new glut of oil and gas is emerging, floating at sea, as the coronavirus epidemic cuts China’s appetite for fuel and hampers work at Chinese ports. Dozens of ships are acting as floating storage vats for oil and liquefied natural gas because the owners of the fuel are unable to find buyers or places to store their cargo on land, according to The Wall Street Journal (March 4, 2020). Some 79 vessels are now storing crude oil at sea.

Traders. in the past decade, often loaded up ships with crude oil or gas with no immediate intention of moving the cargo around the world, seeking to profit by buying fuel on the cheap and locking in a higher price in the future. Such hedging made supertankers a modern version of an inventory warehouse. But the current situation is different for the 87 million barrels of crude stored on the high seas today. Rather than getting paid to store oil and gas in ships, many traders simply can’t find a home for their cargo. So storing oil at sea comes with costs for traders and owners.

A similar story is unfolding in the gas market: Eleven ships are currently storing LNG at sea.  Traders typically load up ships in the fall to take advantage of rising demand and higher gas prices when temperatures drop in December. Stored at minus-261 degrees, some LNG evaporates while at sea, which means owners are loath to store gas in vessels unless they can profit from it. “Everything that’s floating is probably distressed,” said an industry expert. “It’s something that’s trying to find a home. It’s floating until it can find storage.”

Classroom discussion questions:

  1. What are the pluses and minuses of this hedging?
  2. In Chapter 12 of your Heizer/Render/Munson OM text, we list the 4 functions of inventory. Which of these apply here?