September 2022 – The OM Blog by Heizer, Render, & Munson

OM in the News: Ford’s Latest Supply-Chain Problem

Ford held some shipments because of a lack of badges.

Ford Motor has delayed deliveries of certain vehicles because it didn’t have the blue oval badges that go on them, in another example of how supply-chain challenges have hit auto makers, reports The Wall Street Journal (Sept. 24-25, 2022). The company has run into supply constraints with the brand-name badges and the nameplates that specify the model. Both parts are affixed to the vehicle’s exterior and are important identifiers for the auto maker’s products.

Ford had considered some workarounds, such as 3-D printing the insignia until the permanent ones could be obtained. But they didn’t feel the printed substitutions would meet the bar on quality.

The company is retrofitting those built without a Ford logo and delivering them to dealers. It now has 40,000 to 45,000 vehicles in inventory that can’t be shipped to dealers because they were awaiting needed parts. Many of these vehicles are high-margin trucks (like the F-150 pickup) and SUVs. The shortages primarily involved parts other than semiconductors.

Tribar Technologies, which has made badges for Ford, had to limit operations last month after disclosing to Michigan regulators it had discharged industrial chemicals into a local sewer system. Ford’s trouble getting nameplates and badges illustrates that even the most basic parts can be hard to come by, resulting in constraints that can have larger repercussions on a company’s ability to fulfill vehicle orders.

The global auto industry has been wrestling with various supply-chain disruptions for more than a year, but most of the shortages have revolved around a lack of semiconductors. That has led car companies to build some vehicles without the needed semiconductors and then park them until they can be finished. This strategy has left tens of thousands of cars and trucks sitting at airport lots and other holding pens near assembly plants in the South and Midwest.

GM had nearly 100,000 incomplete vehicles that it couldn’t sell because they lacked the needed computer chips and other parts to deliver them to dealers. Similarly, EV startup Lucid has cited supply-chain constraints on parts such as glass and carpet as one reason it slashed production targets for 2022.

Classroom discussion questions:

Table 11.3 in your Heizer/Render/Munson text lists ten supply chain risks. Which did Ford face here?
As operations manager, how would you address the multitude of supply chain problems?

OM in the News: European Manufacturers Shift to the U.S.

“A big winner from the energy crisis in Europe: the U.S. economy,” writes The Wall Street Journal (Sept. 22, 2022). Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.

Steelmaker ArcelorMittal is cutting production at two German plants

As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what could be a new era of deindustrialization, the U.S. has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products. “It’s a no-brainer to go and do that in the U.S.,” says the CEO of Amsterdam-based chemical firm OCI NV, which just announced an expansion of an ammonia plant in Texas.

While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by the U.S. on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.

Danish jewelry company Pandora and German auto maker VW announced U.S. expansions earlier this year, while Tesla is pausing its plans to make battery cells in Germany as it looks at qualifying for tax credits in the U.S. And Luxembourg-based ArcelorMittal said it would cut production at two German plants after reporting better-than-expected performance in its Texas facility that makes a raw material for steel production.

Europe remains a desirable market for advanced manufacturing and boasts a skilled industrial workforce. Many companies that have seen exploding energy prices in recent months have passed them on to customers. The question is “how long can that last?” The continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent. European manufacturers may struggle to stay competitive without the lower energy prices or green incentives currently offered in the U.S.

Classroom discussion questions:

If you were an operations manager at a European manufacturer, what would be your 2023 strategy?
Is the U.S. advantage temporary?

OM in the News: Decoupling of Supply Chains

“Covid-19, Russia’s invasion of Ukraine, and rising geopolitical risks in Asia have thrown a wrench into global supply chains,” writes The Wall Street Journal (Sept. 20, 2022). That has reinvigorated the push to put key supply links back onshore—particularly those currently located in China. A full “decoupling,” meaning the breaking of economic links with China, remains unlikely, but supply chains would become less integrated than in the past.

Two proposed laws in Europe are the latest case in point. The EU just set forth a ban on products made using forced labor. (It doesn’t name China but forced labor in the Xinjiang region is clearly a main target.) Recent U.S. legislation puts the onus on importers to prove that products from Xinjiang aren’t made with forced labor—an incredibly high bar. Such rearrangements could be challenging in some cases: For example in the solar supply chain, which is dominated by China. Xinjiang is a major producer of polysilicon, a crucial precursor of solar cells.

Another proposal from Europe tries to directly address such dominance, which also extends to the processing of lithium and other minerals critical for green energy applications. That law would attempt to speed up domestic production, processing and recycling of such raw materials. “Lithium and rare earths will soon be more important than oil and gas,” said EU’s Commission president. China processes almost 90% of rare earths and 60% of lithium.

All of this follows similar moves in the U.S. A recent law provides incentives for domestic manufacturing of clean-energy products such as batteries and solar panels. The U.S. is also implementing policies to encourage the onshoring of semiconductors and biotechnology. Such onshoring will take years and a full-scale relocation of manufacturing jobs back to the West is unrealistic. Friendlier or closer countries such as Vietnam and Mexico will probably be big beneficiaries—particularly those that already have free-trade agreements with the U.S. or the EU.

The rapid globalization of the past few decades seems likely to take a pause. Businesses, consumers and governments will gain a measure of reliability and peace of mind—but they should be prepared to pay up too.

Classroom discussion questions:

What are the benefits and dangers of the new U.S. and EU laws?
Is the globalization era ending?

OM in the News: Forecasting Fertilizer

Scotts Miracle-Gro’s warehouse at its Ohio headquarters this month.

Chapter 4 of your Heizer/Render/Munson text discusses many widely used forecasting techniques. And most companies use exactly these techniques. However, historical based techniques proved inadequate in a pandemic. Scotts Miracle-Gro fertilizer is a case in point. As The Wall Street Journal (Sept. 16, 2022) writes: “Never in the modern global economy have businesses seen such a rapid shift from shortage to glut.”

Scotts was in the middle of its selling season in 2020 when Covid-19 shut down much of the global economy. Scotts’ production had to respond, but like many firms, response was chaotic with production disruptions caused by sickness and an abundance of caution which eliminated entire shifts. It also soon became clear that homebound families were gardening more. Keeping stores stocked became a problem. And in spite of shortages, sales were up 20% in 2020 and another 10% in 2021.

So just months ago, Scotts was bracing for the biggest summer ever. After two years of struggling to fill store shelves, the company had ramped up production to catch up with consumer demand for lawn seed, fertilizer and other garden products. Massive investments in new manufacturing capacity were about to pay off as Scotts prepared for the usual rush of May orders from retailers looking to replenish their stocks. The CFO assured investors that Scotts was in a good place on inventory and that the firm was expecting banner 2022 sales.

But the orders never came. The pandemic was over, and inflation hit. Retailers cut orders. Scotts has cut 450 jobs and more layoffs are coming. Production schedules have been cut. Available cash is a fraction of what it was. Nobody is getting bonuses. Scotts was largely a casualty of bloated inventory at big retailers like Walmart, Target and Home Depot. Those companies didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, cut back on furniture, electronics and other goods and shifted spending to travel, food and fuel.

Classroom discussion questions:
1. Chapter 4 discusses seasonal adjustments to forecasts. How much would seasonal adjustments have helped Scotts in the past two years?
2. Your text (see page 138) suggests a forecasting technique know as Stagger Charts. How might Scotts implement this technique?

OM in the News: Trucking’s Dirty Secret

Trucks traveling empty has both financial and environmental costs.

Every day, thousands of trucks drive along miles of freeways and highways completely empty — and the distances they drive with zero cargo onboard reaches many billions of miles every year. After a truck delivers its load, it may not have any goods to carry for the return leg of its journey and drives back empty. “I don’t think it is widely known,” said an industry veteran.

The problem of empty trucks has gotten worse in Europe, with the proportion of mileage driven by vehicles with zero cargo going up, reports CNBC (Sept. 12, 2022). In the EU, trucks clocked up so-called “deadhead” distances of around 21 billion miles in 2021. This equates to more than a fifth of the total distance traveled by road freight in the bloc last year, up from 20% in 2020.

By its nature, the road freight industry is complex: manufacturers or retailers that need to transport goods are in myriad locations, shipping varying amounts of cargo to many destinations, sometimes relying on multiple carriers to do so.

Trucking companies ideally need one customer (or customers) for the outward journey and another for the return. If they don’t have two customers, vehicles run empty. But, as well as needing a shipment for the return journey, they also need a truck that matches their load, with equipment such as refrigeration or a vehicle with a fork-lift attached. Some haulers still book deliveries via phone or email. This means information about what is being sent where isn’t always centrally held, making it harder to find shipments to fill trucks for the return leg.

In the U.S., meanwhile, the distances driven by empty trucks decreased from 21% in 2020 to 15% in 2021. Under the pressure of rising fuel prices, carriers achieved some of the lowest deadhead mileage in years. But running trucks without loads is still a problem, especially since costs are going up: U.S domestic freight rates increased 28% this year (across all modes of transport including road and air), reaching a potential peak. Empty miles mean less revenue for carriers. It means increased costs because an empty truck on the road still consumes fuel, still needs a driver, and still requires regular maintenance.

Classroom discussion questions:

What is the solution to “deadheading”?
Why is the problem bigger in the EU than in the US?

Teaching Tip: How to Deliver a More Exciting OM Lecture

When preparing a slide presentation for an OM lecture, we’re not always thinking about the most compelling way to deliver it, says Harvard’s Faculty Lounge (Sept. 13, 2022). We load up our slides, and then sometimes read them aloud to our students.

But no one—especially a student—is wired to engage with bullet points on a slide. They’re wired for story, a narrative that has a theme, attention-grabbing moments, and a satisfying conclusion. On their own, presentation programs like PowerPoint or Google Slides are not storytelling tools. So we need to be the inspiring narrators.

Understanding the difference between presenting and storytelling is critical to our ability to engage students and stir their excitement. Here are 4 strategies to help grab your students’ attention and ensure they are retaining what you’re teaching.

1. Craft a narrative that brings the topic to life. There’s absolutely nothing wrong with using PowerPoints for classroom learning, but slides shouldn’t be designed to replace the instructor—the storyteller. The narrative must come first, and slides should complement the story. First identify a story that brings the topic to life and then create or select the slides. It can be a consulting experience, a blog from this site, a WSJ article, or a case study.

2. Animate your story with pictures or videos. Students recall only 10% of the content they hear. But if you add a picture, they’ll retain 65%. So use one of our 50+videos, a YouTube clip, graphics, or photos to help bring the stories to life.

3. Add a few surprises. Some PowerPoints are boring because they’re predictable. Your students know what comes next—another slide of bullet points, followed by another. A good story, however, has the element of surprise. The human brain pays attention to novelty—twists and turns and unexpected events. This means your students will perk up when they detect something that breaks a pattern.

4. Rehearse the story before sharing with your class. A great lecture should inform, inspire, engage, and entertain, and should therefore be rehearsed–out loud. While it’s not realistic or necessary to practice every minute of a 1-hour lecture, at least rehearse the opening, conclusion, and stories you plan to share. Students won’t recall every piece of information they heard in class, but they’ll remember the moments you choose to spotlight.

We all strive make our OM course topics compelling–and we are lucky that ours is a field that allows us to bring teaching to life.

Guest Post: Production of TABASCO® Sauce

Prof. Howard Weiss, who developed the Excel OM and POM software free to our readers, provides his insights on a monthly basis.

Everyone is familiar with the iconic bottle of Tabasco. The sauce was first developed in 1868 by Edmund McIlhenny and while there are currently hundreds of hot sauces available Tabasco was the first. Production of Tabasco exhibits several of the aspects of operations management that are in your Heizer/Render/Munson textbook.

Raw Materials (in Ch. 1): Tabasco sauce is made from only three raw materials – tabasco peppers, salt and vinegar. The peppers
were originally from …

Location (in Ch. 8): … Avery Island, a small area surrounded by bayous in Louisiana, which has the perfect climate and soil, for growing the peppers. Now the peppers also come from other places in Louisiana, Mexico, South America and Africa.

Process (in Ch. 7): It takes five years to go from peppers to Tabasco sauce. The peppers are picked by hand, are mashed and mixed with salt, also from Avery Island, and then aged for over 3 years in …

Supply Chain for Equipment (in Ch. 11): … decommissioned white oak bourbon barrels sourced from different distilleries around the country with all traces of alcohol removed.

Quality Control (in Ch. 6): Each batch of tabasco goes to a lab and also is inspected by a McIlhenny family member before being mixed with vinegar for 28 days to become Tabasco Sauce. In addition, the barrels undergo a quality control inspection before being reused.

Byproduct (in Supp. 5): When a barrel can’t be reused, the wood is broken down into wood chips and the barrel’s stainless-steel hoops are reused.

Capacity (in Supp. 7): Approximately 20,000 to 22,000 barrels are put into production each year. Each barrel contains enough sauce for 10,000 of the 2 ounce bottles shown above.

Distribution (in Ch. 11): It is then bottled and labelled in multiple different languages and shipped to nearly 200 countries around the world. It was the favorite hot sauce of the late Queen Elizabeth.

Reliability (in Ch. 17): After Hurricane Rita, the family constructed a 17-foot high levee around the low side of the factory and also invested in back-up generators.

Classroom discussion questions:
1. What other products have climate as a main factor in facility location?
2. What other products get reused in way different from their original use?

OM in the News: Clothes and EU Recycling Regulations

The EU imports 3/4 of its textiles. Above, garment workers cut fabric to make shirts at a textile factory in India

Clothing companies will start selling more garments made from a single material this coming decade, a major shift in response to a European Union plan to require apparel to be longer lasting and recyclable.

Clothes often contain a mix of fibers, including organics, such as cotton grown on farms, and synthetics, such as polyester refined usually from petroleum. Garments with multiple materials—such as a T-shirt made from 99% cotton and 1% spandex—are difficult to recycle because separating the fibers is tricky.

Currently, less than 1% of the world’s textile waste is recycled into new clothes, with the bulk ending up in trash heaps, writes The Wall Street Journal (Sept. 7, 2022). The EU wants to change this. But the relatively short time frame promises to challenge the big players in fast-fashion, which may have to retool their design processes and rethink their sourcing, a topic we note in Supplement 5.

The EU recently published a plan that aims to put “fast fashion out of fashion” by 2030, referring to the trend of people buying clothes and throwing them out in less than a year. Clothing should be “long-lived and recyclable, to a great extent made of recycled fibers,” the EU said. Sustainability experts say that single-fiber, or monofiber, clothes present one of the best solutions.

The plan will affect not only Europe’s homegrown brands, but also American Nike and Levi Strauss and Japan’s Uniqlo or China’s Shein. EU nations have already agreed to collect discarded textiles separately from other waste by 2025.

German sportswear maker Adidas, for example, launched a line of single-fiber clothes last year including shoes, coats, T-shirts and pants under its “Made to be Remade” label. “These products are created with just one material and once they reach the end of their useful life, they can be cleaned, shredded and recycled for use in new products,” said the firm. Swedish fashion retailer H&M is stepping up repair services and offering rental and secondhand clothing as part of its push to cut waste and its associated greenhouse-gas emissions.

Classroom discussion questions:

Are you concerned/aware of this issue?
How does the proposed change impact the 10 operations decisions discussed in Table 1.2 of your Heizer/Render/Munson text?

OM in the News: Two Looks at the Importance of Maintenance

Two recent Wall Street Journal articles cite examples of how many aspects of maintenance costs are not noted in standard accounting procedures (see Figure 17.4 and related discussion in your Heizer/Render/Munson text). Preventive maintenance involves monitoring equipment and facilities, along with performing routine inspections, to keep them reliable.

The fire overtook the town of Paradise within hours, leaving residents unable to escape.

Here is the first (from WSJ, Aug.26-27, 2022): Across the country, transmission lines are among the oldest parts of the electrical grid, Many were constructed in the years after World War II as Americans moved from cities to suburbs, built homes wired with wall sockets, and bought electric appliances. Some transmission lines are even older, developed shortly after the turn of the 20th century to replace gas lamps and candles at a time when electricity was still something of an experiment. For example, PG&E Corp.’s transmission line was built in 1921 in the Sierra Nevada mountains.

On Nov. 8, 2018, just before sunrise, strong winds pummeled a power line scaling those mountains north of Sacramento, Calif. A hook hanging from a century-old transmission tower broke, dropping a high-voltage wire that spit a shower of sparks setting dry brush aflame. The Camp Fire, named for the road near its place of origin, burned for 17 days, destroying 150,000 acres and 19,000 structures. It killed 84 people. PG&E pled guilty in 2020 to involuntary manslaughter charges. It said that inspections revealed the need for more than 250,000 repairs across the system. But they had not taken place. PG&E’s lack of preventive maintenance cost lives.

The second article (from WSJ, Sept. 2, 2022) involves the U.S. Army: The Army said its maintenance personnel installed the wrong parts on some of its 400 Chinook helicopters, prompting military officials to ground the entire fleet. The Army experienced at least seven incidents of fuel leaks, four of which involved engine fires. The parts in question, types of seals known as O-rings, weren’t faulty, just not the ones that were supposed to be installed. The Army has taken steps to correct the maintenance error and inspect helicopters suspected of having the incorrect O-rings, which the U.S. government purchased for 11 cents each.

The helicopters have ferried American soldiers and equipment on battlefields since the helicopter’s debut in 1961. The military had no estimate for when the aircraft would begin to return to service.

Classroom discussion questions:

Who in the PG&E organization is responsible for this maintenance failure?
As an Army Officer in change of Chinook helicopter maintenance, what changes would you make?

OM in the News: Improving Productivity at Starbucks

A barista prepares a drink at the lab inside Starbucks HQ.

In Starbucks headquarters lies a technology lab that is plotting the firm’s renewal. That includes rethinking the onerous path its baristas must take to make a Frappuccino. Inside the massive space, baristas working in a mock-up of a cafe walked back and forth between refrigerators, blenders and syrups to make a single blended coffee topped with cold foam and caramel drizzle. They asked if the company could build kitchens that bring the equipment closer together (see the topic of layout in Chapter 9) and make syrup pumps, milk dispensers and ice bins that work better.

“Starbucks, the chain that made espresso ubiquitous, now faces daily crises in dispensing it,” writes The Wall Street Journal (Sept. 1, 2022). U.S. stores designed a decade ago struggle to meet today’s consumer demand. Cafes that once averaged 1,200 orders a day are now asked to make 1,500. Workers have been pressing for better pay, staffing levels and hours. Turnover has shot up. One in 4 baristas are quitting their jobs within 90 days, up from 1 in 10 previously.

So Starbucks also has been testing how to overhaul operations to improve the experience for both employees and customers. If employees spend less time running around fetching foam and carrying 20-pound buckets of ice, maybe they will be happier working there.

As Starbucks expanded, so did its menu (see Chapter 5). It started serving Frappuccinos in 1995, and pumpkin spice latte and other flavors followed. Warm sandwiches came in 2003. It introduced cold brew and draft nitro coffee in the 2010s. In 2015, the company launched an app that allowed customers to pay for their drinks ahead of time and to customize their coffee orders in 170,000 ways!

The firm expects workers to deliver handcrafted beverages fast. A store clipboard, used to track workers’ drive-through delivery times, said “Expectations: Under 50 Seconds.” But stores are heavily restricted by design and need a remodel to cope. Starbucks has upgraded equipment periodically, including adding espresso machines that can pull 3 shots for complex orders, rather than 2. It conducted motion studies (our topic in Chapter 10) to measure how long it took baristas to walk across the floor to pump extra syrup, among other tasks.

Engineers mocked up designs for the cafe prep area, producing prototypes with 3-D printers. Technicians studied milk dispensers, ice machines and the size of dispensers for strawberries. “Every second matters with customers waiting,” says the new CEO.

Classroom discussion questions:

What do you think Starbucks can do to improve productivity? (See Chapter 1)
What can they do to lower turnover?

OM in the News: Amazon’s New Delivery Route Algorithm

Amazon expects its new delivery route algorithm will help it avoid millions of miles driven this year after deploying it across the entire U.S., according to Supply Chain Dive (Aug. 31, 2022). The Customer Order and Network Density Optimizer (Condor) algorithm assesses customer orders before they leave a fulfillment center to identify the most effective shipping options. It began running in a few Amazon delivery stations in January before going live nationwide. “We can enable carriers to deliver more packages to more customers on time, while reducing miles driven and carbon emissions from fuel,” said an Amazon exec.

Amazon vans delivering packages in Hicksville, N.Y.

For Amazon, a decision on how a customer order should be fulfilled is made quickly based on item location and other factors. However, there can be a 5- to 6-hour gap from when an order is placed to when the fulfillment center begins processing the order, and the plan may be updated if a nearby customer places an order later in the day.

This period prior to fulfillment gives Condor a chance to reevaluate the original decision multiple times to see if a more optimal route can be created.

Condor takes into account the entire geographic area a delivery station serves while determining how orders are split into shipments and the sourcing fulfillment center for each shipment. The program’s “breakthrough” is that it is able to reduce the number of possible routing decisions to less than 10 per geographical block, despite the complexity involved.

Delivering the same number of packages in fewer routes and miles driven helps parcel carriers save on last-mile shipping costs, a big reason why UPS and FedEx have launched their own initiatives in this regard. UPS’ pilot involves holding an order for as long as the service agreement allows until it can match another shipment to the same address. FedEx is consolidating routes run by its separate Express and Ground companies via its “Network 2.0” plan.

Classroom discussion questions:

Explain how Condor works.
What is meant by “last-mile” shipping costs?