Month: December 2022

OM in the News: The Great Southwest Air Christmas Meltdown

On pages 608-9 of your text, the Global Company Profile for Ch. 15 features Alaska Airlines and is titled “Scheduling Flights When Weather is the Enemy.” The case study in the Linear Programming chapter (Module B) discusses how LP software drives staff and plane scheduling in that industry.

Southwest Airlines software is an aging in-house system called SkySolver, which as The Wall Street Journal (Dec 29, 2022) writes: “This Christmas, SkySolver not only didn’t solve much, it also helped create the worst industry meltdown in recent memory.” SkySolver was overwhelmed by the scale of the task of sorting out which pilots and flight attendants could work which flights. Crew schedulers instead had to comb through records by hand.

 Even as SkySolver tried to solve one set of problems, new ones would emerge. Crews and planes were out of place. Phone lines jammed up, and Southwest staffers trying to get assignments couldn’t get through to the scheduling department. The airline was scrambling just to figure out where its crew members were located.

Southwest canceled more than 13,000 flights between Dec. 22 -27, while stranding passengers and bags across the country. This isn’t the first time that a disruption has ballooned at Southwest, and the carrier’s struggle shows how its increasingly complicated network needs a better technology foundation.

Pilots for years complained that SkySolver often spits out fixes that don’t make much sense, sending crews on circuitous journeys around the country as passengers to meet flights, a practice known as “deadheading.”

By Dec. 26, Southwest realized it needed a full reboot. In an effort to get pilots, flight attendants and planes into position, the airline took draconian measures. It canceled two-thirds of its planned flights for multiple days, and locked up seat inventory on its website so customers couldn’t buy tickets for a flight that might ultimately be canceled.

Unlike many rival airlines, Southwest’s planes generally hop from one city to another, rather than orbiting a major hub. That approach lets Southwest maximize use of its planes and crew, but the daisy chain structure also makes its network more delicate—problems in one corner of the country can be difficult to contain.

Classroom discussion questions:

  1. Why did the scheduling software fail?
  2. What options do operations managers have at this point?

OM in the News: McDonald’s Unveils First Automated Location

McDonald’s opened its first automated restaurant, with machines handling everything from taking orders to delivering the food – and dividing opinions everywhere, reports Fox Business (Dec. 24, 2022). 

OM in the News: The Impact of Inventory “Shrinkage”

A massive rise in theft is chipping away at an advantage brick-and-mortar retailers have over e-commerce companies: the ability to touch the merchandise, reports The Wall Street Journal (Dec. 24-25, 2022). Brick-and-mortar retail’s indisputable edge over e-commerce is that consumers can get what they want immediately, and can touch and feel the product before buying it. Rising theft—and stores’ measures to prevent it—could dull that edge.

Products displayed in locked security cabinets at a Walgreens in San Francisco

Shrink—an industry term for loss in inventory—amounted to 1.4% of retail revenue in 2021, or $94.5 billion. Most of that shrink is caused by theft. Walmart’s CEO said that if the retail theft issue is not addressed over time, “prices will be higher and/or stores will have to close.”

Covid-19 has worsened the risk of crime, partly because labor shortages have made it difficult to fully staff stores. Moreover, supply-chain shortages made certain products more susceptible to theft because they fetched high value in secondary markets. Supply-chain delays during the pandemic also meant more cargo was sitting around, leaving it more vulnerable to theft.

Shrink can have a substantial impact on already thin retail margins. At Dollar Tree, shrink shaved 1.7% off operating margins this quarter–substantial for a firm whose operating margin was 5.5% that same period. Drugstores are especially susceptible because they are located and designed for convenience. It’s a quick in, quick out layout with valuable electronics, over-the-counter drugs, cosmetics and beauty care, which are desirable and mobile items. Walgreens estimates that shrink amounts to 3.25% of the company’s revenue.

Mitigation measures can range from the most basic physical ones—such as locking up items—to more technologically sophisticated ones, such as video surveillance with facial recognition. Some measures are designed to make the product less valuable for theft. These include ink tags, which stain clothes when removed, and products that must be activated by the cashier in order to be used. Some cordless power tools will only start functioning if the firmware is activated at the point of sale. More subtle measures include placing high-value items further away from the entrance or having employees stand close to those products.

Classroom discussion questions:

  1. What do some retailers (like Costco and Sam’s Club) do to reduce shrinkage?
  2. Discuss some techniques to deal with this issue? (Hint: see “Control of Service Inventories” in Chapter 12 of your Heizer/Render/Munson text)

OM in the News: Blockchain Fails to Gain Traction

Blockchain, the technology underpinning bitcoin and other cryptocurrencies, for years has been viewed by some companies as a way to drive industry-transforming projects, among them the tracking of assets through complex supply chains. So far, that hasn’t happened, writes The Wall Street Journal (Dec. 16, 2022).

We have followed the topic (Chapter 11, pages 451-2 in your Heizer/Render/Munson text) relentlessly, with 22 blogs over the past few years. To review them, enter “blockchain” in the search box on the right.

Maersk and IBM discontinued a blockchain-based program to track shipments

The latest effort to run aground was that of Maersk and IBM, which hoped to follow shipments via the blockchain. Another big effort, Walmart’s attempt to track groceries on the blockchain, continues, but very slowly.

“There’s not one company that has really shown, let’s say, a material change,” said Moody’s VP, of blockchain efforts in supply chains. It has been slow going or worse for big bets on blockchain for a number of reasons: the complexity of the technology, the time required to get a blockchain into operation and the difficulties in enlisting participants.

TradeLens, the Maersk- IBM blockchain platform, was launched in 2018 to help digitize container shipping on a secure global tracking platform. Had it worked, it would have been a game-changer, cutting down on paperwork to clear customs and offering cargo owners more visibility of their boxes during transit.

In 2018, Walmart partnered with IBM to start tracking its produce items through blockchain. The effort began with leafy greens, and in the four years since has added just one more item: green bell peppers. Walmart said it took time to get buy-in from suppliers who found the onboarding process daunting. Many didn’t have digital record-keeping systems and had to make large upfront investments before they could start using blockchain.

“There used to be a time, 4 years ago, every interview that I would get into, the question was about blockchain and how’s UPS going to use blockchain. Are you guys going to solve all the problems in the world with blockchain?” says a former UPS exec. “It’s been a long time since anyone has asked me about blockchain,” he added. “It never really took off in my world.”

Classroom discussion questions:

  1. Describe exactly how blockchain works.
  2. Why has blockchain faltered?

 

 

OM in the News: Port Supply Chains Unclog

Back in January, 109 container ships waited off the California coast to unload cargo in Los Angeles and Long Beach, the nation’s two largest ports. Consumers, stuck at home amid the pandemic, had unleashed an avalanche of orders for goods that overwhelmed factories and ports.

A container ship is unloaded at the Port of Los Angeles

Importers were paying $20,000 to send a single container from China to the U.S. — sometimes more than the goods inside were worth. Businesses had to backorder everything from bedroom furniture to kitchen fryers, if they could get them at all.

These days? No freighters are lingering off the Southern California coast. Containers from China go for just $2,000. Restaurants can order fryers and have them delivered in a couple of weeks.

The supply backlogs of the past two years — and the delays, shortages and outrageous prices that came with them — have improved dramatically since summer, reports AP News (Dec. 7, 2022). “We are in a very different place than we were,” said a supply chain exec. “If you ask, how long does it take to move stuff, there has been notable improvement. If you measure it by how long would it take to get a cargo from Asia to a destination port, dramatically better.”

The web of factories, railroads, ports, warehouses and freight yards that link goods to customers have nearly regained their pre-pandemic levels. The main factor behind the improvement has been diminished demand for manufactured goods. And having splurged on everything from lawn furniture and sporting goods to appliances and electronic gear during the COVID shutdowns, consumers have increasingly shown a desire to venture out and spend on experiences rather than goods. Demand has shifted toward services — restaurant dinners and plane tickets, hotel rooms and entertainment.

At the sprawling Southern California ports, the shipping backup has eased, in part because companies have sent cargo to Gulf Coast and Atlantic ports to avoid delays. Port Houston says its cargo volume is up 18% from this time last year. In addition to the reduced demand that has lightened the strain on supply chains, ports have become more efficient. Additional ships have increased the transportation options.

Classroom discussion questions:

  1. What caused the longstanding backlog at California ports?
  2. What options did operations managers have when unloadings were delayed by many weeks?

OM in the News: Leased Robots Roll In

Logistics firms looking for extra help during the holidays are leasing temporary package-handling robots, which can be returned to their manufacturers when online shopping orders cool down after the seasonal rush.

Robots from Locus Robotics await deployment

Leased robots, which have grown in popularity across the industry in recent years, can be added to existing fleets of warehouse, distribution and fulfillment center robots at any time to support an anticipated jump in demand. The robots are increasingly being used for picking up and sorting packages, receiving and unloading them, moving heavy payloads and replenishing stock shelves, among other automated tasks.

The growing demand for robots in the logistics industry is being driven by a shortage of workers, ongoing supply-chain disruptions and continued momentum from a sharp increase in online shopping triggered by the Covid-19 pandemic, reports The Wall Street Journal (Dec. 7, 2022).

Spending in the global logistics robotics market, which was valued at $2.6 billion in 2020, is expected to grow at a compound annual growth rate of 23%, reaching $11 billion by 2027. Excluding Amazon, which is by far the sector’s largest robotics user, there are more than 20,000 logistics robots of all kinds in use today. Known as robots-as-a-service, leased robots are employed widely in manufacturing, but are relatively new to the logistics industry. Under the model, users are charged a subscription-like fee from third-party robotics firms.

By leasing robots, companies are spared high upfront costs and ongoing maintenance expenses. On the downside, orders for subscription-based robots have to be made well in advance of an anticipated upturn in demand. The process of outfitting a company with a leased robot typically involves taking a 3-D scan of a facility and feeding the data into an artificial intelligence-enabled program designed to generate a mock-up of a robot’s mechanical, electrical and software systems.

Classroom discussion questions:

  1. What is the main driver of robot leasing in warehouses?
  2. What is the difference between a “service robot” and one used in manufacturing?

OM in the News: Why Apple Plans to Move Beyond China

Apple and China have spent decades tying themselves together in a relationship that, until now, has mostly been mutually beneficial, writes The Wall Street Journal (Dec. 3-4, 2022).  But in recent weeks, Apple has accelerated plans to shift some of its production outside the long the dominant country in its supply chain. It is telling suppliers to plan more actively for assembling Apple products elsewhere in Asia, particularly India and Vietnam, and looking to reduce dependence on assemblers led by Foxconn.

Protesting workers being beaten at Chinese iPhone factory in November

Turmoil at a place called iPhone City helped propel Apple’s shift. At the giant city-within-a-city in Zhengzhou, China, as many as 300,000 workers work at a factory run by Foxconn to make iPhones and other Apple products. At one point, it alone made about 85% of the Pro lineup of iPhones.

The Zhengzhou factory was convulsed by violent protests and running at only about 20% capacity last month. Coming after a year of events that weakened China’s status as a stable manufacturing center, the upheaval means Apple no longer feels comfortable having so much of its business and supply chain tied up in one place. In the past, China has excelled at building hundreds of millions of gadgets, heavily due to its concentration of production engineers and suppliers.

Two causes threaten China’s historic economic strength. Some Chinese youth are no longer eager to work for modest wages assembling electronics for the affluent. They also seethe because of Beijing’s heavy-handed Covid-19 approach, itself a concern for Apple and many other companies. And 5 years of U.S.-China military and economic tensions and U.S. tariffs have come into play.

The risk of too much concentration in China has long been known to Apple, yet for years it did little to lessen it. China supplied a diligent workforce, political stability and a huge local market. Apple’s goal is to now ship 40% to 45% of iPhones from India. Vietnam is expected to shoulder more of the manufacturing for other Apple products such as AirPods, smartwatches and laptops. American companies’ confidence in China has fallen to a record low, with about a quarter saying they have at least temporarily moved parts of their supply chain out of China over the past year.

Classroom discussion questions:

  1. What are the benefits and risks of Apple’s move?
  2. Figure 8.1 in your Heizer/Render/Munson text (see page 337) lists 20 factors that affect location decisions. Which concern Apple operations managers?