March 2023 – The OM Blog by Heizer, Render, & Munson

OM in the News: Countries Compete to Lure Manufacturers From China

China may be losing its place as the center of the world’s supply chains

Countries are jostling to grab a piece of China’s manufacturing action as tariff battles and worsening U.S.-China ties jolt companies into reordering global supply chains. Executives are circling the globe looking for factory space or local tie-ups to reduce their dependence on China—and governments are pulling out the stops to welcome them.

At stake for low- and middle-income countries eager to help is the chance to turbocharge economic development and create millions of new jobs, writes The Wall Street Journal (March 25, 2023). India, Mexico, Vietnam, Cambodia, the Philippines, and others are competing on subsidies, tax breaks and other perks to convince businesses that their country is the next best thing to the manufacturing machine that China has honed.

China cemented its dominance of global manufacturing over the past 50 years. It has also grown its share of higher-value manufactured goods, such as cars and complex electronics, at the expense of rivals including Germany and Japan. But this dominance risks being whittled away. Companies have been stung in recent years by the supply-chain disruptions caused by Russia’s invasion and the pandemic. Many are seeking to fashion more diverse supply chains in the hope that they will prove more resilient in future crises.

Foreign direct investment into China in 2022 fell 43% on the year to $190 billion. And China’s share of U.S. goods imports fell to 17% in 2022, from a high of 22% in 2017.

Rerouting global supply chains away from China won’t be an easy process. Would-be rivals need to overcome challenges such as higher transport costs, outdated equipment and processes and subpar infrastructure. In the competition for a bigger slice of global manufacturing, countries are competing not just on cost and geography, but on who can offer companies the choicest perks while meeting their own development goals.

Cambodia revamped its laws in 2021 in an effort to attract more foreign investment, pinpointing manufacturing in advanced technology, machinery and spare parts, and electronics. Vietnam offers tax holidays to companies willing to invest in poorer areas of the country. India announced $1 billion in incentives to persuade companies to make more computers and tablets in the country. Mexico’s big advantages are its proximity to American consumers and membership in the USMCA trade agreement, which we discuss in Chapter 2.

Classroom discussion questions:

What does this “reordering” mean for reshoring and nearshoring?
Who benefits most from the move to expand beyond china?

OM in the News: The New American Battery Plants

South Korea’s LG Energy Solution just said it would invest $5.6 billion in a battery-manufacturing complex in Arizona, the latest in a string of new plants by foreign companies as the U.S. transitions toward cleaner fuels. LG Energy’s new battery complex will mainly serve electric-vehicle makers in North America. The amount is four times larger than what the firm had initially pledged when it first revealed plans last year to manufacture the batteries in Arizona. LG Energy reassessed its investment options due to unprecedented economic conditions. Inflation has been driving up the costs of raw materials and other expenses for manufacturers worldwide.

The complex will consist of two battery plants and mark the largest investment ever for a stand-alone battery-manufacturing facility in North America. Battery makers have been pushing to build up a bigger production base in the U.S., which is looking to strengthen its local supply chains and reduce reliance on China while speeding up shifts to green technologies, writes The Wall Street Journal (March 27, 2023)

13 battery gigafactories coming to the US by 2025 – ushering new era of US battery production

The U.S. has offered billions of dollars in tax credits for EVs sold in the U.S., but it only applies if they have a certain value of their battery components assembled in North America. (The Arizona plant will meet the eligibility requirements of the EV tax-credits program.) The program has stoked complaints from foreign car makers, but has opened business opportunities for non-Chinese battery players including South Korea’s LG Energy, Samsung, and SK On, as well as Japan’s Panasonic, which have all announced plans for new manufacturing plants in the U.S., including many via joint partnership with auto makers.

When excluding China’s CATL, LG Energy is the top battery maker globally, accounting for 21% of the combined EV and energy-storage-system battery market by units sold. In addition to the Arizona complex, LG Energy is working to expand its battery-manufacturing base across North America. It has three plants it has built or is building across the U.S. with General Motors as well as one planned plant with Honda in Ohio and one with Stellantis in Canada.

Classroom discussion questions:

What factors discussed in Chapter 8 (Location Strategies) are chip manufacturers using in making location decisions?
Why are so many plants under construction?

OM Podcast #1: Sustainability and Supply Chains

Welcome to our newest Operations Management text feature–bimonthly podcasts on topics we think you and your OM students will find interesting.

Jay and I will be creating 8-9 minute podcasts–posted on this blog. They will be tied to specific chapters in the text. Assignable auto-graded exercises using this podcast (in the form of multiple choice questions) are available in our MyLab OM. To learn more about these assignments in MyLab, contact your Pearson rep at https://www.pearson.com/us/contact-us/find-your-rep.html

Today’s topic relates to Supplement 5, Sustainability in the Supply Chain. In it, we talk about new government regulations, the clothing industry, Apple, and greenhouse gasses. Let us know what you think. The next podcast will be released in two weeks on the topic of Blockchains.

OM in the News: The EV Supply Chain and Canada

International giants are investing billions of dollars in Canada’s EV and mining sectors

Multinational companies are pumping billions of dollars into Canada’s electric-vehicle manufacturing sector, lured by government incentives, access to raw materials and cheap renewable energy. VW just announced that it had chosen a site in Ontario to build its first battery-cell plant outside Europe, citing Canada’s natural resources as one of the reasons. VW’s plan follows recent EV and battery-making project investments by GM, Stellantis, Michelin Tires, Brazilian miner Vale, U.K. mining company Rio Tinto, and German chemicals company BASF, among others.

According to The Wall Street Journal (March 23, 2023), Canada is benefiting from a push by the U.S. and its allies to reduce their dependence on China for the critical minerals used in EV batteries and military equipment. In one example, Stellantis and South Korea’s LG are building a $4.1 billion battery plant in Windsor, Ontario, with 2,400 workers starting next year. As we discuss in Chapter 8 (Location Strategies), incentives are common and Canada has had to pay up to win the investments, scrambling to keep up with the U.S., which has unveiled a raft of subsidies meant to draw investment in its EV industry. Canada gave $732 million to land the Stellantis/LG venture.

Canada is among the most expensive countries in the world to build cars and the highest-cost market for car assembly in the North American free-trade zone. To save money, auto makers in recent decades moved thousands of manufacturing jobs and motor-vehicle assembly capacity to Mexico, dropping auto employment in Canada from 175,000 to 110,000.

The Canadian government is pitching itself as a counterweight to China in the race to develop EV technology. China leads the world in processing metals and minerals like nickel, copper, lithium and cobalt. It also is home to 78% of the world’s cell-manufacturing capacity for EV batteries. Helping Canada’s pitch: It is one of the few places in the Western Hemisphere with the raw materials companies need to make their EVs. Electra Battery Minerals Corp. is the only facility available in North America for processing battery-grade cobalt, a metal used in batteries. Rio Tinto is upgrading an iron-ore and titanium refining facility in Quebec with a $500 million investment.

Access to hydroelectricity was a key reason GM and others chose Quebec. The renewable power helps lower GM’s greenhouse-gas emissions. Quebec also offers the lowest industrial rates for power in North America.

Classroom discussion questions:

Summarize the reasons more companies in this field are looking to Canada.
What is China’s strength in the EV supply chain industry?

OM in the News: What Is a “Digital Twin”?

A digital twin is a virtual representation of an object or system that spans its lifecycle, is updated from real-time data, and uses simulation, machine learning and reasoning to help decision-making.

NASA tested an early iteration of a digital twin in response to the Apollo 13 disaster in 1970, using training simulators to match the conditions on the crippled spacecraft and test potential strategies for bringing the astronauts home safely. Today’s digital twins are much more advanced, writes The Wall Street Journal ( March 20, 2023). Not only do they pull in real-time data, but also use AI to capture insights and make predictions, such as identifying potential problems before they happen. The technology also can eliminate the need for physical prototyping of products such as automobiles, and offer a way to test different configurations for spaces such as warehouses and stores, potentially saving time and money.

Companies in every industry are looking at the technology to help them improve processes, reduce costs, conserve resources, boost employee safety and productivity: 17% said they have or plan to deploy digital twins.

San Francisco Airport’s digital twin of its Terminal 2.

For example, the massive San Francisco Airport relies on a digital twin to keep the facility running smoothly. It is a 3-dimensional virtual replica of the airport that is continuously updated with data gathered from embedded sensors throughout the airport. If the maintenance team were to receive a request to change door locks, for example, it could consult the digital twin to find the locations of all the doors that need service.

Another growing area is construction. Modern buildings are already layered with sensors and data-gathering systems that building operators can combine in a digital twin to help them improve a structure’s efficiency, sustainability and security. Building managers can use digital twins to keep track of systems—such as EV charging, smart glass that darkens to reduce energy costs and even soap dispensers with built-in sensors that know when it’s time for a refill—all in one place.

Other complicated systems might benefit from connected digital twins, too. A collection of twins representing everything from stadiums to freeways to public parks has the potential to change the way governments build cities and provide services. Cities might use the technology to create more efficient trash-pickup schedules and routes, for example, or to change traffic patterns when there is a spike in additional people getting on the road from, say, a stadium event.

Classroom discussion questions:

How might a digital twin be used at your university?
Why are twins so useful?

OM in the News: Inventory “Shrinkage” on the Rise

Retailers regularly conduct a physical count of their inventory and compare it to what is recorded on their books. The difference is known as shrinkage, a broad term that encompasses not just internal and external theft but also process failures that could lead to inventory being lost or recorded inaccurately.

Shoppers now face items locked in glass cabinets in NYC and other cities

Target just announced that it expected the shrinkage problem to reduce gross margins for the year by over $600 million. TJX and Macy’s also reported higher shrink rates. The shift in shoppers returning to stores after a surge in online buying during the pandemic is partly responsible, writes The Wall Street Journal (March 13, 2023). More theft happens in stores, as opposed to warehouses that fulfill online orders. But a never-seen-before jump in organized retail crime in certain U.S. cities is also a factor.

External theft, which includes organized retail crime in addition to regular shoplifting, has become a bigger piece of the pie. Organized retail crime, involving rings that steal from stores in bulk and then peddle the goods online, cost retailers $720,000 for every $1 billion in sales. Seven years ago, theft by employees was the largest category of loss by retailers. Now, it’s external theft.

Retailers are combating the problem by adding security guards and cameras to stores, locking up goods and making use of facial recognition software to help identify repeat offenders. Macy’s is using radio frequency identification (RFID) tags to better track inventory, adding more security personnel to stores and securing high-end brands with locked cables and sensors.

Retailers and shoppers say there is a fine line between deterring criminals and annoying honest customers. “Retailers are locking up everything from shaving cream to soap,” said one customer. “These should be things that are quick and easy to grab and go. But now I’ve got to find an employee to unlock them for me.” Some retailers agree they may have gone too far in their theft-prevention measures. Macy’s used to keep German shepherds in its Manhattan flagship for security sweeps, but discontinued the practice in 2015. NYC police now ask shoppers to take off their face masks before entering stores, a measure intended to help them better identify criminals. The plea came after four men stole $1.1 million of goods from a jewelry store.

Classroom discussion questions:

What tools does Chapter 12 suggest stores use to control shrinkage?
What is causing the theft increase?

OM in the News: Who Should Jack Up the Car in a Nascar Pit Stop?

The pit crew for Christopher Bell in action at Phoenix Raceway

“There are two ways to win a Nascar race,” writes The Wall Street Journal (March 10-11, 2023). The first is to go faster, when you’re in motion, than anyone else. The second is to spend less time at rest than your opponents, shaving away expensive tenths of seconds sacrificed in pit stops, as we illustrate in Chapter 10’s Global Company Profile.

Joe Gibbs Racing (JGR) has done it both ways—on the track, with star drivers like Denny Hamlin and Martin Truex Jr. In the pit, it has brought the business of data analytics to the greasy work of changing tires and refueling cars. JGR’s crews have been either the fastest or second-fastest in Nascar every year since 2014, a span during which the organization has won two Cup Series championships. A month into the 2023 season, three JGR drivers are among the top 10 point earners on the circuit, due largely to the roster of ex-football and baseball players assembled in the pit.

Their ranks include CJ Bailey, a former college running back who has become Nascar’s premier tire carrier, and Caleb Dirks, a former pitching prospect for the Atlanta Braves who now applies his length as a jackman, sprinting out with his hydraulic device and pumping the pitting car airborne. (An experienced pit crew member who works for a top-tier team, by the way, can make around $500,000 per year).

Affixing motion sensors and running JGR’s pit crew through a gamut of high-tech exercises. data analysts logged the fluidity with which they transitioned from one effort to another. A 4-tire pit stop is a frantic 5-man ballet—all tight corridors and heavy equipment, set at breakneck tempo. The difference between a 9.8-second and 10.8-second stop can decide a race and a season.

The analysts isolated biomechanical thresholds that, if met by a prospect, predicted success in a certain role. Prospective tire changers were valued for their baseball hitting background but also for their “arc of hip rotation.” Tire carriers had their relative eccentric force production gauged. One such uncovered gem was Bailey. Their data revealed that he had the precise proportions of upper-body might and nimble footspeed of the ideal carrier. Last season with JGR he was graded as 13.8% more efficient than any other carrier in the sport—the fastest hauler of metal and rubber alive.

Classroom discussion questions:

How do time and motion studies apply to Nascar pit stops?
What methods analysis tools in Chapter 10 can be used to examine pit stop efficiency?

OM in the News: China’s Dominance in the Rare Earth Supply Chain

The minerals, metals and rare earths needed for the green and digital transitions are shaping up to be the oil of this century—complete with a race to secure raw materials and production capacity at home or in friendly locations.

China has the early lead, writes The Wall Street Journal (March 9, 2023), dominating production of many critical materials including lithium and rare earths. Over the past years, China secured deposits around the world and invested heavily in the domestic manufacturing of clean technologies such as electric vehicles, batteries and solar panels. As the graph shows, China has a clear lead in the rare earth supply chain.

Western nations have now made it a top priority to secure a supply of these materials. The West has been tempted by the economic opportunity but also chastened by the recent semiconductor shortages, Europe’s efforts to replace Russian energy imports, and Beijing’s support for Russia after it invaded Ukraine.

Going back to President Trump, the U.S. signed executive orders for critical minerals– and has had recent success in starting to build local supply chains. The European Union’s latest effort—a Critical Minerals Act—aims to kick-start mining, processing and recycling in that region. There is one area where the EU act is right on the money—accelerating permitting. Permitting has been a key challenge for companies investing across geographies and sectors including mining, processing, power lines, solar, wind and batteries. In the EU, ambitious permitting reforms appears to be be the biggest hurdle to getting political agreement on that bloc’s local production of EV batteries. Limiting or overriding local opposition is rarely a vote-winning stance.

We may also get a G-7 critical minerals buyers club of the Group of Seven advanced democracies to secure supply from mineral rich countries in Africa, Asia and Latin America. Reduced Chinese supply—if it happens—will force Western policy makers and voters to face the trade-off between the carbon benefits of wind energy or electric vehicles and the environmental and pollution costs associated with manufacturing those technologies.

Classroom discussion questions:

Why are countries and companies so concerned about “rare earths”?
What is the main benefit in dominating the mineral supply chain?

OM in the News: Corruption and Global Operations Management

In Chapter 8 (Location Strategies), we write: “One of the greatest challenges in a global operations decision is dealing with another country’s culture. Bribery and corruption create substantial economic inefficiency.” Table 8.2 (page 339) ranks corruption based on Transparency International’s annual survey, which has just been updated for 2022. The news is not encouraging.

The 2022 Corruption Perceptions Index (CPI) shows that most of the world continues to fail to fight corruption: 95% of countries have made little to no progress since 2017. According to the Global Peace Index, the world continues to become a less peaceful place. There is a clear connection between this violence and corruption, with countries that score lowest in this index also scoring very low on the CPI. Governments hampered by corruption lack the capacity to protect the people, while public discontent is more likely to turn into violence. This vicious cycle is impacting countries everywhere from South Sudan (with a score of 13 (on a 0-100 scale, with 0 being highly corrupt and 100 being very clean) to Brazil (score of 38).

The head of Transparency International adds: “Corruption has made our world a more dangerous place. As governments have collectively failed to make progress against it, they fuel the current rise in violence and conflict – and endanger people everywhere. The only way out is for states to do the hard work, rooting out corruption at all levels to ensure governments work for all people.”

The CPI ranks 180 countries and territories by their perceived levels of public corruption. The CPI global average remains unchanged at 43 for the eleventh year in a row, and more than 2/3 of countries have a serious problem with corruption, scoring below 50.

Denmark (90) tops the index this year, with Finland and New Zealand following closely, both at 87. Strong democratic institutions and regard for human rights also make these countries some of the most peaceful in the world.
South Sudan (13), Syria (13) and Somalia (12), all of which are embroiled in protracted conflict, remain at the bottom of the CPI.
26 countries – among them the United Kingdom (73), Qatar (58) and Guatemala (24) – are all at historic lows this year.

Corruption, conflict and security are profoundly intertwined. The misuse, embezzlement or theft of public funds can deprive the very institutions in charge of protecting citizens, enforcing the law, and guarding the peace of the resources they need.

Classroom discussion questions:

Why is this a Chapter 8 topic?
What world events have impacted corruption levels this past year?

Guest Post: The Cutting Stock Problem

Prof. Howard Weiss suggests an interesting problem. It is called the “cutting stock problem,” which is often solved using linear programming, the topic of Module B.

What is the major thing that your television, tablet and phone all have in common? They all have a glass display screen. These display screens are all cut from a larger piece of glass known as the Mother Glass.

Mother glass is the largest possible size of glass that can be fabricated that will not break under its own weight. In 1987, the first mother glass, termed Generation 1, was roughly 12 inches by 16 inches accommodating nearly 200 square inches of screen. The latest mother glass, Generation 10, accommodates more than 70 times that amount of screen.

Consider mother glass that is 87 inches by 98 inches for a total of roughly 8,500 square inches. A 65-inch television has a width of 52 inches and a height of 39 inches for a surface area of 2027 inches. If surface area was all that mattered than this mother glass could be used for 8500/2027 = 4 (you have to round down), 65-inch televisions. However, the longer side of a 65-inch television is 52 inches and you cannot fit two of them on top of each other because the mother glass only has 98 inches for its longer dimension. If you make three, 65-inch televisions then you are utilizing 3*2027 inches of the mother glass or only 71% of the mother glass.

The layout chapter (Ch. 9) in your Heizer/Render/Munson textbook describes Assembly Line Balancing. The concepts of rounding down, making 4 televisions in theory, but only being able to make 3 televisions in practice, and utilization are identical to Assembly Line Balancing concepts of rounding down, not always being able to achieve the minimum number of stations and utilization of time, rather than area (square inches).

Fortunately, there are other options that better utilize the mother glass. If you only want to make one size of television, you could make six 55-inch televisions, eight 48-inch televisions or eighteen 32-inch televisions, each of which utilizes over 90% of the mother glass. In addition, you do not have to make only one size of screen on the mother glass. For example, glass could be cut as shown in the diagram above that includes both 55-inch televisions and 65-inch TVs.

Classroom discussion questions:
1. What is the largest single panel LCD that is currently manufactured? (Check it out on-line)
2. Using graph paper determine how many 83-inch and 32-inch televisions could be cut using the Mother Glass dimensions above.

OM in the News: Foxconn’s Big India Expansion

Apple has identified India as a prime destination as it seeks to diversify the sites where its products are assembled.

Apple’s main manufacturer, Foxconn Technology, is considering a major expansion in India, including assembling millions more iPhones and setting up new production sites as it seeks to further diversify beyond China, reports The Wall Street Journal (March 6, 2023). It aims to boost iPhone production to 20 million units annually by 2024 and triple the number of workers to as many as 100,000 at its existing plant near Chennai. The plant currently produces 6 million units.

Foxconn also plans to build: a new production facility in Karnataka, where it would make products including iPhones; a new production site in Hyderabad; and a silicon carbide fabrication plant for its semiconductor business. The Indian government has offered billions of dollars of incentives in recent years to lure global manufacturers to India, as part of a major push to boost advanced manufacturing jobs and decrease reliance on electronics imports.

Meanwhile, Apple has been pushing suppliers to diversify beyond China after many of them faced production disruptions in China multiple times during Covid lockdowns. Geopolitical tensions have been growing between the U.S. and China, as well as between Beijing and Taiwan, where Foxconn is based.

China has been the biggest manufacturing hub in the electronics supply chain for years, with Apple a major driver after building much of its supply chain and assembly in the country over the past two decades. Concerns over that reliance heightened after protests erupted at the world’s biggest iPhone production site in central China late last year over tight pandemic control policies and wages. Still, expanding into India won’t mean companies such as Apple and Foxconn leaving China. The supply-chain infrastructure that these companies have built over the past decades there can’t be easily replaced by other countries.

Despite strides in local automobile and smartphone production in recent years, India has long trailed regional rivals in advanced manufacturing due to concerns over the country’s challenging bureaucracy, protectionist rules and underdeveloped infrastructure. India, alongside Vietnam, has already been identified by Apple as a prime destination with the company seeking to diversify the sites where its products are assembled. Apple has told its suppliers to plan more actively for assembling its products beyond China.

Classroom discussion questions:

Why India and Vietnam? Why not the U.S?
Chapter 8 lays out key success factors that affect location decisions (see page 337). Which of these factors is Apple considering?

OM in the News: The Boarding Logjam

The glacial pace of boarding planes irritates frequent fliers and airline employees, writes The Wall Street Journal (March 3, 2023). Along with other preflight requirements, it also adds costly time on the ground for Southwest and other airlines, which regularly study ways to speed up boarding.

Southwest employees carry mobile devices to speed up processes such as checking bags.

Today, Southwest is on a mission to shave 5 minutes off the time a plane spends at the gate between flights. The average “turn’’ is now 40 minutes for its smaller Boeing 737s and 50 for the larger ones. “If you can collect up enough of these minutes in each turn, then you can start to squeeze out some more flying,’’ says Southwest’s COO.

Research shows boarding bottlenecks are the biggest detriment to turnaround times. Delays in seconds between passengers finding their seats, or sitting in the wrong seat, add up fast. Southwest is testing 11 concepts at four gates at the Atlanta airport. Signs tell passengers they are entering an “innovation zone.’’ The Atlanta project is a big component of Southwest’s 5-minute quest, with goals of saving 2-3 minutes on boarding per flight. Southwest hopes the rest of the time savings can come from efforts including bigger overhead bins, a possible increase in boarding planes from the front and back simultaneously, and paperless takeoff documents.

One of the biggest changes: The stanchions where passengers line up to board have video monitors. They display a boarding countdown, an alert when important announcements are being made and flashing lights when boarding begins. Southwest is also testing a designated preboarding area for passengers in wheelchairs and families boarding together, a staging area it hopes will reduce gate crowding. It went so far as to test different carpet colors for each area—yellow is out because it showed stains.

Southwest brought music to the jet bridge because the team’s research found people move faster to up-tempo music. Preliminary results show the music and prerecorded jet bridge announcements about bin space, seat availability and other information are helping. They answer the questions flight attendants say they hear over and over again during boarding.

Classroom discussion questions:

What other suggestions do you have to speed up the boarding process?
What tools for process analysis in Chapter 7 of your Heizer/Render/Munson text can be applied in a case like this?