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

OM in the News: Shrinkage, Pilferage, and Store Closures

Target’s CEO said that theft was trending ‘in the wrong direction.’

Chapter 8 in our text discusses the key success factors that affect location decisions. But what about decisions relating to closing those locations?

The Wall Street Journal (Sep. 27, 2023) notes that Target plans to close nine locations across four states, citing elevated levels of theft and safety concerns for its shoppers and employees. The retailer announced that stores in the New York City, Seattle, San Francisco and Portland markets would close next month. The decision is the latest sign of actions executives are taking to protect their businesses.

Retailers have said they have faced a growing wave of theft in recent years that has led to responses such as locking up more merchandise on shelves (see the photo), hiring off-duty police officers, and closing hard-hit stores. The average inventory “shrink rate” (see Chapter 12, page 496) reported by retailers increased to 1.6% of sales.

Walmart recently closed a number of stores in urban areas, including Chicago, Washington, D.C., and Portland. Nike temporarily closed one of its Portland stores last year amid issues with theft, but just announced the location would close permanently. Three of the stores that Target said it would close are in the San Francisco, a place that has had a number of high-profile retail defections of late. Department-store chain Nordstrom closed two stores near San Francisco’s downtown this year, including one in a shopping mall.

For the closing stores, Target said theft was “threatening the safety of our team and guests, and contributing to unsustainable business performance.” It also said investments made to prevent theft, such as adding security guards and using theft-deterrent tools, have been ineffective in curbing retail crime. Target has seen a 120% increase in theft incidents which involve violence or threats in the first five months of this year, leading to a $500 million loss from shrink.

Target’s announcement follows a string of violent incidents at other retailers. A CVS store manager in Mesa, Ariz. was fatally shot earlier this month after suspecting a man was stealing from the store. This week, mobs hit Apple, Lululemon and Foot Locker stores in Philadelphia. Retail theft in that city increased by 30%, to 13,330 this past year.

Classroom discussion questions:

1. What can store managers do in this situation?

2. How might Figure 8.1’s (page 337) site decision factors change given this dangerous urban trend?

OM in the News: Apple’s Spectacular Failure

In seeking to build a key part for its new iPhones, Apple set out to design a chip that would allow it to cut ties with Qualcomm, a longtime supplier and bitter foe. But the new iPhone models just unveiled are missing a proprietary silicon chip that Apple had spent several years and billions of dollars trying to develop in time for the rollout, reports the Wall Street Journal (Sept. 25, 2023).

Apple iPhone 15 Pro Max and a Qualcomm modem chip.

The 2018 marching orders from CEO Cook to design and build a modem chip—a part that connects iPhones to wireless carriers—led to the hiring of thousands of engineers. The goal was to sever Apple’s dependence on Qualcomm, which dominates the modem market. (Apple paid more than $7.2 billion to Qualcomm for chips last year). But recent tests found Apple’s chip was too slow and prone to overheating. And its circuit board was so big it would take up half an iPhone, making it unusable.

Apple hasn’t publicly acknowledged its modem project, much less its shortcomings. Engineering teams working on Apple’s modem chip had been slowed by technical challenges, poor communication and managers split over designing the chips rather than buying them. Teams were siloed in separate groups across the globe. Bad news from engineers about delays or setbacks– leading to unrealistic goals and blown deadlines–were concealed.

Apple believed, first, it could replicate the success of the microprocessor chips it designed for iPhones. Adoption of those chips fattened profit margins and improved performance for billions of devices. Second, Apple and Qualcomm had bickered and swapped accusations of lying and theft.

Apple had found that designing a microprocessor, a tiny computer to run software, was easy by comparison. Modem chips, which transmit and receive wireless data, must comply with strict connectivity standards to serve global wireless carriers. A brute force of thousands of engineers, a strategy successful for designing the computer of its smartphones and laptops, wasn’t enough to quickly produce a superior modem chip. Three years ago, Apple began replacing processor chips from Intel, used for years in Macs, with a proprietary chip that allowed its laptops to run faster and generate less heat. That Apple chip saved the company $75 to $150 on every computer.

Classroom discussion questions:

Why was it harder to design a modem chip than a microprocessor chip?
What did Apple do wrong?

OM Podcast #9: Lessons From Toyota

Our latest podcast is an exciting change of pace. Today, Jay Heizer hosts leadership coach, consultant, speaker, and author, Katie Anderson. In this podcast they discuss her book Learning to Lead, Leading to Learn: Lessons from Toyota Leader Isao Yoshino on a Lifetime of Continuous Learning and the stories from her experience with Isao Yoshino and the Toyota Way that has made Toyota world-renown for the company’s style of management and culture of learning.

To learn more about Katie and her work, or to get the book, visit her website: https://kbjanderson.com/

Transcript

A transcript in Word of this podcast will download by clicking on the word Transcript above.

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our August 21st blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/us/contact-us/find-your-rep.html

Guest Post: Using Data Analytics to Optimize Operations Management

Charlie Render is CEO of Render Analytics, a Florida-based data analytics consulting firm. He can be reached at https://www.renderanalytics.net/

Harnessing the power of data has emerged as a critical OM strategy for gaining competitive edge. Data-related technologies are being employed to elevate supply chain logistics, manufacturing efficiency, and overall operations.

Data analytics, the topic of Module G in your text, involves the systematic exploration of datasets to glean meaningful decision making insights. In the OM/SCM context, it encompasses the analysis of such diverse data points as order volumes, lead times, transportation costs, inventory levels, and customer behavior trends. This fusion is a natural convergence, given the voluminous data generated at each juncture of the supply chain.

Here are four real-world examples:

Amazon’s Demand Forecasting By meticulously analyzing historical sales data, seasonal patterns, macroeconomic indicators, and even external factors like weather events and cultural trends, Amazon employs advanced predictive models. This enables the firm to anticipate product demand with remarkable accuracy. As a result, it can adjust inventory levels dynamically, minimize excess stock, and ensure the timely availability of popular products. The outcome is not just optimized inventory costs but also a seamless customer shopping experience.

UPS’s Route Optimization UPS harnesses data analytics to refine its delivery routes. By integrating real-time traffic data, intricate delivery schedules, fuel costs, and even road closures, it constructs a comprehensive algorithmic approach. This approach identifies the shortest, most fuel-efficient routes for its fleets. The outcome is not just a reduction in fuel consumption and operational expenses, but also better on-time deliveries, positively impacting customer satisfaction.

Toyota’s Proactive Quality Assurance Toyota exemplifies how data analytics can revolutionize quality control within assembly lines. By tapping into data generated by sensors embedded within production equipment, Toyota has pioneered real-time quality assurance. This enables the detection of deviations from predefined quality benchmarks throughout the manufacturing process. Swift identification of potential defects lets Toyota rectify issues promptly. This means a reduction in defective units, lower warranty claims, and enhanced customer satisfaction.

Maersk Line – Transforming Container Shipping Maersk demonstrates the impactful combination of data analytics and sustainable supply chain practices. With the aim to minimize emissions and optimize routes, Maersk uses data analytics to study factors such as weather patterns, sea currents, and fuel efficiency. By leveraging these insights, it optimizes vessel routes, reducing fuel consumption, and subsequently decreasing greenhouse gas emissions. This data-driven approach not only aligns with a commitment to sustainable shipping, but also helps achieve substantial cost savings.

OM in the News: The UAW Strike and Supply Chain Tiers

As the United Auto Workers strike continues, risks of disruption are compounding for automotive supply chain managers, reports Supply Chain Dive (Sept. 20, 2023).

The union has already idled production lines at three plants in response to failed negotiations with Ford, GM and Stellantis. As the UAW threatens further work stoppages, supplier health may be at risk.

“Depending on how deep this strike goes, it can be really challenging for the suppliers to stay afloat. Risk is particularly focused on the Tier 2 and Tier 3 suppliers,” said one industry expert. He added: “Tier 1 firms should be talking to downstream suppliers, asking: ‘How are your financials? When we do get out of this, are you going to be able to ramp back up?’”

To be proactive, supply chain managers can streamline various processes which include order intakes, raw material and labor planning.

Order cancellations from the affected assembly plants can bottleneck the entire supply chain. Suppliers can continue to build parts regardless of canceled orders, but if the customer refuses to accept deliveries, then suppliers need to pay to store those parts. Demand for the parts and materials will decrease or even cease as the automakers cancel firm orders for parts and future orders in the coming weeks and even months, depending on the duration of the strike.

As a result, the supply chain will likely feel lingering impacts even when the strike eventually ends. For instance, suppliers who may have furloughed workers might take a while to get operations up and running. If more automaker plants get impacted, downstream suppliers may need to reboot their systems.

Ripple effects will move across the entire supply chain. Tier 1 suppliers with strong balance sheets will be fine. But Tier 2 and Tier 3 suppliers may struggle with cash flow as orders are canceled. Secondary effects are already being seen. GM is temporarily laying off employees at its Fairfax plant — which is not included in the first wave of strikes — as that facility’s operations are disrupted from a lack of stamping parts from the Wentzville facility, which is on strike. While supply chain managers may be able to keep things moving, operations get tricky if the UAW goes after engine plants. Shutting down plants where engines are built will cripple other plants across the U.S., Canada and Mexico.

Classroom discussion questions:

What are Tier 2 and Tier 3 suppliers? Give an example of each.
What are the issues underlying the UAW strike?

Guest Post: Pollution as an Operations Management Issue

Prof. Howard Weiss raises an interesting issue that is in the forefront of many student’s minds.

Recently,
 Shell was sued for air pollution from its plastic plant outside of Pittsburgh
 The German government is being sued for allowing high levels of air pollution
 Monsanto paid $100M dollars to settle a pollution suit for contaminating streams and lakes in Pennsylvania.
Your Heizer/Render/Munson textbook has a graphic (Figure 1.5) on transforming Inputs to Outputs– but perhaps one more output should be added – pollution.

Pollution is an ever-growing global concern that adversely affects the environment and human health. Reducing pollution should be part of the feedback loop. Here are 8 different types of pollution:
1. Air Pollution is one of the most widespread and harmful forms of pollution. Sources include industrial processes, vehicular emissions, agricultural activities, and natural events like wildfires and volcanic eruptions.
2. Water Pollution occurs when contaminants enter water bodies, such as rivers, lakes, oceans, and groundwater. It can stem from various sources, including industrial discharges, agricultural runoff, improper waste disposal, and sewage.
3. Soil or Land Pollution involves the contamination of the Earth’s soil with hazardous substances. This can result from improper disposal of industrial waste, agricultural chemicals, and improper landfill practices. Soil pollution negatively impacts plant and animal life.
4. Noise Pollution is the excessive or disruptive noise that interferes with normal activities, causing stress and potential health issues (and is a topic in Chapter 10). It often originates from transportation, industrial processes, urban development, and recreational activities.
5. Thermal Pollution occurs when there is a significant alteration of water temperature in natural bodies like rivers or lakes. It commonly results from the discharge of heated water from industrial processes, power plants, or nuclear facilities.
6. Light Pollution involves excessive or misdirected artificial light, which interferes with the natural darkness of the night sky.
7. Plastic Pollution is caused by the improper disposal and accumulation of plastic waste. Plastics persist in the environment for extended periods, harming wildlife and marine ecosystems.
8. Radioactive Pollution involves the presence of radioactive substances in the environment, often from nuclear power plants, nuclear accidents, or improper disposal of radioactive waste.

Addressing and mitigating these various types of pollution is crucial for safeguarding the environment and public health. Implementing sustainable practices, adopting cleaner technologies, and enforcing regulatory measures ( all topics of Supplement 5) are essential steps toward a cleaner, healthier planet.

Classroom discussion questions:

How can operations managers address each of these concerns?
Clearly industrial processes create many different types of pollution. What types of pollution do service organizations create?

OM in the News: Toyota’s Production Halted Due to Insufficient Disk Space

Managers, as we note in Chapter 7, appropriately spend a huge amount of time developing the proper process. But the perfect process is useless if not maintained (See Ch. 17 in your Heizer/Render/Munson text). Toyota was recently reminded, in a very expensive way, that lack of maintenance or improper maintenance can destroy even a well designed process.

It appears that Toyota’s 14 Japanese factories all shut down for about two days in late August due to a production order system malfunction caused by failure to maintain adequate computer disk space.

According to Toyota, its Japanese factories and their 28 assembly lines were halted due to “some multiple servers that process part orders” becoming unavailable and causing Toyota’s production order system to malfunction on August 28. The situation caused production output losses of roughly 13,000 cars daily, which threatened to impact exports to the global market.

The problem began during maintenance work on August 27. Toyota said: “During the maintenance procedure, data that had accumulated in the database was deleted and organized, and an error occurred due to insufficient disk space, causing the system to stop. Since these servers were running on the same system, a similar failure occurred in the backup function, and a switchover could not be made.”

A Reuters report claimed that the Toyota saw a third of its total production shut down until August 30. It said it restored its production order system on August 29 after transferring the data to a larger-capacity server. The malfunction happened while the parts ordering system was being updated. This shutdown directly impacted the company’s production ordering system so that no production tasks could be planned and executed.

The announcement is a blunder for the world’s top-selling automaker, which failed to ensure that mission-critical operations would be able to function, reports ArsTechnica (Sept. 6, 2023).

But Toyota affirmed that the outage was “not caused by a cyberattack.” The car vendor’s cybersecurity has faced scrutiny over recent years. Toyota shut down the same 14 Japanese factories in February 2022 due to a supplier getting hacked. But August’s outage may be more financially detrimental to Toyota than the 2022 event since domestic output was up 29 percent in the first half of this year, the first such increase in two years. Toyota was also hacked in 2021 through a US manufacturing parts subsidiary and at least three times more in 2019.

Classroom discussion questions:

How were operations impacted by this shutdown?
Was this a case of “preventive” or “breakdown” maintenance?

Guest Post: ChatGPT’s Tech Boom

Charles Render is founder and CEO of a Florida-based data analytics firm. He can be reached at RenderAnalytics.net

In a world rapidly advancing in technology and artificial intelligence, the business landscape is continually evolving to adapt to these changes. One of the most remarkable developments is the rise of ChatGPT, a language model developed by OpenAI that has sparked a wave of innovation across various industries. From assisting with data analytics to revolutionizing customer interaction, ChatGPT has enabled businesses to reimagine their operations and service offerings.

ChatGPT, short for “Chat Generative Pre-trained Transformer,” is an AI language model designed to generate human-like text based on the input it receives. Its ability to comprehend and generate natural language has opened up exciting avenues for businesses seeking innovative solutions in data analytics, application development, and customer engagement. By harnessing the power of AI, businesses can streamline processes, enhance customer experiences, and create new revenue streams.

Here are five examples:

Automat combines the capabilities of ChatGPT with robotic process automation (RPA). By capturing process descriptions or videos from customers, the technology automates workflows through ChatGPT-like interfaces and RPA tools. This innovation optimizes efficiency by automating repetitive tasks, enhancing productivity, and enabling businesses to focus on strategic initiatives.

Freshworks has witnessed remarkable improvements in application development with ChatGPT by integrating it into its coding workflows. Freshworks’ developers have reduced the time required to create complex software applications from 10 weeks to less than a week.

Udacity, an online course provider, has tapped into the potential of GPT-4 to develop an intelligent virtual tutor. This tutor delivers personalized guidance, feedback, and explanations to students, helping them navigate challenging problems.

Amto, a player in the legal process outsourcing (LPO) sector, has harnessed ChatGPT to revolutionize legal services. The firm employs a combination of AI and human reinforcement learning by actual lawyers to process legal content.

Baselit offers a unique solution for database queries and data analytics. By harnessing GPT-3’s text-understanding capabilities, Baselit allows users to perform complex database queries using plain English, eliminating the need for coding expertise.

OM in the News: The Bullwhip Effect Hits Tyson Foods

Two years ago, chicken breasts were coming down the processing line at Tyson Foods’ Arkansas plant so fast the machine slicing them into 15-gram nuggets for Chick-fil-A would occasionally break down.

Now, the line has stopped—for good.

After pushing its plants and staff to increase production of nuggets, breasts and wings as the Covid-19 pandemic eased, Tyson is pulling back, reports The Wall Street Journal (Sept. 6, 2023). The company announced the Arkansas plant would close, one of six planned shutdowns in an effort to cut costs. Tyson’s chicken business, which produces 1/5 of the U.S. supply, is grappling with flat demand and a drop in wholesale prices, which some industry experts say Tyson itself exacerbated by ramping up production.

As the pandemic eased, demand for chicken surged as consumers headed back to restaurants, and fast-food chains capitalized on a craze for fried-chicken sandwiches. Chicken companies such as Tyson, Pilgrim’s Pride and Wayne-Sanderson Farms were challenged to keep up, as processing-plant jobs remained hard to fill.

Pumping out more poultry at each plant and capturing more market share from competitors became a central part of Tyson’s efforts to fix its struggling chicken business, which already had problems hatching enough birds and staffing its processing lines.

The company was killing 37 million birds a week at its processing plants during 2021. By 2022, the company had boosted that to 39 million, and Tyson said it intended to process 42 million chickens a week by the end of the 2023 to boost volume and gain market share.

Nationally, about 162 million chickens on average were slaughtered weekly during in 2021. That number rose to 164 million in 2022. As it pushed to produce more chicken, in a classic bullwhip effect (see pages 473-475 in Supp. 11 of your Heizer/Render/Munson text), Tyson miscalculated demand. In late 2022, the company wrongly predicted how much chicken grocery stores would buy for their meat cases and produced too much of the wrong type.

Tyson closed down two plants in May, laying off nearly 1,700 workers. (The company ousted the president of its poultry business shortly thereafter). Last month, the company closed an additional four plants, which employ about 3,000 workers. The four account for about 10% of its slaughter capacity.

Classroom discussion questions:

Explain the bullwhip effect.
What mistakes did Tyson make?

OM in the News: Dancing Pods at Amazon’s Warehouse

“At Amazon’s fulfillment center in Carteret, N.J., the workers don’t walk to and from shelves,” writes The Wall Street Journal (Sept. 5, 2023). The shelves come to workers. (Click on the 7 second video below). About 45,000 pods—the name given to the four-sided shelving units—are shuffled around the 1.3-million-square-foot facility on self-driving units that hoist and carry them to workers in a kind of choreographed waltz. Those workers either fill the pods with arriving goods or empty them to build packages for shoppers.

Most of the facility’s 3,000 employees, including the top manager, aren’t allowed to enter that area, even to lean over to retrieve an item they have dropped. The specialists permitted to move amid the shuffling units must don a specialized vest that syncs up via radio and acts almost like a sort of electric force field, helping direct the pods around them. An AI system situated in the cloud helps oversee the pods’ movements.

Amazon calls the approach of moving the shelves a “goods-to-person” strategy. The design, which uses artificial intelligence and sensors, is meant to promote a mix of efficiency, ergonomics and safety, with the thinking that it is ultimately better to have shelving units, rather than employees, scurrying around its cavernous facilities. Globally, Amazon has about 750,000 autonomous robots to move around its shelving pods. Though most operate in specialized zones, its newest design is intended to mingle with workers and move around them as though navigating a cocktail party.

Amazon said its lost-time injury rate has fallen 69% from 2019 to 2022. Last year, lost-time injury rates were 21% higher at sites that didn’t use robotics technology. Proponents of the technology say it can help prevent injuries that can be ruinous for workers and costly for employers. Some workers say they find the technology creepy, but others say it can keep them out of harm’s way, preventing some of the costs—financial and otherwise—associated with a workplace injury.

Amazon has ample resources to put toward safety initiatives—the company has about 8,000 staff who work on safety matters.

Classroom discussion questions:

Why is Amazon changing the warehouse order-filling process?
What are the advantages and disadvantages of this new “moving shelves” approach?

OM Podcast #8: Operations Management at Red Lobster

Welcome to a very exciting Operations Management podcast! Today, Barry Render and his guest, Executive Vice President of Red Lobster, Horace Dawson, talk about operations at Red Lobster. They discuss the most important operations tasks to get right in any restaurant but especially the world’s largest seafood chain: forecasting, scheduling, supply chains, and quality.

Transcript

A transcript in Word of this podcast is available by clicking on the word Transcript above.

As a footnote, Horace Dawson was promoted to CEO at Red Lobster on Sept. 21, 2023.

Guest Post: The Panama Canal Backlog

Prof. Howard Weiss shares his OM insights with us monthly.

Recently, there has been a bottleneck of ships waiting to go through the Panama Canal with over 120 ships waiting, reports Institute for Supply Chain Management (Aug. 29, 2023). The main cause is that there has been a drought, lowering the canal’s water level which reduces its capacity. (This also happened in 2016 and 2019). Normally, 36 ships would pass through the canal every day. At the moment the limit is 32 ships. The waiting time average is roughly 10 days rather than the 6 days it had previously been. Shipping companies have three options to mitigate the problem.

Reduce ship weight Some companies have reduced the number of containers on a ship. This reduces the ship’s weight which reduces its “draft”. The reduction in containers can take place at the ship’s origin or in Panama by placing the containers on the Panama Canal Railway which runs across the country. As a result of this reduction, shippers have been adding surcharges to their clients. For example, Hapag-Lloyd has added a $500 per container fee on Asia to US east coast routes.

A caravan of cargo ships sits in the Pacific Ocean last week, waiting to enter the Panama Canal

Use a different route There are several alternatives both by sea and land to avoid using the Panama Canal, each with its own advantages and disadvantages. By sea, a ship can go around South America. While the distance is considerably longer, the ship can make stops at major ports in South America such as Brazil, Argentina and Chile. The Suez Canal may be a less expensive option to the Panama Canal as the Asia to U.S. East Coast distances are roughly the same as when using the Panama Canal. Going around South Africa is another option. Land routes include the Panama Canal Railway.

Increase priority at canal In order to use the canal, shippers need to reserve a slot. The fee depends on the type of ship and other factors and ranges from $10,500 (small vessels) to $400,000 (largest vessels fully loaded). A few daily slots are left open and auctioned off through the “Transit Slot Auction” which essentially allows ships to jump the line. This auction fee is paid in addition to the normal fee. The base price for the auction is $100,000 and recently a company paid $2.4 million.

Discussion Questions:
1. Cite a waiting line situation where one can improve his/her place/priority in the line.
2. What other operations decisions require examining time and cost tradeoffs?

Guest Post: Kraft Heinz’s Mission to Reduce, Recycle and Replace its Plastics Packaging

Dr. Misty Blessley is Associate Professor of Supply Chain Management at Temple U.

Kraft Heinz, the fifth largest food and beverage company in the world (founded in 2015 with the merger of Kraft Foods and H.J. Heinz companies), is on a mission to reduce, recycle and replace virgin plastics in their packaging, including their tomato ketchup bottles. In 1983, as did many firms at that time, Heinz introduced plastic bottles as the packaging of choice for its famous tomato ketchup distributed to the retail grocery channel.

Virgin plastic is newly produced plastic, and Heinz has a goal of eliminating 100 million pounds by 2030. This is a reduction of 20% when compared to their 2021 baseline. Kraft Heinz recently stated: “When deciding what packages to focus on, we first see if there’s an opportunity to remove any unneeded plastic, then we look for opportunities where we can reduce plastic weight, add recycled content, or replace plastics with other types of materials, while ensuring we do not compromise the product quality and [do] meet consumer expectations.”

Kraft Heinz was able to reduce plastic by simply removing the bag from some products and worked towards their recycling objective by swapping some virgin plastic with recyclable plastic. They are also replacing their plastic ketchup bottles with a paper-based bottle made of 100% sustainably sourced wood pulp. A prototype is currently being tested, for this first of its kind in the sauce category.

Rethinking the Ketchup bottle, Heinz teams with Pulpex to deliver paper-based packaging

The firm is partnering with Pulpex, a packaging technology company focused on delivering sustainability through renewable packaging. If the bottle in the photo looks new yet familiar, it is because Pulpex is innovating with Heinz’s iconic ketchup bottle, the same one seen on Heinz ketchup (at restaurants, as an image on foil packs and dip and squeeze packs, etc.) since 1876.

Classroom discussion questions:
1. Product decisions are fundamental to firm strategy and to competitive advantage (see pages 161 – 162 of your Heizer/Render/Munson OM text). Given the need for sustainability in operations and supply chain management, why and how has packaging become part of the product decision?
2. Why do you think Kraft Heinz and Pulpex both feel that familiar looking packaging is a customer expectation?