Barry Render

Today is Our 3 Month Blog Anniversary!

Today’s blog is just to thank you all for your interest and support of this OM Blog that Jay and I started just 3 months ago. And, by coincidence, this morning we had our 3,000 th visitor to the site!

We hope the idea is one you are enjoying and that ideas that you see here help in your teaching OM. Please let us know what features you would like to see added or expanded. Just email Jay at jheizer@omniglobal.net or me at brender@cfl.rr.com.

We also want to publicly thank everyone who contributed Guest Posts and Comments these past 12 weeks. Here are the Guest Posters:

Howard Weiss (Temple U.,Oct.6) How We Use Software at Temple U.

Bill Petty (U. Alabama,Oct.18) Using MyOMLab at UA

Alistair Brandon Jones (U. Bath, Nov.9) Supply Risk–Why Kenya Can’t Stand Iceland

Phillip Flamm (Texas Tech U.,Nov.18) Teaching OM in Large Sections at TTU

Kevin Watson (Iowa State U., Nov.27) Continuous Process Improvement Tools

Bill Quain (Stockton College, Nov.30) Teaching QC with Olive Garden Breadsticks

We also want to thanks everyone who submitted Comments (which are always very welcome): Bill Quain, Chuck Munson,Yuwen Chen,Ronnie Brannon, Pete Abilla, Henrique Correa, Howard Weiss, Jim Gilbert, Mark Graban, Phillip Flamm, and Kevin Watson.

OM in the News: Philippine Call Centers Overtake India

For the past decade, when you called an 800 number for customer service or a plane reservation, the chances are you would be speaking with a young person in Bangalore or Gurgaon, India. But Businessweek (Dec.6-12, 2010) reports that you are now more likely to be phoning up the Philippines. With $5.7 billion in call center work this year,vs. $5.5 billion for India, the Philippines have overcome a slow start in outsourcing. OM managers in the US may wish to take a note.

Why the move from India? (1) English is taught in all schools; (2) Filipinos have a cultural affinity for the US (with teens weaned on radio stations that play US Top 40 and hip-hop); (3) Special economic zones offer tax breaks and exemptions from import taxes on telecom gear; and (4) power is more reliable than in India, where companies often rely on diesel generators. The call center jobs are popular, as nocturnal workers can earn $6,850 a year in a country where per capita income is 1/4 of that.

This is not to say that India is giving up its dominance in outsourced work that requires a higher level of skill. Its overall outsourcing revenues are still $70 billion (vs. $9 billion in the Philippines). Indian outsourcing firms are migrating from answering phones to account management,high-tech support (it graduates 400,000 engineers annually),and financial and supply chain consulting. “In IT and software, India really doesn’t have any competition”‘, says a Wipro exec.

As a sidebar/update, on Jan.10,2011, USA Today devoted a cover story article to the Philippines call centers.

Discussion questions:

1. Why are the Philippines a popular call center alternative for US, European, and Australian firms?

2. How has the call center industry matured in the past decade and what has been its impact on India?

3. Identify other outsourcing industries that have migrated from one country to another in the past 20 years.

OM in the News: Terrorism Spurs New Product Development

One of the biggest generators of new product development (Ch.5) has been global terrorism. And one of the biggest exporters of domestic security technology has been Israel. The Orlando Sentinel just reported (Dec.5,2010) that more than 400 Israeli companies export $1.5 billion annually ( a number predicted to grow exponentially), with such products as biometric devices, anti-intrusion systems, airport screening machines, explosive detectors, and remote-controlled vehicles.

Israel is focusing on Brazil, which plans to spend $3 billion on security for the 2014 World Cup and 2016 Summer Olympics, and on India whose internal security budget tops $1 billion a year.

Here are just a few of the products you may not have heard of:

Magal Security Systems’ perimeter-intrusion systems at 11 airports in China.

Nice Systems’ data analysis and surveillance systems at the Eiffel Tower, Statue of Liberty, Bank of America, and NYC Police Dept.

MagShoe, a machine operated in airports in Europe and Australia to detect weapons in shoes without passengers having to remove their footware.

IntuView’s document-scanning software that not only translates Arabic text, but searches for key words, including names, dates and Quranic verses commonly cited by extremists. One customer is the US Army.

WeCU Technologies’ camera-monitored airport kiosks, which are designed to detect “malicious intent” of users by tracking facial expressions, stress levels, breath/heart rate, and sweating.

As I mentioned in my blog on Sept. 21st about the book A Start Up Nation, Israel cannot compete with mass-production countries such as the US and China, so Israeli firms need to be creative in new product development.

Discussion questions:

1. Why is new product development so important to every company?

2. Why does Israel have more high-tech firms listed on Nasdaq than any other country?

3. How will terrorism continue to provide the need for OM solutions?

OM in the News: If You Don’t Get Your Bag in 20 Minutes, You Get $20!

We have seen it in the ERs…”we guarantee you will be seen in 30 min. or….”. But did we ever think we would see it in airports as we wait for our checked bags? After decades of mishandled and delayed suitcases arriving to the carousel (which costs the airlines $2.5 billion a year), the quality of service is finally improving dramatically—all because of OM efforts.

The Wall Street Journal (Dec.2,2010) reports that Alaska Airlines has just implemented a 20 min. guarantee. If a customer’s bag does not arrive at the claim area within 20 min. of arrival, fliers get a $20 voucher or 2,000 frequent-flier miles. Alaska has improved its misdirected baggage claims by 52% in the past 2 years. For all airlines the lost luggage figures are down by a whopping 38%. “If you are going to charge for bags, you better be really reliable”, says US Airways’ COO.

How did OM impact the change? New technology and revised processes (both in Ch.7) are the keys. Airlines have ramped up use of bar-code scanners to track bags along their journey–something cargo shippers and supermarkets have been doing for years. Delta invested $100 million in its Atlanta operations alone. It gutted the entire infrastructure under Terminal B to make room for an automated baggage system. Belt time is 7-10 min., vs. the old system of driving bags on carts, which took 15-30 min. Payback comes from less mishandled bags, which average $100 each.

Alaska Airlines has changed its processes and a new strict adherence to timeliness. Within 10 min. of arrival, all bags must be offloaded. And instead of measuring when the 1st bag hit the carousel, Alaska tracks when the last bag is delivered, posting scorecards for employees. “It is measuring and setting goals that are very specific”, says the airline.

Discussion questions:

1. Why and how did airlines improve so quickly?

2. What technology drives the changes?

3. What do students think of the 20 min. guarantee? Will other carriers be forced to match it?

OM in the News: Layout and Hiring Tales at Uni-Solar

We are aware of the dramatic impact China’s new solar production push has had on this fledgling US industry. (See my blog on Oct,19,2010) . Selling prices have dropped 30-40% in the past 2 years due the Chinese competition.

The Wall Street Journal (Dec. 1, 2010) tells the story of Greenville, Michigan’s loss of 4,000 jobs overnight in 2006 when Electrolux shut its refrigerator factory. When Uni-Solar broke ground on the 1st two of 6 giant new solar factories, the town of 8,000 saw the sun about to shine again. But quickly shrivelling in sales and unprofitable, Uni-Solar capped at only 400 employees and is already looking to move production abroad to India.

Now as to why I share this story as a layout (Ch.9) topic: the twin solar plants (each more than 288,000 sq.ft.–the size of 5 football fields) sit side-by-side, part of building plenty of capacity for growth. But shortly after the plants were built, managers realized they could have instead doubled capacity “by simply attaching a small wing on the side of a plant and reconfiguring the floor plans to maximize the use of long rows of automated machines”. A very interesting quote!

The 2nd half of the tale you may want to share with students is the changing skill set needed (Ch.10) from the time the old Electrolux plant opened 28 years ago. Donna Cooper, 51, tells of her start in the old factory: “I had never had a job interview”. The screening process consisted of reading an eye chart and showing she could touch her toes. For Uni-Solar she had to go back to school at a community college, then through a terrifying series of job interviews, some 3-on-1. At $15/hour, she makes less than her old job paid. “High wages for unskilled workers is a thing of the past”, adds Cooper. This points to a structural change in our economy.

Discussion questions:

1. How common is the Greenville story?

2. What caused the sudden changes in the solar panel industry when everyone seeks “green” energy?

3. Discuss the new skill sets needed in manufacturing.

OM in the News: Boeing’s Supply Chain Nightmare

You may have read 2 weeks ago about the latest setback for Boeing’s long-awaited 787 Dreamliner (I may start to call it the “Nightmareliner”) when a fire forced a test plane to land in Texas. But the problems with the biggest advance sales (over 850 on order) plane in history started with its supply chain two years ago. The delays have cost the firm billions in penalties for breaking contract obligations to airlines.

The 787, promised for delivery in 2008, illustrates the complexity of a global supply chain—one that has broken many times on the most complex new plane in decades. The New York Times (Nov.30,2010) now reports “Boeing has had to rebuild crucial parts from foreign suppliers….Boeing executives have acknowledged that they outsourced too much of the design work, and production of the first 20 or 30 planes has been slowed by the need to rework many parts”. Not only did the company face flawed components being delivered, but plane sections made in Japan did not always fit together on the final assembly line in Everett, Washington.

At one point, Boeing was even forced to buy one its its suppliers who simply could not deliver a quality part on time. Over 70% of the plane is built by other companies, including 20 international suppliers in 12 countries. The risk sharing plan originally envisioned is detailed in the Global Company Profile highlighting Boeing at the opening of Chapter 2.

The effect of the delays will cascade for years and make it hard for Boeing to reach its planned production rate of 20 planes a month by late 2013. The latest delay appears to set the 1st delivery back another 6 months.

Discussion questions:

1. What are the advantages and disadvantages of Boeing’s global outsourcing program for the 787?

2. Did Airbus face any similar problems with its A380 superjumbo?

3. What is the impact on customers?

OM in the News: Cooking Up Productivity During the Recession at Campbell Soup

The recession slashed 8.5 million jobs in the US and slowed companies investment plans–but it also pushed up productivity growth (see Ch.1). This is good news for corporate profits , and bad news for people waiting for recession-casuality jobs to come back. Annual growth in productivity, or how much output is produced in an hour of work, averaged 3.4% in the last 5 quarters…all while sales dropped another 9% during that period.

The latest Businessweek (Nov.29-Dec.5, 2010) highlights the drive at Campbell Soup to ask “employees to help them save cash by working smarter with existing technology.” “The reward for increased efficiency is a stable job and more business”, says Campbell’s VP-Supply Chain. His team is working to reinvent how the company makes soup.

Like carmakers who use a common chassis for multiple cars and then differentiate, Campbell is now doing the same instead of using a unique recipe for each soup. With a common chicken broth base, the firm differentiates with seasonings, meat, and vegetables.

Daily worker-manager meetings also raise productivity, with nitpicky efforts to save time, money, and effort. Operators and mechanics started numbering each gasket to speed repairs, cut windows into machine covers so they could watch for signs of wear, color-coded handles to lower confusion in settings. All these small changes added up to an increase to 85% operating efficiency, up from 75% three years ago. Each 1% gain means $3 million more in operating profits.

Businessweek also notes that UPS trucks now carry devices that track how many left turns its drivers have to make. The new system helps drivers optimize routes and will save 1.4 million gallons of fuel per year.

Discussion questions:

1. How does productivity improvement impact the re-creation of jobs?

2. Why are employees so important in productivity gains?

OM in the News: Mission Statements that Need Some Work

One of our topics in Ch. 2 is mission statements, and we give examples of three of them we think are good : Merck, Hard Rock Cafe, and Arnold Palmer Hospital. When I cover this material, I usually ask students to each find a concise one of their own to share with the class.

The Wall Street Journal’s (Nov.26,2010) front page article provides a few mission statements that might be a bit clearer. Let me share these with you:

Ingersoll-Rand: “World leader in creating and sustaining safe, comfortable and efficient environments”. Translation: the company makes locks, A/C equipment, and battery-powered golf cars. The chair of the Center for Plain Language responds, “I picture a large swath of Amazonian jungle under the gentle and effective care of Ingersoll-Rand”.

Parker Hannifin: “The global leader in motion and control technologies”. Their main products are pumps and valves. The Journal writes, “the description might equally apply to a maker of lingerie”.

TRW Automative Holdings: “The global leader in active and passive safety”. The rest of us call these brakes and seat belts.

DXP Enterprises: “A leading products and service distributor focused on adding value and total cost savings solutions to MRO and OEM customers in virtually every industry since 1908”. In plainer language, a VP says we distibute “pumps, tools, nuts, bolts and safety supplies such as hard hats”.

Finally, my favorite, Sykes Enterprises: “A global leader in providing customer contact management solutions and services in the business processing outsourcing arena”. Translation: they operate call centers and help desks.

Discussion questions:

1. Why is it so hard to write a good mission statement?

2. What do you do when you are a company like 3M, which makes about 55,000 diverse products?

3. Why is the Arnold Palmer Hospital statement (see Ch.2) so well written?

OM in the News: Incentives Spur Utah’s Growth

We raise the question in Ch. 8 as to why firms choose to locate in one area vs. another—and clearly incentives are one major factor. Today’s Wall Street Journal (Nov.27-28,2010) describes how Utah’s aggressive approach to courting businesses has fueled its high ranking job growth.

Adobe Systems, for example, is setting up a new technology campus there (which hopes one day to create 1,000 new jobs) , after Utah offered $40.2 million in tax credits. Other firms in the article are also mentioned having responded to cash incentives.

But as Jay wrote in his Sept. 23 blog, in the long run, communities are better off investing in honest government, good workers compensation programs, education, and quality of life. Utah seems to recognize this by offering support from local colleges. The U. of Utah, for example, put together 5 new graduate programs in engineering to meet demand in the state’s growing medical devices industry.

Out of state firms say they are impressed with Utah’s pro-business strategy. “More so than any incentives, what makes Utah attractive to businesses is the state’s stable, predictable regulatory and tax environment”, says IM Flash Technology’s CEO. This pretty well agrees with Jay’s assessment. Its not so much the money, its a whole list of other factors that are at least as important.

Discussion questions:

1. Why are some incentives more important than money?

2. Why isn’t every state and county as aggressive as Utah?

3. Provide some examples of situations where financial incentives backfired.

Guest Post: Continuous Process Improvement Tools

We welcome this Guest Post from Kevin Watson, Asst. Prof. in the Dept. of Supply Chain and Info. Systems, at Iowa State U.

OM students are frequently reminded that data accuracy is a prerequisite to effective inventory management and operation of MRP systems- in fact Barry just blogged about this on November 4th. As professors, we often discuss the application of lean and quality improvement techniques; however, discussion tends to focus on manufacturing processes and students frequently miss that continuous improvement techniques can be applied to non-manufacturing activities. An article I just read, “Continuous Improvement Approach Reduces Errors in Records” , provides an example of continuous process improvement tools utilized to address paperwork errors.

The article discusses a holistic solution to address record errors in shop floor packets traveling with medical devices during manufacturing. MEDRAD, a 2003 Malcolm Baldrige National Quality Award recipient, experienced error rates as high as 20% in the paperwork necessary to track products through manufacturing ,resulting in compliance issues and causing unnecessary rework and delays. The company addressed this issue through the use of a quality improvement project utilizing technology, process, and people based solutions. The project resulted in a reduction of record inaccuracy to 2.2%, saving the company $40,000 and accruing significant non-financial benefits.

Addressing non-manufacturing errors while retaining the familiar touchstone of the manufacturing environment, it is an excellent means to expand student understanding of quality management tools applied to non-manufacturing processes and to begin the discussion of their application in the service/administrative environments. The article would be an excellent complement to the Quality Management chapters (Ch6/S6) and could be touched again during a discussion of inventory record accuracy in conjunction with Material Requirements Planning (Ch 14).

Teaching Tip: Queuing Up at Disney on Thanksgiving

Having lived in the Orlando area for over 2 decades, everyone assumes my family and I are regular visitors to the Magic Kingdom and the 5 other Disney World properties here. After all, Disney World is a powerhouse,with over 62,000 local employees (called “cast members”) and 48 million visitors last year. So when they find I have yet to take my 13 year old son to the Magic Kingdom, I appear to be some sort of ogre. (To my defense, my kids have been to Universal, Sea World, Wet n’ Wild, Blizzard Beach, Animal Kingdom, and on and on). To overcome this pressure, we all went to Disney today, Thanksgiving, 2010.

Here is what we learned. Thanksgiving is one of the busiest days of the year. And Disney has a clear plan for dealing with this capacity situation (Supp.7): All free passes are cancelled, all cast members are called in, extra parades are scheduled, more refreshment booths are opened, and hours are extended…the Park didn’t close till 1am!

But the queues–oh the queues! Where else would a rational family of 4 pay $340 in entrance fees, $12 to park, and $50 for water and ice cream, only to wait in a series of 45 minute lines for 5 or 6 rides and shows…and then walk away happy as can be?

Here is the secret to the psychology of queuing theory…something Disney’s flock of Ph.D.s in OR and IE have mastered: (1) Keep your customers informed of how long each queue will take,with signs posted frequently…and overestimate, don’t underestimate. (2) Entertain them while they wait, with videos, music, and cartoon characters. (3) Keep the lines moving so progress seems to be taking place. And (4), make people walk long distances between the most popular features, with plenty of interesting activities en route.

I hope this leads to some useful class discussions about how how queues can be managed. Happy Thanksgiving to all!

OM in the News: Chrysler’s Gamble with Mass Customization

The year was 1973. Jay and I were both teaching at Boston U.’s brand new European MBA program, just outside of Pisa, Italy. The most popular car on the Italian road was the “Cinquecento”, a midget of a vehicle that could easily fit in the back of a Chrysler minivan. The Cinquecento had all the power of about 3 Vespa motorscooters, my vehicle of choice in college. When I left Italy I never thought I would see one again.

So yesterday’s Wall Street Journal article (Nov.22,2010) announcing that Chrysler was bringing the Cinquecento to the US–and planning to sell 50,000 of them in 2011–was a bit of news. The car will be called the Fiat 500 and be manufactured at a retooled Chrysler plant in Mexico. Five feet shorter than a Chevy Impala, the 500 will retail for $15,500. But the reason you may want to bring this topic to your class is Chrysler’s risky strategy of mass customization (Chapter 7). Where the Japanese mastered the global auto market by limiting production options (a typical Honda might have 2 transmission options, 6 paint choices, 2 interiors, etc.), the Fiat 500 will provide a dizzying array of features to choose from.

With 3 versions of body style, 14 exterior colors, 14 seat colors, 6 wheel styles, and so on, there will be about 1 million combinations of the new car. Chrysler hopes the chance to customize the 500 will draw a wide range of customers who may want a “one of a kind”. In the past, US auto makers learned the risks of mass customization: too many choices leave dealers with lots full of cars, but not the exact one a customer may want (and 80% of US customers want to drive their car off the lot the day they buy).

Further, suppliers are being asked to keep more parts on hand so they can more quickly build a seat or interior combination , then ship it to the plant within a few hours.

Discussion questions:

1. How interested are students in a unique, customized car that will take 30 days to deliver?

2. Why is Chrysler taking this approach?

3. What are the competing products and how do they fare?

Teaching Tip: Dealing With Cheating in Your OM Class

Today’s front pages headlines here in Orlando have centered on a sensitive topic, but one we must address nonetheless–cheating in our classes. The story concerns a B-School prof at U.of Central Florida (UCF), which is now the 2nd largest college in the US, with 56,000 students. This, of course, means large classes–often shown on closed circuit TV. In a class of 600 Strategic Management seniors, the instructor used a 300 question Test Bank (which he thought to be secure) to create the midterm of 55 multiple-choice questions. Unusually high grades led to 206 students admitting they had studied from the Test Bank.

Nationally, about 21% of students admit to cheating, with more problems on large campuses and in large lecture classes. As the DSI Meeting takes place at this moment in San Diego, maybe this is a good time to raise the issue.

Yes, Test Banks are more and more available on-line, despite threats and suits by publishers. Our own publisher has taken legal action against people using our copyright material. But some schools using our OM text actually buy copies of the Solutions Manual and Test Bank and sell them as study tools to their students. So it is a fair assumption that some “ambitious” students will try to get an edge gradewise by whatever tool is on the market.

Jay and I have discussed the problem many, many times and have tried to foolproof our system to this extent: (1) we have a massive Test Bank, with well over 2,000 questions, and a text with over 900 problems. This gives the ability to keep from repeating the same questions from semester to semester; and (2), we created MyOMLab with a goal of making it as integrity-driven as humanly possible. The key is the algorithmic nature of the on-line problems that come from the text. You can assign them “bookmatch” (ie, identical to text), or “algorithmic” (ie, where each student gets her own data).

Randomizing questions from large Test Banks, using new assignments each year, and MyOMLab are just 3 ways to deal with this visible issue. Please share your comments.

OM in the News: Planes, Trains, and Drones–China’s Reverse Engineering Controversy

When the Japanese and European high-speed rail companies signed on to build trains for China, they eyed the $ multibillion contracts in the booming new market. What they got was competition from Chinese firms who took their technology and turned it against them within a few short years. Chinese companies, fueled by technology transfer, reverse engineering, and process redesign (Ch.7), are now selling trains even faster than foreign rivals Kawasaki, Bombardier, and Siemens. The national strategy of boosting state-owned firms and obtaining advanced technology at the expense of foreign powers is challenging the US and other powers doing business in China.

Yesterday’s Wall Street Journal (Nov.18,2010) quotes a China rail official who says they are “learning and systematically compiling and re-innovating foreign …technology” and now have trains that go 37 miles an hour faster (236 mph) than European and Japanese rivals. Kawasaki’s view: a few tweaks to exterior paint scheme…and a beefed up propulsion system is not a new technology. “Its nothing but deceitful propaganda”, says an exec. Kawasaki had set up production facilities in China, trained Chinese engineers, and developed a supply chain for components.

Today, the Journal’s headline addressed China’s advances in pilotless drones— putting the US and Israel at risk in their worldwide dominance. Same story: technology transfer by Israel propelled the 25 different models of unmanned aircraft…a major advance in only 2 years. And last week’s lead story was the unveiling of China’s C919 commercial jet, a direct threat to the Boeing 737.

So how is this different from post-war Japan (and Korea as well) transforming their economies by reverse-engineering foreign technologies in steel, autos, ship building, and computers? China’s share of manufacturing advanced equipment could climb from 8% today to 30% of global exports within the decade, writes the Journal.

Discussion questions:

1. Discuss the ethical issues that arise from these articles.

2. What is China’s long-term manufacturing strategy, and how is it changing?

3. How did companies like Kawasaki end up losing their dominance in the Chinese market?

OM in the News: What Should Boeing and Airbus Do?

If you used just one industry and product line to illustrate every aspect of OM in your course, it could easily be Boeing’s 737 and Airbus’ A320. From supply chain to outsourcing to quality/reliability to assembly lines, these competitors provide a plethora of OM examples.

Yesterday’s New York Times raises the topics of time -based competition and product enhancements (see Ch. 5). Boeing’s enhancements of the 737, introduced in 1967, have made the plane the largest selling commercial aircraft in history. Together with the A320, another narrow-body plane, the pair make up 3/4 of the fleets at the major airlines. There are more than 10,000 in service in the US and abroad.

Now the problem: airlines, facing $80/ barrel oil, want better fuel economy—and this hasn’t happened in the 737 and A320 in well over a decade. Airbus leans towards investing $1.5-$2 billion in new fuel-efficient engines–product enhancement. Boeing has announced it will hold off on new engines and instead create a new plane by 2020–product migration.

While dominating the market for commercial planes over the past 20 years, the 2 companies have loved leapfrogging each other with bold advances. But as demand for new planes bounces back from the recession, Boeing and Airbus are hamstrung by OM problems.

Boeing is 3 years late on its most important plane, the 787, made of lightweight carbon composites to slash fuel use. (And a fire on its test flight last week did nothing to help). Airbus is being hammered with the need to fix its superjumbo A380 after an engine blew up on a Qantas flight (see our blog on 11/10/10). And now new competitors from China, Russia, and Canada are entering the narrow body market. The newcomers will soon find that making quality planes is much harder than it might look.

Discussion questions:

1. What are the advantages and disadvantages of enhancement vs. migration for these 2 firms?

2. Why doesn’t Boeing jump right in the make a new jet to replace the 737?

3. What is China’s goal vis-a-vis the commercial jet industry?