Barry Render

Video Tip: Green Manufacturing and Sustainability at Frito-Lay

As a Math/Physics undergrad in the late 60s, I somehow took an elective course called FORTRAN. This turned out to be quite a break, as McDonnell Douglas hired me to design jets based on this one, well-timed class. At a time when very few people knew much about computers, this was a great edge.

I think today’s “great edge” is Sustainability. Hundreds of college are offering courses in the subject now, but it is still in its infancy, with a huge demand building in the coming years for knowledgable grads. Johns Hopkins U. has just started the nation’s 1st B.S. in Sustainability.

With this background, I encourage you to show our newest video, “Green Manufacturing and Sustainability at Frito-Lay”, when you cover Supplement 5, Sustainability. Frito-Lay is a leader in solar, “going green”, moving off the power grid, and conservation/recycling resources. Its Sun Chips, for example, are produced under full solar power. The firm has received the LEED (Leadership in Energy and Environmental Design) award and has “zero environmental impact” as a long- term goal. Will this help sell potato chips? Can only multi-billion dollar firms step up like Frito-Lay is doing?

Jay and I are especially proud of this video as it won the prestigious Silver Addy as best educational film in 2010. We hope you and your students enjoy the film and the case study in Supp.5.

OM in the News: Caterpillar’s New Approach to the Supply Chain

In the past, equipment giant Caterpillar did not have to focus on collaborating with suppliers. Along with Komatsu, it was dominant in its field. But Caterpillar is starting to recognize what Honda and Toyota have long known, namely that competition is based on the supply chain, not individual companies.The company’s attitude in the past was one of servant-master with suppliers, according to Businessweek (Oct.21,2010).

So Caterpillar decided to partner with supplier Tenneco to design new emission cutting components, rather than set specs and pick the cheapest vendor, as it had done in the past. The joint effort cut costs on the part by 20%. The firm’s CEO expects the Tenneco relation to be the new benchmark and will work more closely with 200 companies it believes are critical to its growth.

Caterpillar was not prepared for the global growth spurt of 2006-2008 and saw flat profits even with a 24% sales increase. This was because it paid more for raw materials and faster parts deliveries.

Discussion questions:

1. Compare Caterpillar to Boeing (see Ch. 2’s Global Company Profile) in terms of partnering.

2. How did Caterpillar move to change its corporate supply chain culture?

Video Tip: Assembly Lines at Wheeled Coach Ambulance

Wheeled Coach , the world’s largest manufacturer of ambulances, is the kind of firm you would want to take your students to tour to see how factories work. The firm uses 5 parallel assembly lines, fed by work cells, in which 5 ambulances move forward to the next work station each day. The work cells feed the main assembly lines on a JIT basis and perform all the pre-assembly work, such as painting, carpentry, upholstery, electrical wiring , etc.

When I show the video (7 min.) in class, I simultaneously draw the 5 parallel lines, and label in each day’s work station as it is described. You can discuss how the work cells are more efficient than having the tasks they perform done as part of the line.

Some interesting aspects are not shown. First, these are real factory jobs, often dirty, non-union, low paying, and all hot! (There is no A/C –or heat– in most factories here in Florida). So staffing is usually difficult (this recession being an exception, of course).

When we filmed, workers did 5 standard 8-hours shifts, starting 6:30am. When hiring was really tough, Wheeled Coach switched to four 10-hour days to make the job more attractive. That made line balancing even more difficult, since each vehicle still needed to move forward once a day. It took a few years before the firm realized this only made matters worse, as quality fell dramatically in the last 2-3 hours of the shift. It returned to the 5 day week recently.

How else could efficiency improve? Last time I visited, the smaller “van conversion” models were moved to a different building on their own line, with 3 or 4 flowing off every day, since they are much simpler designs.

OM in the News: Japan’s Offshoring is Restructuring Its Economy

If you think outsourcing (transferring in-house processes to another company) and offshoring (which we define in Chapter 2 as moving business processes to another country, but retaining control) are a problem only in the US, think twice. Today’s Wall Street Journal (Oct.25,2010) reports that more and more Japanese companies are transferring their manufacturing abroad, creating a major restructuring of that country’s economy.

The reasons: too strong a yen and high wages, both of which make their goods more costly and less competitive in the global economy.

Toyota, for example, will make 57% of its cars abroad this year, including its flagship hybrid, the Prius, which it starts producing at a Bangkok plant. Nissan will hit 71% offshoring this year. And Sony is skyrocketing from 20% abroad in 2010 to 50% in the next fiscal year.

As Nissan CEO Carlos Ghosn recently stated: “sourcing more and more products outside Japan–there is no other way to compete”. Only 10.3 million Japanese now work in manufacturing, down from over 12 million in 2002.

Discussion questions:

1. Although controversial, why is Japan not fighting outsourcing/offshoring as much as the US does? (See our blog of Oct. 12th for some background on the battle against outsourcing in the US).

2. Why is Japan finding it necessary to go abroad?

3. Japanese are consumers are reluctant to spend. Why?

Teaching Tip: Fun Class Exercise in Work Measurement (Ch.10)

I am always looking for a simple, fun exercise to break up class for a few minutes, and find that shuffling cards is perfect for Chapter 10’s topic of Time Studies.

The equations average observed time, normal time, and standard time are very straightforward (see Equations 10-1,10-2, and 10-3 in the text). But some bright students usually inquire as to where the Performance Rating needed in Equation 10-2 comes from. So I bring as many decks of playing cards as I can find to class that day.

Explaining that there are some tasks for which the Normal time is already known and established, I recompute the equation as Performance rating factor=Normal time/Average observed time. Then I bring out the decks of cards and group the students into teams that measure how fast each person can deal the deck into a very neat bridge hands (ie, 4 piles of 13 cards per pile). Each student repeats the task 2-3 times, while team members time her, then compute the average. Each person takes a turn being timed.

The Standard time for this task turns out to be 30 seconds , and I point out that the dealing activity resembles other production tasks involving manual dexterity. Each person’s Performance rating is then computed (30 sec./average time) and recorded by the team on the board next to that student’s name. Students have fun seeing who has the highest and lowest Performance ratings for this type of job skill.

OM in the News: The (Gentler) Chicken-Killing Assembly Line

I was 7 years old when my Dad proudly took me to the Dubuque (Iowa) Packing Co. to show me what he did as a supervisor in the cow butchering department. I won’t go into graphic detail as to how the animals were queued up to have their throats slit. They were stunned first to make the process as pain free as possible.

Maybe you can see why yesterday’s New York Times (Oct.22,2010) front page headline, “New Way to Help Chickens Cross to the Other Side”, caught my attention. It turns out that chicken producers, egged on by animal rights groups, are also switching to a system of killing their birds more humanely. The new process uses gas to render the chickens unconscious before they are hung by their feet to have their throats slit.

“When you grab a chicken, turn it upside down and put it on the line, its stress, stress, stress”, says one chicken producer. The new system is not only meant to be kinder to the animals, but to plant workers as well. Dealing with struggling, flapping chickens–like dealing with bellowing cows who sense impending doom– makes meat processing plant jobs among the worst in the country.

This topic can fit in your OM course in 3 ways: (1) students have strong opinions about the issue of how we slaughter animals (see the Ethical Dilemma box on pig production in Ch.7, Process Strategy); (2) when you discuss job satisfaction/motivation in Ch.10, it makes the point that not all jobs are easy to staff/manage; and (3) this is a classic case of an assembly line, in Ch.9’s photo, at the end of the chapter.

Discussion questions:

1. Does killing chickens this way make you more comfortable with the production process?

2. How are most chickens raised in preparation for slaughter?

3. Will it be easier to market a chicken as “killed stress-free”?

Teaching Tip: Location, Location, Louisville?

We open Chapter 8, Location Strategies, with a Global Company Profile on why FedEx selected Memphis as its US superhub. But Fortune (Oct.18,2010) expands on this topic, with a feature called “Louisville Flies High”.

It turns out that Louisville has great geography, economic incentives, and high tech logistics that have attracted more than 100 corporations this past decade. The city is within a 2-hour flight to 75% of the US population and sits just 40 miles from the exact center of the continental US on a population density map. Its also one hour below the frost line.

The clear supply chain draw is UPS, whose $2 billion Worldport has 30,000 conveyors and can sort 416,000 packages per hour. Toshiba now trains UPS employees to fix computers on site–and return them within 48 hours. Zappos moved to Louisville to be near the giant UPS facility also. If a package leaves the online shoe retailer (which my wife adores) at 12:45am, UPS will deliver the shoes anywhere in the country the same day.

This makes for a nice discussion in both the Location and Supply Chain(Ch.11) chapters.

OM in the News: Waiting Lines in the Doctor’s Office

My internist of many years, Dr. Gulden, never ceased to amaze me before he retired. For every scheduled appointment, I was seen within 5 minutes of my arrival! This led to research I did in 1994, when I found that the average wait time in doctors’ offices in the US was 20.6 minutes, costing about $15 billion per year in lost productivity.

I guess this topic was of interest since the finding made the front page of papers around the country, from the Boston Globe to the Miami Herald. Yesterday, The Wall Street Journal (Oct.19,2010), with the headline “The Doctor Will See You Eventually“, announced that the “average time patients spend waiting to see a health care professional is now 22 minutes, and some waits stretch for hours”. Are any of us who teach OM shocked?

This is a great article to discuss when you cover waiting line models in Module D. But it may also be useful in Supp.7, Capacity and Constraint Management, because the Journal talks about cutting cycle time. In one doctor’s office, patients helped measure their times from arrival until departure. By identifying bottlenecks, the doctor was able to cut 12 minutes from the typical 40 minute stay.

So why was Dr. Gulden so successful in keeping on-schedule? I think there was one main reason: he made all his staff understand that each patient’s time was as valuable as his was.

Discussion questions:

1. Ask your students to rank the seven methods the article discusses in terms of what they think are the best for time savings payoff.

2. Many hospitals now advertise their ER wait times. What have they done to improve their process flows?

3.What kind of queuing models can be used in a doctor’s office?

OM in the News: Solar–Will the U.S. Lose Out to China?

A few days ago, our blog gave the good news that BMW and Mercedes were expanding their manufacturing in the US. For our nation’s standard of living to rise, we indeed need to make things. And such jobs pay well and provide a path for middle class success.

But the New York Times headline (Oct.13,2010), “In the Future, Already Behind” brought me back to reality with a thud. The story is about Silicon Valley and its commitment to transforming the economics of solar panel production. Firms like Solyndra, Nanasolar, and MiaSole bet the farm that their “thin film” technology would make them the Intels and Apples of the exploding global solar industry.

But just as Solyndra flipped the switch on its new $733 million California factory last month, everything changed. The Chinese, using vast economies of scale and government subsidies, sent the price of panels plunging 40% and grabbed 40% of the vast California market. They also took the bulk of the European market. What looked like a chance for US manufacturing to dominate a critical growing market has crumbled to the realities of globalization.

“How do you fight against enormous subsidies, low-interest loans, cheap labor and scale, and a government strategy to make you no.1 in solar?”, asks an American CEO.

New technologies (see Ch.7), meant to be cheaper, must get there faster is one lesson we learn here.

Discussion questions:

1. What are the dangers of ceding this industry to the Chinese?

2. How can the US firms counter this threat (see Ch.2 for a strategy discussion)?

3. Should the US provide the same benefits that China does to new companies?

Teaching Tip: Why Do So Many Large Projects Overrun?

While most OM texts cover Project Management (see Chapter 3), there is little discussion as to where the time estimates for activities in PERT and CPM come from or how accurate they are. This question arises in, of all places, an easily overlooked article in The Wall Street Journal (Oct.16-17,2010).

Here we learn that “planners underestimate costs in nearly 9 out 0f 10 projects” and “cost overruns for building projects are typical”. From my decades of teaching MIS and working as a consultant in IT, I can add that completion times in software development projects are also regularly underestimated.

Why is this the case? Research, according to the WSJ, shows that “people allow their best hopes to dominate the planning process”. This case of “irrational optimism” suggests that project managers would do well to keep data from prior projects. “Looking forward makes you more optimistic”, says a Norwegian researcher in the article. “Looking backward makes you more realistic”.

So when you and your students are discussing large projects that suffered major overruns (like Boston’s “Big Dig” and others they will bring up), you may want to remind students that doing PERT charts and running MS Project is all well and good, as long as the inputs are meaningful.

Finally, did you ever wonder about the the empirical basis of PERT’s 3 time estimates and the use of the Beta distribution in project management? If large projects do consistantly underestimate activity times, should we be giving more weight in the PERT formula to the “pessimistic” time estimate, b? Perhaps the formula in Equation (3-6) in our text should be t=(1a+3m+2b)/6 instead of t=(1a+4m+1b)/6?

OM in the News: BMW Loves Making Cars in the U.S.

As the Big 3 auto makers still struggle to reclaim markets and manufacturing leadership, BMW announces that employment will hit 7,600 workers in its South Carolina plant next year. Its $750 million expansion means the plant will be the largest car factory in the U.S., dwarfing any Detroit operation.

Of course, with the economy so bad, this is good news, even if some profits end up in the company’s German headquarters. And because of high-tech firms like BMW, South Carolina is the 4th largest net importer of college-educated adults.

Why did BMW decide to make its luxury SUVs here, when it exports 70% of these vehicles to the rest of the world? The Wall Street Journal (Oct.14,2010) reports that US production helps BMW hedge against currency fluctuations around the globe. Another reason…according to U.S.-BMW President Josef Kerscher (in Fortune, Oct.15,2010): This U.S. group has absenteeism of “less than 3%, better than in Germany”.

Similar good news is that Mercedes plans to shift some production of its best-seller, the C-class sedan, from Germany to the US in 2014. Its not only a currency issue for Mercedes, but the strategy reduces labor and other costs. As we note in Ch.8 (Location), Mercedes already makes SUVs in it Vance , Alabama plant.

Discussion questions:

1. What others reasons are there for foreign car makers to be attracted to the US?

2.Why is South Carolina a primary destination for auto manufacturers?

3. What brought Mercedes to Alabama (see Ch.8’s OM in Action box)?

OM in the News: Starbucks’ Lean Teams Slowing Down

I always like to use Starbucks examples in class. Its the kind of “hip” company that students can relate to. Over the past few years , Starbucks has been applying lean manufacturing techniques to study every move its baristas make in order to shave seconds off each order. Chapter 1 in our text has an OM in Action box describing these productivity improvements.

But The Wall Street Journal (Oct.13, 2010) just reported that Starbucks now wants to reign in its baristas, an act that will result in longer lines and waits. Baristas are being told to stop making multiple drinks at one time, to steam milk one drink at a time instead of a pitcher at a time, to rinse pitchers after each use, and to use 1 espresso machine instead of 2.

Why would the company do this? The new methods have “doubled the amount of time it takes to make some drinks” says one employee. But the company is concerned about quality, with customers indicating that Starbucks espresso drinks are just “average”.

It is definitely an interesting class topic to see the lean techniques being reversed and I am sure many students will have a comment about such changes.

Discussion questions:

1. Why would baristas be opposed to slowing down the process?

2. What are some of the lean techniques the company has introduced over the years?

3. What other changes has Starbucks made recently in product and process?

Video Tip: Arnold Palmer Hospital’s Culture of Quality

A few weeks ago, I visited my neighbor Artie while he was in the hospital. It was a typical large facility, with long hallways, nice private rooms…some of which had great views of the lake. But when I entered his room, the first thing I noticed was that the trash can was not only filled, it was overflowing! As I left, I stopped at the nurses’ station to report this “defect”. The response: “Maybe you should call management to let them know”.

I can say that at Arnold Palmer Hospital for Women and Children (APH) this would never have happened. When you show this 10 minute video in class, you will see why. The culture of quality is ingrained deep at APH.

Let me give you a little off-the -record background about our filming experience, which was a fantastic learning exercise that resulted in 7 APH video cases in the text. I first sat through the new employee orientation period. One of the 1st cultures I learned was that hospital employees always keep a positive face in all public spaces. No one may be heard talking about how bad their day is, problems at home, or troubling patients. The hospital has private staff corridors that parallel the public ones. Only there can staff speak openly. Second, all top administrators at APH are former nurses, who worked their way up. Kathy Swanson, the director, has an MBA, and others also have business training. I believe they have a culture of caring about patients above all else. Note in the film how they each take calls from patients 24/7.

We have 2 videos dealing with service TQM in Ch.6, the other being Quality at the Ritz-Carlton Hotel (7.5 min.). I prefer to show the APH film because the hospital incorporates several Ritz concepts, including empowering any staff member (even janitors) to hand up to $200 in gift cards to any patient with a complaint. My friend Artie could have gotten rich if his hospital had such an attitude!

Jay and I are especially proud of this APH video as it took 1st place in the annual Addy video competition in 2005. Out of 13,000 entries, it won the highest award, the Silver Telly.

OM in the News: The Outsourcing Controversy

Outsourcing has been a controversial topic and a political football for well over a decade now. We have tried to maintain a balanced view of the pros and cons. But with the elections nearing in a month, many Congressional candidates and the AFL-CIO have been unveiling an anti-outsourcing campaign. And the Senate fell just 7 votes shy of passing the “Creating American Jobs and Ending Offshoring Act”.

If you teach this topic and plan to cover Chapter 2, today’s Wall Street Journal (Oct.12, 2010)carries an interesting editorial piece by William Cohen, former Defense Secretary. He states, “Most people treat outsourcing as a zero-sum game–one foreign worker replaces one American worker. But this is not how the dynamic global economy works…The fact is that that for every job outsourced to Bangalore, nearly two jobs are created in …American cities”.

Discussion questions:

1. If anyone in your class has seen the new NBC comedy “Outsourced”, ask them to comment on this issue.

2. Should the government raise taxes on companies that move operations abroad (the Senate voted 53-45 last month to do so)?

3. Should we discourage skilled workers from India and other countries from coming to the U.S. to work?

OM in the News: Wal-Mart’s Drive to Squeeze the Supply Chain

Wal-Mart trying to squeeze more out of its supply chain? Not exactly shocking news, but here is a new twist in BusinessWeek (Oct. 7, 2010). With the title VP for International Purchase Leverage (I don’t think I have heard that one before), Hernan Muntaner is convinced he can get even better deals from suppliers by consolidating Wal-Mart’s purchases with its current partners. For example, Muntaner wants to buy potatoes jointly with Pepsi’s Frito-Lay, so that both can get lower prices.

Although Pepsi doesn’t seem interested so far, and may indeed be more sophisticated than Wal-Mart in procuring raw materials like potatoes, Muntaner has already signed on a sugar supplier in England and a paper supplier in Chile. “We can do this with anything that is sold”, he says.

Collaborative sourcing, as Wal-Mart calls it, is detailed in a book by that title by Michael Philippart, Christian Verstraete, and Serge Wynen.

Discussion questions:

1. Why might suppliers be wary of the new Wal-Mart push?

2. Look at the Ethical Dilemma in Ch.11 that compares Wal-Mart to Sears. Does this purchasing concept tie in to the ethical issue?