Barry Render

OM in the News: Amazon’s Attempt to Upend the Parts Supply Chain

“A growing number of plumbers, electricians and other contractors starting to buy industrial parts online,” writes The Wall Street Journal (Aug. 22, 2017). As part of its business-to-business marketplace offering, Amazon now sells everything from light switches to hydraulic valves, and last month boasted it had one million customers across fields that also included health-care and office supplies.

Amazon is joining a host of online sellers shaking up the $130 billion U.S. market for items that keep factories humming and the plumbing working. They threaten a business largely still conducted via salespeople and national distributors that cater to large businesses, as customers are lured away with instant comparison shopping and free delivery. While parts accounted for a sliver of Amazon’s $136 billion in 2016 sales, the company is a proven disrupter of industries ranging from apparel to video to cloud-data services.

Like retailers before them, industrial suppliers risk getting caught in a race to the bottom on prices, where online-only sellers have an advantage because they don’t maintain costly networks of branch offices and salespeople. Amazon is shaking up the traditional format for selling industrial parts by allowing distributors and manufacturers to sell products directly to businesses on its marketplace, eliminating middlemen and often undercutting traditional local suppliers. It also offers one-click ordering and transparent pricing, features that are the norm in online retail but less common in the industrial world.

Industrial distributors do offer extra services, which would require significant investment from Amazon to match. For example, United Electric Supply will work off a customer’s blueprints to determine the parts needed to build a $10 million electrical system. W.W. Grainger embeds employees in manufacturing plants to manage inventory. MSC Industrial cuts or dyes metal to meet customer specifications.

Classroom discussion questions:

Why is Amazon a threat to traditional supply chains?
What are the advantages that traditional distributors like Grainger have?

OM in the News: Using OM to Fix School Bus Routes

Last year, more than 30,000 students in the Boston Public Schools rode 650 buses to 230 schools at a cost of $120 million. In hopes of spending less this year, the school system offered $15,000 in prize money in a contest that challenged competitors to reduce the number of buses. The winner, reports The Wall Street Journal (Aug. 12-13, 2017), was MIT’s Operations Research Center, which devised an algorithm that drops as many as 75 bus routes.

The school system says the plan, which will eliminate some bus-driver jobs, could save up to $5 million, 20,000 pounds of carbon emissions a day and 1 million bus miles each year. The computerized algorithm runs in about 30 minutes and replaces a manual system that in the past has taken transportation staff several weeks to complete. “They have been doing it manually many years,” said the MIT Center co-director. “Our whole running time is in minutes. If things change, we can re-optimize.”

The task of plotting school-bus routes resembles the classic exercise known as the Traveling Salesman Problem (TSP), where the goal is to find the shortest path through a series of cities, visiting each only once, before returning home. Although we don’t cover TSP in the written text, we do so in our MyOMLab Tutorial called Vehicle Scheduling & Routing.

Classroom discussion questions:

Provide other applications of TSP.
How does this scheduling problem differ from that of airlines scheduling planes and crew?

Teaching Tip: Engaging Your On-Line Students

Teaching online is a unique experience for faculty and students. One of those challenges is how to engage online students in activities that push them to go beyond simply reading, interpreting, and interacting. As such, we are constantly seeking ways to engage students in learning that goes beyond the “click-through” material. Here are two ideas from Faculty Focus (Aug. 14, 2017):

Scaffolding the Recording Experience. To effectively engage in online learning that involves interactivity, students need to develop a sense of technology competence. While most tech-savvy students have no problems jumping right in, others may need a scaffolded approach to engaging in online interactivity.
Most LMS platforms allow for the submission of video and audio files to a drop-box, assignment submission folder, or other location for grading within the course. Rather than asking students to record and post a video, you could craft scaffolded assignments that promote real-time connectedness. For the first assignment, you could leverage Instant Messaging (IM) by asking students to work in pairs, sending messages back and forth in a “text-only” interactive session. Next, students could collaborate using the synchronous video option either provided by your LMS or by a third party (e.g. Skype and Adobe Connect) and submit this work for feedback.

Case Studies. The general procedure of popular case studies is to supply the case and ask the student to respond by answering questions based on the text material. With the addition of technologies like Adobe Captivate or Articulate Storyline (or others), you can prompt students to take actions to move the story forward, select response options with variable feedback, and participate in a way that adds a visual component to the experience. Although somewhat labor intensive, these activities can be used in nearly any LMS and can be reused, edited, and revised as needed. This allows for case studies to presented in a way that calls for interactivity and that is represented in a way that visual cues and information can be displayed to students. Students perceive the experience as a more real-life activity rather than an academic exercise.

OM in the News: The Incentives Needed to Land an Auto Factory

Toyota and Mazda’s CEOs make the announcement

Toyota and Mazda’s recent announcement that they have joined together to develop a $1.6 billion factory in the U.S. set off cheers among auto-parts manufacturers and other businesses. But officials in the states and cities that are in hot pursuit of the 1,000 acre plant are holding off on celebrating until the venture makes the critical decision of where to locate the facility and 4,000 jobs. The shortlist includes: Alabama, Florida, Kentucky, Illinois, Indiana, Iowa, Michigan, Mississippi, N. Carolina, S. Carolina and Texas.

Foreign automobile manufacturers have been making cars in the U.S. for more than 30 years, writes The Wall Street Journal (Aug.9, 2017). The southeast has become the preferred location for many because of the business-friendly labor laws of many of the region’s states. Suppliers set up facilities near some of the region’s early plants, like the BMW factory in S. Carolina. “The assembly operations are saying we want suppliers close by,” said a site location expert. “When Toyota comes into a market, they’ll already be there.”

The Toyota-Mazda venture is likely to make its decision in part based on labor force and government incentives. Over the years, state and local governments have provided foreign auto makers a wide range of tax breaks, free land, infrastructure, training programs and other inducements that can be worth hundreds of millions of dollars. Toyota and Mazda are hoping to open the new plant, which will have an estimated production capacity of 300,000 units, in 2021.

Classroom discussion questions:
1. What incentives are usually offered auto manufacturers?

2. List the many factors that auto manufacturers consider in their location decisions.