Chapter 1 – Page 2 – The OM Blog by Heizer, Render, & Munson

OM in the News: The Megafactory Struggle to Find Workers

The U.S. is experiencing a factory-building boom as companies, burned by overstretched supply chains during the pandemic, reshore some of their operations, writes The Wall Street Journal (Dec. 12, 2023). The U.S. also has given priority to the nation’s semiconductor and EV industries, calling them matters of national security and setting aside billions of dollars in subsidies to aid their growth.

A student at Columbus State Community College studying engineering tech uses a VR headset

U.S. manufacturers have long struggled to find all the employees they need. The coming wave of megafactories, aided public incentives, is pushing the labor shortage into a crisis. The value of new manufacturing construction projects hit a record $102 billion last year, three times higher than 2019’s total. Since 2021, 33 manufacturing projects, most of them related to semiconductors or electric vehicles, have cost $1 billion or more.

More than half of the roughly 115,000 new positions expected to be created by the end of the decade could go unfilled, industry experts project. The anxiety is particularly acute in Central Ohio, where Intel is building two semiconductor plants at a combined cost of more than $20 billion, and Honda and LG Energy Solution are constructing a $3.5 billion electric-vehicle battery plant. The companies aim to hire more than 5,000 workers between them, and local suppliers that will serve the factories likely will need thousands more.

An Intel megafactory construction site in Ohio

Will students be interested? Manufacturers have tried to chip away at negative perceptions through public-awareness campaigns. “This is a different type of manufacturing,” said one 27 year old who shook off bad experiences with a previous factory job. “This is super-educated, specially trained. There’s a lot on the line for this type of work.”

Intel said its manufacturing technicians in the U.S. can earn $50,000 to $90,000 a year.

Classroom discussion questions:

What are your students attitudes towards factory jobs?
Why are these positions different from traditional manufacturing jobs?

OM in the News: Robotic Harvesting Systems are Revolutionizing Farming

As we suggest in our text, the trade off between labor and capital investment is ongoing.

The growing demand for food supply that derives from the continuously increasing population has made agricultural productivity growth an important priority. Labor availability pressure driven by demographics of an aging population, increasing urbanization, climate change and land degradation, as well as certain limitations regarding the arable land availability push forward slowly but steadily, the use of advanced agricultural technologies.

Incorporating such technologies into agricultural production benefits the overall productivity and in turn supports the economic development and growth. (For details, see this new 29 page report titled “A Survey of Robotic Harvesting Systems and Enabling Technologies.”) Additionally, automation in agriculture helps improve the difficult work conditions of farmers and agricultural workers that are generally linked to various musculoskeletal disorders.

Functionalities and hardware typically required by an operating agricultural robot harvester include: (a) vision systems, (b) motion planning/navigation methodologies (for the robotic platform and/or arm), (c) Human-Robot-Interaction (HRI) strategies with 3D visualization, (d) system operation planning and grasping strategies and (e) robotic end-effector/gripper design.

Application of robotic solutions for crop monitoring and harvesting has significant beneficial effects on production profits, enabling faster and easier automated harvest and increasing crop quality and yield. So the development of robotic technologies and their application in agriculture is becoming a growing topic of operations management interest.

Classroom discussion questions:

Summarize some of the applications noted in this video and report.
Why is this an operations management issue?

OM in the News: America Is Back in the Factory Business

Manufacturing has always been an integral part of American life. Paul Revere opened a foundry that produced bells and cannons following his famous midnight ride. Ford’s assembly line made cars affordable to the masses. And U.S. industrial might helped win World War II, when nearly half of private-sector employees worked in factories. That portion plunged after the war, thanks to automation and U.S. companies seeking lower costs overseas.

Here is the good news. The Wall Street Journal (April 8-9, 2023) writes: “Record spending on manufacturing construction heralds a made-in-the-U.S. rebound, stoked by green-energy incentives and concerns about foreign supply chains; this is here to stay.” New factories are rising in urban cores and rural fields, desert flats and surf towns. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.

Retailers don’t want to carry excess inventory in their stores, and the U.S. factory allows the company to quickly replenish stock. Time is also of the essence for companies like FutureStitch, which sells socks commemorating events like the NBA Finals or the Kentucky Derby. It has factories in China and Turkey, but just opened a new one in California–the company’s first in the U.S. “There is more and more equity around Made in the USA,” said FutureStitch’s CEO.

Nearly 800,000 jobs were added in the manufacturing sector over the past 2 years. But the industry is actually hurting for workers—about 800,000 more are needed, which has lead to concerns that labor shortages and other bottlenecks could short-circuit the boom.

An despite the surge in factory building, many industries are unlikely to create entirely homegrown supply chains. An automated shoe factory Adidas built in Atlanta so it could get its products to market faster shut down in 2019, two years after its opening. (See our 2017 blog announcing its opening.) The firm moved production to Vietnam and China to achieve what it called “better utilization of existing production capacity and more flexibility in product design.”

Classroom discussion questions:

What factors are driving the manufacturing in U.S. resurgence?
What factors are working against it?

Guest Post: AI Scores Big on Operations Exam, How About Your Students?

Our Guest Post today comes from Dr. Misty Blessley, who is Associate Professor of Statistics, Operations, and Data Science at Temple University

Astonishment best describes my initial reaction to hearing about ChatGPT, but this was mostly due to the reaction of all those people who asked me what I thought about ChatGPT in the month of December, 2022. “What do you think about ChatGPT?!!!”, I was asked, and this was not by people in our academic circle. Fresh off of the Annual DSI Conference and Thanksgiving, I was waist deep in all things December (i.e., wrapping up the semester, holidays, family, and etc.), but I could not shake the astonishment in everyone’s voices. Curious, I looked into what OpenAI, a San Francisco based firm with connections to Elon Musk and Microsoft Corporation, who launched the ChatGPT chatbot on November 30, 2022, had generally accomplished for the masses.

This month, ChatGPT hit close to home when I learned that it passed Wharton Professor Christian Terwiesch’s final exam in his MBA level operations management class. To be clear, “An AI bot passed this Wharton professor’s exam,” writes the Philadelphia Inquirer (January 25, 2023). As mirrored by an OM colleague, my astonishment turned to excitement and terror. Digging into Terwiesch’s article (cited below), ChatGPT “has shown a remarkable ability to automate some of the skills of highly compensated knowledge workers”. However, it has also failed to handle some complex problems, made mistakes in simple math and benefitted by having a human to prompt after a failure.

Open AI states that: “Our mission is to ensure that artificial general intelligence benefits all of humanity.” This chatbot can be used in many academic disciplines. A Wharton faculty member in innovation and entrepreneurship requires its use (see NPR, January 26, 2023). Let those of us in operations use it as a teaching tool, such that OpenAI’s mission is accomplished.

Here is the link to read the full article: Christian Terwiesch, “Would Chat GPT3 Get a Wharton MBA? A Prediction Based on Its Performance in the Operations Management Course”, Mack Institute for Innovation Management at the Wharton School, University of Pennsylvania, 2023

Classroom discussion questions:
1. How can students use ChatGPT to score big on operations exams taken on their own?
2. Given that ChatGPT benefits by having a human to provide hints after failing to solve a problem, what nuances do humans bring to the table that may be difficult to incorporate into a chatbot?

OM in the News: Finding an Airbag in Russia

Western sanctions brought Russia’s car industry to a screeching halt earlier this year, writes The Wall Street Journal (Nov. 1, 2022). As it restarts, it is emerging smaller, technologically backward and more isolated—a foreshadowing of what could be in store for the rest of the embattled Russian economy.

Within weeks of Russia’s invasion of Ukraine, most Western car companies curtailed operations in the country. Sanctions cut off the supply of parts and, one after another, Russian car plants stopped production, with car production down 97% compared with a year ago. But as some Russian plants are now reopening, the restart features cars that were a far cry from prewar models, lacking air bags, anti-lock braking-system sensors or electronic stability-control technology, an industry standard.

Russia’s biggest carmaker can’t find airbags

“Such key factors of a modern car as an automatic transmission, four-wheel drive and a modern engine— but these tasks can’t be solved quickly and require serious funding,” said the CEO of AvtoVAZ, maker of the iconic Russian Lada auto brand. Lada workers wrote that their plant couldn’t restart due to the lack of components. At the moment, Russia’s best car is only 40% Russian. The rest used to be imported from abroad.

The auto industry is shaping up to be an early test case for how successfully Russian industry can recover from the greatest shock to the country’s economy since the dissolution of the USSR. Russian executives are scouring other countries for missing Western components or trying to produce them at home, a process that can take years to master. Meanwhile, they are producing cars partly based on designs decades old.

The war is undoing decades of Western investment and know-how, heralding a period of adjustment ahead across industries. “The impact on the industry will be indicative of what awaits other sectors of the Russian economy: less technologically advanced products, poorer quality and a limited variety of goods,” said an expert in London.

To resume production of cars with anti-lock brake systems next year and electronic stability control by 2024, AvtoVAZ will need to develop its own homegrown technological capability. The development of an automatic transmission will cost about 30 billion rubles, while creating an all-wheel drive system for cars will cost another 20 billion rubles. Locked out of their main suppliers, like Bosch in Europe, Lada is turning instead to Chinese suppliers, but Chinese versions aren’t expected until next year.

Classroom discussion questions:

In Chapter 2 (see page 33) we list 6 reasons businesses globalize. How does each of these apply to the Russian auto industry today?
What should Lada do at this point?

OM in the News: European Manufacturers Shift to the U.S.

“A big winner from the energy crisis in Europe: the U.S. economy,” writes The Wall Street Journal (Sept. 22, 2022). Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.

Steelmaker ArcelorMittal is cutting production at two German plants

As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what could be a new era of deindustrialization, the U.S. has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products. “It’s a no-brainer to go and do that in the U.S.,” says the CEO of Amsterdam-based chemical firm OCI NV, which just announced an expansion of an ammonia plant in Texas.

While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by the U.S. on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.

Danish jewelry company Pandora and German auto maker VW announced U.S. expansions earlier this year, while Tesla is pausing its plans to make battery cells in Germany as it looks at qualifying for tax credits in the U.S. And Luxembourg-based ArcelorMittal said it would cut production at two German plants after reporting better-than-expected performance in its Texas facility that makes a raw material for steel production.

Europe remains a desirable market for advanced manufacturing and boasts a skilled industrial workforce. Many companies that have seen exploding energy prices in recent months have passed them on to customers. The question is “how long can that last?” The continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent. European manufacturers may struggle to stay competitive without the lower energy prices or green incentives currently offered in the U.S.

Classroom discussion questions:

If you were an operations manager at a European manufacturer, what would be your 2023 strategy?
Is the U.S. advantage temporary?

Guest Post: Production of TABASCO® Sauce

Prof. Howard Weiss, who developed the Excel OM and POM software free to our readers, provides his insights on a monthly basis.

Everyone is familiar with the iconic bottle of Tabasco. The sauce was first developed in 1868 by Edmund McIlhenny and while there are currently hundreds of hot sauces available Tabasco was the first. Production of Tabasco exhibits several of the aspects of operations management that are in your Heizer/Render/Munson textbook.

Raw Materials (in Ch. 1): Tabasco sauce is made from only three raw materials – tabasco peppers, salt and vinegar. The peppers
were originally from …

Location (in Ch. 8): … Avery Island, a small area surrounded by bayous in Louisiana, which has the perfect climate and soil, for growing the peppers. Now the peppers also come from other places in Louisiana, Mexico, South America and Africa.

Process (in Ch. 7): It takes five years to go from peppers to Tabasco sauce. The peppers are picked by hand, are mashed and mixed with salt, also from Avery Island, and then aged for over 3 years in …

Supply Chain for Equipment (in Ch. 11): … decommissioned white oak bourbon barrels sourced from different distilleries around the country with all traces of alcohol removed.

Quality Control (in Ch. 6): Each batch of tabasco goes to a lab and also is inspected by a McIlhenny family member before being mixed with vinegar for 28 days to become Tabasco Sauce. In addition, the barrels undergo a quality control inspection before being reused.

Byproduct (in Supp. 5): When a barrel can’t be reused, the wood is broken down into wood chips and the barrel’s stainless-steel hoops are reused.

Capacity (in Supp. 7): Approximately 20,000 to 22,000 barrels are put into production each year. Each barrel contains enough sauce for 10,000 of the 2 ounce bottles shown above.

Distribution (in Ch. 11): It is then bottled and labelled in multiple different languages and shipped to nearly 200 countries around the world. It was the favorite hot sauce of the late Queen Elizabeth.

Reliability (in Ch. 17): After Hurricane Rita, the family constructed a 17-foot high levee around the low side of the factory and also invested in back-up generators.

Classroom discussion questions:
1. What other products have climate as a main factor in facility location?
2. What other products get reused in way different from their original use?

OM in the News: Improving Productivity at Starbucks

A barista prepares a drink at the lab inside Starbucks HQ.

In Starbucks headquarters lies a technology lab that is plotting the firm’s renewal. That includes rethinking the onerous path its baristas must take to make a Frappuccino. Inside the massive space, baristas working in a mock-up of a cafe walked back and forth between refrigerators, blenders and syrups to make a single blended coffee topped with cold foam and caramel drizzle. They asked if the company could build kitchens that bring the equipment closer together (see the topic of layout in Chapter 9) and make syrup pumps, milk dispensers and ice bins that work better.

“Starbucks, the chain that made espresso ubiquitous, now faces daily crises in dispensing it,” writes The Wall Street Journal (Sept. 1, 2022). U.S. stores designed a decade ago struggle to meet today’s consumer demand. Cafes that once averaged 1,200 orders a day are now asked to make 1,500. Workers have been pressing for better pay, staffing levels and hours. Turnover has shot up. One in 4 baristas are quitting their jobs within 90 days, up from 1 in 10 previously.

So Starbucks also has been testing how to overhaul operations to improve the experience for both employees and customers. If employees spend less time running around fetching foam and carrying 20-pound buckets of ice, maybe they will be happier working there.

As Starbucks expanded, so did its menu (see Chapter 5). It started serving Frappuccinos in 1995, and pumpkin spice latte and other flavors followed. Warm sandwiches came in 2003. It introduced cold brew and draft nitro coffee in the 2010s. In 2015, the company launched an app that allowed customers to pay for their drinks ahead of time and to customize their coffee orders in 170,000 ways!

The firm expects workers to deliver handcrafted beverages fast. A store clipboard, used to track workers’ drive-through delivery times, said “Expectations: Under 50 Seconds.” But stores are heavily restricted by design and need a remodel to cope. Starbucks has upgraded equipment periodically, including adding espresso machines that can pull 3 shots for complex orders, rather than 2. It conducted motion studies (our topic in Chapter 10) to measure how long it took baristas to walk across the floor to pump extra syrup, among other tasks.

Engineers mocked up designs for the cafe prep area, producing prototypes with 3-D printers. Technicians studied milk dispensers, ice machines and the size of dispensers for strawberries. “Every second matters with customers waiting,” says the new CEO.

Classroom discussion questions:

What do you think Starbucks can do to improve productivity? (See Chapter 1)
What can they do to lower turnover?

Guest Post: The Atlanta Airport Plane Train

Prof. Howard Weiss shares his teaching ideas with us monthly.

Atlanta’s Hartsfield Airport is the busiest airport in the world in terms of both passengers and aircraft, having served over 75 million passengers in 2021 and having 707,661 aircraft movements in the same year. In order to move passengers from one concourse to another the airport uses an automated people mover (APM) dubbed the “Plane Train” that is operating 60 feet below the airport. The plane train system consists of 11 trains which each have 4 cars. Together they have the capacity to transport 10,000 passengers per hour from one concourse to another. Daily ridership is 200,000 passengers.

The trains run in a loop as displayed below covering 2 miles in each direction. A four year $331 million project is currently underway on the Plane Train and 3 more trains are being added that will increase the capacity to 12,000 passengers per hour by 2024. This will reduce the maximum waiting time from the current 108 seconds to 90 seconds. There currently are 123 employees who work three shifts.

Chapter 17 of your textbook discusses maintenance and reliability. There are two train maintenance stations with 5 total bays located below ground. Preventive maintenance is performed during the night time when the number of passengers requiring transportation between terminals is greatly reduced. Given the daytime number of passengers requiring transportation from one station to another it is imperative that the trains are always operative. Therefore, maintenance is performed on all 11 trains every night with tasks ranging from minor to major. In addition, the tracks need to be maintained, so the system is shutdown Wednesdays at 1am for track maintenance. Furthermore, to maintain reliability the system has 12 cars which serve as backups to the 44 cars in the system.

The De Mar case study in your Design of Goods and Services chapter (Ch. 5) notes that De Mar uses performance measures and compensation that incorporate customer satisfaction. Similarly, for the Plane Train there are incentives to keep the trains operating. The maintenance teams will receive a bonus if they maintain 99.5% reliability. But if reliability does not reach 90% the workers will not be paid a bonus.

Discussion Questions –

What will be the productivity change with respect to the additional 3 trains that are going to be added?
The Plane Train operates 24 hours per day. What is the efficiency of the system?

OM in the News: Losing Patience with China

China’s strict anti-Covid-19 policies have left most of Shanghai in lockdown for much of the past two months

Are foreign companies giving up on manufacturing in China? Covid-19 policies and Beijing’s increasingly ideological approach to business are making many companies reassess growth plans, reports The Wall Street Journal (May 26, 2022). A new survey by the European Union, of companies in China, found that 23% of respondents were considering shifting current or planned investments to other markets, the highest total in the past decade.

Apple, whose suppliers in China constitute the country’s largest source of private-sector employment, is pushing its contractors to do more manufacturing elsewhere. Even before the latest Omicron wave hit Shanghai, over a third of American companies told the American Chamber of Commerce this spring that they would reduce investment in the country due to the policy environment there. The stars are aligning for a much more concerted effort, long predicted but slow in arriving, by large manufacturers to diversify away from the country.

China’s export growth has taken a steep dive thanks to a combination of Covid-19 lockdowns, weakening overseas demand and, most likely, tougher competition from other low-cost manufacturers that were closed last year. There will inevitably be more disruptive lockdowns in China given the very low probability of a significant move away from the “zero-Covid” policy until early 2023 at the earliest. And while alternative production locations such as Southeast Asia and India all present their own difficulties, they also have some distinct advantages, including growing, youthful labor forces—and governments that aren’t positioning themselves as ideological and, potentially, military opponents of developed democracies.

Classroom discussion questions:

What are the tradeoffs of leaving or staying in China?
What Southeast Asian countries would most benefit from an exit of western manufacturers from China?

OM in the News: The End of Globalization?

“Russia’s invasion of Ukraine will reshape the world economy and further drive up inflation by prompting companies to pull back from their global supply chains,” BlackRock CEO Larry Fink has warned, reports The Financial Times (March 25, 2022). “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.”

While the immediate result had been Russia’s total isolation from capital markets, Fink predicted “companies and governments will also be looking more broadly at their dependencies on other nations. This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries. A large-scale reorientation of supply chains will inherently be inflationary.” He stated that “Mexico, Brazil, the U.S., or manufacturing hubs in Southeast Asia could stand to benefit.”

He further predicted that the Russian invasion would affect the transition to cleaner energy. Initially, the search for alternatives to Russian oil and natural gas “will inevitably slow the world’s progress toward net zero [emissions] in the near term.”

“Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy” because higher prices for fossil fuels would make a broader range of renewables financially competitive. Though climate activists want investors to shun fossil fuels entirely, Fink rejected this approach. “BlackRock remains committed to helping clients navigate the energy transition. This includes continuing to work with hydrocarbon companies,” he stated. “To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel.”

In one of his first comments on cryptocurrencies, Fink drew attention to the Ukraine war’s “potential impact on accelerating digital currencies . . . A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.”

Classroom discussion questions:

Why would the U.S. benefit from a global supply chain reorientation?
What has been the impact on global supply chains from the invasion?

OM in the News: U.S. Workers to Become More Productive

Workers process fish in Massachusetts. With labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive

American workers didn’t get much more productive last year, writes The Wall Street Journal (Feb. 4, 2022). But this year could be different. Productivity, as measured by how much the average worker produces in a typical hour, grew at a 6.6% annual rate in the 4th quarter from the previous quarter. For the whole of 2021, productivity only rose 1.9%. That was less than 2020’s 2.4% productivity gain, and the 2% in the pre-pandemic year of 2019.

The U.S. could really use a productivity boost right now. As we point out in Chapter 1, the more a worker can produce in an hour, the lower the labor costs for production go. When productivity growth is high, businesses can sell more, pay workers more and increase profits while leaving prices unchanged.

Better productivity might be on the way. One reason is that the pandemic precipitated changes in the way people work that, if the Covid eases this year, could pay big dividends. The ability to work from home when that is the better option and head into the office when it isn’t, or to meet virtually sometimes and in-person others, can make people far more efficient. The productivity payoff from online menus and ordering systems many restaurants have put in place may arrive as the restaurant business is now recovering.

But the supply chain snarls and product shortages that have beset the economy since the pandemic hit have been, among other things, huge time wasters. If goods start moving more freely, a lot of workers could suddenly become much more productive. And to the extent that car manufacturers and others have products that are fully built except for some hard-to-obtain semiconductors, the installation of some chips could create a real productivity miracle.

Moreover, with labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive. Given the alternatives of losing sales or seeing labor costs take an ever bigger bite out of profits, many of them will come up with ways to be more efficient that they never would have when wages were stagnant and economic growth was mediocre.

Classroom discussion questions:

How are restaurants increasing productivity? Supermarkets? Airlines?
What is the difference between productivity and multi-factor productivity?

OM in the News: Manufacturing Jobs are Looking Very Different

Digital transformation and Industry 4.0 are changing manufacturing, but the fact is that skilled operations talent is increasingly harder to come by. With projections that 2.4 million manufacturing jobs will be unfilled by 2028, the question becomes: What talent and skills do companies need in order to succeed in the factory of the future? Industry Week (Aug. 25, 2021) looks at four manufacturing jobs and how they are expected to evolve.

Production Planners will shift from managing shop floor issues to more proactive roles in which they analyze data insights, manage exceptions and identify opportunities for continuous improvement. They will move from using manual processes for monitoring inventory to using predictive analytics and “digital twins” (virtual representation of a part or a process) to create optimized production schedules and proactively manage inventory issues. And they will need skills in lean and six sigma, data analysis and visualization.

Industrial Engineers will increasingly use digital twins and other cyber-physical systems, in addition to other methods of automation, to create greater connectivity between manufacturing processes and shop floor operations. They will need skills in the areas of design for manufacturability, data science, python and R programing languages, co-bots, IoT sensors, digital twins and wearables.

Machine Operators. Today’s operators tend to specialize in one machine or product line and rely on personal judgment in overseeing machines and processes, leaving room for human error. In the future, operators will use digital twins and AI to proactively identify and solve issues. They will be trained as generalists who can work across machines and product lines.

Quality Analysts. Today’s quality experts are often making changes to standards in reaction to customer complaints, bad yields, or defective products. In the future, they will be able to monitor processes in real time, predict quality issues before they occur, and quickly trace and diagnose any issues through the use of digital twins, advanced analytics and the ability to embed intelligence quality controls. This will require an understanding of big data, data science, and machine learning.

But beyond the clear need for a much higher level of digital acumen, there is also a critical need for human skills that machines cannot replicate such as conceptual thinking, decision-making, problem-solving, and innovation.

Classroom discussion questions:

How many of your students will consider manufacturing jobs? Why?
Explain the concept of a “digital twin.”

Good OM Reading: Jeff Immelt’s “Hot Seat”

Why would Jeff Immelt write a book about his troubled tenure as GE’s CEO from 2001 to 2017? “My tenure had ended badly,” he acknowledges on page 1 of Hot Seat. “My legacy was, at best, controversial.”

Less than a week into Immelt’s tenure, replacing the famous Jack Welch, the 9/11 terrorist attacks shook the nation, and the company, to its core. GE was connected to nearly every part of the tragedy—GE-financed planes powered by GE-manufactured engines had just destroyed real estate that was insured by GE-issued policies. Immelt would lead GE through many more dire moments, from the 2008–09 Global Financial Crisis to the 2011 meltdown of Fukushima’s GE-designed nuclear reactors. He set out to make GE more global, more rooted in technology, and more diverse. But GE struggled. “It became clear right away that my main role would be Person to Blame,” he says.

In Hot Seat, Immelt offers a candid interrogation of his tenure. The most crucial component of leadership, he writes, is the willingness to make decisions. But knowing what to do is a thousand times easier than knowing when to do it. Perseverance, combined with clear communication, can ensure progress, if not perfection, he says.

Immelt rose through the ranks during a largely “tranquil” time when China was a sleeping giant and the U.S. economy expanded at a reliably impressive rate. The world he inherited as CEO, however, was “raucous, volatile and unpredictable,” full of bursting bubbles (dot-com, housing, power), disruptive rivals and increased scrutiny.

Hot Seat provides interesting OM insights and is worth the read. Here is one quote: “It may sound weird to say it, but I am certain that I would never have become GE’s CEO if I hadn’t first learned to fix refrigerators. In 1989, however, when GE moved me to Louisville to become head of customer service for GE Appliances, I wasn’t so sure it was a promotion. GE’s refrigerators had begun failing at an alarming rate. The problem, we soon figured out, was faulty compressors, which have to work harder when the weather gets hot. So the hotter it got, the more our compressors failed. First, we heard from customers in Puerto Rico. Then Florida. After a little investigation, we determined that every single compressor inside 3.3 million refrigerators was going to fail, one by one, in a wave that would roll across the country from the warmest spots to the coolest. We figured refrigerators in Maine would be the last to give out, but their time would come. Each repair would cost us $210—more than half what customers had paid in the first place. It was a disaster.”

Many critics would say Immelt’s entire tenure was a disaster as well.

OM in the News: Made in America–Again

Looking to 2021 and beyond, there is more reason for hope in U.S. manufacturing than at any time since the 1990s, reports The Wall Street Journal (Dec 17, 2020). Three major themes are gaining traction that will carry manufacturing to new prosperity: a quick recovery from the recession; localization of supply chains (onshoring); and technological advancements that level the playing field between the U.S. and low-cost countries.

U.S. manufacturing lost its lead some time ago. Lack of sustained investment, noncompetitive labor rates and degrading infrastructure opened the door for low-cost countries, notably China, to take the lead as manufacturers shifted production overseas. The end result was an industrial sector that leaked jobs and fell behind in technology. So why a turnaround?

N95 face masks being made at a GM plant in Mich. The auto maker started processing face masks in response to the pandemic.

First, the industry is poised to emerge from the Covid-19 recession much more quickly and robustly than it usually does from downturns. Data are overwhelmingly supportive of an industrial economy on the mend. With low interest rates and rising order books, manufacturers are boosting investments in both factories and new products.

Second, pre-pandemic, there was already a rising concern around supply-chain risks. Companies that a decade ago felt comfortable as suppliers consolidated and centralized—often solely in China—began to lose faith in globalization and made plans to onshore. Firms began to see that shipping intermediary products halfway around the world and often back again was no longer productive. These concerns were elevated to near panic as supply chains shut down in the early days of Covid. High-profile shortages, such as the lack of PPE, served as a broader wake-up call for the localization of supply-chains.

Third, automation and other technologies are almost at the point where the U.S. can produce the same quantity of product with half of the employees that would be needed in a similar factory in China. And advancements are accelerating. With progress in data analytics, low cost cloud computing and AI, the American factory is evolving into a new age.

Classroom discussion questions:

Chapter 1 in your Heizer/Render/Munson OM text describes 3 productivity variables. How does each apply in this article?
What other current problems have encouraged the localization of supply chains?