Category: Chapter 1

posts related to Chapter 1

OM in the News: GE Decides Making Stuff is the Future

An interesting way to end this semester–or start next semester– is through a series of quotes from GE CEO Jeffrey Immelt in a major story in the New York Times (Dec.5,2010). GE, as you probably know, lost 3/4 of its market value with the recent financial crisis–hit harder than any company not in the banking sector, because of its finance arm called GE Capital. With a heritage of industrial innovation going back to Edison’s light bulb, GE lost its way to GE Capital’s cash machine that bolstered the bottom line for over a decade.

GE, according to Immelt, “must rely more on making physical products and less on financial engineering–a path that …is also necessary for the American economy as a whole.…Many bought into the idea that America could go from a technology-based, export-oriented powerhouse to a services-led consumption-based economy–and still expect to prosper. That idea was flat wrong”.

“Technology-based manufacturing of all sorts has to be the central part of reinvigorating the economy”, he adds. A White House advisory board has called for doubling US manufacturing employment, to 20% of the workforce. (Refer to Figure 1.4 and Table 1.3 in the text). GE, by the way, is the 2nd largest US exporter, after Boeing.

The products where GE has competitive advantage and a strong manufacturing presence are: next generation jet engines, power turbines, locomotives, nuclear plants, water-treatment systems, medical-imaging equipment, solar panels, and windmills. GE plans to add 4,000 manufacturing jobs in the US.

GE  is stating what is becoming increasingly obvious. We must get back to basics in this country, creating not just services, but goods as well. Nations that do not produce goods sought by others will not be able to compete in the competitive global economy.

Discussion questions:

1. What if  we do continue to become a service driven-economy, with fewer and fewer jobs in manufacturing?

2. Why the change in GE’s attitude?

3. Can we ever revert to making most of the goods we consume, or will China be our biggest supplier for decades to come?

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?

Good OM Reading: The Spread of Industrial Engineering in China…By an American

Most all of us know the story about how Dr. Edwards Deming became the father of quality control in Japan. With their factories and infrastructure destroyed, Deming  helped rebuild post-war Japan into the industrial powerhouse we know. Deming’s reputation is so strong in Japan that the awarding of the annual Deming Prize for quality is broadcast live on TV.

Most of don’t know, however, the story of how China’s productivity revolution began some nine years ago. The improbable tale, written in a fascinating Wall Street Journal article (Nov.6-7,2010), describes Gavriel Salvendy, a 72 year old Hungarian-Israeli-American  professor who is the father of Industrial Engineering in China. Dividing his time  between China’s MIT (Tsinghua University in Beijing) and Purdue, Salvendy tore up the traditional Chinese academic hierarchy. Now more than 200 IE programs have sprung up around China mimicking that at Tsinghua.

I hope you can take 5 minutes to click on the link to the WSJ article and enjoy it as much as I did.

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?