Chapter 2 – Page 7 – The OM Blog by Heizer, Render, & Munson

OM in the News: The Beetle’s Life Cycle

All products are born, grow, mature, and eventually decline (see Figure 2.5 on product life cycle). So it should come as no shock that even the venerable Volkswagen Beetle is set to become a thing of the past. VW just announced that it will end production of the vehicle in 2019, reports The New York Times (Sept. 15, 2018). Sales of the model by the German carmaker’s U.S. unit, the only division still turning out Beetles, had declined sharply in recent years. VW is ending production of the Beetle 7 decades after the car was first designed. The original Beetle was designed for Hitler in the 1930s.

The car’s simple design and air-cooled engine eliminated the need for a more complicated water-cooled system and helped make it a postwar hit. Despite the Beetle’s connection to Hitler, it became a symbol of ’60s counterculture and the best-selling import of the era in the U.S. For the Woodstock generation, driving a Beetle or its larger cousin, the VW van, was a form of protest against materialism and the gas guzzlers churned out by the big American carmakers.

By the 1970s, though, the Beetle was showing its age. It was slow, and its heating system barely worked. Volkswagen also had trouble adapting the 1930s technology to increasingly strict pollution standards. The New Beetle, which was introduced in 1997, was meant to tap into nostalgia for its predecessor. The two cars had little in common mechanically. Beneath its Beetle-like exterior, the New Beetle was essentially a Volkswagen Golf. But the car was a hit in the U.S. Although about 1.2 million New Beetles were sold from the product’s introduction through 2010, by last year, annual sales had slipped to just 60,000.

VW was careful not to rule out reviving the model in the future. “Never say never,” said the CEO for VW-America.

Classroom discussion questions:

Name a few products that just don’t seem to ever die.
Name a product for each of the four life cycle stages.

Good OM Reading: Surviving the Amazon Effect

“Many manufacturers and wholesale distributors have been profoundly impacted by the Amazon Effect, even if they don’t compete directly with Amazon,” writes a new report by Oracle. The Amazon effect refers to Amazon’s influence, dramatically raising customer expectations for things like: (1) Frictionless commerce (epitomized by 1‐click checkout and Amazon Go); (2)Extremely fast, low cost, or free delivery, with precise real‐time tracking and easy returns; (3) Nearly infinite selection; breadth and depth of products; (4) Rich product search, filtering, and product information; and (5) Personalization.

In fact, the boundaries between retailers, manufacturers, and wholesale distributors have become ever more blurred. Manufacturers and distributors are increasingly selling directly to the end customer. And existing customers’ expectations have also changed. Customers, whether consumers or businesses, expect to be able to view in‐depth product information, configure, order, check status, and potentially request returns or report issues online 24/7—that is in addition to the traditional channels of interaction.

Now, many retailers are demanding that suppliers hold inventory and drop ship to the retailer’s customers, forcing manufacturers to become proficient at fulfilling a large number of smaller orders consisting of just a few items, in addition to continuing to fulfill a small number of large bulk orders as traditionally done. Those 2 different types of order flows require completely different models for order management, warehouse management, inventory management, material handling, pick, pack, ship, and logistic/transportation management.

In short, running a business the ‘old fashioned way,’ is becoming increasingly untenable. To adjust to these changing expectations, the report suggests a 2‐pronged strategy: 1) differentiate and 2) optimize. (1) It is impossible to ‘out‐Amazon’ Amazon. They have scale, technology, capital, and experience that is hard to compete with head on. So it is vital to provide value that Amazon is unable to. This can take many forms, such as unique customer experiences, products not available elsewhere, specialized technical expertise and advice, and personalized services. (2) Businesses must also optimize their execution. This means: Improved forecasting and Inventory optimization; Fulfillment optimization: and Compressed cycle times/digital supply chain.

OM in the News: Honda Learns to Outsource

The Honda Civic production line at a factory in Wuhan, China

Honda’s decision to go shopping points to a radical culture change at one of Japan’s proudest companies, where founder Soichiro Honda in the 1960s said, “We refuse to depend on anyone else.” The struggle at the entrepreneurial success story cuts deep into Japan’s sense of itself as a global leader in technology, writes The Wall Street Journal (Aug.6, 2018). Honda once used staff technicians to design new technologies ranging from engines to the shape of the suspension arms. Today, Honda believes rapid shifts in technology mean it can no longer afford to keep pace working solely on its own.

Car makers around the world are under stress from the huge investments needed to develop new technologies used in electric vehicles and autonomous driving. To trim costs, most are leaning on megasuppliers such as Bosch, Continental AG and Denso, as well as smaller companies with cutting-edge technology such as Intel’s Israeli subsidiary Mobileye. For Honda, whose official name translates as Honda Technical Research Industry, the shift to outsourcing is forcing it to rethink its identity as a creator of unique auto technologies. Some of its most famous products include a navigation system that pre-dated civilian use of GPS, and the CVCC engine, which used less fuel and cut emissions. At the time of the engine’s unveiling in 1972, Honda’s head of research, trumpeted: “We at Honda did everything on our own.”

But in a demonstration for journalists last summer, Honda’s self-driving prototype rolled through a stop sign without halting. Honda said the vehicle was an early prototype and that its performance is now much improved as a result of collaboration with SenseTime. Honda’s eventual self-driving system will likely have only a fraction of its software written by Honda engineers. “We haven’t changed. What changed is that it is inefficient for Honda to do everything ourselves,” says a company exec.

Classroom discussion questions:

What was the advantage of doing “everything on our own”?
What are the advantages of outsourcing?

OM in the News: Still Outsourcing to Bangladesh

It has been 5 years since the 2013 garment factory collapse in Bangladesh that killed 1,134 people and left over 2,500 injured. The Rana Plaza factory building was expanded illegally, with extra floors stacked one on top of another. An engineer had declared it unsafe, and the thousands of people who worked inside, stitching garments for clothing brands from around the world, knew it was trouble. The tragedy focused international attention on Bangladesh’s role as the world’s second-largest garment producer, and led the government and manufacturing associations to promise big improvements.

Many of the world’s top clothing brands said they would stop contracting with factories if they failed to improve safety for their workers. European and U.S. brands set up programs meant to improve safety. Five years later, the situation is complicated, and factories overseen by the government and subcontractors remain at risk. About 3,000 of the country’s 7,000 factories are still exposed to life-threatening risks, ranging from a lack of fire safety equipment to serious structural flaws, reports The New York Times (April 24, 2018). The dangerous factories, often small, sometimes subcontract work from larger factories that deal with foreign brands. Textile exports are a huge business for Bangladesh, bringing in $28 billion annually, mostly from Europe and the U.S.

Under new programs, some 2,300 factories have been inspected and many have upgraded their safety standards. Industry insiders guardedly admit that subcontracting remains a problem, since larger businesses sometimes contract some work out to smaller, less-safe factories. This issue of outsourcing (Chapter 2) remains controversial to Westerners, who want inexpensive clothing, but ethically produced.

Classroom discussion questions:
1. What is the responsibility of Western firms whose manufacturing takes place in countries like Vietnam, Ethiopia, or Bangladesh?

2. What was the agreement reached shortly after the collapse?

Good OM Reading: Seven Technologies Remaking the World

A new report by MIT Sloan Management Review (March, 2018) identifies 7 core technologies and describes their implications for commerce, health care, learning, and the environment. You can use it as a guide for discussion with your OM students to understand today’s business frontiers.

“Technology provides the spark that enables us to push beyond the established boundaries of our world,” says the report. The mechanized spinning of textiles, large-scale manufacturing of chemicals, steam power, and efficiencies in iron-making sparked the first Industrial Revolution (1760-1840). Railroads, the telegraph and telephone, and electricity and other utilities sparked the second Industrial Revolution (1870-1940). Radio, aviation, and nuclear fission sparked the Scientific/Technical Revolution (1940-1970). The internet and digital media and devices sparked the Information Revolution (1985-present). In each instance, appearance of new technologies fundamentally reshaped key aspects of the OM world.

Here are the 7 technologies in brief:

Pervasive computing delivers information, media, context, and processing power to us. It is characterized by vast networks of connected microprocessors embedded in everyday objects.

Wireless mesh networks are ad hoc loops of wireless connectivity in which only one device requires an internet connection. These are smart networks of wireless devices that can form, disperse, and re-form at the user’s command.

Biotechnology is the use of living systems and organisms to develop or make products. Today, advances in digital technology, genetic engineering, informatics, cell technology, and chemical sciences are greatly expanding its boundaries.

3D printing, or additive manufacturing, transforms a digital blueprint of an object into a physical finished good.

Machine learning covers a broad context of technologies and capabilities, including cloud computing, big data, and AI.

Nanotechnology is a radical engineering science that is designing and manufacturing incredibly small circuits and devices that are built at the molecular level of matter.

Robotics is the design and development of mechanical systems that can operate autonomously or semi-autonomously.

This report, about 20 pages long, might be the basis for student reports on specific applications to operations.

OM in the News: VW’s Strategy Switch

“As the world’s largest automaker, Volkswagen in some ways better resembles a country than a mere corporation,” writes Businessweek (April 2, 2018). At more than 100 factories worldwide, the company’s 12 brands make 355 models in millions of color and trim combinations, employing more than 600,000 people who generate $284 billion in revenue.

It’s hard to imagine that such a robust firm could ever be at risk of collapse, as it was less than 3 years ago, when VW was consumed by one of the largest scandals in automotive history. The systematic effort to cheat on emissions tests—employees wrote software that made diesel cars appear cleaner than they were—brought the company to its knees.

And yet today—$30 billion in compensation and repair costs and 11 million affected vehicles later—VW is comfortably defending its global sales crown from a challenge by Toyota. Consumers’ willingness to forgive VW is remarkable, given the enormity of its wrongdoing: Scientists at the MIT estimate the extra pollution generated by its rigged cars will contribute to more than 1,200 premature deaths. (VW was also fortunate that the vast majority of the affected cars were sold in Europe, where emission rules are less stringent than in the U.S. Germany and the EU ruled that VW could simply modify the 8 million polluting vehicles.)

Emboldened by this unexpectedly rapid rehabilitation, VW late last year embarked on by far the largest program of electrification in the global car industry, pledging to spend $25 billion to develop battery-powered or hybrid variants of every one of its models by 2030. The goal is to make EVs cheap and commonplace, inspired by its 1960s Beetle. From next year, the company plans to release a new EV or hybrid model every month.

The diesel crisis may ironically prove to have been a good thing: a trauma that forced VW to ask hard questions about its operations and strategy and what a carmaker will need to look like to survive the 21st century.

Classroom discussion questions:

What factors will impede the new VW strategy?
Examine each of the 10 OM decisions. How they will be impacted by an EV strategy?

OM in the News: China Is Turning Ethiopia Into a Giant Fashion Factory

“We’ve arrived at a new moment for the global apparel industry,” writes Businessweek (March 5, 2018). Ethiopia, a drought-afflicted, landlocked country of 100 million on the Horn of Africa is transforming itself into the lowest rung on the supply chain that pours out fast fashion and five-for-$12.99 tube socks. Lured by tax incentives, promises of infrastructure investment, and ultracheap labor, countries the Western world once outsourced production to, particularly China and Sri Lanka, are now the middlemen ramping up production here for Guess, Levi’s, H&M, and other labels. These industrialists like Ethiopia because the government wants them as much as they want cheap labor and tax breaks. Since 2014, Ethiopia has opened 4 giant, publicly owned industrial parks; it plans 8 more by 2020.

“The plan is to create a total of 2 million jobs in manufacturing by the end of 2025,” says a government official. “We are an agrarian nation now, but that will change.” The regimented days in factories are unfamiliar to most Ethiopians, though. “They get only 30 minutes for lunch,” one politician says. “Their backs hurt. They are exhausted. Those jobs, they make everyone sick.” Managers, primarily Sri Lankans brought in to impart the efficiencies achieved in their country’s sweatshops, would view this comment as epitomizing one of their main complaints: Ethiopia hasn’t equipped its citizens for the rigors of industry.

Outsourcing to the developing world has allowed Western consumers to ignore or remain oblivious to the environmental damage and working conditions behind the rising sea of inexpensive clothes. PVH, the parent company of Tommy Hilfiger and Calvin Klein, is the sole American manufacturer here. PVH views itself as a “supply chain pioneer,” because it sets out to develop the production capacity it needs and to directly oversee it. “If you believe industrialization is a good thing and raises people up, out of poverty,” says PVH’s Supply Chain Officer, “then the apparel industry has been the trigger in most developing countries.” As to doing business in Ethiopia: “This is no different from China in the late 1980s to 1990s.”

Classroom discussion questions:

What are the advantages and disadvantages of manufacturing in Ethiopia?
What are the main OM issues for a company opening a plant there?

OM in the News: Life and Death on the Third Shift

Every day at Tyson Foods’ cavernous meatpacking plant in Holcomb, Kansas, 6,000 cows clamber off waiting 18-wheelers. They’re watered, then ushered into the kill box. After the heads, hides, and hooves are removed, the carcasses are sawed in half, checked by U.S.D.A. inspectors, and sent down conveyor belts to be butchered, boxed, and bar-coded by 3,800 workers in 2 shifts. The journey takes 40 minutes.

After 11 p.m. the procession halts, and the sanitation crews move in. The only slaughterhouse job worse than eviscerating animals is cleaning up afterward. These “third-shift workers” wade through blood and grease and chunks of bone and flesh, racing all night to hose down the plant with disinfectants and scalding water. The stench is unbearable.

The cleaning crew is not employed by Tyson, however. Packers Sanitation Services, the nation’s largest cleaning contractor to the food industry, staffs the hard-to-fill night shift jobs. Packers pays their workforce $11.86/hour, 1/3 less than what production employees earn.

“Such is the genius of outsourcing,” writes Businessweek (Jan.8, 2018). In an era of heightened concern about food safety, meat and poultry producers are happy to pay sanitation companies for their expertise. The sanitation companies also assume the risk of staffing positions that only the desperate will take—largely undocumented immigrants. And they relieve the big producers, such as Tyson and Pilgrim’s Pride, of responsibility for one of the most dangerous factory jobs in America.

No one knows exactly how many sanitation workers get injured on the job, as OSHA doesn’t require plants to report contractors’ injuries. Judging from Packer Sanitation’s record, the nightly storm of high-pressure hoses, chemical vapors, blood, grease, and frantic deadlines, all swirling around pulsing belts, blades, and blenders, can be treacherous. Packers has the 14th-highest number of severe injuries—defined as an amputation, hospitalization, or the loss of an eye—among the 14,000 companies tracked by OSHA. Adjusting for size, Packers tops the danger list by a wide margin, with a rate of 14 severe injuries for every 10,000 workers. Its amputation rate of 9.4 dismemberments per 10,000 workers is 5 times higher than for U.S. manufacturing workers as a whole.

Classroom discussion questions:

As the boom for cheap protein creates yet more demand, how can operations managers deal with the 3rd shift issue?
Who is most responsible? OSHA? Tyson? Packers?

OM in the News: Why Does IBM Have More Employees in India than in the U.S.?

The IBM logo identifies a company building in Bangalore. Dozens of other foreign technology companies have offices nearby.

IBM dominated the early decades of computing with inventions like the mainframe and the floppy disk. Its offices and factories, stretching from upstate New York to Silicon Valley, were hubs of American innovation long before Microsoft or Google came along. “But over the last decade, IBM has shifted its center of gravity halfway around the world to India, making it a high-tech example of the globalization trends that the Trump administration has railed against,” writes The New York Times (Oct. 1, 2017).

Today, the company employs 130,000 people in India — 1/3 of its total work force, and more than in any other country. Their work spans the entire gamut of IBM’s businesses, from managing the computing needs of global giants like AT&T and Shell to performing cutting-edge research in fields like visual search, A.I. and computer vision for self-driving cars. The work in India has been vital to keeping down costs at IBM, which has posted 21 consecutive quarters of revenue declines as it has struggled to refashion its main business of supplying tech services to corporations and governments.

The tech industry has been shifting jobs overseas for decades, but IBM is unusual because it employs more people in a single foreign country than it does at home. The company’s employment in India has nearly doubled since 2007, even as its work force in the U.S. has shrunk through waves of layoffs and buyouts. It employs well under 100,000 people in the U.S. now, down from 130,000 in 2007. The salaries paid to Indian workers are 1/2 to 1/5 those paid here, and the range of work done by IBM in India shows that offshoring threatens even the best-paying American tech jobs.

Classroom discussion questions:

When the trend in manufacturing is “reshoring,” why is IBM offshoring more?
What other industries are outsourcing to India?

OM in the News: Is Amazon a Clone of Sears?

A pneumatic-tube station in the Sears mail-order plant in Chicago

A century ago, a retail giant that shipped millions of products by mail moved swiftly into the brick-and-mortar business, changing it forever. Is that happening again? “The history of Sears predicts nearly everything Amazon is doing,” writes The Atlantic (Sept. 25, 2107).

In the last 2 years, Amazon has opened 11 physical bookstores. It just bought Whole Foods and its 400 grocery locations, and announced a partnership with Kohl’s to allow returns at the physical retailer’s stores. The company’s corporate strategy adheres to a familiar playbook—that of Sears. Sears might seem like a zombie today, but it’s easy to forget how transformative the company was 100 years ago. To understand Amazon’s evolution, strategy, and future, can we look to Sears?

Mail was an internet before the internet. After the Civil War, the telegraph, rail, and parcel delivery made it possible to shop at home and have items delivered to your door. Americans browsed catalogues for jewelry, food, and books. Merchants sent the parcels by rail. Then Sears made the successful transition to a brick-and-mortar giant. Like Amazon among its online rivals, Sears was not the country’s first mail-order retailer, but it became the largest. Like Amazon, it started with a single product category—watches, rather than books. Like Amazon, the company grew to include a range of products, including guns, gramophones, cars, and groceries.

By building a large base of fiercely loyal consumers, Sears was able to buy more cheaply from manufacturers. It managed its deluge of orders with massive warehouses. But the company’s brick-and-mortar transformation was astonishing. At the start of 1925, there were no Sears stores. By 1929, there were 300. Like Amazon today, the company used its position to enter adjacent businesses. To supplement its huge auto-parts business, Sears started selling car insurance under the Allstate brand. Perhaps the shift from selling products to services is analogous to the creation of Amazon Web Services—or Amazon’s TV shows. The growth of both companies was the result of a focus on operations efficiency, low prices, and an eye on the future of U.S. demographics.

Classroom discussion questions:

What did Sears do right that Amazon can learn from?
What has Sears done wrong that Amazon should avoid?

OM in the News: The “Amazon Effect” on Logistics

A growing number of companies are paying to track in real time everything from truckloads of pork chops to shipping containers full of exercise equipment. Logistics providers, retailers and suppliers are inking deals with software firms that use location data and weather and traffic information to monitor shipments and alert customers to events that could hold up delivery, such as a loaded truck sitting in a yard for more than an hour.

The need for these services is growing as retailers and shoppers demand faster, more-precise delivery. Many Amazon customers have become accustomed to reliable 2-day shipping, forcing other retailers to offer similar service. Businesses are making new demands of their suppliers as they trim inventories and reduce supply-chain costs. Last month, Wal-Mart said it would penalize companies that made deliveries too late or too early. “It’s the Amazon effect—customers are putting more pressure on their supplier to know where their product is,” said a supply chain analyst with Gartner.

Pork producer Smithfield Foods hires more than 230 trucking companies to ship about 1,000 truckloads of product in the U.S. a day. “Managing that is an awful lot of phone calls,” said the firm’s VP of supply chain. Smithfield’s on-time delivery rate improved to 94%, from 87%, after it began tracking truck freight with software.

With this article in The Wall Street Journal (Aug. 30, 2017), we see that some businesses are using delivery speed as a way reach competitive advantage, as illustrated in Figure 2.4 in the text.

Classroom discussion questions:

What are other OM strategies for competitive advantage?
Name some of the leading software providers that help track shipments.

OM in the News: Outsourced Jobs to India May Now Go To Indiana

For years, American companies have been saving money by “offshoring” jobs — hiring people in India and other distant cubicle farms. “Today,” writes The New York Times (July 31, 2017), “some of those jobs are being outsourced again — in the U.S.” Salaries have risen in places like South Asia, making outsourcing there less of a bargain. (A decade ago an American software developer cost 5-7 times as much as an Indian developer. Now the gap has shrunk to 2 times). In addition, as brands pour energy and money into their websites and mobile apps, more of them are deciding that there is value in having developers on the same continent.

Many of these domestic outsourcers are private, little-known companies, but IBM, one of the foremost champions of the offshore outsourcing model, has announced plans to hire 25,000 more workers in the U.S. over the next 4 years. As a result, the growth of offshore software work is slowing, to nearly half the pace of recent years.

“The nature of work is changing,” said the CEO of Infosys, the Indian outsourcing giant. “It is very local. And you often need whole teams locally. It’s not enough to have people offshore in India.” This is a departure from the offshore formula of having a project manager on-site but the work done abroad. Infosys just announced plans to hire 10,000 workers in the U.S. over the next 2 years, starting with centers in Indiana and North Carolina.

In the 1990s, the internet allowed tasks like payroll and financial reporting work to be sent to low-wage nations, especially India. That brought the rise of the big outsourcing companies like Tata and Infosys, which still excel at maintaining the software that runs back-office systems.

Classroom discussion questions:

How has the outsourcing model changed?
List the advantages and disadvantages of outsourcing abroad.

OM in the News: Foxconn’s U.S. Factory Plans

Foxconn makes iPhones and other gadgets for Apple

Foxconn, which helped turn China into the center of electronics manufacturing, just announced it will build a $10 billion plant in Wisconsin to make display panels used in TVs and other products. This marks the first major U.S. investment for Foxconn, the world’s largest contract manufacturer of electronics and the maker of iPhones.

“Foxconn,” writes The Wall Street Journal (July 27, 2017), “is betting the U.S. can rebuild an electronics supply chain that largely shifted to China and other lower-cost Asian countries in recent decades.” The factory is expected to employ 3,000 people initially and as many as 13,000 people eventually. The state is providing Foxconn with a $3 billion, 15-year incentive package of tax credits.

In addition to the factory workers, it is estimated that the plant will create 22,000 indirect jobs and another 10,000 construction jobs– and draw as many as 150 supporting suppliers to Wisconsin and nearby states. The average salaries for the 13,000 jobs at the factory would be $53,000 annually, plus benefits.

The 20-million-sq.-ft. campus will primarily produce high-resolution liquid-crystal displays, known as 8K resolution LCD, used in smartphones and car dashboards, in addition to TVs. Many TVs currently sold in the U.S. are assembled in Mexico, so it is possible that the displays made in Wisconsin could be shipped across the border to be installed in TVs that are later shipped back to the U.S. for sale.

Classroom discussion questions:

Why is Foxconn entering the U.S?
What are the benefits and risks to Wisconsin?

OM in the News: The City That iPhone Built

Foxconn iPhone workers walk between Zhengzhou Foxconn factories

It was 2010 and the iPhone was coming to a new industrial town on the edge of Zhengzhou, China that would be known as iPhone City. One year later, Foxconn, the manufacturer, said the iPhone factory complex had 100,000 workers. Today, it employs 250,000 at the plant. The company makes 150 million iPhones each year, along with 20 million iPads.

“With Apple embracing outsourced manufacturing in Chinese cities, the iPhone’s success in the decade since it launched has fueled China’s rise at the center of the global electronics supply chain,” writes The Wall Street Journal (July 5, 2017). The explosion of higher-tech manufacturing was encouraged by Beijing as leaders sought to move factories up the value chain from making plastic toys and clothes. That shift transformed the lives of millions of Chinese, bringing jobs but also leading to complaints from workers of repetitive labor, restrictive work rules and poor living conditions.

The move to Zhengzhou followed a spate of suicides in 2010 at Foxconn’s other iPhone factory in Shenzhen, along the coast where wages were higher. “We hold our suppliers to the standard we hold ourselves: They must treat everyone with dignity and respect,” said Apple. Apple said wages and working conditions at its suppliers have improved significantly in the past 5 years.

Like American company towns a century ago—Pullman, Ill., Hershey, Pa., and Henry Ford’s Detroit—iPhone City revolves mainly around a single product, and it depends on that product for its wealth. During last fall’s rush to make the iPhone 7, when Foxconn was short-handed, state-owned coal companies lent workers to Foxconn. In past years, the province issued quotas to local authorities stating how many workers they needed to produce for Foxconn.

Classroom discussion questions:

Why doesn’t Apple manufacture iPhones in the U.S.?
What has China’s government done to assist manufacturers such as Foxconn?

OM in the News: Chipmaking Moved to Asia–Miscarriages Followed

Koo Sung-ae has lupus. She worked in a Korean Samsung factory for 5 years. Three years ago her husband gave her one of his kidneys to save her life.

Businessweek’s (June 19, 2017) feature story, “The Dark Side of Asian Microchip Production,” reveals U.S. chipmakers realized they had a toxic problem, so they outsourced it–to Asia. Twenty-five years ago, U.S. tech companies pledged to stop using chemicals that were proven to cause miscarriages and birth defects. But they did not ensure their Asian suppliers do the same. The 8 page article, which you can use when discussing ethics in OM, explains that that chip production is mostly about chemistry.

Chemicals and light combine to print circuits onto silicon wafers. Intel was “putting into industrial production a lot of really nasty chemicals. There was just no knowledge of these things, and we were pouring stuff down into the city sewer system,” said one of Intel’s founders. Years later, when workers dug up the pipes beneath Intel, they discovered the bottom was completely eaten out. Authorities ended up creating more hazardous waste sites in the heart of Silicon Valley than in any other place in the U.S.

Making computer chips involves hundreds of chemicals. The women on the production lines work in “cleanrooms” and wear protective suits, but that is for the chips’ protection, not theirs. The women are exposed to chemicals that include reproductive toxins, mutagens, and carcinogens. The result: workers’ unborn children can suffer birth defects or childhood diseases, and the women can develop cancer that does not show up until long after exposure.

Thousands of women at chip plants across Asia are still exposed to toxins called EGEs. IBM studies, more than 2 decades ago, showed the risks could still persist overseas. IBM knew that EGEs were cheap, effective, and abundantly available and that less-dangerous alternatives were far more expensive. Its published report cited the higher costs of safety.

Classroom discussion questions:

What other industries has the U.S. outsourced that were dirty or dangerous?
Why has it been so difficult to monitor the chip supply chain?