Category: Chapter 5

Posts relating to Chapter 5

OM in the News: The Lithium Battery Dilemma

 

To the makers of smartphones, power grids and electric vehicles, lithium—the lightest metal—allows batteries to become supercharged, underpinning hopes for a greener economy and longer-lasting devices. But the very traits that make lithium game-changing for energy storage can pose overpowering challenges should the batteries ever catch fire, reports The Wall Street Journal (June 28, 2024). Incidents involving lithium-battery fires are becoming more common around the world, raising safety concerns.

A Tesla lithium-ion battery catches fire in Washington state

The world recently saw the risks of lithium-battery fires in South Korea, where at least 23 workers died. Video footage of the fire showed occasional flashes that produced thunderous booms like a detonated bomb.

Water isn’t always an effective combatant for certain types of lithium-battery fires, leaving little option other than waiting things out or using costly suppressants. The lithium produces searing temperatures. The fire’s ignition is more intense than an oxy-acetylene torch, which can be roughly 5,000 degrees, or about five times hotter than house fires. It will literally cut through a firefighters’ protective clothing and their leg if it’s coming out from underneath their vehicle. Battery fires are a growing concern for firefighters worldwide.

So-called “lithium-ion” batteries are rechargeable and widely used in smartphones, PCs and EVs—and are the subject of the bulk of such fires, often due to overheating. Extinguishing a lithium-ion battery fire for an EV takes longer and about three times as much water than a regular vehicle, on top of the exposure to carcinogenic chemicals.

Sometimes the safest option is to let a battery fire burn. That was the case in 2021, when a Tesla battery caught fire while being installed at an Australian power storage facility. Responders allowed the blaze to burn out over six hours, while keeping nearby units cool.

Lithium is widely viewed as a key future energy source, given its outstanding ability to retain high amounts of energy compared with other metals. The properties of lithium that make it suitable for energy storage also pose risks, but the metal in its various forms has been harnessed to operate safely for a variety of uses.

 

Classroom discussion questions:

  1. How many lithium-ion batteries have actually exploded in the past few years?
  2. How does this impact the growth of EVs? Is it a design issue?

Teaching Tip: The Auto Design Life Cycle

1959 Cadillac

In both Chapters 2 and 5 we discuss product life cycle and its strategic importance. In Figure 2.5 (page 40), we identify ten products that are passing through the 4 stages of Introduction, Growth, Maturity and Decline.

Here is an 11th example you can use in class –automobiles–whose changes you can follow through these stages. We start with the 1950’s land yachts like the Cadillac Eldorado.  This was followed by the 1960’s station wagons. Socioeconomic shifts drove Americans’ move out of gas-guzzling embellished cars and into tiny, economical Japanese imports following the oil crises and new tailpipe emissions standards of the 1970s. Then came the 1980s minivan (which almost totally replaced station wagons). In the 2000s, the sport-utility vehicle spurred the minivan’s retreat.

The SUV has devoured the American car market, now accounting for nearly 60% of new vehicles purchased. Stricter vehicle-efficiency standards and governments’ push toward electrification challenge the supremacy of the blunt, heavy SUV. And car designers are tired of drawing them. “We all get bored to death because it’s absolutely ubiquitous,” says GM’s lead designer in The Wall Street Journal (June 13, 2024).

The Zoox electric self-driving urban ‘Toaster.’

The ever-expanding options, along with higher interest rates, are pricing younger and lower-income consumers out of the market. The average new-car price is now nearly $50,000. This has automotive designers, executives and analysts focused on a big question: What comes after the SUV? Will the boxy SUV be followed by even boxier forms?

Electric vehicles have no need for hoods, as their batteries are typically mounted in the floor, and their motors are near the wheels. With no drivers, upcoming autonomous vehicles won’t need dashboards or steering wheels. Executives think that maximizing human and cargo space in such vehicles results in a rounded box on wheels: a nouveau vanlike form nicknamed “the Toaster.”   GM research has shown that this spacious shape can provide passengers in autonomous vehicles more confidence in surrendering control. “It’s more distance between you and a potential accident. The shape also has a “functional, happy character,” adds GM’s designer.

OM Podcast #21: An Inside Look at Building a Theme Park

In our latest podcast Barry Render interviews Simon Philips, former President at Marvel Entertainment, former EVP at Disney, and current President at Falcon’s Beyond. Falcon’s Beyond (https://falconsbeyond.com/) is a global leader in theme park master planning. Barry and Simon discuss the latest announcement about the massive new Dragon Ball theme park in Qiddiya City, Saudi Arabia, as well as other operations at Falcon’s Beyond. Dragon Ball is said to be larger then Walt Disney’s Magic Kingdom here in Orlando.

 

Did you know our podcast is now available on Apple podcasts? Just go to your Apple podcasts app, search “Heizer Render OM Podcast,” and subscribe to get all our podcasts on your mobile device as soon as they come out!

Transcript

A Word document of this podcast will download by clicking the word Transcript above.

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM. See our earlier blog post with a recording of author and user Chuck Munson to learn how to find these, or contact your Pearson rep to learn more! https://www.pearson.com/en-us/help-and-support/contact-us/find-a-rep.html

OM in the News: Building Sustainability Into Product Design

Did you know 80% of a product’s environmental impact is determined in the design phase? With so much dependence on design, it is critical to start thinking about the environmental impact of a product as early as possible, alongside the traditional drivers of cost, quality, and time. To overcome resource scarcity and meet emissions targets, manufacturers are steadily increasing their environmental consciousness, writes Industry Week (April 26, 2024). Those set to succeed are doing so from the very start of their development processes.

Combining the real and digital worlds makes it possible to integrate the entire value chain. This delivers a digital thread that serves as the foundation for collective intelligence, connecting workflows and processes along the value chain. It can also provide designers with access to a comprehensive digital twin informed by simulation results and production data, material information, supplier and product carbon footprint data, etc.

This empowers engineers to rethink design, as they have access to a dynamic and iterative process (outlined in the 5 points below) that is never finished and allows for recycling, remanufacturing and reuse. However, for this to work, sustainability needs to be embedded into all phases of the design process. a point we make in both Ch. 5 (Product Design) and Supp. 5 (Sustainability in the Supply Chain).

1. Conceptual Design In addition to traditional design requirements such as performance, durability, usability and cost, designing for sustainable outcomes means meeting new requirements, including carbon emission caps, water use restrictions and recyclability. Capturing these early is critical .

2. Suppliers When sourcing materials and components, it is important to establish communication with suppliers that best comply with sustainability requirements.

3. Detailed Design The right tools will enable engineers to select the best part materials based on required material properties and the associated sustainability scores.  One material may result in a lowered carbon emission rating within manufacturing because it is more recyclable, while another material option might be more durable and extend product life.

4. Validation Validation covers many workflows and engineering domains to ensure the product functions as expected. Innovative materials used to meet sustainability targets might require more thorough testing.

5. Design Improvement This is a continuous journey that extends long after the product is made. Integrating sustainability goals into product design is making that a reality for every company.

Classroom discussion questions:

  1. Why are suppliers an important part of new product design?
  2. Name a product that has gone through these 5 steps.

Guest Post: Health Care and Location

Prof. Howard Weiss, who developed the Excel OM and POM software that comes free with our text, shares his insights monthly.

Figure 8.1 in the Location Chapter in your Heizer/Render/Munson textbook explains that two of the factors that affect site location decisions are proximity of services and customer density. Consider doctor visits.

House Calls
At the turn of the 20th century, family doctors would come to a patient’s house to give medical attention. For the patient, visits could not be more proximate than at home. House calls peaked in the 1930s but the life cycle of house calls is essentially at the end today. One reason is that there are fewer family doctors now. Another reason has to do with insurance company reimbursement requirements. There are, however, more visiting nurses, physical therapists and other medical care personnel making house calls.

Urgent Care
In the 1970s, doctors began to open urgent care centers to serve patients who do not have emergency needs. There are over 10,000 urgent care centers in the U.S. The advantages of urgent care centers are
 Centers typically do not require an appointment
 Centers are open for more hours than doctors’ offices.
 In most cases, patients are within a 10-minute drive of a center.
 Centers generally post fees and these fees are typically less than the fee at a doctor’s office or emergency room.

Mobile Health Clinics
Also, in the 1970s, health care organizations began using mobile health clinics to serve rural and underrepresented areas that have less patient density. There are over 2,000 mobile clinics in the U.S. each providing an average of 3,500 visits annually.

Medical clinics in retail outlets
Around the turn of the 21 st century, pharmacies, supermarkets and other retail outlets began to place medical clinics in their facilities. These clinics are more plentiful than mobile clinics and create a win-win situation for the patient and the retail outlet. Advantages to the patient are the same as those for urgent care centers. The advantage to the retail outlet is that the clinic increases foot traffic to the store and yields a new revenue stream.

Telehealth visits
The most recent location change has been telehealth. This brings us back full-circle to care in the home as the patient is home and communicates with a doctor via internet or telephone. Telehealth also includes using devices, such as heart monitors, that send information to the doctor’s office. There are. however, still some legal issues surrounding telehealth.

Classroom Discussion Questions:
1. Where was your last visit to a physician?
2. What might some of the legal issues of telehealth be?

OM in the News: Using AI to Design New Cars

Researchers have found that machine learning and artificial intelligence (AI) can significantly reduce cost and time in product design (the topic of Chapter 5), not only in the actual generative design of the product, but also in the predictive analysis of whether consumers will be attracted to certain designs.

Toyota is using AI to design better cars faster

“It’s well understood in the automotive industry that aesthetics are critically important to market acceptance. An improved aesthetic design has demonstrated that it can boost sales 30% or more,” says a Yale U. prof (see INFORMS.org Dec. 11. 2023). “That’s why automakers are known to invest over $1 billion in the design of a single model.”

The current auto design process relies on the conventional human development of designs and prototypes, along with in-person testing of possible designs with actual consumers. These consumer evaluations feature what is called the A/B testing of alternative designs in laboratory test markets. The industry calls them “theme clinics,” in which hundreds of targeted consumers are recruited and brought to a central location to evaluate aesthetic designs. Consumers are asked to rate the designs based on established benchmarks, such as scales for “sporty,” “appealing,” “innovative” and “luxurious,” among other characteristics.

Auto makers invest more than $100,000 per theme clinic for one new vehicle design. Because there are multiple aesthetic designs per vehicle, and more than 100 vehicles in its product line, General Motors alone, for example, spends tens of millions of dollars just on theme clinics.

Researchers found ways to augment the traditional product development process with machine learning tools that address both the generation of the design itself, and the testing of possible consumer acceptance or rejection of the design. They developed a generative model that creates new product designs and allows designers a tool to morph potential designs more efficiently and effectively. Their predictive model helps identify those designs with high aesthetic scores. They created their models using data from an auto firm, using images of 203 SUVs that were evaluated by targeted consumers, and 180,000 high-quality unrated images.

With advancements in machine learning algorithms and computer vision technology, AI is also capable of predicting safety risks on roads by analyzing data from sensors attached to vehicles.

Classroom discussion questions:

  1. What does A/B testing mean?
  2. Why is AI a valuable tool in design of cars–and other consumer products?

OM in the News: McDonald’s Decides No More Dry Burgers

In 1948, brothers Richard and Maurice McDonald retooled their original San Bernardino, Calif., restaurant around a slim menu selling burgers for 15 cents. Their restaurant, called McDonald’s, would go on to provide the blueprint for the fast-food business. They shrunk down the patties to make them more affordable, and served them with ketchup, mustard, onions and two pickles—no substitutes, to keep service fast. The concept was a hit.

Assembling the revamped burger in a test kitchen.

Burgers last year accounted for around 40% of U.S. fast-food sales, and most chains can’t make it without a strong contender. Some 68% of Americans eat burgers at fast-food restaurants at least once a month.

The problem for McDonald’s is that it came in 13th among U.S. chains based on the number of customers (28%) calling their burgers desirable, reports The Wall Street Journal (Dec. 1, 2023). White Castle led the list with 72%, and Burger King followed at 52%.

With increased competition in the burger market, McDonald’s executives decided to revamp many of the industrial-scale techniques that have produced cheap, uniform burgers. In some cases, the firm is reviving practices it scrapped long ago in a push for efficiency. “We can do it quick, fast and safe, but it doesn’t necessarily taste great. So, we want to incorporate quality into where we’re at,” said a top exec.

Deciding it’s had enough with dry patties and squishy buns, the firm made more than 50 tweaks on its burgers adding up to the biggest enhancements in decades. They started by cooking the beef with the onions on top of the patty, added room-temperature cheese that melted faster and put it all on the shinier brioche-style bun, a moister bread to better hold heat. They found cooking 6 burgers at a time instead of 8 improved consistency and delivered fresher patties. They calibrated the gap on the metal clamshell that presses burgers on the grill down to the millimeter, to avoid pressing too hard and squeezing out all the juices.

For a chain with tens of thousands of restaurants, the overhaul posed a massive undertaking. Restaurants would have to retrain workers to look out for quality measures like when grills were running too hot and drying out patties. McDonald’s needed to ensure bakeries across the world could comply with its new specifications for buns. The plan has taken 6 years to implement.

Classroom discussion questions:

  1. Other products and services have been around for many years, like the Big Mac, and have also had continued success through enhancements. Identify one such product.
  2. Why did it tale McDonald’s so long to improve its burger?

Video Tip: Designing a Football Helmet for Deaf Players

Gallaudet has a history of technological innovation with wide applications.

Shelby Bean could not help but feel a bit jealous. As a deaf football player for four years at Gallaudet University in Washington, D.C., he called defensive plays with American Sign Language and dealt with other obstacles hearing opponents never need to worry about. Now an assistant coach, he was on the sideline earlier this season for a milestone at a school accustomed to them: The debut of new technology that allows plays to be displayed visually inside quarterback Brandon Washington’s helmet — a welcomed step that happened to coincide with the team’s first win of the season.

Gallaudet has been trying to level the playing field for the Deaf and hard of hearing community for more than a century, reports USA Today (Oct. 31, 2023). The helmet, developed with AT&T 129 years after quarterback Paul Hubbard invented the football huddle, is just the latest example of how the private university has been an incubator for Deaf technology in use around the world. The technology involved in the helmet could help firefighters, construction workers and first responders in noisy situations while giving the deaf and hard of hearing improved access to jobs and everyday activities.

The helmet tech works with the push of a button on a tablet on the sideline. The play is beamed over 5G to a tiny, nearly transparent screen in the quarterback’s helmet. Experts, advocates and those who worked to create the helmet dream of the day the technology is widespread and mainstream, unlike more elaborate visual headsets like Google Glass and Microsoft HoloLens.

Closed captioning is perhaps the most well-known example of a Deaf-led innovation that has found its way into everyday life. Videophones — like the ones that debuted at Gallaudet in 2004 — gave way to FaceTime and similar apps. The hope is the helmet technology is the next one to go big. “It can have so many more benefits outside of the Deaf and hard-of-hearing community that really just makes everyone’s life better,”  said Shelby Bean. “There’s no cap to it. This can go anywhere and everywhere.”

Here is a 2-minute video clip on the story.

Classroom discussion questions:

  1. Why is developing new products, the topic of Chapter 5 in your Heizer/Render/Munson text, so difficult?
  2. What are some other applications you can think of for this technology?

OM in the News: Is 3M’s Product Design Pipeline Hitting a Dry Spell?

We open Chapter 5 (Design of Goods and Services) noting that leading companies generate a substantial portion of their sales from products less than 5 years old. And The Wall Street Journal (Oct. 6, 2023)  reminds us that “the 20th century belonged to the unruly minds at 3M,” with 30% of their profits from new products. 

Some 3M adhesive products, including the Post-it Note, medical tape and industrial adhesives

What a great company. From its early days, 3M gave its researchers a long leash to chase ideas, many to dead-ends. The hits, though, were indelible: Scotch tape. Masking tape. Videotape. Post-it Notes. N95 masks. Artificial turf. Heart medication. 3M patented adhesives and abrasives. Proprietary coatings and films —materials at the heart of highway signs, weatherproof windows and stain-resistant clothing and carpets. Its optical film brightened the screens of millions of laptops, smartphones and flat-screen TVs.

But of late, there are fewer new products and fewer still have been blockbusters–and the company has retreated from its traditional 30% goal. For decades, 3M released a cascade of new items on the market, confident most would be profitable and a few would become indispensable.

3M’s innovation principles took shape more than a century ago under its then president, William McKnight, who believed in worker autonomy and initiative. “Mistakes will be made, but if the man is essentially right himself, I think the mistakes he makes are not so serious as the mistakes management makes if it is dictatorial,” he said. He instituted the McKnight principles, one of which allowed researchers to spend 15% of their time on projects unrelated to their everyday tasks—even if their managers disapproved.

The principles championed collaboration, encouraging researchers to share findings. The Post-it Note came about after scientist Art Fry, bedeviled by paper bookmarks falling out of his church hymnal, remembered a semi-sticky adhesive discussed at a company seminar. The product was an instant success after it hit stores in 1980.

Now, researchers are encouraged to pursue incremental improvements to existing products rather than novel, swing-for-the fences breakthroughs. A recent CEO installed “Six Sigma,” a regimen used at GE to measure and standardize business practices (see Chapter 6) but loathed by 3M researchers as a creativity killer. Further, budget cuts have trimmed 8,500 employees this year.

Classroom discussion questions:

  1. What do you think of the McKnight principles?
  2. Why are new products so important?

 

OM in the News: Apple’s Spectacular Failure

In seeking to build a key part for its new iPhones, Apple set out to design a chip that would allow it to cut ties with Qualcomm, a longtime supplier and bitter foe. But the new iPhone models just unveiled are missing a proprietary silicon chip that Apple had spent several years and billions of dollars trying to develop in time for the rollout, reports the Wall Street Journal (Sept. 25, 2023). 

Apple iPhone 15 Pro Max and a Qualcomm modem chip.

The 2018 marching orders from CEO Cook to design and build a modem chip—a part that connects iPhones to wireless carriers—led to the hiring of thousands of engineers. The goal was to sever Apple’s dependence on Qualcomm, which dominates the modem market. (Apple paid more than $7.2 billion to Qualcomm for chips last year). But recent tests found Apple’s chip was too slow and prone to overheating. And its circuit board was so big it would take up half an iPhone, making it unusable.

Apple hasn’t publicly acknowledged its modem project, much less its shortcomings.  Engineering teams working on Apple’s modem chip had been slowed by technical challenges, poor communication and managers split over designing the chips rather than buying them. Teams were siloed in separate groups across the globe. Bad news from engineers about delays or setbacks– leading to unrealistic goals and blown deadlines–were concealed.

Apple believed, first,  it could replicate the success of the microprocessor chips it designed for iPhones. Adoption of those chips fattened profit margins and improved performance for billions of devices. Second, Apple and Qualcomm had bickered and swapped accusations of lying and theft.

Apple had found that designing a microprocessor, a tiny computer to run software, was easy by comparison. Modem chips, which transmit and receive wireless data, must comply with strict connectivity standards to serve global wireless carriers. A brute force of thousands of engineers, a strategy successful for designing the computer of its smartphones and laptops, wasn’t enough to quickly produce a superior modem chip. Three years ago, Apple began replacing processor chips from Intel, used for years in Macs, with a proprietary chip that allowed its laptops to run faster and generate less heat. That Apple chip saved the company $75 to $150 on every computer.

Classroom discussion questions:

  1. Why was it harder to design a modem chip than a microprocessor chip?
  2. What did Apple do wrong?

Guest Post: Kraft Heinz’s Mission to Reduce, Recycle and Replace its Plastics Packaging

Dr. Misty Blessley is Associate Professor of Supply Chain Management at Temple U.

Kraft Heinz, the fifth largest food and beverage company in the world (founded in 2015 with the merger of Kraft Foods and H.J. Heinz companies), is on a mission to reduce, recycle and replace virgin plastics in their packaging, including their tomato ketchup bottles. In 1983, as did many firms at that time, Heinz introduced plastic bottles as the packaging of choice for its famous tomato ketchup distributed to the retail grocery channel.

Virgin plastic is newly produced plastic, and Heinz has a goal of eliminating 100 million pounds by 2030. This is a reduction of 20% when compared to their 2021 baseline. Kraft Heinz recently stated: “When deciding what packages to focus on, we first see if there’s an opportunity to remove any unneeded plastic, then we look for opportunities where we can reduce plastic weight, add recycled content, or replace plastics with other types of materials, while ensuring we do not compromise the product quality and [do] meet consumer expectations.”

Kraft Heinz was able to reduce plastic by simply removing the bag from some products and worked towards their recycling objective by swapping some virgin plastic with recyclable plastic. They are also replacing their plastic ketchup bottles with a paper-based bottle made of 100% sustainably sourced wood pulp. A prototype is currently being tested, for this first of its kind in the sauce category.

Rethinking the Ketchup bottle, Heinz teams with Pulpex to deliver paper-based packaging

The firm is partnering with Pulpex, a packaging technology company focused on delivering sustainability through renewable packaging. If the bottle in the photo looks new yet familiar, it is because Pulpex is innovating with Heinz’s iconic ketchup bottle, the same one seen on Heinz ketchup (at restaurants, as an image on foil packs and dip and squeeze packs, etc.) since 1876.

Classroom discussion questions:
1. Product decisions are fundamental to firm strategy and to competitive advantage (see pages 161 – 162 of your Heizer/Render/Munson OM text). Given the need for sustainability in operations and supply chain management, why and how has packaging become part of the product decision?
2. Why do you think Kraft Heinz and Pulpex both feel that familiar looking packaging is a customer expectation?

OM Podcast #4: Strategic Decision Making at McDonald’s

Welcome to our latest Operations management podcast! Today, Jay Heizer and Barry Render discuss the strategic decision making at McDonald’s that has made it such a successful company. We hope you enjoy hearing about some of the interesting operations advances that firm has made in its products (Chapter 5), processes and technology (Chapter 7). and layout (Chapter 9) to give it a competitive advantage.

 

And don’t forget to join us at the POMS meeting on May 22nd at 4:30 pm for a “meet the authors” ice cream social.

 

 

Instructors, assignable auto-graded exercises using this podcast are available in MyLab OM.  Contact your Pearson rep to learn more!  https://www.pearson.com/us/contact-us/find-your-rep.html

We will be slowing down our podcasts in the summer to one a month, so we will see you for our next podcast June 12th for a discussion about  NASCAR pit stops..

OM in the News: Ikea Tries to Shrink

IKEA is today the world’s biggest seller of furniture, with 460 mostly franchise-operated stores spread across 62 countries that carry some 9,500 products. Its price-conscious shoppers wonder: How does a nice chair cost only $35?

IKEA grew into a furniture behemoth with a relentless focus on keeping costs low, but that goal has become more challenging, writes The Wall Street Journal (April 26, 2023). The price of metal, glass, wood and plastic have spiraled up, as have shipping costs. Inflation has squeezed consumers’ wallets. IKEA knew that something had to change to keep prices down and profits up, so in the past couple of years they have taken some of their products back to the drawing board.

Designers experimented with ways to reduce IKEA’s reliance on wood to cut material and shipping costs. Lighter, less expensive plastics, they discovered, could be used instead in cabinet doors and drawers. IKEA’s wooden furniture has traditionally used veneer that is glued onto a main structure of particleboard. Particleboard is formed from compacted wood chips and sawdust, and is significantly less expensive than solid wood.

They learned that they could substitute less expensive recycled aluminum for zinc, which had doubled in price over two years to $4,371 per ton. Recycled aluminum is now going into bathroom hooks and other products. When they turned to packaging, they cut freight costs by purging flat packs of “fresh air and wasted space.”

For one of IKEA’s most popular office swivel chairs, the Flintan, smaller armrests and less steel and plastic in the back cut manufacturing costs. The new Flintan is the same size as its predecessor, but it’s much more efficient to ship after designers tweaked its components to make them fit more snugly into a flat pack. IKEA can now squeeze 6,900 Flintans into one shipping container, up from 2,750.

Designers likewise reworked the Säbövik bed, by changing the construction of its wooden frame. It was previously made of two thin layers of wood glued together. IKEA settled on a less expensive and lighter combination of solid wood, plywood and a compressed structure of wood strands and glue. The Säbövik used to come flat-packed in 3 cardboard boxes, but now fits into just 2 more compact boxes, enabling the company to cram twice as many flat-packed beds into a shipping container.

Classroom discussion questions:

  1. What is IKEA’s competitive advantage? (See  Chapters 2 and 5 in your Heizer/Render/Munson text).
  2. Is there a downside in the product redesigns such as the ones noted above?

OM in the News: The Life Cycle of the Netflix DVD

“Products are born. They live and they die. They are cast aside by a changing society,” we write in Chapter 5 (Design of Goods and Services, on page 162). And so it is with Netflix DVDs. The headline in The Wall Street Journal (April 21, 2023) reads “Netflix is Mailing its Last DVD, The Die-Hards are in Mourning.”

Netflix said it would close the DVD-rental business it was built upon after shipping more than 5.2 billion discs in 25 years. Viewer tastes—and Netflix’s core revenue pool—have shifted to streaming. Many movie buffs and DVD die-hards have clung to the Netflix DVD service even after others decided discs were too cumbersome. Subscribers say they like the service because Netflix has a bigger catalog of older films than they can find on any streaming platform.

When Netflix first started mailing DVDs, it was a revolutionary alternative that saved subscribers a trip to video rental stores like Blockbuster or Hollywood Video. Subscribers can choose up to three movies or TV shows at a time, and the company sends those discs in the mail.

Netflix has known since 2009 that its DVD business would go the way of other aging technologies as broadband internet access became faster and more affordable. The company began investing more in original streaming content than in new DVDs. That strategy paid off. Netflix’s streaming service ended the first quarter with more than 232 million subscribers. (It had 40 million DVD subscribers over its lifetime).

Netflix didn’t say what it plans to do with its disc catalog after it mails its final DVD in September. Subscribers need to send back their last discs by Oct. 27. Figure 5.2 in your Heizer/Render/Munson text illustrates the sales, cost, profit, and loss in a life cycle such as this.

Classroom discussion questions:

  1. Describe the 4 phases of this product’s life cycle.
  2. Name three other products and identify the phase each is in.

OM in the News: The Fast Food Revolution

McDonald’s has a new Texas restaurant with no tables or seats or bathrooms for customers and a conveyor belt that routes food to drivers who order ahead. Chipotle also offers no place for customers to sit inside an Ohio restaurant that only takes digital orders. Taco Bell is evaluating a new design that features 4 drive-through lanes, double the typical two. Starbucks,  which long described itself as a “third place” for customers to gather after home and work, plans to add 400 U.S. stores with only delivery or pickup service in the next 3 years.

Taco Bell is testing a 4-lane drive through in Minnesota

America’s biggest restaurant companies made a bet during the pandemic that you would rather eat the food cooked on their premises someplace else. Now they are gambling you will want to do so for years to come. The strategy from these giant chains is to orient their operations around drive-throughs and online ordering while testing new restaurant concepts that only serve food to go, reports The Wall Street Journal (Jan.28-29, 2023). They say these designs will make them more profitable and efficient since restaurants that bring fewer customers inside cost less to build, maintain and staff.

Of all orders placed at U.S. fast-food restaurants in 2022, 85% were taken to go. That is down from a high of 90% during 2020 but up from 76% prepandemic. Among full-service restaurants, 33% of orders were to go in 2022— double prepandemic rates.

The concept of taking food and beverages to go took root in the years after World War II, as Americans embraced an automobile culture. In the 1970s the industry fully bought into the to-go idea. Wendy’s introduced its “pick-up” window in 1970, with the first McDonald’s drive-through in 1975. (90% of McDonald’s business is now drive-through).

The most distinctive feature of the new McDonald’s in Texas is an automated delivery system for customers who order ahead on an app. When you pull up to the window in the “order ahead” lane, a conveyor delivers your food with help from a robotic arm that pushes the bag out to the waiting car. Starbucks’ CEO has acknowledged its cafes now are often clogged with pick-up, drive-through, delivery and cafe orders all at once. The result: long lines and frustrated customers.  His plan is 700 more U.S. stores in the next 3 years with drive-throughs as the primary means of sales.

Classroom discussion questions:

  1. What operations issues will management face with this revised concept?
  2. What dangers are there in making such changes? Consider a SWOT analysis as in Chapter 2.