OM in the News: Is Wal-Mart’s Sustainability Index Sustainable?

Two years ago, Wal-Mart CEO Mike Duke dropped a bomb on the retailing world when he announced that his firm would be creating a “sustainability index” to measure the environmental and social impact of every product sold in its stores. Wal-Mart had not suddenly turned green (see our blog of  May 17, 2011 )–it turns out that a vast amount of money is to be made by reducing energy and waste up and down the supply chain. Duke’s message suppliers was clear: “Treat the planet well and get prime access to its 200 million customers each week; pollute and despoil, and you will be shunned”.

But as Fortune (July 25, 2011) reports, Wal- Mart had no idea how hard the job of creating the index would be.  Five million dollars into the project, it has only examined 7 products closely so far. The trouble with a scoring system (and others have tried it), is that in the end consumption is about trade-offs. How much phosphate was used to make a laundry detergent? How much waste was generated by the zipper factory in China? Is soil erosion less important than carbon emissions? A company may get high marks for recyclable packaging, but Stonyfield reduced its carbon footprint by switching to yogurt cups that aren’t recycled. (Cups made from plants, it turns out, generate fewer greenhouse gasses than recycled plastic ones). And Patagonia’s switch to organic cotton for jeans (from synthetic fabrics) now requires 1,200 gallons of water to manufacture a single pair!

Many companies in the developing world don’t even recognize the words “corporate sustainability policy”. Hank Paulson says he asked the manager of a Chinese factory about the belching smoke pouring out of his plant. The response: “See those two camels and a goat? When they fall over from pollution, we turn off the factory”.

Discussion questions:

1. Why is the index so hard to create?

2. Name some products with trade-offs that would impact their score.

OM in the News: That’s One Gigantic Shoe Warehouse

One of the largest warehouses in the US is about to open its doors in a new 1.82-million-sq. ft. building near the Port of Los Angeles. Skechers USA, Inc., the nation’s no.2 footware company chose the area because,  in the world of international trade, Southern California remains the hub of choice. The Los Angeles Times (July 1, 2011) points out that the LA/Long Beach  Port  is the highest rated cargo movement region in the US in terms of container counts, rail connections, and infrastructure. Skechers needs the space to handle all the containers of shoes made in China by its contract manufacturers (the firm keeps 300 staff there just to stay on top of the contractors).

How big is the new $1/4 billion distribution center? First, it takes 1/2 minute to drive from one end to another at 60 mph. It’s 2,900 feet long and 700 feet wide, enough to hold 40 football fields. It’s the size of 17 Wal-Marts. There are 270 truck bays. But more importantly, it will replace 6 smaller warehouses. In the old system, workers had to handle shoes 3 times as they moved from building to building, adding costs, including the wages of truck drivers. “Now”, says the COO, “no one will have to touch it to do the same amount of work”.  Instead of  “7,000 pairs of shoes an hour, with the new warehouse, we’re expecting to be able to move 18,000-20,000 pairs of shoes every hour”. In effect, the move allows Skechers to get out of the trucking business.

At the LEEDS-certified warehouse, conveyor belts  which are programmed and pressure sensitive will move the shoes and prevent product pile up, which happens with traditional belts. Storage racks are operated by robots that pick up the boxes and bring them to the desired locations.

Discussion questions:

1. What are the advantages and disadvantages of such a massive distribution center?

2. Why is proximity to West Coast ports become important to logistics?

OM in the News: Disney Service Quality Spreads to Medicine

Disney has been long respected for excellent customer service and for treating its “guests” with the personal touch that improves the theme park visit. Disney’s “on-stage” and “off-stage” approach to separating public and private areas is well-known, with “cast members” (employees) always maintaining a magic image to the public. The Orlando Sentinel (July 16, 2011) now reports that Disney has designed a program for health-care professionals to assure that patients are as satisfied with a trip to the hospital or doctor’s office as they are with a trip to the theme park.

For $3,500 each, health-care workers spend  3 1/2 days at Disney, learning to pay closer attention to the patient experience. “Oftentimes in health care, the patient in the bed is almost secondary”, says a consultant. “Everyone comes in looking at their task instead of the patient”.

When Disney worked with Florida Hospital to open a new children’s pavilion a few months ago, the plan includes simplified name tags, new uniforms, a ban on cell phones, greeting patients with a smile, and kneeling down to talk to children at eye level. (Our Table 6.5 in the Managing Quality chapter relates to these “determinants of service quality”).

“By exceeding expectations, doctors can attract new clients through referrals from satisfied patients”, says Dr. Chris Smith, a S. Carolina family doctor who attended the Disney program. At Smith’s office, the receptionist is now a “greeter”. And he has established off-stage private break rooms for staff to relax, vent, or do things a patient should not see. Just like other industries, doctors are learning that every service activity matters.

Discussion questions:

1. Ask students to describe a positive and a negative medical service experience.

2.  What other quality tools can medical professionals employ from non-medical fields?

OM in the News (with Video Tip): 3-D Printing of Body Organs and Concrete Buildings?

It was just July 7 when we blogged about a 3-D printer creating a crescent wrench as strong as the original. That blog was  accompanied by a short video showing the process from start to finish–one certain to entertain your class. But today’s Wall Street Journal (July 16-17,2011) has raised the 3-D printing bar potential way beyond plumbing tools. With the title,  “How Close Are We to Printing New Organs?”, the Journal describes how a whole dummy kidney made of biocompatible materials and cells, was “printed” on stage at a TED talk a few months ago. With about 90% of patients needing a transplanted organ seeking a kidney, being able to create a “self-derived” kidney would save many lives and spare people the expense and pain of dialysis.

Such “printed” kidneys that would be able to work in the body (they are structural, but lack blood vessels) are still years away, but the rate of advance means the 1st autologous transplant may still happen this decade.  Already, synthetic windpipes, grown with a patient’s own cells, are being transplanted. (The windpipe of the patient is scanned, molded from a porous medical plastic, and infused with cells from the patient in a bioreactor).

And the concrete in our blog  title?  Here is a 3-minute video of a concrete structure being built by a grander and rougher  3-D printer at a British university. The architect makes the design, after which the printer extrudes concrete from a nozzle to build up the object, layer by layer. Printed concrete products are proving to be stronger than the cast ones. They also have the advantage of a hollow interior through which a building’s wires and pipes can be run. And the ducts in the concrete parts look uncannily like blood vessels needed in the 3-D kidneys.  Pretty exciting advances in OM technology!

Discussion questions:

1. Why is 3-D printing, which has been around for a decade, now becoming such an important tool?

2. Ask students to research the costs of 3-D printers.

OM in the News: Service Quality vs. Maintenance Time at Disney World

You might not think that maintenance of  Walt Disney World’s monorail line in Orlando would be a controversial topic (see Ch.17). But the Orlando Sentinel (July 12, 2011) reports that plans to give maintenance crews more time to work on the aging system are certain to anger Disney’s premium-paying hotel guests. Disney had previously kept its trains running until at least 1 1/2 hours after theme parks closed.  Now service will shut down 1 hour after normal closing hours.

The beef is that guests who stay at these hotels on Disney property have “late night privileges”. This means the parks will stay open for them–and not for regular guests–  as late as 3 am and then reopen at 7 am. But Disney says that trains take 90 minutes to “cycle down” and another 90 to “cycle up” the next  morning, leaving only 1 hour of downtime for maintenance.

Reliability has suffered in recent years, perhaps because of the limited repair time. In 2009, the monorail system lost power at 1 am and it took Disney’s crews 3 hours to unload the weary passengers. “It’s been pretty obvious that transportation maintenance is one of the areas they cut back on during the recession”, says the popular website  Disney Blog. The blog also predicts Disney will suffer a backlash from guests staying at the most expensive hotels on the property, since they are the ones who “expect the most preferential treatment”.

Discussion questions:

1. Discuss the tradeoff between customer service and the need for more maintenance time.

2. What else can Disney do to deal with the problem?

OM in the News: Technology Puts the Brakes on Truckers

Who doesn’t remember the romantic age of the US trucking industry? Powered by cheap diesel, drivers could do pretty much as they pleased on the open road. The days of open-throttles were made famous by Bert Reynolds’ 1977 movie, “Smokey and the Bandit”. Using his CB radio to skirt police traps, the  hero shreds speed limits on a cross-country beer run. Well, those days are gone.

The Wall Street Journal’s article (July 11,2011), “Firms Put Brakes on Truckers”, describes the technology trucking companies are using to wring better fuel economy from their fleets.  Firms are putting computerized governors on trucks’ engines, cutting top speeds from 70 mph to 65 mph. Titan Transfer is even paying bonuses to drivers who get the best fuel economy–and chewing out drivers who don’t. Every decline of 5 mph improves an 18-wheeler’s fuel use by 1/2 mile per gallon–big savings to the shippers.

Today, a driver’s every move is electronically recorded and relayed back to dispatch centers. The black box in the cab is wired to a satellite dish near the roof that beams the truck’s location, its speed, and even what gear it’s in back to the company in real-time. When one driver tried to shift into neutral going down a hill, to override the truck’s governor, a red light immediately flashed telling him to pull over and call HQ for a tongue-lashing.

Drivers, understandably, are not happy about covering less distance each day, as they are paid by the mile. This cuts take-home pay and makes the old-time,  cross-country run stretch from 3 days (at 80 mph) to 4 or 5 days. But even some reluctant drivers agree that 65 mph saves not only fuel, but lives.

Discussion questions:

1. What are other ways that technology can help make the trucking industry more efficient?

2. Make the case, from the driver’s perspective, why the changes are not efficient.

OM in the News: NASA’s Last Space Shuttle Launch

When the final Space Shuttle launch took place on July 8th, an era of tragedy and triumph that dominated space travel for a generation drew to a close.  I worked at NASA headquarters in the late 1970’s during the planning for the 1981 inaugural launch of Columbia, and always followed the program closely–to this day I can watch every launch from my backyard in Central Florida!  In 1982, Prof. Paul Meising (SUNY-Albany) and I published  four OM-related cases about the Shuttle, which appeared in earlier editions of the Heizer-Render OM text.  They dealt with Shuttle  reliability (Ch.17), astronaut assignment (Ch.15), forecasting demand (Ch.4), and ordering external tanks (Ch.12).

Looking back on the Shuttle program 30 years and 135 missions later, several facts stand out. First, with a 98% reliability rate (Rs=.98), one would  expect a major  problem every 50 launches. And indeed, with the explosions of Challenger in 1986 and Columbia in 2003, NASA was almost statistically due for a 3rd disaster. The Wall Street Journal (July 9-10, 2011) quotes Duke space historian Roger Launius as follows: “It was a magnificent failure. It was the most technologically sophisticated launch vehicle ever, but it never made human spaceflight safe, reliable, or economical”.

Launius was correct.  Our 1979 forecasts at NASA for 500 flights within the 1st decade–basically a launch a week starting in 1986–were off by 90%. Our pricing structure assumed that private companies, foreign governments, and the Defense Dept. would cover all the bills as  full-paying customers. We budgeted each launch at $15 million, when in reality the average cost rose to $1.5 billion–100 times the promised price.  Now, as the Russians are charging us $20-30 million per seat to ride to the Space Station, a piece of American history draws to a close.

Discussion questions:

1. Was the Shuttle program a success overall?

2. Why did the program never reach its budget and schedule targets?

OM in the News: How Operations Management is Helping United and Continental Merge

The “productivity challenge”  that we discuss in Chapter 1 comes to the forefront in the merger last October of two mega air carriers, United and Continental. Now the world’s largest airline (with more frequent flyer members than France has citizens), United Continental has turned to OM to lead the integration efforts. Shaving a half-cent off per-mile operating costs can boost profits by $260 million per quarter–something Wall Street was promised with the merger.

Businessweek (July 4-11, 2011) reports how “33 integration teams are making thousands of decisions, ranging from the fastest way to clean 1,260 airplanes and board passengers to which perks to offer in the frequent-flier program“. Most of the decisions are OM-related and team members come from technology, labor, fleet management, and network planning. In technology alone, the carriers have 1,400 separate systems, programs, and protocols. (Continental had 600 programs for tasks such as crew scheduling, dispatching planes, and managing cargo, while United had 800).

Economies of scale favor big airlines, but mismatches complicate every detail. Workers, for example, come from different labor unions with dissimilar work rules. United has 1st class cabins, while Continental has just business and coach. And history has not been kind. Pilots and flight attendants at US Airways (the merger of US Air and America West) are still operating under separate contracts with different pay, schedules, and work rules–6 years after their marriage!  Delta has been bogged down in a labor dispute over pay and work rules since its merger with Northwest in 2008.

That’s why United Continental execs are so focused on the minutiae of the operations integration. “It’s not important how many things come from United and how many from Continental”, says the VP-Integration Management. “Keep the emotions out of it and don’t keep score”.

Discussion questions:

1. Why does OM drive a successful airline merger?

2. Why have other mergers run into problems?

Video Tip: Bringing 3-D Printing to Life in the Classroom

Computer Aided Design (CAD) and 3-D Printing may not be the most exciting topics in the Design of Goods and Services chapter (Ch.5), but after you show this 4-minute video clip, there will be a definite uptick in class discussion. Our photo of a 3-D  printer just can’t do justice to the amazing work going on in this rapidly advancing area of OM. So when Prof. Bruce Elwell showed me the video we link to here, I knew it’s something important to share in the blog.

I recommend that you bring a crescent wrench with you to class to bring home the product and its design. Pass it around while the video plays so your students can get a better feel for the tool. And if you would like more background on 3-D printers, take a look at the blog we did on the subject a few months ago. It was based on a major article in The Economist in Feb., 2011.

OM in the News: Pilots and the iPad–Efficiency in the Airlines, Part 2

Yesterday’s blog was on building efficient airplanes that weigh less and pollute less. With jet fuel  prices at near record high prices, we noted that every pound lighter a plane can be made saves 30 gallons of fuel a year. It’s interesting that the very next day, The New York Times (July 5, 2011) reported that 1.5 pound iPads are replacing 60 pounds worth of   flight manuals that pilots currently drag around.  The FAA has started to authorize airlines to use the tablet computer as an electronic flight bag to take the place of bulky paper manuals that contain operations instructions, checklists, log books, navigation charts, weather information and airport diagrams.

The flight director at Alaska Airlines says: “The iPad allows pilots to quickly and nimbly access information. When you need to make a decision in the cockpit, 3 to 4 minutes fumbling with paper is an eternity”.  Every one of Alaska’s pilots is now using the device — and  American Airlines, which just got FAA approval, is not far behind. The e-manuals include hyperlinks and color graphics. And pilots skip the tedium of updating manuals by swapping out old pages with new ones. Switching to the iPad is also expected to reduce absenteeism from shoulder and back injuries associated with hoisting the heavy bags (which also tear up the seats, according to one AA pilot).

There are now over 250 aviation apps for the iPad, including some that are easier to use than avionics technology installed in the planes. As we discuss in Ch.7, technology can play a major role in increasing operational efficiency. With American’s fleet at about 620 planes, the airline stands to save over 1 million gallons of fuel per year just with the iPads!

Discussion questions:

1. How else does technology save the airlines time and money?

2. Can the iPads be used when the plane is in flight?

OM in the News: Making Airplanes More Efficient

With airlines hemorrhaging billions of dollars a year, largely because of soaring oil prices and environmental regulations, building more efficient jets has become Boeing and Airbus’s biggest OM challenge. Pressured by airline execs,  manufacturers  have already begun making lighter planes to reduce fuel consumption. In 1980, for example, it took 46 gallons of fuel to fly a passenger 1,000 miles. Today it is down to 22 gallons–and could drop to 18 within a decade. Still, a decade ago, fuel accounted for 15% of an airline’s budget. Today, it’s 35%. And airlines worldwide may have to spend an extra $3.3 billion a year to meet new E.U. carbon dioxide restrictions on planes flying into Europe.

So when we talk about product design and sustainability considerations in Ch.5, airline OM managers are desperate for any improvements that can reduce weight and emissions. The Miami Herald (July 4, 2011) reports on some the efficiency gains that were dreams just a few years ago. Both the Boeing 787 and Airbus A350 are new long-range jets with 1/2 their bodies made of carbon-fiber composites (which weigh 20% less than traditional aluminum alloys). Engine manufacturers are unveiling brand new engines for single-aisle planes (which are 75% of the 22,000 jets worldwide)  that promise to cut fuel use by 15% (or $1 million per plane per year).

The Herald also lists more ways to save on fuel: (1)  a satellite-based air traffic control system (several years away) that could cut fuel use by 12%; (2) “winglets” added to the tip of each wing to prevent drag; (3) carrying less weight in the plane– (American is replacing 19,000 catering carts with ones that weigh 16 lbs. less. Southwest is looking at lighter weight seat covers, while Jet Blue is using thinner seats. Every pound saves 30 gallons of fuel/year); and (4), replacing older jets faster (American is replacing aging MD80s with 737 that use 35% less fuel).

Discussion questions:

1. Why is efficiency a product design issue?

2. What other changes can be made to improve operational efficiency?

Good OM Reading: What Really Happened to Toyota?

Consumers in the US were surprised in Oct., 2009, by the 1st of a series of highly publicized recalls of Toyota vehicles. It began with 3.8 million cars brought back  for uncontrolled acceleration. Over the next 4 months, 3.4 million more  recalls followed for gas pedal and software glitches. Then from Feb.-Aug., 2010, 13 more recalls followed. Just as things seemed to be settling down, 2 more recalls were announced in Jan.-Feb., 2011. The total had now reached 20 million vehicles!

How could this happen to the company that shaped the modern approach to quality improvement, asks UC-Berkeley Prof. Robert Cole  in his excellent article in MIT Sloan Management Review (Summer, 2011). Had auto execs all over the world “been chasing after the wrong manufacturing model”? And to what extent did the problems originate with product design and assembly and to what extent to Toyota’s manufacturing systems?

One factor Cole found was a “reverse halo effect”. Toyota buyers in 2010 had heard a barrage of negative news and became far less forgiving about minor quality flaws than previous owners. A 2nd factor was that competitors’ products were improving to the point that Toyota didn’t look as outstanding by comparison as it had in the past.

Cole’s analysis found 2 root causes for Toyota’s problems: (1)management’s ambitious plans for rapid growth (which did not focus on quality issues already arising), and (2) the increasing complexity of the actual auto product.

I think this is an article that you will enjoy reading and that you will be able to use in your OM class.

OM in the News: If China is Too Expensive, Should We Locate in Vietnam ?

With China’s minimum wage at $170 a month, and rising steadily, the decision where to locate a manufacturing plant is not as clear as it was a decade ago. We discuss this issue in Chapter 8, Location Strategies, and see that low labor cost is a major factor in country selection.  The latest Businessweek (June 23-30, 2011) reports that Vietnam, until recently the low-cost alternative to China (with a minimum wage of $85 a month), was a very attractive choice. But with 20% inflation, stoked by fuel and electricity costs, multinationals are beginning to turn away in search of yet cheaper outsourcing sites. The problem is labor strikes–336 in the 1st four months of 2011–due to Vietnamese workers who say they can’t afford the higher cost of living.

Multinationals do not have to look far away–and they are turning in increasing numbers to Laos and Cambodia, the new Vietnams of cheap manufacturing. Last month, Japan’s Minebea  broke ground for a new 5,000 worker motor production plant in  Phnom Penh. “Labor is the key focus for us in choosing Cambodia”, says the company spokesman. And Srithai Superware, a Thai tableware maker, just suspended plans for an expansion of its Vietnam plant because of  economic instability. “Production costs have gone up after two salary increase this year”, says the GM.

The strikes have dented Vietnam’s 25-year-old policy of offering foreign firms a stable and low-cost workforce . “The nation is at a crossroads”, says the World Bank’s director for the country. “Vietnam can’t assume that foreign direct investment will continue. Money can go elsewhere”.

Discussion questions:

1. If manufacturers decide China is too expensive and Vietnam is in danger of following suit, how can they predict where to outsource to?

2. What other  critical factors influence the country location decision?

OM in the News: Universities Turning to Outsourced Profs–Can it Be?

When I used to teach the topic of outsourcing (Ch.2) in my OM class, I would always joke with the students, saying ” the one job that can never be outsourced is mine”! Oh, oh. USA Today’s headline (June 29,2011), “Universities Turn to Outsourced Instructors” turns the joke around. It turns out the Missouri State University, Florida Atlantic U., Lamar U., and others are having classes taught by teachers not on the university payroll.

The article opens with this line: “This fall, when students of Missouri State take an introductory journalism class, they’ll have some of the most qualified teachers in the field”. The instructors, however, work for Poynter Institute, which supplies the university with teachers for the class via the internet. Virtually unheard of a decade ago, instructional outsourcing is sprouting on campuses nationwide. Lamar U., for example, has outsourced some online graduate programs since 2007. Enrolments in two masters degree programs in education reached 4,100 students, higher than the total of all students at the Beaumont, Texas, school. It moved Lamar’s Graduate College of Education from  211th  in the US to 7th in just 18 months.  “Financially , it’s been very good for Lamar”, according to a spokesman.

Here are the 2 views: Proponents see outsourcing as another innovative way to cut costs, access bigger markets , and add expertise to classrooms.The department chair at Missouri State says the outsourcing brings educators who “are likely to have superior credentials than would a per-course instructor hired from the local pool”.

Opponents say outsourcing threatens faculty jobs, diminishes interaction between students and profs, and can turn colleges into diploma mills. They are skeptical of the content and quality of such classes and of turning instruction over to an out-of-town company.

Discussion questions:

1. Do your students think this “innovative” way of  looking beyond traditional boundaries is a good idea? Why or why not?

2. Compare the concept in the article to the outsourcing of legal, IT,  or engineering work.

OM in the News: China’s Newest Exports–Bridges for California and Workers for the Bahamas

China’s role as an exporter is not exactly a news item, but two articles caught my eye this week that are worth discussing in your OM class. In the first, The New York Times (June 26, 2011) tells of how California decided to by-pass the U.S. “Buy American” program to have the new San Francisco-Oakland Bay Bridge built in China and shipped here in massive pieces. The Times writes: “The project is part of China’s continual move up the global economic value chain–from cheap toys to Apple iPads to commercials jets–as it aims to become the world’s civil engineer”.  Based on the reputation of showcase projects like the Beijing Olympic-sized airport terminal and the mammoth hydroelectric Three Gorges Dam, Chinese companies have been hired to build copper mines in the Congo, high-speed rail lines in Brazil, and huge apartment complexes in Saudi Arabia.

So it shouldn’t have come as a big surprise to find out that China is about to build the largest resort in the Caribbean, in Nassau, Bahamas, to challenge the huge Atlantis Hotel head-on. The surprise, however, was the uniformly negative  reaction from every Bahamian I met, 3 weeks ago while on vacation, to the project’s construction. The Miami Herald’s report  that China would be sending 5,000 of its own workers to build the $3.4 billion, 2,250 room Baha Mar hotel and casino resort did not please locals –or the U.S. government. Hotel execs are cognizant of the negative message they will send to tourists, as well as the Bahamian citizens, by maintaining a work camp for thousands of Chinese laborers in a highly visible and affluent section of town. But the Chinese government insisted on Chinese workers– or there would be no financing. The Bahamas wanted another tourist draw and reluctantly agreed.

Discussion questions:

1. “He who has the gold, makes the rules” seems to apply in the hotel case. Do students agree?

2. Why did California opt for a Chinese bridge?