OM in the News: The Green Transition Challenge

Copper is the new lithium, writes The Wall Street Journal (April 19, 2023). But a lack of new mining activity has added to worries that there won’t be enough of the red metal for the energy transition to electric vehicles.

Sheets of copper cathode at a mine in Chile.

Copper is used in wiring and construction as well as EVs, solar panels and other green technologies. Electrification is expected to increase annual copper demand to over 36 million metric tons by 2031, with supply forecast to be around 30 million tons, creating at least a 6 million ton shortfall at the start of the next decade. In 2021, refined copper demand stood at 25 million tons.

South America currently dominates copper production and Chile is the largest mined producer. Increasing mine output has proved a challenge, warning of a serious supply shortfall over the next decade. Some projects are coming online in Peru and in Chile, which will add incremental supply, but there is little in terms of pipeline for the long run. Copper metal exports from Congo and Zambia, the two other sources, totaled 2.3 million tons in 2022, up slightly from 2021, but less than half of Chile’s output.

“There’s a narrative around resource scarcity and the green transition with EVs and renewables as well as the build-out of electricity grids. On paper it’s quite a substantial supply gap opening up over the next 10 years,” says an industry expert. And there is no slack in the system.

“Green” uses of copper now account for about 4% of consumption, but this is expected to rise to 17% by 2030. A “net-zero emissions” path would mean the world would need an additional 54% of copper by 2030 on top of that forecast. EVs cannot take off before the charging infrastructure is set, and the necessary electrification is very copper intensive. Copper features heavily in energy transition proposals.

Sales of electric cars in 2022 in creased 55% over 2021 to bring the total number of EVs in the world to around 26 million. That means the EV-charging ecosystem will have to be significantly ramped up.

Classroom discussion questions:

  1. Why is this an OM issue?
  2. What might be done to solve the problem?

Guest Post: Operations at a Public Transit Authority

Professor Howard Weiss, recently retired from Temple U., shares his insights with us monthly.

The Southeast Pennsylvania Transit Authority (SEPTA) is responsible for the buses, trains and trolleys in Philadelphia and its suburbs. There are several operations issues that can be seen in SEPTA’s decision to replace trolleys manufactured in the 1980s with new trolleys.

Capacity: SEPTA is purchasing 130 streetcars. The new trolleys will be 80 feet long as compared with the current trolleys which are 53 feet long. This will increase the seating capacity of each trolley to 44 and yield a total capacity of 120 passengers including standing. The current trolleys can carry half as many passengers. (Supp.7 of your Heizer/Render/Munson text)

Project Management: The first trolleys will be completed in 2027 and the last of the new trolleys will be completed by 2032. (Ch. 3)

Quantity Discount: Each of the 130 cars will cost roughly $5.5 million. SEPTA has the option to purchase 30 additional trolleys at roughly $5 million dollars apiece. (Ch. 12)

Suppliers: A recent blog discussed the change in focus from global suppliers to regional and national suppliers. As an example, SEPTA is using a New York company to build the new trolleys. The previous trolleys were built in Japan. (Ch. 11)

Product Design: In the current trolleys, riders must climb four steps to get in. The new ones will be more accessible by having low floors and ramp extensions. In addition, the aisles will be wider than current aisles in order to make it easier to maneuver wheelchairs, bikes and strollers. (Ch. 5)

Standardization: Chapter 1 notes that Eli Whitney popularized interchangeable parts. In the 1930s a group of executives from American streetcar companies developed a standard design for trolleys.

Service Life Cycle: In its mature stage of the life cycle in the 1980s, trolleys covered 69 miles in Philadelphia. In the current decline stage, trolleys currently cover only 40 miles. These 40 miles are still more than any other U.S. city. (Ch.2)

Service Processes: The new design of the trolleys will require SEPTA to rebuild the boarding platforms for the trolleys and make other adjustments to the infrastructure. (Ch. 7)

Facility Location: SEPTA needs a new trolley barn for the new trolleys. SEPTA is planning to repurpose a facility. It had lost out to Amazon on a bid for a former GE plant, but is hoping to acquire a different industrial property. (Ch. 8)

History: In addition to purchasing the new trolleys, SEPTA is refurbishing 18 trolleys originally built in 1947 in order to keep a link to Philadelphia history.

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

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

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

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

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

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

Classroom discussion questions:

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

OM in the News: Retailers Make Big Bets on Tiny RFID Chips

A customer uses the RFID-based self checkout system at the Uniqlo store in New York

At all Uniqlo’s stores in the U.S. and Canada, shoppers can checkout simply by placing their goods in bins of automated stations. Unlike the self-checkout process at many stores, customers of the casual apparel retailer don’t need to scan individual items or look up prices on a screen—they can simply drop their items in a bin and pay.

This next-generation process is powered by radio frequency identification readers inside the checkout machines, which automatically read hidden RFID chips embedded in price tags. Uniqlo (Asia’s top clothing retailer) embeds these chips into their price tags—allowing it to track individual items from its factories to warehouses and inside stores. That data is critical for Uniqlo in improving the accuracy of inventory in stores, adjusting production based on demand, and getting more visibility into its supply chain, reports The Wall Street Journal (April 8, 2023).

Newer and cheaper RFID chips, reader hardware, and software are enabling retailers to implement the technology at lower cost and with more precision.  The cost of RFID tags has fallen from 60 cents a tag a few decades ago to 4 cents a tag, and reader hardware has improved in range and accuracy.

An article of clothing in the self-checkout system.

RFID has resulted in significant reduction in out-of-stock items on the Uniqlo sales floor, and has contributed to improving customer satisfaction. While the most common use for RFID is improving inventory management (a topic we address on page 496 in Chapter 12), the use of RFID at self-checkout machines is gaining traction as more apparel retailers explore ways to apply the technology once their merchandise has been tagged. Most apparel brands plan to implement RFID this year or next.

The unique benefit of an RFID-based checkout system is that it is faster and more accurate than barcode-based self-checkout machines. Many retailers still rely on printed bar codes, which require manual scanning and are more limited in the data they carry.  Since Uniqlo rolled out the machines, customers have reduced their wait time at checkout by 50%. Computer vision (see page 291 in Chapter 7), a form of artificial intelligence that analyzes images, is still too expensive for widespread use for self-checkout and inventory management.

Classroom discussion questions:

  1. How does RFID work? What are its strengths and limitations?
  2. Why is RFID implementation speeding up at retailers?

OM Podcast #2: How Does Blockchain Work?

Welcome to our second Operations management podcast! Today, Jay Heizer and Barry Render delve into the topic of blockchain, which is a topic in Chapter 11, Supply Chain Management. We will talk about its cryptocurrency origins and the work of Gerber, Nestle, Unilever, Walmart, and IBM to create a blockchain system called Food Trust. We also discuss blockchain’s shortcomings and how both shipping giant Maersk and retail giant Walmart have had to cut back on their original goals dramatically.

 

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

See you every two weeks in our new podcast series. Next up, on April 24th, is a discussion about the formidable task of managing large projects, which ties into Chapter 3 of our OM text.

OM in the News: ‘War of the States’ and Lavish EV and Chip Maker Subsidies

States have long competed for big employers, writes The Business Journal (April 2, 2023). But now they are floating more billion-dollar offers and offering record-high subsidies, lavishing companies with grants and low-interest loans, municipal road improvements, and breaks on taxes, real estate, power and water.

“We’re in the second war of the states,” said one site selection consultant. “It is kind of a Wild West moment. It’s wild money and every state seems to be in on it,” added a U. of Texas professor. Georgia, Kansas, Michigan, New York, North Carolina, Ohio and Texas have made billion-dollar pledges for a microchip or EV plant, with more state-subsidized plant announcements by profitable automakers and semiconductor giants surely to come.

2022 set a record for the number of billion-dollar-plus incentive deals. At least eight were finalized, though that figure might be higher since such deals can be cloaked in secrecy and take time to come to light. More than $20 billion in public money was committed to subsidizing those known megadeals.

The subsidy offers are generally embraced by politicians from both major parties and the business elite, who point to promises of hundreds or thousands of jobs, massive investments in construction and equipment, and what they contend are immeasurable trickle-down benefits.

Still, academics who study such subsidies find them to be a waste of money and rarely decisive in a company’s choice of location. Studies conclude “they do little, if anything, to promote meaningful improvements in economic outcomes.”

The mounting cost of competing for the projects hasn’t dissuaded states from trying. On the contrary, they’re clambering to outdo each other. Michigan was stung by hometown Ford’s $11 billion commitment in 2021 to build EV and battery plants in Tennessee and Kentucky. It responded by pledging more than $2.5 billion for EV projects by Ford and GM and plants by makers of EV batteries and battery components. Pennsylvania has yet to lure a microchip or EV factory, and the state is sounding the alarm after watching neighboring Ohio land a $20 billion Intel plant. Texas promised to win passage of “economic development tools,” saying the state lost out on a massive Micron semiconductor plant because it couldn’t match the $5.5 billion in tax credits offered by New York.

Classroom discussion questions:

  1. Financial incentives are just one aspect of location decisions. What other factors (a topic in Chapter 8 in your text) do firms consider?
  2. What is driving the massive incentives states are offering?

OM in the News: Retailers Tackle Cardboard Overload

The days of tiny online orders shipping to customers in oversized boxes are a step closer to becoming a thing of the past, writes The Wall Street Journal (April 4, 2023).

Big retailers are rolling out machines in their e-commerce distribution operations that make packages sized specifically to fit the items being shipped, potentially reining in some of the big volumes of cardboard generated as online shopping has grown.

Walmart is using machines from packaging-technology company Packsize that take dimensions needed to ship an item, then cut, crease and glue corrugated cardboard to make custom boxes. The machines then label and seal the packages.

Walmart said it has installed machines that churn out custom boxes at 12 of its fulfillment centers, and plans to add the technology to more. It has been able to cut down the amount of cardboard and filler material it uses per order by making individual boxes.

Amazon has also been increasing its use of made-to-fit packaging to ship items from books to shoes. It started using custom packaging in 2016 and is expanding its use of the technology.

Retailers traditionally have used boxes of set sizes to fill online orders, many of them not suited to the enormous array of products now available online. The push to deliver goods faster has also put a premium on speed in fulfillment centers, leading workers to stuff goods in the closest available boxes. But the speed and functionality of machines that make custom boxes has improved in recent years.

The accumulation of cardboard in households, trash heaps and recycling centers has been one visible result of the surge in online shopping in recent years. Each order has added to the boxes reaching Americans’ doorsteps, including containers that can be far bigger than the items inside.

Besides being better for the environment, the made-to-fit boxes can help companies cut shipping costs because the shipments take up less space in trucks and delivery vans.

Classroom discussion questions:

  1. How do companies benefit from better packaging?
  2. Are there other ways to improve packaging beside machines such as the one shown above?

Video Tip: Feeding Delta Airlines’ Passengers

Airlines know passengers aren’t picking flights because they prefer one carrier’s short rib to a rival’s ravioli. And most coach passengers on domestic flights still have to pay if they want more than a small snack, although complimentary meals are available on a handful of the longest cross-country flights.

But food is a key part of the passenger experience, and airlines have been making investments in recent years. That includes partnering with outside chefs, offering more choices and mining data on passengers’ likes and dislikes.

Even with changes, don’t expect Michelin to start awarding stars. Feeding customers at 35,000 feet brings challenges terrestrial restaurants don’t have to deal with.

Dishes need to hold up after being chilled and reheated in flight. Flight attendants, who handle final food prep, are busy and are not chefs. And even gourmet food suffers in flight, where low air pressure and dry air dull flavors.

But let’s take an inside look at how Delta Airlines uses operations management processes to make it work. In this 4 and 1/2-minute video click here we can watch the story as told by The Wall Street Journal on March 31, 2023. We see that at Delta’s largest kitchen facility at its hub in Atlanta, teams must cook, package and transport 3,200 meals a day for the airline’s first-class passengers.

Today’s airline meals, of course, do not compare to the 1950s and 1960s, which was dubbed the “golden age of air travel,” when multi-course meals and alcohol were served on board to economy fliers, as we see in the photo.

Classroom discussion questions:

  1. What technology is Delta employing?
  2. How does it handle scheduling for delivery to flites?
  3. What is the facility’s layout?

OM in the News: Is “Friend-Shoring” a Solution to Global Supply Chain Challenges?

The onset of the COVID-19 pandemic and Russia’s invasion of Ukraine had profound consequences for the global economy, not least by exposing the fragility of global supply chains, which had to contend with restrictions that prevented goods and raw materials from reaching their end destinations. And while a host of stop-gap solutions have been proposed to counter these issues, the flare-up of geopolitical tensions over the last year has prompted key trading players to look to “friend-shoring”—the manufacturing and sourcing of components from countries with shared political values—to resolve this persistent supply-chain turbulence. This also means countries perceived as economically safe or low-risk, to avoid disruption to the flow of business.

But this potential solution is not without drawbacks, writes International Banker (March 30, 2023). The practice has stoked concern within the international community about the possibility of further geo-political fragmentation and deglobalization of the world’s economy – the decline of interdependence between nations, global institutions and enterprises.

The US government, as an example, has stressed its intention to obtain components and raw materials from ‘friendly’ countries with shared values to increase security of domestic production. US Treasury Secretary Yellen set out the new approach to trade last year, saying: “Rather than being highly reliant on countries where we have geopolitical tensions and can’t count on ongoing, reliable supplies, we need to really diversify our group of suppliers. And we need to deepen our ties with those partners and to work together to make sure that we can supply our needs of critical materials.”

Yellen added that the US is providing $500 million in debt financing to its biggest solar-manufacturing company to build a plant in India to help diversify supply chains away from China. Other American multinationals are also opting for greater exposure to India—an ostensibly friendlier option than China. Tech giant Apple recently made friend-shoring moves, relocating some of its iPhone production to India from China. Currently, only 5% of Apple products are made outside of China, but this could rise to 24% by 2025.

The United Kingdom, meanwhile, proposed the creation of a network of liberty. “The more freedom-loving countries trade with each other, build security links, invest in our partners and pull more countries into the orbit of freedom, the safer and freer we all are,” said the Foreign Secretary.
Classroom discussion questions:
1. Explain the difference between friend-shoring, nearshoring, and reshoring? Where does Mexico fall?
2. What are the advantages and disadvantages of friend-shoring?

 

OM in the News: Countries Compete to Lure Manufacturers From China

China may be losing its place as the center of the world’s supply chains

Countries are jostling to grab a piece of China’s manufacturing action as tariff battles and worsening U.S.-China ties jolt companies into reordering global supply chains. Executives are circling the globe looking for factory space or local tie-ups to reduce their dependence on China—and governments are pulling out the stops to welcome them.

At stake for low- and middle-income countries eager to help is the chance to turbocharge economic development and create millions of new jobs, writes The Wall Street Journal (March 25, 2023). India, Mexico, Vietnam, Cambodia, the Philippines, and others are competing on subsidies, tax breaks and other perks to convince businesses that their country is the next best thing to the manufacturing machine that China has honed.
China cemented its dominance of global manufacturing over the past 50 years. It has also grown its share of higher-value manufactured goods, such as cars and complex electronics, at the expense of rivals including Germany and Japan. But this dominance risks being whittled away. Companies have been stung in recent years by the supply-chain disruptions caused by Russia’s invasion and the pandemic. Many are seeking to fashion more diverse supply chains in the hope that they will prove more resilient in future crises.

Foreign direct investment into China in 2022 fell 43% on the year to $190 billion. And China’s share of U.S. goods imports fell to 17% in 2022, from a high of 22% in 2017.

Rerouting global supply chains away from China won’t be an easy process. Would-be rivals need to overcome challenges such as higher transport costs, outdated equipment and processes and subpar infrastructure. In the competition for a bigger slice of global manufacturing, countries are competing not just on cost and geography, but on who can offer companies the choicest perks while meeting their own development goals.

Cambodia revamped its laws in 2021 in an effort to attract more foreign investment, pinpointing manufacturing in advanced technology, machinery and spare parts, and electronics. Vietnam offers tax holidays to companies willing to invest in poorer areas of the country. India announced $1 billion in incentives to persuade companies to make more computers and tablets in the country. Mexico’s big advantages are its proximity to American consumers and membership in the USMCA trade agreement, which we discuss in Chapter 2.

Classroom discussion questions:

  1. What does this “reordering” mean for reshoring and nearshoring?
  2. Who benefits most from the move to expand beyond china?

OM in the News: The New American Battery Plants

South Korea’s LG Energy Solution just said it would invest $5.6 billion in a battery-manufacturing complex in Arizona, the latest in a string of new plants by foreign companies as the U.S. transitions toward cleaner fuels. LG Energy’s new battery complex will mainly serve electric-vehicle makers in North America. The amount is four times larger than what the firm had initially pledged when it first revealed plans last year to manufacture the batteries in Arizona. LG Energy reassessed its investment options due to unprecedented economic conditions. Inflation has been driving up the costs of raw materials and other expenses for manufacturers worldwide.

The complex will consist of two battery plants and mark the largest investment ever for a stand-alone battery-manufacturing facility in North America. Battery makers have been pushing to build up a bigger production base in the U.S., which is looking to strengthen its local supply chains and reduce reliance on China while speeding up shifts to green technologies, writes The Wall Street Journal (March 27, 2023)

13 battery gigafactories coming to the US by 2025 – ushering new era of US battery production

The U.S. has offered billions of dollars in tax credits for EVs sold in the U.S., but it only applies if they have a certain value of their battery components assembled in North America. (The Arizona plant will meet the eligibility requirements of the EV tax-credits program.) The program has stoked complaints from foreign car makers, but has opened business opportunities for non-Chinese battery players including South Korea’s LG Energy, Samsung, and SK On, as well as Japan’s Panasonic, which have all announced plans for new manufacturing plants in the U.S., including many via joint partnership with auto makers.

When excluding China’s CATL, LG Energy is the top battery maker globally, accounting for 21% of the combined EV and energy-storage-system battery market by units sold. In addition to the Arizona complex, LG Energy is working to expand its battery-manufacturing base across North America. It has three plants it has built or is building across the U.S. with General Motors as well as one planned plant with Honda in Ohio and one with Stellantis in Canada.

Classroom discussion questions:

  1. What factors discussed in Chapter 8 (Location Strategies) are chip manufacturers using in making location decisions?
  2. Why are so many plants under construction?

OM Podcast #1: Sustainability and Supply Chains

 

Welcome to our newest Operations Management text feature–bimonthly podcasts on topics we think you and your OM students will find interesting.

 

Jay and I will be creating 8-9 minute podcasts–posted on this blog. They will be tied to specific chapters in the text. Assignable auto-graded exercises using this podcast (in the form of multiple choice questions) are available in our MyLab OM.  To learn more about these assignments in MyLab, contact your Pearson rep at  https://www.pearson.com/us/contact-us/find-your-rep.html

Today’s topic relates to Supplement 5, Sustainability in the Supply Chain. In it, we talk about new government regulations, the clothing industry, Apple, and greenhouse gasses. Let us know what you think. The next podcast will be released in two weeks on the topic of Blockchains.

OM in the News: The EV Supply Chain and Canada

International giants are investing billions of dollars in Canada’s EV and mining sectors

Multinational companies are pumping billions of dollars into Canada’s electric-vehicle manufacturing sector, lured by government incentives, access to raw materials and cheap renewable energy. VW just announced that it had chosen a site in Ontario to build its first battery-cell plant outside Europe, citing Canada’s natural resources as one of the reasons. VW’s plan follows recent EV and battery-making project investments by GM, Stellantis, Michelin Tires, Brazilian miner Vale, U.K. mining company Rio Tinto, and German chemicals company BASF, among others.

According to The Wall Street Journal (March 23, 2023), Canada is benefiting from a push by the U.S. and its allies to reduce their dependence on China for the critical minerals used in EV batteries and military equipment.  In one example, Stellantis and South Korea’s LG are building a $4.1 billion battery plant in Windsor, Ontario, with 2,400 workers starting next year. As we discuss in Chapter 8 (Location Strategies), incentives are common and Canada has had to pay up to win the investments, scrambling to keep up with the U.S., which has unveiled a raft of subsidies meant to draw investment in its EV industry. Canada gave $732 million to land the Stellantis/LG venture.

Canada is among the most expensive countries in the world to build cars and the highest-cost market for car assembly in the North American free-trade zone. To save money, auto makers in recent decades moved thousands of manufacturing jobs and motor-vehicle assembly capacity to Mexico, dropping auto employment in Canada from 175,000 to 110,000.

The Canadian government is pitching itself as a counterweight to China in the race to develop EV technology. China leads the world in processing metals and minerals like nickel, copper, lithium and cobalt. It also is home to 78% of the world’s cell-manufacturing capacity for EV batteries. Helping Canada’s pitch: It is one of the few places in the Western Hemisphere with the raw materials companies need to make their EVs. Electra Battery Minerals Corp. is the only facility available in North America for processing battery-grade cobalt, a metal used in batteries. Rio Tinto is upgrading an iron-ore and titanium refining facility in Quebec with a $500 million investment.

Access to hydroelectricity was a key reason GM and others chose Quebec. The renewable power helps lower GM’s greenhouse-gas emissions. Quebec also offers the lowest industrial rates for power in North America.

Classroom discussion questions:

  1. Summarize the reasons more companies in this field are looking to Canada.
  2. What is China’s strength in the EV supply chain industry?

 

OM in the News: What Is a “Digital Twin”?

A digital twin is a virtual representation of an object or system that spans its lifecycle, is updated from real-time data, and uses simulation, machine learning and reasoning to help decision-making.

NASA tested an early iteration of a digital twin in response to the Apollo 13 disaster in 1970, using training simulators to match the conditions on the crippled spacecraft and test potential strategies for bringing the astronauts home safely. Today’s digital twins are much more advanced, writes The Wall Street Journal ( March 20, 2023). Not only do they pull in real-time data, but also use AI to capture insights and make predictions, such as identifying potential problems before they happen. The technology also can eliminate the need for physical prototyping of products such as automobiles, and offer a way to test different configurations for spaces such as warehouses and stores, potentially saving time and money.

Companies in every industry are looking at the technology to help them improve processes, reduce costs, conserve resources, boost employee safety and productivity: 17% said they have or plan to deploy digital twins.

San Francisco Airport’s digital twin of its Terminal 2.

For example, the massive San Francisco Airport relies on a digital twin to keep the facility running smoothly. It is a 3-dimensional virtual replica of the airport that is continuously updated with data gathered from embedded sensors throughout the airport. If the maintenance team were to receive a request to change door locks, for example, it could consult the digital twin to find the locations of all the doors that need service.

Another growing area is construction. Modern buildings are already layered with sensors and data-gathering systems that building operators can combine in a digital twin to help them improve a structure’s efficiency, sustainability and security. Building managers can use digital twins to keep track of systems—such as EV charging, smart glass that darkens to reduce energy costs and even soap dispensers with built-in sensors that know when it’s time for a refill—all in one place.

Other complicated systems might benefit from connected digital twins, too. A collection of twins representing everything from stadiums to freeways to public parks has the potential to change the way governments build cities and provide services. Cities might use the technology to create more efficient trash-pickup schedules and routes, for example, or to change traffic patterns when there is a spike in additional people getting on the road from, say, a stadium event.

Classroom discussion questions:

  1. How might a digital twin be used at your university?
  2. Why are twins so useful?

OM in the News: Inventory “Shrinkage” on the Rise

Retailers regularly conduct a physical count of their inventory and compare it to what is recorded on their books. The difference is known as shrinkage, a broad term that encompasses not just internal and external theft but also process failures that could lead to inventory being lost or recorded inaccurately.

Shoppers now face items locked in glass cabinets in NYC and other cities

Target just announced that it expected the shrinkage problem to reduce gross margins for the year by over $600 million. TJX and Macy’s also reported higher shrink rates. The shift in shoppers returning to stores after a surge in online buying during the pandemic is partly responsible, writes The Wall Street Journal (March 13, 2023). More theft happens in stores, as opposed to warehouses that fulfill online orders. But a never-seen-before jump in organized retail crime in certain U.S. cities is also a factor.

External theft, which includes organized retail crime in addition to regular shoplifting, has become a bigger piece of the pie. Organized retail crime, involving rings that steal from stores in bulk and then peddle the goods online, cost retailers $720,000 for every $1 billion in sales. Seven years ago, theft by employees was the largest category of loss by retailers. Now, it’s external theft.

Retailers are combating the problem by adding security guards and cameras to stores, locking up goods and making use of facial recognition software to help identify repeat offenders. Macy’s is using radio frequency identification (RFID) tags to better track inventory, adding more security personnel to stores and securing high-end brands with locked cables and sensors.

Retailers and shoppers say there is a fine line between deterring criminals and annoying honest customers. “Retailers are locking up everything from shaving cream to soap,” said one customer. “These should be things that are quick and easy to grab and go. But now I’ve got to find an employee to unlock them for me.”  Some retailers agree they may have gone too far in their theft-prevention measures. Macy’s used to keep German shepherds in its Manhattan flagship for security sweeps, but discontinued the practice in 2015.  NYC police now ask shoppers to take off their face masks before entering stores, a measure intended to help them better identify criminals. The plea came after four men stole  $1.1 million of goods from a jewelry store.

Classroom discussion questions:

  1. What tools does Chapter 12 suggest stores use to control shrinkage?
  2. What is causing the theft increase?