Tag: Amazon

OM in the News: Why Amazon Can’t Make a Kindle in the US

This interesting article in  Forbes (Aug.17,2011) proposes that “decades of outsourcing have left US industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy”.  Even if Amazon wanted to, says Forbes, the Kindle could not be made here because of the migration to Asia of: (1) the circuit connectors (to China); (2) the display (to Taiwan) ; (3) the case (to China), because the supplier base for toys, electronics, and computers went there; (4) the wireless card (to Korea), the center for mobile phone components; (5) the controller board (to China), when the US transferred printed boards to Asia; and (6) the battery (to China), when it migrated with the manufacture of notebook computers.

The main point, however is that the decline of manufacturing in a region sets off a chain reaction. Once manufacturing is outsourced, process-engineering expertise can’t be maintained, since it depends on daily interactions with manufacturing. In the long run, say two Harvard profs, “an economy that lacks an infrastructure for advanced process engineering and manufacturing will lose its ability to innovate”. Already lost are 2 dozen industries ranging from flat-panel LCDs to rechargeable batteries to desktop/notebook/netbook PCs to hard drives. The list of industries “at risk” is even longer and more worrisome.

Take the story of Dell Computer and its Taiwanese electronics manufacturer as an example of an  industry lost.  The supplier started by making the simple circuit boards inside the PC. It then proposed: “Why don’t you let us make the motherboard for you? Circuit manufacturing isn’t your core competence anyways and we could do it for 20% less”. On successive occasions, the supplier took over: (1) the PC assembly, (2) the supply chain, and finally (3) the design. Dell’s revenues were unaffected and its profits increased. But the next visit from the supplier wasn’t to Dell, rather  to Best Buy, offering its own brand PC at 20% less than the Dell!

Discussion questions:

1. What are some other industries lost to Asia?

2. What can the US do to reverse this decline?

OM in the News: Robots vs. People for Holiday Staffing

On-line retailers staffing up for the holiday rush are testing a critical hiring decision this year: man vs. machine. Ch.13 lists the options open to firms facing capacity issues, but robots introduce a new wrinkle. The Wall Street Journal (Dec.20,2010) highlights 2 firms with totally different staffing approaches: Crate & Barrel and Amazon. Both firms face a similar holiday crunch and e-commerce sales are up 12% overall, now accounting for 8% of US retail sales.

At Crate & Barrel, which sees holiday sales quadruple, the warehouse gets by with just double the number of employees, thanks to a cadre of 35 robots from Kiva Systems, a firm we highlighted in a recent blog. The machines carry racks of company products (8,000 SKUs) to people who pick and pack—no walking around the building at all.

By contrast, Amazon takes a more human-oriented approach. There, employees walk 18-20 miles a day down aisles lined with shelves, filling shopping carts with orders and carrying them back to packing stations. Amazon also quadruples its holiday staff—hiring a massive force of 11,500 seasonal employees at $11/hour. The firm tries to remove waste from the  hand-picking process with weekly  “kaizen” sessions. Amazon believes that people, not robots, give flexibility to handle its wider variety of products. It also uses hand held computers to guide workers to walk the shortest distance for each order, as described in an article in London’s daily, The Telegraph (Dec.21,2010).

“Which approach is better is a matter of debate in the 15-year-old e-commerce industry”‘ concludes The Journal. But Amazon does point out that it can now take orders up to Dec.19 and still guarantee Christmas delivery, a full 2 days later than last year.

Discussion questions:

1. Discuss the advantages vs. disadvantages of the human vs. robots staffing decision.

2. Where else has Kiva make progress in the fullfillment industry?