competitive advantage – The OM Blog by Heizer, Render, & Munson

OM in the News: AI Push Is Costing a Lot More Than the Moon Landing

It’s bigger than the railroad expansion of the 1850s, the Apollo space program that put astronauts on the moon in the 1960s and the decadeslong build-out of the U.S. interstate highway system that ended in the 1970s.

We’re talking about the data centers now being built and financed by some of the world’s biggest companies in the artificial-intelligence boom. Four U.S. tech giants—Microsoft, Meta, Amazon, and Google—are planning to spend $670 billion to build out AI infrastructure this year alone as they scramble to increase the computing power needed to operate and scale their AI-related endeavors.

And if you compare this spending to some of the biggest capital efforts in U.S. history by percentage of gross domestic product, you can see exactly how staggering the figures are, reports The Wall Street Journal (Feb. 9, 2026). In fact, it’s dwarfed only by the Louisiana Purchase, completed in 1803, which doubled the size of the U.S. and consumed 3% of the GDP. (The AI buildout is projected at 2.1% of GDP, while railroads in the 1850s were 2%, the US highway system was 0.4%, and the Apollo space program was 0.2%).

The four companies’ capital spending has been increasing as a percentage of their annual revenue the past few years. In 2026, Meta’s spending could amount to more than 50% of its sales for the first time ever.

How is this build-out an OM issue? First, as we discuss in Chapter 2, these four companies are betting that they will attain competitive advantage by competing on low-cost and response. Second, our chapter on sustainability (Supp. 5) points out the costs of carbon footprints, which data centers generate heavily. Third, as we note in the chapter on location strategies (Ch. 8), the centers locate where power is cheap and plentiful.

As of late 2025, Northern Virginia has 64 data centers under construction, solidifying its position as the world’s largest data center market. The region hosts over 550 existing facilities. They consume massive amounts of power, comparable to the total usage of large states like Minnesota.

Classroom discussion issues:

Discuss the plusses and minuses of this massive construction trend.
What do the builders hope to obtain?

Good OM Reading: Supply Chains as a Source of Competitive Differentiation

A new report from the Kearney consulting group (Feb. 4, 2026), called The Top Five Supply Chain Bets for 2026, concludes that as customers punish inconsistency faster than ever, companies that can deliver reliability will expand market share. Kearney offers this analysis:

This forces a shift from one supply chain to a portfolio of capabilities designed around distinct value propositions including speed, reliability, customization, cost-to-serve, and compliance. Where commercial commitments are made in isolation from operations, the consequences surface later through margin erosion, excess inventory, and lost customers.

Supply chain becomes the operating core of the customer promise, and leadership must be explicit about where it will overperform and equally clear about where performance ambition can be more modest by design.

Leading organizations are becoming more deliberate about how they serve each channel, market, and customer, including the trade-offs required and their operational implications. Align those choices with differentiated supply chain capabilities for each segment and translate them into targets for the core KPIs (service, cost, cash, risk). Finally, leverage the integrated planning and execution process to deliver consistently against those objectives.

Another area of concern is AI as it moves along the continuum from experimentation to earnings impact. Kearney offers the following analysis:

In 2026, many pilots will fail to progress beyond experimentation. The root causes are predictable: unclear value cases, poor data quality, fragmented technology stacks, and pilots that were never designed to scale.

AI in supply chains needs to be treated as an industrial capability, with clear ownership, governance, monitoring, and integration into day-to-day processes. Organizations that remain in experimentation are accumulating prototypes and skepticism, while those that focus are translating AI into measurable improvements in cost, cash, service, and risk.

Leading organizations are managing AI use cases as a portfolio, with explicit scale and stop gates. A small number of use cases that materially affect service, cost, cash, or risk are being industrialized, while others are time-boxed with clear exit criteria. Investment is concentrating on priorities with the highest enterprise impact, including decision speed, resilience, and sharpening competitive supply chain advantage.

Classroom discussion questions:

How might AI be used in supply chain management?
Why does Kearney think supply chains are becoming the source of competitive differentiation?

Guest Post: Leveraging Operations for Competitive Advantage in 2024

Prof. Misty Blessley, at Temple University, shares her insights with our readers monthly.

“From inventory management to materials requirement planning (MRP), for many years manufacturing leaders have viewed operations as a cost center — one that takes money off the bottom line rather than adding revenue to the top line”, writes Forbes (Jan. 22, 2024).This, in turn, has created a tendency to treat OM as a set of functional areas that must be continually optimized to reduce costs. But industry is at an inflection point. In an era of heightened customer expectations, diversified supply networks, rapidly advancing technologies, and enhanced environmental, social and governance (ESG) scrutiny, firms are challenged to consign this long-standing, cost-driven view to the past.

With the supply chain being where many of these challenges are being addressed, it is the focal point for viewing operations as a firm’s competitive advantage. By taking a more strategic approach, companies can also think outside the box of traditional OM and turn their supply chain into the center of enhanced operations performance.

Here are three questions firms must answer to achieve an advantage through their operations.

1. What does making the supply chain a center of enhanced performance look like? It means leaving behind the use of historical data in favor of taking on new technologies to gather consumer insights for driving customer satisfaction.

2. What happens when firms get strategic operations right? When consumer insights and OM are in harmony, firms do a better job at meeting customer expectations, to the benefit of increased customer loyalty (i.e., sales). The employee experience is also improved.

3. How can strategic operations be achieved? This can be done by integrating the supply chain across multiple enterprise operations in response to demand signals captured across the value chain. For example, rather than just trying to balance demand and supply to avoid a stock-out or excess inventory, companies work to balance operations to deliver the right product to the right customer at exactly the right time.

There is always pressure to control costs, but leveraging technology is the key to using the supply chain to build competitive advantage. This has the potential to positively affect the firm’s top as well as bottom lines.

Classroom Discussion Questions:
1. Chapter 11 of your text states: “The objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer.” How is viewing the supply chain as a revenue driver, as opposed to a cost center, in line with this objective?
2. What is the role of business analytics (Module G) in setting the stage for strategic operations in 2024?

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: Superfast Delivery Shifts into Low Gear

In Chapter 2, we describe how companies can achieve competitive advantage (see pages 36-39) through differentiation, cost, or response (speed). For years, Amazon.com set the pace for competition on speed with its investment in next-day and same-day delivery.

Companies like UPS are turning away from more expensive fast delivery as a way of trimming costs.

But retailers this holiday season, reports The Wall Street Journal (Nov. 10, 2022), are focusing on delivering packages to customers on specific dates, rather than competing on speed of delivery. The shift marks an easing in a race for delivery speed in e-commerce in recent years that has pushed goods to shoppers’ homes at an ever-faster pace while narrowing retailers’ profit margins on sales.

With inflation-conscious consumers now dialing back their online shopping, many retailers are focused on restraining the high costs of fulfillment and “last-mile delivery”.

Amazon now gives its Prime members the option to pick a specific delivery date. Other retailers and logistics operators are now following suit. The idea is to offer “an anticipated delivery time” … whether that is 2 days or that is 3 days.

Saks shows shoppers what day they can expect any given item to arrive based on factors such as their ZIP Code. The feature refines the retailer’s previous 3- to 5-day shipping window. The choice makes clear to consumers that faster delivery carries a higher cost.

Chinese giant online apparel retailer Shein, known for its low-price and trendy clothing, says that rapid sales growth and superfast delivery don’t have to go hand-in-hand, even in fast fashion. Online shoppers are now more willing to wait for certain deliveries, having gotten used to pandemic supply-chain disruptions. Shein focuses on the front end of its supply chain, which includes manufacturing and shipping out of Guangzhou, China. It has significant business in the U.S. even though its website says it takes 10 to 15 days for American customers to get orders. .

Shein plans to expand its North American business by opening three distribution centers in the U.S., but even those will only speed up delivery by 3 or 4 days. The most important factor for consumers has become the visibility of it all and being able to know when to expect a delivery, as opposed to the assurance that it’ll be a superfast delivery. “Sometimes they want it really, really fast, or they want it really, really scheduled,” said a UPS exec.

Classroom discussion questions:

How is speedy delivery an OM issue?
Are your students willing to wait longer for an “anticipated” delivery time?

OM in the News: Large-Scale Castings Revolutionize EV Auto Production

As we discuss in Chapter 5, Design of Goods and Services, product strategy options support competitive advantage. Tesla does exactly that (see page 162) with an new huge casting system. Conventional construction of modern vehicles involves the assembly of numerous sections of stamped sheet metal that are joined together by welding, rivets, and epoxy to form the chassis structure of the car’s platform, reports Design News (Aug. 3, 2022).

New cars like the Tesla Model 3, Maserati SUV, and Volvo EV depart from convention by building the cars atop just a few very large, very complex aluminum alloy castings. These bolt together to form the entire chassis, with front, center, and rear sections that replace, in Tesla’s case, 370 discrete parts that would need to be joined together to form the car’s chassis.

The industry forecasts that the global market for all types of die casting will total more than $100 billion by 2026, from $76 billion this year. Demand for passenger cars and light commercial vehicles across the globe, more so importantly in developing markets, will especially drive robust demand for use of cast products for a range of automobile parts and components in the coming years. The market is also expected to benefit immensely from the shift towards aluminum over steel and iron products among automakers.

There are manufacturing benefits too. There is better modeling of performance and a simplified supply chain. There is just one piece for that whole weld assembly from a single source as opposed to numerous components, fastener nuts, and rivets coming from different places. Manufacturers can go to a single supplier from dozens–and a lot of those parts may have come from overseas.

Tesla explains the process in an 11 minute video that you may wish to share with your class: “Molten aluminum is forced into a high-pressure mold. It solidifies as it cools and is then dipped in water to speed up the cooling process. After some laser cutting and quality checks, the parts produced using this process will eventually become part of the floor structure in our new electric model range. This process significantly reduces the number of parts produced and allows for greater design and production flexibility.”

Classroom discussion questions:

How is Tesla achieving competitive advantage?
Why is this a supply chain issue?

OM in the News: ZIM Shipping’s Competitive Advantage

Israeli container ship operator ZIM Shipping is turning its small size into an advantage in a business dominated by outsize carriers running megaships in global supply chains, writes The Wall Street Journal (Jan. 7, 2021). The company is touting its “flexibility and agility” to capitalize on the surging demand from retailers looking to circumvent shipping logjams by using premium-priced, point-to-point services.

ZIM controls just 1.5% of global container capacity. The company competes against ship operators 10 times its size and that have grouped into 3 global operating alliances. Those 3 groups, including giants such as A.P. Moller-Maersk of Denmark, CMA CGM of France and China’s Cosco, collectively handled 83% of all seaborne imports into the U.S. last year.

“Our small size is now an advantage,” said ZIM’s CEO. “Our competitors use big vessels and operate on volumes and quantities. We are offering custom services to loyal customers that are willing to pay a premium for speed and reliability.”

ZIM’s biggest ships can move a maximum of 12,000 containers, roughly half of what is stacked on the ultralarge vessels operated by the sector’s leaders. Backups at ports have been keeping many of those behemoths waiting for days outside major ports, pushing back deliveries and saddling cargo owners with delay charges on top of record-high freight rates. ZIM’s smaller ships present higher charter-market flexibility and agility to redeploy across different routes, a significant benefit in times of volatile or uncertain market dynamics.

Airfreight services typically cost far more than ocean freight but offer rapid transport in exchange. The gap in delivery times, which can amount to several weeks in normal times, has narrowed because the grounding of passenger jets has left shippers waiting for space in capacity-strained aviation markets. “The regular air service is 5-6 days,” ZIM’s CEO said. “A number of clients wait for 5 more days and use our ships. They save 80% of the airfreight cost.”

Classroom discussion questions:

What are the 3 ways firms can gain competitive advantage? (Hint: see Ch. 2 in your Heizer/Render/Munson OM text).
What is ZIM’s strategy and why is it working?

OM in the News: Apple Gains Control by “Insourcing”

“Apple built its gadget empire by outsourcing production to a vast ecosystem of chip makers and other component specialists. It is now taking a lot of that business back,” writes The Wall Street Journal (June 24, 2020). The company, which released its first iPhone processor in 2010, plans to ship Macs this year with custom chips, a move that ends a 15-year technology partnership with Intel. (Intel stands to lose about $2 billion in laptop chip sales annually). Apple said the custom-designed chips are more efficient and offer higher-performance graphics.

The plan fits into Apple’s broader strategy of replacing many third-party parts with components designed in house. Apple’s built-for-purpose parts now account for 42% of the costs of core iPhone components, up from 8% five years ago. Custom components have cut costs, boosted performance and increased Apple’s control over future releases. The new Mac processors will shave $75 to $150 off the cost of that computer.

The strategy springs from Apple’s philosophy—fostered by Steve Jobs—that owning core technologies provides a competitive edge. Customized chips and sensors can help its iPhone, iPads and Macs leapfrog rivals in battery performance and features. It also can protect Apple from Chinese rivals that buy universally available parts. Apple relied on third-party components for years while it built the engineering depth and expertise it needed to design more components itself. Apple’s chip division has mushroomed over the past decade to thousands of engineers.

The initiative—called insourcing—can give Apple a 2-year jump on competitors in device performance because Apple can plan how multiple chips work together to limit power consumption and free up space inside iPhones and iPads for other components. Many companies continue to supply Apple, which provides substantial revenue, even as they fear Apple will start making the very components they provide it.

Classroom discussion questions:

What are the reasons Apple chose to “insource?”
How is Apple achieving competitive advantage through OM? (Hint: See pp. 36-39 in your Heizer/Render/Munson text).

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

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

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

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

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

Classroom discussion questions:

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

Guest Post: Critical-to-Time (CTT) in Today’s Supply Chain (“Playing for Time”)

Today’s guest Post comes from John P. Bowler, who is Visiting Professor at the Keller Graduate School of Management and DeVry University’s College of Business & Management. John has 40+ years of operational supply chain management experience.

The ”time-driven” supply chain has necessitated industry leaders shift their focus from the Wall Street perspective of “cost as king” to the critical-to-customer characteristic of “time.” The expert application of time is now absolutely critical to transforming a business’s current competitive advantage into a sustainable competitive advantage. As such, time should be the primary measuring stick of the effectiveness of all actions which align the voice of the business (VOB) with the voice of the customer (VOC).

Hearing the voice of the customer is one thing. However, satisfying the needs of the client is another. Given today’s market landscape, this is not an easy task. Shorter product life cycles, increasing consumer expectations, and the immediacy of the Internet of Things (IoT) economy all create challenging hurdles. In order to sustain itself, the firm’s business strategy, product/service life-cycle management (the innovation cycle), and risk management practices must each align internally within the firm and externally with the customer.

The traditional “vital few” critical-to-customer characteristics are cost, quality, and time. Cost advantages come and go. Someone can always do it cheaper. Case in point is the ASUS TEK and Dell computer debacle. Top quality is not only expected, but it is also a given. Any firm providing a defective product or service faces both monetary and reputational (the slings and arrows of social media) repercussions. Additionally, the boundaries between relative cost and quality niches are now blurred. Amazon.com is one such example. All things being equal in the market segment, time is the prime differentiator.

Time is now the “vital one” among the “vital few.” Organizations focusing on the “vital one” critical need of the customer ensure maintaining a sustainable competitive advantage.

Guest Post: Supply Chain Risk Management and ISO

Our Guest Post today comes from John Bowler, who is Visiting Professor at DeVry University’ s College of Business, and Chris Bowler, who is Principal, Porter Keadle Moore, where he specializes in Enterprise Risk Management.

We find it interesting that the foundation of the relatively new Supply Chain Risk Management (SCRM) ISO standard is based on theories first advanced quite some time ago – PDCA (Deming, circa 1950) and Competitive Strategy and Competitive Advantage (Porter, circa 1980 and 1985). Along the same lines, Jay and Barry’s OM text states in Chapter 2 that competitive advantage is achieved through one of these three strategies: (1) differentiation, (2) cost-leadership or (3) response. We note that the Accenture 2011 Global Risk Management Study found 47% of the companies surveyed listed “reducing costs” as their highest risk management challenge.

While many firms today are focused on “lean” cost reducing practices, some companies and many experts are finding that these lean approaches can create unanticipated events, which can quickly escalate into crisis and perhaps even system failures. Is it reasonable then to suggest that a company is better served by refocusing its SCRM efforts on its specific competitive strategy’s strengths, weaknesses, opportunities, and threats? Along those lines, ISO 28002 (2011) brings these following new insights to the table:

SCRM is really about effectively capturing profitable business opportunities compatible with a firm’s (competitive) strategy.
SCRM effectiveness depends on the resiliency of the firm’s processes, people and technology to both stress and breaks along the supply chain.
When an organization incorporates and aligns its SCRM with its strategic goals, the resultant degree of resiliency ensures the firm’s long-term profitability and survivability.

This new way of thinking about SCRM as Supply CHANGE Management reflects transformational thinking not only for finance and operations but for the C-suite as well.

OM in the News: How Southwest’s Operations Strategy Gives Low-Cost Competitive Advantage

In an airline industry that is notoriously brutal, writes Slate.com (June 6, 2012), Southwest Airlines just recorded its 39^th consecutive year of profitability. How does Southwest do it? It’s all about keeping operations simple. Simpler operations mean fewer things that can go awry and botch up the whole process, as we show in Figure 2.8.

First, while other airline fleets can employ 10 or more types of aircraft, Southwest uses just one, the Boeing 737. The airline’s VP explains: “We only need to train our mechanics on one type of airplane. We only need extra parts inventory for that one type of airplane. If we have to swap a plane out at the last minute for maintenance, the fleet is totally interchangeable.”

Second, Southwest doesn’t assign seat numbers. Which means that if a plane is swapped out, and a new one’s brought in with a slightly different seat configuration, there’s no need to adjust the entire seating arrangement and issue new boarding passes.

Third, while most other airlines charge to check bags these days, Southwest has resisted the trend. Its “bags fly free” policy has operations benefits: “When you charge people to check bags they try to carry more on, sometimes more than can fit in the overhead bins,” says the VP. “That results in more bags being checked at the gate, right before departure. And that wastes time.”

Finally, other carriers use a hub-and-spoke system. But hubs lead to backups as planes queue up awaiting turnaround—cleaning, refueling. Southwest’s flights are generally point-to-point. The plane lands, goes through turnaround, and often heads right back where it came from. With less interdependence, the network can survive a problem at a single airport. Southwest can turn around planes in about 25 minutes. A simpler network also means less luggage getting lost in the shuffle.

Discussion questions:

1.Compare Southwest’s operations strategy to that of other airlines.

2. How will adding international flights impact Southwest’s strategy?