Tag: digital technology

OM in the News: The Pizza That Defied a Pandemic

“Few industries have suffered more during the pandemic than restaurants,” writes The Wall Street Journal (Sept. 5-6, 2020). More than 15,000 restaurants have failed during the coronavirus pandemic. Sales at stores open at least a year plummeted 37% in the second quarter from a year earlier.

Domino’s, however, didn’t have those problems. Its U.S. sales in the same period leapt 16%.

In part it was lucky: it has little dine-in business. But it has also perfected order-in and delivery through intensive innovation. While many restaurants depend on multiple systems from outside suppliers for technology such as online ordering, Domino’s developed its own, single proprietary point of sale system for all of its more than 6,000 U.S. stores.

While the pizza is made by hand, everything before and after that stage has undergone relentless innovation. Since 2007, the range of channels through which to order digitally has steadily expanded: via desktop, then mobile, apps for the iPhone, iPod Touch and Android, Samsung TVs, Pebble, smartwatches, Twitter, Amazon Echo, Google Home, Slack, and Facebook Messenger. Order time has reached its minimum with “zero click ordering”: Open the app, do nothing and in 10 seconds your favorite pizza is ordered.

All were developed to make ordering and delivery faster and more convenient. And because digital ordering obviates the need for cash to change hands, it also aided in physical distancing when the pandemic began.

Digital ordering is key to growth for food-service establishments because it yields valuable data for better targeting customers and expedites pickup. Five-ten percent of the typical quick service chain’s orders are digital. Domino’s share was 65% last year and has since climbed to 75%. Domino’s also benefited from new concepts it was able to introduce as the pandemic rolled across the U.S. One was “Carside” pickup, with GPS order tracking so that customers who didn’t want to interact with a driver could confirm the driver was in front of the house.

Classroom discussion questions:

  1. How can other restaurant chains design more efficient services? (Hint: see Chapter 5, p. 180 of your OM text)
  2. What is Domino’s competitive advantage?

OM in the News: The History of Supply Chains

In 1970, there was no FedEx, no internet, no PCs, no cellphones, no Amazon, no TSA, no 3D printers, no Google, and  no Uber, writes IndustryWeek (April 17, 2020). Nixon hadn’t gone to China yet, so offshoring wasn’t a major issue. There were no supply chain planning systems, no warehouse management systems, no UPC barcodes, no online marketplaces. It was a much slower-paced economy than the frenetic pace the supply chain moves at now.

In 1970 we didn’t even have anything called the “supply chain.” Although the basic concept of SCM dates back to the 1950s, the actual term “supply chain” wasn’t coined until 1982. How different running a manufacturing operation was in 1970. The EPA wasn’t introduced until late that year, OSHA didn’t launch until 1971, and the trucking and rail industries weren’t deregulated until 1980.

When we wrote the first edition of our textbook, Production and Operations Management, in 1988, we didn’t mention the following: (as they either hadn’t been invented yet or nobody had associated them with SCM): drones, the Internet of Things, same-day delivery, omni-channel distribution, machine learning, Uber-style freight transportation apps, blockchain, cobots, RFID, and virtual reality,

We also didn’t mention the impact the coronavirus would have on supply chains, or any of the other major disruptions we’ve seen in recent years, such as the swine flu of 2009, the Icelandic volcanic eruption of 2010, the Japanese earthquake and tsunami of 2011, or the three deadly hurricanes of 2017.  But we’ve learned that supply chains—and the people managing them—are incredibly resilient. In 25 years people will likely look back at how slow-paced supply chains moved in 2020. Will the convergence of GPS, RFID, wearable and supply chain visibility technologies lead to the point that everybody will carry some sort of ID chip that will make obsolete the idea of cash and credit cards?

Classroom discussion questions:

  1. What technologies have the potential to seriously impact current supply chains?
  2. Will the global move toward sustainability be impacted by the virus pandemic?

OM in the News: The Hidden Automation Agenda

The Milwaukee offices of the Taiwanese electronics maker Foxconn, which plans to replace 80% of the company’s workers with robots in 5-10 years

In public, many CEOs wring their hands over the negative consequences that A.I. and automation could have for workers. They talk about the need to provide a safety net for people who lose their jobs as a result of automation. But in reality, writes The New York Times (Jan. 26, 2019), many are racing to automate their own work forces to stay ahead of the competition, with little regard for the impact on workers.

All over the world, executives are spending billions of dollars to transform their businesses into lean, digitized, highly automated operations. They see A.I. as a golden ticket to savings, perhaps by letting them whittle departments with thousands of workers down to just a few dozen. A 2017 survey by Deloitte found that 53% of companies had already started to use machines to perform tasks previously done by humans. The figure is expected to climb to 72% next year. Investment bank UBS projects that the A.I. industry could be worth $180 billion by next year.

The author of “AI Superpowers” predicts that A.I. will eliminate 40% of the world’s jobs within 15 years. He said that CEOs were under enormous pressure from shareholders and boards to maximize short-term profits, and that the rapid shift toward automation was the inevitable result. But other experts have predicted that A.I. will create more new jobs than it destroys, and that job losses caused by automation will probably not be catastrophic.

The CEO of the Chinese e-commerce firm JD.com said last year that “I hope my company would be 100% automation someday.” The World Economic Forum estimates that of the 1.37 million workers who are projected to be fully displaced by automation in the next decade, only 1 in 4 can be profitably reskilled by private-sector programs. “The choice isn’t between automation and non-automation,” said the director of M.I.T.’s Initiative on the Digital Economy. “It’s between whether you use the technology in a way that creates shared prosperity, or more concentration of wealth.”

Classroom discussion questions:

  1. What can A.I. do to help OM functions?
  2. Will A.I. replace as many jobs as some predict?

OM in the News: Why Does Productivity Remain Stuck?

Dr. Peter Sutherland says there are benefits to using electronic health records but grappling with the software and new reporting requirements has slowed him down. He sees fewer patients, and his income has slipped.
Dr. Peter Sutherland says there are benefits to using electronic health records, but grappling with the software and new reporting requirements has slowed him down. He sees fewer patients, and his income has slipped.

For several years, operations managers and economists have asked why all that technical wizardry seems to be having so little impact on their firms and the overall economy. The issue surfaced again recently, when the government reported disappointingly slow growth and continuing stagnation in productivity. The rate of productivity growth from 2011 to 2015 was the slowest since the 5-year period ending in 1982, reports The New York Times (June 6, 2016).

The most prominent pessimist is Northwestern U. Prof Robert J. Gordon, whose new book, The Rise and Fall of American Growth, contends that the current crop of digital innovations does not yield the big economic gains of breakthrough inventions of the past, like electricity, cars, planes and antibiotics. Optimists, however, say the gains from current tech trends like big-data analysis, artificial intelligence and robotics, will come. Just wait.

Technology spending has been robust, rising 54% over a decade to $727 billion last year. Despite all the smartphone sales to consumers, most of the spending is by companies investing in technology to increase growth and productivity. But a new report by McKinsey & Company found that the march of digital technology across the economy has a long way to go. Only 18% of the American economy is living up to its “digital potential,” the report concluded. And if lagging industries (like health care and hospitality) do not catch up, we will not see much of a change in national economic statistics.

Classroom discussion questions:

  1. Why is productivity such an important OM issue?
  2. Relate increased productivity to U.S. manufacturing’s resurgence.

OM in the News: Chattanooga’s 3-D Hub

3-D Ops printed heart valve
3D Ops printed heart valve

“Chattanooga faced a moment in truth in 1969 when Walter Cronkite declared the city to the most polluted in the nation,” writes Industry Week (Jan. 27, 2016). But the city cleaned up its toxic plants so much that by the mid-1980’s Nissan and GM set up shop and brought advanced technology to the area. With the growth of the auto industry and its supply chain, the region gained high tech manufacturing capability and was designated as an advanced tech area by the U.S. Over the past few years, the city has become a hub for 3D printing. The backbone of the growth of this sector is the city’s gigabit internet network, the most advanced smart grid system in the nation. This network provides the speed necessary for 3D printers.

“The availability of a variety of 3D printers, some so new that they aren’t even on the market yet, is a big draw for our company,” explains the CEO of 3D Ops. That firm uses CT scans and MRIs to build 3D printed models of body parts (such as an aorta valve), so that surgeons can better plan medical procedures. 3D Ops converts an MRI to a 3D printable file, then prints it for an average of only $400. The models provide surgeons with a more accurate approach to simulated surgery, decreasing the overall amount of time spent in the operating room. The surgeons are able to practice on physical models of body parts they will operate on.

Another 3D company, Branch Technology, recently introduced 3D printed interior walls. The company uses the world’s largest freeform 3D printer to print cellular matrixes out of ABS plastic, and then reinforces those structures with carbon fiber. They then use whatever material needed for a particular project to create the exterior of the walls. The technology necessary for the 3D companies to thrive was brought about by an aggressive plan that resulted in the city becoming America’s first “Gig City” with a citywide gigabit (1,000 Mbps) Internet service.

Classroom discussion questions:

  1. Why did Chattanooga attract 3D printing firms?
  2. Compare the region to other clusters noted in Chapter 8.

Good OM Reading: The History and Future of Operations

hbrProf. Marco Iansiti’s new article in Harvard Business Review (July, 2015), declares: “It’s time to rethink what we mean when talk about operations.  Operations is and has always been what gives an organization the power to act: to create value for its customers; to capture value for its shareholders; and to share value with its ecosystem. In the era of ubiquitous digital technologies, operations empowers an increasing variety of organizations.”

Growing out of the industrial revolution of the late 1800s, OM field took off as the modern economy emerged from the new phenomenon of volume manufacturing. Popular notions of “interchangeable parts” were first applied to the design of muskets and enabled a new breed of industrialists to invent a modular system of production, in which individual components could be manufactured independently and at scale. This gradually led to the concepts of logistics, supply chains, and assembly lines, and formed the foundations of the “American System of Manufacturing,” which grew during the first half of the 20th century and peaked during the 1950s. (In fact, at one time Harvard Business School offered practical classroom demonstrations on the use of lathes and milling machines). The 1960s saw the development of a broad variety of analytical methods to analyze and optimize the flow of goods and information not only in manufacturing systems, but in a wide variety of service contexts.

What is different now? Digital technology and its exploding range of applications in web services, mobile, and now the internet of things means that the development and delivery of software services is transforming the fabric of operating environments. If the essence of OM is providing economic agents with “the power to act,” digital technology is transforming the nature by which that power is defined and delivered, with new operating models that are increasingly open, distributed, and shared across thousands of organizations and contributors. These new models have enabled close to 9 million independent developers to contribute apps to mobile platforms. And they’ve enabled WhatsApp to grow to over 450,000 users with fewer than 30 employees. As such, the design of development tools, operating system APIs, and the user onboarding process for apps have become as crucial to OM excellence as production planning or inventory theory.

 

OM in the News: Airlines and the Digital Bag Tag

Airlines are adding new technology to improve and automate how they handle and track bags
Airlines are adding new technology to improve and automate how they handle and track bags

“For decades, fliers have checked their bags the same way: hand them to an airline employee and trust that they will reappear at the destination,” writes The Wall Street Journal (July 6, 2015). Now big changes to that model are coming as airlines look to streamline the airport experience—and pass more work to customers and machines.

Their latest ideas including letting fliers tag their own bags, print luggage tags at home and track their bags on smartphones. Later this year, some fliers in Europe likely will begin using what could be the future of flying luggage: permanent bag tags that digitally update if flight plans change. Improved technology and loosened security rules are accelerating changes to baggage handling. More than 1/3 of global airlines now ask fliers to tag their own bags, compared with 13% in 2009. By 2018, 3/4 of carriers intend to offer the service.

Airlines say such technology isn’t intended to reduce staff, but instead free workers to handle customer problems. From 2004 to 2014, a period in which airlines added many self-service technologies like kiosks, the number of U.S. ticket agents fell about 13.5% to 138,000. U.S. airline passengers increased 8.6% to 761 million over that period.

The biggest of the coming changes is permanent bag tags, electronic devices that strap on to frequent fliers’ luggage and digitally display their flight information. The tags display bar codes like a traditional tag, allowing them to work with existing infrastructure. Fliers update the tags via Bluetooth from their smartphones, and the airline can also remotely update the tag if its owner gets rerouted. Air France KLM is also releasing a bag tracker that goes inside luggage. The device uses satellite data to give travelers the bag’s location and light sensors to alert them if the bag is opened en route. Tracking should help reduce the rate of mishandled bags world-wide, though airlines in 2014 lost 7.3 bags per 1,000 fliers, compared with 13.2 bags in 2003.

Classroom discussion questions:

1. Why are airlines encouraging the process change?

2. What is the downside of the new system?