Tag: strategy

OM in the News: Delivery Wars!

A decade ago, Walmart’s thousands of stores across the country made it look like a dinosaur in the online-shopping era, writes The Wall Street Journal (March 8-9, 2025). Now the retail giant is mounting one of the few serious challenges to Amazon’s dominance in e-commerce, and those very stores are central to its strategy.

Samantha Atkinson became a Spark driver last year to supplement her income. When Walmart workers load the car of a delivery driver, one order generally goes in the trunk, the second in the back seat and the third in the front passenger seat to prevent delivery errors.

Walmart delivered 5 billion items on the same day they were ordered last year, double the number delivered in 2023. It can now deliver most of the 120,000 products in its supercenters, including meat, eggs and milk, to 93% of U.S. households the same day, sometimes in hours. “I am very, very grateful that we have 4,700 stores,” which now double as fast-delivery hubs, says Walmart’s CEO. To make most of those speedy deliveries, the retailer relies on thousands of freelance drivers using a system called Spark, created by Walmart, which uses an app to coordinate online orders. Tens of thousands of Spark drivers, who aren’t Walmart employees, make the majority of same-day deliveries.

About 41% of U.S. e-commerce sales go through Amazon, a much bigger share than Walmart’s 9%. But Walmart had $681 billion revenue in 2024 versus Amazon’s $638 billion. Over years of attempts, tests and failures, Walmart has carved out a niche that has Amazon working to catch up—fast delivery of online orders that often include inexpensive groceries, and increasingly other items it sells in its stores, such as clothing, batteries and prescription medicines.  Walmart gets more than 50% of its revenue from meat, eggs, lettuce and other groceries. It has used its scale to drive down prices for those items, which draw shoppers for regular trips.

Walmart’s same-day delivery coverage has stretched from 76% of U.S. households 2 years ago to 93% today.

Amazon also continues to expand rapidly. It has over 1,000 shipping facilities around the U.S., and more than 200 million people globally subscribe to its Prime membership. The similar Walmart+ offers free delivery for orders over $35.

But Amazon has struggled to dominate the fresh-food delivery business. It’s tried several models for delivery through Whole Foods and Amazon Fresh.

Classroom discussion questions:

  1. How does Walmart’s delivery service compare to Amazon’s?
  2. What is Walmart’s strategic advantage? Amazon’s?

OM in the News: Vaccine Supplies Won’t Be Enough for Everyone at High Risk

Should doctors and nurses get vaccinated before the general public?

Initial supplies of any successful coronavirus vaccines are now expected to fall short of what is needed even for high-priority groups like health-care workers, forcing drugmakers and U.S. officials to grapple with the thorny question of who should be first in line. Public-health officials estimate more than 100 million Americans, including doctors and nurses, other essential workers and nursing-home residents, should get vaccinated before the general public.

Yet initial supplies now look like they will cover only a fraction of the high-priority groups, if a vaccine clears testing and is authorized in the fall, reports The Wall Street Journal (Aug. 7, 2020).

There may be 10 million to 20 million doses available at first. The limited initial reserve is forcing U.S. health officials and their advisers to make hard choices about who should get vaccinated first. It could mean prioritizing staff at hospital emergency departments and intensive-care units over health-care workers who have less interaction with the sickest patients.  But if a vaccine is shown to be protective in the elderly, they may end up getting high priority because older people are at higher risk of severe disease. Officials  are also weighing how high to prioritize people who work outside of health care but in important jobs like those in the food supply chain.

Companies working on vaccines say they are ramping up manufacturing to eventually produce hundreds of millions of doses, but that bigger supply is unlikely to kick in until next year. The most difficult allocation decisions will be in the first 6-9 months of vaccine availability, but then supplies should begin to catch up to the broader population.

Classroom discussion questions:

  1. From a business perspective, who should receive early vaccinations?
  2. From an ethical perspective, who should be vaccinated first?

OM in the News: Southwest Air’s Operations Problems

Upstart Southwest Air in 1971
Upstart Southwest Air in 1971

At Chicago’s Midway Airport on Jan. 2, Southwest Airlines canceled a third of its flights, lost 7,500 bags and, at one point, had 66 aircraft on the ground—about twice as many as the carrier has gates. Passengers were stuck on the tarmac late into the night.  A severe snowstorm was the main culprit, but Southwest managers also blamed ramp workers, suggesting that 1/3 of them called in sick to protest slow contract talks. The workers say they are chronically understaffed and are being blamed for executives’ mismanagement.

Maybe  Southwest is showing its age–43, writes The Wall Street Journal (April 2, 2014). Once the industry’s brassy upstart, the airline has begun to resemble the rivals it once rebelled against: carriers that were slow-growing, complex and costly to run. As we point out in Figure 2.8 on page 42, to help keep things simple and cost-effective, the airline flies one model of plane— 737—with lean, highly productive employees. Southwest employees do have a more demanding workload compared with others. The airline carries about 3,000 passengers per full-time employee, compared with 1,350 passengers per employee at its bigger rivals. But the average Southwest worker earned nearly $100,000 in 2012– compared with $89,000 at a traditional airlines.

The OM challenges are many.  Southwest is flying fuller planes, connecting more passengers and serving bigger airports that are prone to delays. As a result, some of its operational ratings have plummeted. Last year, it lost more bags per passenger than any other carrier. And after years as one of the most punctual airlines, just 72% of Southwest’s flights were on time in the 4th quarter—dead last in the industry. Further, from 2007 through 2012, Southwest’s cost to fly a seat one mile rose 42%—more than any other major U.S. airline. Southwest also faces costly upgrades to its outdated computer systems—a holdover from its simpler days—to bring them in line with industry standards.  After snowstorms forced airlines to cancel thousands of flights this winter, other carriers’ computers automatically rebooked many customers. But at Southwest, employees had to manually reschedule each disrupted passenger.

Classroom discussion questions:

1. Referring to Figure 2.8, what is Southwest’s OM strategy?

2. What can Southwest do to improve operational efficiency?

Good OM Reading: Rethinking Manufacturing Strategy

The latest MIT Sloan Management Review’s (Winter,2012) article “Is It Time to Rethink Your Manufacturing Strategy” is a great piece to use as you start your new semester. It opens with this line: “For the past 10 years, China was the answer to many manufacturing questions. That’s no longer automatically the case”.

It seems that supply chain disruptions, fuel price jumps, rising labor costs in China, advances in technology, and being closer to customers are leading manufacturers to conclude they may be better off with a regional strategy that may not include China. This doesn’t necessarily mean more jobs for the US, as Mexico is a potential regional site, just as Eastern Europe is an alternative to Western Europe.  But it does mean that optimal manufacturing strategy must include raw materials, the product itself, and the location of the customer base.

While long supply lines were economically feasible 15 years ago because of cheap oil, transportation costs have risen, which has given rise to these 3 new cost-optimization realities:

1. Regional distribution centers have become more attractive as companies add warehouses to minimize distance between DCs and retail outlets.

2. Sourcing may need to move closer to demand, ie, on shore, when a company’s  total landed cost analyses includes not just unit costs, but transportation, inventory, handling, duties, and financing. Firms like Sharp (the Japanese TV maker), for example, started moving manufacturing from Asia to Mexico to be closer to American customers.

3. Supply chain flexibility becomes more critical. While “dedicated manufacturing”, where each plant specializes in producing only a few items, uses economies of scale to keep manufacturing costs down, it can also result in long delivery lags and higher transportation costs. “Flexible manufacturing”, where each plant can produce most or all of a firm’s products, protects operations from today’s economic volatility and supply chain disruptions.

The article concludes “corporate planners are on the verge of a leap from low-cost manufacturing to a more regional strategy”.

OM in the News: IBM’s Strategy Changes Bring it 100 Years of Success

Every newspaper in the country heralded IBM’s 100th anniversary this week, so we also look at this globe-spanning technology behemoth. “IBM’s global reach and broad product portfolio still make it one of the largest and most profitable IT companies in the world”, says Computerworld (June 16-23, 2011). With 427,000 employees and nearly $15 billion profit on sales of $100 billion in 2010, IBM is 2nd in sales in the computer industry only to H-P. Not that the firm has avoided ups and downs. The US  antitrust suit in 1969 (dismissed in 1982) pushed IBM to separate hardware from software. After Tom Watson, Jr., retired in 1971, its mainframe business faced strong competition from smaller, more modular systems. But under the reins of Lou Gerstner, the firm bounced back in the 1990’s focusing on software, system integration, and other services. It was the strategy change  has likely been IBM’s key to success today.

A quick history:

1911  The merger of 4 tabulating companies results in the company, which has 13,000 employees.

1914  The icon Tom Watson, Sr.,  leaves NCR to lead IBM for 40 years.

1928  The IBM punched card becomes the standard for five decades.

1953  The IBM 701 becomes the 1st production computer; it features tape drive technology.

1957  IBM introduces FORTRAN, the standard for technical programming.

1964  The firm successfully bets $5 billion on the System/360– a family of computers that share technology.

1981  The IBM PC is invented, with Microsoft providing the operating system, paving the way for PC-clones such as Dell .

2002  IBM pays $3.5 billion for PricewaterhouseCoopers to strengthen its services and technology consulting units.

2007-today  The company spends over $14 billion to acquire dozens of business analytics software firms (such as SPSS and iLog), planning on $16 billion revenue from analytics by 2015.

As OM professors, this latest move will have a major impact on the availability of free software we can use in class, a trend we need to watch carefully.

OM in the News: UPS’ Supply Chain and the No-Left-Turn Rule

For the longest title award, we turn to this week’s Fortune (Dec. 27,2010, pp.44-51) and find Bob Stoffel at UPS. Stoffel is the Senior VP for Supply Chain, Strategy, Engineering, and Sustainability.

With the word Strategy in his title, Stoffel points out that UPS is a lot more than a transportation company. It now has 1,000 engineers who are there just to help customers with their supply chains. Zappos built its whole e-commerce strategy around UPS’ Louisville Worldport. Zappos can take an order for shoes at 10pm and have them in the customer’s hands at 10am the next day.

When a Toshiba laptop comes in for repairs, it is UPS that actually fixes it and has it back to the customer in 24 hours. “It’s a triple win”, says Stoffel. “You’ve saved transportation links, you’ve reduced inventory,… and you’ve reduced your carbon footprint”.

Regarding sustainability, UPS has improved its fuel efficiency by 10% with a fleet of all-electric trucks, hybrids, and natural-gas vehicles. And thanks to telematics, GPS, and other technologies, UPS delivered 350,000 more packages  a day over last year, but drove 53,000 miles less a day. Finally, the firm’s famous “no-left-turn” policy is part of another 20 million miles a year saved through technology by avoiding costly delays from left turns and poor routings. “It drives my wife nuts”, Stossel says. “I won’t turn left (when looking for a gas station).We’ve got to find one on the right”.

My favorite improvement is the new “Eco Responsible Packaging” program to advise shippers how to waste less space in packaging. Just think of all the small items you have received in a big box. “Our vehicles run out of space before they run out of weight capacity”, says Stossel.

Discussion questions:

1. What is UPS’ sustainability strategy?

2. How is UPS part of other firms’ supply chain?