Tag: worker productivity

Guest Post: Why ERP Saves Money

Katie Decker is Marketing Manager at Account Mate, a California software firm with over 150,000 clients.

When most businesses think about implementing an ERP (Enterprise Resource Planning) system (see Ch. 14 in your Heizer/Render/Munson text), they focus on the obvious benefits: streamlined operations, better reporting, and centralized data. But the biggest cost savings from ERP often come from these 5 unexpected areas.

1. Less Money Tied Up in Stock  Too much inventory, over-ordering, poor forecasting, and lack of visibility often leave businesses sitting on cash in the form of unsold goods. ERP provides:

  • Real-time inventory visibility across warehouses, stores, and channels
  • Better demand forecasting to avoid overstocking or stockouts
  • Automated reorder points to optimize purchasing

A large retailer can reduce excess inventory freeing up hundreds of thousands in working capital.

2. Eliminating Revenue Leakage Through Better Invoicing One of the hidden money drains in many businesses is revenue leakage – money earned but never collected. It happens when:

  • Invoices go out late
  • Incorrect billing slips through
  • Credits and discounts aren’t tracked properly

An ERP system centralizes financial data, integrates it with operations, and automates invoicing so nothing falls through the cracks. When invoice turnaround times improve, collection periods drop, significantly improving liquidity.

3. Reducing Compliance Costs and Avoiding Penalties Compliance mistakes are expensive – whether it’s sales tax miscalculations, missed deadlines, or poor audit readiness. ERP makes it easier to:

  • Automate tax calculations
  • Maintain detailed, audit-ready records
  • Track regulatory changes without manual spreadsheets

A manufacturer can avoid potential fines when automating compliance tracking and reporting.

4. Optimizing Workforce Productivity Without Increasing Headcount Labor costs are one of the biggest expenses for any organization. While most leaders expect ERP to make teams “more efficient,” few realize how much efficiency translates into real savings:

  • Automated workflows reduce manual, repetitive tasks
  • Integrated data eliminates duplicate entry
  • Self-service portals empower employees and customers alike

Purchase order approvals and customer reporting can be automated – without laying anyone off.

5. Preventing Costly Errors Before They Snowball Manual processes and disconnected systems increase the chance of making expensive mistakes:

  • Incorrect shipments
  • Duplicate payments
  • Mismanaged vendor contracts

ERP systems reduce these risks by centralizing information and automating checks and balances. Reducing order fulfillment errors saves thousands annually in returns, reshipping fees, and customer appeasements.

OM in the News: A.I. and Computer Programming Productivity

Since at least the industrial revolution, workers have worried that machines would replace them, writes The New York Times (June 8, 2025). But when technology transformed auto-making, meatpacking and even secretarial work, the response typically wasn’t to slash jobs and reduce the number of workers. It was to break them into simpler tasks to be performed over and over at a rapid clip. Small shops of skilled mechanics gave way to hundreds of workers spread across an assembly line. The personal secretary gave way to pools of typists and data-entry clerks.

Workers complained of speed-up, work intensification, and work degradation. Now this appears to be happening with A.I. in one of the fields where it has been most widely adopted: coding.

As A.I. spreads through the labor force, many white-collar workers have expressed concern that it would lead to mass unemployment. But the more immediate downside for software engineers appears to be a change in the quality of their work. It is becoming more routine, less thoughtful and, crucially, much faster pace.

Like assembly lines of old that we discuss in Chapter 1, A.I. can increase productivity. Microsoft found that programmers’ use of an A.I. coding assistant called Copilot, which proposes snippets of code that they can accept or reject, increased output more than 25%. Amazon’s CEO wrote that generative A.I. was yielding big returns for companies that use it for “productivity and cost avoidance.”
Shopify, a company that helps entrepreneurs build e-commerce websites, announced that “A.I. usage is now a baseline expectation” and that the company would “add A.I. usage questions” to performance reviews.

The shift has not been all negative for workers. At Amazon and other companies,  A.I. can relieve employees of tedious tasks and enable them to perform more interesting work. Amazon says it saved “the equivalent of 4,500 developer-years” by using A.I. to do the thankless work of upgrading old software. Many Amazon engineers use an A.I. assistant that suggests lines of code. But the company has more recently rolled out A.I. tools that can generate large portions of a program on its own. One engineer called the tools “scarily good.”

Classroom discussion questions:

  1. How can A.I. transform factory jobs?
  2. Professors’ jobs?

 

 

OM in the News: AI and the U.S. Productivity Boost

Worker productivity is regarded as one of the most important drivers of long-term economic performance. As we point out in Chapter 1 of our text, it is essentially just the total output of the economy divided by the number of hours worked, aided by investments in technology and capital. When productivity is booming, it allows the economy to expand faster without triggering inflation, writes The Wall Street Journal (Dec. 26, 2024). That has positive knock-on effects on all kinds of things, including the fiscal health of the federal government.

Total nonfarm business sector labor productivity increased 2.0% from a year earlier in the third quarter—the fifth straight quarter of growth at or above 2%. That is significant as the average rate of growth for the five years before the pandemic was 1.6%.

Jeff Schulze, at ClearBridge Investments, argues this productivity jump is thanks to some unique features of the postpandemic labor market. People have switched jobs, locations and even industries at a high rate, meaning workers are now better matched to their roles. “When you look on the horizon with all this investment in AI, it’s not hard to get too excited about a productivity boom that will move us up to 2.5% or even 3%,” he states.

To see what a big difference faster productivity could make if it is sustained, consider U.S. long-term debt projections based on estimates of total factor productivity (which takes into account the productivity of both labor and capital). The government sees federal debt held by the public rising from 99% of gross domestic product in 2024 to 116% in 2034. This assumes total factor productivity growth of just 1.1% per year. Raising this estimated productivity growth by half a percentage point would mean the debt-to-GDP ratio reaches a more manageable 108% of GDP by 2034.

Optimists argue that the U.S. could do much better. Yardeni Research is an advocate of a “roaring ’20s” scenario, which sees rapid growth this decade, driven in part by an AI productivity boom. Yardeni believes this could reach 3.5% in the second half of this decade. These past booms each had their own drivers: The interstate highway buildout and rapid suburbanization of the 1950s, mainframe computers and jet engines in the 1960s and, of course, PCs and the internet in the 1990s.

Classroom discussion questions:

  1. What are the 3 main drivers of productivity, according to the text?
  2. Why does productivity impact the national debt?

OM in the News: AI and Amazon’s Army of Workers

Amazon uses software to manage in a way that’s unlike almost any other company, reports The Wall Street Journal (Feb.6-7, 2021). Whether they’re driving a delivery van or picking items from shelves, Amazon’s employees are monitored, evaluated, rewarded and even flagged for reprimand or coaching by software.

Amazon is expanding automated capabilities, including fleets of robots in warehouses.

Executives at the company are emphatic about their desire to preserve the health of employees, and give them opportunities to grow and develop, but the way Amazon manages both employees and seller-partners with algorithms is often at odds with those values. 

Throughout the supply chain of Amazon’s e-commerce operation, humans are onboarded rapidly into jobs that require almost no training. This is possible because of how directed and constrained by algorithms and automation these roles have become. In some fulfillment centers, employees who pick items for orders from robot shelves are surveilled by AI-enabled cameras. A cloud-connected scanning gun monitors the rate at which they pick items, the number and duration of their breaks and whether they’re grabbing the right items and putting them in the right places. Managers step in only if software reports a problem, such as a worker falling behind.

 Amazon objected to the characterization that anyone in its facilities is “managed by algorithm,” because all associates have a human manager who is responsible for them and who coaches them. “Our front-line workers are the heart and soul of Amazon,” said an exec. “Only a small percentage of associates are fired or leave the company because of performance issues.”

Whether all this AI, software and automation will be used to ease the burden of its employees, or to force them to work harder to keep up, is a choice all companies face in the age of digitization, and none more so than Amazon.

Classroom discussion questions:

  1. What are the advantages and disadvantages of being an Amazon warehouse worker?
  2. How does Amazon’s approach differ from the four labor standards methods discussed in Chapter 10 of your Heizer/Render/Munson text? (See pages 420-429)

OM in the News: Andons Move to the Office?

“Interruptions are the bane of workers in open-plan offices,” writes The Wall Street Journal (May 20-21, 2017), “with some resorting to headphones, busy lights and other paraphernalia to ward off chatty co-workers.” At the engineering giant ABB, a few have even set out small orange road cones to keep visitors at bay. But deciding when to put up a “Do Not Disturb” sign can itself amount to an interruption. People may be reluctant to appear unhelpful, uncollegial or unfriendly.

So ABB developed an automated solution: an andon light that turns red, green or yellow to indicate when interruptions are OK and when they aren’t. The system, known as FlowLight, reduced interruptions by 46%. In general, employees reported becoming more conscious of how disruptive interruptions can be and more motivated to focus.

FlowLight is modeled on Skype’s user-status indicators and consists of a light mounted on a cubicle wall or outside an office. If the light is green, a worker is available. A red light means busy, suggesting that interrupters stay away. A more intimidating, pulsing red means, essentially: Do not disturb except for something crucial. Yellow means that the staffer is away.

The lights are triggered by a worker’s sustained computer activity, based on software that tracks typing and mousing. Algorithms smooth out the data to avoid turning on a red light during a brief burst of feverish activity. For those who want it, the system includes a switch to turn the different lights on manually. But to avoid making red lights into status symbols, they are limited to going on for 9% of the workday, since research suggests that most workers are only truly productive for some fraction of the day.

Classroom discussion questions:

  1. Compare these lights to the andons used in manufacturing and described in Chapter 16.
  2. Do you think ABB’s system will spread to other firms? Why?

OM in the News: Robots Aren’t Destroying Enough Jobs

Robots, like the welders at a Nissan plant in Mississippi, are growing increasingly sophisticated

Will millions of individuals be thrown out of work by the rapid advance of automation and artificial intelligence? This idea is certainly chilling, but is also misguided. “Robots aren’t destroying enough jobs,” writes The Wall Street Journal (May 11, 2017). “Too many sectors, such as health care or personal services, are so resistant to automation that they are holding back the entire country’s standard of living.”

By enabling society to produce more with the same workers, automation is a major driver of rising standards of living. Is it different now that technological change is so fast? Will millions of workers will end up consigned to menial, minimum-wage jobs? Monthly job creation averaged 185,000 this year. This has driven unemployment down to 4.4%, a 10-year low and below most estimates of “full employment.” If automation were rapidly displacing workers, the productivity of the remaining workers ought to be growing rapidly. Instead, growth in productivity—worker output per hour—has been dismal in almost every sector, including manufacturing.

Technology is still destroying jobs—just more slowly. In part, that’s because American consumption is gravitating toward goods and services whose production isn’t easily automated. Medical breakthroughs have mostly gone toward new and more expensive treatments, not to making existing treatments less expensive. Children may sit in front of better screens than they did in the 1950s, but they are watched by child-care workers, who doubled to almost 2 million between 1990 and 2010.

Since 2007, low productivity sectors such as education, health care, social assistance, leisure and hospitality have added nearly 7 million jobs. Meantime, information and finance, where value added per worker is 5 to 10 times higher, have cut or barely added jobs. So instead of worrying about robots destroying jobs, says The Journal, we need to figure out how to use them more, especially in low-productivity sectors.

Classroom discussion questions:

  1. Are robots replacing truck drivers in 10 years an issue for OM managers?
  2. Why don’t robots replace a lot more things that go into the GDP?

OM in the News: Happiness From a Shorter Workweek Can’t Overcome Costs

A Swedish nurse says the 6-hour workday raised her efficiency
A Swedish nurse says the 6-hour workday raised her efficiency

A controversial experiment with a 6-hour workday in Sweden just wrapped up with a cheerful conclusion: Shorter working hours make for happier, healthier and more productive employees. “There’s just one catch,” writes The New York Times (Jan. 7, 2017). “The practice is too expensive and unwieldy to become widespread in Sweden anytime soon.”

The 2-year trial centered on a retirement home where workers were switched to a 6-hour day, from 8 hours, with no pay cut. Seventeen new nursing positions were created to make up for the loss of time at a cost of $738,000 a year.

The experiment stoked discussion about whether investing in a better work-life balance for employees benefits the bottom line for companies. But the high price tag and political skepticism are likely to discourage widespread support for taking the concept nationwide. While a growing number of countries and companies are studying the concept of employee happiness, the idea of improving it through shorter work hours has by no means gained broad traction. A similar model in France has been controversial for more than 15 years, ever since a Socialist government made a 35-hour workweek mandatory. Companies of all sizes in France have complained repeatedly that the short workweek has damaged competitiveness and generated billions in additional costs.

In the Swedish experiment, employees reported working with greater efficiency and energy when their hours were cut. They called in sick 15% less than before and perceived their health to have improved 20%. The program increased costs by 22%, mostly to pay for new employees. However 10% was offset by reduced costs to the state from people being taken off the unemployment rolls and paying taxes into the system.

Classroom discussion questions:

  1. Do your students believe “we should work to live, or live to work?”
  2. What are some companies in the U.S. doing to improve working conditions?

OM in the News: How Much Should Employees Be Monitored?

monitoringHarvard Professor Ethan Bernstein asks the question: How well do workers perform when they are being monitored (Chicago Tribune -April 4, 2016). “Unrehearsed, experimental behaviors sometimes cease altogether,” says Bernstein. “Wide-open workspaces and copious real-time data on how individuals spend their time can leave employees feeling exposed and vulnerable.”

To conduct his research, Bernstein embedded 5 Chinese-born Harvard undergrads into the lines of the world’s second largest mobile phone factory, located in China. The 5 worked, ate, and lived alongside their coworkers, who were not privy to the experiment. Here’s what they observed: Even seemingly unremarkable behavior–such as wearing rubber gloves when assembling or handling components–changed immensely, because the employees knew they were being watched. Factory rules stated that line workers were supposed to wear gloves. But students noticed that when the workers were unobserved: “People either wear a glove on only one hand or they cut their gloves so their fingertips stick out, giving them a bare hand or bare fingertips so when they are doing little things it goes a lot faster.” On the macro level, this reveals employees obey glove procedures only when they’re watched. On another level, it suggests that the gloves are poorly designed; that employees will break rules (and endure safety risks) to meet productivity goals; and that management has possibly overstressed productivity at the expense of safety.

Bernstein also noticed that factory teams worked faster–that is, they were more productive–when they were unobserved. Bernstein set up curtains around 4 of the factory’s 32 lines, shielding the workers on those lines from observation. “Over the next 5 months, to my surprise, the lines with curtains were 10-15% more productive than the rest,” he says. By contrast, the employees on regularly observed lines routinely hid process improvements from managers. The reason? One worker said that it was “most efficient to hide it now and discuss it later. Everyone is happy: They see what they expect to see, and we meet our targets.”

Classroom discussion questions:

  1. Describe the 4 measures for measuring work (see Chapter 10).
  2. Do you think Bernstein’s conclusions relate to all fields?

OM in the News: The Changing Employee Incentive Systems

Most employees at Squaremouth, a software company in St. Petersburg, Fla., receive a small annual raise, but they're also treated to perks like the new Apple Watch Sport.
Most employees at Squaremouth, a software company in St. Petersburg, Fla., receive a small annual raise, but they’re also treated to perks like the new Apple Watch Sport.

“Yacht-size bonuses for Wall Street big shots and employee-of-the-month plaques for supermarket standouts are nothing new, but companies’ continued efforts to keep costs down have pushed employers to increasingly turn to one-off bonuses and nonmonetary rewards at the expense of annual pay raises,” writes The New York Times (May 26, 2015). The share of payroll budgets devoted to straight salary increases sank to a low of 1.8% in the depths of the recession, from a high of 10% in 1981–and has rebounded only to 2.9% in 2014. Short-term rewards and bonuses — known as variable compensation — accounted for an average of 3.9% of payrolls in 1988. Last year, it hit a record 12.7%.

The shift in compensation that favors one-shot-only rewards over incremental increases in salary that compound over time also appears to be playing a significant role in wage stagnation. It took off after the economy went into a nose-dive in 2001, but is expected to continue even as the unemployment rate drops and the labor market tightens. Employers like one-shots precisely because they are temporary. They save money over the long run because they don’t lock in raises, giving managers greater control over budgets.

“I personally love suddenly finding an unexpectedly large sum added to a month’s pay,” said one Michigan doctor.  “It probably wouldn’t seem nearly as thrilling if it were just spread out across salary payments each month.” While a few more dollars in each paycheck may lack that Christmas-morning feeling, a raise is the gift that keeps on giving. The benefits of wage increases are compounded each year, with every future raise building on the back of the one before it. In the days when bosses handed out holiday hams or turkeys, employees would often walk to the top of the building and drop them off to show their displeasure. Their message: cash preferred.

This is a topic (seen in Chapter 10 on page 403, “Motivation and Incentive Systems”) about which your students will all have opinions.

Classroom discussion questions:
1. What are the benefits and downsides to the one-off bonus from the corporate perspective?

2. From the employee perspective?

OM in the News: The Long and the Short of the Perfect Office Chair

ergonomicsErgonomics (see Chapter 10) is an important issue for operations managers, be it in a factory setting or in an office. A rising problem, reports The Wall Street Journal (May 20, 2014) is the office chair. Most chairs are designed for the 5th to the 95th percentile of the population—people who are closer to average in size. That leaves roughly 4 million white-collar workers on the unlucky extremes of the bell curve—too small for their chair, with legs dangling, or too big for their chair, with knees bent up toward the chin.

Former Labor Secretary Robert Reich, who is 4 foot 10 inches, once sawed off the legs of his office chair and desk to make them fit. He was working in the Justice Department in the 1970s, and the General Services Administration refused his request to shorten his standard-sized wooden desk and chair. “I snuck in one weekend with my saw and did it myself, and sent the stubs to the GSA administrator,” Dr. Reich says. His office chair later as Labor Secretary left his legs sticking out, so he held meetings standing up.

Solving the problem can be complicated for employers. Some worry about fostering resentment if they give one employee a special chair. Also, changing the size of a chair often means the desk must be raised or lowered too. Manufacturers are offering more work tables that can be adjusted with an electric lift, a hand crank or movable pins in the legs. They are also making more work surfaces, keyboard supports and computer-monitor arms that can be moved on vertical rails.

Most operations managers are under heavy pressure to hold down costs, however, and providing special items for a few workers conflicts with a common strategy of buying many standard items at discounted prices. Special chairs can list for $1,000 or more. But the need for adjustable chairs is growing. Steelcase Inc. recently studied the body shapes and postures of 2,000 workers in 11 countries and found that “extreme size” is on the rise.

Classroom discussion questions:

1. Why is ergonomics an important OM issue in offices?

2. Are height issues a similar problem in factories?

OM in the News: Keeping Your Human Resources Happy

southwestIn Chapter 10, “Human Resources, Job Design, and Work Measurement,” we hold out Southwest Airlines as a model of workplace civility. The Wall Street Journal (Aug. 28, 2013), in this article on how hostile work environments cost companies in productivity and creativity, agrees. The Journal writes that the warm-and-fuzzy corporate culture of Southwest includes an entire department devoted to sending employees supportive notes when a family member is ill or congratulations when they have a baby. “We have people here who remember our birthdays when our family members don’t,” says one VP.

But this is rare. Some 96% of workers say they have experienced uncivil behavior and 98% have witnessed it, according to a Georgetown U. study.  A separate recent study showed that 50% of workers felt they were treated rudely at least once a week. Victims of incivility dial back their work effort and are more likely to lash out. Uncivil behavior can “spread like a virus across teams,” adds a professor at Antioch. And the costs can be steep: Cisco Systems estimates the cost of incivility in its organization at $8.3 million annually. That figure takes into account turnover, employees’ weakened commitment to the company and work time that was lost to worrying about future bad behavior.

At the National Security Agency, managers encourage workers to pay someone a compliment or show up early for a meeting. NSA employees who do good deeds are honored as “civility stars,” rewarded with plaques. Even Dish Network, which topped website 24/7 Wall St.’s list of “the worst companies to work for,”  is trying to take a kinder, gentler approach. That has meant summertime concerts and a softened stance toward the company’s attendance policy.  “I wanted it to be a more fun place to work,” says Dish’s CEO. “I think people have a responsibility to treat everybody else the way they want to be treated.”

Some organizations are even setting rules to foster friendliness. At Louisiana’s Ochsner Health System, employees are required to follow the “10/5 rule,” making eye contact with anyone within 10 feet and greeting anyone within 5 feet.

Discussion questions:

1. How can civility be increased in the classroom?

2. Is it the operations manager’s job to keep employees happy?