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OM in the News: Sharing the Same Production Process at Samsung and Globalfoundries

April 24, 2014
Two Globalfoundries workers in Albany, NY

Two Globalfoundries workers in Albany, NY

Samsung and Globalfoundries just announced (see The Wall Street Journal-April 18, 2014) that they have agreed to adopt the same production process as they upgrade their chip-manufacturing services, an unusual alliance with implications for many designers of computer chips and other devices, notably Apple. With the agreement, chips produced by Samsung and Globalfoundries will be essentially identical; companies that design chips could have their products produced in factories operated by either company with no extra effort.  Companies generally prefer to reduce their reliance on a single supplier for components. In this case, the pact between Globalfoundries and Samsung provides a new selling point as the two companies try to woo customers away from Taiwan Semiconductor, the biggest chip maker.

The new pact could allow Apple in the future to shift chip orders between Samsung’s Austin plant and a Globalfoundries factory near Albany, N.Y.  “The idea of doing business with multiple suppliers is built right into Apple’s DNA,”  says one industry expert.

The pact also reflects the intense financial pressures associated with pursuing Moore’s Law, Silicon Valley’s shorthand for shrinking semiconductor circuitry to improve chips’ speed and data storage capability. With individual production tools priced at tens of millions of dollars—and complete chip factories costing $5 billion or more—fewer and fewer companies still develop new production processes. In response, companies are now working together to share costs of developing new production recipes.

But the deal goes much further. Globalfoundries agreed to abandon a technology it had been developing for creating chips with circuitry measured at 14 nanometers, or billionths of a meter. It will instead license Samsung’s 14 nanometer process, which has technical benefits, and uses common production tools and materials.

Classroom discussion questions:

1. What are the benefits of shared production?

2. Why is Apple encouraging this concept?


OM in the News: Humans Steal Jobs From Robots at Toyota

April 22, 2014
Toyota worker manually welding a part previously done by robots

Toyota worker manually welding a part previously done by robots

Inside Toyota Motor Corp.’s oldest plant, there’s a corner where humans have taken over from robots in pounding glowing lumps of metal into crankshafts, reports BusinessWeek (April 7, 2014). “We need to become more solid and get back to basics, to sharpen our manual skills and further develop them,” said a company exec. “When I was a novice, experienced masters used to be called gods, and they could make anything.” These “gods” are making a comeback at Toyota, the company that long set the pace for manufacturing prowess. Toyota’s next step forward is counter-intuitive in an age of automation: Humans are taking the place of machines in plants across Japan so workers can develop new skills and figure out ways to improve production lines and the car-building process.

“Toyota views their people who work in a plant like this as craftsmen who need to continue to refine their art and skill level,” said Jeff Liker, who has written 8 books on Toyota. Learning how to make car parts from scratch gives younger workers insights they otherwise wouldn’t get from picking parts from bins and conveyor belts, or pressing buttons on machines. At about 100 manual-intensive workspaces  across Toyota’s factories in Japan, these lessons can then be applied to reprogram machines to cut down on waste and improve processes. At the forging division of Toyota’s Honsha plant, workers twist, turn and hammer metal into crankshafts instead of using the typically automated process. Experiences there have led to innovations in reducing levels of scrap by 10% and shortening the production line length 96%.

Though Toyota doesn’t envision the day it will rid itself of robots — 760 of them take part in virtually all of the production process at its Motomachi plant – it has introduced multiple lines dedicated to manual labor in each of Toyota’s factories in Japan. Says one manager: “To be the master of the machine, you have to have the knowledge and the skills to teach the machine.”  Adds a University of Tokyo professor:   “Fully automated machines don’t evolve on their own. Sticking to a specific mechanization may lead to omission of kaizen and improvement.”

Classroom discussion questions:

1. Why is Toyota replacing robots with humans on some lines?
2. Why doesn’t every firm take this approach?

Good OM Reading: Reducing the Risk of Supply Chain Disruptions

April 20, 2014

MIT SloanFor supply chain executives, recent years have been notable for major supply chain disruptions that have highlighted vulnerabilities for individual companies and for entire industries globally. (The Japanese tsunami in 2011 left the world auto industry reeling for months. Thailand’s 2011 floods affected the supply chains of computer manufacturers dependent on hard disks. The 2010 eruption of a volcano in Iceland disrupted millions of air travelers and affected time-sensitive air shipments.) This excellent article in the MIT Sloan Management Review (Spring, 2014), by Professors Sunil Chopra and ManMohan Sodhi, is worth the 23 minutes it will take you to read it–especially if you teach Chapter 11 and Supp.11 in our text.

Today’s managers, they write, know that they need to protect their supply chains from serious and costly disruptions, but the most obvious solutions — increasing inventory, adding capacity at different locations and having multiple suppliers — undermine efforts to improve supply chain cost efficiency. While managers appreciate the impact of supply chain disruptions, they have done very little to prevent such incidents or mitigate their impacts.This is because solutions to reduce risk mean little unless they are weighed against supply chain cost efficiency. Financial performance is, we know, what pays the bills.

Supply chain efficiency, which is directed at improving a company’s financial performance, is different from supply chain resilience, whose goal is risk reduction. Although both require dealing with risks, recurrent risks (such as demand fluctuations) require companies to focus on efficiency in improving the way they match supply and demand, while disruptive risks require companies to build resilience despite additional cost.

The authors suggest two strategies for reducing supply chain fragility through containment while simultaneously improving financial performance: (1) segmenting the supply chain or (2) regionalizing the supply chain. In many instances, though, reducing disruption risk involves higher costs. The reason executives are reluctant to deal with supply chain risk comes from the perception that risk reduction will reduce cost efficiency significantly. Managers can do much to ensure that loss of cost efficiency is minimal while the risk reduction is substantial by avoiding excessive concentration of resources like suppliers or capacity. And nudging trade-offs in favor of less concentration by overestimating the probability of disruptions can be much better in the long run compared to underestimating or ignoring the likelihood of disruptions.

OM in the News: Queuing Up For TSA’s Fast Security Line

April 18, 2014
The TSA wants to speed up this line. Really.

The TSA wants to speed up this line. Really.

Fliers gripe that getting through airport security lines can be too slow. Now, it may be fliers who are slow to sign up for a program to speed them through the lines. The Transportation Security Administration is aggressively trying to encourage more people to sign up for TSA Precheck, reports The Wall Street Journal (April 17, 2014). 

Precheck, launched in 2011, is much-loved among travelers because they don’t have to take off their shoes and jackets, don’t have to pull liquids and laptops out of baggage, and can walk through metal detectors without a full-body scan. By doing background checks on Precheck enrollees and scanning law-enforcement databases, TSA offers what is essentially pre-9/11 screening to “trusted travelers.”

TSA wants lots more people enrolled in Precheck to make better use of its designated security lanes, which currently number 590 at 118 U.S. airports. “It’s one of the last great bargains the U.S. government is offering,” TSA Administrator John Pistole has joked. To entice travelers into Precheck and test TSA’s ability to handle more people, the agency has been selecting regular passengers to go through Precheck security lanes and get it printed on their boarding passes. Selection is based on criteria like passengers’ travel history and the route being flown. TSA officers trained in behavior detection also can move passengers they deem low risk from regular queues into Precheck lanes.

Pistole said he has heard the complaints about Precheck lanes getting clogged, and TSA has already decided to stop moving travelers 75 years of age and older into Precheck service, unless they are enrolled, because they sometimes can take 10 minutes to move through. “It used to be great, but recently the Precheck lines have been the slowest of all the lines,” said Northeastern University OM Professor Fred Van Bennekom, who has timed TSA lines. “Sometimes there’s almost no one in regular lines and we’re all backed up at Precheck.”

Classroom discussion questions:
1. Why is the TSA using the Precheck program?

2. What else can operations managers do to speed up the security screening process?

OM in the News: The Customized Bicycle Industry

April 16, 2014

bike custom

The vast majority of bikes sold in the US are made in Asia and a handful of companies dominate the market, writes The Atlantic (April 3, 2014).  Custom-made bikes are a very small slice of the industry. “But right now is the Golden Age in custom frame building,” says one industry expert. “There have never been more builders producing, and the quality has never been higher.” Though thriving, the 100 or so builders in the hand-built bicycle scene make up about 3.3% of the overall U.S. bike industry, valued at $6.1 billion and is sourced almost completely overseas. Almost 99% of bicycles sold in the U.S.are assembled in Asia—93% in China and 6% in Taiwan.

Additionally, just four companies—Dorel, Accell, Trek Bicycle, and Specialized Bicycle—own about half of the 140 bicycle brands available in this country. Technology, though, is very accessible to a one-person or two-person shop or frame builder. A lot of the innovation and creativity comes from the thinking that smaller companies can produce. Technology has made the production side more important by lowering the cost of reaching customers. The internet opens up selling opportunities–and more competition. So production and design capabilities are critical.

Unlike production bicycles that come off the rack in standard shapes and sizes, custom bikes are designed specifically for their owners’ bodies, riding styles, and aesthetic preferences. In determining the angles, rigidity, and flex of the frames they construct, hand builders take into account dozens of measurements and factors—everything from customers’ inseams, arm length and hip flexibility to whether they prefer a stiff ride for efficiency or a softer ride for comfort. The customer also has a say in the bike’s finish, color scheme and design. Ranging in price from $3,000 to more than $15,000, the primary market for custom bikes is affluent people in their 40s or 50s—more men than women—who are steeped in the cycling lifestyle and already own one bike, if not 10.

Classroom discussion questions:

1. Which of the production processes described in Chapter 7 applies here?

2. Why is the industry surviving–and succeeding?

OM in the News: The Environmentally Friendly Paper Cup

April 14, 2014
Starbucks has been serving in paper cups for years

Starbucks has been serving in paper cups for years

Jamba Juice, McDonald’s, and several other food chains are starting to serve their drinks in paper cups. Drinks stay just as hot and cold in  new doubled-walled paper cup as in the old non-biodegradeable foam variety. The paper industry likes it a lot too. Demand for paper cups is growing 5% a year. Environmental concerns from consumers and new bans on plastic foam in more U.S. cities are prompting food chains to make a switch, reports The Wall Street Journal (April 11, 2014).

Jamba Juice said last year it would adopt paper cups for its smoothies and other cold drinks “to improve our environmental footprint.” McDonald’s is replacing plastic-foam cups with double-walled McCafe paper cups at all 14,000 McCafes across the country. The company says it is trying to be more environmentally conscious and cut costs on trash. Dunkin’ Brands Group Inc. has said it is testing paper cups. These companies join Starbucks, which has been using paper for years.

Environmental advocates say paper is easier on the environment than plastic foam because the latter tends to break up in landfills and then is mistaken by animals for food. Plastic foam is difficult to recycle unless it is kept clean and separated from other types of plastics—so many plants in the U.S. don’t take it. It isn’t biodegradable.

Paper cups are slightly more expensive than foam. Extras like double walls for insulation or plant-based lining to make it compostable add to the price. While the paper cups cost a few cents more, McDonald’s says it will make up the difference in the trash. Most of the chain’s waste is paper-based– wraps, fry cartons and Big Mac boxes—so paper cups can go into the same trash bin, and eventually into recycling bins.

Classroom discussion questions:

1. Why is McDonald’s switching from foam to paper cups?

2. Why are plastic foam cups a concern to society?

OM in the News : Wal-Mart’s Green Initiative

April 13, 2014

wal mart greenIn our new chapter, called Sustainability in the Supply Chain, we note Wal-Mart’s role in developing a sustainable product index. A leader in making its operations more environmentally sound, Wal-Mart’s impact on global supply chains is the topic of an interview in The Wall Street Journal (April 9, 2014). Here is what CEO Michael Duke has to say:

It’s not about a corporate team.  It’s about getting 2 million people who work for Wal-Mart excited all over the world about sustainability. But also our partners that we work together with. How do we create a company that has zero waste? But we’ve established a goal to reduce energy consumption. We want to have a reduction of 20% of energy consumption, kilowatt-hours per square foot.

This past year, we established something for our merchandising. It relates to the sustainability index, which lets us measure the products that we sell related to sustainability, from the footprint all the way through to the consumption and the full life cycle of the product. It causes the merchants then to look at everything that we sell and say, “How do we improve the index? 

Working with our suppliers, we went to more concentrated, taking water out of liquid laundry detergent. So the liquid detergent that was this big of a bottle became [a smaller] bottle, but did just as many laundry loads. Recently, we’ve worked with Clorox, and now bleach is that way.

We’ve had a big initiative in other countries to try to raise the bar with factories on how product is manufactured. We kicked off with several hundred suppliers in China to increase energy efficiency, create more sustainable production practices throughout China. We kicked off this past year a big initiative on product made in the U.S. With rising cost of energy and moving product all over the world, it makes more sense in the long-term for more product to be made closer to the consumer.

Classroom discussion questions:

1. Why has the firm made this “green initiative”?

2. What is the sustainability index?



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