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OM in the News: Zara Turns to RFID for Inventory Control

September 19, 2014

zara“For more than a decade, radio frequency identification chips were touted as a game-changer for retailers,” writes The Wall Street Journal (Sept.17, 2014). But when they tried to apply the technology, merchants such as Wal-Mart and JC Penny discovered that what looked good on the drawing board didn’t always work so well in warehouses and stores. Now, apparel powerhouse Zara says it has learned from competitors and is rolling out RFID technology throughout its operations. The chips, about twice the size of a mobile-phone SIM card, help the world’s largest fashion retailer keep better track of its stock and replenish its clothing racks more quickly. “It gives us great visibility, knowing exactly where each garment is located,” says the CEO.

RFID chips can store information about whatever item they are attached to and, when prompted, emit that data via radio signals to a scanner. Zara is burying the chips inside its garments’ plastic security tags, an innovation that allows the chain to reuse them after the tags are removed at checkout. The Spanish retailer says it bought 500 million RFID chips ahead of the rollout, or 1 of every 6 that apparel makers are expected to use globally this year.

A major benefit is inventory-taking, a task that used to tie up a team of 40 employees for 5 hours in a Zara store. Now, 10 workers can sail through the job in half the time, waving scanning devices that detect radio signals from each rack of clothing. Before the chips were introduced, employees had to scan barcodes one at a time, and these storewide inventories were performed once every 6 months. Now Zara carries out the inventories every 6 weeks, getting a more accurate picture of what fashions are selling well and which are languishing. And each time a garment is sold, data from its chip prompts an instant order to the stockroom to send out an identical item. Previously, store employees restocked shelves a few times a day.Traditional retailers usually know where 60% of their inventory is at any time. With RFID technology, accuracy levels exceed 95%.

Classroom discussion questions:

1. What benefits accrue from RFID tags in this industry? What are the downsides?

2. Why did Wal-Mart slow its use of RFID?

Guest Post: Total Team Collaborative Learning of OM in Spain

September 18, 2014

flammOur Guest Post comes from Phillip Flamm, who teaches OM in the ISQS Department at Texas Tech University

I have recently returned from teaching operations management this past summer in Texas Tech’s Study Abroad Program in Spain. I divided my 24 students into 8 teams of 3 each with these provisos:

  • Each member of the team will get the same final grade for 80% of the class so they will be forced to help each other
  • Grades will be based on 2 exams (taken as a team), 2 or 3 team presentations, and a peer grade (from team members plus an attitude grade from me)
  • One presentation will be a tutorial of quantitative material
  • The second presentation will be the team solution of an OM case scenario

As part of the class, I also arranged tours of 2 manufacturing plants.

Students studying abroad normally want to talk about what they did and saw while traveling. The teams involved in Total Team Collaborative Learning only wanted to talk about how much they learned and how much they retained. The students truly enjoyed the OM class and the lowest group exam grade was 88/100. (I give the exact same tests during Fall and Spring back in Texas and the average is 64.) This seems to suggest that the teams learned faster, and retained more.

In the Summer Study Abroad 2014, we increased from 15 to 24 students over the prior year, with the final grades staying the same. We:

  • Utilized special power point pages with 3 slides per page, with lines for notes; teams reviewed notes together following lectures to clean up any questions they might have
  • Worked daily quizzes together for a team grade
  • Prepared quantitative teaching sessions 3 times during the month long class
  • Worked homework problems together for a team grade

OM in the News: UPS Tries to Increase its E-Commerce Efficiency

September 16, 2014

uosIn 1998, as much as 85% of e-commerce purchases were shipped between businesses. But along came Amazon, which helped convince a generation of Americans to buy even humdrum household items like diapers and toiler paper online rather than at the store. UPS drivers who used to drop off a bunch of heavy packages each day at one retailer, now make several stops scattered across a neighborhood, delivering one lightweight package per household. The shift required more fuel and more time, increasing the cost to deliver each package.

Last Christmas season, nearly 60% of all U.S. deliveries by UPS were e-commerce packages to consumers, compared with about 40% for all of 2012. Today, UPS’s haul includes much of Amazon’s 2-day-delivery Prime business. On residential routes, as much as 1/3 of trucks are filled each day with Amazon packages. And last Christmas, when UPS was overwhelmed by a pileup of online shipments at its massive Louisville facility, there were hundreds of trailers stacked up filled with Amazon orders.

UPS’s responses, reports The Wall Street Journal (Sept. 12, 2014): (1) Increase spending on new technology and extra manpower by 21% to $2.5 billion in 2014; (2) A pricing change that will encourage UPS customers to use boxes that fit the items being shipped, freeing up space in trucks for additional deliveries, or else pay extra; (3) Major savings from its route-optimization system, Orion. (Orion analyzes millions of pieces of data to predict the most efficient way to deliver and pick up packages along each driver’s route. Every mile cut saves the company $50 million a year, with half of UPS’s delivery routes in the U.S. using Orion by 2015.); and (4) My Choice, a service that alerts customers the day before a home delivery is set to arrive, provides an estimated delivery time and lets customers tell the driver where to leave the package. (Already 10 million customers have signed up for the $40/year service).

Classroom discussion questions:

1. How has OM helped UPS’s efficiency?

2. What new threats does UPS face in its shipping business?

OM in the News: American Airlines Returns to “Peak” Scheduling

September 13, 2014
Shorter connecting times mean runs of up to 1.1 miles in Miami's airport

Shorter connecting times mean runs of up to 1.1 miles in Miami’s airport

“American Airlines is making its Miami hub more hectic—on purpose,” writes The Wall Street Journal (Sept. 11, 2014). Instead of spacing flights evenly throughout the day, the airline just started bunching them together. The change restores an old format of “peak” scheduling, grouping flights into busy flying times followed by lulls when gates are nearly empty. American next year will “re-peak” schedules at its largest hubs in Chicago and Dallas-Fort Worth.

Airlines shunned peak schedules at hubs more than a decade ago because they meant higher costs such as more people and equipment, created too many delays and forced passengers to sprint through terminals to make connecting flights. Recently though, the industry has gravitated back to peaks and valleys as a way to fill seats and generate more revenue. “An additional person per flight will make a difference,” said American’s CEO. The company will gain $200 million more a year from re-peaking its schedules at hubs.

But travelers may have even less time to make flight connections or to eat. And airlines, airports and federal agencies are re-evaluating how they manage baggage, cleaning crews and security checkpoints with the new highs and lows in foot traffic. Peak scheduling packs planes better because it creates more possible itineraries, with shorter connection times. In Miami, 42 flights depart between 9 and 10 a.m. Then between 10 and 11 a.m., only a handful are scheduled to take off. The process repeats during the day with 10 “banks” of flights that fill about 45 gates at a time.

There are added costs to re-peaking. American hired 67 more gate agents and 150 baggage handlers and other ground workers. It had to purchase more belt-loaders, dollies and tugs that push planes out from gates. There are other pitfalls to airlines’ clumped schedules. If bad weather hits at the wrong time, diverted flights and missed connections can cause widespread delays.

Classroom discussion questions:

1. What are the advantages and disadvantages of this approach?

2. What other OM ideas could American use to increase efficiency?

OM in the News: Apple Again Faces Supplier Labor Violations

September 12, 2014

apple workerApple has once again been accused of poor and unsafe working conditions at one of its factories in China,” writes The Christian Science Monitor (Sept. 4, 2014). A  report compiled by China Labor Watch, which has previously targeted Apple for labor violations, says that a factory in Suqian has violated Chinese laws in addition to violating policies put in place by Apple and its supplier, Catcher Technology. Labor violations at the factory included “excessive overtime work, long work shifts while standing, a lack of occupational safety training and heavy dust in the workplace.” Subsequent investigations, 16 months after the initial investigations, found that working conditions had not improved and, in some cases, had worsened.

The 22 labor violations documented include discriminatory hiring practices, insufficient safety training, and a lack of protective equipment provided to workers handling toxic chemicals. Fire exits were blocked, while flammable alloy dust and shavings filled the air. Working overtime was mandatory for all workers, who were forced to work up to 100 hours of overtime per month, almost 3 times the 36-hour limit prescribed by Chinese law. Apple replies it has sent a team to investigate operations at the factory.

China continues to be Apple’s largest source of suppliers, in addition to being the place where nearly all Apple products are assembled. But factory safety for workers assembling Apple products has come under close scrutiny in recent years. About 150 Chinese workers at Foxconn threatened to commit suicide 2 years ago unless their working conditions were improved. Earlier this year, an Apple audit uncovered human rights violations at different levels of its supply chain, including abuses of migrant laborers and the use of underage workers. In response, Apple has increased supplier audits from 173 in 2012 to 451 last year.

On a separate note, the release of the iPhone 6 this week is expected to add 1% a month to China’s export growth for the rest of 2014.

Classroom discussion questions:

1. Why do these supplier problems persist?

2. What more can Apple do?

OM in the News: Designing the Perfect Airline Seat–To Maximize Revenue

September 10, 2014

airplane seatYesterday’s New York Times (Sept. 9, 2014) featured not 1, not 2, but 3 articles on how airlines are addressing the issue of cramped seats! In the 1st, we find that the European budget carrier Ryanair just announced an agreement to purchase up to 200 new Boeing 737s (a $22 billion deal), each of which will allow that airline to squeeze an additional 8 seats into the single-aisle airframe. Ryanair will fit the planes with a whopping 197 seats, stripping out the front and rear galleys to help the redesign.

The 2nd article, titled “In Flight Rage,” confirms that cramped conditions in the back of a plane can severely test passenger equanimity. We have seen this in recent episodes in which pilots have made emergency landings when a few passengers have fought over seat-reclining. One prof, comparing people to livestock, finds that international regulations on flying animals specify the “need space to travel comfortably and on a long journey, the animal must be able to stretch, turn round, drink and groom itself.” Sounds better than a coach seat!

airline seatingThe 3rd piece gets to the heart of the matter–ergonomics, and ties in perfectly to Chapter 10. The real issue, says Prof. Kathleen Robinette at Oklahoma State U., is that airline seats are not designed to fully accommodate the human body in its various shapes and sizes. “We are fighting each other, but the seats are not designed right,” she says. Her study of 4,431 people found that seats are designed for a man in the 95th percentile of measurements.  This means 1 in 20 men will be using seats that are too small for them. “That’s about 10 people on every plane, as well as all the people sitting next to them,” she adds. A big flaw in seat design, however, is that men in the 95th percentile are not necessarily larger than women. For about 1 in 4 women, the seat will be too small at the hips. Of even greater concern is the risk of blood clots, including a potentially deadly condition called deep vein thrombosis, which can occur when sitting in a way so you can’t move for about a 1/2 hour.

Classroom discussion questions:

1. What are the OM tradeoffs here?

2. Why is ergonomics an important issue on planes?

OM in the News: Tesla and the Mother of All Factory Chases

September 8, 2014

Tesla NevadaAfter pitting five potential host states against one another in a quest for hundreds of millions of dollars in incentives, Tesla Motors reports in The New York Times (Sept. 5, 2014) that it has struck a deal with Nevada for construction of a sprawling factory to build batteries for electric cars and the power grid. To secure the deal, Nevada paid dearly. The package of tax breaks totals about $1.25 billion over 20 years. Gov. Brian Sandoval acknowledged that there were concerns over the deal’s cost, but said that the agreement would “change Nevada forever” and that he expected the enormous tax breaks to pay dividends down the road.

Whether it will work that way is not clear. But the prospect of having such a large plant nevertheless set off “the mother of all factory chases,” according to an industry expert. The deal goes beyond tax breaks. It means Tesla would pay no sales tax for 20 years, no property tax and payroll tax for 10 years, and it would receive other tax credits tied to job creation and development. Nevada will also grant Tesla discount electricity rates for 8 years and make millions of dollars in road improvements around the factory site.

An important element for Tesla is the anticipated cost reduction is moving the fabrication of various components to a single spot, making the factory more of a campus than a single operation. Today, bringing the main components of the battery together is expensive. CEO Elon Musk describes the current system as “being put in a box, and then on a truck and then on a boat, and going through customs and stuff like that.” Still, analysts question whether the plant’s vast size will result in the huge price cut, an essential element of making the factory useful. At the heart of the strategy is to build a kind of battery that resembles the ones used for years in laptops and hand-held electronics.

Classroom discussion questions:

1. Referring to the incentive issue in Chapter 8, discuss Nevada’s decision.

2. Who is taking the most risk in this location decision?

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