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OM in the News: Amazon’s Robots Get Ready for the Holidays

November 21, 2014
These orange robots are the fruits of Amazon's 2012 purchase of Kiva Systems for $775 million

These orange robots are the fruits of Amazon’s 2012 purchase of Kiva Systems for $775 million

“Amazon‘s robot army is finally falling into place,” writes The Wall Street Journal (Nov. 20, 2014). The Seattle online retailer has outfitted several U.S. warehouses with squat, orange, wheeled Kiva robots that move stocked shelves to workers, instead of having employees seek items amid long aisles of merchandise. At a 1.2-million-square-foot warehouse in Tracy, Calif., Amazon just replaced 4 floors of fixed shelving with the robots. Now, “pickers” at the facility stand in one place and wait for robots to bring 4-foot-by-6-foot shelving units to them, sparing them what amounted to as much as 20 miles a day of walking through the warehouse. Employees at robot-equipped warehouses are expected to pick and scan at least 300 items an hour, compared with 100 under the old system.

In May, Amazon said it planned to deploy 10,000 Kiva robots by year-end, up from 1,400 at the time. At the heart of the robot rollout is Amazon’s relentless drive to compete with the immediacy of shopping at brick-and-mortar retailers by improving the efficiency of its logistics. If Amazon can shrink the time it takes to sort and pack goods at its 80 U.S. warehouses, it can guarantee same-day or overnight delivery for more products to more customers. The robots could also help Amazon save $400 million to $900 million a year in fulfillment costs by reducing the number of times a product is “touched.” The robots may pare 20% to 40% from the average $3.50-to-$3.75 cost of sorting, picking and boxing an order.

This is our 4th blog about the Kiva robots at Amazon over the past few years. To read earlier posts and view a short video, just type Kiva into the search engine box on the right.

Classroom discussion questions:

1. Why did Amazon buy Kiva Systems?

2. What are the advantages and disadvantages of using robots in the fulfillment process.

Meet Jay and Barry at the DSI Meeting in Tampa

November 19, 2014
Barry and Jay lecturing at U. of Illinois-Chicago

Barry and Jay lecturing at U. of Illinois-Chicago

Jay and I will be in Tampa this weekend for the annual Decision Sciences Institute meeting and would like to meet you there. We are interested in hearing your feedback on how you teach OM, how you use our texts, and what we can do to make the books and ancillaries even better. We are both staying at the Marriott, so you can call the rooms and pick a time we can meet for coffee. Or just stop by the Pearson booths and you will probably find us there. Looking forward to seeing you in Tampa!

OM in the News: Airbus Invents the “Flying Doughnut”

November 18, 2014


The Airbus design would revolutionize air travel

The Airbus design would revolutionize air travel

Airbus’s design for a future aircraft looks less like a conventional airliner and more like something from a 1950s sci-fi comic,” writes The Financial Times (Nov. 17, 2014). If a patent application filed by the European aerospace and defense group takes off, future passengers could fasten their seat belts in cabins shaped like giant doughnuts – or flying saucers.The UFO-like shape addresses a problem facing aircraft designers. Cylindrical shapes are good at containing the stresses of pressurized cabins, but huge pressures on the cylinder’s front and rear ends need to be managed with strong, heavy structures.

Other futuristic ideas that the company have patented include the idea of an economy class seat for standing passengers shaped like a bicycle saddle; immersive virtual reality helmets for delivering in-flight entertainment; and, most alarmingly of all, a windowless cockpit.

The “flying doughnut”, however, is the company’s most radical reinvention of aircraft structure. The “simple and efficient” solution would involve passengers not only receiving their in-flight meals from trolleys negotiating curved aisles, but also learning an entirely new way of boarding. Diagrams in the patent application show passengers entering the aircraft through steps leading up to doors arranged around the hole in the doughnut’s middle.

The design fits with the concepts some aerospace companies have been considering as they pursue the next step in fuel efficiency. One exec at GE Aviation said designs such as Airbus’s could be aerodynamically more efficient than traditional designs. “It is an approach that reduces the overall fuel burn for the aircraft.”

Classroom discussion questions:

1. Why is this an important OM issue?

2. What are the advantages and disadvantages of the doughnut concept?

OM in the News: Iowa–Home of Corn and Facebook

November 16, 2014
Facebook's servers require only 75 employees in this massive facility

Facebook’s servers require only 75 employees in this massive facility

Among the big draws in Altoona, Iowa, population 15,000, are Adventureland, a Bass Pro Shop, and the Prairie Meadows casino. “And now,” says The Wall Street Journal (Nov. 15-16, 2014), “it has Facebook’s new data center.” The social network just opened the $300 million facility, a move that highlights the intense competition and lavish tax breaks available from small communities looking for technology bragging rights. Nearly 3 times the size of the city’s sole Wal-Mart, Facebook’s warehouselike structure is packed with refrigerator-sized stacks of computer servers and thick coils of cables. The Altoona facility was built on millions of dollars of tax breaks and about 18 months of negotiation.

Facebook isn’t Iowa’s first high-tech catch. Microsoft  is spending $2 billion on a data center nearby in Des Moines. Google is expanding a facility in Council Bluffs.

States and cities long have vied against each other to lure factories, sports teams and corporate headquarters. Iowa, the county’s largest producer of corn and soybeans, is among more U.S. states rolling out a green carpet for those farming bits and bytes. Officials say data centers broaden their tax base, create well-paying technical and construction jobs and confer bragging rights that will lure companies with bigger hiring plans. They also contribute to the local economy without stressing infrastructure such as roads and sewage plants.

But it remains an open question whether the cost of these facilities in tax breaks and services works out in their favor. Altoona provided Facebook a 20-year exemption on paying property taxes, and Iowa agreed to $18 million in sales-tax refunds or investment-tax credits through 2023. Facebook pledged to spend at least $300 million on the project and create jobs paying $23.12 an hour. “For the tax breaks they often receive, the centers produce few jobs or spinoff benefits,” said an Iowa State U. prof. Tech companies aren’t looking for incentives alone. Availability and pricing of electricity, which can exceed 2/3 of the cost to run a data center, are among the most important factors.

Classroom discussion questions:

1. Are these unusual incentives?

2. What are the risks to each side–Altoona and Facebook?

OM in the News: Walmart’s Inventory Dilemma

November 13, 2014
At this N.Y. Walmart, the produce section is poorly stocked

At this N.Y. Walmart, the produce section is poorly stocked

The dairy section in the Walmart supercenter near Queens, N.Y., was sparsely stocked. Some gallon jugs of milk were dented, others soiled with what looked like dirt. The meat aisle had run out of ground beef patties and strip steak, and residue streaked some shelves. But the disarray and out-of-stock items at this store appear to be examples of wider inventory problems that Walmart is facing. Last month, the retailer issued a confidential “urgent agenda” memo to its 4,965 U.S. store managers pushing them to improve performance in their grocery departments to maximize the chance that items will sell before their expiration dates. The memo also urges managers to reduce backup inventory to trim costs, but warns them not to exceed weekly employee budgets for their stores.

The inventory problems often stem from Walmart’s failure to have enough employees in its stores to do the many chores needed, like marking down aging items, rotating milk or getting needed goods from the back room to stock shelves.  “The fact that they don’t do some of these things every day, every shift, shows what a complete breakdown Walmart has in staffing and training,” says one industry expert (The New York Times, Nov.12, 2014). And a new investment report writes: “If its employees’ growth had kept up with square footage growth in the U.S. over a number of years, Walmart would have 200,000 more employees than its current 1.3 million.”

A visit to the back of the N.Y. store, as well as various YouTube videos shot by employees, point to great clutter and thousands of cases waiting to be put on shelves. A customer service manager at a Louisiana Walmart said, “Understaffing from the sales floor to the front end has greatly affected the store.” She said substantial staffing cuts began in 2010, and added that there used to be 5 customer service managers per shift, while now is there just one. “That,” she said, “sometimes causes long lines and customers having to wait 30 minutes.”

Classroom discussion questions:

1. Why has inventory control been a major OM issue for Walmart?

2. Is this really an inventory problem?

OM in the News: India vs. China As the Next Manufacturing Power

November 11, 2014

india vs chinaWith its chronic blackouts, crumbling roads, and other infrastructure woes, India should have no appeal for Abbott Laboratories’ VP John Ginascol, who is responsible for ensuring that the company’s food-products factories run smoothly worldwide. He can’t afford surprises when it comes to electricity, water, and other essentials. “People like me,” he says, “dream of having existing, good, reliable infrastructure.” Yet Abbott has just opened its first plant in India (producing Similac baby formula), and Ginascol has no complaints. The officials “were able to deliver very good, very reliable power, water, natural gas, and roads,” he says. “Fundamentally, the infrastructure was in place.” In an attempt to build its industrial base nationwide, India is pushing the Make in India campaign, easing restrictions on foreign investment in property projects and overhauling the railroad system., reports BusinessWeek (Nov. 6, 2014).

China became an export powerhouse because of its vast pool of low-wage workers, but it’s no longer so cheap to manufacture there. Pinched by double-digit increases in China’s minimum wages, many companies are looking for low-cost alternatives. Southeast Asian countries such as Vietnam and Indonesia are attractive, but they lack the deep supply of workers available in India. The hourly labor cost in India for manufacturing averages 92¢, compared with $3.52 in China. But, says U. of Maryland Prof. Anil Gupta, India hasn’t come close to matching China’s investments in the roads, ports, and power networks that companies want. “Lousy infrastructure essentially eats up any advantage the country may have on the labor front.”

Micromax, for example, is the top local smartphone brand in India. The company takes advantage of its Indian roots to win customers, but when it comes to putting its phones together, it looks to factories in China. To produce locally, a company such as Micromax would need to have lots of its suppliers nearby; that exists in China, not in India. “You need to have cameras, screens, touch panels, chip sets. You need all that to be around you,” says its Chairman. “If you are able to build that ecosystem, then the Make in India story comes true.”

Classroom discussion questions:

1. What factors have kept India behind China in manufacturing thus far?

2. What are the advantages and disadvantages of locating in India vs. Vietnam or Indonesia?

OM in the News: Coach Gets More Crowded

November 9, 2014

airline seats“Skinny is all the rage on the runway right now,” writes The Wall Street Journal (Oct. 29, 2014). Delta, United, American, Southwest and other airlines around the world have installed seats with trim metal frames and ultrathin cushions, squeezing rows closer together to pack more people on each flight. Three-quarters of Delta’s domestic fleet and 1/4 of United’s now have the new slim-line seating. The lightweight seats—and even some new, skinnier bathrooms—improve airlines’ bottom line, with less fuel burned per passenger and more tickets sold per flight. (The new seats weigh just 24 pounds per passenger, or 30% less than traditional models). But passengers can feel the pinch: Some complain about stiff padding and knee-knocking issues, and liken flying in the new seat to squeezing next to strangers on a crowded park bench.

Each row of coach seats used to have 32 or 33 inches of space front to back for a seated passenger between seat backs—a measurement called seat pitch. But now many big airlines are down to 31 inches of seat pitch. United goes as tight as 30 inches on some of its Boeing 737s. And  it’s going to get worse. Boeing just announced the launch of new, denser seating on 737s called 737 MAX 200, aimed at low-cost airlines. The new MAX 200 version will be fitted with 200 seats. The current version of the same plane typically has 160 seats. Seat pitch on the new version will be as tight as 28 inches.

A survey by TripAdvisor of travelers who had tried the new seats found 83% said they were less comfortable than traditional seats. United, Delta and others say other coach improvements such as video on-demand and Wi-Fi help compensate for tighter seating. “Seats need to be comfortable. But other aspects are important, too, including entertainment, appearance and service,” says Delta.

Classroom discussion questions:

1. From an OM perspective, what are the advantages and disadvantages of the new seats?

2. Why are passengers concerned about the thinner seats?

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