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OM in the News: Outsourcing Accounting Jobs to India

October 2, 2015
Workers at Tata Consulting Services in India have replaced Americans

Workers at Tata Consulting Services in India have replaced Americans

When Congress designed temporary work visa programs, the idea was to bring in foreigners with specialized, hard-to-find skills who would help American companies grow, creating jobs to expand the economy. “Now, though,” reports the New York Times (Sept. 30, 2015), “companies are bringing in workers on those visas to help move jobs out of the country”.

For four weeks this spring, a young woman from India on a temporary visa sat elbow to elbow with an American accountant at the New Jersey headquarters of Toys “R” Us. The woman, an employee of a giant Indian outsourcing company Tata, studied and recorded the accountant’s every keystroke, taking screen shots of her computer and detailed notes on how she issued payments for toys sold in the company’s megastores. “She just pulled up a chair in front of my computer,” said the accountant, 49, who had worked for the company for more than 15 years. “She shadowed me everywhere.” By June, 8 Tata workers had produced intricate manuals for the jobs of 67 people. They then returned to India to train Tata workers to take over and perform those jobs there. The Toys “R” Us employees were laid off.

Employers must sign a U.S. government declaration that the foreign workers “will not adversely affect the working conditions” of Americans or lower their wages. In recent years, however, global outsourcing firms have obtained thousands of temporary visas to bring in foreign workers who have taken over jobs that had been held by Americans. But the Toys “R” Us layoffs — and others underway now at the New York Life Insurance, Cengage Learning, and others — go further. They are examples of how global outsourcers are using temporary visas to bring in foreign workers who do not appear to have exceptional skills.

A spokeswoman for Toys “R” Us said that the staff reduction there was part of “designing a streamlined, more efficient global organization to make it fit for growth.The outsourcing resulted in significant cost savings.”

Classroom discussion questions:

  1. Discuss the legal and moral issues here.
  2. How is this different from outsourcing manufacturing jobs to China?

OM in the News: Life Cycle Assessment (LCA) and Sustainability

September 30, 2015

lca“In the last 20 years, life-cycle assessment (LCA) has grown from an academic exercise to an accepted decision making tool for sustainability management,” writes MIT Sloan Management Review (Sept. 22, 2015). As we note in Supplement 5 (Sustainability in the Supply Chain), a large number of companies, from UPS to Frito-Lay to Coke, employ LCAs in their sustainability work, often at substantial expense. At its roots, LCA is a method to quantify total sustainability impacts — like resource use and environmental damage — over the entire life of a product, from “cradle to grave.” While there is value in the basic exercise, the real utility of LCA is in comparing one product’s sustainability impacts with another’s. These comparisons can be made with existing products, or they can be made with future drawing board innovations.

Companies perform an LCA on existing products to assess baseline environmental performance. An LCA product profile will highlight “eco-hotspots” in the lifecycle, which are where the bulk of environmental impact occurs. At Siemens, an LCA of lighting found that the majority of environmental impact came from the use phase in customer’s homes and spurred the company to improve lamp efficiency. Alternatively, LCAs identify hotspots in manufacturing processes, as in the microchip industry, where LCA fingered toxic solvents in chip production as a major impact and led to cleaner substitutes like lemon juice.

When used as a product development tool, LCA can evaluate the environmental implication of design choices at each step of the development. Product modifications, such as new material choices, can be screened not just for immediate environmental impacts but impacts further down the life cycle — say, in the customer use phase or end-of-life. Levi Strauss used this approach when developing its Dockers WellThread line of clothing; through careful design choices it improved manufacturing, use, and end-of-life performance of its clothing. Improving LCA performance may also mean rethinking sourcing decisions. SC Johnson, for example, uses screening approaches to identify toxic materials in the inputs it purchases from suppliers and works to find more environmentally responsible substitutes.

Classroom discussion questions:

  1. Why is LCA now being frequently used as an operations tool?
  2. Provide an example of how a company you are aware of could use LCA to improve its product line.

OM in the News: Volkswagen and Ethics

September 28, 2015
While VW cheated behind the scenes, it publicly espoused virtue, using the Super Bowl to run a commercial showing its engineers sprouting angel’s wings.

While VW cheated behind the scenes, it publicly espoused virtue, using the Super Bowl to run a commercial showing its engineers sprouting angel’s wings.

Volkswagen just got caught cheating, writes The New York Times (Sept. 27, 2015). The global auto giant finally admitted last week that it had installed software in 11 million diesel cars that misstated emissions tests, allowing the vehicles to spew far more deadly pollutants than regulations allowed. About 500,000 of the cars were sold in the U.S., including Passats made in Chattanooga. Disabling the emissions controls brought major advantages, including much better mileage — a big selling point in the firm’s push here.

In 2013, a nonprofit group proposed testing on-road diesel emissions from cars — something never done before, teaming up with California regulators. It was only by chance that the group’s testing of 3 vehicles began with 2 VWs and a BMW. Researchers hit the road, traveling 5 routes with varying terrain and traffic. Almost immediately, the 2 VWs set themselves apart from the BMW with much higher emissions. It was difficult to know what was going on: When the two VWs were placed on a “car treadmill,” they performed flawlessly.

By 2014, the California regulators alerted the E.P.A., which opened an investigation. VW fired back. “They tried to poke holes in our study and its methods, saying we didn’t know what we were doing,” said a researcher. “They were very aggressive. Meeting after meeting, they would try to explain it away.” For a year VW continued to maintain that there was a problem with the testers.

Then the regulators changed tack, examining the company’s software. Modern cars operate using millions of lines of computer code. The regulators made a startling discovery: A subroutine, or parallel set of instructions, was secretly being sent by the computer to what seemed to be the emissions controls. The revelations were stunning and VW’s push to dominate in America may have collapsed in one big lie.

Classroom discussion questions:

  1. Discuss the ethical implications of this case.
  2. How could so many VW engineers and executives have allowed the cover up to last for so long?

OM in the News: Starbucks Scheduling Software Makes the Headlines–Again

September 27, 2015
 Starbucks employees protesting work conditions at a Starbucks in Decatur, Ga

Starbucks employees protesting work conditions at a Starbucks in Decatur, Ga

Starbucks’ CEO Howard Schultz has long presented the brand as involving its customers and employees in something more meaningful than a basic economic transaction. But Starbucks has once again has drawn fire for its workplace practices, reports The New York Times (Sept. 24, 2015). Last year, the firm vowed to provide store employees with more consistent schedules from week to week, and to post their schedules at least 10 days in advance. The company said it would stop asking workers to endure the sleep-depriving ritual known as a “clopening,” which requires them to shut down a store at night only to return early the next morning to help open it.

But in the last 2 years, the combination of a tight labor market and legal changes has raised labor costs for employers of low-skill workers. And there has long been another central obstacle to change: the incentives of store managers, who are encouraged by company policies to err on the side of understaffing. It often turns peak hours into an exhausting frenzy that crimps morale and drives workers away. (Starbucks employees are often responsible for finding their own replacements when they are sick. “A lot of times when I’m really sick, it’s less work to work the shift than to call around everywhere,” said one barista.)

On the question of scheduling, Starbucks uses Kronos state-of-the-art software that forecasts store traffic and helps managers set staff levels accordingly. Using the software to schedule workers 3 weeks in advance typically is not much less accurate than using it to schedule workers one week in advance. “The single best predictor of tomorrow is store demand a year ago,” says Kronos’ VP.

Classroom discussion questions:

  1. Why is scheduling in the service sector complex?
  2. What benefits does Starbucks offer full-time and part-time employees that other food service operations do not?

Good OM Reading: Supply Chain Resilience

September 25, 2015

disasterSemiconductor companies shaken by earthquakes; transportation companies battered by weather; retailers outwitted by rivals — nearly every company has endured some type of catastrophe, and then learned from its experience, disruption after disruption. For example, GM became more resilient with every crisis it faced, from the bankruptcy of its strategic supplier, Delphi, in 2005 to the Japan earthquake in 2012. “Technology is an increasingly important tool in the arsenal of resilience” writes MIT Sloan Management Review (Oct., 2015) .

From sensors to cloud computing to social media, various technologies can help prepare for, detect and manage disruption. Sensors can warn of impending events, from industrial accidents to earthquakes. When interconnected into Internet of Things networks, these smart devices can alert employees to a potential or existing disruption. During and after disasters, every human being on the scene can now be a sensor. Social media channels can provide an informal, real-time damage assessment. But even as technology makes it easier to detect and manage risk, it is also a major source of risk. A cyber-security breach can disrupt as much as an earthquake can– as the many retailers that fell victim to digital theft discovered in 2014. A large part of the problem is not rooted in sophisticated penetration of firewalls, but with insiders whose mobile devices are infected inside the firewall.

Collecting information from every source — weather reports, sensors, industrial intelligence — is only half the job. What organizations do with the information is key. The technology will sound the alarm, but the decision-making process that ensues is the real issue. Consider the actions taken by dispatchers when alerted to an earthquake in Mexico City a few years ago. Those empowered employees were able to shut down the subway system 40 seconds before the earthquake hit, avoiding a possible disaster. Employee empowerment illustrates a key difference between resilient and non-resilient companies: Resilient companies delegate to the lowest level. They organize in advance for disruption and consolidate crucial information in an emergency operations center. With the increasing use of cloud technologies, these centers can be virtual so that employees can work on the disruption, even from home.

OM in the News: Sensors and Sustainability–A New Look at Autos

September 23, 2015

google carCheap, powerful, microscopic sensors are ubiquitously entering the $2 trillion automotive industry, reports (Sept. 21, 2015). It’s a big, inefficient, wasteful and dangerous industry. Here’s how the annual numbers stack up for the U.S.:

  • 33,000 lives are lost and a million injuries.
  • $230 billion of accident cost in the U.S. –about 2-3% of GDP.
  • 50 billion hours (or 1 trillion dollars) of people’s time–around 8% of GDP.
  • 50 billion gallons of imported gasoline (12-15% of the USA’s CO2 emissions).

Autonomous cars appear to be coming fast. Google is leading the way, but Apple, Tesla, Uber and every major car company is following. Today, Google’s self-driving cars have driven far more than 1.5 million miles, safely and fully autonomously. Google’s car are made possible because of their suite of sensors. One in particular is a 64-beam Velodyne LIDAR sensor (Laser Imaging Radar) that, combined with cameras, sonar and GPS, is collecting and analyzing 750 Mb of data per second. The car knows everything that’s happening within 100 meters of the sensor.

The impact: In 20 years there will be more than 54 million autonomous cars on the road, meaning:

  • Saved Lives: Autonomous cars don’t drive drunk, don’t text and don’t fall asleep at the wheel.
  • Reclaiming Land: You can fit 8 times more autonomous cars on our roads. Today, in the U.S. we devote over 10% of the urban land to parking spaces and to our paved highways and roads.
  • Saved Energy: Today we give close to 25% of all of our energy to personal transportation, and 25% of our greenhouse gases are going to the car. If cars don’t crash, you don’t need a 5,000-lb SUV driving around a 100-lb passenger.
  • Saved Money/Higher Productivity: Trading out 4,000-lb. cars for lighter electric cars that don’t crash will save 90% on a person’s automotive transportation bill–plus regain 1- 2 hours of daily productivity, reclaiming hundreds of billions of dollars in the U.S. economy.

Classroom discussion questions:

  1. In what other ways are sensors revolutionizing operations management?
  2. What are the downsides of autonomous cars?

OM in the News: Airbus Lands in Alabama

September 21, 2015
The 1st A321 being inspected in the new plant in Mobile

The 1st A321 being inspected in the new plant in Mobile

Mardi Gras came early this year to Mobile, Ala., writes The New York Times (Sept. 20, 2015).  Following a jazz band, a float bearing waving dignitaries and sequined musicians, was a column of flatbed trucks, laden with sections of fuselage, wings and tail components of an A321 jet that had just made the 3-week Atlantic crossing from an Airbus factory in Germany. They were on their way to a new Airbus assembly plant — its first civilian factory in the U.S. “I think Santa Claus has been here, and he’s left us an airplane,” said Mobile’s mayor.

The $600 million plant, on 116 acres, is the culmination of a courtship ritual, one of many playing out across the country as communities vie for attention and investment from foreign companies. Like many states and cities, Alabama and Mobile sweetened the deal for Airbus with generous tax breaks and other financial incentives.  For Mobile, a city of 200,000, the prospect of 4,000 jobs with Airbus and its suppliers proved especially attractive. Unemployment there hovers at 8%, well above the national average.

Airbus’s foray into the U.S. forms part of a longer-term strategy. The company still lags far behind its rival, Boeing, in the U.S. market. As Japanese automakers did a generation ago, Airbus hopes that by producing aircraft that are “made in America,” it will be able to weaken Boeing’s advantage.

Airbus had eyed Mobile for years. The city’s deepwater port could accommodate ships carrying large structural parts from Europe. Freight trains run nearby, and the site, which is equipped with two long runways, is already home to small aviation maintenance companies and parts suppliers. Locating in Mobile would create a natural hedge against exchange-rate swings between the euro and the dollar and reduce some of the cost of transporting the $16.5 billion in components that Airbus buys from American aerospace suppliers each year. Labor costs were also substantially lower compared with Europe, and Alabama has a right-to-work law, which prevents unions from requiring workers to pay union dues.

Classroom discussion questions:

  1. Why Mobile?
  2. What are the disadvantages of opening a plant outside of Europe?
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