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OM in the News: Walmart’s Food-Delivery Challenges

March 18, 2019

There are many hurdles Walmart and other large grocers face as they race to expand fresh-food delivery and gain an edge in one of the fastest-growing e-commerce segments, reports The Wall Street Journal (March 15, 2019). Despite Walmart’s resources and more than 1.5 million U.S. workers, it mainly relies on a patchwork of independent companies to expand its delivery services as quickly, broadly and cheaply as possible.

A Walmart employee makes her way through a store, collecting items to fill a customer’s online order.

Walmart, the country’s biggest seller of groceries, is facing pressure to push forward in delivery because Amazon, a chief competitor, is making inroads in grocery sales. (Walmart generated $200 billion in U.S. grocery sales last year, more than double Kroger’s take and 5 times as much as Amazon’s in the sector). In recent years, Walmart added a service for placing online grocery orders for parking-lot pickup at 2,100 of its 4,650 U.S. stores. About 35,000 U.S. Walmart employees called “pickers” now weave through aisles compiling online grocery orders– a slower and more costly process than fulfillment from specialized distribution centers.

Walmart is offering delivery from 800 stores, with another 800 planned this year, mostly by joining with firms like DoorDash that crowdsource drivers. Walmart pays a fee to the driving companies and charges customers $8-$10 per order to offset that cost. But filling online orders with store workers in spaces organized for shoppers can be complex and expensive. And drivers for delivery firms need an incentive to lug bulky grocery orders from their cars to customers’ doorsteps. Walmart is testing using its own store workers to make deliveries. And last year, it began arming workers with devices that tell them the fastest route through stores and the optimal order to place items into bags. Future remodels could tweak stores to better accommodate online ordering.

Classroom discussion questions:

  1. What are Walmart’s core competencies (see Chapter 2) as they relate to food delivery?
  2. What are its key success factors (KSF’s)?

OM in the News: Using AI to Keep Trucks on the Road

March 15, 2019

“In the trucking industry, few things will sour a manager’s mood like a mechanical failure disabling an 18-wheel rig in the middle of a big delivery,” writes The Wall Street Journal (March 12, 2019). But if mechanics can predict when a pump or cable or other component is about to fail, they can avoid having a truck stuck on the side of the road.

NFI Industries Inc., a $2 billion N.J.-based company, is using artificial intelligence to anticipate when the truck components in its 2,200 tractors and 9,700 trailers need adjusting or replacing. By predicting maintenance and reducing malfunctions, NFI expects to reduce truck maintenance and repair costs by 7%, or $1.5-$2 million a year.

NFI’s data is taken from truck sensors, odometers, speedometers, repair logs, temperature logs and other sources. The information collected includes truck ages, route distances, payload weights, weather conditions, driving conditions, and even the braking and accelerating styles of individual drivers. That data is analyzed by Noodle.ai, a San Francisco startup that pushes the information through a supercomputer nicknamed The Beast. Noodle.ai’s machine learning technology synthesizes the disparate bits of data to determine when a $100,000 rig needs an oil change, a filter replacement, a brake adjustment or a new set of tires.

As a result, NFI is jettisoning a sacrosanct industry ritual: regular truck maintenance and mandatory oil changes every 30,000 miles. Instead, the company is switching to less frequent tuneups, as prescribed by AI, that are based on a truck’s age, wear, driving conditions and a host of other factors. NFI’s trucks break down about twice a year, on average. The company expects predictive maintenance to reduce those mishaps to 1.5 breakdowns a year per truck. Among the surprising insights AI has produced: NFI had been procuring a truck model from a manufacturer that offered a $10,000 purchase incentive per truck. But over a lifespan of five to six years, that truck model was costing NFI about $25,000 more in maintenance and repair than other trucks.

Classroom discussion questions:

  1. What is the difference between predictive and preventive maintenance?
  2. What is the role of AI at NFI?

OM in the News: The 3-D Printed House

March 13, 2019

The printer can print walls with a maximum height of 8½ feet and a width of up to 28 feet, with no limits on length.

A Texas startup says it will be able to use a 3-D printer to churn out a concrete house within days by year-end, a technology that has the potential to help solve housing shortages, writes The Wall Street Journal (March 12, 2019). The firm, Icon,  says the printer can produce bungalows of up to 2,000 square feet, nearly as large as the typical 2,400-square-foot American home. A year ago, Icon built a 350-square-foot home in Austin using the new technology.

Still, home builders are likely to face skepticism about the look of the new houses, which are poured one layer at a time, producing walls that resemble the folds of a shar pei dog. The technology faces other practical hurdles. Scaling up the production and shipment of expensive and heavy machinery is formidable. Building homes in windy, rainy, hot or cold conditions presents another test.

The new 3-D printer is operated by a tablet and requires only a few people to run and supervise it. The 3,800-pound machine squeezes out a stream of concrete as though it is icing a cake. The machine replaces workers who frame a home and install sheet rock, insulation and exterior finishes. It also produces less waste than a traditional construction site, where a third of materials end up in the trash.

Icon said it costs about $20,000 and takes several days to 3-D print a 2,000-square-foot house. After factoring in the cost of land and other construction such as plumbing and finishes, it works out to a reduction of about 30% in total costs. In Austin, where the average home is roughly $400,000, Icon said it could make a home $120,000 cheaper. A 3-D-printed home could address real problems facing the industry. Construction costs have skyrocketed due to shortages of workers and rising material prices.

Classroom discussion questions:

  1. Why is the industry skeptical about 3-D printing’s widespread use?
  2. What are the advantages of the approach from an OM perspective?

OM in the News: Your Food is Almost Here

March 11, 2019

A DoorDash delivery person in New York City.

“Consumers expect to order books, toys, shoes and anything else they want online and have it show up at their doors quickly and inexpensively,” writes The Wall Street Journal (March 9-10, 2019). Now restaurants and grocers are rushing to satisfy the exact same demand. They’re having a hard time. A hungry customer might order a $9.99 Cuban sandwich from Panera which can arrive at her door in about 30 minutes. The problem for Panera is that each delivery costs $5 after accounting for labor, gas and packaging. Yet to avoid turning away customers, it continues to charge a flat delivery fee of $3 per order.

Food delivery is proving to be a thorny, expensive and crucial puzzle for restaurants and grocers. Billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many in the business wonder if they will ever get the economics right. Most delivery orders remain unprofitable. It costs supermarkets an average of $10 an order to deliver food, but grocers only recoup around $8 from customers because charging more risks turning off shoppers. And 85% of consumers aren’t willing to pay more than $5 for restaurant delivery. Walmart now offers grocery delivery through a half-dozen third parties, but e-commerce losses are expected to increase this year.

Online grocery sales are expected to grow to $86 billion in 2022 from $17 billion in 2017, while sales of online restaurant delivery will grow to $62 billion from $25 billion in that same span.

Unlike easy-to-ship household items, groceries must be packaged carefully and sent in refrigerated trucks. That makes the last mile of the delivery process—from the warehouse to the consumer’s door—a costly, often perilous journey. Restaurant meals must likewise be packed in special containers and delivered within a short window. Restaurants can’t ignore delivery since 1/3 of restaurant meals are now consumed at home! Yet few chains can afford to do delivery themselves, due to the cost of developing order-taking technology and of employing drivers.

Classroom discussion questions:

  1. What OM issues do grocery stores face is setting up online delivery systems?
  2. What percent of your students are using online restaurant delivery? Their comments?

OM in the News: The Tiny Plastics in Clothes Are Becoming a Big Problem

March 8, 2019

Makers of sportswear and fleece jackets are trying to address concerns about tiny plastic particles from synthetic clothing finding their way into seafood and drinking water. While the plastics backlash has focused on single-use products like straws, bottles and coffee cups, synthetic clothing is gaining attention because such garments shed plastic every time they are washed.

Each year, more than a half-million metric tons of microfibers—the equivalent of 50 billion plastic water bottles—enter the ocean from the washing of synthetic textiles, reports The Wall Street Journal (March 8, 2019). While all clothing sheds fibers when washed, synthetic particles—unlike wool and cotton—don’t biodegrade. Most conventional washing-machine filters aren’t designed to trap such tiny particles, and while wastewater-treatment plants capture a big slice, they don’t trap everything. The problem is worse in countries that use lots of synthetic clothing and have fewer wastewater-treatment plants.

The number of microfibers entering the ocean is forecast to accelerate as demand for clothes rises. More than 22 million metric tons of microfibers are estimated to enter the ocean between 2015 and 2050. Microplastics have turned up in seafood, drinking water, beer, honey and sugar, but the impact on human health is unclear. Research shows that ingesting microplastics can hurt the ability of planktonic organisms to feed and the ability of fish and marine worms to gain energy from food.

Pending bills in New York and California would require labels on clothes made from more than 50% synthetic material to tell consumers that these shed plastic microfibers when washed. Patagonia found fabrics shed lots of microfibers on the first wash, but few in subsequent washes. That suggests pretreating garments before they are sold could potentially capture and recycle what otherwise goes down consumers’ drains. H&M said it is exploring whether clothes can be designed to minimize shedding. The brand is monitoring the development of alternative biodegradable fibers.

Classroom discussion questions:

  1. Is this a primarily a sustainability issue or a product design issue?
  2. Are your students aware of the problem?

OM in the News: Retail’s Inventory Woes

March 6, 2019

New survey findings, reported by Supply & Demand Chain Executive (Feb. 28, 2019), uncover the chronic inventory problems affecting the $1.3 trillion retail industry. The vast majority (87%) of corporate retail professionals report inaccurate inventories are to blame for more lost revenue than theft (13%), and the breadth of the problem is apparent: nearly all (99%) survey respondents admit to some kind of constant inventory problem.

Despite major spending on inventory management, catastrophic problems remain.
73% state inaccurate inventory forecasting is a constant issue, meaning retailers end up with too much or too little supply to meet demand
66% say price inaccuracy is a consistent issue, which can lead to unbalanced P&L reports
65% report an inability to track inventory through the supply chain, resulting in potential sales lost

Wasted time is wasted profits.
67% of retailers feel that analyzing inventory on store shelves is not an effective use of employees’ time
Data shows that instead of spending time on sales-driven customer service and upselling, the majority of employee time is spent filling out-of-stock holes on shelves (56%) and pulling items forward on shelves (55%)

Automation is the answer.
76% of retailers say the introduction of robots in stores would improve employee productivity
74% said inventory accuracy would improve as a result, while increased profits would be another direct result of introducing in-store robots
A majority (62%) of retailers feel that employees would embrace robots

An interesting class exercise would be to ask students who have worked in retail what their own experiences have been.

Classroom discussion questions:

  1. What are the causes of such inventory “inaccuracies”?
  2. What suggestions does Chapter 12 offer regarding inventory accuracy?

OM in the News: FedEx’s Delivery Robot

March 4, 2019

The new FedEx Same-Day Bot can climb stairs to deliver packages.

FedEx will soon start testing robots that could make same-day deliveries of medicine, pizzas and other items to consumers’ homes, pushing the parcel-delivery giant into a new market competing against startups like Postmates that use humans for rapid deliveries.

The project makes FedEx the latest in a growing stream of companies to test automated, unmanned machines to make deliveries, writes The Wall Street Journal (Feb. 28, 2019). Amazon and UPS have demonstrated drones to deliver packages in certain areas, and Amazon has displayed a rolling robot it calls Scout in trials on city streets. Grocery chain Kroger recently showed off an unmanned vehicle that can deliver groceries in certain markets, and several robotics startups are testing autonomous delivery robots that use sensors and cameras to navigate sidewalks for short trips, including lunch deliveries to crowded Beijing office buildings.

But on-demand delivery companies such as Deliv and DoorDash that make point-to-point trips carrying food or e-commerce purchases typically rely on armies of couriers who travel by car, scooter or bicycle. The FedEx “SameDay Bot” is starting off with tests planned in the corporation’s hometown of Memphis. AutoZone, Lowe’s, Pizza Hut, Target, Walgreens and Walmart are looking at using the FedEx bot. Retailers envision having robot fleets ready to make same-day deliveries that would be branded with the retailer’s logo and modified for different uses– a cooler for grocery, a heater for pizza.

“The economics of a point-to-point delivery versus a planned or even an overnight delivery, they’re just very different,” says a FedEx exec. “Eventually, we believe the majority of same-day, point-to-point will be delivered using the FedEx SameDay Bot.”

Your students will enjoy the 30 second video embedded in the article.

Classroom discussion questions:

  1. What makes delivery with the robot less than optimal?
  2. What are the robot’s main advantages?
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