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OM in the News: Adidas Shifts Production — But Robots Get the Jobs

May 26, 2016
Adidas unveiled a prototype of a "Speedfactory" in Ansbach, Germany this week

Adidas unveiled a prototype of a “Speedfactory” in Ansbach, Germany this week

Adidas is relocating some of its shoe production from Asia to the company’s homeland — but Germans shouldn’t expect a jobs boom, reports NBC Business News (May 25, 2016). What is currently done by hand will soon be carried out by robots as part of what the firm calls an “automated revolution.”

The sportswear giant just unveiled its prototype “Speedfactory” — a 3,000­ square ­foot, high ­tech facility in the southern German town of Ansbach. The first 500 robot-­made high ­performance running shoes are scheduled to be rolled out later this year. “We believe that this is pioneer work for a fully automated production process,” says an Adidas spokesman, adding that the facility will mean the firm “will be able to get the desired product to the customer much faster.”

Adidas moved its production to Asia in the early 1990s, mainly due to rising wage costs in Europe. It kept just one production facility open in Germany, where 700,000 soccer shoes are produced annually. Overall, Adidas manufactures more than 300 million sports shoes per year. The firm initially plans to produce around 1 million shoes in Germany.

A 50,000-square-foot “Speedfactory” is due to be finished in Ansbach by the end of 2016. A second is expected to open in the U.S. next year while a third is also in the pipeline.

Classroom discussion questions:

  1. How does this relate to the return of manufacturing jobs in the U.S.?
  2. What are the advantages of having such a manufacturing facility in Germany, as opposed to outsourcing to Asia?

OM in the News: Planning for Japan’s Next Earthquake–The Really Big One

May 21, 2016

earthquakeA huge earthquake in the Japan’s industrial heartland — costing as much as 40% of GDP and disrupting supply chains at companies such as Toyota — is seen as inevitable, reports The Financial Times (May 19, 2016). Understanding the risk and reducing damage is critical (as we discuss in Supplement 11). The recent magnitude 7.3 earthquake in Kyushu, which killed 49 and destroyed thousands of homes, is a reminder that Japan remains exposed to frequent natural disasters. But a big earthquake directly below Tokyo, in the Nankai Trough, would be an economic shock of global significance. The government puts the odds of a magnitude 8.0-plus Tokyo earthquake at 50% in the next 20 years, 70% in the next 30 years and 90% in the next 50!

A Tokyo region earthquake could be more devastating than the one in 2011 at Tohoku, which left 18,800 dead, thousands homeless and crippled the Fukushima nuclear facility. The global impact of the Tohoku earthquake surprised many. Car plants as far afield as Louisiana and Ohio had to halt production for a lack of parts, from microcontrollers to paint.

Yet Tohoku is on the periphery. Tokyo is a manufacturing heartland, a link in some of the world’s most important supply chains. Fanuc, the world’s leading maker of industrial robots, is based in the region, as are 1/2 the world’s musical instruments (manufactured by Yamaha and Roland), and 1/3 of the world’s Nand Flash memory (by Toshiba), built into every smartphone. But even in this region, two supply chains stand out: it is home to Toyota (which makes 1.6 million vehicles a year there) and to most of Boeing’s Japanese suppliers (which make the 777 and 787 fuselages).

Japanese business learned a lot from the Tohoku disaster. Companies changed their supply chain systems to increase redundancy and have extensive continuity plans. However, even if Toyota’s own plants managed to restart quickly, they are only as resilient as their weakest subcontractors and the regional infrastructure of roadway, ports, and airports.

Classroom discussion questions:

  1. What can firms like Boeing do to protect their fuselage supply chain?
  2. What models in Supplement 11 can be used to deal with this problem?

OM in the News: Can Mexico Renege on Location Incentives?

May 19, 2016
Workers at the Kia plant near Monterrey, Mexico conducted tests on the assembly line, which just opened. last month.

Workers at the Kia plant near Monterrey, Mexico conducted tests on the assembly line, which just opened.

The new governor of the northern Mexican state of Nuevo León is balking at the tax breaks, land grants and other public perks that have underwritten the country’s automotive boom of recent years, reports The Wall Street Journal (May 17, 2016). He is refusing to honor a large portion of the incentives promised by the previous state government to woo a $2.5 billion new assembly plant by South Korea’s Kia Motors. Officials say the incentive package amounts to nearly 28% of the investment by Kia and its suppliers, and they are challenging provisions worth up to $100 million, including a 20-year holiday on payroll taxes.

Kia executives say they want it to be honored. The newly opened Kia plant will eventually produce some 300,000 compact Forte cars a year, most of them destined for the U.S., and Mexico has become one of the hottest countries in the globe for car companies. The country churned out 3.4 million vehicles in 2015, making it the world’s 7th-largest producer and 4th-largest exporter. Kia is one of 5 foreign auto makers that have assembly plants coming on line over the next 5 years. Those plants would increase Mexico’s annual production to 5 million vehicles by 2020.

Offering public incentives to auto makers has been standard practice since the 1980s and were key to U.S. southern states winning automotive assembly plants from the Rust Belt, with packages giving back 25%- 35% of the total investment. With its promise of eventually generating 14,000 jobs, Kia’s move here was seen as a vote of confidence for Nuevo León, emerging from years of gangland violence that had turned it into one of Mexico’s more dangerous corners.

Classroom discussion questions:

  1. What other location factors, besides incentives, drew Kia to Mexico? (See Chapter 8).
  2. Compare the Kia location decision to that made by Mercedes, which chose Vance, Alabama, for its first U.S. plant in 1993.

OM in the News: Wal-Mart Decides to Challenge Amazon

May 16, 2016
Wal-Mart is building a regional delivery network and will also tap carriers to deliver more of its packages.

Wal-Mart is building a regional delivery network and will also tap carriers to deliver more of its packages.

Wal-Mart is testing a 2-day shipping subscription service and building a regional delivery network, in the boldest attempt yet by a major traditional retailer to compete head-on with Amazon Prime. As part of the project, Wal-Mart will shift more inventory to 8 massive e-commerce warehouses around the U.S., the last of which will be built by year’s end. It is part of a $2 billion investment the company is making in technology and logistics to boost e-commerce sales, reports The Wall Street Journal (May 13, 2016).

The company will also put its major transportation fleet and logistics know-how up against Amazon as it makes a play to meet Amazon on its own turf. Wal-Mart will tap regional carriers to deliver more of its packages. But it will also use its 6,000 tractor-trailers, one of the 5 largest private trucking fleets in the country, along with its 4,600 U.S. stores, to take on what has become one of its biggest rivals.That could make Wal-Mart less reliant on FedEx, which handles the bulk of Wal-Mart’s parcels.Trucking more of its own packages closer to the shipping destinations for what’s known as last-mile delivery would allow the company to save on one of the higher-cost elements of shipping a package across the country.

A large part of Wal-Mart’s success is its ability to move all those products cheaply and efficiently around the country. Since 2014, Wal-Mart’s online sales increased 12% to $13.7 billion. But Amazon still sends out about 7 times the number of packages Wal-Mart does in North America.

Classroom discussion questions:

  1. What OM advantages does Amazon have over Wal-Mart in this battle for e-commerce sales?
  2. What advantages does Wal-Mart have?

Teaching Tip: Building a p-Chart Using Airline Frequent Flier Award Data

May 12, 2016

Today’s Wall Street Journal (May 12, 2016) has an article that you can turn into a teaching exercise, on a topic your students will all have opinions about, namely airline travel award redemption. Of the 25 airlines studied, the Journal found a wide discrepancy in ease of booking a coach seat using frequent flyer miles.

airline seatsBest among the US carriers: Southwest, which had award seats available for 100% of queries, and Jet Blue, which offered seats 92.9% of the time. Among the worst US carriers: American, which did not have seats for 43.6% of requests.

The overall average of  76.6% (which was better than I expected) for the carriers shown can be used as the center line in a p-bar chart. Using Excel, Excel OM, or POM for Windows, your students can compute 3-sigma upper and lower limits and draw conclusions about which carriers are “out of control.”

This should lead to a nice discussion about service quality (Ch.6).

OM in the News: The Energy-Minded Hotel

May 11, 2016
A guest room key card at a Sofitel

A guest room key card at a Sofitel Hotel

American hotels have long resisted key cards (where guests must place a room key into a slot on the wall to activate the lights and temperature control system) or other energy-saving systems. Energy was cheap, and hoteliers feared that guests, who routinely left their rooms with the lights and air-conditioner on, would see any check on their energy use as an inconvenience. “But the aversion of hoteliers in the U.S.,” writes The New York Times (May 10, 2016), ” is slowly shifting as Americans have become more energy conscious and more states and municipalities have adopted rigorous building codes for energy use.”

In 2014, 29% of hotels had a sensor system in guest rooms to control the temperature, compared with less than 20% in 2004; and more than 75% had switched to LED lighting, up from less than 20%. Other energy-saving measures had also been more widely adopted. Energy costs typically represent 4-6% of a hotel’s overall operating expenses, with the largest share for heating and air-conditioning.

Many major hotels in the U.S. have digitally controlled thermostats to monitor the temperature in guest rooms. And a growing number have installed sophisticated systems that sense when a room is occupied. When a hotel guest enters a room, the device allows the temperature to be manually controlled within a certain range — from 60 to 80 degrees, for example — and then sets it back into an energy-saving mode when the room is vacant again. Such a system can save a hotel 20% or more in energy costs. And many utility companies now offer rebates to hotels that have installed digital thermostats and other energy management devices.

Classroom discussion questions:

  1. What are the downsides of key card technology?
  2. Why is sustainability of growing concern in the hotel industry?

OM in the News: The Productivity Mystery

May 9, 2016

productivity“The higher that U.S. productivity is, the better off Americans will be,” writes The Wall Street Journal (May 5, 2016). But despite constant advances in software, equipment and management practices to try to make America more efficient, economic output is merely moving in lock step with the number of hours people put in, rather than rising as it has throughout modern history. From 2011-2015, the labor productivity measure shows only 0.4% annual growth in output per hour of work. That’s the lowest for a 5-year span since 1977-1982, and far below the 2.3% average since the 1950s.

Productivity, our topic in Chapter 1, is one of the most important yet least understood areas of OM. Over long periods, the reason an American worker makes much more today than a century ago is that each hour of labor produces much more in goods and services. If current productivity rates persist, our grandchildren will be no richer than we are. Here are 3 possible scenarios:

(1) Sad Scenario: The productivity slowdown is real, and it’s not going away. Earlier waves of innovation in technology (a computer on every desk) and management strategies (outsourcing) have been fully put into place, and so are no longer increasing productivity.

(2) Neutral Scenario: There is measurement error in how we count. Entire industries are being transformed in ways hard to account for in data on GDP, particularly in technology and services.

(3) Happy Scenario: Businesses are adding workers in preparation for the future, but it will take time for their investments to pay off. For example, engineers are hard at work trying to perfect driverless cars. At present, they are a sap on productivity — they put in thousands of hours of work with no economic output to show for it. But if successful, they could radically increase productivity in the decades ahead.

Classroom discussion questions:

  1. Describe the difference between single-factor and multi-factor productivity.
  2. Provide a 2nd “happy” scenario.
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Andreas Wieland’s supply chain management blog for academics and managers

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