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OM in the News: Blockchain’s Power to Transform Industries

March 19, 2018

A blockchain-based ledger of 2.2 million diamonds, created by Everledge, can trace the journey of each stone from when it’s pulled from a mine to its purchase at a jewelry boutique.

We have blogged a few times about blockchain recently, and are adding material on it to our SCM and MRP chapters as we prepare for the text’s new edition (coming out Jan. 1st, 2019). “What is blockchain? It’s essentially a secure database spread across multiple computers,” writes The Wall Street Journal (March 12, 2018). Everybody has the same record of all transactions, so tampering with one instance of it is pointless. “Crypto” describes the cryptography that underlies it, which allows agents to securely interact while also guaranteeing that once a transaction has been made, the blockchain remains an immutable record of it.

Blockchain has the power to transform many industries because it’s well-suited to transactions that require trust and a permanent record, and it typically requires the cooperation of many different parties. In this way, blockchain resembles “the cloud.” It gives industry new business processes and new ways to charge for services.

Take logistics. Already, 1.1 million items sold or on sale at Walmart are on a blockchain—including chicken and almond milk—helping the company trace their journey from manufacturer to store shelf. Global shipping giant Maersk uses the same technology to track shipping containers, making it faster and easier to transfer them and get them through customs. Other companies using blockchain technology to track goods include Kroger, Nestlé, Tyson Foods and Unilever.

Israel’s CartaSense puts internet-connected sensors on freight pallets to determine when goods may be delayed or damaged. Its customers, rather than physically handing off scanned and signed paper documents, use a blockchain database on which freight companies can record every stage of the journey of a package, pallet or shipping container.

Classroom discussion questions:

  1. Why is blockchain becoming such an important SCM concept?
  2. Provide another example of where it could be used.

Video Tip: Product Design at Levi Strauss

March 15, 2018

Levi Strauss’ new design lab has created video game-like software that allows designers to build new styles on an iPad, reports Fast Company (Feb. 28, 2018). This allows them to take one of Levi’s styles like the 501 in one of a few basic colors, then use buttons and levers to distress the jeans, add studs, rips, or other design elements. The lab makes the 3D graphics more realistic than other tech on the market. The digital file that the designers produce can be immediately sent to a laser machine, which will produce the design on a prototype of real jeans.

This is very different from how jeans are typically prototyped, which involves taking an image and having people manually re-create it on a pair of jeans using sanding and chemical treatments. With this new system, the images are realistic, and the laser turns that vision into reality within 90 seconds, reducing the prototype process to just 3 steps. Previously, with all the drawing, reiterating, and then manually creating prototypes, it took 12-18 steps.

That digital file can also be sent to a manufacturing facility, where an entire season’s worth of jeans can be made using automated lasers rather than manual labor. This creates a much safer environment for workers and reduces the number of harsh chemicals used. Levi’s is trying to phase out, for example, potassium permanganate, which has terrible side effects when inhaled, including sore throat, burning sensations, and labored breathing.

The process could radically speed up the time it takes to bring a new design to market. If a new trend emerges, a designer could whip up a prototype within hours, which could then be produced at scale within months. This is important because there is a lot of waste in the fashion industry, a sizable chunk of which comes from new clothes that were never sold. Between 80 and 100 billion never-worn garments are sent to landfills globally every year!

The Fast Company article includes a very interesting 5-minute video describing the design process. (Click on the photo called Lasers! Gas!)

OM in the News: Software Robots for Office Work

March 13, 2018

Software robots have become one of the hottest fads in business automation, as a new wave of AI is poised to sweep through the back-office functions of large corporations,” writes The Financial Times (March 9, 2018). Software robots replicate the routine work humans often do in front of computer screens.

The rise of the bots promises to bring sweeping changes for cubicle dwellers. “Some 4 million in the U.S. are likely to see their jobs taken over by the end of 2021,” says one analyst. Each bot can handle the work it would take 3-4 full-time workers to perform. At $8,000-$9,000 a year in licensing costs, they are a lot cheaper.

But many automation experts say that the majority of these displaced workers will be kept on. Most companies will use the technology — known as “robotic process automation” — to automate only the most tedious aspects of back-office jobs, then retain the staff to work alongside the bots doing more interesting things. (There has been particular interest in Japan for the robots, given demographic trends that point to a coming shortage of workers).

Supporters think that applying machine learning to data could give companies important new insights into their operations. The automation software is also a natural place for bringing other types of AI into companies. Once a routine task is automated, it often makes sense to “plug in” an AI service from a third-party — for instance, using a vision system to analyze signatures as part of a bill-paying process. One insurance company, for example, has used bots to automate some of the work of 1,500 people who process new insurance requests, while also tapping into 3rd party “cognitive service” software to help make underwriting decisions.

Classroom discussion questions:

  1. Do you agree with the industry analyst’s comment regarding the 4 million jobs?
  2. Provide other examples of how office robots could make for higher productivity.



OM in the News: Levi’s New Laser-Wielding Robot That Makes Ethical Jeans

March 11, 2018

You know those jeans that your students love, the ripped ones that look like they’re 30 years old? (Even though they just bought them.) You probably don’t realize it, but a team of designers took weeks to figure out exactly where to fade the indigo and position the tears for the most authentic vintage look, reports Fast Company (Feb. 28, 2018). Then, factory workers used sandpaper and harsh chemicals to make it look properly worn in. The jeans washed for hours, so that the blue color would fade out–even though those dyes end up polluting the groundwater.

At Levi’s, a brand that talks about trying to be as sustainable and humane to workers as possible, the ugly reality of what it takes to make jeans—especially when you are selling $4.6 billion worth of them a year—isn’t something that is brushed under the table. “Our company offers over 1,000 different finish looks per season, which is mind boggling,” says a Levi exec. “They’re all produced with very labor-intensive, repetitive motion jobs, and a long list of chemical formulations.”

But the firm has just introduced a brand new laser technology that will, in a snap, do what now takes much longer. The breakthrough uses infrared light to etch off a very fine layer of the indigo and cotton from a pair of jeans, creating the same kind of faded finishes and tears in 90 seconds flat. “It started as an idea for a change in a manufacturing process,” says Levi’s supply chain officer. “But it has actually evolved into a holistic digital transformation that covers the whole supply chain from end to end.” Using the laser-wielding robots in Levi’s factories has the potential to eliminate many repetitive, dangerous tasks that are an everyday part of the job for denim workers– and help cut down on the 13,500 workforce. The new laser tech saves time, effort, and the Earth.

Classroom discussion questions:

  1. Are your students aware of how faded jeans impact the Earth?
  2. Why is this a supply chain issue?



OM in the News: China Is Turning Ethiopia Into a Giant Fashion Factory

March 9, 2018

“We’ve arrived at a new moment for the global apparel industry,” writes Businessweek (March 5, 2018). Ethiopia, a drought-afflicted, landlocked country of 100 million on the Horn of Africa is transforming itself into the lowest rung on the supply chain that pours out fast fashion and five-for-$12.99 tube socks. Lured by tax incentives, promises of infrastructure investment, and ultracheap labor, countries the Western world once outsourced production to, particularly China and Sri Lanka, are now the middlemen ramping up production here for Guess, Levi’s, H&M, and other labels. These industrialists like Ethiopia because the government wants them as much as they want cheap labor and tax breaks. Since 2014, Ethiopia has opened 4 giant, publicly owned industrial parks; it plans 8 more by 2020.

“The plan is to create a total of 2 million jobs in manufacturing by the end of 2025,” says a government official. “We are an agrarian nation now, but that will change.” The regimented days in factories are unfamiliar to most Ethiopians, though. “They get only 30 minutes for lunch,” one politician says. “Their backs hurt. They are exhausted. Those jobs, they make everyone sick.” Managers, primarily Sri Lankans brought in to impart the efficiencies achieved in their country’s sweatshops, would view this comment as epitomizing one of their main complaints: Ethiopia hasn’t equipped its citizens for the rigors of industry.

Outsourcing to the developing world has allowed Western consumers to ignore or remain oblivious to the environmental damage and working conditions behind the rising sea of inexpensive clothes. PVH, the parent company of Tommy Hilfiger and Calvin Klein, is the sole American manufacturer here. PVH views itself as a “supply chain pioneer,” because it sets out to develop the production capacity it needs and to directly oversee it. “If you believe industrialization is a good thing and raises people up, out of poverty,” says PVH’s Supply Chain Officer, “then the apparel industry has been the trigger in most developing countries.” As to doing business in Ethiopia: “This is no different from China in the late 1980s to 1990s.”

Classroom discussion questions:

  1. What are the advantages and disadvantages of manufacturing in Ethiopia?
  2. What are the main OM issues for a company opening a plant there?

OM in the News: At KFC, a Bucketful of Supply Chain Trouble

March 6, 2018

Changes in the KFC distribution system left 600 KFCs in England without chicken.

Diners don’t care about supply chains, distribution centers, or logistics. All they want is their meal. But 2/3 of the 900 British KFC restaurants were closed for 4 days a few weeks ago. The reason: There was no chicken.

“Reliable supply chains that can make—or break—a business’s ability to operate smoothly,” writes Businessweek (March 5, 2018). And it’s the case not only for manufacturers, but also for the restaurant chain that serves up a 14-piece “bargain bucket” of  chicken for $24 to British patrons.

When the supply chain goes awry, it can wreak havoc on products that are particularly time-sensitive. That’s what happened at KFC, which pared back its logistics network to cut expenses. The epicenter of the so-called #KFCCrisis was in Central England at a KFC distribution center, which suffered a breakdown in its first week as the hub of the chain’s new strategy. Tons of chicken spoiled there or in the backs of trucks as drivers awaited instructions that never came. Lost sales tallied in millions of dollars.

Just prior to the shutdown, KFC dropped its longtime food-delivery partner, Bidvest, and switched to a pair of German outfits, DHL and QSL. KFC promised “a new benchmark” in food supply, consolidating from 5 regional distribution sites to just the one. But changing long-standing supply practices can be risky, especially true with fresh meat, which is prone to contamination and must be shipped in refrigerated trucks.

KFC’s U.K. restaurants get most of their chicken from two huge suppliers. From those suppliers, the meat is sent via truck to the distribution center, and that’s where things went awry. DHL provides trucks and warehousing, while QSL is responsible for stock management. Under the previous deal with Bidvest, chicken was sent from the regional distribution sites to KFC stores. With the new system, all meat is dispatched from the Central England hub to satellite depots, then moved to smaller vehicles for the last leg. That’s a tried-and-true model for auto parts and parcels, but chicken and car parts are not the same.

Classroom discussion questions:

  1. What went wrong at KFC’s supply chain?
  2. Why should KFC be concerned (and a few dozen stores are still closed)?




OM in the News: Productivity and “Digitization”

March 3, 2018

Lufthansa tests humanoid robot “Josie Pepper” at airport in Munich last week.

The next wave of productivity growth will be driven by digitization, writes The Wall Street Journal (Feb. 23, 2018). The diffusion of new technologies into everyday use holds promise for bringing back the kinds of annual 2% productivity growth seen in the past, but digitization is still at an early stage in many industries. Looking at the past half-century, the time from commercial availability of new technologies to 90% adoption ranges from about 8 to 28 years.

It’s a matter of some urgency. U.S. worker productivity grew below its long-run average for the 7th straight year in 2017, advancing a meager 1.2% from 2016. In Chapter 1, we note that labor productivity—real economic output divided by the numbers of hours worked—is key for economies to grow, improve living standards and keep inflation in check.

The waning of the 1990s productivity boom and the aftereffects of the financial crisis dragged down productivity growth by 1.9% on average across western countries since the mid-2000s. The retail sector is one of the laggards on digitization, along with agriculture, construction, hospitality, health care, government and education. Industries at the forefront of digitization include technology, media, and professional and financial services.

The retail industry is in the throes of technological disruption, with bricks-and-mortar retailers facing steep competition from e-commerce sales. Yet only 9 cents out of every dollar spent on retail is spent online, suggesting there is still enormous room for digitization.

Classroom discussion questions:

  1. Why is productivity an important OM issue?
  2. What is meant by digitization, and how can it impact productivity?


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