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OM in the News: World Economy Shudders as Coronavirus Threatens Global Supply Chains

February 25, 2020

Travellers are few at this Chinese railway station.

The last time a virus outbreak hit China, in 2003, the global economy emerged  unscathed. Now, nearly 2 decades later, the effects of the coronavirus threaten to ripple around a world transformed by China’s boom. Chinese consumption and production power growth from Asia to North America, Europe and beyond. Manufacturers world-wide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods. “This is a once-in-a-generation event,” said one CEO.

With fears of contagion keeping Chinese workers home, production is getting pinched, writes The Wall Street Journal (Feb. 23, 2020). In the U.S., GM warned that a lack of China-made parts could slow assembly lines at plants in Michigan and Texas. Hyundai suspended one of its main assembly lines in Ulsan, S. Korea, because it couldn’t get parts from China. Asiana, S. Korea’s 2nd-largest airline, put its 10,500 employees on staggered shifts of 10 days’ unpaid leave. Videogame giant Nintendo said that shipments of its flagship Switch gaming console are delayed as it can’t get parts from Chinese factories. Apple won’t meet revenue projections for the first quarter as the epidemic shuts its China plants. Container-ship operators are preparing profit warnings as dozens of trips out of China are canceled. In Vietnam, an economy highly dependent on Chinese supply chains, exports in January fell 17%.

Major electronics producers that depend on Chinese parts also have suspended output because of the outbreak. Others are weighing relocation. Japan’s exports to China are expected to drop 7% this quarter from the prior one. An extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output. “The  current situation is more serious than we thought,” said S. Korea’s president.

Classroom discussion questions:

  1. How can companies evaluate disaster risk in their supply chains? (See Supp. 11 in your Heizer/Render/Munson OM text)
  2.  What impact will this virus have on supply chains in 90 days if it is not contained?

OM in the News: The Changing Technology in Supermarket Layout

February 23, 2020

Which products are placed where on shelves can move sales up or down significantly.

The biggest U.S. food makers are finding that supermarkets are taking away prime shelf space, writes The Wall Street Journal (Feb. 19, 2020).

Grocers are now relying on their own proprietary research to decide how and where to shelve certain products, rather than counting on companies that sell well-known brands to tell them what to put on what shelf at what price. Kroger and Walmart, for example, are using increasingly sophisticated software to decide where to place items and which products to shelve next to one another—factors that can move sales up or down several percentage points. As we note in Chapter 9, Layout Strategies, “the objective of retail layout is to maximize profitability per linear foot of shelf space.”

Large chains have invested in beefing up their ability to collect and analyze data from customers. That is changing the grocer’s relationships with suppliers and the way it lays out stores. The diminished power of “category captains”—the top sellers of products such as soup or cereal—is the biggest change to the way food is sold in the past 30 years. Retailers once relied on big consumer-goods companies when making decisions about allocating shelf space because the companies were the experts in their respective food categories. Grocers also didn’t want to invest in consumer insights, and they were happy to take the hefty slotting fees (also noted in Ch.9) big brands pay for prime space.

Now, retailers are more focused on doing what it takes to maximize sales growth even if it means giving up some of those fees by stocking more of their store-branded products. Supermarkets are also gaining leverage over retailers with generic products sold under their own brands at cheaper prices than name-brand goods. Kroger owns 33 manufacturing plants to make various store-branded products, which make up a growing share of its sales and shelf space.

Classroom discussion questions:

  1. Explain the tradeoff between slotting fees and the new data analytics approach?
  2.  How does supermarket layout differ from department store layout?

OM in the News: The Fraught Future of Recycling

February 21, 2020

The American recycling industry is in crisis — and cities are on the front lines.

The economics undergirding the U.S. recycling system have fallen apart, writes Energy and the Environment (Feb. 15, 2020). Unable to absorb the extra cost, some cities are opting to kill recycling programs altogether — just as public concerns about climate change are ratcheting up. Why?  (1) China, the biggest buyer of U.S. recycled materials, has closed its doors. Before the ban, the U.S. was exporting around 70% of its waste to China. (2) Changing consumer behaviors have made the trash-sorting process more complex and expensive.

 A major Maryland recycling center area used to turn a healthy profit from processing recycled materials from a 50-mile radius. Now it’s having to pay vendors to truck material away. The Prince William County facility operates up to 22 hours a day to process about 550 tons of thrown out paper, plastic, aluminum and glass delivered there daily.

  • Despite the heavy machinery and increased automation involved, the process is still extremely dependent on humans.
  • On each shift, 28 “sorters” sift through the material as it rolls down a series of fast-moving conveyer belts. The workers spot and pull out non-recyclable trash from the stream so fast that they look like card dealers in a game of blackjack.
  • Contamination is a huge problem. People throw surprising things — Christmas trees, old carpet, shoes, diapers and even cinder blocks — into their recycling bins.

 

 About 60 other cities are struggling to make recycling work or have cancelled their programs. Others have stopped accepting glass, paper or plastics. (Baltimore County just admitted that it hasn’t recycled the glass its collected for the past 7 years). Some have seen massive increases in their costs. Omaha, Nebraska, received a single bid for recycling services for $4 million, twice the city’s budget. Milton, Massachusetts, experienced a 36% increase in recycling costs.

Classroom discussion questions:

  1. How is this a Triple Bottom Line issue? (See Supp. 5 of your Heizer/Render/Munson OM text).
  2. What can companies, government, and society do?

OM in the News: The Wine Supply Chain

February 19, 2020

Combined with a decreased demand for wine, drinkers can expect to get better value for every drop they drink this year. The cheaper prices may even last up to 3 years. Vineyards in Northern California began planting thousands of acres of new vines in 2016, and with more efficient harvesting methods, it has led to more bountiful harvests of grapes. Having more grapes to make wine sounds good, but if there’s not enough demand to support increased production, the surplus grapes go to waste.

“Since it takes up to 5 years to bring wine to market from the initial planning stages of planting a vineyard, it makes hitting future demand very complicated. In this case, we overshot demand.” said an industry expert. Wine consumption has dropped for the first time in 25 years, with more Americans turning to liquor and ready-to-drink cocktails. “Today, the wine supply chain is stuffed,” says the newest State of the Wine Industry Report. “This oversupply, coupled with eroding consumer demand, can only lead to discounting of finished wine, bulk wine and grapes.”
Prof. Howard Weiss, from Temple U., who sent us this link, has these 3 OM takes on the article:
1. Forecasting. The forecasts did not anticipate the change in the type of alcohol wine drinkers would turn to.
2. Efficiency. We usually think of improved efficiency as a positive, but in this case it led to oversupply.
3. Supply chain. The vineyards have a 5 year lead time in their supply chain between vineyard planning and creating the wine.
Classroom discussion questions:
1. How does this supply chain differ from that in other industries?
2.  Why is forecasting so difficult?

OM in the News: Eight Drivers for Manufacturing’s Next 50 Years

February 16, 2020

In the last several decades, we’ve seen major disruptions to the manufacturing environment. We experienced the “China Price,” which prompted offshoring of manufacturing operations, nearly decimating U.S. manufacturing. More recently we’ve seen the trend toward personalized products, resulting in smaller lot sizes, thus straining traditional economies of scale production. And the “Amazon Effect” of rapid turnaround in orders and delivery times of 2 days or less continues to challenge the longer lead times typical in manufacturing.

“What might manufacturing look like in 2030, or 2070?” asks Industry Week (Feb, 10, 2020). In the future we will still have large-volume, low-mix operations that will continue to harvest the advantages of economies of scale production. However, the competitive dynamics of manufacturing will change for a large portion of the traditional manufacturing world. Industry Week sees 8 drivers to the future:

1. Quality will still be Job 1, but how we achieve it will change. With sensors everywhere, critical operational variables will be exposed.

2. Economies of scale will coexist with economies of one production. 3D printing/additive manufacturing technologies will have matured and will be cost competitive.

3. Because of 3D printing, production will be more closely tied to either the location of these raw materials or the location of the customer.

4. Automation will continue to replace repetitive tasks, and the costs of robots and their control systems will decline to a point where even smaller manufacturers can take advantage of them.

5. Products will be made through naturalistic design and their materials will be functionally graded to combine materials in new ways.

6. Humans and digital tools will not only coexist; they will be tightly integrated through AI. Wearables and exoskeleton supports will increase human performance and improve safety.

7. Strategic partners will collaborate to create end-to-end solutions that manufacturers can deploy with limited tweaking.

8. Manufacturing operations will be guided by a unified architecture that links the edge (asset) to the cloud.

Classroom discussion questions:

  1. What changes do you think will take place in manufacturing in the next decade?
  2.  Where can 3D printing play a role in change?

 

 

OM in the News: Tyson’s Computer Vision Technology Improves Inventory Accuracy

February 14, 2020

Tyson is rolling out a computer-vision-enabled inventory tracking system at facilities where it packs chicken into trays for grocery stores, writes Supply Chain Dive (Feb. 11, 2020) The system can read SKU information and weight, replacing what Tyson described as communication by hand gestures followed by manual inventory entry. By the end of the year, Tyson’s automated inventory tracking technology will combine computer vision, machine-learning and edge computing to expand its speed and processing capability.

Automated inventory tracking using computer vision led to a double-digit increase in inventory accuracy in the 3 facilities currently using the technology. The company plans to expand the program to all 10 of its poultry plants.

Though cold, wet storage environments make implementing new technologies difficult, the payoff of real-time accurate inventory information is already evident for Tyson. The company recently opened the Tyson Manufacturing Automation Center, where it works with manufacturers and suppliers to develop new technologies and trains employees to use it. The company has spent $215 million on new technologies in the last 5 years.

Precise, real-time inventory visibility can increase the frequency with which Tyson fulfills grocery customer orders on time and in full in the best of times. But inventory management is particularly key in times of uncertainty, and Tyson is dealing with plenty. The disruptive forces of shifting global trade policy, a fire at an important Tyson facility, and African swine fever, which all distorted usual supply and demand patterns, made a relevant forecast next to impossible.

Major meat companies are leaning toward similar monitoring technologies and automation, whether through production or processing. Cargill is starting to use computer vision to track animal health in dairy operations. But a more consumer-directed application inspired Tyson’s work. Similar technology enables Amazon’s cashier-less stores, which led executives to explore applying it in poultry plants.

Classroom discussion questions:

  1. Describe what a vision system is (See Chapter 7 of your Heizer/Render/Munson text).
  2.  How will this help Tyson control inventory?

OM in the News: Your Foam Coffee Cup Is Fighting for Its Life

February 12, 2020

Dart’s single-use containers.

The Dart Container Corporation, which makes foam products, is a manufacturing behemoth and produced a fortune for the family behind it. Dart makes, by the millions, white foam cups, clamshells, coffee cup lids, and disposable forks and knives — the single-use containers that enable Americans to eat and drink on the go. It employs 15,000 people across 14 states. But now many of its products are being labeled as environmental blights contributing to the world’s plastic pollution problem, writes The New York Times (Feb. 11, 2020).

Cities and states are increasingly banning one of Dart’s signature products, foam food and beverage containers, which can harm fish and other marine life. Maine and Maryland banned polystyrene foam containers last year, and nearly 60 nations have enacted or are in the process of passing similar prohibitions. Environmental groups say polystyrene containers are difficult to recycle in any meaningful way. They believe the harm that plastic pollution can inflict on marine life is immediate. “There is overwhelming evidence that this material is seriously damaging the earth,” said a Maryland lawmaker.

But Dart is not backing down. After Maryland voted to ban foam, Dart shut down its warehouses in the state, displacing 90 workers and sending a signal to other locales. San Diego recently decided to suspend enforcement of its polystyrene ban in the face of a lawsuit by Dart. Even as the market for polystyrene shrinks, many environmental groups want to abolish foam entirely because if it ends up as litter, it can break down easily into small pieces, harming fish and animals that ingest it. For humans, plastic fibers have been found in everything from drinking water to table salt.

The same properties that can make foam an environmental problem also make it profitable to manufacture. The costs are low because foam is 95% air and can be made using relatively little raw plastic.

Classroom discussion questions:

  1. Relate this issue to the Triple Bottom Line, as discussed in Supplement 5 in your Heizer/Render/Munson text.
  2.  What is Dart’s position in terms of sustainability?