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OM in the News: The Ford-VW Electric Car Alliance

July 15, 2019

(From L-R) Jim Hackett, Ford CEO, Bryan Salesky CEO of Argo AI, and Herbert Diess, VW CEO.

As we discuss in Chapter 5 (see the Product Development Continuum and Figure 5.6), alliances are often appropriate for exploiting opportunities where substantial resources and risk are involved. We now see Ford and VW investing in Argo AI to pursue the market for electric and self-driving cars.

Unprecedented shifts facing the auto industry are forcing players to consider new partnerships and potential consolidation, writes Industry Week (July 12, 2019). VW, the world’s top automaker, offers the industry’s most ambitious roll-out of electric models, while Ford, also in the top 10, is developing advanced self-driving technology with Argo. For VW, the Argo investment offers an opportunity to potentially catch up with Alphabet’s Waymo, and GM’s Cruise unit. Road tests and accumulating huge amounts of data are critical for the further development of self-driving cars, and few apart from Waymo are equipped to do it alone.

Besides sharing costs for the development of self-driving cars, Ford will use VW’s electric-car underpinnings that form to backbone of the most aggressive rollout of electric cars in the industry, with VW spending $34 billion. Adding more vehicles to production lines would help gain scale and save costs, and offer Ford a platform to better comply with tougher rules on carbon-dioxide emissions in Europe. Ford will build at least one mass-market battery car in Europe starting in 2023 and deliver more than 600,000 European vehicles based on VW’s platform, dubbed MEB, over 6 years.

“Our global alliance is beginning to demonstrate even greater promise , and we are continuing to look at other areas on which we might collaborate,” said VW’s CEO.

Classroom discussion questions:

  1. Define an alliance.
  2. What are the advantages and disadvantages of an alliance such as one described above?

OM in the News: Picking Inventory at Amazon With Humans and Robots

July 13, 2019

While this Amazon center is highly automated, some tasks are likely to remain in human hands for years to come.

Every day, about 50 truckloads of merchandise turn up at Amazon’s warehouse in Staten Island, NY. One group of workers unloads the goods, and another group distributes them to work stations. There, a third group, stowers, transfers the items onto large shelving units that hold several dozen bins, and are attached to robots that move through the building. Stowers choose the bin where they want to place each item, trying to make the task as easy as possible for the worker, a picker, who will have to grab items out of the bin.

Picking inventory off shelves to fill customer orders is usually the most common job at an Amazon warehouse, and the company has worked for years to make its pickers more productive. At many warehouses, pickers walk miles each day in search of items, but algorithms provide them with the optimal route. In robotics fulfillment centers like the one on Staten Island, the pickers are stationary and the robots deliver items to them. (These warehouses account for more than 50% of its 175 centers).

The robots have raised the average picker’s productivity from 100 items per hour to 300 or 400 –and help explain why Amazon managed to ship more items than ever during last year’s holiday season with about 20% fewer seasonal workers. But robots have also made the job far more repetitive. Unlike pickers in manual warehouses, the pickers on Staten Island have almost no relief from plucking goods off shelves

Amazon  plans to fully automate picking in the near future, reports The New York Times (July 7, 2019). It calculated that there was so much productivity to be gained from reducing the millions of miles its workers walk each year that it was better off finding robots well suited to moving goods all those miles, not worrying whether the system would later be compatible with robotic pickers.

Classroom discussion questions:

  1. Why would it be hard to replace the human pickers?
  2. Outline the process of merchandise flow in an Amazon warehouse that uses robots vs. one that does not.

Guest Post: Student Perspectives on the MyOMLab Project Management Simulation

July 11, 2019

Wende Huehn-Brown is Professor of Supply Chain Management at St. Petersburg College in Florida. She continues her review of our five OM simulations.

This post will focus on the Project Management simulation which uses a construction industry scenario. (My post last month looked at the forecasting simulation).The majority of students felt this simulation reflected how things likely worked for a project manager, even finding the pressure to perform engaging and realistic.

Students get immersed in planning needs and quickly learn decisions cannot be focused on profit entirely to achieve customer expectations. Making decisions and seeing the consequences of those decisions was viewed a valuable learning experience. The process of evaluating feedback is practical and several students reflected the need to better plan their life similarly!

Students often see many job opportunities in project management. This simulation gives them an appreciation for what they do, as well as how unforeseen circumstances beyond their ability to control are likely necessitating attention back to their critical path. One student even commented that he now understands his own need to be more flexible adjusting plans at home.

In this simulation, half of the students said they completed the simulation more than once as they felt motivated to better master the lesson. Students often mentioned their ‘light bulb’ moment was when they discovered they did not plan enough slack early in the project. Learning that trying to offset plans around natural disasters and other issues was much harder to fix later in the project.

About 30% of the students mentioned using Excel to plan and track progress. They found the simulation a great extension, building upon what they learned in the study plans and other MyOMLab assignments. While many found this virtual simulation challenging, the majority of the students felt enlightened and appreciated the opportunity to test their project management skills.

OM in the News: No More Lines in the Supermarket?

July 9, 2019

A woman scans the bar code of an item she is buying at a Tesco store

A man recently strolled down the candy aisle of a grocery store in England, picked up a bar of chocolate and stashed it in his back pocket. He wasn’t stealing. Specially equipped surveillance cameras were tracking both his body and the products he was taking off the shelves, to help him pay for them. The giant supermarket chain Tesco wants to make shopping at its stores more convenient. Tesco is one of several grocers testing cashierless stores with cameras that track what shoppers pick, so they pay by simply walking out the door.

The retailers hope the technology will allow them to cut costs and alleviate lines as they face an evolving threat from e-commerce giant Amazon, reports The Wall Street Journal (July 8, 2019). European efforts to scale up the technology in traditional stores—economically and without privacy issues—will likely be closely watched in the U.S. Grocers in the U.K. often pioneer new technology like online delivery and self-payment kiosks that their American peers eventually adopt.

Tesco plans to open its self-styled “pick and go” or “frictionless shopping” store to the public next year after testing with employees. It then wants to use the technology, developed by Israel’s Trigo Vision, in more stores. The test store uses 150 ceiling-mounted cameras to generate a 3-dimensional view of products as they are taken off shelves. Israel’s biggest supermarket chain, Shufersal, plans to deploy similar technology across all its stores. “The whole notion of waiting in line will vanish,” the company said.

U.S. retailers face concerns about excluding low-income shoppers who tend to pay with cash. Lawmakers in several cities, including San Francisco, have been considering bans on cashless stores. U.S. retailers also operate many large stores, where tracking thousands of products all day long would be expensive.

Classroom discussion questions:

  1. How does this compare to Amazon Go stores? (See our Jan. 28, 2018 blog).
  2. What are the difficulties in implementing the technology in huge supermarkets?

OM in the News: Walmart Turns to Virtual Reality

July 5, 2019

A Walmart employee goes through VR training

When some Walmart store workers want to apply for a higher-paying management role, the company fits them with a $250 virtual reality headset to see if they are the right candidate for the job. The country’s largest private employer is using a VR skills assessment as part of the selection process to find new middle managers, watching how workers respond in virtual reality to an angry shopper, a messy aisle or an underperforming worker.

VR training is becoming more common in a variety of industries to educate a large number of workers quickly or assess the technical ability of high-skilled workers like electricians or pilots. But Walmart’s use of the technology to gauge a worker’s strengths, weaknesses and potential is significant, writes The Wall Street Journal (July 1, 2019), because it pushes VR evaluation out to a massive hourly workforce and in some cases helps determine who gets raises and who gets demoted.

Walmart hopes the technology will limit bias inherent in many traditional hiring decisions, increase diversity and reduce turnover among its 1.5 million U.S. employees in a tight labor market. It started using VR training broadly last year, adding headsets in the backrooms of all 4,600 U.S. stores to train workers how to stock shelves or use new online pickup machines. The VR assessments have been given to over 10,000 workers so far as part of a new store management structure rolling out to some stores that reduces the number of managers. Use of VR reflects broader efforts by employers to quickly, but fairly gauge workers’ abilities as jobs change due to automation and other factors.

Classroom discussion questions

  1. What is the strength of this VR approach?
  2. What are the potential downsides of this technology in employee promotion?

OM in the News: Can the Incentive Wars End?

June 30, 2019

State Line Road is the 12 mile north-south street that divides the part of the region between Kansas and Missour

States and local governments spend $45 billion annually on various economic subsidies for businesses. Concerns have mounted in recent years about the wisdom of competing for business using tax incentives. Research has shown that economic incentives make little difference in where a company ultimately chooses to locate. Despite that, localities can end up engaging in bidding wars, pushing up the cost of new jobs.

Now Kansas and Missouri are nearing a truce in an economic border war that has cost hundreds of millions of dollars and created barely any new jobs, writes The Wall Street Journal (June 26, 2019). The neighboring states would agree to cease using one of the most popular tools in the economic-development toolbox: lucrative tax breaks in exchange for a promise of investment and jobs. Politicians regularly tout the number of new jobs created under such programs.

Companies in the Kansas City region have long been able to take advantage of its unique geography, where the Kansas and Missouri border runs right through the metropolitan area. Companies could receive tax incentives for moving from one side of town to another, even if they just moved jobs from one spot to the other and didn’t create net new jobs.

Since 2011, 5,526 jobs have moved from the Kansas side to the Missouri side, with Missouri paying $151 million. In that same period, 6,729 existing jobs moved from the Missouri side to Kansas for a cost of $184 million. In total, $335 million has been spent on such company relocations. Can the Kansas City truce work elsewhere? “There are opportunities for broader regions to work together,” said one local CEO. “But at the end of the day, people want to attract companies and jobs and prosperity for the part of the country they’re responsible for.”

Classroom discussion questions:

  1. Suggestions for solving this thorny problem?
  2. Discuss some of the recent massive location incentive packages.

OM in the News: Apple Wrestles With Conflicts in its Supply Chain

June 27, 2019

Tim Cook in China recently

Apple is asking suppliers to study shifting final assembly of some products out of China, as trade tensions prompt the company to consider diversifying its supply chain, reports The Wall Street Journal (June 19, 2019). While any major changes would be difficult and could take time to implement, Apple is looking into the feasibility of shifting 1/3 of the production for some devices to S.E. Asia.

Manufacturers of apparel, footwear and other low-margin items have been moving out of China for years due to rising costs, and tariffs have accelerated that trend. Many tech companies, however, find it more difficult to move. Among China’s chief attractions are well-developed chains of suppliers and reliable infrastructure, much of it built in the past 20 years. A plentiful labor force skilled in precision manufacturing as well as trained engineers and pro-business government policies also make China appealing. And for those companies looking to sell into the large Chinese market, producing in the country is more competitive than importing.

Apple remains deeply rooted in China. About 1/5 of its total sales are recorded there, while on the manufacturing side its supply chain accounts for three million jobs. Foxconn, which assembles iPhones, iPads and Macs, is, however, ready to shift some Apple production to plants elsewhere. It has also put more than $213 million into India recently and is looking to invest in Vietnam.

Outsourcing to China helped solidify Apple as one of the world’s largest and most profitable companies. CEO Tim Cook helped build the company’s sophisticated and efficient supply chain there, relying on Foxconn and others to crank out hundreds of millions of iPhones annually.

International moves won’t come easy. Production equipment and assembly lines would need to be dismantled and packed,. They then must be reinstalled, tested and calibrated, and their output rate adjusted. Software and environmental-control systems would need to be put in place, and line operators, engineers and quality managers must be available and trained.

Classroom discussion questions:

  1. Why isn’t more of Apple’s manufacturing coming to the U.S?
  2. What are the advantages and disadvantages of moving production?
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