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OM in the News: Toyota’s New Modular Design

April 1, 2015

toyotaToyota just announced a revamped manufacturing process—built on sharing components among vehicles—that the world’s best-selling auto maker says will produce half its vehicles by 2020 and slash costs. But its unveiling follows a path blazed in recent years by German rival VW—a reversal for the Japanese pioneer, whose production system was for decades seen as the gold standard, giving the world such manufacturing concepts as “just-in-time inventory” and “continuous improvement.”

As Toyota developed its new manufacturing process, it found itself chasing Volkswagen, which in 2012 launched vehicles built on its own new global manufacturing platform, reports The Wall Street Journal (March 27, 2015). VW’s effort to lower the huge development costs for 9 car brands produced a building-block system that allows it to develop platforms on which multiple brands can be built in the same factory and often on the same production line, a savings over designs that often required one factory per model. “It used to be: one plant, one line, one model,” said VW’s CEO. The system sets specifications for the basic underpinning of a vehicle and for attaching components from brakes and powertrains to engines.

The effort will save Toyota 30% of the upfront development costs of a new vehicle. Its so-called MQB platform allows multiple models, body styles and brands to be built in the same factory, reducing costs in several ways. The introduction of smaller manufacturing lines, for instance, is expected to reduce initial plant investment by approximately 40%. And the company’s new production process is built on much more expansive component sharing than its existing platform-sharing strategies. Toyota said it plans to increase the use of same or similar components, regardless of vehicle size and styles, allowing it to order parts in bulk and save costs through greater economies of scale.

Classroom discussion questions:

1. Why is the modular design so important?

2. What is the MQB platform?


OM in the News: Georgia’s Massive Distribution Centers

March 29, 2015

port of savannah2Hidden behind the green curtain of Georgia pine forests that surround the Port of Savannah (the nation’s 4th largest container port) are 45.3 million square feet of logistics, storage and distribution centers. Run by some of the most recognizable brands in the country — Walmart, Ikea, Home Depot, Target and Pier 1 Imports — the immense buildings are essential links in the flow of farm, construction and manufactured products streaming out of or into the country through the port, one of the country’s most modern maritime transport installations.

Traffic, which includes everything from containers of frozen Georgia chicken parts heading to Asia and stuffed dog beds coming in from China, is about evenly divided between exports and imports,” writes The New York Times (March 25, 2015).  (Incidentally, companies in the region are leery about opening the interior of their buildings to public view, partly because of the proprietary nature of some of the newer equipment used to move and ship products. Even the systems for storing freight and organizational warehousing techniques are tightly held, a reflection of steep competition).

The largest distribution center is the 2.5-million-square-foot facility owned by Schneider Logistics. Walmart operates a 2-million-square-foot center. Both are expansive enough to completely enclose two typical suburban shopping malls, or all the businesses in Savannah’s historic downtown. Demand for new warehouse and distribution space is intensifying with the economic recovery.

Another significant factor behind the flurry of activity is the expansion of the Panama Canal, a $6 billion project to add a third set of much larger locks to enable bigger container ships to navigate the maritime shortcut across the isthmus. The canal expansion, which is scheduled to open for commercial traffic in 2016, is expected to double the volume of goods making the 50-mile crossing each year to 660 million metric tons.

Classroom discussion questions:

1. Why are these firms building massive distribution centers and warehouses near Savannah?

2. What is the impact of the Panama Canal expansion?

Good OM Reading: What Successful Project Managers Do

March 27, 2015

mit coverIn today’s dynamic and competitive world, a project manager’s key challenge is coping with frequent unexpected events. Despite meticulous planning, the manager may daily encounter such events as the failure of workers to show up at a site, the bankruptcy of a key vendor, a contradiction in engineering guidelines, or changes in customers’ requirements. Some of these events were anticipated but whose impacts were much stronger than expected, some could not have been predicted, and others could have been predicted but were not. All three types of events can become problems. A new research article in MIT Sloan Management Review (Spring, 2015) describes how successful project managers cope with these challenges with 4 approaches.

1. Since project progress depends on individuals who represent different disciplines and parties, collaboration is crucial for the early detection of problems as well as the quick implementation of solutions. But the various parties to the project are loosely coupled, whereas the tasks themselves are tightly coupled. When unexpected events affect one task, many other interdependent tasks are quickly affected. Thus, project success requires both interdependence and trust among the various parties.

2. Project managers faced with unexpected events employ a “rolling wave” approach to integrate planning/reviewing with learning. Recognizing that firm commitments cannot be made on the basis of volatile information, they develop plans in waves as the project unfolds and information becomes more reliable. They develop detailed short-term plans with firm commitments, while also preparing tentative long-term plans (that include redundancies, such as backup systems or human resources).

3. Successful project managers never stop expecting surprises, even though they may effect major remedial changes only a few times during a project. They’re constantly anticipating disruptions and maintaining the flexibility to respond proactively. The book Great by Choice describes one of the core behaviors of great leaders as “productive paranoia.” 

4. When unexpected events affect one task, many other interdependent tasks may also be quickly impacted. Thus, solving problems as soon as they emerge is vital. Corrective action is possible only during a brief window. One study of construction project managers found that they addressed 95% of the problems during the first 7 minutes following problem detection.

Teaching Tip: Cumulative Exams in Your OM Course

March 26, 2015

test“The evidence that students retain content longer and can apply it better when exams and finals are cumulative is compelling,” reports Faculty Focus (March 18, 2015). Will your students yell and scream? Yes, but for the very reason we should be using them: they force regular, repeated encounters with the content. It’s those multiple interactions with the material that move learning from memorization to understanding. Students object because they don’t know how to study for long-term retention. Here are 3 suggestions:

1. Use previous or potential test questions.

Display a question at the beginning of the session. “Here’s a test question I’ve asked previously about TQM. How would you answer it?” Give them time to talk with each other. Have them look in their notes.

Have students create a possible test question. “This material on project crashing is fair game for the exam. What might a test question about it be?” Identify those that are good. If one those student questions ends up on the test, that pretty much guarantees that students will take this activity seriously.

2. Make a habit of asking questions about previous material. A few guidelines:

Do not answer the questions yourself. Give a hint if needed.

Ignore their looks of confusion and claims that they don’t have a clue.

No response? Tell them, “that’s the question we’ll start with in our next class and if you don’t have an answer then, it’s a potential exam question for sure.”

3. Have students do short reviews of previous material.

In class today, say, “Let’s all look at our notes from last week. Take 2 minutes to underline 3 things in your notes that you’re going to need to review for the exam.”

Late in the semester, say, “Take 3 minutes to review your notes from a month ago. Do you have anything in those notes that doesn’t make sense to you now?” Encourage them to write more in their notes if they need to.

Students who regularly encounter previous content in your OM course, find studying for cumulative exams easier


OM in the News: Mexico’s Auto Assembly Lines Surge Ahead

March 24, 2015

assembly linesWhen Audi decided to move global production of its Q5 SUV to North America, the prize went to Mexico. Audi now is finishing a $1.3 billion factory in a small town called San Jose Chiapa. Mexico’s low wages and improved logistics were part of the draw. But for Audi, which plans to ship the factory’s output all over the world, what tipped the scales was Mexico’s unrivaled trade relationships. The Audi deal shows that Mexico’s 40 different free-trade pacts give it allure in the global car market, threatening the American South’s industrial renewal.

Seven Asian and European auto makers have just opened, or will open shortly, new Mexican assembly plants, reports The Wall Street Journal (March 18, 2015). Others have made significant expansions in Mexico, among them Nissan, GM, Ford and Fiat Chrysler. This month, VW said it would spend $1 billion expanding a Mexican plant to build a small SUV for the U.S. and foreign markets. All told, auto makers and parts suppliers have earmarked more than $20 billion of new investments. The wave of investment has turned Mexico into the world’s 7th-largest producer of cars—it passed Brazil last year—and the 4th-largest exporter after Germany, Japan and South Korea. Mexico’s current production of 3.2 million cars and trucks will rise more than 50% to 5 million by 2018. It has been more than six years since an auto maker picked the U.S. South for a “greenfield” plant, meaning one where the company didn’t already have facilities. Such projects have all gone to Mexico lately.

Audi is taking some unusual steps to control its risk. First, to ensure quality, the company created a consultancy that fanned out to 160 parts suppliers in Mexico, encouraging some to change plant design or improve weak production processes. The company created an inventory of local sources for every part and for all raw materials used in the Q5, and has required suppliers to source from its list. And Audi now is training 600 people from Mexico at its headquarters in Germany. Visiting on 18-month stints, the Mexicans train on Audi systems and are indoctrinated with the company’s intense focus on quality.

There is an excellent 3 minute video linked to the WSJ article.

Classroom discussion questions:

1. Why are automakers heading to Mexico?

2. What can the U.S. do to entice manufacturers?

OM in the News: Why China Still Thrives as a Global Manufacturer

March 22, 2015

china outputA small factory near Shanghai, churning out widgets you never see but probably use, provides a perfect snapshot of the state of global manufacturing today. Some workers at the Integrated Micro-Electronics (IMI) facility affix pieces by hand to circuit boards bound for digital displays on European stoves. Others stand at computers, guiding machines that press together components for cars’ steering systems. But IMI is important less for what it makes than for what it represents. A cog in long supply chains, it produces parts for brand-name consumer goods.

Cheap Chinese labor has been crucial to the building of “Factory Asia”, the name given to the region’s complex of cross-border supply chains, writes The Economist (March 14, 2015). Asia first emerged as a manufacturing power in the 1960s, when Japan began exporting electronics and consumer goods. China’s opening up was the gamechanger. The region’s share of the global trade in parts rose from 14% in 2000 to 50% in 2012, 1/2 of which comes from China.  By hosting more of the supply chain, China boosts its manufacturing competitiveness and attracts more investment. IMI, for instance, is headquartered in the Philippines and would have preferred to scale up its manufacturing there, where wages and worker turnover are lower.

Yet China’s factories are still far cheaper than western rivals (despite wages rising 12% a year for a decade). Many pay their employees just above the minimum wage, which at $270 a month in China is less than a 1/4 that in the U.S. And they are more efficient than many rivals. With Chinese factories just starting to pour money into automation, there is scope to improve productivity further. China became the biggest market for robots in 2013. Foxconn, which has more than a million employees in China, says that it wants robots to complete 70% of its assembly-line work within 3 years.

Our discussion of the theory of comparative advantage (Chapter 2) says that countries with lots of cheap workers should produce labor-intensive goods; rich countries should focus on those requiring plenty of capital. But as supply chains spread across borders, regional comparative advantage matters even more. With its bounty of both labor and capital, Asia has built up a huge lead in manufacturing.

Classroom discussion questions:

1. Why is China still the global manufacturing leader?

2. Why is it introducing robots at an accelerated pace?

Teaching Tip: On-Line Courses in Operations–Some Basic Questions

March 20, 2015

online studentThe debate about whether online courses are a good idea continues,” writes Faculty Focus (March 15, 2015). Who’s right or wrong is overshadowed by what the flexibility and convenience of online education has offered institutions and students. Those features opened the door, and online learning has come inside and is making itself at home in most of our colleges. Online learning and face-to-face instruction are routinely compared. Face-to-face instruction has features that online learning can’t have, but then online learning has advantages not possible in face-to-face instruction. Here are 3 basic questions worth considering:

What courses should be offered in the online format? Whatever the students want and will take online has become the default answer. Operations Management does seem to be working well at many large (and small) colleges. MyOMLab is perfectly suited to on-line study as it has numerous self-help ways of tackling homework problems. Videos and readings are built into the software, as well as assessment tools that let students advance when they are prepared.

Who should be teaching online courses? What instructional strengths and weaknesses make a faculty a good choice for online courses? First, faculty who realize the importance of instructional design, or who have access to professionals who do. Online courses need strong coherent structures. They must stand on their own more than face-to-face courses. Course materials matter more in an online environment. Online teachers should have the ability to convey their presence and create a sense of community without being physically present. And good written communication skills are more important than oral ones in online environments.

Who should be taking online courses? The most successful online learners are typically adults who are self-directed learners. That makes online courses a much riskier proposition for beginning students who don’t have clear educational goals and possess marginal abilities as learners. We can’t prevent students from taking online courses, but we need to tell them what skills they need to succeed in those courses.

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