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OM in the News: Netflix Streamlines its Old Business

July 26, 2015

The Netflix Fremont, CA. factory

The Netflix Fremont, CA. factory

It was just past sunrise at Netflix’s Fremont, CA., DVD operations hub, where metallic arms whirred in a giant glass box and rolling carts holding millions of DVDs lined the walls”, writes The New York Times (July 27, 2015). The company’s iconic red envelopes buzzed through an assembly line at the other end of the warehouse. The machine sucked a returned Netflix mailer into the system and then proceeded to slice open the envelope, identify and clean the disc inside, check that the DVD worked and reinsert it into the original sleeve. That disc was then returned to the storage carts or shipped out to another customer who had requested the title.

About 3,400 discs zip through the rental return machine each hour, 5 times as many as when teams of Netflix employees used to process the discs by hand. The machine symbolizes the way Netflix has managed to maintain a profitable physical DVD operation even as it transforms itself into a global streaming service. Netflix has 5.3 million DVD subscribers, a significant falloff from its peak of about 20 million in 2010; still, the division continues to churn out hundreds of millions of dollars in profit each year. And behind the scenes, OM analysts are trying to improve customer service and streamline the labor-intensive process of returning, sorting and shipping millions of DVDs each week.

Netflix has kept a core base of DVD customers, particularly in rural zones with lackluster Internet service and among people who want access to the breadth of its selection. To hold on to those profitable customers, Netflix continues to deploy state-of-the-art technologies that help trim costs as well as improve customer service. In Fremont, Netflix used to employ about 100 people to handle the returning, sorting and shipping of the DVDs. Today, about 25 employees work through the night, largely assisting the machines.  “Embrace change — that’s what I’ve learned here at Netflix,” says the general manager.

Classroom discussion questions:

1. Why does Netflix continue to invest in warehouse technology?

2. What OM tools discussed in Chapter 7 would be useful to Netflix?

OM in the News: Japanese Hotel Lets Robots do the Heavy Lifting

July 22, 2015
A receptionist robot, accompanied by two other robots, greets a hotel guest demonstrating how to check in the new hotel

A receptionist robot, accompanied by two other robots, greets a  guest checking in at the new hotel

The English-speaking receptionist is a vicious-looking dinosaur, and the one speaking Japanese is a female humanoid, writes The Guardian (July 15, 2015). “If you want to check in, push one,” the dinosaur says. The visitor punches a button on the desk, and types in information on a touch panel screen. From the front desk to the porter that’s an automated trolley taking luggage up to the room, the Henn na Hotel in southwestern Japan, is manned almost totally by robots to save labor costs. The hotel uses facial recognition technology, instead of the standard electronic keys, to register the digital image of the guest’s face during check-in. The reason? Robots aren’t good at finding keys if people happen to lose them.

A giant robotic arm, usually seen in manufacturing, is encased in glass quarters in the corner of the lobby. It lifts one of the boxes stacked into the wall and puts it out through a space in the glass, where a guest can place an item in it to use as a locker. The arm will put the box back into the wall until the guest wants it again. The system is called “robot cloak room.” The concierge is a robot with voice recognition that prattles breakfast and event information.

Japan is a world leader in robotics technology, and the government is trumpeting robotics as a pillar of its growth strategy. Robots have long been used here in manufacturing. But interest is also high in exploring the potential of robots in human interaction, including helping care for the elderly. Robotics is also key in the decommissioning of the three reactors in Fukushima.

Classroom discussion questions:

1. What are the advantages and disadvantages of this robot-driven approach?

2. What can’t the robots do at the hotel?

OM in the News: U.S. Productivity–Is It Missing or in Hiding?

July 20, 2015

productivityI always start my OM course with a discussion of why productivity is so important. As The Wall Street Journal (July 17, 2015) writes: “Productivity matters, because at a 2% annual growth rate, it takes 35 years to double the standard of living; at 1%, it takes 70. Low productivity growth slows the economy and holds down wages.” For well over a century, we have been able to increase productivity at about 2.5% per year. But for a decade, economic output per hour worked—the federal government’s formula for productivity—has barely budged. Over the past two quarters, in fact, it has fallen. Sluggish productivity is raising alarms all the way to Federal Reserve Chairwoman.

Silicon Valley economists, though, say productivity means giving people and companies tools to do things better and faster. By that measure, there is an explosion under way, thanks to the gadgets, apps and digital geegaws spewing out. Consider the efficiency of hailing a taxi with an app on your mobile phone, or finding someone who will meet you at the airport and rent your car while you’re away (a new service in San Francisco). Add in online tools that instantly translate conversations or help locate organ donors. They also make the U.S. more productive, don’t they?

In 1987, during the last period of productivity hand-wringing, Nobel economist Robert Solow quipped: “You can see the computer age everywhere but in the productivity statistics.” From 1995 to 2004, it finally looked like the digital age was paying off: Productivity growth rates closed in on 3%; since 2010, they have dipped below 1%. Yet in Silicon Valley, the idea of a productivity slowdown seems ridiculous to technologists. At the heart of their argument is the free and invaluable Internet search, cutting short the time to, say, learn how to grow geraniums or find the best Mexican restaurant. Many economists question why productivity measures can’t capture the full benefit of improved products and services, such as a refrigerator that signals when the milk is getting low.

Classroom discussion questions:

1. Why is productivity so important to citizens and to nations?

2. How can productivity be increased at, say, the Post Office?

OM in the News: The Search for Cheaper Labor Leads to Ethiopia

July 17, 2015
Women at work in Addis Ababa at the GG Super Garment factory

Women at work in Addis Ababa at the GG Super Garment factory

For more than a decade, Asia has dominated clothing manufacturing, churning out cheap clothes on inexpensive labor that are shipped to malls world-wide. But over the past few years, rising production costs in China and several deadly factory accidents like the collapse of Rana Plaza 2 years ago in Bangladesh, have forced apparel companies to hunt for alternatives from Myanmar to Colombia to Ethiopia. Ethiopia was recently identified as a top sourcing destination by apparel companies.

Africa, reports The Wall Street Journal (July 13, 2015), is the final frontier in the global rag trade—the last untapped continent with cheap and plentiful labor. Ethiopia’s garment sector has no minimum wage, compared with Bangladesh, where workers earn at least $67 a month. Garment workers in Ethiopia start at $21 a month. (Chinese garment workers earn $155- $297 a month.) Most countries in Africa benefit from a free-trade agreement with the U.S. And, unlike other emerging economies such as Vietnam and Cambodia, many African countries can grow their own cotton, which shortens production time.

Big apparel makers are willing to go to great lengths to find new, low-cost sources of production. Consumers have been conditioned to expect a plentiful supply of cheap clothing, which has pressured the margins of companies like Wrangler, Lee, and Calvin Klein. Ethiopia holds the most promise for developing garment production in Africa, factory owners and brands say. “Ethiopia seems to be the best location from a government, labor and power point of view,” says one CEO.

Many African countries lack roads to transport finished clothing, and landlocked Ethiopia doesn’t have a port. The workforce is untrained in sewing clothes. But apparel companies remain interested despite those hurdles. They are drawn to not only the cheap labor, but to the inexpensive power, which is the 2nd-biggest factory cost after workers. The Ethiopian government is building a railway to the port in neighboring Djibouti to help exports leave the country more quickly.

Classroom discussion questions:

1. What are the advantages and disadvantages of locating a new plant in Ethiopia?

2. Will Africa be the next China?

MyOMLab: New MyOMLab Features for Summer and Fall, 2015

July 15, 2015

myomlab  Jay and I would like to keep you up-to-date on the latest features being added to MyOMLab, so here are some nice new additions.

Dynamic Study Modules:

1.) A new “Interactive Report” that helps determine learner participation, topics that are difficult and those that are well understood, and provides details on how students are answering specific questions.  (Live NOW)

2.)  An updated design to the DSM Mobile App, which will provide more consistency between the look and feel of the full web version.  (Available for Fall 2015 classes)

Learning Catalytics:

1.) A “Math Palette” that can be used with student responses on mathematical expression type questions.

  • This feature enables instructors to use Greek symbols, PI,  Logarithm, Exponent, Trigonometric functions, Absolute value, Square root, Nth square root, and Fractions. (Live July 15th)

2.) A redesigned Question Library that makes it easier for instructors to find questions in certain topic areas, and add multiple questions to a module at once. (Live July 15th)

Reporting Dashboard

Instructors and administrators will now be able to select the portion of the report where they would like to see more detailed information and then see the student results that are included in that portion of the report. They will also be able to sort the results, search for individual students, print or export the detailed results, or email one or more students from within the report. (Live Now)

Good OM Reading: The History and Future of Operations

July 13, 2015

hbrProf. Marco Iansiti’s new article in Harvard Business Review (July, 2015), declares: “It’s time to rethink what we mean when talk about operations.  Operations is and has always been what gives an organization the power to act: to create value for its customers; to capture value for its shareholders; and to share value with its ecosystem. In the era of ubiquitous digital technologies, operations empowers an increasing variety of organizations.”

Growing out of the industrial revolution of the late 1800s, OM field took off as the modern economy emerged from the new phenomenon of volume manufacturing. Popular notions of “interchangeable parts” were first applied to the design of muskets and enabled a new breed of industrialists to invent a modular system of production, in which individual components could be manufactured independently and at scale. This gradually led to the concepts of logistics, supply chains, and assembly lines, and formed the foundations of the “American System of Manufacturing,” which grew during the first half of the 20th century and peaked during the 1950s. (In fact, at one time Harvard Business School offered practical classroom demonstrations on the use of lathes and milling machines). The 1960s saw the development of a broad variety of analytical methods to analyze and optimize the flow of goods and information not only in manufacturing systems, but in a wide variety of service contexts.

What is different now? Digital technology and its exploding range of applications in web services, mobile, and now the internet of things means that the development and delivery of software services is transforming the fabric of operating environments. If the essence of OM is providing economic agents with “the power to act,” digital technology is transforming the nature by which that power is defined and delivered, with new operating models that are increasingly open, distributed, and shared across thousands of organizations and contributors. These new models have enabled close to 9 million independent developers to contribute apps to mobile platforms. And they’ve enabled WhatsApp to grow to over 450,000 users with fewer than 30 employees. As such, the design of development tools, operating system APIs, and the user onboarding process for apps have become as crucial to OM excellence as production planning or inventory theory.

 

OM in the News: Human-Centered Operations Management

July 11, 2015
Ton's recent book is called The Good Jobs Strategy

Ton’s recent book is called The Good Jobs Strategy

A big theme in 2015 is jobs, writes The New York Times (July 7, 2015). How will America close the skills gap? Where will the good middle-class jobs come from? Will infrastructure or energy create jobs? Innovation? MIT Prof. Zeynep Ton believes that companies that provide employees a decent living, which includes not just pay but also a sense of purpose and empowerment at work, can be as profitable (or more) as companies that keep their labor costs low by paying the minimum wage with no benefits. Ton believes a “human-centered operation strategy” is needed.

Her thesis comes from studying supply chain and inventory management in the retail industry. What she discovered is that while most companies were very good at getting products from China to their stores, it was a different story once the merchandise arrived. Sometimes a product stayed in the back room instead of making it to a shelf. Or it was in the wrong place. Special in-store promotions weren’t being executed a surprisingly high percentage of the time. She saw this pattern in company after company. Ton realized that the problem was that these companies viewed their employees “as a cost that they tried to minimize.” Workers were not just poorly paid, but poorly trained. They often didn’t know their schedule until the last moment. Morale was low and turnover was high. Customer service was largely nonexistent.

Unconvinced that this was the only approach, Ton decided to search for retail companies — the same kind of companies that needed low prices to succeed — that did things differently. She found some, like QuikTrip, an $11 billion company with 722 stores. Paying employees middle-class wages allows the company to get the most out of them. Employees are cross-trained so they can do different jobs. They can solve problems by themselves. They make merchandising decisions for their own stores. The ultimate result of the higher wages QuikTrip pays is that costs everywhere else in the operation go down. At QuikTrip, says Ton, products don’t remain in the back room, and in-store promotions always take place, as they’re supposed to.

Classroom discussion questions:

1. What did Ton find was the biggest problem at retailers?

2. Discuss the concept she proposes.

 

 

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