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OM in the News: Worker at Volkswagen Plant Killed By Robot

July 2, 2015

robot A technician was killed by a robot at a VW plant in Germany yesterday, reports The Financial Times (July 2, 2015), in a rare accident that touches on concerns about the spread of automation and its impact on jobs. The 21-year-old was installing the machine when he was struck in the chest by the equipment and pressed against a metal plate. The fatality comes as concerns spread about the effects of automation, including fears about whether robots can be controlled when they become more intelligent than humans.

Deaths in factories caused by automated equipment date back decades, but robot-related fatalities are rare as heavy robots are kept behind safety cages to prevent accidental contact with humans. In this incident, the worker was standing inside the safety cage when the accident occurred. VW said the robot did not suffer a technical defect. The machine was not one of the new generation of lightweight collaborative robots that car manufacturers are installing to work alongside workers. Collaborative robots do not have a safety cage but their force and speed can be limited by the way they are built. They also have sensors to detect human movement. Some are also designed to stop if a human gets too close.

VW said last year it planned to use more robots to cope with a shortage of new workers as baby boomers retire in coming years. These robots would take over monotonous tasks, while humans would focus on more highly skilled jobs. The car industry has by far the highest density of robots, but such automation is increasing rapidly in other industries as their cost falls and capabilities increase.

Fatality rates in manufacturing are below the average for the economy as a whole, and have been falling as automation has increased. There were 2.1 fatal injuries for every 100,000 full-time equivalent employees in manufacturing in the US in 2013, down from 2.7 in 2006. (It is about 8 times more dangerous to work in a bar  where the fatality rate there is 16.4 deaths per 100,000 employees.)

Classroom discussion questions:

1. Why are robots an important part of production at VW?

2. What is a collaborative robot?

OM in the News: United Turns to Farm Waste for Jet Power

June 30, 2015
Airlines are under growing pressure to reduce carbon emissions and lower costs

Airlines are under growing pressure to reduce carbon emissions and lower costs

“Sometime this summer,” writes The New York Times (June 30, 2015), “a United Airlines flight will take off from Los Angeles for San Francisco using fuel generated from farm waste and oils derived from animal fats.” For passengers, little will be different — the engines will still roar, the seats will still be cramped — but for the airlines and the biofuels industry, the flight will represent a long-awaited milestone: the first time a domestic airline operates regular passenger flights using an alternative jet fuel.

For years, biofuels have been seen as an important part of the solution to reducing greenhouse gas emissions. And airlines, with their concentration around airports and use of the same kind of fuel, have been seen as a promising customer in a biofuels industry. Airlines have every reason to adapt, not only to reduce pollution but also to lower what is usually their biggest cost: jet fuel.

United is announcing a $30 million investment in one of the largest producers of aviation biofuels, Fulcrum BioEnergy. Fulcrum has developed a technology that turns household trash into sustainable aviation fuel that can be blended directly with traditional jet fuels. It is building a biofuel refinery in Nevada, and has plans for 5 more plants around the country. The technology can cut an airline’s carbon emissions by 80% compared with traditional jet fuel.

United’s deal is one of many that airlines are making. Alaska Airlines aims to use biofuels at least at one of its airports by 2020, and Southwest just announced it would purchase 3 million gallons a year of jet fuel made from wood residues. Last year, British Airways joined with Solena Fuels to build a biofuel refinery near Heathrow Airport. The airlines seem to have little choice. Unlike automakers, they cannot turn to other options like electrification.

Classroom discussion questions:

1. Why is sustainability so important to the airlines?

2. What other measures can airlines take to become “greener”?

Good OM Reading: An MIT Case Study of Hospital Efficiency

June 28, 2015

hospitalAmerican health care is undergoing a data-driven transformation. This MIT Sloan Management Review (June 25, 2015) case study examines the data and operations analysis culture at Intermountain Healthcare, a Utah-based company that runs 22 hospitals and 185 clinics. Data-driven decision making has improved patient outcomes in Intermountain’s cardiovascular medicine, endocrinology, surgery, obstetrics and care processes — while saving millions of dollars in its supply chain. Here are just two examples from this lengthy, but  very readable study, one worth sharing with your class.

SURGERY:  When data showed Intermountain’s chief of surgery that surgical infection rates at the hospital were in line with national norms, he presented the findings to the surgeons there. He said, “You think you’re great, but compared to other hospitals in the country, you’re not above average.” So a committee of clinicians spent a year developing a list of 30 possible causes, then whittled it down to 5 and made recommendations of changes. Doctors hated some, like having to give up bringing personal items into the operating room, including fleece jackets they would wear to keep warm. But in fact, after a 6 month trial, infection rates fell to half the national standard.

SUPPLY CHAIN: Supply costs will exceed hospitals’ top expense–labor–by 2020. The challenge is that a lack of price transparency and no system for sharing cost information with unaware doctors. So Intermountain started a supply chain organization–facing 12,000 vendors, $1.3 billion in expenses, and a culture that ceded much purchasing authority to doctors. One challenge was finding a way to reduce expenses for physician preference items (PPIs)–the devices that doctors request because they prefer them to comparable products. PPIs consume as much as 40% of a hospital’s supply budget. Intermountain launched a system designed to reduce costs by tracking its 50 highest-volume procedures and presenting information to surgeons on their supply options. One thing it found was that some coronary surgeons used sutures that cost $750, while others used sutures that cost $250. The analytics revealed no appreciable difference in patient outcomes. Doctors had no idea that the things they were using cost so much.

OM in the News: Bullet Trains and Freight Trains

June 26, 2015
 Japan Railway’s maglev train set a speed record when it hit 366 mph near Mt. Fuji

Japan Railway’s maglev train set a speed record when it hit 366 mph near Mt. Fuji

Fortune‘s latest issue (June 15, 2015) contains two separate articles that tie together our discussion of railroads in Chapter 11, Supply Chain Management. The contrast between bullet trains and freight trains in the U.S. is evident. The 1st article, “Super Fast Trains on a Roll Globally”, notes that over the past decade, China has built the world’s biggest high-speed-train network, with some 6,900 miles of track. Since the service was first launched in 2007, the number of passengers riding each day has risen from 237,000 to 2.5 million. To give you an idea of the scale, China is investing more than $128 billion in domestic railway construction in 2015–adding another 4,700 miles of passenger tracks this year alone. By comparison, the U.S. invests $1.4 billion annually in Amtrak. Amtrak’s Acela Express is America’s fastest train, yet its average speed is only 68 mph on the trip between Boston and Washington, D.C.  The train does hit 150 mph along a few stretches of straight track.

In contrast, America’s freight rail industry is flourishing. The 2nd article, “Profit Engines on the Rails,”  describes the 153-year-old Union Pacific, which is beating almost every other industrial company in the Fortune 500. The old-economy warhorse generates profits at a rate that rivals those of the best tech, pharmaceutical, and financial services companies. There are 3 reasons. First, Union Pacific’s central tenet is network planning, which mean that every outlay for new track, locomotives, or terminals must yield a return of at least 15%.

Union Pacific's dispatch center in Omaha, where workers direct as many as 1,000 trains per day across 23 states

Union Pacific’s dispatch center in Omaha, where workers direct as many as 1,000 trains per day across 23 states

Second, the railroad enjoys a big, and growing, cost advantage over trucks for long-haul shipments. Third, Union Pacific is an expert at constantly, relentlessly improving its efficiency. In a hugely capital-intensive business, that means increasing its volumes of freight far faster than it adds new employees, locomotives, and boxcars. Its capital expenditure has almost doubled, from $2.2 billion in 2006 to $4.2 billion in 2015.

Classroom discussion questions:

1. Why is the railway industry important to operations management?

2. What are the advantages and disadvantages of shipping by railroad vs. air, trucking, and water?

Existing miles of high-speed rail
China Europe Japan U.S.
6,917 miles 4,699 miles 1,655 miles 456 miles

OM in the News: Wal-Mart Squeezes Its Suppliers (Again)

June 24, 2015
 A Wal-Mart Stores company distribution center in Bentonville

A Wal-Mart Stores company distribution center in Bentonville

Wal-Mart Stores will begin charging fees to almost all vendors for stocking their items in new stores and for warehousing inventory, raising pressure on suppliers as the world’s largest retailer battles higher costs from wage hikes, reports (June 24, 2015). The company  just started informing suppliers about the fees and other changes to supplier agreements. The changes will affect 10,000 suppliers to its U.S. stores.

The changes are aimed at bringing “consistency to the collection of allowances related to the growth of our business and suppliers’ use of the Wal-Mart supply network,” it said in a letter to suppliers. The new agreements mean a larger number of vendors will likely start paying fees, passing some of the retailer’s costs onto suppliers. For instance, Wal-Mart is seeking to charge a food supplier 10% of the value of inventory shipped to new stores and to new warehouses, both one-time charges, and 1% to hold inventory in existing warehouses. Currently, the supplier is not charged anything.

The move marks a shift by Wal-Mart, which unlike other retailers has sought to limit such fees in return for demanding suppliers give it the lowest price. This approach suggests that it is seeking areas to offset its increased investment in wages. Charges like the new-store and warehouse fees are common in the retail industry, but their broad application across all suppliers is a new step for Wal-Mart. The fees for new stores and for warehousing goods are a way of sharing the costs of growth and keeping prices low, a Wal-Mart spokeswoman said: “The changes we have outlined will help us ensure that we are operating at everyday low costs that yield everyday low prices.”

Classroom discussion questions:

1. Why is Wal-Mart changing its supplier agreements?

2. How does this impact the supply chain?

OM in the News: U.S. Steel’s Last Stand–Alabama

June 22, 2015
Nucor's plant in Decatur, Alabama

Nucor’s plant in Decatur, Alabama

“At this unionized U.S. Steel World War I-era mill near Birmingham, the construction of a new furnace signals a major shift for American steelmaking, as the country’s major steel producers face mounting pressure from a flood of low-priced imports,” reports The Wall Street Journal (June 19, 2015). U. S. Steel’s first electric arc furnace in decades is a step toward replacing the iconic steelmaker’s stable of iron-ore-reliant blast furnaces with a more flexible scrap-based process that allows for stopping and starting production when there isn’t enough demand to keep churning out steel.

Just over an hour’s drive away, in Decatur, Nucor, the other big American steelmaker, has been turning old cars and refrigerators into fresh batches of steel for more than a decade, with 2 electric arc furnaces and a flexible, nonunion workforce. The 2 companies are the only U.S.-based steelmakers left in the top 50 global steel producers, a list now dominated by Chinese companies. But they represent starkly different approaches to the same business. U.S. Steel has 2,500 workers currently laid off. Nucor has an unofficial nonlayoff policy. U.S. Steel has lost money in 5 of the last 6 years, while Nucor has been consistently profitable.

The Nucor plant in Alabama produces roughly the same amount of steel as U.S. Steel, 2.4 million tons, but employs 1/3 the workers. Managers and workers emphasize their unique brand of steelmaking. Nucor employees call each other “teammates” and talk up their competitiveness. The company’s incentive-based salary structure means worker salary can range from over $100,000 to less than half that. Workers get a scorecard assessing their performance each time that they make a batch of steel. “A high percentage of our teammates are athletes or military,” said Nucor’s plant manager. “We hire can-do innovative guys who want to bust their butts every day.”

Classroom discussion questions:

1. Outline the human resource differences between the companies.

2. Why are there only 2 American steel producers?

OM in the News: The Battle to Manufacture Planes More Efficiently

June 19, 2015
The interior of the A350. Airbus used a faster and more ergonomic way to build overhead bins, among other tweaks to ease production

The interior of the A350. Airbus used a faster and more ergonomic way to build overhead bins, among other tweaks to ease production

Production mistakes at a giant Airbus factory a decade ago almost crippled the European plane maker, writes The Wall Street Journal (June 12, 2015). Today, the factory is a model of efficiency and a nexus for the company’s efforts to produce jetliners at an unprecedented clip. After years of racing to develop and market new models, both Airbus and Boeing have clear product lines and backlogs for the next decade. Now, each aims to grab market share by building its planes faster and more efficiently than the other—a gambit both have struggled with in the past.

For Airbus, the lessons being showered on its new A350 (its largest twin-engine jet, designed to compete with Boeing’s 787 and 777), come from the A380. That project caused havoc inside Airbus when wiring problems led to multibillion-dollar cost overruns, furious customers and years of management turmoil. On the new A350, lasers guide computerized clamps that push together giant fuselage sections in a process that is 30% faster and 40% cheaper than on the superjumbo. Thanks partly to such improvements, the A350 project has stayed on schedule and on budget.

Efforts to accelerate production have ranged from reducing vacation days to high-tech innovation. Airbus is introducing a giant inkjet printer to paint the tail fins of its planes. The new printer could slash by almost 90% the 170 hours that workers now need to prepare and paint an ornate airline logo. Airbus says that in a few years the printer could double painting capacity and cut related labor costs by half. Another step to hit the target rollout date was tapping veterans. Managers on the A350 line insisted that at least 70% of workers come from other Airbus programs. Efficiency gains like these are vital because building jetliners is so complex.

Classroom discussion questions:

1. How would you define efficiency (see Chapter 1)?

2. Why is efficiency so important to Boeing and Airbus?


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