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OM in the News: The U.S. Productivity Picture–Good or Bad?

December 13, 2017

“Perhaps 2018 will be the year productivity finally begins to pick up,” writes The Wall Street Journal (Dec.12, 2017). Technologies such as speech recognition, online chatbots and machine learning are being quickly adopted, capital spending is up, and tight labor markets give companies an incentive to find better ways of working. But productivity defies forecasters, who have wrongly predicted an uptick in productivity for over a decade. The real story is how little anyone really understands about what moves productivity, even though as we write in Chapter 1: “Only through increases in productivity can the standard of living improve.”

The basics are in Equation (1-1): Labor productivity is real economic output divided by the numbers of hours worked. How many gingerbread lattes can each Starbucks barista churn out per hour? Give them a better machine or better training and the productivity rises. Economists say it is years of weak corporate investment, a dire education system, an aging workforce, and a shift from high-productivity manufacturing to low-productivity service sector that have made productivity worse.

The first half of the 1990s had a “productivity paradox” of technological change being highly visible, but not showing up in the economic data. Just as with the past decade’s development of smartphones, apps, financial technology and machine learning, it took time for laptops and PCs to increase output. It happened suddenly, with productivity leaping 2.5% in 1996 and growing that fast on average over the next decade.

So a big problem for forecasters is that technological change comes in unpredictable waves. In the long run productivity is all about innovation. But productivity did leap 3% in the 3rd quarter of this year, and while quarterly data are volatile, it is plausible that a productivity pickup is coming soon. A lesson many economists take from the past 10 years is that productivity has permanently slowed. Perhaps a better lesson is just that it is hard to forecast.

Classroom discussion questions:
1. Why is the productivity rate important to ordinary people around the world?

2. Why is productivity important to operations managers?



OM in the News: Wal-Mart Cracks the Code for Online Groceries in China

December 10, 2017

An employee fills electronic orders for the 1-hour delivery platform at a Wal-Mart store in Shanghai

Amazon may have sent a chill through the U.S. supermarket business with its purchase of Whole Foods. But grocers also had better keep an eye on the world’s largest brick-and-mortar retailer—Wal-Mart Stores—for some lessons on the future of online grocery shopping. Wal-Mart has already developed a big online grocery delivery business in China, capable of transporting fresh produce from its shelves to homes within an hour.

To accomplish that feat, it’s created a network of chilled mini-warehouses, used A.I. to tailor inventories, and employed an army of crowdsourced deliverymen to rush meat, fruits, and vegetables to customers’ doorsteps. That could provide it with insight and experience to keep tech upstarts from disrupting it out of one of its core U.S. businesses.

Fresh food is considered the last frontier of Chinese e-commerce. “Wal-Mart’s efforts in China revolve around trying to tap into a smartphone, convenience-craving, population,” writes Businessweek (Dec. 4, 2017). 

At the heart of its operation are what it calls “dark stores” that stock 1,500 different products such as bananas, pork ribs, dumplings, and chicken feet. Workers grab printouts of the online orders, zip through the aisles placing items in a bag, and exit the other side, where they hit a button summoning a delivery driver. The drivers are independent contractors with cellphones and scooters. The time from picking up the order printout to hitting that button can’t exceed 10 minutes, or else the 1-hour delivery is in peril.

Shelves are stocked with products based on order patterns for the surrounding area—meaning a store in northern China may have more soup ingredients as winter comes. The company adjusts each store’s online inventory every 4 weeks, and the added information about fresh grocery demand from web orders helps boost the accuracy of Wal-Mart’s product forecasting for offline stores.

Classroom discussion questions:

  1. Is this online operation transferable to the U.S.?
  2. How does this approach differ from typical supermarket shopping?

OM in the News: The World’s Trash Used to Head to China

December 7, 2017

A scrap dealer in Hong Kong

Since the 1990s, the world has shipped its waste paper, discarded plastic and unwanted metals to China, where they are destined to be used as raw materials to help power the country’s export-driven manufacturing boom. In 2016, China imported about $18 billion worth of what the government calls solid waste.

But China doesn’t want to be the rest of the world’s trash can, writes The New York Times (Dec. 4, 2017). Over the summer, regulators in Beijing started an unusually intense crackdown on what they called “foreign garbage,” citing health and environmental concerns.

As with so much else in the global economy, China’s decision is rippling through a vast supply chain that stretches from big waste companies in Texas to the “cardboard grannies” in Hong Kong that pick through mounds of paper and plastic. Scrap dealers are rushing to find buyers elsewhere in Asia, but the Chinese market is so large that it cannot be easily replaced. “It’s almost like they turned the spigot off overnight,” said the president of Waste Management.

As China revved up its manufacturing machine to power growth over the years, officials were willing to tolerate some of the downside of scrap, namely the pollution of local soil and rivers by low-end recycling practices. But China’s economic might increasingly means that it no longer needs to make such environmental sacrifices.

In the U.S., the new rules mean more garbage could stay at home. While that could be good news for some recyclers, it could also mean more waste in the country’s landfills. Recyclers might also have to upgrade their facilities to handle the waste, leading to higher costs for American municipalities and taxpayers.

Classroom discussion questions:

  1. Why is this an issue for operations managers?
  2. What should U.S. municipalities do the offset the impact?


OM in the News: Robots at the World’s Largest On-line Grocery Retailer

December 4, 2017

Ocado’s robotic arm

Congratulations is in order, because someone has just graduated from the robotics lab at England’s online grocer Ocado. They’ve spent the last year and a half practicing the same routine over and over, a training regimen that’s about to get even tougher with a transfer to a bigger facility.

But the student in question isn’t a person,” writes Forbes (Nov. 30, 2017). It’s a large robotic arm that can “see” and grab dozens of different products. Built from aluminum and featuring a suction nozzle as its “hand,” it has practiced picking up plastic pots of porridge, boxes of tea and packets of popcorn from one plastic box, before placing them in plastic bags stretched open in a separate box. Once the bags are full, it stops. Each object takes about 5 seconds to move, making the arm over time about as fast as a human picker.

Ocado’s robot is unique in being able to grasp all these different products. Industrial robots are typically designed to pick up one thing well, like uniform bottles of water or tubes of toothpaste. But there’s been little research on grabbing objects randomly scattered inside a box. Even Amazon, with over 50% of e-commerce sales, and whose warehouses are teeming with wheeled Kiva robots and cranes, relies on human pickers for the intricate task of taking individual products out of one bucket and placing them in another.

Ocado, comparable to Trader Joe’s in terms of quality – but based totally on-line  is the world’s largest dedicated online grocery retailer, with sales of $1.4 billion. Its highly automated warehouses (see this 1.5 minute video) are manned almost entirely by robots. The robots “swarm” around a giant cube filled with grocery products, a kind of hive that’s as wide as a football field. They then deliver boxes filled with products for humans to sift through before those humans bag and load them onto trucks.

Classroom discussion questions:

  1. Will this robot replace workers?
  2. What are the advantages of this approach?

OM in the News: Grocers Want Inventory to Arrive On-Time

December 1, 2017

“The country’s biggest grocers are increasingly demanding their suppliers deliver on time, imposing fines for late shipments as they try to keep customers satisfied and better compete with online retailers like Amazon,” reports The Wall Street Journal (Nov.28, 2017). Kroger is fining suppliers $500 for every order that is more than 2 days late to any of its 42 warehouses, and Wal-Mart is charging suppliers monthly fines of 3% for deliveries that don’t arrive exactly on time.

Retailers used to give suppliers more leeway, since any number of factors—bad weather, a surge in demand, technology malfunctions—can foil deliveries. But sales of some $75 billion a year are lost because products are out of stock or unsalable for other reasons.

Wal-Mart has signaled it could do more than levy fines if problems persist. Wal-Mart told suppliers they could also lose shelf space if they don’t solve their delivery issues. Most large suppliers average around 75% of orders on time and complete. An out-of-stock on an important product can lead to thousands of lost consumers in a given day. Packaged-goods companies are straining to keep up with the demands and remain in the good graces of retailers. They need GPS trackers and software to adjust routes in real time. Filling full orders fast is also challenging, since many manufacturers house items all over the country.

Wal-Mart says a more-precise delivery window keeps shelves stocked and the flow of products more predictable, while reducing inventory—all of which are increasingly important to the retailer as it invests heavily to compete online. The change, says Wal-Mart, could create $1 billion in additional sales. Meanwhile, P&G, Wal-Mart’s largest supplier, has spent billions of dollars in recent years overhauling its supply chain, in part to meet retailers’ more-precise shipping windows and boost its ability to ship online orders directly to shoppers.

Classroom discussion questions:

  1. Why is it important for orders to arrive full and on-time?
  2. Is better supply chain management software the solution?


Memories From the DSI Ice Cream Social

November 29, 2017

Thank you to all our friends who joined Jay, Chuck, and Barry at the DSI Meeting in D.C. Here are just a few photos of the gathering.

OM in the News: The Driverless Truck Vs. The Teamsters Union

November 27, 2017

It was the tale of a successful, long-distance beer run. A robotic truck coasted driverless 120 miles down Interstate 25 in Colorado on its way to deliver 51,744 cans of Budweiser. “Driverless vehicles threaten to dramatically reduce America’s 1.7-million trucking jobs,” writes the Los Angeles Times (Nov. 23, 2017). It is the front end of a wave of automation that technologists have been warning for years. Some predict it could rival the impact of the economic globalization and the resulting off-shoring of jobs.

At California start-up Embark, there already are indications of how trucking jobs are about to change. The company has made test-runs in which it is using self-driving trucks to ship refrigerators from a warehouse in Texas to a distribution center in Palm Springs. There is a driver in the cab, but for the bulk of the ride, when the truck is on the I-10 Freeway, that person is not driving. Eventually, there could be nobody in the cab for legs of the trip. Embark’s CEO says truck drivers still will have jobs and their quality of life will be much improved. Instead of making long hauls thousands of miles, he says they could stay in their communities and handle the more-complicated short hops at the beginning and end of the trips, along with loading and unloading.

Teamsters executives are skeptical, particularly as many pilot programs exhibit a diminished role for blue-collar workers. Volvo, for example, boasts how the autonomous garbage truck it developed doesn’t need a driver in the cab to navigate the route, freeing up that person to load the trash bins. Two jobs appear to become one. Many of the new positions created by such technology look nothing like the stable trucking jobs that are a staple of blue-collar America. They involve coding, data analysis and operation of complicated computer systems.

Classroom discussion questions:

  1. What are the plusses and minuses of driverless trucks?
  2. When do you think the autonomous vehicle revolution will actually impact society?
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