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OM in the News: How Tyson’s Chicken Plant Became a $320 Million Turkey

October 20, 2017

On Sept. 5, executives from Tyson Foods, the nation’s largest meat processor, traveled to the small Kansas town of Tonganoxie with what they figured would be welcome news for the locals. Joined by Governor Brownback and other politicians, Tyson unveiled plans to build a huge chicken complex outside of town. The $320 million project, Tyson’s first new plant in 20 years, would be home to a hatchery, feed mill, and processing plant—employing about 1,600 workers to package 1.25 million birds a week.

“To many small communities, that would have been cause for celebration,” writes Businessweek (Oct. 16, 2017). But for residents of Tonganoxie, the news—which they complain had been kept from them because of nondisclosure agreements that officials had signed during Tyson’s site search—drew a far different response. They objected to the stress on roads and waterways, the plant’s proximity to local schools, and the dozens of chicken barns (often odoriferous operations.)

White-and-red signs demanding “No Tyson in Tongie” sprouted up on lawns. A mid-September rally organized drew thousands of locals, many concerned about the lack of transparency leading up to the Tyson deal. Not long after, the county’s board of commissioners—which 5 days before Tyson’s announcement approved the intent to issue $500 million in industrial revenue bonds for facilities, without naming an operator—revoked its decision. Tyson then said it was putting its plans on hold while it investigates other plant locations.

The backlash serves as the latest example of grassroots opposition to industrialized food plants, which stoke concern among residents about everything from environmental impact to animal welfare issues and fears of a potential influx of new workers. This is a good example to use in class when covering location decisions in Chapter 8. Not every community is willing to offer huge incentives to attract new jobs. (The median wage of poultry workers is $11.77 an hour– $24,490 annually.)

Classroom discussion questions:

  1. What were the plusses and minuses of Tyson’s offer to this Kansas town?
  2. Describe the main incentive offered to Tyson.
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OM in the News: Reliabilty and Maintenance Secrets of the Airlines

October 17, 2017

“Airlines are pouring lots of time and money into understanding fleet reliability,” reports The Wall Street Journal (Oct. 12, 2017). Delta put together a team of mechanics, engineers and data geeks to find ways to make specific types of planes less prone to breakdowns. American has renewed efforts to schedule flights so each type of plane performs better.

“It’s not necessarily the airplane itself. It’s how we’re operating it,” says American’s VP. If no planes are reserved as spares, fleets become less reliable. Small fleets spread out among multiple hub airports often suffer higher cancellation rates because there aren’t opportunities to swap planes. Time scheduled for routine maintenance can get crimped if the planes get to mechanics late day after day. In 2016 American had 6 different kinds of wide-body jets flying international trips from Chicago. Reliability suffered. When glitches hit, the airline had little ability to swap planes.

Summer reliability is critical for airlines. Among the worst-performing planes were United 747s, which arrived on-time an average 63% of flights during the past 2 summers. United says it has worked the last several years on improving the reliability of the wide-bodies to achieve better on-time performance. Wide-body cancellations are down 60% since 2014.

Delta’s technical data team can not only predict which parts are liable to break, but also redesign some parts to make them more reliable and add monitors to track the health of parts on older jets. Suspect parts get replaced proactively ahead of manufacturers’ recommended replacement schedules, dramatically cutting cancellations. In 2010, Delta had 5,600 flights canceled by maintenance problems. Last year breakdowns caused only 303 cancellations, and the airline has suffered only 70 so far in 2017. Delta also loads seven 40-foot trailers each summer and sends mechanics out with the equipment to small cities to create temporary maintenance bases for specific types of planes. Last summer they were positioned in 7 spoke cities to do preventive maintenance on planes parked overnight there.

Classroom discussion questions:

  1. Why do reliability figures differ dramatically among airlines and plane models?
  2. What is the “secret” to picking an on-time flight?

OM in the News: GM Wrestles With Excess Capacity

October 15, 2017

Despite its drastic downsizing a decade ago under a federally funded bailout and bankruptcy restructuring, General Motors again finds itself with too many U.S. factories that can turn out too many vehicles. GM’s factory-utilization rate in North America averaged 95.1% over the past two years, below Ford’s 111.9% and Toyota ’s 101.4%. (Rates can exceed 100% when factories work a 3rd shift or schedule overtime work on weekends.) The auto industry often runs its factories dawn-till-dusk or even around the clock to boost their efficiency, writes The Wall Street Journal (Oct.10. 2017).

Factory-utilization rates typically measure how much production capacity a plant uses based on a 16-hour workday. GM says its utilization rate is 100% on average when its round-the-clock truck and SUV lines are figured in with the relatively sleepy factories making cars. GM said it is working to “drive further improvements” in its plant utilization, including adding crossover SUVs to more factory lines. A plant in the Kansas City area that now makes only the Malibu is scheduled to begin assembling a small Cadillac SUV by late 2018. But such a switch-over typically takes car makers several years of lead time, to order and install new assembly-line equipment and tooling.

GM operates 17 vehicle-assembly plants in North America, after closing several during its bankruptcy. Most, except for 5 that operate around the clock to build trucks and SUVs, have ample unused capacity.

Classroom discussion questions:

  1. How is capacity computed in the auto industry?
  2. What can GM do to bring capacity in line with demand?

Guest Post: A Breakeven Analysis Using Real Data

October 13, 2017

Our Guest Post today comes from Howard Weiss, who is Professor of Operations Management at Temple University. Howard has developed both POM for Windows and Excel OM for our text.

I like to direct my students to real data whenever possible in my Operations Management course. The Philadelphia Inquirer (http://www.philly.com/philly/blogs/inq-phillydeals/grateford-phoenix-prison-400-million-new-20170915.html) has an article about a new prison, Phoenix, that is being built in Pennsylvania to replace the old prison, Graterford. Phoenix is expected to open in July, 2018. The article gives data that makes it very easy to formulate a break-even example for the students.

According to the article, Phoenix cost $400 million to build, will cost $90 per day to house an inmate and will have 4055 beds. Currently at Graterford it costs $123 per day per inmate.

I have asked my students to determine the following:
1. What is the total savings per year assuming the prison operates at 100% capacity?
2. Why is this different from the $48 million dollars reported in the article? Assume the costs given above are correct.
3. How many years will it take until the Phoenix project breaks even based on the $48 million reported in the article?

I expect my students to:
1. compute the savings per inmate per day ($33); the savings per inmate per year ($12,045); the total savings per year? $48,842,475
2. realize that the prison does not operate at full capacity and hopefully to report that the effective capacity is 98%.
3. compute the break-even point in years (8.33 years).

 

OM in the News: Adidas Automates to Make Shoes Faster

October 11, 2017

In a production hall as clean as a hospital, pea-size beads of white plastic pour into what looks like a minivan-size Adidas shoe box, complete with 3 white stripes down the side. That’s fitting, because in just a few seconds the machine heats and molds the stuff into soles of Adidas running shoes, with only one worker needed to wedge in pieces of plastic called stability bars. This is Adidas AG’s “Speedfactory,” where the shoemaker aims to prove it can profitably produce footwear in high-cost, developed economies, reports Businessweek (Oct. 9, 2017). By next fall the facility, as large as half a soccer field, will employ 160 people to make 1,500 pairs of shoes a day, or 500,000 annually.

The plant, halfway between Munich and Frankfurt, and a twin opening this fall near Atlanta, will be key to Adidas’s effort to catch industry leader Nike. It replaces manual stitching and gluing with molding and bonding done by machines, churning out running shoes in a day, vs. 2-3 months in China and Vietnam, where components are shuttled among suppliers that produce individual parts. “In the history of sneaker making, this is probably the biggest revolution since manufacturing moved to Asia,” says an industry exec.

The factories take a page from fast-fashion pioneers Zara and H&M, part of an effort by Adidas to more quickly get shoes, soccer jerseys, and other goods from designers’ sketchbooks to store shelves. Adidas says coupling speed with customization will allow it to sell more gear at full price and keep customers from defecting to rivals. Adidas’s rivals are pursuing similar strategies, with Nike investing in a company making electrical adhesion machines that can assemble the upper part of a shoe 20 times faster than a human worker can. New Balance and Under Armour have started 3D-printing parts of the soles of some shoes.

Classroom discussion questions:

  1. Will these Speedfactories replace traditional shoe production in Asia?
  2. Why is this a revolution in the industry?

 

Video Tip: Robots at Alibaba, China’s Largest Online Retailer

October 8, 2017

Occupying .7 acres, Alibaba’s warehouse is situated in China’s Guangdong Province

Online retailer Alibaba has opened the largest ‘smart warehouse’ in China manned by 60 cutting-edge robots. These Wifi-equipped, self-charging machines are responsible for moving goods in the warehouse. They send the goods to human workers, who then arrange the products to be packed and posted to customers around the world.

The automated robots, similar to Amazon’s Kiva machines, started working at the warehouse in July, and have helped increase its output by threefold. Each of the machines is fitted with laser detection which prevents them from bumping into each other. Once fully charged, the robot can work 8 hours non-stop, travelling up to 5 feet per second and carry a load as heavy as 1,322 pounds.

Traditionally, a worker could sort 1,500 products during a 7.5-hour shift after taking 27,924 steps; with the help of the robots, the same worker could sort 3,000 products during the same period of time and only 2,563 steps need to be taken. The machines also lift and rotate the shelves, which makes it easier for human workers to reach the goods.

This entertaining 2 minute video can be shown when you are covering robotics in Chapter 7 or warehousing in Chapter 9.

 

 

 

 

 

 

 

 

OM in the News: Samsung and Apple’s Love-Hate Supply Chain Relationship

October 5, 2017

When the iPhone X goes on sale next month, Apple rival, Samsung, has good reason to hope it is a roaring success,” writes The Wall Street Journal (Oct. 3, 2017). The South Korean company stands to make $110 from each $1,000 iPhone X that Apple sells. The fact reflects a love-hate dynamic between the phone makers that is one of the more unusual supply chain relationships in business. While each company vies to get consumers to buy its gadgets, Samsung stands to make billions of dollars supplying screens and memory chips for the new iPhone—parts that Apple relies on for its most important product. “These are two of the largest companies on the planet deeply tied at the hip and directly competitive,” says one Harvard prof.

Apple and Samsung are expected to be the world’s two most-profitable companies in 2017. And they will depend on each other to get there. Apple needs Samsung’s parts to make the iPhones that accounted for 2/3 of the company’s $216 billion 2016 revenue. Samsung needs Apple’s orders to fuel a component business that delivered 35% of the South Korean firm’s total revenue of $195 billion in 2016.

The relationship grew after Apple moved into selling smartphones. Apple’s immense demand for parts—it sells more than 200 million iPhones a year—limits the field of possible suppliers. Samsung is one of a handful of semiconductor makers that can make a small chip crammed with extra memory capacity. And it is the only significant manufacturer of the organic light-emitting diode displays Apple has adopted to create the iPhone X screen.The relationship took an acrimonious turn in 2011, when Apple sued Samsung over patent infringement, accusing the Galaxy S of ripping off the iPhone’s design. Samsung countersued Apple with its own patent-infringement. Six years on, the U.S. lawsuit is unresolved.

Classroom discussion questions:

  1. Describe similar relationships between competitors in other industries?
  2. Why does Apple depend on Samsung so heavily?
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