Skip to content

OM in the News: Location Decisions and Incentives

March 28, 2017

When Elyria Mayor Holly Brinda learned that Riddell Inc. was looking to leave this small Ohio city, she came up with a $14 million package of tax incentives and offered to lease land to the company for $1 a year. It wasn’t enough. Riddell, which makes the football helmets used by NFL and college players, decided to move its 320 employees just over 2 miles down the road to a neighboring town, which offered its own bundle of incentives and lower corporate and individual income-tax rates.

These days, the competition often isn’t Mexico, China or some other country promising cheap wages and low taxes,” writes The Wall Street Journal (March 17, 2017). In many cases, towns like Elyria are vying with cities that aren’t very far away. The race to woo companies has intensified as state and local governments struggle with a slow economic recovery, sluggish new business formation and job losses resulting from automation. Many older industrial cities see tax incentives as one of the few levers they can pull.

Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990. By 2015, the total annual cost of these incentives was $45 billion. Incentives climbed after the financial crisis, but their growth slowed in 2016 as some state and local governments began re-examining the effectiveness of the programs. Critics say tax incentives do little to spur job creation or economic growth.

Here in Florida, the legislature just approved legislation to eliminate the state’s main provider of tax incentives and other development assistance. Florida has attractions such as a good climate and no income tax, said a politician, and would be better off focusing on other forms of economic development, such as education and infrastructure.

Classroom discussion questions:

  1. What are the pluses and minuses of tax incentives?
  2. Did Florida make a good decision?

Teaching Tip: Expanding OM Class Experiences with Virtual Guest Lecturers

March 26, 2017

“Much of our work as educators,” writes Faculty Focus, “consists of designing and delivering experiences in which students can develop their understanding and application of concepts and skills in our disciplines.” Given that we have only 15-16 weeks with our students, we need various ways for deepening and expanding these formative experiences in operations management. Visiting experts can be a wonderful way of developing expertise, and leveraging online tools like Skype and Zoom can open up powerful possibilities for learning and conversation. One goal is to shrink the distance between the students and the speakers by pulling back the wizard’s curtain between the “expert” and the student.

Skype and Zoom are both great choices for hosting virtual guest speakers. Fear not technology. Just do some test runs, perhaps with consultation from your tech-support staff.

An interview format can be helpful. For one, it requires little preparation time for your guest. This format also keeps the conversation grounded in student’s questions and learning, and it keeps the tone more informal, which is engaging for students. You can prepare students beforehand by having them develop questions based on the work of the expert. Have them then reflect on the guest’s insights following the visit.

Jay, Chuck, and I are also here to help. We are happy to give virtual guest lectures to your classes on almost any topic–or in a Q&A format. Your choice. As you plan your summer or fall syllabi, just drop one of us an email. I am at brender@rollins.edu. Jay is at jheizer@omniglobal.net. And Chuck is at munson@wsu.edu.

OM in the News: Intel, Mobileye, and Autonomous Cars

March 23, 2017

In the world of driverless cars, household names like Google and Uber have raced ahead of rivals, building test vehicles and starting trials on city streets. “But when it comes to what is under the hood, an array of lesser-known companies will most likely supply the technology required to bring driverless cars to the masses,” writes The New York Times (March 14, 2017). And in a $15.3 billion deal to acquire the Israeli firm Mobileye, Intel just moved to corner the market on how much of that technology is developed. Jerusalem-based Mobileye makes sensors and cameras for these vehicles.

Intel estimates the market for autonomous-driving systems, services and data will reach $70 billion by 2030. “You can think of the car as a server on wheels,” says Intel’s CEO. “The average autonomous car will throw out 4 terabytes of data a day, so this is one of the most important markets and one of the fastest-growing markets. The deal with Mobileye merges the intelligent eyes of the autonomous car with the intelligent brain that actually drives the car.”

 Mobileye’s technology helps a car see and understand the space around it, providing functions such as automatically keeping a car in its lane. It includes 360-degree vision and mapping, and integrates various sensor elements such as cameras, radar, sonar and the laser-sensing technology known as LiDAR. 

Intel has struggled lately with the persistent decline of PC sales, which show little sign of reversing. To drive growth, the company is focusing on artificial intelligence, and self-driving cars are among the more promising applications of AI.

Classroom discussion questions:

  1. Why is Intel leaving its core business? Advantages? Disadvantages?
  2. What is Mobileye’s strength?

OM in the News: The Nuclear Waste Challenge at Fukushima 6 Years Later

March 21, 2017

Six years after the largest nuclear disaster this century, reports The New York Times (March 13, 2017), Japanese officials have still not solved a basic problem: what to do with an ever-growing pile of radioactive waste. Each form of waste at the Nuclear Power Station presents its own challenges. It is a massive OM issue worthy of class discussion when you cover the chapters on Project Management and Sustainability. Here is a rundown on the complexity of this $188 billion project:

400 Tons of Contaminated Water per day. Japan is pumping water nonstop through the reactors to cool melted fuel that remains too hot and radioactive to remove. The 1,000 storage tanks already hold 962,000 tons of contaminated water, but the plant is running out of room to store it.

3,519 Containers of Radioactive Sludge. The process of decontaminating the water leaves radioactive sludge trapped in filters, which are being held in thousands of containers.

64,700 Cubic Meters of Discarded Clothes. The 6,000 cleanup workers put on new protective gear every day. These hazmat suits, face masks, etc., are thrown out at the end of each shift. The clothing is stored in 1,000 steel boxes stacked around the site.

Branches from 220 Acres of Deforested Land. The plant’s grounds were once dotted with trees, and a portion was even designated as a bird sanctuary.

200,400 Cubic Meters of Radioactive Rubble have been removed so far and stored in the equivalent of about 3,000 standard 40-foot shipping containers.

3.5 Billion Gallons of Soil Have Been Bagged. Japan will eventually incinerate some of the soil, but that will only reduce the volume of the radioactive waste, not eliminate it.

1,573 Nuclear Fuel Rods. The condition and location of this molten fuel debris are still largely unknown. The plan is to use robots to find and remove it. But the rubble, the lethal levels of radiation and the risk of letting radiation escape make this exceedingly difficult. A robot inserted into one of the reactors detected radiation levels high enough to kill a person in less than a minute.

Classroom discussion questions:

  1. How does this cleanup project compare to other massive ones like those discussed in Chapter 3?
  2. Why is this a sustainability issue?

OM in the News: Can the U.S. Bring Back 1/2 the Manufacturing Jobs that Moved Overseas?

March 19, 2017

Which jobs make sense to reshore from China?

For decades, U.S. companies have been chasing cheap labor offshore and then importing products to sell in the U.S. market. Now, according to Market Watch (March 9, 2017), “Trumponomics, a broader focus on Total Cost of Ownership (TCO) and advanced manufacturing have the potential to end the manufacturing stagnation of the past 30 years and create millions of manufacturing jobs in the U.S.

Over the past 20 years, the boom in offshoring drove the U.S. goods trade deficit up by $640 billion a year, costing the U.S. 3-4 million manufacturing jobs. But one study revealed that 60% of offshoring decisions used only rudimentary cost calculations, typically just price or labor costs and ignored other costs such as freight, duty, carrying cost of inventory, delivery and impact on innovation.

Advanced manufacturing now helps level the global playing field. First, the number of labor hours per unit of output is reduced. Second, the gap in the labor cost per hour shrinks. For example, a highly skilled robot engineer in China makes 1/3 to 1/2 of American pay, and not the small fraction (5% or 10%) of the low-skilled Chinese workers. In addition, acquiring capital equipment is more expensive in China because of China’s value-added tax of 13% or 17% on imports. Fortunately, the U.S. can have automation and more jobs as it reshores.

The availability of a skilled workforce is essential for bringing jobs back, ranking second among the reasons given by U.S. and foreign companies moving jobs back or creating new manufacturing jobs here. When companies reshored and failed to find the needed workforce, the transition was painful. The good news is that the bleeding of manufacturing jobs to offshore has stopped. Reshoring balanced offshoring in both 2014 and 2015. In comparison, in 2000-2003 the U.S. lost a net 200,000 manufacturing jobs a year to offshoring.

Classroom discussion questions:

  1. Explain the TCO concept.
  2. Why is reshoring more feasible now than a decade ago?

OM in the News: AI and Human Resource Strategy

March 16, 2017

The growing use of AI in the workplace raises many ethical questions.

“Artificial intelligence (AI) is changing the way managers do their job–from those who get hired to how they are evaluated to who gets promoted,” writes The Wall Street Journal (March 13, 2017). Here are 4 examples:

Companies use AI to help them find the best candidates for jobs. Such software often spots the most promising resumes among what may be an unmanageable deluge, or it widens the net so employers can find a more diverse pool of candidates. SAP’s Resume Matcher software reads Wikipedia entries to understand job descriptions, related skills and so on. Then it correlates what it learned with resumes along with notes on whether a given applicant was shortlisted, interviewed, hired and the like.

Once managers have hired ideal candidates, AI can help keep them productive by tracking how they handle various aspects of their jobs—starting with how they use their computers all day. Veriato makes software that logs virtually everything done on a computer—web browsing, email, chat, keystrokes, document and app use—and takes periodic screenshots.

Companies can also track employees’ whereabouts in the office. Bluvision makes radio badges that track movement of people in a building, and display it in an app and send an alert if a badge wearer violates a company policy—say, when a person without proper credentials enters a sensitive area. The system can also be used to track time employees spend at their desks, in the cafeteria or in a restroom.

AI can also help managers peer into personal aspects of job performance that used to be left up to observations—for instance, attitudes toward the job. Veriato analyzes email and other messages, looking at words and phrases employees use. Then it scores those expressions for positive or negative sentiment. The system can set a sentiment baseline over time.

Classroom discussion questions:

  1. Discuss the ethical issues here.
  2. How else might AI help a company’s human resource strategy?

OM in the News: Boarding Airplanes and Operations Management

March 13, 2017

Delta is testing new boarding procedures to line people up in an orderly way instead of the pack seen at this boarding gate in Atlanta

One of the thorniest operations management problems in air travel is stumping carriers: How best to board a plane? “Boarding has gotten slower and far more stressful,” writes The Wall Street Journal (March 2, 2017). Airlines are trying to end the mob mentality at boarding gates, where passengers crowd the gate, sometimes pushing and blocking the way for people who have been called to board.

Delta is testing new boarding lanes and monitors in gate areas that bring more order to boarding turbulence and shave 30-60 seconds off a flight. That’s a huge saving for an airline with thousands of flights scheduled daily. “All the studies say the quickest boarding process is just open the door and let ‘em go, and people just pressure one another,” says Delta’s VP. “But it’s not a very good customer experience.” Passengers say airlines created the problem with checked-baggage fees that lead people to carry on more.

The old method of back-to-front boarding by row number was standard for decades but proved slow. Same with boarding passengers in window seats first, then middle, then aisles seats. Random turns out to be a better way to single-file travelers to their seats. Multiple people in the line reach their rows at the same time. But random fell victim to privilege. Multiple levels of elite status get priority. (70-80% of passengers on a flight may have elite status.)

American’s OM staff recently spent time observing Southwest’s boarding system, generally considered fastest. Southwest assigns each passenger a number, then lines everyone up in sequence. Passengers know where and when to stand. They have incentive to move quickly to pick an open seat. “It’s pretty clear Southwest does it best,” says a UNLV expert on planetary systems who got curious about earthbound airplane boarding systems and conducted a study looking for an ideal solution. (His answer: Board 10 passengers at a time in alternating rows.)

Classroom discussion questions:

1.What OM techniques can be used to study this problem?

2. What other suggestions do your students have?

Supply Chain Management Research

Andreas Wieland’s supply chain management blog for academics and managers

better operations

Thoughts on continuous improvement: from TPS to XPS