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OM in the News: Intel’s $7 Billion Arizona Chip Plant

February 10, 2017

intelNew chip plants are tremendously expensive,” writes The New York Times (Feb. 9, 2017), “requiring large tracts of land, reliable electricity and water, and a skilled work force that includes people with doctorates in chemistry and technicians who can repair a malfunctioning robot.” Sophisticated equipment is necessary to deposit and etch microscopic layers of material on silicon wafers, which are then cut and packaged into the microprocessors that run PCs, servers, smartphones and, increasingly, other electronic devices.

Countries compete to land such plants, especially modern factories that produce the most valuable chips and bring high-paying R&D jobs. Government subsidies are common, with China vowing to spend tens of billions of dollars to expand its domestic chip industry. While most technology manufacturing, such as computers and smartphones, has moved overseas, American factories still account for 1/7 of global chip production and produce many of the most valuable computer chips, including Intel’s flagship processors. Seventy-six chip plants are scattered across the U.S., from Maine to California.

Intel’s new $7 billion, 3,000 employee, chip plant in Arizona plant will build ultradense chips that Intel refers to as 7 nanometer, with transistors packed more closely together than in the chips the company now builds. The tighter spacing allows for faster, more energy-efficient chips. “This factory will produce the most powerful computer chips on the planet,” says Intel’s CEO, who adds: “the company had decided to proceed because of the tax and regulatory policies we see the (Trump) administration pushing forward.” Intel also has factories in China, Ireland and Israel.

Classroom discussion questions:

  1. Why are chip factories important to the U.S?
  2. Why is chip manufacturing a tough business to enter and succeed in?

Teaching Tip: Helping Your OM Students Assess Their Progress

February 8, 2017

studentsFaculty Focus (Feb. 6, 2017) suggests that before midterm exams you enable your OM students to assess their performance and set goals, as well as to ask questions of and provide feedback to you. One way to do this reflective opportunity is through an online journal assignment in which students do the following:

  • Report their overall grade in the course
  • Report their attendance record (when attendance is required)
  • Reflect on their performance, whether it meets their expectations
  • Provide goals for the rest of the course (often in the form of a GPA, but can also be learning outcomes)
  • Provide feedback and ask questions

    Try to do this about a 1/3 of the way through a course so that underperforming students can still change trajectory. They can take 50-400 words to complete the assignment. Their posts range from brief conclusions that they are exactly where they want to be, to detailed descriptions of problems and questions about how to move forward. You won’t grade the assignment, but students will be required to complete it.

    Here’s what you need to know before you implement the progress report assignment.

    • Instructor requirements. (1) Students must have already completed some graded assignments, and (2) they must be able to see the individual grades and understand how they contribute to the course grade.
    • Large classes? This activity would not take long for the tremendous benefit it provides to the class dynamic, student success, and your end-of-semester evaluations, because many reports do not require a lengthy response.
    • Non-tech version. If homework is given through the university’s LMS, it is easy to give an online assignment for this progress report. If you prefer an offline version you can allow students to type or write their progress reports and turn them in during class.

    This small activity can have a big impact on students and on your OM teaching. It also builds strong rapport at critical points early in the semester.

OM in the News: The End of Employees?

February 6, 2017
UPS employees at a facility in N.H. pack jet-engine parts bound for Pratt & Whitney factories. The work used to be done by Pratt employees

UPS employees at a facility in N.H. pack jet-engine parts bound for Pratt & Whitney factories. The work used to be done by Pratt employees

No one in the airline industry comes close to Virgin America on a measurement of efficiency called revenue per employee. That’s because baggage delivery, maintenance, reservations, catering and many other jobs aren’t done by employees. “We will outsource every job we can that is not customer-facing,” says Virgin’s CEO.

“Never before have American companies tried so hard to employ so few people,” writes The Wall Street Journal (Feb. 3, 2017). The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry. This “contractor model” is so prevalent that Google, ranked as the best place to work for 7 of the past 10 years, has roughly equal numbers of outsourced workers and full-time employees. About 70,000 temps, vendors and contractors test drive Google’s cars, review legal documents, make products easier to use, manage marketing and data projects, and do other jobs. (They wear red badges, while regular employees wear white ones).

The biggest allure of outsourcing employees, of course, is more control over costs. Contractors help businesses keep their in-house staffing lean and flexible enough to adapt to new ideas or changes in demand. At large firms, 20-50% of the total workforce often is outsourced. Bank of America, Verizon, P&G, and FedEx have thousands of contractors each. In oil, gas and pharmaceuticals, outside workers can outnumber employees by at least 2 to 1.

Janitorial work and cafeteria services disappeared from most company payrolls long ago. But a similar shift is under way for higher-paying, white-collar jobs such as research scientist, recruiter, operations manager and loan underwriter. Few companies or economists expect this trend to reverse. Moving noncore jobs out of a company allows it to devote more time and energy to the things it does best. Businesses currently spend about $1 trillion a year on outsourcing.

Classroom discussion questions:

  1. What are the disadvantages of this massive outsourcing?
  2. Would students want to take “contract” jobs?

OM in the News: IKEA’s New Product Development and “Open Sourcing”

February 3, 2017

ikea“IKEA is making it easier for people to hack its furniture,” writes The Wall Street Journal (Jan. 30, 2017). The Swedish retailer plans a 2018 roll out of its first “open source” sofa—a piece of furniture designed to be easily customized to fit a space, or change functions entirely over time. It is called Delaktig, Swedish for “being part of something.” Delaktig’s design will allow third-party designers to create complementary products that can attach to the sofa or modify its use.

The move is a further embrace of a long inspired online community of “hackers” who share ideas for how to modify IKEA products. They have fashioned wall hangers from IKEA’s wooden bed slats, turned dressers into desks and raised IKEA beds using its kitchen cabinets and drawers.

IKEA didn’t encourage the tinkering, but nor did it actively discourage the trend. A niche industry has now grown up making everything from sofa covers to decorative table legs fitted just for IKEA’s particularly shaped furniture. Sweden-based Bemz AB, for instance, makes covers for IKEA sofas, footstools, headboards and armchairs. They can sell for more than the furniture itself. Prettypegs AB makes decorative furniture legs for IKEA beds, tables and stools.

IKEA said Delaktig was inspired by Apple, which helped create today’s app universe by allowing developers to create them for the iPhone. The company is also taking a page from the car industry, building a common, resilient platform upon which to create different models.

Classroom discussion questions:

  1. How would you describe IKEA’s product strategy (see Chapter 5)?
  2. What are the advantages and disadvantages of open sourcing?

OM in the News: The Automation of Oil Drilling

February 1, 2017

oil-rigs-2As the global oil industry begins to climb out of a collapse that took 440,000 jobs, anywhere from a 1/3 to 1/2 may never come back. “A combination of more efficient drilling rigs and increased automation is reducing the need for field hands,” writes Businessweek (Jan. 30-Feb. 5, 2017). 

Automation, of course, has revolutionized many industries, from auto manufacturing to food and clothing makers. Energy companies, which rely on large, complex equipment for drilling and maintaining oil wells, are particularly well-positioned to benefit. “It used to be you had a toolbox full of wrenches and tubing benders,” says one south Texas professor. “Now your main tool is a laptop.” During the boom, companies were too busy pumping oil and gas to worry about head count. The two-and-a-half-year downturn gave executives time to rethink the mix of human labor and automated machinery in the oil fields.

Nabors Industries, the world’s largest onshore driller, says it expects to cut the number of workers at each well site eventually to 5, from 20, by deploying more automated drilling rigs. Rigs have gotten so efficient that the U.S. oil industry needs only 1/2 as many workers as it did at the height of the shale boom in 2014 to suck the same amount of oil out of the ground.

The systems, that is all the processes involved in drilling and fracking a well, will be the key. That means an engineer can design an oil well at his desk. With the press of a button, an automated system would identify the equipment needed from a supplier, create a 3D model, send the details to the rig, and tell the rig to do the job.

Classroom discussion questions:

  1. Why the industry push for automation?
  2. What are the plusses and minuses for the U.S?

Good OM Reading: Automating Supply Chain Resilience

January 30, 2017

supply-chain-risk“Substantial investments in supply chain resilience have enabled companies to vastly improve their capacity for bouncing back after a disruption,” writes MIT Sloan Management Review (Jan. 2017). With the benefit of digital technologies, companies are using Big Data to identify supply chain risks and create early warning systems with much greater speed and precision. A digital supply chain is defined as “a customer-centric platform model that captures and uses real-time data coming from a variety of sources.” If a potential disruption is detected, the system decides on the best mitigation strategy and executes that strategy.

 A recent survey of 30 global companies found that 88% have incorporated elements of the digital supply chain into their business model. All of the companies surveyed were working to adopt game-changing technologies such as the internet of things and robotics. To keep pace, companies need to develop ways to automate resiliency. There are various strategies to make the supply chains more resilient, including diversification of the supplier base, establishing safety stocks, and planning for spare transportation capacity.
 One example is a loaded freight container equipped with sensors that track the temperature and humidity of the goods in real-time. The data is analyzed using business intelligence rules and shared with authorized entities in the extended supply chain. These parties can take action should a problem be detected. For example, if the container readings indicate that perishable cargo has been damaged due to an equipment malfunction, an order is automatically placed for replacement supplies while the damaged shipment is still in transit. Such remedial actions are not confined to logistics; financial and contractual terms can also be adjusted when an unexpected disruption occurs.
 Risk-prone supply chains are generally perceived as less secure by governments, and for that reason are more frequently selected for auditing, control, and inspection. These activities create unnecessary delays in supply chains.

Teaching Tip: Why Students Should Major in OM and IT

January 28, 2017

data-scientistYou might want to point your OM students (who typically want to major in Accounting, Finance, or Marketing) to a fascinating USA Today (Jan. 24, 2017) article on the “50 Best Jobs in America.” Jobs that require a range of STEM skills (science, technology, engineering and math) claimed 14 spots in Glassdoor’s new survey. This includes the top-seeded position: data scientist, a job in which employs math and computer programming skills to wrestle huge amounts of raw data into intelligible and useful data sets. That job took the crown with a leading Glassdoor score that reflected the number of openings for the position (currently 4,184), a top company satisfaction rating (reflective of culture and values) and a healthy median base salary ($110,000).

Here are some others that share skills we teach in operations management:

#2 DevOps Engineer (2725 openings, $110,000 salary); #3 Data Engineer (2599, $106,000); #5 Analytics Manager (1958, $112,000); #7 Data Base Administrator (2977, $93,000); #18 Supply Chain Manager (1270, $100,000); #22 Quality Control Manager (2531, $92,000); #42 Operations Manager (1009, $93,000); #45 Supplier Quality Manager (862, $80,000); #50 Construction Project Manager (1944, $85,000).

The proliferation of technology-related jobs is due to those skills now being needed at businesses that don’t consider themselves traditional tech companies. These days, almost every company is in some way a tech company, requiring workers who are able to create and maintain a firm’s technological infrastructure. “Any company with data today is trying to get these people,” says Glassdoor’s chief economist. “The problem in filling these positions is that generally employees’ skills have not kept up with the demand.”

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