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OM in the News: Disneyland’s Dynamic Pricing Model

June 27, 2018

Disney’s theme parks in the U.S. can fill to capacity during certain times of year.

After raising some ticket prices for its theme parks by more than 20% over the past 5 years, Walt Disney will set a new benchmark when it offers die-hard fans the chance to attend a 6-hour preview of a new attraction at Disneyland — for $299. Even for fans used to high prices, the sneak peek at Pixar Pier breaks new ground.

The steep price stems in part from a perennial tension Disney faces at its theme parks, where public demand is so strong, reports The Wall Street Journal (June 19, 2018). Raising prices — currently around $100 on average days and more than $120 during “peak” times around holidays — could mitigate tourist appetite and increase profits. The company, however, is wary of appearing to gouge customers. Disney is working on adopting a dynamic pricing model similar to airlines, in which prices fluctuate depending on when a ticket is purchased. Disney already has introduced a limited version of dynamic pricing to its parks, charging a range of prices based on 3 categories of dates: “value,” “regular” and “peak.” Prices range from $97 to $135 for Disneyland.

Under the new changes, a ticket to Disneyland for Christmas Day, for example, may cost less if purchased on July 1 than on Dec. 24. This would encourage visitors to commit to a day to visit the park farther in advance, which allows parks to plan better. Disney parks often reach their limit during the summer tourism season and over Christmas break, when the parks sometimes have to turn away would-be customers for several hours.

New attractions at the parks help Disney to handle crowds, but they also draw more visitors. Disney’s “Avatar”-themed experience has drawn crowds that can cause waiting times for some rides to average 1-2 hours—and in some cases, stretch to 4 hours.

Classroom discussion questions:
1. How does Disney’s use of yield management differ from that of airlines?

2. How does Disney deal with capacity issues (see the 6 points on page 313)?

 

 

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OM in ther News: Fuel Alternative Trucks Aid Sustainability at UPS

June 25, 2018

UPS is boosting its fleet of compressed natural-gas vehicles by about 19%

United Parcel Service Inc. is growing its fleet of alternative-fuel trucks as the delivery giant pushes to reduce fuel costs and vehicle emissions. The parcel carrier is spending $130 million to buy 730 compressed natural-gas vehicles, boosting its current CNG fleet by about 19%, and to add five CNG fueling stations to its existing network of more than 50 stations. The UPS investment is part of a broader effort to trim the company’s greenhouse-gas emissions from its ground operations by 12% by 2025, reports The Wall Street Journal (June 20, 2018).

Fuel is historically the biggest expense for transportation companies. While diesel prices dipped in 2015 and 2016, the cost has been climbing again. Companies are exploring alternatives. In recent months, trucking operator U.S. Xpress and beer-maker Anheuser-Busch, have reserved hundreds of hydrogen-electric trucks from Nikola Motor. Companies are also lining up to test out Tesla Inc.’s all-electric Semi big rig, Still, alternative-fuel vehicles account for a slim portion of the overall truck market. New models provide significantly better fuel economy than a decade ago.

In UPS’s case, by 2020 the company aims to have one in four new vehicles purchased be an alternative fuel or advanced technology vehicle, such as a hybrid truck or one incorporating lightweight materials that improve fuel efficiency. It also wants to swap out 40% of all fuel for its ground operations with sources other than conventional gasoline and diesel. Between 2008 and 2018 UPS will have invested more than $1 billion in alternative-fuel and advanced-technology vehicles and fueling stations. The volume of goods moved by truck continues to grow in the U.S.

Classroom discussion questions:

  1. What model in Supplement 5 of the text can trucking companies employ in decisions such as these?
  2. Why is UPS spending so heavily on its fleet?

 

Good OM Reading: AI + Blockchain

June 23, 2018

This new book (www.mkpress.com) alerts readers to the impending collision of the two largest foundational technologies for the coming decades: Artificial Intelligence and Blockchain.

AI has had a long history of hype and excitement about how we can externalize our human skills. Blockchain is the newer technology that is motivated largely by a change in control of cryptocurrencies and inventory.  AI, claim the authors, seeks to displace individuals while blockchain seeks to displace a controlling team of individuals. AI will continue to disrupt business in many ways, leading to job loss and rendering irrelevant many human cognitive skills. Blockchain too is challenging and will continue to change the position of trust of central authorities, whether in the government or in big business.

Both these technologies, however, have enormous potential to make positive changes in the world of operations management. AI, rightly engineered and deployed, has the potential to become humanity’s servant, freeing up humans. Blockchain, responsibly governed and deployed, has the potential to democratize society, by eliminating friction in the world’s transactions and eliminating middlemen, and by facilitating a more equitably distributed internet of value. The most efficient and effective ways for this to happen is through a partnership between these two powerful technologies, where blockchain delivers trusted and immutable information for AI, and AI delivers cognition and automation to business processes.

OM in the News: Is UPS Stuck in the 20th Century?

June 21, 2018

Hundreds of workers just streamed in for the shift at UPS’s Mesquite, Texas local package-sorting facility, one of dozens nationwide that help it move millions of parcels daily, writes The Wall Street Journal (June 19, 2018). A 30-year-old analog control panel about the size of a chest freezer monitors operations, with rows of green and red lights indicating when something goes awry in the building’s web of conveyor belts. “Thirty years ago, this was top-notch,” UPS plant manager said of the control panel. “Today, the computing capabilities can probably fit on your phone, and not even a good phone.”

Workers sort packages the old way at UPS’s Mesquite facility, left, while machines do the job in at its Fort Worth site (right photo).

The site, and other similar UPS facilities, haven’t automated much over decades—despite a rush of new warehouse technology in many industries. Today, the company is paying a price. As UPS tries to satisfy America’s 21st-century shopping-and-shipping mania, parts of its network are stuck in the 20th century. The company still relies on some outdated equipment and manual processes of the type rival FedEx discarded or that newer entrants, including Amazon, never had. UPS says about half its packages are processed through automated facilities today. At FedEx, 96% of ground packages move through automated sites.

Now, the century-old delivery giant is playing catch-up. As part of that effort it plans capital spending of more than $20 billion over the next 3 years. Much of that will go toward opening new automated facilities and technology upgrades to route packages around bottlenecks.

A medium-size package at Mesquite gets four “touches” (acts of handling.) Each touch adds a chance for a sorting error or damage. With 40,000 pieces processed an hour, even rare human misfires can add up. Mis-sorted packages can add an extra day to a delivery. All FedEx ground hubs are automated. FedEx workers touch most packages twice—for the unload and the load.  Amazon’s operations, too, bristle with automation. It has been years ahead of many logistics firms in warehouse automation, from driverless forklifts to robots that bring shelves to workers.

Classroom discussion questions:

  1. Why must UPS automate?
  2. What advantages does Amazon have in this field?

Guest Post: Teaching OM to 2,500 Students a Year at UCF

June 19, 2018

Dr. Andy Johnson is a Lecturer in Supply Chain Management at the University of Central Florida, the largest single campus college in the U.S. with over 66,000 students. He holds a PhD from the Rutgers Business School.

The University of Central Florida’s (UCF) College of Business Administration has undergone a dramatic change in teaching it’s 13 core and non-core courses to over 8,500 students each semester. In the Fall of 2017, the college developed a unique way of engaging a large student body using a variant of the mixed-mode method called “Reduced Seat Time, Active Learning”. This is a blended method combining face-to-face and online requirements. The intent of the five face-to-face sessions is to provide a group type activity verifying learning for a particular course subject.

In the Spring of 2018, I taught six sections of the Supply Chain and Operations Management course using the Heizer/Render/Munson text to 647 students using the newly adopted modality. Students received the course content in a series of short online videos (138 in total) that I created, with deadlines for each chapter’s MyOMLab homework sets, quizzes, study modules and simulation programs. For the 5 classroom sessions, I developed scenarios similar to the computer simulations using printed exercises and Microsoft Excel worksheets. Upon completion of the group activities, the material provided in these sessions could then be used to help prepare the students to pass the 5 simulations in Forecasting, Inventory Management, Quality Management, Supply Chain Management, and Project Management provided by the text authors and Pearson.

Overall, my experience teaching this large student body for the first time, in this newly developed modality, was a success, but of course not without some challenges. However, there were two significant benefits using this new course design: 1) the face-to-face live sessions solidified learning in what I deem as the 5 pillars of supply chain and operations management and 2) having the opportunity to individually engage with over 600 students. I believe the college exceeded its expectations of the new format and will be a benchmark for other universities with a large student body.

OM in the News: Home Depot’s $1.2 Billion Supply-Chain Overhaul

June 16, 2018

Home Depot plans to spend $1.2 billion over the next five years to speed up delivery of goods to homes and job sites as the rise of online shopping resets consumer expectations, reports The Wall Street Journal (June 12, 2018). The home improvement retailer will add 170 distribution facilities across the U.S. so that it can reach 90% of the U.S. population in one day or less. The new sites will include dozens of direct fulfillment centers for next-day or same-day delivery of commonly ordered products, as well as 100 local hubs where bulky items like patio furniture and appliances will be consolidated for direct shipment to customers.

The retailer is realigning its supply chain to a changing retail landscape. Customers “expect delivery to be free, they expect it to be timely,” said a company exec. “Sometimes they want it fast, and are willing to pay for that. Sometimes they want it free, and they’re willing to wait for it. We need to have the right options there.”

The push comes as Home Depot is trying to tamp down transportation costs and improve inventory management as it tries to more closely integrate its growing online business with its network of about 2,280 brick-and-mortar stores. Online orders accounted for 6.7% of the retailer’s $100 billion in sales last year, but the digital revenues expanded 21% from the year before. About 45% of online orders are picked up inside stores, and the company is rolling out self-service lockers at the front of some stores to speed up order retrieval.

Shoppers accustomed to 2-day delivery from online retailers like Amazon are increasingly making buying decisions based on convenience factors. That’s pushing retailers to reshape distribution networks that were originally designed to ship pallet-loads of goods from warehouses to stores. They are turning to tactics such as drop-shipping, where suppliers ship online orders directly to customers, and opening warehouses closer to customers. The company is also testing the use of cars and vans for lower-cost delivery of smaller orders, and expanding its network of flatbed trucks that can deliver loads of concrete and other building materials to professional customers..

Classroom discussion questions:
1. What are the key OM issues Home Depot is facing in this article?

2. How does Home Depot’s approach to customer delivery and pickup compare to that of Amazon?

OM in the News: The Rise of the Cobot (Collaborative Robot)

June 13, 2018

 

The robotic arm at Mofongo’s Distillery in Holland helps bartenders and draws in curious customers

Robots are moving off the assembly line, writes The Wall Street Journal (June 11,2018). Collaborative robots that work alongside humans—“cobots”—are getting cheaper and easier to program. That is encouraging businesses to put them to work at new tasks in bars, restaurants and clinics. In the Netherlands, a cobot scales a 26-foot-high bar to tap bottles of liquor so that bartenders don’t need to climb ladders. In Japan, a cobot boxes takeout dumplings. In Singapore, robots give soft-tissue massages.

Cobots make up just 5% of the $14 billion industrial-robot market, but sales will jump to 27% of a $33 billion market by 2025 as demand for the robotic arms rises. About 20 manufacturers have started selling such robots in the past decade. Smaller businesses are using more cobots as labor costs rise. Artificial intelligence software is making it easier to teach them repetitive tasks. The latest models are sleeker and safer than their predecessors, which were often confined in cages to protect them from injuring nearby humans. Cobot arms brake when they touch humans, and don’t have “pinch points” that could snag fingers and skin.

“Robots are now crossing the chasm from a niche to a mass market,” said a Credit Suisse expert. He likened the current adoption of robotics to the introduction in the late 1990s of smaller handsets that launched mobile phones into wider use. The slew of newer cobot makers has driven down prices, providing buyers with alternatives that sell for $18,000-$26,000.

Still, cobots can’t do everything a person can. Robots are getting good at repetitive work, freeing up humans for other activities, but have a hard time with more complicated actions.

Classroom discussion questions:

  1. What is the difference between a robot and a cobot?
  2. How are cobots an improvement over traditional industrial robots?
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