A Grim, yet Important Task
In the summer 2010, there was a huge scandal at Arlington National Cemetery when news reporters discovered that up to 6,600 graves may be misidentified due to poor management and failed attempts to automate and move from a paper-based to a computer-based system of tracking burial information. In the ensuing year, the U.S. Army has employed good, old-fashioned legwork and some 2011 technology to confront, and hopefully solve, this embarrassing problem.
Troops photographing graves at Arlington National Cemetery
Every night, members of the Army’s historic Old Guard have shed their dress blues, white gloves and black boots to don t-shirts and flip flops. Is this a slacker approach to 21st century warfare? No, it is a practical solution to a huge problem. The troops don the relaxed guard to stay cool during long nights working to catalog more than 219,000 grave markers and 43,000 sets of cremated remains. Each soldier is given an iPhone with which to photograph graves. At first, the soldiers wore army utility uniforms, but some of the photos suffered from bad lighting when the light reflected off patches in the uniforms. The pictures are taken at night by about 60 troops who slip in at night and finish before the cemetery opens at 8 AM in order to avoid interrupting the average of 27 funerals that are conducted every day. The plan is to use the photos to create an online database open to the public. One of the soldiers, Sgt. Yvens Saintil, 26, of Philadelphia, who has done two tours in Iraq has friends buried in the cemetery. Sgt. Saintil has taken time to find their graves and pay his respects, although they were not on his official list of assigned areas to photograph: “At first, I was kind of sad a little bit, but it’s just part of the mission to continue your mission”.
This work to catalog all the graves is hugely important to show proper respect for the country’s honored war dead. How long will it take? Good question, with 60 soldiers per night taking an estimated 30 photographs per hour for 8 hours, the team could take 14,400 photographs a night. At that pace is would take a little over three weeks. As in all things operations, that estimate may be low or high, and it is important to balance speed of execution (taking more photos) with quality (making sure that every photo is of sufficient quality to meet needs). Here is to wishing the soldiers well on their mission – our war heroes deserve to have their graves properly marked, recorded and maintained.
By Ken Boyer (Fisher College of Business, Ohio State University) and Rohit Verma (School of Hospitality Management, Cornell University)
We’ve all seen the many electronic ways of keeping track of inventory – cash registers, handheld scanners, iPhones etc. Modern business has an unparalleled and newfound ability to almost instantly know exactly how much inventory a business has for each and every SKU, right down to its location.
Or does it? There is a nastly little problem of inventory inaccuracy. Human beings make mistakes – incorrect data entries, placing physical items in the wrong place, damaged items etc…. And those are the explicit mistakes. What about the things that customers or employees hide?
Retail stores have long had a gentle term for this – shrinkage. This can include unintentional inventory misplacement – such as when a customer selects some Ben and Jerry’s and decides 4 aisles later that their diet really does not really need to include high fat, high sugar treats. They then put the Cherry Garcia down in an unrefrigerated location. Oops. Or, inventory misplacement can be intentional – such as when a customer picks up an apple in the fruit aisle and eats it before throwing it out in the cereal aisle. There are many different variations of inventory problems such as this.
But, never fear, that is why businesses have a tool in their arsenal generally called the cycle count. This involves periodic physical counts of either a partial sample of inventory or a complete count. They are not fun, but they are necessary. Consider two examples. First, we go to a greenhouse to see how technology enables a hard, physical count of the plants – which may be in multiple locations and some of them may have “accidentally” been taken home without payment.
http://www.youtube.com/watch?v=XBMe0m0LnLs
Next, we go to another business that has a substantial problem with shrinkage – bars. Think about it. How easy would it be for a bartender to put “just a bit” more alcohol in each drink? Sure might improve his or her tips. Or, maybe the bartender wants to give away a few drinks – or maybe have a few for his or herself. Not behavior that you would appreciate if you own the bar or the restaurant. So, let’s see one of the tools used to combat this problem:
http://www.youtube.com/watch?v=WPVTQ1kI6BA
http://www.youtube.com/watch?v=yOfNillEu3c&feature=related
So, what do you think? What other tools/approaches can managers employ to control inventory and shrinkage? In what businesses is this more or less important?
Payment Processing Productivity
Have you ever thought about the time it takes to take a customer’s money and make proper change? Well, even if you haven’t, many people have. There are numerous elements of efficiency involved in taking customer payment. Consider the Telequip T-Flex Coin Dispenser and Canister, which links to a wide range of cash registers around the world. Its maker, Central Cash Register (CRS) estimates that it can reduce transaction time by 5-7 seconds per transaction by automatically dispensing the proper coins rather than having a cashier count them out. This may not sound like much, but if the average transaction is 1 minute, this is up to 10% of the total. This machine works with U.S., British and European (Euro) currencies and can hold up to $110.80 in change.
Telequip T-Flex Coin Dispenser and Canister
So, technology can make it faster to make change – let’s take this a step further. How do you feel about pennies? You know, those nice brown coins with Abe Lincoln’s face on them. They are not worth much and actually cost more for the U.S. mint to manufacture – from 2006 to 2010 it cost 1.62 cents to produce a penny – mainly due to the high cost of zinc (97.5%) and copper (2.5%) used to make them. About 8 billion pennies a year are produced. And who really wants them? Why don’t retailers simply round to the nearest nickel – on average customers would pay the same price, we wouldn’t need those silly pennies and the speed of transactions would speed up. How about this for a suggestion to save the U.S. government from huge deficits – quit making pennies – at 1.62 cents for 8 billion a year, the result would be a $129 million annual savings. I know, not an original idea and this is penny ante for the debt the U.S. incurs, but it would be a start.
What about non-cash ways to pay. Hmmm, I am old enough to remember when paying by a check in a grocery store took a substantial amount of work … one had to get pre-approved, then buy the groceries, write the check and often get a manager to sign off. That was over 30 years ago. Things have changed a bit. Checks grew greatly in acceptance, but so did credit cards, then came debit cards. Today, debit cards represent 35% of all non-cash payments and many of those transactions represent what formerly was cash – 64% of debit card transactions are for less than $25. Retailers like debit cards because 1) they are faster than cash and 2) they are cheaper than credit cards because of lower fees on the transactions. The use of electronic payment forms has greatly sped up retail transactions. So now retailers can dream of shorter and shorter times to separate you from your cash – watch the following video to see a dream scenario, until ….
So, next time you pay for something – think about how long it takes. Do you have any ideas how to speed the process up?
Redbox.Com : Effective Blending of New and Old Operational Technologies and Analytics
Just when we thought that Netflix is THE undisputed king of the movie rental industry, along comes RedBox. It is very interesting to see how an effective blending of old (vending machine) and new (e.g. touch-screen, online and mobile ordering; individual tagging of inventory) technology coupled with advances analytics (e.g. assortment planning) and logistics (e.g. replenishment) has created a viable competitor for Netflix in the movie rental industry.
From the customer’s perspective, the design of Redbox’s service is very simple and convenient. They can go to one of the 26000 Redbox location in the United States and rent a movie directly from the kiosk. The movies are very competitively priced ($1/night of rental) and they can be returned at any Redbox location.
A customer can also search for a specific movie from their computer and reserve it at any specific location. Redbox requires the customer to pay for the movie using a credit card at the time of and pick-up later.
Recently, Redbox has also created a mobile application that works of variety of platforms. This application allows customers to search for a movie and then locate the nearest Redbox location. The customer also has a choice to reserve the movie right from their mobile device and then pick it up during the designated time interval.
While Redbox’s innovations will not replace the streaming movie rental industry pioneered by Netflix, it does offer an alternative for the customers. Furthermore, by strategically placing its kiosks at grocery stores, retail locations and transportation hubs, Redbox can benefit from impulse purchase and customers how are traveling from one location to another. For example, using Redbox’s service a customer can rent a movie just for one $1 prior to boarding a flight; watch it on her computer on-board and then return it at a different city. Redbox’s history is summarized in the figure below.
For Redbox to continue to be successful it is crucial that it continuously monitor the assortment and inventory of movie at its each location. In addition, Redbox’s business model requires a very regular replenishment/servicing of each kiosk several times each week. Therefore there are high variable and labor costs associated with its operations. Given that Redbox only charges $1/night as rental fees, a high sales volume is essential for a long-term success in its operations. It will be interesting to see how Redbox’s business model evolves in the coming months.
Weighed in Columbus
If you live in Central Ohio, you have likely driven by a building with Mettler Toledo’s name on it off I-71 near Polaris Parkway. If you live anywhere else, there is a good chance you have come into contact with one of the company’s products or things it facilitates the production of — but what does the company make? Scales, from one big enough to weigh an 18 wheel truck to ones precise enough to weigh a single grain of rice. The company was founded as Toledo Scale in 1902, in Toledo of course, moved to Columbus in the mid-1970s and merged with Mettler, a Swiss producer of laboratory scales in 1989. In a sense, the merger brought together the elephant (large size industrial scales) and the mouse (precise laboratory scales) to form a company which employs 11,200 people worldwide, 3,000 in the U.S. and 700 in central Ohio.
As you might expect, two such vastly different scales require very different processes. Truck scales are huge, corrugated-metal platforms measuring 23 feet by 12 feet and weighing 8,400 pounds. Equipment needed includes overhead cranes, welding torches and a 3-story painting room.
About a mile to the north is Worthington’s second Mettler Toledo plant. Its laboratory-like environment contrasts with that of the Worthington plant. It makes scales for grocery stores, along with other small components. The equipment here includes a high technology cleaning and filtration system to remove dust particles from the air. Workers wear whitesuits to limit possible contamination and both the tools and parts do not require cranes, but can be moved in small containers. The small, precise scales are a world apart from the scale you use to weigh yourself in the bathroom or at the gym and are used by drugmakers, chemical companies and food and drink producers.
While the markets for the truck scales and laboratory scales tend to be very different, there are a few companies that use both types. One well-known is the nearby Anheuser-Busch brewery which uses Mettler Toledo instruments to measure ingredients and monitor the acidity and oxygen content of the beer. Making a consistent product requires great precision in the raw materials. Once the beer is bottled and packed into cases, it is stacked on wooden pallets and loaded onto trucks. The trucks pull onto a Mettler Toledo scale, which is used to make sure the load is below the 80,000-pound legal limit for highways (that’s a lot of beer!). The scale also tells workers whether the weight is evenly distributed within the truck, which helps reduce the pressure on any one axle and makes the truck safer to drive while extending its life.
Chief Financial Officer, William Donnelly, forecasts a rosy picture for this Swiss/American company. Why? Well, in addition to strong sales in the U.S. and Europe, the company began investing in China in the 1980s. As a result, the Mettler Toledo is well positioned to capitalize on the growth of both China’s domestic markets, but also the need for its manufacturers to expand their capacity with the instruments they need to produce the world’s products. Asia now accounts for 20% of total sales. Mettler Toledo is poised for future success, and like many companies that are not well known to the general public, they form a critical the world’s supply chains. Luckily, a fine-tuned laboratory scale is not needed to weigh their chances of success.
Truck Scale Production at Mettler Toledo
The video below shows production of food scales – not exactly like Mettler Toledo’s lab scales but closer than truck scales.
Description: Detecto’s food service scale manufacturing processes have been featured in a 2008 episode of cable tv’s popular program “How It’s Made” airing on the Science Channel. The segment details the production of a Detecto model MCS food service hanging dial scale used in grocery stores for weighing produce, meat, and nuts. For more information on the products featured in the video, please visit www.centralcarolinascale.com
Original Source for information in this post:
http://www.dispatch.com/live/content/business/stories/2011/03/13/made-here-mettler-toledo-racks-up-measurable-success-with-its-scales.htmlFood Scale Production at Detecto
Post Office Contraction
The check is in the mail …
The postman always knocks twice …
Neither rain, nor sleet, nor snow …
The post office is an integral part of people’s lives and always has been. Yet, the U.S. Post Office (USPS) is faced with a huge problem – steeply declining mail volume. Figure 2 below shows a graph of total mail volume from 1971 to 2010 (actual) and projected through 2020. From a peak of over 200 billion items per year, the USPS has experienced a 33% decline in mail volume in around 5 years. This is driven by the increasing use of the internet for communication purposes, particularly paying bills. As shown in Figure 1, while only 11% of household bill payments were made electronically in 200, this figure has climbed to 41% in 2009, with a correlated decrease in payment using physical mail. While this is great for consumers, banks and businesses who have all seen their total costs and transaction difficulty decrease, it is not great news for the USPS. If mail volume decreases by a third, everything else (employees, trucks, post offices) should decrease by the same amount to keep capacity and efficiency the same. This is much easier said than done, but unless anyone actually believes there is a future with absolutely no physical mail (OK we can fantasize about no more junk mail, but it is pretty unlikely that the USPS will go away completely), then the USPS has some difficult problems to confront.
Capacity planned for peak in 2006: Challenge = reduce to match with projected demand
This is a primary driver of USPS capacity challenges
Before we turn to discussing how to address the decrease in post office volume, let’s first discuss some key facts about the USPS. First, contrary to popular wisdom, the USPS is not government supported – it is self-supported through its own revenues and does not receive a dime from the U.S. government (and has not received any financial support in at least 50 years). Second, it is by far the largest postal service in the world, delivering the aforementioned 180 billion parcels per year, which represents 40 percent of the total world volume. Third, again contrary to popular opinion, it is quite efficient. Considering that it has roughly 600,000 employees, the overall efficiency is 180 billion parcels divided by 600,000 employees – thus the productivity is 300,000 items per employee – that is pretty efficient. Fourth, the USPS has made an enormous investment in technology, facilities and equipment. This includes 218,684 vehicles, 127,600 computers, 85,000 printers, 9,300 Blackberrys and 325,000 hand held scanners. IN terms of processing the mail, the USPS uses 11,000 pieces of automated processing equipment, including an Advanced Facer Canceller System that positions mail and cancels stamps at 36,000 pieces per hour. The USPS has over 36,000 neighborhood post offices where customers can buy stamps, mail and receive parcels. While the public often thinks about reducing these, they are in a sense easy to reduce – like closing an underperforming Starbucks or McDonalds. Another challenge is the 528 sorting facilities – each of these is a multimillion dollar facility employing hundreds of people. Closing some of these is imperative as a facility that was near 100% utilized 5 years ago may be 50 or 60% utilized today. But closing one does not remove the need to sort the mail, hence the entire network must be re-thought.
Now, to the question of how to deal with this huge reduction in demand. While many people here of postal losses and think “those people do not know what they are doing”, the USPS and its leadership are trying everything imaginable to stem losses. In the past 20 years, the number of street mailboxes (you know those Blue metal things on street corners) has been reduced from nearly 400,000 in half to 200,000. Hours at local post offices have been reduced – and routes have been chanced – in the Washington D.C. area 158 delivery routes have been eliminated. Many people hear that the USPS is considering dropping Saturday delivery and either think that is a great or horrible idea, but all in all that is a drop in the bucket. To cover the $8.5 billion loss in 2010 requires shutting many facilities – but the hardest part is likely eliminating employees. Just last week, the USPS announced that it is offering a $20,000 buyout to eliminate 7,500 positions. This comes at a cost of $150 Million and represents about 1.5% of all employees – a drop in the bucket. So, put yourself in the postal commissioners shoes – what would you do?
Further Information:
http://www.usps.com/communications/newsroom/postalfacts.htm
http://money.cnn.com/2011/03/24/news/economy/postal_service/index.htm (includes a video showing mail processing at a sorting facilty)
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/24/AR2009072403857.html
GROUPON: Simple, Elegant … But Not Perfect Yet
It seems this year Groupon will generate close to $2 billion in revenue. Just a couple of years ago Groupon did not even exist and now it has rejected a bid to be bought by Google for $6 billion (see: http://www.businessweek.com/technology/content/dec2010/tc2010124_281295.htm).
One wonders what “value-added transformation” this company provides (see Boyer & Verma Ch.1 for a discussion about value-added transformations) to be able to generate such high revenue? They most-certainly don’t manufacture anything – so what do they really do?
Well, they do seem to have a very interesting business model for selling excess service capacity (or inventory) to interested customers. This is how it works:
Groupon offers one very heavily discounted offer (e.g. a discount coupon for a restaurant, hotel, spa, theatre show) in a specific market every day. The offer is valid only for a limited time. Potential customers get information about deals via emails or by visiting the Groupon website. If someone is interested in a specific discount offer then they sign-up by providing their credit card information. However the sale is confirmed only when a stated minimum number of customers choose sign-up for the offer. For example, Figure 1 below shows today’s deal for the New York region for a one-hour experience flight (a $299 value offered at $179). It appears that 52 customers have bought the offer so far and so the deal is on. On the other hand, the offer presented in Figure 2 ($99 for the Pumpkin Spice & Everything Nice Package – a $188 value) has not been bought by the required minimum number of customers yet (at-least 30 are needed and so far only 14 have bought).
So why does this work? – The reason is so simple yet so elegant. First; the businesses only offer discount IF they know that they will have excess capacity/inventory or if they want to host a specific marketing campaign. At the same time, by specifying a minimum purchase quantity, they also ensure that the necessary economy of scale is achieved. Second; since customers know about the minimum purchase quantity requirement, they further advertize the offer to their family/friends via a variety of social media (Facebook, etc.) channels and word-of-mouth.
The above approach has lots of positives of-course otherwise the company would not have been so successful and Google would not have offered to make such a high bid for its purchase. At the same time, there are several operational issues that still need to be resolved if this new business model pioneered by Groupon has to continue to be successful. For example, currently the deals offered on Groupon do not have an upper limit. Therefore, it is possible that a promotion may become so successful that it may actually be problematic or too costly for the business – i.e. they may have to sell a very large volume of goods/services at a very low price.
Furthermore, scheduling and capacity management may become a big problem if too many customers decide to use their purchase at same time or in a relative short time interval. For example, let’s take a look at the offer for a two-hour afternoon cruise that has been purchased by 533 customers (a $43.15 value at $21). The offer is open for another 2 days, 11 hours and 25 minutes. Suppose 5000, 10000, or 50000 customers purchase the offer before it is closed. Since this particular coupon can only be used till June 21, 2011, it is possible that some customers may not be able to go on the cruise at all – or they may have to wait for a very long time. (see another example discussed here: http://gesterling.wordpress.com/2010/03/25/the-dark-side-of-groupon-sites/ ).
Finally, the front-line employees are the ones who serve customers and so it is quite possible that their motivation, satisfaction and enthusiasm will be hindered by a large number of “discount-seeking-customers” (see this article for an interesting discussion on a related topic — http://www.informs.org/content/view/full/116605).
It will definitely be interesting to watch how Groupon (and other companies who are developing similar business models) will address the operational challenges described above.
Waiting for the Cable Guy? Enough is enough!
OM Blog: October 18, 2010
By Ken Boyer, Fisher College of Business and Rohit Verma, Cornell University
Authors: Operations and Supply Chain Management for the 21st Century, 2009, Southwestern Cengage Publishing
You are not alone when waiting for the cable, utility, internet or phone repairman to show up. A recent survey administered by TOA Technologies to 1,009 Americans who have waited for a service call revealed some scary statistics:
- When applied to all Americans, the survey estimate that Americans wasted 2.75 billion hours last year waiting for some type of in-home appointment
- That is equivalent to 1.3 million person/work years
OK, so sometimes waiting at home is not so bad, you can read the paper, play Wii, watch Sportscenter. But then again, you didn’t choose to stay home – you were forced to!
So why does this happen. Doesn’t the cable, internet, repair, furniture delivery company say they love us and will deliver free to their number one customer? That is the difference between marketing and operations. Marketing people make the promises: free delivery, friendly delivery people, delivery when you want it. Then they turn the problem over to operations — and discover that great service requires more money.
Most deliveries occur in a service window (often 3 hours, but if you are unlucky enough it can be all day). This helps the service company minimize costs by scheduling to minimize wasted time on the part of their personnel and equipment. BUT WHAT ABOUT THE POOR CONSUMER?
Here are a few ideas for better matching operations with the promised customer service:
- Given that we are in the 21st century, let’s apply some technology. If Britney spears can tweet about her latest bad haircut and be read by thousands, surely companies could do one of two things: 1) they could email, text or tweet us once they come up with a daily schedule and give us a more exact time – i.e. 9:30 +/- 15 minutes rather than 9 – 12. Or, 2) they could email, text or tweet us 15-30 minutes before an appointment when the service person is actually finishing up the previous job (many companies have systems to electronically track this type of info, they just don’t share it with customers).
- Compensate customers for appointments that are very late or canceled altogether. Numerous industries such as Airlines, hotels and medical offices already do something in this area.
- Allow customers to be a member of a “prime” or loyalty club and/or pay a small premium to receive quicker or more reliable service.
IKEA, the Swedish furniture retailer, already does a version ot this. When ordering furniture online, customers first see and estimated delivery date. Then, within 72 hours a SMS text is sent with a confirmed delivery date.
http://www.ikea.com/ms/en_GB/customer_service/shop_online/about_delivery.html
- Laura Ashley provides a similar service, including a confirmation call while en route.
- Benjamin Franklin Plumbing will pay customers $5 for every minute an employee is late.
So, there are ways to reduce our waiting time. What do you say Cable Guy – How about a little consideration?
Cross Country – Operations captures the times
OM Blog: September 29, 2010
By Ken Boyer, Fisher College of Business and Rohit Verma, Cornell University
Authors: Operations and Supply Chain Management for the 21st Century, 2009, Southwestern Cengage Publishing
This fall has brought several new experiences for this author – including cross country meets. Must say that while I am impressed with the operations techniques used in swimming meets, cross country is equally good – and a cross country meet is substantially faster than a swimming meet.
Challenge: hundreds of runners, each of whom needs to have their time precisely recorded
Solution: Line all the runners up at the start line. Have starter shoot a starting gun, then watch as a pack of teenagers race off following the rabbit (usually a small 4 wheel motor kart that serves as a pace car). I don’t think teenagers could move faster if the pizza delivery guy was getting away without leaving the pie!
- Get out of the way – here they come
Now, they are off. Middle school kids (7th and 8th graders) finish in 11 Min to 24 min – so just like all operations you have variability to contend with. Yours truly would be on the wrong end of that distribution. At the finish each runner needs to have his/her place (i.e. 1st, 2nd, —, 121st, —), time and name recorded.
Runners coming into X-country finish
Runners in the funnel/tunnel - catching their breath and getting time recorded
Close up of the funnel/tunnel
The Upper Arlington Jones MS boys X-country team at a recent meet. Graham Boyer achieved a personal Best - 15:24 for 2 miles - and NO WAY could Dad have ever done this - even 25 years ago!
Football Ticket Distribution – The Shoe
OM Blog: July 7, 2010
By Ken Boyer, Fisher College of Business and Rohit Verma, Cornell University
Authors: Operations and Supply Chain Management for the 21st Century, 2009, Southwestern Cengage Publishing
Well, it is that time of the year. Fall is approaching, the leaves are turning colors and it is getting colder. Ok after this past summer, maybe it is not quite getting cold yet.
But, it is college football season … and that means that millions of fans are looking for their tickets in the mail. Have you ever thought about the operational challenges here? Consider this:
- Ohio Stadium, AKA the Shoe, will host 8 home football games for the Ohio State Buckeyes this season.
- Seating capacity is 102,329, making the Shoe the 4th largest stadium in the NCAA and the 7th largest non-racing stadium in the world
- It seems like this would provide sufficient capacity, except as 3rd year professor at OSU and 0 year ticket receiver, I can honestly say NOT SO MUCH! Faculty members apparently come after students and large ($$ wise, not size wise) donors). There are at least 4 people who want every ticket – at least the good ones, you know Miami, Penn St. and that school from up North.
What the OSU athletic department do to get tickets out?
- If all 102K are given to season ticket holders, each of whom get 2, that involves mailing 51K envelopes at a cost of … does anyone know what a stamp costs anymore? Let’s say $2 since the envelopes are big (at least I have heard). That is $102K to the post office.
- Since we know the USPS never loses anything, no problems there. Oh wait a minute, suppose 1 in a thousand envelopes gets lost —- 51 angry people calling the ticket office — or a lot more.
- Or, suppose 1 in 10 people are not happy with their seats (or lack thereof) … imagine how many calls the ticket office gets … or emails … or in person tirades.
- Think about the number of people who lose their tickets — or try counterfeiting them.
All of this makes me think I am glad I don’t work in the ticket office. Then again, I could get tickets!
Go Bucks, Beat Marshall!
The Shoe on a sunny fall Saturday
To Read More about the Shoe: http://en.wikipedia.org/wiki/Ohio_Stadium
