OM Blog 5: November 25, 2009
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
Retailers spend a large part of the year planning for the Christmas sales season. The key event in this busy season is Black Friday – the day after Thanksgiving. Stores offer fantastic deals and open early in the morning in order to entice/lure/pull people into shopping and spending their hard earned dollars. In 2009, with the economy down, there is more pressure than ever for retailers to get shoppers into their stores. Scores of websites offer listings of the best deals – both for physical stores and for online stores. Wal-Mart, the world’s largest retailer, opens at 5 AM on Nov 27 and is offering a Sony Bravia 46” LCD 1080p HDTV! Wow, that crushes our tv at home – I wonder if Santa has my list yet? Oh yeah, where was I? Among the offerings:
So, clearly this is a bonanza for customers will to venture into the whirlwind of shopping, but operationally this also imposes substantial challenges on running the stores. Among the key challenges:
- Workforce Staffing: While shoppers may be excited to get up at 3 or 4 AM to shop, workers are generally far less excited to get up even earlier in order to open the store and deal with hundreds or thousands of excited – and sometimes difficult – customers.
- The Ultimate Newsvendor Problem – the hot deals are loss leaders for the stores, but the managers must make decisions on how many of these items to stock. Too many and there will be excess inventory and costs after the sales ends. Too few and customers will leave disappointed – or worse. There have been scores of examples of angry customers stampeding or yelling at store employees.
- Crowd Management – While it is a marketing dream to have hundreds of customers lined up to get into your store, it is also a manager’s nightmare. This violates one of the key principles of good operations management – minimize variability. Instead, retailers encourage it by trying to whip customers into a frenzy and then opening the doors. Occasionally, this leads to disasters – it seems like every year there is a story of someone getting trampled and even killed during the mad rush. Even if there are not major problems, there are usually very long lines and very overworked employees. Of course, stores can bring in extra staff to make things go more smoothly – but this costs money.
- Production Planning: WalMart has an interesting new feature – customers can get a detailed map of their local store. This map shows exact locations of each and every deal – no wasted time sprinting to the wrong location. To the fastest and best planned go the spoils! What efficiency!
Retailers (and customers) clearly believe the benefits outweigh the challenges – so we are unlikely to see Black Friday fading in the near future. This can be an extremely fun event for shoppers and retailers alike. If you plan to participate, I recommend a good pair of sturdy shoes and an outfit that allows easy movement and cushions you from bumps and bruises. Me? I’ll be sleeping off the turkey – I don’t begin thinking about my holiday shopping until at least December 22.
Discussion questions:
- How should stores approach inventory planning for Black Friday, in particular the newsvendor problem (Chapters 5: Forecasting and 6: Independent Demand Inventory, pp. 222-223? How should retailers plan the process of opening the doors and getting excited customers through checkout (Chapter 4: Process Design and Analysis)? What capacity planning approaches should retailers use for Black Friday (Chapter 10: Capacity Planning)
- What are your favorite or least favorite memories of this shopping day? How did the operations of the store contribute to this experience?
Sources:
- The Chicago Tribune offers a handy photo gallery of tips on how to survive Black Friday at the following: http://www.chicagotribune.com/features/holidaily/sns-holiday-black-friday-survival-pg,0,748950.photogallery
Have you gotten your Flu shot yet?
OM Blog 4: November 2, 2009
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
Amidst the public debate these days about whether or not individuals should get shots for either the regular, seasonal flu or for H1N1, there is another challenge. That is, if you do want to get a shot, where and how can you get one? This is not a trivial question as there have been numerous delays and canceled clinics around the U.S. in the past two weeks.
What does this have to do with operations and supply chain management? Several things.
First, manufacturing and distribution of vaccine dosages is a substantial supply chain challenge. The U.S. Centers for Disease Control and Prevention (CDC) had hoped to have 40 million doses of the H1N1 vaccine ready by the end of October, but there were numerous manufacturing delays. As of October 30, Dr. Thomas R. Friedan of the CDC stated that there were 26.6 million doses available, up from only 10 million a week prior to that.
Manufacturing flu vaccine is a challenge – each dose must be grown in a chicken egg and carefully handled and harvested to avoid any contamination. The yield of antigen is unpredictable, making it difficult to forecast how much to produce. In addition, production must start several months before doses can be administered. Another challenge is that the revenue is relatively small for a complicated product. In short, vaccine production is a complicated process, that must be started months ahead of need and the revenue and yield is very unpredictable.
Once the vaccine is produced, then there is the distribution challenge. The CDC must ship the vaccine to numerous hospitals, clinics, doctor’s offices and pharmacies. In the current situation, many if not most of these organizations want more doses than are available. Thus, doses must be allocated and some potential patients will be left without. Once vaccine is actually delivered to a clinic, it must be administered as efficiently as possible. In short, the distribution of vaccine is one giant application of the newsvendor problem (see pages 222-223 of textbook). In the current case, there seem to be more stockouts than excesses.
Discussion questions:
- How does vaccine distribution relate to key operations and supply chain management questions including: quality management (Chapter 2), new product development (Chapter 3), forecasting (Chapter 5) and project management (Chapter 8)?
- Could more vaccine be made available if the government or patients simply paid more money for it? What are the pluses and minuses of producing extra at an increased cost?
- How should the government and producers balance safety – i.e. carefully assessing the vaccine so that few unintended consequences occur – versus speed of getting the vaccine to patients?
Sources:
- The following article from CNN has some interesting data on flu vaccine production: http://www.cnn.com/2009/HEALTH/10/30/h1n1.vaccine.available/index.html
- The CBS TV show 60 Minutes has a good video on flu vaccine production: http://www.youtube.com/watch?v=ABYrGSCn4M0
