Factory Rebound’s Winner–Mobile, Alabama

MAY 31, 2014

Austral has increased the workforce at its Mobile shipyard to 4,100 from 900 in 2009

The U.S. has added about 650,000 factory jobs since their numbers rebounded after the recession, putting manufacturing workers at 12.1 million and reversing a long decline in such jobs, reports The Wall Street Journal (May 30, 2014). But uneven growth has created regional disparities in the nation’s overall economic recovery.

Mobile, Alabama is among the winners. Shipbuilder Austral Ltd.’s facility here is busy seven days a week as workers piece together enormous aluminum sheets in a space the size of 13 football fields. Airbus and BAE Systems, too, are adding factory jobs here. Mobile created more manufacturing jobs than all but 15 U.S. counties in the past 4 years. U.S. factory-job gains—driven by a range of factors from cheaper domestic energy to the auto-industry recovery—have concentrated in pockets since the recession, particularly in the Southeast and Midwest.

Mobile’s success illustrates some common patterns: Often, companies have added jobs in states with “right-to-work” laws—which allow workers in unionized workplaces to opt out of paying union dues—and where taxes are relatively low, in counties where governments provide large incentives and strong vocational education, and in places with access to ports or other transport hubs.

Austal chose Mobile because of location, waterfront property, cooperative local and state governments, low taxes and low union membership. Alabama’s government sponsored training for Austal workers and built it a $12 million training center.

Airbus Americas, hiring about 1,000 new employees for its first U.S. commercial assembly plant, didn’t consider any Northern states as finalists, as it was looking for a port to which it could ship airplane parts for assembly. Alabama’s right-to-work rules were a key attraction. Alabama gave Airbus tax credits and cash grants valued at $158 million to build in Mobile—including a $6 million training center. “Alabama had it all,” says the Airbus chairman. “I’m not sure the rust-belt states have the same attitude.”

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Sustainability and the Sports Arena

Now The Wall Street Journal (May 19, 2014) reports that NFL teams are starting to see “green” as well.  The San Francisco 49er’s new $1.2 billion stadium will be the first in the league to feature a “living roof,” a canopy of green and flowering plants nestled across the top of an 8-story tower of luxury suites; this will reduce the building’s energy use and offer other environmental benefits by providing natural insulation. NFL clubs are also developing green programs to reduce energy emissions. They are using solar panels, wind turbines, electric charging stations and other low-carbon alternatives. The NFL is part of a general effort among U.S. sports leagues to embrace cleaner energy, led by a group launched in 2011 calling itself the Green Sports Alliance.

Alliance officials say sports teams that go green help boost public awareness of environmental goals while also benefiting their operations by lowering their energy costs. The $1.2 billion Atlanta Falcons Stadium, set to open in 2017, will include a rainwater-collection system to use for irrigation and cooling. The Philadelphia Eagles’ Lincoln Financial Field has installed features including energy-saving timers and sensors for lighting and cooling equipment. These and other energy-saving features have cut the team’s power consumption by half. The Houston Texans have created an interactive media guide, saving 2.6 million pages used in printing; the Redskins have installed solar panels at FedEx Field; the Rams have printed game tickets on recycled paper; the Vikings have put in reduced-flow plumbing at the players’ clubhouse and training areas; and the 49er’s stadium is net energy neutral, which means it is expected to generate all the energy it needs for the team’s 10 home games.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Offshoring and Reshoring Reach a Balance for U.S.

MAY 15, 2014

In 2001, Generac Power Systems joined the wave of American companies shifting production to China. The move wiped out 400 jobs in Wisconsin, but few could argue with management’s logic: Chinese companies were offering to make a key component for $100 per unit less than the cost of producing it in the U.S. Now, however, Generac has brought manufacturing of that component back to its Whitewater plant. The move is part of a sea change in American manufacturing, reports the Los Angeles Times (May 13,2014): After three decades of an exodus of production to China and other low-wage countries, companies have sharply curtailed moves abroad. Some, like Generac, have begun to return manufacturing to U.S. shores. The tipping point came when Generac had enough sales to justify investing millions of dollars in new equipment for the Whitewater plant. The company can now produce an alternator with 1 worker in the time it took 4 workers in China.

Harry Moser, of Chicago’s Reshoring Institute, tracks the inflow of jobs and estimates that last year marked the first time since the offshoring trend began that factory jobs returning to the U.S. matched the number lost, at about 40,000 each. “Offshoring and ‘re-shoring’ were roughly in balance — I call that victory,” said Moser.

Several factors lie behind the change:  (1) Over the last decade, Chinese labor and transportation costs have jumped while U.S. wages have stagnated; (2) Manufacturing also has become more automated, further reducing labor’s weight in the cost equation; (3) The boom in natural gas production in the U.S., largely driven by fracking, has led to a 25% decrease in gas prices in the U.S., contrasted with a 138% increase in China; and (4) the rise of online commerce has made local control of supply chains more important, especially because many U.S. manufacturers report growing problems with quality control of goods made in China.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

3-D Printing–or Additive Manufacturing?

MAY 13, 2014

 

A new way to turbocharge  turbine-making

Engineering companies now prefer to talk about “additive manufacturing” rather than “3D printing,” writes The Economist (May 3, 2014). One reason is that printing is not quite the right word for some of the technologies given this label. Whereas hobbyist-scale 3D printers typically build a product by squirting out drops of plastic, a newer manufacturing technique called selective laser melting zaps successive layers of powder with a laser or ion beam, hardening only certain bits. Larger firms want to stress the “manufacturing” aspect: that technology has moved beyond the development labs and is now being used on the factory floor to make complex metal parts. In Siemen’s gas turbines, for example, elaborately shaped blade components are hard to design and costly to make. But Siemens is using additive manufacturing machines to cut the cost and the time needed to replace the blades on customers’ turbines when they break– eventually from 44 weeks down to 4.

For simpler mechanical parts, the approach allows designers to imagine shapes that would be impossible to create through older techniques, besides greatly speeding up prototyping—for turbine blades and similar parts, from 16-20 weeks to just 48 hours, Siemens says. Additive manufacturing cuts the cost of tooling and materials: a piece can have all of its holes incorporated into it, with great precision, as it is built up from powder, instead of needing to have them expensively drilled afterwards. Siemens hopes to cut the cost of some parts by perhaps 30%.  As it gets easier to make low-volume, specialized parts in-house, Siemens gains bargaining-power when it comes to outsourcing such parts to other firms.

Aircraft engines, subject to even higher standards of reliability than turbines, are another area in which the engineering giants have implemented additive manufacturing. GE is using it to make fuel nozzles for its next-generation Leap engines. GE says the nozzles will be 25% lighter and five times more durable than their predecessors—and since there are 20 or so in each engine, the weight savings are significant.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Zulily’s “Inventory-Lite” Model For E-Commerce

MAY 11, 2014

zulilyOne of the Internet’s fastest-growing retailers is also one of its slowest shippers, reports The Wall Street Journal (May 4, 2014). The mom-focused discount site takes an average of 2-3 weeks to get merchandise to customers, well off the pace of online veterans like Amazon.com and ShopRunner Inc., which have been training shoppers to expect delivery in 2 days.

The slow shipping times are the result of a bare-bones distribution system that is enabling 4-year-old Zulily to turn a profit in an industry where some of its peers have struggled. Zulily’s sales have soared thanks to its ability to get women to browse regularly for deals and make what are largely impulse buys before the sales end.

But Zulily’s Achilles’ heel may be shipping. Last year, it took an average of 11.5 days for items to be shipped from Zulily’s warehouses after customers ordered them. The reason: Zulily doesn’t buy in advance most of the products it offers. Instead, it orders the items from vendors after the sales end. Vendors then ship the merchandise in bulk to one of two Zulily warehouses, where the products are sorted and combined with other orders before being shipped back out.

“It’s more efficient to do it this way,” says the company’s COO. It also doesn’t accept returns. He adds: “The inventory-lite model is why Zulily can afford to sell a wide range of discounted merchandise from more than 10,000 vendors.” The company has been investing in automation at the warehouses so that they can handle more inventory more quickly. “We’re always looking to improve speed and efficiency.”

Customers going to Zulily’s website don’t know ahead of time what deals they will find, and the retailer tries to work the shipping lag into its sales—for example, it is currently selling summer apparel for women and children.

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

FedEx Jolts E-Commerce Companies

MAY 10, 2014

fedex2“The joy ride is over,” said the president of a shipment-tracking software company. FedEx is changing the way it charges to ship bulky packages, jolting e-commerce companies with price increases for delivering items as diverse as diapers, shoes and paper towels (The Wall Street Journal –May 7, 2014). Instead of charging by weight alone, all ground packages will now be priced according to size. In effect, that will mean a price increase on more than 1/3 of its U.S. ground shipments. The move will greatly affect bulky but lighter weight items which many people have delivered on a regular basis, as well as Zappos.com shoes, which ship for free, including free returns. Indeed, shoe shoppers are encouraged to buy multiple pairs, keep what fits and return the rest. Avid Web shoppers do the same with sweaters, dresses, and jackets at retailers like J. Crew, Macy’s, and Banana Republic.

Under FedEx Ground’s current pricing, a one-pound square package with 12-inch sides—which might hold several shirts would be priced by weight and cost $6.24 to ship. After the changes, the same box would be priced at $8.83, a 41% increase. If an item is heavier than its “dimensional weight,” the customer will be charged the higher amount.

The change in pricing could dramatically affect both online shoppers and retailers. Someone will have to swallow the estimated hundreds of millions of dollars in extra shipping costs. Shipping is already one of the biggest and most rapidly increasing costs for big online retailers. For FedEx, it comes down to efficiency. Lightweight e-commerce orders take up a lot of room in the truck, and Amazon and other shippers don’t always match the box size to what is inside. (Companies like Zappos do use elaborate algorithms to determine exactly how many items should ship in a box to minimize the cost.)

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.

Otis Finds Reshoring Manufacturing Is Not Easy

MAY 7, 2014

Otis demonstrating his "safety lift" in 1854

Otis Elevator has found that bringing manufacturing jobs back to the U.S. can be a lot trickier than it sounds, writes The Wall Street Journal (May 3-4, 2014). The company’s 2012 move to relocate its plant from Mexico to South Carolina was hailed as a sign of a renaissance in American manufacturing. The relocation was supposed to save money and help fill orders faster by putting the people who make new elevators next to the engineers who design them, and their customers. But the reality hasn’t been so smooth. Production delays created a backlog of overdue elevators. Customers canceled their orders. The Nogales plant Otis was leaving behind had to stay open for half a year beyond its planned closing date to deal with the backlog.

The company’s experience shows that with supply chains and skilled labor following American factories overseas in recent decades, coming home can be more complex than just deciding where to site a plant. When the elevator maker opened its new 423,000-square-foot facility in a vacant Maytag factory in Florence, S.C., it was a notable participant in a trend of “reshoring,” where some companies reversed the movement of manufacturing work offshore to places like China.

For Otis, the return to the U.S. was supposed to herald a step up in efficiency. The relocation was to lower the company’s freight and logistics costs by 17%, and would cut costs a further 20% by having all of its white-collar elevator design and production workers on hand at the factory. The company now says it was trying to do too much at once. In addition to moving the plant, Otis also was replacing the computer system that manages supply, manufacturing, shipping and financial information. “The challenge, I think, was moving your supply chain, with your factory and your engineering center all at once,” says the CFO

This post provided courtesy of Jay and Barry’s OM Blog at www.heizerrenderom.wordpress.comProfessors Jay Heizer and Barry Render are authors of Operations Management , the world’s top selling textbook in its field, published by Pearson.