OCTOBER 18, 2013

At the end of a road in Tunkhannock, PA., called P&G Warehouse Way, sits a warehouse stocked with Pampers diapers, Bounty paper towels and other items made by  P&G. Inside the distribution center, reports The Wall Street Journal(Oct.15, 2013), is another company: Amazon.com. Each day, P&G loads products onto pallets and passes them over to Amazon inside a small, fenced-off area. Amazon employees then package, label and ship the items directly to the people who ordered them.

The e-commerce giant is quietly setting up shop inside the warehouses of a number of important suppliers as it works to open up the next big frontier for Internet sales: everyday products like toilet paper, diapers and shampoo. The under-the-tent arrangement is one Amazon’s competitors don’t currently enjoy, and it offers a rare glimpse at how the company is trying to stay ahead of rivals.

Logistics have long been crucial to success in retail. Years ago, Wal-Mart set up a system that lets suppliers monitor what needs to be replenished. Amazon instead is going out to its suppliers by piggybacking on their warehouses and distribution networks. Amazon is able to reduce its own costs of moving and storing goods, better compete on price with Wal-Mart and club stores like Costco, and cut the time it takes to get items to doorsteps. P&G began sharing warehouse space with Amazon 3 years ago and has expanded the practice. Amazon is now inside at least 7 P&G distribution centers world-wide,

The economics of the arrangement benefit both sides. For Amazon, “co-location” reduces the cost of storing bulky items like diapers and toilet paper and frees up space for the Web retailer to stock higher-margin goods in its own distribution centers. P&G, meanwhile, saves on the transportation costs that it would have incurred trucking products to Amazon’s regional distribution centers. Plus, it gets Amazon’s help in boosting online sales, a priority for many in the industry.

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

OCTOBER 14, 2013

Computers seem to be replacing humans across many industries, and successfully so in the service sectors such as bank and hotel lobby ATMs and airport kiosks, reports The Wall Street Journal (Oct. 6, 2013). But these tasks—along with more routine computerized skills like robotic assembly lines—share a common feature: they’re very narrow, specific, repeatable problems, ones that require little physical labor and not much cognitive flexibility. In supermarkets, self-checkout machines’ deficiencies illustrate the limits of computers’ abilities to mimic human skills.

The human supermarket checker is superior to the self-checkout machine in almost every way. The human is faster. The human has a more pleasing interface. The human doesn’t expect us to remember or look up codes for produce, she bags the groceries.

Self check-out works well enough when you want just a handful of items, when you don’t have much produce, when you aren’t loaded down with coupons. What’s so cognitively demanding about supermarket checkout? Checkout people all point to the same skill: identifying fruits and vegetables. Some supermarket produce is tagged with small stickers carrying product-lookup codes, but a lot isn’t. It’s the human checker’s job to tell the difference between green leaf lettuce and green bell peppers, and then to remember the proper code. “It took me about three or four weeks to get to the point where I wouldn’t have to look up most items that came by”, said one clerk.

National supermarket chain Jewel-Osco is getting rid of self-checkout lanes from some of its stores. The firm said it’s an effort to reconnect personally with all of its customers despite the higher costs the shift entails. Theft is also a concern driving some grocers away the unmanned check-outs, as are hassles such as liquor and other purchases that require an employee to step in. Self check-outs generally have one staff member assisting customers at 4-6 stations at once.

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