Robots or people?

By Gerard Cachon and Christian Terwiesch, The Wharton School at the University of Pennsylvania. Source: Matching Supply with Demand.

Christian Terwiesch

Gérard Cachon

Maybe the biggest challenge for e-commerce retailers is dealing with the huge surge in sales in the fourth quarter.  How can you build enough capacity cheaply enough to satisfy the rapid growth in demand during October, November and December, only to have most of that demand disappear by January? The traditional approach is to hire lots of seasonal workers. The trick with this is to be able to train them quickly enough for them to be productive in time for when they are actually needed. The Wall Street Journal reports that one company, Kiva Systems, has a different idea – instead of hiring workers, install robots (Dec 19, 2010).  To see these robots in action, check out the video (click here).

You might assume that these robots would “walk” around a warehouse picking products, putting them into a basket and bringing them to a place to be packaged. That is what humans do. Instead, these robots move shelves of inventory around. (See the photo – the robot is the orange contraption at the bottom of the shelf.) One advantage of this system is that you don’t need permanent aisles between the inventory – the shelves can be packed in tightly with the computer controlling the sequence (so that the one pink doll you need isn’t buried deep within a sea of shelves).

The next thing you may notice is that these robots are not particularly fast. It is not like the robots move product through the warehouse at twice the speed a human can walk. However, assuming these things are reliable (e.g., treads don’t need replacing every couple of days) they don’t need to take breaks, and they are instantly trained. One downside of this system is that the robot must move the entire shelf and not everything on the shelf may be needed at one time. Humans pushing a cart around a warehouse only put into their cart what is needed at the time.

But the point of the article is how to deal with the holiday surge in demand. While a robot might replace a human, it doesn’t eliminate the problem – the company simply needs a lot more capacity in the 4th quarter. If it buys these robots, then they are likely to be idle most of the rest of the year. Seasonal employees are just that – seasonal – that is, they go into the deal with the expectation that their work will be temporary.

The article ends with an idea for making the robots more cost effective for the retailer – Kiva Systems will rent the robots to the company for just the peak demand period. But I don’t see why this solves the problem – now Kiva Systems is sitting on expensive and idle capacity for most of the year (even in the Southern Hemisphere, Christmas falls in December).  Rental systems work well when potential customers need the product at different times. Given that the 4th quarter is the same for all retailers, I am not seeing this as an idea that works. Interestingly, the founders of Kiva Systems worked previously at Webvan. If there was ever a company that invested too much in replacing human workers with technology, it was Webvan – they may have survived if they didn’t blow all of their capital on hugely expensive warehouses. That said, I suspect there are surely applications of the Kiva Systems for some retailers. But as a solution to the 4th quarter demand surge, I am skeptical.

Selling restaurant reservations at a discount

Martin Lariviere

By Martin Lariviere, The Kellogg School of Management at Northwestern University. Source: The Operations Room.

A few weeks ago I wrote about how Groupon promotions can create operational headaches for participating service providers. In short Groupon coupons drive traffic but service providers can be easily overwhelmed, making it hard for new and current customers to make appointments for service. Now the New York Times reports on VillageVines, an alternative site that provides local promotion support (Pay Full Price for a Meal? That’s So Yesterday, Sep 8).

Like Groupon, VillageVines makes deals available on-line for registered uders. However, there are important differences. First, VillageVines specializes in restaurants as opposed to covering the waterfront from apparel boutiques to salons. Second, they don’t sell coupons but reservations.

With VillageVines, registered users get a daily e-mail and pay $10 for a reservation, which they book through the site or through, thanks to a new partnership. They get a discount, usually 30 percent off their bill.

The distinction between coupons and reservations may seem trivial but it actually makes a real difference. For customers, there is no need to print and remember to carry the coupon. The discount is in the firm’s reservation system and should be taken automatically. Certainly, a classier way to handle getting a discount when on a first date.

The bigger issue is how this solves problems for the restaurant. Because customers are buying reservations they have to pick a date and time before they fork over their $10. Consequently, the firm can shape the demand they get by limiting the number of reservations they give out and specifying when the discounts can be used. If the existing customer base does not fill up the house on Tuesday evening, that’s when you offer reservations on VillageVines. Further, customers know what they are buying. This scheme eliminates customers buying a discount only to find they can’t get an appointment for two months.

So this is a very clever solution to the issues that have arisen with Groupon. Of course, from the member’s perspective it doesn’t replace Groupon. Here you only get restaurants so if you are more interested in apparel shops it doesn’t do much for you. The question is whether this format can be easily carried over to other settings. I am not sure that it can. This works for restaurants because on-line reservation systems exist on a common platform and are integrated with other restaurant systems. There is no such standard approach for other local services — even those that commonly use appointments. Part of that is because people don’t generally shop around for dentists and barbers the same way. People generally like variety in eating so there is a benefit to having one site that allows access to a variety of firms. On the other hand, most  customers are happy to deal with one dentist and one barber once they identify a good alternative.  I don’t see what a hair salon gains from putting its appointment book on a common platform with other salons. Without  that common platform, this becomes a difficult system to implement.

It’s All About Transportation

Dr. Anna Nagurney

By Anna Nargurney, Isenberg School of Management at the University of Massachusetts Amherst. Source: RENeW.

The media has had extensive coverage of transportation news and research, which is very gratifying (and which is getting me really psyched to teach my Transportation & Logistics class).

News about Professor Arnie Barnett’s study, “Cross-National Differences in Aviation Safety Records,” which appears in the August issue of the INFORMS journal Transportation Science, has now gone viral with articles on it from The Washington Post to The Sydney Morning Herald, with the latter with the attention-grabbing headline of “Your Chances of Dying in a Plane Crash? It Depends Upon Where You Fly.”

As those of us who have had the privilege of interacting with Professor Barnett of MIT’s Sloan School of Management know, Professor Barnett has a fear of flying. We hosted Professor Barnett in our Speaker Series several Falls ago and he was fantastic! Coincidentally, as a frequent flier, this summer, I was trolling the Internet for safety stats on several airlines since I had a heavy travel schedule for speaking engagements that took me to South America and Eastern Europe. My intuition told me to be careful in deciding which airlines (and which routes) to fly and now Barnett’s paper confirms that caution should, indeed, be taken.

Plus, who could have missed the news about the South Korean female, Ms. Cha, a 69-year-old widow with four children, who on her 950th attempt passed her written driver’s test and then on her 10th attempt received her driver’s license! She has been lauded as a national hero for her determination and for never giving up. She actually said that she enjoyed taking busses to her driver’s ed classes since she had only a minimal elementary school education and minimal literacy and craved learning! Her goal was to be able to get a license so that she could take her grandchildren to the zoo.

As for another transportation news story, Michael Grynbaum, writing in The New York Times, has further coverage on the closure of Broadway in NYC, as well as on the history of the design on the street grid dating back to the early 1800s! My most recent paper, just published in Europhysics Letters, was on the related topic of network topology, traffic, the Braess paradox, and the wisdom of crowds.