FALL 2016 | EDITION 4

THE BULLWHIP

What is Operations?

Bear with me as I open with a (short) story: my immediate family and I spent some time over the break with my bigger family up in the DC area, going from house to house with a few everyone-all-together events along the way. At one, which my oldest brother and his lovely wife hosted, I asked for a Ziploc ® bag for something or another. Kathy, my sister-in-law, replied immediately with “What size Ziploc ® bag do you need? What do you need the bag for?” And she proceeds to open a drawer full of a dizzying array of re-sealable plastic bags. “I’ve got a Ziploc ® bag for any situation. Whatever’s going on, I’ve got exactly what you need.” She was talking about Operations, a field too many people misunderstand or under-appreciate. My sister-in-law (teacher, scientist, program administrator, consistently awesome party host) not only understands Operations but she understands that Operations impacts everything from enormous gantry cranes moving immense RFID-tagged cargo containers from freighters to flatbeds right down to how I was going to keep my toiletries together to hopefully pass through an upcoming TSA airport inspection with minimal fuss. Do I risk exaggerating when I say Operations impacts everything? I don’t think so. Operations involves making complex processes run smoothly: identifying goals and existing resources, devising a process(es) to reach those goals by minimizing risk, waste and costs while maximizing efficiencies of all sorts. Operations experts consider the best tools for the task at hand and how best to leverage those tools to get the specific job done. Operations experts are visionaries who focus on every detail: sharp thinkers, problem solvers, inventors, innovators. People who look at Operations from the outside too often only see vastness: worldwide shipping, automated auto manufacturing, specification check lists, innumerable contingency plans and endless conveyor belts seeming to infinitely come and go in relentless repetition across factory floors. These images do evoke Opera-tions methodologies, but the vast scope of Operations sensibilities embodies much more. Speaking of relentlessly coming and going: MacGyver. The main character in the mid-80s/early-90s TV show (alive and well in merchandizing, syndication, Saturday Night Live spoofs, and a very recent reboot), Mac-Gyver was a kind of Operations agent: from escaping traps to diffusing bombs, to cobbling together a com-pass from whatever detritus he had in his pocket at the time—MacGyver assessed situations, prioritized posi-tive outcomes, selected or synthesized the appropriate tools, and designed processes and particulars to meet those positive outcomes. Operations. Computer programmers and app developers? Operations. What does each line of code accomplish, and in what order should those accomplishment occur to ensure maximum efficiency toward the eventual out-put? Operations. How can a care-giver wake the kids, clean, feed and dress them (autonomously or under sharp supervision), provision them for school and subsequent activities, double check homework, and get them to school on time—all while wrestling with his or her own preparation and multiplied in complexity by the number of people in the household? Operations. International Relations? Who shakes whose hand first (if hand-shaking even is the proper greeting) and what other protocols must we observe in what order? Operations. Yes, indeed, Operations encompasses mammoth and far-reaching phenomenon like Amazon Go’s new stores without lines, and Operations fuels brilliant minds and industry-shaking innovations as from our illustrious Nobel laureates. Operations moves mountains and shrinks the world. Operations gets things done from vast global processes down to the routine of our every day. I double-checked with Kathy about using our story in this foreword. She laughed and reminded me that I’d forgotten one part of the story: in the drawer, mixed in with more Ziploc ® bags than I have ever seen, were cable-ties. “With cable-ties and Ziploc ® bags,” Kathy said, “I can solve any problem.” I feel the same way about the combination of duct tape and binder clips. Others have different problems and different tools, but we’re all looking for the best process toward the optimum solution. Operations.

- Dr. Tim Flood, Associate Professor of Management and Corporate Communication at UNC’s Kenan-Flagler Business School

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THE BULLWHIP

“Don’t let

schooling

interfere with

your

education.”

- Mark Twain

In This Issue

Q&A with Dr. Ann

Marucheck

Pros, Cons, and Tips

for Early Recruiting

A Brief Lesson on

Contracts

Amazon Go: The

Next Shopping

Revolution

Fourth Edition— A Word from the Editors Dear Reader,

Our Vision & You Thank you for supporting The Bullwhip! Our hope is that reading about the exciting

things Operators—that is operations students—have done or learned will inspire you

to join The Bullwhip team and contribute what makes you, your club, and

university special. Our earnest desire is that this newsletter would create some-

thing rare—a bullwhip effect of students having an increasingly greater impact on their

peers, schools, and workplaces, supported by the best wisdom and knowledge other

students and schools around the world have to offer.

Contribute to the Spring Edition by March 15th

Space in the spring edition of The Bullwhip has already begun to fill up! Reach out to

us by March 15th if you are interested in contributing or have an idea for an arti-

cle. Our contact information can be found on page 7. We look forward to hearing

from you!

Sincerely,

Grady Hale | Khari Hutchings | Elliot Orenstein

The Bullwhip Executive Team

A national newsletter collaboration of undergraduate operations students Edition 4

THE BULLWHIP | FALL 2016 | 2

DR. ANN MARUCHECK is an award-winning Professor of Operations at UNC’s Kenan-Flagler Business School. She is also actively involved in such professional societies as the American Production and Inventory Control Society (APICS). I sat down with her to hear her perspective on the field of operations.

Q. How did you first get into the field of operations?

A. Well, it’s quite unusual. I’ve been in the field of operations for 35 years; however, I started from industrial engineering. My degrees are all in IE and I got involved in operations when UNC, like a number of other business programs, was having to beef up their operations management area because of new requirements… that all accredited schools have a core course in operations management (OM). Prior to that there was no requirement for an OM core course; it was just kind of an elective. At that point in time a lot of schools basically did not have the number of faculty that they needed to support core courses not only in the undergraduate program but also in the MBA program. As a result, a lot of schools were looking for people with any relationship to operations management which included industrial engineering in my case.

Q. How has the industry developed over time since you

operations, you need a lot of information, some of the information is obviously quantitative, but you are also working with humans — the workforce. The operations manager has to be able to synthesize all that information from different sources and different forms and come up with solutions that are going to be workable. Obviously sometimes there’s more emphasis on the quantitative in the courses just because that’s probably the constant. If you’re studying inventory management, inventory management is pretty much a constant in terms of basic fundamentals across organizations but then for the operations manager the key is, you got to know the basics, but then in an organization given the context, the competitive situation, the workforce, what is the best solution?

Q. Where do you see the future of operations?

A. It’s going to be a very exciting future. For the last decade, I taught a course in service operations and I really think that’s where operations is going: toward the services… I think if you look at the service sectors, that’s where a lot of the growth is: retail, health care, government, non-profits. I think they’re [non-profits] going to need more just in terms of coming up with process improvements. As we move forward there may be more regulation, there may be less regulation, but as a friend of mine always says, “every time there’s regulation, particularly in the financial services, there’s more of a need for process improvement because they’ve got to think of smarter ways to do work under the constraint of new regulation”.

have become involved with operations?

A. That’s a very good question because when I first started it was almost purely manufacturing and the thought was that manufacturing models would work in the services if only service managers would listen. Then it kind of went through a change in terms of technology. I think there was a time when we started seeing that technology was replacing a lot of the human activity and so there was a thought, “well, technology is going to replace all of us”. Then they found out that technology was probably not as flexible as it needed to be and humans were probably better decision makers or even in work situations, humans were more flexible to adapt to changing requirements. Then we had the emphasis of quality, quality and lean, that’s probably what the Japanese gave us. My IE background was very useful there because I had taken a number of courses in quality control so it was interesting to see all of that coming back again. Then it became more supply chain. That was the new thing, about after the year 2000. .. We do still have people going in to manufacturing but it’s becoming less and less the norm. More people are looking for services, government, or entrepreneurial startups.

Q. It’s possible that some people are scared off from operations because they believe it’s too quantitative. How do you think people in the operations field can reach out to more diverse students and try to diversify the kind of people that get involved in operations?

A. I wouldn’t say it’s quantitative heavy, I would say it’s information heavy. With

Q&A with Dr. Ann Marucheck Khari Hutchings, Univ. of North Carolina

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Fictitious first names used to protect

privacy of individuals.

Students at UNC are facing earlier

deadlines every year in internship

and full-time recruiting. A number of

firms have begun contacting students

over the summer and holding

informational sessions as soon as

school starts in August. Students who

are successful in their career search

may receive offers as early as

September but this accelerated

timeline comes with the price of

cramming on top of already rigorous

study schedules. In this article, we

will hear experiences and tips from

students and experts on how to

successfully navigate the recruiting

process.

Junior Business Administration major

Carl, who recently accepted an offer

at Bank of America in wealth

management, described the

importance of having a strategy going

into recruiting. "The early timing

focuses students to immediately start

the semester with a plan of action as

to how and where they will apply

before their first series of exams

begin," he said. "In order to be

successful in this recruiting season,

one must constantly be on the

lookout for new information

concerning company visits to campus

and ensuring your resume and cover

letter are updated."

Many students disliked the barrage of

deadlines at the beginning of the fall

semester, but some liked the initial

pressure because it allowed for an

easier rest of the year. Drew, a

sophomore majoring in Mathematical

Decision Sciences, will be working in

should try to find whatever

internships they can during their

first few years, so they have more

opportunities when they get older.

While this can be stressful for

many students, Professor Stuart

Pearman, a partner at the

consulting firm ScottMadden and

also Professor of the Practice at

Kenan-Flagler Business School,

believes that early recruitment is a

sign of a healthy economy and

employer interest in Carolina's

students. "When the recruiting

marketplace becomes more

competitive, meaning more

employers vying for the same

students, it tends to drift earlier in

time as each company tries to

steal a march on the others," he

said. "While an earlier recruiting

season may interfere with class

work and make it more difficult to

explore different companies, it can

be a symptom of a high class

problem to have – increasing

demand for student talent."

The post-graduate placement

statistics from UNC's Admissions

Department supported Pearman's

claim that early recruiting is

caused by increasing demand by

employers. Over 90 percent of

UNC graduates either find work or

enroll in a graduate program within

six months after departing UNC.

Despite the early and competitive

nature of recruitment, almost all

students find an offer after

graduation.

Source: http://admissions.unc.edu/enroll/

after-carolina/

analytics for a private equity firm

over the summer. "Early

recruiting went really well for me,

as I have accepted an offer as a

data analyst intern at a financial

firm," he said. "Knowing where

I'll be next summer allows me to

spend the rest of the semester

with less weight on my

shoulders."

Regardless of when recruiting

occurs, all students agreed that it

is essential to connect with

company employees on a

deeper level. Simon is a junior

studying Economics and will be

working in private equity over the

summer. "I'd stress the

importance of learning

everything you can about a

company prior to the interview,"

he said. "Being able to converse

beyond superficial subjects and

discuss recent developments for

the company can really make

you stand out as a candidate.".

On the other hand, some

leveraged their more personal

connections to get internships.

No matter how you obtain it,

Jacquie Gist, a career counselor

with the University Career

Services office, believes work

experience is essential. Over

her more than 25 years working

with students, she noticed that

"internships used to be the icing

on the cake. Now, internships

are the cake." Gist believes that

having job and internship

experience is just as important

as elements such as GPA and

extracurricular involvement. She

noted that underclassmen

Pros, Cons, and Tips for Early Recruiting Grady Hale, Univ. of North Carolina

THE BULLWHIP | FALL 2016 | 4

Amazon Go: The Next Shopping Revolution

Khari Hutchings, Univ. of North Carolina

The business conglomerate, Amazon, has recently unveiled its plans for a new type of shopping experience, Amazon Go. Amazon Go is planning to do to brick and mortar stores what Tesla is trying to do to taxi and driver services: make them completely obsolete.

Amazon’s latest program is designed to remove lines, cashiers, and checkouts completely from the in-person shopping experience to revolutionize the industry like never before. All the shopper would have to do is walk in, scan an app at the turnstile, pick out what they want, and leave; Amazon will do the rest. Once the customer exits the store, the items they have picked out will be automatically billed to their Amazon account.

This type of innovation challenges the in-person grocery shopping industry that has long been difficult to penetrate by Silicon Valley companies and those of the like. For many companies, it can be frightening to take on the

(continued on page 6)

From multi-billion dollar mergers and acquisitions to your two-year wireless contract with Veri-zon or AT&T, contracts, or “an agreement enforceable by law,”1 are in all aspects of business and life.

It’s no surprise then that this year, the Nobel Prize in Eco-nomics was awarded to Bengt Holmström and Oliver Hart – professors at MIT and Harvard, respectively – for their work in contract theory. “Bengt Holmström demonstrated how a principal (e.g., a company’s shareholders) should design an optimal contract for an agent (the company’s CEO), whose action is partly unobserved by the principal.”2

Oliver Hart’s work dealt with in-complete contracts, a “branch of theory [that] spells out optimal allocations of control rights.”2 Essentially, when a situation arises that is not covered in a contract, this field evaluates who should make the decision.2

A Brief Lesson On Contracts Elliot Orenstein, Univ. of North Carolina

Role in Operations

While contracts are found in every aspect of business, they have an especially important role in operations and supply chain. According to Professor Lu, an Operations Professor at UNC’s Kenan-Flagler Business School, “structured contracts are used to redistribute the de-mand risk as well as the profit among supply chain partners.”3 In this article, we’ll take a deep-er look into two specifically – revenue sharing and buyback contracts.

Buyback Contracts

Buyback contracts are com-monly used for books, CDs, cosmetics, and other industries in which partners in the supply chain are unevenly sharing de-mand risk of goods that have low salvage values. Without a contract, a book retailer, for example, may keep a limited amount of books on the shelves in fear that they won’t be able to

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Bengt Holmström (left) and Oliver Hart (right) shared the 2016 Nobel Prize in Economics

sell them (without a significant dis-count). As a result, the publisher is selling less than it would like to the retailer and inevitably, the retailer will miss out on sales due to understock-ing. Under a buyback contract, the supplier (publisher in this case), “specifies a wholesale price and a buyback price at which a retailer can return any unsold items at the end of the season.” This in turn results in an “increase in the effective salvage val-ue for the retailer, which induces the retailer to order a larger quantity.” Now, with some of the “risk of over-stocking” taken on by the publisher through the buyback guarantee, the entire supply chain can reach its full potential. In addition to extra profits, buybacks can help the retailer’s brand image by avoiding discounting.3

Revenue Sharing Contracts

On the other hand, revenue sharing contracts are used when upfront costs are large and deter the buyer from purchasing the optimal amount from the supplier. Revenue sharing contracts are used in a variety of in-dustries such as commercial rent and social media advertising. Blockbuster is one of many companies that have successfully implemented revenue sharing contracts.

Before Netflix’s takeover, Blockbuster faced another issue: running out of copies of popular movies. Purchasing cassette tapes from film studios cost Blockbuster $60 to $75. With a $3 rental price, each tape would need to be rented at least 23 times to be-come profitable. With peak demand only lasting about 10 weeks for a new release, it wasn’t worth the risk for Blockbuster to purchase enough copies for everyone. As a result, “20% of surveyed customers reported that they could not rent the movies they wanted.”

So, in 1998, Blockbuster and film stu-dios signed a revenue sharing con-tract. The contract lowered the price of a tape from at least $60 to $8 per copy but Blockbuster had to return 30% to 45% of its rental income to

the studios. Under this new arrangement, Blockbuster was now taking on less initial risk and could make a positive return on its invest-ment after only six rentals per copy. As a result, its rentals increased by 25% in test markets and its overall market share jumped by 6%.4

Lasting Thoughts

To sum it up, contracts work. In the very analytical field that is opera-tions, contracts take the human side of business into account. They moti-vate and incentivize firms and peo-ple to perform at their best, work together, and share information. In a way, contracts force the players to take a step back so that everyone can see the bigger picture. So if you’re ever faced with a problem of misaligned incentives, uncertain out-comes, or unbalanced risk taking, no matter how big or small, think of Holmström, Hart, and Blockbuster and draw up a contract.

Sources:

1http://www.dictionary.com/browse/contract

2https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2016/press.html

3Session 15: Supply Chain Contracting (1)

4Session 16: Supply Chain Contracting (2)

conglomerates that are Walmart and Target, two of the biggest retail corporations.

Innovation, however, has never been frightening to Amazon’s founder and CEO Jeff Bezos. Bezos started Amazon in 1995 as a modest online bookstore with one million titles offered and expanded it to today’s massive online seller containing over 350 million titles in addition to countless other items. The same happened to Amazon’s cloud services, which began in 2006 to offer startups access to its tech infrastructure and has transformed into one of the most dominant players in the cloud sector with over 10 billion in revenue. This time Bezos is trying to take a single, 1,800 ft. warehouse located in downtown Seattle that’s housing the beta launch of Amazon Go and convert it into a massive participant in the shopping industry.

Amazon Go uses sensors, machine learning, and artificial intelligence to track items customers pick up. These are then added to the virtual cart on their app. If a customer picks up an item and later decides they don't want, they can put it back on the shelf and Amazon will automatically remove it from their cart. The idea of a grocery store without cashiers or checkout lines is not completely groundbreaking, as other companies have entertained the concept.

(continued on page 7)

THE BULLWHIP | FALL 2016 | 6

However, Amazon will be the first to introduce real stores featuring the “Just Walk Out” technology.

The news behind Amazon Go, however, has not been entirely positive. Some worry that should the store become popular, it may force other competing corporations to switch to its business model, forcing many Americans out of work. There are also potential issues regarding theft and technology malfunctioning. If every store of the future is run entirely by robots and technology, how will people get their food in the case of a power outage? Amazon Go is just a single store at the moment, though, and the innovative new store probably won’t be in your local neighborhood anytime soon. For now, we’ll all have to settle for teenage cashiers and ten-items-or-less lanes.

___

Click here for more information about Amazon Go

About UNC Operations Club The Undergraduate Operations Club at Kenan-Flagler Business School is a

student-led organization that serves the needs of undergraduate students

interested in the operations discipline or operations-related careers.

Our goal is to educate students on operations careers, provide connections to

potential employers and faculty resources, and foster an environment of

intellectual curiosity and practical guidance to better prepare them for their careers

and lives beyond college.

The operations concepts and knowledge students gain in the classroom are

complemented by the club with hands-on, real-life experience through facility

tours, guest speakers, recruiting events, interactive activities, case competitions,

and meet-and-greets with Operations Department faculty and alumni in the field.

A Special Thanks UNC Operations Club and The Bullwhip could not exist without the faithful support

of its members, sponsoring professors, and partners. We’d like to thank the

following for their support of the club and the fourth edition of The Bullwhip:

Professor Anne Marucheck | Professor Lauren Lu | Professor Tim Flood

In Next Edition:

An article from your

club or university!

Contact us by

March 15th

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