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The Corona crisis brings changes, including (or especially?) to academics. Marty wrote a blog again. And I got myself re-engaged in producing Youtube videos on operations. I must give credit to INFORMS: our annual international conference went virtual and all speakers were asked to record and upload their 15min video presentation. This made me rediscover the creative challenges of educational video production and I figured I may as well share my presentation on my YouTube channel.

There is joy in creativity and continuous improvement. I quickly realized that 15min videos are often too long and so I have embarked on the endless path of continuous improvement to make better videos. Let’s see how long I stick to that path; feedback and pace of improvement will matter. When you have time, check them out and leave some comments below the video. And if you like them subscribe to the channel and hit “the bell” so you receive an announcement when I upload a new video. (YouTube tracks number of subscribers and number of hours watched. Hence “YouTubers” ask you to subscribe. As we teach: metrics drive behavior 🙂

In this video I discuss why and when waiting in a single line at airport checkin, at the bank, at the supermarket is better. I explain the intuition but also quantify how much better a single queue is over service systems with two separate queues. The largest improvement stems from sharing queue length information (which leads to Join-Shortest-Queue JSQ); the second smaller improvement comes from postponing server choice (which is equivalent to allowing customers to jockey among queues).

The fine legal print: The video addresses “80% of what is important to 80% of viewers” :). It also focuses on customers waiting in line. For the mathematically inclined: The graphs consider simple M/M/1 and M/M/2 queues. There is a deep theory behind “resource pooling in heavy traffic” that shows that the insights in this video extend to Gi/G/N, but notice the required i : we must have independent inter arrival times which is fairly reasonable for customers arriving for service, but not for data network switches…

First in, first out (FIFO) is the service discipline that we are all most familiar with. If I get in line at the cafe before you do, I get to place my order first. Simple. Fair. But is that the best scheme for running the queue for covid tests?

That’s basically the question asked by a recent post on Marginal Revolution (Stack-Push-Pop COVID Testing, Aug 7). The basic complaint is that delayed test results are useless test results. Hence, there should be an emphasis on turning around results quickly while not wasting resources on past-due samples. Deviating from FIFO is one way of achieving this.

One way of thinking about this is to use a stack or last-in first-out (LIFO) model for testing. In a stack model the newest test request is pushed onto the top of the stack and the next test to be processed is popped off the top of the stack. One disadvantage of this model is that some test requests will never be processed (they should be removed from the bottom of the stack and returned as null results). Some people will be angry.

But the stack model of testing has a huge advantage over first-come, first-served. Namely, just as many tests will be completed as under the current model but the tests results will all come back faster and be much more useful.

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Take a moment to appreciate the conundrum airline pricing managers currently find themselves in. In normal times, the main task of pricing managers and the revenue management systems they oversee is to make sure that there are enough — but not too many — seats left in the days before a flight for those flyers willing to pony up big bucks. Again, in normal times, anyone could fill up a plane going between Chicago and LA at $300 per seat. The magic is selling some seats at $300 early while making sure there are seats to sell at $2,000 later.

Of course, these are not normal times. Demand has collapsed across pretty much all markets making pricing and saving seats for later irrelevant. But that shouldn’t last forever, right? And then airlines should be able to get back to business as usual. But there is a hitch. As discussed in the Wall Street Journal, revenue management systems base decisions on historical data but past data is pretty useless for the current situation and the data being collected right now is likely irrelevant for when the market recovers (Coronavirus Has Upended Everything Airlines Know About Pricing, Aug 5).

You can hear the author discuss his finding here:

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More on shifting shopping habits and how firms are responding. Specifically, we are again looking at the growth of online grocery sales. The Financial Times has a really nice story examining why the pandemic hasn’t necessarily been a boon for supermarkets (Why supermarkets are struggling to profit from the online grocery boom, Jul 22). On the one hand, stay at home orders have limited the options for dining out; that should be a good thing for supermarkets. On the other, those orders and general pandemic concerns have made people nervous about going to the store. That has led to a boom in online orders either for delivery or for pick up. According to the article, it took 20 years for online sales to account for 7% of UK sales. That percentage jumped to 13% in two months. The problem is that online sales are just not as profitable.

Sainsbury’s chief executive Simon Roberts summed the situation up, saying Covid-19 was “moving sales out of our most profitable convenience channel and driving a huge step-up in online grocery participation, our least profitable channel”.

For some numbers to back up that statement, checkout this eye candy:Screen Shot 2020-08-06 at 10.24.33 AM

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To state the obvious, it’s bad when your brand gets associated with a phrase like “modern slavery.” That is just the situation that British retailer Boohoo finds itself in.

To backtrack a bit. Boohoo is an online fast fashion firm. We wrote about them a while ago. Their schtick is super fast product launches. They offer lots (as in over a thousand) of items each week and quickly replenish those that capture the public’s attention. As the Guardian reports, this served them well as Britain started to shut down because of the pandemic (Boohoo booms as Leicester garment factories are linked to lockdown, Jul 4).

It was a Friday, and usually the fast-fashion brand’s irrepressibly bouncy Twitter account would be pitching dresses and shoes to its followers ahead of a night out. But this was the first weekend of lockdown, and the company made a decisive pivot.

Instead of bandage tops and tapered trousers, it posted a “night in” thread, helping followers choose “that perfect movie for the weekend”. It advertised an everything-must-go flash sale, with 70% off all stock and 50% off 500 dresses.

And it started selling loungewear – that is, clothes for the sofa. A knitted lounge set, a cropped sweatshirt, and “Disney+ binge outfits” were all on show.

So a quick pivot from date night to night in. But how were they able to so quick adjust their offerings? By producing locally and relying on flexible suppliers mainly located in the city Leicester (How Boohoo came to rule the roost in Leicester’s underground textile trade, Financial Times, Jul 10).

Abandoned by big retailers three decades ago, Leicester’s industry splintered into 1,500 mini-factories, typically employing fewer than 10 people. …

Leicester’s flotilla of small workshops competed with rivals in Bangladesh and Turkey by offering an ultra-flexible service, handling small orders in quick time. It helps Boohoo test almost 3,000 lines of clothes every week and ramp up production of trends that catch on, be they brassy bodycon dresses or lockdown loungewear.

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Some interesting images from the Wall Street Journal (From Flour to Canned Soup, Coronavirus Surge Pressures Food Supplies, Jul 12). First up a look at supermarket out of stocks.

stock.171255

Note that this graph starts in late May — well past the initial surge of lockdown panic buying. What we see is that we still have persistent shortfalls even as producers have reduced the variety they offer.

If we look at specific categories that surged as states imposed stay at home orders, we see that the peaks go pretty bad but that the likes of toilet paper and canned goods are within the realm of general goods that we see above.

Screenshot 2020-07-13 09.41.53

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Over the last few weeks, we saw several interesting announcements related to the gig economy and the future of transportation.

First, from Dallas: “Uber Receives Three-Year Contract to Supplement DART Microtransit Service,” and similar arrangements emerged in Miami-Dade County:

“Their continued partnership also reflects a trend of transit agencies turning to rideshare services to fill transportation gaps. Although Uber has seen a major loss in demand due to the COVID-19 pandemic, places such as Miami-Dade County have turned to Uber and Lyft’s services to subsidize rides along its bus routes that have been suspended at night.”

Of course, this is part of a broader trend: “Some U.S. city transit agencies turn to Uber as ridership drops during coronavirus crisis.”

“An Uber spokesman said the latter initiative was not a major revenue stream compared to Uber’s pre-coronavirus business, according to Reuters, but that it underscores the company’s hopes to further expand into the public transportation sector.”

So, if Uber does not see this as a significant revenue stream, why does the firm do that?

Revenues are meager for Uber these days (91% fewer rides), so it’s clear that any way to keep drivers occupied, while not losing money is a good idea. But I think this goes deeper. As part of its S-1 filing, Uber identifies a “massive market opportunity” in the estimated 4.4 trillion miles traveled by people on public transit in 175 countries in 2017.

Is Uber using these private-public partnerships to get deeper into this “massive market opportunity”?

This is an excellent example of one of the gig economy’s main benefits: the ability to match supply and demand in almost every possible time scale. But it also potentially exposes the main issue. These are market solutions, which may be different than the ones that benefit society. Everything can be subsidized, but it is easier to reverse these decisions than the long-term investment in infrastructure, making them much more dependent on the political climate of the moment. In that sense, it is essential to note that Uber has a dark past when it comes to these private-public partnerships.

For example, Pittsburgh has been less than happy before with its relationship with Uber.

“They currently operate as if they have been given carte blanche access to our city,” Pittsburgh City Controller Michael Lamb wrote, per a transcript of the letter published at WPXI.com. “At Uber’s request, the city of Pittsburgh has opened its streets to a fleet of data-collecting robotic vehicles. This is much more than ride sharing. These vehicles are capable of collecting endless amounts of data about our city. Who owns that data?”

In some areas (Denver is one example), people view it as a way to reduce investment in public transportation. It is clear that once you give firms the ability to do that, the outcomes will be governed by market considerations. The NY Times had a longer op-ed about that last year, “How Uber Hopes to Profit From Public Transit.”

“But by reducing the cost of individual rides, Uber and Lyft also draw a privileged subset of passengers away from public transit systems. That, in turn, undermines support for public transportation… Researchers have also found that ride-hailing tends to make cities more congested and polluted, not less. Alejandro Henao of the National Renewable Energy Laboratory, who drove for Uber and Lyft as part of his research, showed that in Denver, ride-hailing was responsible for an 83 percent increase in the miles that would otherwise have been traveled by car. Much of that increase came from ‘deadheading,’ or driving in search of the next fare. As Mr. Henao puts it, Uber may be reducing the public-transit base without providing enough services ‘to make up for that negative effect.’”

There are many questions, such as, how do we make the market competitive enough so one firm cannot win and take the city hostage? I am also not sure that public transportation is the solution to every area (particularly areas that are not very dense), but how do we make sure that we optimize for the long term and not only the short term? Finally, there is an issue of equity here. How do you ensure that these firms continue to serve low-income neighborhoods or cater to the elderly, non-English speakers, or people with disabilities? Of course, the regulator can do that, but it’s harder and harder to find active regulators.

This brings up a much broader debate on private and public entities’ role in the provision of collective goods (or their substitutes).

Burton Weisbrod, in one of the most seminal papers on this topic , shows that the higher the heterogeneity among customers (both in terms of preferences for quality of service and income), the lower the support for government provision of these goods, and the higher likelihood of an emergence of the private sector substitutes. Given the increased inequality and the significantly more heterogeneous nature of American society, it is not surprising to see these private transportation solutions supplanting the public sector. As researchers predict (pre-Corona) that car ownership will decline by 80% by 2030, it is not all that surprising that the replacement comes from ride-sharing firms replacing public transportation.

Screenshot 2020-06-27 16.13.04A recurring theme in how the pandemic has changed operations has been that firms are limiting variety. If a firm is having a hard time keeping up with demand surges and shifts, then a basic step is to drop the low runners and focus on the products most in demand. Now the Wall Street Journal has some data on just how significant the impact has been (Why the American Consumer Has Fewer Choices—Maybe for Good, June 27). The graph above shows compares several weeks in May and June this year with the same span last year. The average across all categories is down 7.3%.

There is a similar story at restaurants, where firms have limited their menus to simplify operations,

Screenshot 2020-06-27 16.13.45

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One of my favorite examples I have learned from doing this blog is Chronodrive, a French chain specializing in pick up groceries. Specializing in the sense that this is all that they do. It makes for a nice example since it allows for a contrast between a firm that has tailored all of its operations for one niche against conventional supermarkets that have tried tacking on pick up or delivery onto standard stores.

Of course, in the current environment, lots of firms have had to tack on pick up or delivery options onto their existing stores. To paraphrase Don Rumsfeld, sometimes you have to serve customers with the processes you have, not the processes you might want or wish to have at a later time. But will pick up — some form of click and collect — have legs?

The Wall Street Journal reports that for both restaurants and grocery stores, pick up has been a good business and has been holding up even as states have reopened (Pickup Gains Ground Over Delivery, June 25).

Pickup grocery sales were up 81% in the week ended June 13 from the start of this year, according to Nielsen, while delivery sales rose 33% in that time. At restaurants, carryout accounted for 42% of orders by dollars in May, according to data from research firm NPD Group Inc., compared with a 13% share of sales for delivery. Carryout has maintained its share of restaurant sales since dining rooms began to reopen in May, NPD said, while drive-through and delivery have lost some ground to dine-in orders.

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An interesting story from Reuters. What should retailers do with all of the inventory they had for the spring season?

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