September 11, 2003

Examples of Productivity Growth

Examples of productivity growth, useful for sprinkling into talks, from the Economist: | Boosting productivity: ON ITS own, IT can boost productivity a lot. For example, it costs FedEx $2.40 to track a package for a customer who calls by phone, but only four cents for one who visits its website, says Rob Carter, the firm's technology boss. FedEx now gets about 3m online tracking requests a day, compared with only a few tens of thousands by phone. The potential to make further gains from IT is still considerable. The Hilton group, for instance, is about to test self-service check-in kiosks at its Chicago and New York hotels. Such kiosks are proving increasingly popular at airport check-ins. IBM, the market leader, says that 5m airline passengers a month now use its self-service check-in systems.

But the most dramatic gains happen when companies use technology to understand better what they do in order to change how they do it, says Navi Radjou, an analyst at Forrester, a technology-research firm. The main issue slowing productivity gains down, he adds, is "grandma syndrome"--a reluctance to ditch tried and tested processes.

The bravest grandma-ditcher of them all is probably Dell, a computer-maker. It constantly improves the way that it links suppliers and customers through its web site, and it regularly revisits its processes. Dell now sends electronic orders to suppliers every few hours and can build a computer in less than 24. One of its managers in Austin, Texas, was recently heard estimating productivity gains of 30% this year, and again next year.

A member of a team from Ford recently visiting Dell doubted that his employer could ever do anything so drastic. But old-established companies can make similar gains. Procter & Gamble, a consumer-goods giant, used to think that the most efficient way to get detergent from its warehouses to shops' shelves was to load trucks as fully as possible. Then, a few years ago, it invested in software from BiosGroup, now owned by a company called Nutech Solutions, to simulate what happened to its inventory as it moved through the supply chain. The counter-intuitive conclusion was that it makes more sense to send trucks less full, and to load some toothpaste and other stuff alongside the detergent. As a result, P&G's inventory is down by some 30%, and its warehouse workers spend less time idle...

Posted by DeLong at September 11, 2003 03:28 PM | TrackBack


I agree with the point of the article. What I dont believe and what I cannot confirm is the 30% claim from both Dell and P&G. 30% productivity gain is a huge number for Dell. Similarly, if P&G inventory is down 30% across the board and not simply at some test location where the experiment was carried out, that is a very dramatic improvement. Are there any other sources to verify these claims.

Posted by: Dinesh Gaitonde on September 11, 2003 05:17 PM

Midland woman files ‘peep show’ lawsuit against Abercrombie and Fitch
By David J. Lee
Odessa American
MIDLAND — A 20-year-old Midland woman has filed a civil lawsuit against Abercrombie and Fitch, saying a manager and employee of the store took pictures of her while she changed in a dressing room.
Nicole Riggan filed the suit Friday. Her attorney, Brian Carney, said he expects others to come forward.
“A lot of people don’t know if their picture was taken or not,” Carney said. “A lot of people think theirs was.”
Carney said that sometime between May and July, he believes Will Rhoads and Kuang Tang set up an elaborate scheme to take pictures of women in various stages of undress.
Carney said he believes Rhoades and Tang cut a hole in the ceiling of one of the dressing rooms of the Midland Park Mall store.
“It took some coordinated effort to do it,” Carney said. “He had to send the girls to one particular dressing room and instruct the other guy to get up there when they were there.”
Carney said Riggan found that there might be pictures of her from a friend.
“Some of the guys from the store were bragging about people’s names,” Carney said. “One of the people they bragged to recognized Nicole’s name and told her ‘they have pictures of you.’ ”
Carney said he does not have pictures of Riggan or any other girl.
“Supposedly, they were on a digital camera,” he said. “We don’t know if they were deleted or uploaded to a computer or sent over the Internet,” Carney said.
But, he said the photographer admitted to photographing more than just Riggan.
“He’s said there’s five or six,” Carney said. “At first he said one, then said he believed there’s five or six. There’s probably several more.”
But though he doesn’t have the photos, he said he thinks there was enough word of mouth about the shots to win the suit.
“I think that some of the people involved have bragged to enough people — admitted it to enough people around town — to prove it,” he said.
Also, he said when Riggan heard about the pictures, she went to the dressing room and took photos of the hole in the ceiling.
“It was a good idea,” Carney said of Riggan’s pictures. “After we sent a letter saying what we thought they’d done, they went in and remodeled the dressing rooms.”
A man who answered the phone and identified himself as a manager but would not give his name said the company would not allow him to comment, and he directed calls to the company’s Human Resources department in Columbus, Ohio. Representatives of Abercrombie and Fitch’s Human Resources Department could not be reached Tuesday.
Carney blamed the idea on Abercrombie and Fitch’s advertising campaign.
“Look at the way they advertise,” he said. “A lot of their ads are of semi-nude and half-nude people. It’s as though these guys tried to make their own ads.”

Posted by: x on September 11, 2003 06:23 PM

And yet, in spite of these vastly lower web costs, why do so many companies design their sites with such stupidity that one's only recourse is to give up and accept the on-hold-hell of making a phone call? For example I have never been able to put my newspaper on hold through the web site because it persists in claiming that my account ID (the same account ID I then recite to the person I call) is invalid.

A similar situation of utter stupidity exists where buying a ticket for a show (pretty much any show I have ever tried) costs more via the web (because of "convenience fees" and such like, than calling up and ordering via phone.

This is not to mention the myriad sites out there that appear to positively go out of their way to hide useful information from their users. For example, good luck going to the web sites of most DSL or cable modem providers and getting info about the various incantations you'll need to type into various boxes, eg the names of their SMTP and POP servers. You'll have to call them to find out.

As an aside, I imagine pretty much everyone of the CTOs of all these companies has been lavishly rewarded for the pathetically crappy job they have done. Apparently simply putting up a web site is such a stunning achievement that it goes above and beyond their job description and requires fulsome bonuses.

Posted by: Maynard Handley on September 11, 2003 06:50 PM

And yet Dell still builds mediocre computers.

But do notice that it supports my hypothesis of the impact of communications technology as an economic force.

Posted by: Randolph Fritz on September 12, 2003 01:33 AM

I am having trouble parsing something. To me, it seems logical to be very scared of productivity gains of the sort mentioned. Every kiosk replaces X employees. Sure, one needs skilled workers (say S) to support the kiosk, but one would assume it would be sustantially lower then X. So, X minus S jobs are lost. If this would happen across industries, would it not follow that we would get huge productivity gains coupled with swelling unemployment?

Isn't that where we are now?

I am not claiming that ALL the disparity between productivity and employment is due to productivity squeezing out jobs, but it may account for large amount. it seems to me that there is a reason why the examples presented are from the service sector; this sector seems to be more easily squeezed by technology.

How can an economy last when the consumers are being replaced by technology? To a layperson such as myself, it seems a Faustian bargain at best.

Posted by: Flaffer on September 12, 2003 01:03 PM

Flaffer, the basic answer (which hasn't been given because it's so well known) is that so far people have found new kinds of work to do. The job of telephone order-taker, after all, has only existed for 100 years or so; it's new. Historically, this has been going on for a very long time.

However, it seems to uneducated methat we seem to be edging up to some sort of economic singularity, where the old rules are going to change. I speculate that we are obsoleting industrial capitalism. Prof Delong is trying to find out wtf is going on; hence this thread.

Posted by: Randolph Fritz on September 12, 2003 05:51 PM
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