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What do ants and bees have to do with business? A great deal, it turns out. Individually, social insects are only minimally intelligent, and their work together is largely self-organized and unsupervised. Yet collectively they're capable of finding highly efficient solutions to difficult problems and can adapt automatically to changing environments. Over the past 20 years, the authors and other researchers have developed rigorous mathematical models to describe this phenomenon, which has been dubbed "swarm intelligence," and they are now applying them to business. Their research has already helped several companies develop more efficient ways to schedule factory equipment, divide tasks among workers, organize people, and even plot strategy. Emulating the way ants find the shortest path to a new food supply, for example, has led researchers at Hewlett-Packard to develop software programs that can find the most efficient way to route phone traffic over a telecommunications network. Southwest Airlines has used a similar model to efficiently route cargo. To allocate labor, honeybees appear to follow one simple but powerful rule--they seem to specialize in a particular activity unless they perceive an important need to perform another function. Using that model, researchers at Northwestern University have devised a system for painting trucks that can automatically adapt to changing conditions. In the future, the authors speculate, a company might structure its entire business using the principles of swarm intelligence. The result, they believe, would be the ultimate self-organizing enterprise--one that could adapt quickly and instinctively to fast-changing markets.

Ever since retailers equipped their cash registers with bar code scanners, we've been promised a brave new world of supply chain management, one free of stockouts and overstocked warehouses. But inaccurate data are sabotaging this vision.

Moore Medical is a medium-sized distributor of medical supplies to practitioners, such as podiatrists and emergency medical technicians. At the time of the case, it has relied on traditional customer channels such as catalogs, phones, and faxes to communicate product offerings, promotions, and availability, and to take orders. It is now attempting to shift to a "bricks and clicks" distributor with a strong Internet presence. It has already made substantial investments in an e-commerce Web site and in "back office" ERP software to improve the fulfillment performance of its four distribution centers. The ERP software has not lived up to expectations in all areas, and the company must decide whether to invest in more modules for this system that might address its shortcomings. It must also decide whether to make a significant additional investment in customer relationship management software.

Two entrepreneurial students want to launch their new business called College Home Safety Inc. College Home Safety consists of high school and university students selling carbon dioxide detectors door-to-door. The two entrepreneurs felt strongly about this new business as it would provide jobs for students and address a safety concern that had been increasing in the past few years. The advice they received from a professional accountant was not what they expected. Told they would lose their shirts and to reconsider their concept and start-up plan, they only had a few months left before the launch date to decide whether or not to proceed with the venture.

Asks students to develop criteria for selecting a Web hosting company, then to select one of three profiled in case exhibits. In choosing a hosting vendor, students represent one of two companies: one a start-up, the other an industrial-age manufacturer. By assigning some students to represent the start-up and others to represent the manufacturing company, the instructor can tease out differences in criteria for these two types of companies. The two companies might well choose different hosting providers.

Start-up Zaplet, Inc., has radical software, prestigious venture capital funding, and a multitude of business opportunities. New CEO Alan Baratz must select a strategy and redesign the organization to deliver. This case describes the roles and philosophies of the founders and the Kleiner, Perkins venture capitalist in building the company, the creation of the options for various business applications, and the process of selecting a business focus. Issues include the role of experimentation in selecting a market for new technology, the influence of venture capital, the importance of recruiting key employees, transitions for founders, and matching organizational form to strategy. The key decision is how to further focus the company.

Introduces students to the data centers where IT infrastructure is increasingly physically housed. These centralized hosting facilities represent in the information age the equivalent of power utilities in the industrial age. Students are introduced to issues of physical and Internet security, infrastructure management, and service provider partner selection.

Describes a supply chain with very quick (i.e., two week) response times and allows students to explore how such short response times are achieved. Allows students to explore why other supply chains, with much longer response times, might not be able to replicate this performance.

Spreadsheet supplement for case 601072.

This is an MIT Sloan Management Review article. The cost of information technology outsourcing involves more than vendor fees, but how much of that additional cost is really necessary? A survey of 50 outsourcing efforts shows that companies are largely unaware of costs associated with such activities as transitioning to a new vendor and, so, tend not to take measures to reduce them. Jerome Barthelemy of Audencia Nantes graduate school of management in France looks at four kinds of hidden costs that can erode the benefits a company anticipates from outsourcing. Drawing on lessons from company interviews, he provides anecdotes that show how a company's choices can lead to high hidden costs. When searching for a vendor, for example, companies often try to spend as little as possible. However, spending more at the search stage reduces hidden costs throughout the outsourcing effort and saves considerable expense later. Companies should include certain clauses in the contract, select a trustworthy vendor, and be certain about the vendor's role. Another hidden cost is the expense of transitioning activities to the vendor. This cost is elusive, because it is incurred as long as the vendor has not completely taken over from the internal IT department. The nature of the outsourced activities determines much of this cost. The cost to manage the outsourcing effort can be considerable, but companies tend to overlook it. Even spending money to hire consultants with IT outsourcing experience can be cheaper than enduring the high cost of contract renegotiation and dogging the vendor to get the desired performance. The last hidden cost category is the expense to switch vendors or reintegrate the outsourced activities. Many managers view the end of an outsourcing agreement that involves strategic activities as a failure and are uncomfortable preparing for that cost. Simple precautions, such as including a reversibility clause in the contract, can help reduce problems.

This is an MIT Sloan Management Review article. Is mass customization really the best way to deliver variety to consumers? Today, mass-customized products seem to be everywhere. Levi-Strauss sells custom-fitted jeans. Andersen Windows can build a window to fit any house. Consumers can get their names printed, sewn, or embossed on nearly anything. But managers beware: Do not be seduced by the gaudy banner of mass customization. There are several ways to deliver variety, and mass customization may not always be the best. So argues Paul Zipkin, professor of business at Duke University's Fuqua School of Business. Mass customization actually requires unique operational capabilities. Several elements have to work well--individually and together--to ensure that mass customization is a plausible business strategy. Those key capabilities are elicitation (a mechanism to interact with the customer and obtain specific information); process flexibility (production technology that fabricates the product according to the information); and logistics (subsequent processing stages and distribution that are able to maintain the identity of each item and deliver the right one to the right customer). Not all companies--or industries--will be able to master these capabilities. Moreover, demand for customization is limited and likely to remain so. Current technology can support large-scale customization only for a few attributes of a few products. For mass customization to deliver real value, people must have sharply differing preferences for certain attributes. This signals opportunities for industries such as apparel, sports equipment, and building accessories. But it also means that mass customization is not for every company. Managers should seek opportunities to add value through variety, Zipkin advises. But before committing their companies to a mass-customization strategy, they need to analyze carefully the technology, demand, costs, and benefits.

In the 1990s, Environmental Voluntary Agreements (VAs) involving regulatory agencies and industry have emerged as the promise of the future in environmental policy circles. The collaborative mechanisms of VAs can be conducive to the development of innovative solutions, which regulators or firms would have been unlikely to develop alone. From a business perspective, participation in VAs can reduce the burden of regulation, facilitate the communication of environmental improvements, and allow firms to be ahead of competition for environmental products. However, the benefits of participating in VAs can be outweighed by high transaction and administration costs if VAs are not properly designed. This article discusses when participation in a VA offers strategic opportunities and when joining a VA might turn into a costly enterprise.

This articles presents four standardization techniques--product, part, procurement, and process--that help mitigate the negative impact of product variety on a firm's operations. The ability of a firm to use these standardization approaches depends on the following: degree to which it can modularize its products and processes, what it is trying to achieve for its customers, and the costs associated with standardization. Presents a framework for thinking about these options and choosing among them.

The California electricity market is a mess, no doubt about it. But these five lessons may help executives shield their companies from the kind of power shortages that California businesses are suffering.

Although the Internet is an essential conduit for many business activities, it isn't rendering the physical world any less important, as the failures of many Web merchants demonstrate. People need social and sensual contact. The companies that succeed will be those best able to integrate the physical and the virtual. But that requires a new kind of business architecture--a new approach to designing stores, offices, factories, and other spaces where business is conducted. The author, a faculty member at Harvard Graduate School of Design, provides practical guidelines to help managers and entrepreneurs think creatively about the structures in which their businesses operate. He outlines four challenges facing designers of such "convergent" structures, so-called because they function in both physical and virtual space: matching form to function, allowing visitors to visualize the presence of others, personalizing spaces, and choreographing connectivity. Using numerous examples, from a fashion retailer that wants to sell in stores as well as through a Web site to a radically new kind of consulate, the author shows how businesses can meet each challenge. For instance, allowing customers to visualize the presence of others means that visitors to a Web site should be given a sense of other site visitors. Personalizing physical and virtual spaces involves using databases to enable those spaces to adapt quickly to user preferences. The success of companies attempting to merge on-line and traditional operations will depend on many factors. But without a well-designed convergent architecture, no company will fully reap the synergies of physical space and Internet technology.

Syncra Systems makes Internet-based software that allows supply chain partners to compare disparate forecasts and production plans, to uncover any discrepancies among them, and to address these issues. However, many potential Syncra customers perceive that they will pay for the software that will benefit others, making Syncra's products a questionable investment. Syncra must find effective ways to address this concern during the sales process. In addition, the company must decide how to best position its products for the marketplace, where they can potentially add great value.

This note addresses inventory-planning and -control activities using periodic-review systems. The reorder point system is addressed in a separate technical note (UVA-OM-0936).

This case presents the results of the reverse auction for electric meters as described in the A case (UV3547).

This case series (see also UVA-OM-1080 through UVA-OM-1082) deals with the transition from a push-based supply chain to an agile pull-based system. In 1999, John Speirs was hired as director of Operations. He brought with him the new agile concept and, with the approval of the U.K. managing director, Stella David, started to create revolution not evolution at Bacardi Southampton by forming an Agile Office. The A case sets up the operations problems and lets the reader follow the implementation story of a new paradigm in operational thinking at Bacardi while hinting at some of the stumbling blocks Southampton would eventually face from its own employees. An argument is presented that leads Southampton to implement the agile-system change program. In addition, data on sales trends and projected financial savings from the agile program are provided. The case ends positively with Southampton wanting to sell the concept to the rest of the Bacardi organization, but it is unclear how. Students should discuss the pros and cons of the agile system, its application to this industry, the timing of the implementation, and methods to communicate the message throughout the supply chain. Financial savings gained from the program are highlighted, and the program's thoroughness should be discussed. An Excel model that simulates financial savings but does not mimic Bacardi's exact thinking is provided in the D case as a learning tool for students. The model allows students to explore the origins of cost savings using a push or a pull system, and it enables students to perform scenario analyses of various business and internal operating conditions.

Describes the evolution of Virgin's dot-com organization and the decision it faced in mid-2000--whether to consolidate several separate dot-com ventures into one larger venture or, instead, to allow each to run independently. Also contains a history of Virgin's development so that students can examine the implications for Virgin's core businesses of moving online.