E-Manufacturing - a New Link in the Supply Chain
Research Question and/or Hypothesis
Benefits of the Study
Industry/Organizational Perspectives/Implications
Conceptual Framework
Definitions/Operationalization of Terms
Research/Sampling Design
Research Variables/Measurement
Summary, Conclusions, and Recommendations
E-Manufacturing - A New Link in the Supply Chain
Computer use first spread throughout manufacturing and industry during the 1950's and 1960's. Early computers, however, were both difficult to program and limited in their speed and memory. Therefore, they were used mostly for tasks requiring little analysis, but much sorting, calculating, and filing. These first computer applications did in fact improve the efficiency of basic clerical activities within manufacturing companies: accounting; payroll; order processing; inventory maintenance, customer record keeping, and so forth.
However, the early computers used in manufacturing and business were dedicated to (and limited to) performing repetitive tasks, and, perhaps more importantly, even then, were unable to readily communicate with one another, or to in any way streamline or coordinate their respective tasks. Typically, then, such computers processed work in batches, and then generated piles of reports to be reviewed (until the next batch would be processed for review). In the early years of computing, then, manufacturing companies struggled, without success, to accomplish the elusive goal of getting their plant floor systems to "talk" (so to speak) among themselves and to their business systems.
Within the manufacturing world of the 21st century, however, the versatility of computers has been dramatically enhanced. Manufacturing companies nowadays enjoy numerous benefits of greatly-enhanced computing power, including almost limitless internet communication capabilities. Moreover, with widespread introduction of "Internet Technologies" (IT) it is, in today's manufacturing world, relatively easy for one company computer to establish communication with another, with several others, or with the computers of other companies (e.g., manufacturer's computer to supplier's computer) simultaneously.
However, in order for manufacturers to optimally enhance the productive efficiency of their manufacturing supply chains today, in order to best achieve customer satisfaction, and overall profitability, it is increasingly important that those manufacturers, if they wish to remain competitive, and on the cutting edge of their industries (not only in terms of available technology itself, but in terms of speed; efficiency; minimization of waste, and overall profitability) utilize the much-improved capacities of today's computers and software systems to: (1) communicate in real-time, within their internal factory supply chains, and (2) communicate in real-time to their external supply chains, in ways that increase manufacturing speed; customer satisfaction and overall profitability while simultaneously reducing waste. To that end, "Internet technologies" (IT) may today be used by manufacturers in more ways than ever before, especially in ways that could benefit and substantially increase efficiency and profitability of the manufacturer's overall supply chain (Cox 2003).
Overview of Problem
The problem as it exists today is that many manufacturers worldwide still experience less than optimal operations of their respective supply chains, for various (and varying, even within a particular company) reasons. Internet technologies (IT) do not offer a cure-all solution to all supply chain problems. Still, IT, when it is properly used, and is employed to address a specific need, deficiency, error, or weakness within a manufacturing company's supply chain, may in fact help to dramatically increase customer satisfaction and profit, while simultaneously reducing waste for the company. Dell Computers and Toyota Motor Company (Schrage 2003; Lee 2004) are two examples of global manufacturing entities that have done precisely that, and both have, in recent years, been heavy users of Internet Technologies (IT) (Cox 2003).
Nevertheless, many manufacturing companies today still do not use Internet Technologies (IT), or do not use such technologies nearly as effectively as they might, within their respective supply chains, in order to optimize their respective production processes while also reducing overall waste within their companies. In fact, one of the biggest problems a manufacturer faces in these times is that of sufficiently understanding each of his or her discrete business processes, particularly as they apply to overall supply chain management (Ayers 2002).
Moreover, as Lee (2004) observes, supply chain needs are fluid and ever-changing, based on "economic progress, political and social change, demographic trends, and technological advances: "Unless companies adapt their supply chains, they won't stay competitive for very long" (p.1). As an example of the key importance of ongoing flexibility and adaptability within one's own supply chain, Lee notes that "Lucent lost its leadership of the global telecommunications market because it didn't adapt quickly enough" (p. 2).
Ayers (2002, p.7) further suggests that most companies exist in a state of what he calls the "Functional Paradigm," i.e., most companies are composed of individual "functional" departments, each of which has its own separate agenda. Furthermore, such departments are led by strong-minded managers, who have little understanding or concern for the needs of any of the company's the other departments, or their own departments' relationship to the overall supply chain. But all of those companies' current processes may not be necessary to ultimately fulfill customer orders, and that is where supply chain adaptability and flexibility come in (Johnston 2004). Further, "Supply chains are incredibly complex with numerous moving parts" (Johnston, p. 1).
Additionally there are likely non-value-added tasks that can both delay shipment of products and compromise profits. Improvements, then, can be made in these sorts of processes in order to best streamline efficiency of service, thereby increasing customer satisfaction as well as profitability. Perhaps the most important (and also, however, most unpredictable) variable within any supply chain operation is the judgment of those individuals responsible for its design and operation, and their attitudes about the supply chain's particular functions, strengths, and weaknesses. For instance, Johnston (2004) notes:
evidence of individual biases such as optimism, recency [sic], search for supportive evidence, and illusory correlations -- all well-documented biases in the forecasting literature..., the behavioral approach to the motivation and incentives component of coordination seems a common foil. Natural or more directly instituted functional incentives play havoc with motivating higher aims of efficient demand planning. Measurement and interpreting efficiency along those higher aims can also be behaviorally compromised when measures have to be simplified or aggregated.
p. 3)
Further, as Lee (2004) states:
Great companies don't stick to the same supply networks when markets or strategies change. Rather, such organizations keep adapting their supply chains so they can adjust to changing needs. Adaptation can be tough, but it's critical in developing a supply chain that delivers a sustainable advantage. (p. 1).
Numerous manufacturers today, however, remain only partially aware if not altogether unaware, of just how extremely beneficially IT can now become, when used in order to better streamline their own respective supply chains, thereby increasing speed of manufacture; service to customers and profitability, all while reducing inventory waste and other unnecessary steps. The research presented here, therefore, is intended to both describe and illustrate the benefits, within today's ever-changing and extremely competitive manufacturing world, of outstanding supply chain decision-making and management, as exemplified within the present supply chain operations of two leading international manufacturing companies in particular, Dell Computers and Toyota Motor Company.
Both of these companies, today, have optimally streamlined their customer order-to production-to delivery (or sale) operations, and increased profitability to beat out their competition, in ways that it might benefit other manufacturers to study. As Breen (2004) notes:
For most of business history, inventory has been a form of security. A warehouse bulging with components, or a distribution center packed with finished products, meant that even when a customer forecast went wildly awry, there'd still be enough supply on hand to meet a demand. But ever since the 1980's, when General Motors began adopting Toyota's pioneering methods in lean manufacturing, fast companies have delayered [sic],reengineered, and scrubbed the waste from their assembly lines and supply chains by slashing lead time and stripping inventory and spare capacity from their operations.
But no one has gone as far as Dell. It's well-known... For nearly eliminating finished-goods inventory by cutting out resellers and connecting directly to customers... it... has transformed the back end of its operations - its assembly lines and supply chain -- ... (p. 3)
The focus of the present study, then, was to analyze how excellent supply chain decision-making and management have enabled Dell and Toyota to function so well vis-a-vis customers and suppliers alike, and how other manufacturing entities might attain similar results for their respective enterprises. As Breen (2004) states, of Dell: "for most businesses, warehouses full of stuff are a kind of security blanket. But Dell has replaced inventory with information, and that has helped turn it into one of the fastest, most hyperefficient [sic] organizations on the planet" (p. 1).
The study first described how supply-chain technologies operate generally, and then specifically described supply chain strategies and technologies currently used by Dell Computers and Toyota Motor Company, both of whom currently use IT to substantially beat out other manufacturers in terms of speed; efficiency; customer satisfaction; reduction of waste, and overall profitability. Through exploring the benefits of IT today to (1) manufacturers in general; (2) Dell Computers and Toyota Motor Company in particular; (3) companies potentially adopting IT in the future, the study illustrated various key advantages of IT, when properly used in business, not only for companies like Dell Computers and Toyota Motor Company, but potentially for many other manufacturing enterprises, and their employees, as well.
Ayers (2000, p. 4) describes a supply chain as "Life cycle processes supporting physical, information, financial, and knowledge flows for moving products and services from suppliers to end-users." A supply chain can be short, as in the case of a cottage industry, or quite long and complex as in the manufacture, distribution, and sales of automobiles. In fact, the automobile supply chain has its origin in the mining of the iron ore used to make many of its components.
Forward-looking companies and industries are beginning, now, to leverage the communication power of the Internet to improve their supply chain efficiencies. In the same way that early computers offered improved efficiency within the walls of a company, the promise of "Internet Technologies" (IT) now offers potentially far-reaching positive effects throughout a company's entire manufacturing supply chain. If the changes brought about by an "Internet revolution" such as thin-client technology; seamless integration between computing platforms, and global communications, can be harnessed within the manufacturing environment, we may see a major upswing in use of computer technology by individual manufacturers for their respective supply chains, based on the way such computer technology can improve both efficiency and profitability.
However, according to Ayers (2002, p. 7) manufacturers seeking to beef-up their current supply chains through use of Internet Technologies (IT) might do well, as a preliminary step, to carefully review what kind of information is already available within the manufacturing plant, so that such information will not be duplicated or replicated in processes provided by the new Internet technologies (IT). Palagyi (2004) and Bourke (2004) warn that such duplication or replication may actually harm the supply chain (as well as wasting financial resources of the company that purchased it).
Information, overall, needs to be seen as yet another strategic resource to be used to order to support, enhance, and improve a business's overall production and marketing results.
Moreover, information systems and technology do not provide value (and can, in fact, prove detrimental to a business) unless those systems can be harnessed to support the specific goals of the business enterprise (Hammer 2004). Properly used, then, information technology can in fact improve efficiency; open new markets; and increase a business's overall competitive advantage (Ayers).
Meyer & Boone (1987 p. 311) describe two key methods of managing technology. Figure 1 illustrates those methods. These authors describe two fundamental methods of deploying technology. The first is to purchase the technology (Technology Driven), identify a project that has an acceptable return on investment (ROI), and then approach the users. The second approach (Value-Added), allows the users to identify a problem that needs to be corrected. The end users are involved in identifying the benefits. As Palagyi (2004) suggests, then and only then should one search for the proper technology. As Palagyi further notes, core elements of a supply chain are readily apparent, but the particulars of how a company uses its supply chain are less so. These particulars, however, will ultimately determine the supply chain's greater or lesser effectiveness within the company:
What constitutes the basic manufacturing supply chain are: core business processes of Plan, Source, Make, Deliver, and Return; a supporting infrastructure; a network of factories, and of distribution sites; a set of qualified suppliers; and a set of buying customers.
Several factors influence the complexity of the supply chain: its global breadth and Reach, the reliability and responsiveness of its supply base, the quality of the Product design, and its position of power in the overall value chain. How a Company configures and manages its supply chain in light of these factors determines whether it operates a strategic asset or delivers utility service. (Palagyi
2004 p. 1)
Technology Introduction Methods
Ramirez & Meyer (2004) cite research from the Project Management Institute (PMI) stating that 74% of all Information Technology projects fail. They suggest that one major reason for failure is that a project does not meet the needs of stakeholders. The present study was, itself, designed and structured in a manner consistent with the Value-Added approach: it first pointed out some of the common problems in the manufacturing arena (within Chapter 2), and then, within that chapter, also discussed available technologies that could potentially solve those problems, or similar ones, within individual manufacturing entities, and that have already done so for dell Computer Corporation and Toyota Motor Company.
In short, first one identifies a need; then one finds the correct tool (Ramirez & Meyer (2004); Hammer (2004); Palagyi (2004). For a company to maximize its ability to compete in a global market, it must improve its communication within the factory walls, between itself and its suppliers, and to its customer base. Information transfer is the key. Every activity within the supply chain creates and uses information (Ayers (2002) p. 7).
Information technology, however, is never a cure-all solution for any business process. Rather, it is a tool that can, within the right circumstances, enable a solution. The information systems technology toolkit, moreover, is ever-expanding; therefore, a company that does not take advantage of Internet technologies (IT) in today's super-competitive manufacturing world is bound to lose ground, and thereby risk being swallowed up by competitors (Lee (2004); Coia (2004); Palagyi (2004); Magretta Managing velocity 1998).
Once a manufacturer has learned how to streamline his or her internal supply chain, he or she is ready to negotiate improvements with partners (Byrnes (2003); Cox (2003); Hammer (2004); Songini & Copeland (2000); Johnston (2004). One reason to delay the purchase of supply chain software is to wait until one identifies the necessary functionality and ensure compatibility with all other supply chain entities. An organization that has gone through this learning process will then be able to drive improvements within its supply base and offer a better, cheaper, and higher quality product to its customers (Lee 2004; Bourke 2004).
Research Question
The question that drove the research was: To what extent may deployment of web-based technologies effectively be used to increase collaboration and commerce, especially within companies not optimally using such web-based technologies now, between manufacturing and its customers, suppliers and business partners? The basis of my posing this research question was that, having been employed myself, in manufacturing for almost twenty-five years, I have often seen, first-hand, various new and supposedly "cool" (i.e., cutting-edge) technologies of various sorts being bought and used simply because it was "cool" to own and use the latest technological marvel, almost like having the latest model sports car, kitchen gadget, or other trendy material item. The idea of purchasing the technology had been to improve the supply chain, but the actual effect of that new technology, since it had not in fact been purchased in order to redress a particular, specific, error, need, or weakness within the existing supply chain, was in fact to decrease supply chain efficiency and overall effectiveness for the company.
Therefore, an important realization I have made, based on my first-hand experience of having seen new Internet technologies (IT) purchased "for their own sake," but then proving to be worthless to that particular company, is that IT tools purchased in order to improve a supply chain must, first and foremost, effectively support the existing business processes themselves in order to be of any real benefit to the business whatsoever. Palagyi (2004); Lee (2004), and Martin (2003) concur.
In the past, I have even observed various instances, within the various manufacturing entities of which I have worked, where the main task itself has become one of searching for a problem (rather or not it existed before) that may now be resolved by using the latest internet tool, rather than that internet tool's being used to help solve existing problems. Such efforts to simply buy and use the latest technologies (i.e., to use cutting-edge technology for its own sake) can (obviously) be seriously counterproductive to the manufacturer's goals of efficiency, customer satisfaction, profitability, and reduction of waste (Lee (2004); Cox (2003)).
Dell Computers and Toyota Motor Company are two large, enormously successful, international manufacturing companies that are currently using Internet technologies (IT) to optimal effect within their respective operations. According to E-Business (2004).".. Toyotas, Dell, and Sony are continually pushing the outside of the envelope, looking for new functionality and new ways to compete. Their efforts, supported by the leaders in enterprise software, ultimately serve to raise the bar for everyone"(p. 2).
By studying, comparing, and contrasting Dell Computers' and Toyota Motor Company's respective optimal uses of IT, we may perhaps see potential positive applications of these technologies within other manufacturing entities as well. As Lee (2004) further points out, adaptability and flexibility are the most important keys to manufacturing profitability today:
The best supply chains identify structural shifts, sometimes before they occur, by capturing the latest data, filtering out noise, and tracking key patterns. Then they relocate facilities, change sources of supplies, and, if possible, outsource manufacturing. For instance, when Hewlett-Packard started making ink-jet printers in the 1980's, it set up both its R&D and manufacturing divisions in Vancouver,
Washington. HP wanted the product development and production teams to work
Together because ink-jet technology was in its infancy, and the biggest printer
Market was in the United States.
When demand grew in other parts of the world, HP set up manufacturing facilities in Spain and Singapore to cater to Europe and Asia..., Singapore became the largest production facility because the company Needed economies of scale to survive... By doing so, HP was able to reduce
Costs and remain the leader in a highly competitive field. (p. 1)
Interestingly, despite the clear, supply chain-based profitability of companies like Dell and Toyota, however, these companies, with their revolutionary supply chain manufacturing systems, have had, thus far at least, surprisingly few followers among their fellow international manufacturing giant peers. Schrage (2003) states:
despite fanfare over the Dell model, there have been few followers. Michael Dell long ago came to be seen as a prophet of a more efficient way of doing
Business - an Internet-enabled Henry Ford... And just as the implications of Ford's assembly line stretched far beyond the auto industry, the impact of Dell's
Model extends beyond PC makers... one consultant advised companies to 'be the Deller rather than the Dellee of your industry.'
Today, however, nobody outside the computer business has Delled or been Delled just yet... Cisco or Sun, depend too much on their reseller and consultant networks to go fully direct - and innovate too much to abandon forecasting entirely, in PC's, only Gateway has come close... Compaq and HP talked... about doing it Dell's way but couldn't bear the pain of burning their retail channels. (p. 3)
For various (and varying) reasons, then, the internet-based supply chain strategies and practices of Dell, Toyota, and a few other large manufacturers (Sony is one), are not yet for everyone, even within today's IT-dominated world. Companies whose products and processes are such, however, that they could adopt internet-based supply chain operations similar to those of Dell, Toyota, and others in order to minimize waste; increase customer satisfaction; and increase overall profitability, might do well to now consider it.
Research Objectives
The objective of this research was (1) to study, analyze, compare, and contrast current uses of Internet technologies (IT) within various manufacturing entities today to enhance their current supply chain effectiveness, and (2) to ascertain what might be learned by others, business scholars, manufacturers, and others, from closely scrutinizing two extremely successful users of IT for their supply chain functions: Dell Computers and Toyota Motor Company. In those two respects, the research sought to offer a roadmap of sorts for those manufacturers, scholars, and others seeking appropriate IT (or knowledge of IT) that might effectively increase collaboration and commerce between manufacturing entities and their customers; suppliers, and business partners. The research also sought to point out how and why, in attaining that goal, it is important, first, for manufacturers to understand existing processes within their current respective supply chains, and neither replicate them, nor negatively interfere with their existing functions, merely by acquiring and using new IT.
In addition, the research was intended to suggest how a manufacturer in today's competitive marketplace, currently not using IT to optimal advantage, might: (1) document existing processes; (2) remove unnecessary waste, and (3) extend what has been learned in the latter two processes to other, separate, processes extending into the manufacturer's supply chain. Information technology (IT) tools needed to resolve problems, however, should not become an end unto themselves; there is a wide-array of available and potentially helpful IT tools, with ever more increasingly coming onto the scene. Therefore, until one knows exactly how to manage one's business, one would do better to hold off on searching for an IT tool that would increase efficiency and therefore other operations.
Toward those ends, Figure 2 illustrates many of the key components that can typically influence consumer costs in particular for manufactured products. The chart includes many commonplace business and manufacturing functions that are inherent in bringing a completed, ready-for-use manufactured product to the marketplace. In addition, I have listed potential non-value-added processes that typically affect the market prices of manufactured goods.
Product Cost Components
As Figure 2 suggests, in order to successfully maximize, and streamline, the efficiency and productivity, overall, of one's supply chain, one must eliminate non-value-added tasks from one's internal processes. Several of these are denoted in Figure 2 as "waste." In the legend, I have listed several specific causes of manufacturing waste. A manufacturer has the ability to reduce many of the variable costs associated with production of his/her product. This concept has been rigorously studied as part of a movement known as "lean manufacturing."
Lean manufacturing has its roots in the early 1980's with manufacturing techniques first developed by Toyota Motor Company. Taiichi Ohno an early pioneer of lean manufacturing, describes the goal as "looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time by removing the non-value-added wastes" (Basic elements of JIT 2004). Figure 3 is an adaptation of Figure 2: it uses the same proportional values for all processes, but the "wastes" has been eliminated and added to the profit margin.
Less Waste = Improved Profit
By comparing the profit proportion in Figure 2 with the percentage listed in Figure 3, it is easy to see that by eliminating wasteful tasks, a manufacturer may substantially increase improve profit margin. If these non-value-added costs can be reduced or eliminated, the manufacturer has the option of maintaining an original sales price and increasing profit margin, or decreasing product cost and perhaps gaining a larger market share.
Manufacturers also must never forget that they are themselves members of the supply chain, and have the most control over their own internal processes (Palagyi 2004). A manufacturer also has final decision-making authority over which supplier(s) to use. Unfortunately, however, manufacturers are also dependent upon their respective customer bases (Lee 2004). Moreover, customers' needs and desires are ever-changing (all the more reason to improve the supply chain) (Schrage 2003).
A manufacturer who can quickly react to customer whim and mood will both gain market share and improve shareholder value (Lee 2004; Hammer 2004). The waste inherent in a manufacturing process is likely to be a component of the supplier's cost structure as well. Identifying and removing waste from one's own processes, however, is only the beginning (Palagyi 2004).
As illustrated in Figure 4, all members of a supply chain will add to the overall cost of producing a product. The customer pays for all costs associated with manufacture and delivery of a product, and the typical customer is also always looking for a better value. Customers will look to a company's competitors if they see better value for the dollar there (Johnston 2004). Figure 4 illustrates a simple two-tiered supply chain. This model is based on the perspective of the manufacturer. Every supplier will have similar costs that need to be covered within its cost structure. And the more steps there are in the supply chain, the more opportunities there will be to improve the speed and reduce wasteful practices.
Supply Chain Costs Figure 4. Supply Chain Influence on Product Costs
Up to this point, the research has described a very simple two- tiered supply chain. The automotive supply chain can have thousands of suppliers. Jedd (2001) reported that DaimlerChrysler's Mopar Parts Group has an extremely complex supply chain, with 3,000 suppliers, 30 distribution centers, and 4,400 North American dealers. There are, very likely myriad opportunities to eliminate waste within such large supply chains. Once existing processes have been mapped, it is important to remove any non-value-added processing that is reduces one's effectiveness (E-Business 2004); it is foolhardy to simply try to make use of available data within one's organization (Palagyi 2004).
There is a possibility that the current data could help manufacturers achieve their business goals, but there is also the possibility that data coming from a non-value-added process that should be eliminated (Palagyi). Then, and only then, should a manufacturer search for an appropriate technology to use. Because of the short intervals between major technological advancements, the study also described some of the Internet Technology (it) tools that are currently available, to today's manufacturers, to aid them in carrying out their supply chain operation goals.
Benefits of the Study
Benefits of the study included its having pointed out various ways in which a manufacturer might decrease his or her factory's response time, and in the process, improve his or her customer relations, supplier relations, and overall profitability. Additionally, once a business has been thus reengineered, a manufacturer might also use knowledge gained during the earlier reengineering process to improve various other processes, both upstream and downstream, in the overall supply chain. Currently, there are many Internet Technology tools available to help the manufacturer, but the most important preliminary task is to make necessary improvements to existing systems before embarking on a search for the latest technological marvel (Palagyi 2004).
Figure 5
eference> uses an analogy to demonstrate the effect of excess inventory. When a company has a large amount of inventory, it is not aware of the inefficiencies that inventory can cover up. Inventory allows a company to compensate for many problems such as poor supplier quality, long changeover times, high equipment downtime, etc.
eference>the goal of a lean manufacturer is to slowly reduce inventory levels (lower the water level) to uncover the problems that need to be eliminated. Each of the "rocks" in the example wastes valuable company resources.
Inventory Hides Problems
By eliminating these problems, a manufacturer can remove cost from his or her product, and reduce the time it takes for products to move through the supply chain. By reducing inventory, problems hidden by the inventory itself also become apparent, and these can then be resolved once and for all. Merely purchasing technology, however, without first clearly understanding the basis of one's supply chain problem(s), may be counterproductive.
Scope of the Study
The scope of the study included a close analysis, based on a review of available literature, of manufacturing supply chain practices, strategies, dynamics, and results within various late 20th and early 21st century manufacturing enterprises. The scope of the study further included an overview analysis of available manufacturing supply chain literature from 1991-2004. The scope of the study included, as well, an in-depth analysis of the current supply chain practices, strategies, dynamics, and results of two leading global manufacturing entities: Dell Computer Corporation and Toyota Motor Company. Finally, the scope of the study included analysis of how and why Dell and Toyota have succeeded so well with their manufacturing supply chains.
The scope of this study was also limited, however, in that it did not examine supply chain practices, strategies, dynamics, or results of many other manufacturing entities. The scope of the study was designed to be a preliminary exploration of various currently available Internet technology (it)-based processes of identifying and removing waste, based on supply chain performance, from a manufacturing enterprise.
Chapter 2
Past, Present, and Prospective Manufacturing Supply Chain Methods
Chapter 2 discussed past, current, and prospective supply chain use within manufacturing firms. The study identified typical supply chain processes within the manufacturing arena generally, and discussed methods by which manufacturers do, and could, run their businesses. This section chapter discussed purchasing; in-bound materials; production planning; operations; inventory; out-bound logistics, and marketing and sales processes as manufacturing areas to potentially be improved by using cureern supply chain Internet Technologies (it).
Purchasing
Within manufacturing, the traditional approach to purchasing has been to seek multiple sources of supply in order to ensure availability and keep purchase price low. To maximize purchasing performance, buyers typically squeeze suppliers for price reductions. Short-term contracts are the norm, and this discourages suppliers from developing capabilities to satisfy specific customer needs. Purchase orders often are faxed directly to suppliers. Suppliers want to see a signature on the purchase order to ensure payment. The paperwork must be manually prepared, signed, faxed, and filed.
Raw material suppliers must translate the information from the purchase order into requests for the materials to be pulled from the warehouse, the goods have to be packaged to match the order quantity, and arrangements have to be made with the shipping company. Each step in this process generates paper that must be printed and distributed to various departments, with each of those separate departments maintaining and filing its own copies of the paperwork.
There is a great deal of human involvement at every step of this process. Delays are inevitable. For example, at each handoff of the paperwork, it is placed into a queue that is processed one at a time, with no guarantee of first-in first-out processing of the orders. The order on the top of the pile will be processed first, even though it may have been the last order received. Last week's orders may not get processed until this week's orders have been completed.
These delays in shipping force the customer (in this case, the manufacturing plant) to hold more raw material inventory to protect the plant, or to place larger orders, so that variability in the receipt of shipments will be less of a problem. Many office workers including purchasing personnel work only on dayshift. Assume a 9:00am to 5:00pm workday for these employees on Pacific Standard Time. An east-coast supplier would have a five-hour window in which to communicate directly to the purchasing personnel. Of course, most manufacturers can only interact with companies that have common spoken language.
Some manufacturers now make use of EDI (Electronic Data Interchange) ("Electronic Data Interchange"). Traditional EDI systems are made up of computers and communication equipment that give businesses the ability to conduct secure, reliable, transactions electronically (webopedia 2004). Traditional EDI uses a "value-added network" (VAN) (("Electronic Data Interchange"). With that, every supplier, manufacturer, and distributor is linked to the EDI system through the VAN. Personnel at a manufacturing plant can then use the EDI system to buy supplies, track shipments, and keep an accurate inventory count. EDI systems used in these ways improve efficiency and promote better accounting practices ("Electronic Data Interchange").
Also, many suppliers and distributors are small machine shops and shipping companies, which do not have the technology to link themselves into a traditional EDI system. Suppliers and distributors also have to consider their other customers ("Electronic Data Interchange"). If a supplier standardizes its information systems with a single manufacturer, it may become difficult to do business, technologically at least, with other "incompatible" manufacturers ("Electronic Data Interchange").
In-Bound Materials
In-bound materials are raw materials shipped to the manufacturer. These raw materials are often purchased in bulk by manufacturers because (1) on the surface it appears, that that is the most economical way to purchase supplies; and (2) supplies have always been purchased that way (rather than the manufacturer's instead waiting to pre-purchase the items that will make the supplies necessary). Certainly, moreover, the supplier will attempt to coax the manufacturer into buying his or her product in bulk. It is also, typically, easier to package and track large shipments than it is to manage small lot sizes. Further, the paperwork is diminished if it only has to be completed once, instead of several times, as in the case of multiple small shipments of the same materials.
Within this paradigm, then, it only makes sense, at least from a traditional manufacturer's perspective, to warehouse raw materials until they are needed for the manufacturing process. In a similar vein, moreover, it is often (erroneously) assumed by manufacturers that a ready supply of raw materials will provide a buffer against upstream production problems, freight delays, or other unforeseen events. In addition, a shipper offers more attractive pricing if one takes a full truckload or railcar load.
So perhaps it makes sense, at least from a traditional manufacturing perspective, to take advantage of freight discounts in order to receive large quantities of raw materials.
Such large intermittent deliveries, however, have their disadvantages. For instance, they require large warehouses and associated staffs, to unload the transport, and then to place it all into appropriate locations within the warehouses. These large shipments also require periodic large outlays of cash. Should a downturn in the market then occur and sales of finished goods slow, shipments of now unneeded materials will still continue to arrive during these downturns. This, then, will produce an outflow of cash, with no accompanying promise of sales to counteract that now-negative cash flow.
When operating in such a downturn, then, it is important for the manufacturer to have sufficient cash or credit available to see him or her through those lows. There is also sometimes a tendency, in circumstances like these, for companies to keep their workforces occupied, processing raw materials into finished goods, and then to use company warehouse space for storing finished goods until market conditions improve. There is then a risk of obsolescence of those goods.
One alternative inventory management method used by both Dell and Toyota, however, is the "Just-in-time" inventory method (Lee 2004). The term "Just-in-time" means that the company does not order parts for products until those products have already been purchased by customers. The purchased parts (of, say, a custom-built computer) are then shipped by suppliers "just in time" for sale or delivery, thereby allowing companies to maintain low inventory levels while still satisfying customers' needs. Moreover, customer needs become satisfied in a far more timely, and (in the case of Dell) "personalized" manner than in the cases of many competitors who still maintain larger inventories (Value stream mapping (2004); Just-in-time (JIT) manufacturing 2004; Supply service chains (2004); Lean manufacturing (2004); Denzler (2004).
Production Planning
Production planning has to do with a manufacturer's overall plan for specific timing and carrying out of production of goods within a manufacturing enterprise. Manufacturing Resource Planning (MRP) Systems, which help manufacturers with production planning, are now in use, to varying degrees, by manufacturers. MRP systems are designed to support an entire order-fulfillment process, and to automate and integrate daily business applications and production processes. According to Lee (2004), by creating a computerized record of events, such as the receipt of inventory or the issue of a work order, a system may be designed to track all financial and manufacturing resources and transactions from raw materials to finished goods.
There are also several problems, however, associated with the use of Manufacturing Resource Planning (MRP) Systems. For example, some such systems still rely heavily on manual data input. Also, because of these systems' complexity, few people in the manufacturing organization may understand the importance of the data feed and the system is viewed as being outside of the manufacturing process (Lee 2004).
A materials handler may, therefore, neglect to make the necessary transactions to signal the inventory control system of a material movement. Because these systems are not linked appropriately to the plant floor operations, these types of errors are quite common. They expect a forklift driver to perform a task that is little understood and not core to the driver's basic job, which is to move materials around the plant. Due to the complexity of the system, it is likely that many processes are managed through the use of spreadsheets which are maintained external to the MRP system. The MRP system will, in such a case, probably not be effective at scheduling manufacturing processing (Lee 2004). In such cases, often there is only verbal notification of manufacturing line status, and if that exists, it is intermittent. Much human involvement is required for the production planning process. There is a general mistrust of the MRP system so many decisions are made by planning "experts" (Lee 2004).
Operations
Operations are the total everyday activities, functions, and planning that take place within a manufacturing business. If an organization measures and tracks productivity, operations supervisors may keep making product and attempting to increase productivity, i.e., the factory will run regardless of need (or the lack thereof) for the product. If it is left to the production supervisors, they will avoid tooling changeovers, so they can maximize their output. It is likely that the goals of the operations team are to build or produce as much as possible to make them appear "efficient." but, running a plant at higher throughput rates can instead adversely affect product quality. Often, operations goals are met by reducing the time available for equipment maintenance. That, however, can also affect product quality as equipment variability increases. The operations group may also be hoping to stay below the radar with its scrap rates. Would their emphasis change if they were charged with scrap elimination? It is commonly believed that in order to pay for capital equipment, that equipment must be optimally used. Perhaps those types of goals, however, also have hidden costs for the company.
One of the technologies now being offered is the ability for machine tools to communicate over Ethernet. Unfortunately, however, many manufacturers have factory floors full of stand-alone manufacturing cells that process in large batches or continuously without regard for downstream product requirements. If there is a failure of an operation, chances are good that all remaining downstream manufacturing processes will consume inventory.
If they are upstream of the failed equipment they will produce excess inventory. Without the ability to communicate about each machine's production status, the factory must maintain sufficient inventory to keep all available processes operating and support the desire to meet the productivity goals.
Within manufacturing businesses, regular production reports become available sometime after the production run. With MRP, however, data is available the next business day (Lee 2004). All in all, a manufacturing facility is only as strong as the weakest link in the production process. Fault times, starved times, excessive setup/changeover times, and other down times can bleed vital efficiency from one's entire enterprise.
Therefore it is unwise to attempt to integrate one's external supply chain until these internal issues are resolved (Lee 2004; Palagyi 2004). Inventory should be kept as low as possible Denzler 2004). Building to stock and storing subassemblies until all components become available are integral to MRP system strategies (Lee 2004).
Out-Bound Logistics
Out-bound logistics have to do with the patterns and processes of distribution of finished goods within a manufacturing enterprise. Sometimes, because of pre-identified buying patterns of customers, and goals of the operations team itself, a non-Just-in-time supply chain manufacturer may maintain large local warehouses so that he or she may store the finished product until it is needed. Such manufacturers often pride themselves on their ability to quickly process orders from their customers. They need only ship the product from the warehouse right to the customer.
The customer is happy because the manufacturer already has the product ready and available for shipment. That philosophy (the opposite of the JIT inventory philosophy) assumes, however, that the customer indeed wants the color or style that has already been produced. Customization is not a customer option of crucial importance within such an enterprise. Therefore, should the customer of such a manufacturer in fact desire a custom-designed model (if such a model is even available from that manufacturer) he or she may encounter a long wait before it can be built and shipped. In short, the Just-in-time inventory philosophy of companies like Dell and Toyota emphasizes low inventory, customization, and speed of assembly, shipment, and delivery.
Clearly, manufacturers who keep higher levels of inventory in stock de-emphasize customization. Since these manufacturers ship from available inventory (no assembly required, as is assembly among JIT manufacturers), their speed of delivery to the customer may be equal to that of a JIT manufacturer, or, conceivably, even greater. However, those manufacturers maintaining large inventories within large warehouses also risk damage to that inventory, and must go to extra time and expense to maintain, repair, and protect that inventory.
Despite the many clear advantages of Just-in-time inventory methods over more the traditional, warehouse-dependent inventory methods, JIT inventory methods have their drawbacks as well. One of these has to do with the shipping of finished products. There are multitudes of trucking companies that are happy to ship our finished product to its destination. Most of these, however will not handle the order unless they can dedicate trucks for a full load. Another option for trucking companies is that they will load share products with another company's goods.
Within the trucking industry, however, these load shares must be loaded in reverse order of the delivery schedule. This means that one's product will not be picked up until the time that is most favorable to the shipping company, causing the JIT manufacturer to potentially lose time (and therefore, potentially, money, customer loyalty, and customers themselves) due to such delays in product delivery. Full trucks, however, contain more product than can be consumed by the customer. Moreover, the inevitable breakdowns of shipping trucks in need of repair, and delays that can be caused by unforeseeable circumstances like trucking breakdowns or truck immobility due to inclement weather, may try the patience of customers, who might then consider themselves better served by non-JIT inventory manufacturers.
Marketing and Sales
Marketing and sales, within manufacturing industries, has to do with the ways in which manufacturers promote (market) and sell their products to the public. The sales group within a manufacturing enterprise is characteristically forced to push slow-moving products however they can. Manufacturers' marketing departments use promotions, specials, and end of quarter sales bonuses to entice customers and would-be customers into buying their particular product. If a manufacturer's sales department is successful, however, it will also then create a surge of additional demand, back through the supply chain, that will subsequently interfere with the abilities of suppliers and manufacturers to level load their outputs of various products. The final effect on the manufacturer, then, is price reductions to move product.
Moreover, the sales force of a manufacturer is unable, on its own, to guarantee delivery dates. Poor customer service, to returning customers and potential ones alike, can drive away sales. Therefore, a manufacturer able to solve problems such as these by streamlining the overall operation of the supply chain, including the sales and customer service portions of that supply chain, will be less likely to lose customers due to the presence of those sorts of "weak links" in the chain.
Design
Design has to do with the way a manufacturer's product is assembled, looks, and performs. Many products are not designed for the easiest and most cost-effective manufacture (from the manufacturer's viewpoint). They are, instead, designed merely to meet the customer requirements, with the lowest material cost available. Sometimes this means using more components than is necessary to achieve a design. An example would be to adopt a design that requires a screw to join two components. The screw is inexpensive and readily available on the market and so the designer includes this component in his or her product.
Once this product goes into production it is quite possible that this "inexpensive and readily available" component, however, is the primary contributor to high scrap and equipment downtime. Therefore, a component that costs a penny to purchase may very well add much more cost to the manufacturing process. Unless the design includes easily distinguishable features, the requirement of needing a screw to join two components of the product during assembly may cause scrap and downtime as well.
It is imperative to the smoothest possible operation of a manufacturer's supply chain, then, that designers offer inherent mistake-proofing features in their products, and that manufacturers begin insisting on these as part of their supply chain requirements. The ideal means of solving a problem of this type, at least from the manufacturer's perspective, would be to have a product that could only be put together in one particular way. That would provide the orientation required of the product, with zero risk of it being miss-assembled on the factory floor.
Future Purchasing Strategies
The purchasing department in tune with the future will form strategic alliances with suppliers Toyota Motor Company's supply chain partnering is one example of supply chain partnering at its best. Partnering, however, can also consist of merely recommending a partner for consideration, or even just giving a customer the impression that the parties all come from the same company. Moreover, it is not just the small companies that are rushing into partnering relationships. Many large companies have found that they can satisfy all of the customer's needs by maintaining relationships with key partners.
Although there is a great amount of partnering being undertaken by companies in related industries, very little is being done, in that same sense, with competitors, such as (for example) Toyota, Honda, and Mitsubishi. Partnering of this sort might seem counterproductive at first, but in some areas of the supply chain, such as, for example, international shipping within the automobile industry, it could in fact prove to be of benefit, and profitability, for all companies involved.
Firms should also link different elements of their own value chains to the value chains of their supplers. It is also possible for firms in different value chains to co-operate. These are usually known as strategic alliances. There are a number of companies that use "extensible Markup Language" (XML) and similar technologies to help other companies integrate their current systems with the Web. Still, they could improve their companies' supply-chain management by standardizing electronic data interchange (EDI) protocols.
Internet Order Processing (IOP), for example, must adjust constantly to new technologies, integrate newer and faster systems, and meet the needs of people around the world. Inventories are no longer kept in anticipation for orders. Instead, orders are prepared specifically for a given customer. Competing entities must now collaborate to survive and must realize that customers do not have far to go to buy from the next available vendor. Paperless transactions; access to supplier database, limited human involvement, and 24-hour access to suppliers are all important elements of building an optimal supply chain or enhancing an existing one (Palagyi 2004).
The Internet is also constantly improving EDI standards and making it more accessible to a broader group of manufacturers, distributors, and retailers. Since the transfer of data is conducted through a common system (the Web), compatibility is less of an issue. In the past, companies with incompatible information management system might have had difficulty conducting transactions (webopedia). Moreover, XML (extensible Markup Language) can now be used to improve compatibility between management systems.
XML is a development technology similar to HTML (Hypertext Markup Language). HTML is a language used to format the content and appearance of Web sites. XML takes the language one step further and defines the meaning of the data.
Each product in a catalog is assigned tags describing its size, color, and price.
Since XML can be used with a wide range of systems and platforms, the company could then offer its catalog data on multiple B2B exchange sites. The product name, price, and other descriptive data are formatted automatically to fit the look and feel of each site. The goal of the group is to develop an XML-based standard, ebXML, for business communication and operations on the Web. B2B exchange sites now offer this new form of EDI. These exchange sites have been established in almost every major industry and provide a method of buying and selling in a standardized environment. The typical B2B site allows suppliers and manufacturers to buy and sell over the Internet. Once a purchase has been made, the manufacturer pays for the product and arranges shipment through the site. By shortening lead-time, or the time it takes to receive a product from a supplier after an order has been placed, businesses can lower their inventory costs and gain competitive advantage. Ability to interact with companies that have different spoken languages, through web pages, is now also possible due to advanced Internet technologies (it)
Product Design
Product design that is optimal, from a manufacturer's perspective (as opposed to an assembler's, supplier's, competitor's, or customer's perspective, involves several aspects. These include: solid modeling (i.e., sturdy and dependable design); design for manufacture (as opposed to design for assembler, supplier, customer, etc.); computer- aided design (CAD) for present and future flexibility and variability; computer-aided manufacturing (CAM) for present and future flexibility and variability; speed (earliest time to market) for maximum efficiency, profitability, customer satisfaction, and minimal waste); cost effectiveness (minimum cost) for customer satisfaction, minimization of waste, and manufacturer profitability.
Also key to optimally efficient and profitably product design are: Design for Assembly Eliminate the non-value added work Nano Technology Use Standard Components
R&D Databases Computer simulation helps manufacturers plan new plants or new production processes within an existing plant. The software uses inputs such as machine speeds and labor standards for the intended product lines. The simulations can test different combinations of machines, layout, production rates, shift schedules, the effects of different sized buffer storage areas.
With the ability to quantify the effects through simulation, a much greater degree of insight and understanding can be brought to bear on the decision-making process, both in terms of what processes will work best in creation of an optimal finished product, and in terms of how the projected finished product itself will appear, function, and perform.
Therefore, simulation, as part of an overall supply chain operation, can be a significant influence in communication and consensus building. In this context, alternate process designs can be considered in a quantitative manner. These tools should result in processes that, once installed, will have a considerably higher probability of satisfactory operation.
As part of their overall supply chain dynamics, most manufacturers would likely do best to customize at the latest opportunity (i.e., put it off as long as possible) so that the whim of the customer might still be accommodated, but with the lowest-level impact on the manufacturer's production processes and inventory levels. Such a strategy for customization also can also lead to reduced customer turnaround time, and, therefore, also lead to happy fulfilled customers. The amount of time it takes for customers to receive their purchases (the less time that elapses between initial order by the customer and receipt by the customer of the finished product, the better) is another key contributor to higher customer satisfaction levels.
Role and Importance of in-Bound Logistics
In-Bound logistics has to do with the synchronized flow of inventory throughout a company's supply chain. Logistics creates value by achieving time-specific product delivery at the least total cost. Using state-of-the-art technology to integrate order processing, transportation, inventory, warehousing, materials handling and packaging, logistics is a continuous process focused on achieving maximum customer satisfaction.
According to the Supply Chain Council, the total cost of performing logistics in the United States exceeds one trillion dollars annually (Supply Chain Council, 2004) Not only are logistics costly; nothing happens until customer delivery is complete. Understanding logistics strategy and operations is therefore critical for manufacturers, distributors, and retailers (Supply Chain Council). Ideally, goods are delivered just-in-time so that they do not require warehousing (Coia 2004). In fact the goal is to eliminate the use of warehouses and corresponding inventory (Coia). If the logistics system performs as designed, material shipments will arrive just before they are needed by the manufacturing process (Coia).
The Internet can also help an e-business owner manage fulfillment (warehouse storage, shipping, inventory management) (Paragyi 2004; Hammer 2004; Schrage 2003). Businesses are no longer required to keep large inventories (Cox 2003) Rather, through online management of fulfillment, these companies can rely on a manufacturer to supply them with product as needed (Paragyi 2004; Hammer 2004; Coia 2004, Cox 2003). This also allows e-businesses and brick and mortar businesses with Web-enabled supply chains to accept made to order requests (E-business 2004).
The ability for members of a supply chain to view the fulfillment status increases confidence and improves planning. Coia (2004) states, in reference to fulfillment status and inventory: "One of the key goals is to reduce inventory at the line side... And throughout the supply chain" (p. 1)
Just-in-time (JIT) production principles, strategies, advantages, and disadvantages
Just-in-time (JIT) production allows continuous-flow production techniques to reduce lot sizes, reduce setup time, drastically cut work-in-process inventory, improve throughput, and reduce manufacturing cycle time (Just-in-time production system 2004). JIT typically includes the use of "pull signals" to initiate production activity, in contrast to work order or "push systems" in which production scheduling typically is based on forecasted demand rather than actual orders (Lean manufacturing (2004); Just-in-time (JIT) manufacturing (2004)). Supplier JIT delivery in which parts and materials are delivered in small lots and on a frequent basis, timed to the needs of the production schedule (Coia 2004). JIT delivery by suppliers typically reduces the amount of inventory a manufacturer has on hand, thereby reducing both the need to warehouse materials and the costs associated with owning inventory (Paragyi 2004).
With a Just-in-time (JIT) inventory system, real time tracking, combined with better insight into upcoming orders, helps shorten order-cycle times, reduce material shortages, and improve planning (Coia 2004). With JIT, one can also manage multiple locations, processes and companies as a single virtual factory, and at a continuous rate (Johnson (2004)).
Just-in-time (JIT) production strategies aid in realizing the goals of keeping track of fulfillment status of orders, and of inventory. The Just-in-time (JIT) production system involved coordinated manufacture of products, or components, so that they will arrive "just in time." With this method, only one part need be manufactured, not a whole batch of parts, with the other parts remaining unused for the time being (Just-in-time production system 2004).
Just-in-time production system is dedicated to "eliminating manufacturing wastes by producing only the right amount and combination of parts at the right place at the right time" (Just-in-time (JIT) manufacturing (2004) p. 1). As Just-in-time inventory proponents (Coia (2004); Lean manufacturing (2004); Just-in-time (JIT) manufacturing (2004); Bowman (2000) observe, there are myriad benefits to running to operating one's business enterprise with minimal inventory, including better cash flow; easier and less costly inventory control; smaller capital investment, and limited risk of obsolescence.
Another option is to out-source the inventory management to the supplier of the components (Johnson 2003). That can improve the supply chain by allowing the supplier of the raw materials to access usage rates (Hammer (2004); Coia (2004); Johnson). This also provides the supplier with real time data that they can use to adjust the output of their processes so that they are synchronized with the usage rates of their customers. In this scenario, the supplier (vendor) is responsible for maintaining the appropriate level of inventory at the manufacturing plant (Johnson). This also allows the supplier to order, produce, and stock, only those components that are being consumed by the manufacturing operation (Coia 2004; Paragyi 2004; Cox 2003).
Production Planning
Within manufacturing, production planning has to do with determining the steps by which the manufacture of a particular product will be carried out. In production planning, a key advantage for manufacturers, within their supply chains, is to have an Enterprise Resource Planning (ERP) System linked to factory floor (Bourke 1996). With such a system, equipment availability is factored into one's production plan, and tied directly to product sales (Bourke).
Customer buying patterns and volume dictates the manufacturing mix (Hammer (2004); Cox (2003), Bourke). ERP systems make possible limited human involvement in production planning, and building-to-order of products requested by customers, in quantities requested by customers Quick-changeover techniques that reduce equipment setup time and permit more frequent setups (Bourke).
Cellular manufacturing, in which equipment and workstations are arranged to facilitate small-lot, continuous-flow production, is also an important supply chain advantage. (Bourke 2004; Palagyi 2004) a cell is composed of all operations needed to produce a component or subassembly in close proximity, allowing quick feedback between operators. Workers in manufacturing cells typically are cross-trained to perform multiple tasks (Bourke 2004).
Operations
Operations have to do with the day-to-day functions of all aspects of a manufacturing business. Some manufacturers now use a computerized Manufacturing Execution System (MES) to keep track of goods produced to fill customer orders, in order to produce only required quantities. Today's focus, increasingly, is on production flexibility.
In addition, today's manufacturers must be ever-ready for quick changeovers to alternate (or new) products. To be highly customer responsive, then, manufacturing equipment must be flexible. Such manufacturing equipment should, therefore, offer either quick-change or no change-over at all to run different part numbers.
Toward that end, scrap reduction may nowadays be best obtained through analysis of real-time feedback from manufacturing equipment. Manufacturers must use root-cause analysis to reduce the cause of material scrap. Employees should collect and categorize the data using: process flow charts; check sheets; fishbone diagrams; Pareto diagrams; process control charts; histograms, and scatter diagrams to find and fix various underlying problems. When proper corrective action is put into place, the scrap can be all but eliminated.
Manufacturers today can also use statistics, measurements, and facts available on the Internet as never before, to drive out variation of all kinds. For plant operation, for instance, the process capability index, CPK, numerically, monitors the capability of a process to stay in control, and close to the desired specification. Metrics that capture variation in process outputs include defects, rework, and lateness. In some factories quality is so high that they have stopped counting defects per million and have started working on defects per billion.
Closed-loop process control will work if a manufacturer can capture new data that can describe a process as of right now, and analyze that current process against the background of historical data that describe how the process behaved in the past. That analysis will drive decisions that the manufacturer can immediately feed back, in order to control the process.
With tightly-integrated manufacturing cells, a machine set-up can be done electronically. Today's internet-based production equipment also supports remote diagnostics. Therefore, an equipment supplier can troubleshoot remotely. Equipment is optimized, via the internet, for top performance, including use of Virtual LANs. Due to those technological capabilities, outsourcing of individual tasks can also become easier: if it is more efficient to produce product at an alternate site, an order can be electronically transferred, and production of that order remotely monitored
Production of small lots of subassemblies and finished goods (JIT) is of benefit to the manufacturer, because it reduces working capital by maximizing production facilities and minimizing inventory. JIT production, however, requires a small but highly skilled labor force that handles limited quantities of work-in-process (WIP) and is proficient at mixed model production.
Nowadays, real time production status information is available around the clock on the Intranet. The ability of manufacturing entities to access such information on an around the clock basis is more important than ever in today's competitive business environment, since customer satisfaction is more important nowadays, to the manufacturer, than ever before. Therefore, it is a huge competitive advantage for the manufacturer who possesses the internet technology (it) to allow customers to "see" the status of his or her order.
Information integration refers to the sharing of information among members of the supply chain. This includes exchanging information about any type of data that could influence the actions and performance of other members of the supply chain. Some examples include: demand data, inventory status, capacity plans, production schedules and shipment schedules.
Ideally, such information will be accessible to the appropriate parties on a real-time, online basis, without significant additional effort. Manufacturing equipment today may be networked to provide both downstream and upstream views of manufacturing bottlenecks. Web-enabled equipment also allows OEMs to remotely monitor and repair their machines, reducing response time and travel expenses.
With Just-in-time (JIT) inventory management, lot sizes are small, so manufacturing flaws can be isolated to individual lots (Lee 2004). Preventive maintenance is scheduled by the ERP system. ERP is integrated with a computerized maintenance management system (CMMS) - provides predictive maintenance. Maintenance workers receive detailed maintenance instructions - automatically updated with "best practices" methods. Manufacturers are focusing on optimizing and streamlining their processes and, in turn, reducing the overall cost of production.
At the same time, preservation of existing production equipment is essential in an economic climate where expenditure on capital equipment has been substantially curtailed, making good maintenance practices more important than ever. Companies each have their unique processes and subsequently their unique issues with maintenance of plant systems. Yet, there has emerged a set of common issues and practices that are familiar to maintenance operations whether the product is automobiles, planes, consumer products, or food & beverage.
A manufacturer's profitability is inextricably linked to preservation of assets; however, far too few companies have realized that good maintenance and support practices are an integral component of optimized production processes and lean manufacturing. According to Lean manufacturing (2004), within a well-conceived, well-designed, and well-orchestrated manufacturing supply chain:
The tooling cost and any production machinery costs are estimated, and financial feasibility established with return on investment. Reuse of existing machinery and capabilities is often essential.
In some cases, the crucial insight is to substitute materials that require less time to form. For example, some products can substitute surfaces sputtered with coatings for heat-treated steel and save money because the production bottleneck of the time-consuming heat-treat is eliminated. (p. 2)
It is arguably much more efficacious, then, for a manufacturer to make preservation and maintenance of equipment and goods a key and integral part of supply chain operations, rather than merely staff one's organizations with employees who are charged with preventative maintenance (who will, most likely, attend to that equipment only during off-shifts, and never as a high priority. Within an optimally-effective manufacturing supply chain, these sorts of tasks are recognized and treated as part of the mainstream (Lean manufacturing (2004); Henderson (1999); Womack & Jones (1996); Womack et al. (1991)).
Instead of using valuable technical resources, smart companies are using the services of their equipment operators in a process called Total Productive Maintenance (TPM) (Lean manufacturing). Instead of waiting to "maintenance" the equipment during off shifts, those tasks are instead performed during times when other downstream or upstream processes are halted for emergency repairs, or perhaps when an operator is waiting for raw materials to be delivered to a line (Lean manufacturing). After all, who knows the normal sounds and vibration level of the equipment better than the operator that spends 8-hours a day tending to it?
Historically, the typical main focus of manufacturing companies has been more on keeping their assembly lines and processes running than on the safeguarding of their assets (Lee 2004; Cox 2003). Today, however, manufacturers are becoming increasingly, and keenly, aware of the numerous long-term benefits of plant floor support practices that provide methods and procedures for not only keeping the production lines running, but also preserving valuable capital assets (Lean manufacturing 2004)
Today's smart manufacturers, moreover, are less inclined than before to simply purchasing the newest and best technologies, and are, instead, mainly focused on improving the efficiency of their existing operations (Lean manufacturing 2004).
Maintenance workers can be trained via the Internet, by the equipment supplier, or with some of the most recent Internet Technologies (it) can even be trained through Virtual Reality training sessions. Innovations report (2004) states:
Training for machine tool process is often limited by cost and safety concerns, but the computer-supported learning environment known as VIRTOOL utilizes interactive and virtual reality techniques to provide valuable experience to trainees.
Targeting machine tool manufacturers, industrial end-users, and education entities, it makes it possible to simulate the preparation, use, and first level maintenance of a machine working by means of movement and interaction of solid material. (p. 1)
In addition, according to Aerospace engineering online (2004):
The virtual reality trainer [created by DaimlerChrysler] enables instructors to Prepare, start, and monitor the simulation from a workstation. Instructors have access to a library of exercises, scenarios, and procedures with different degrees of difficulty and may create new ones. All events are recorded during training so they can be evaluated subsequently. (p. 1)
Additionally, within the manufacturing arena today, two other Internet technologies (it) Mean Time between Failures (MTBF) and Mean Time to Repair (MTTR) can now be used as data guides for the purchasing of spare parts. With these technologies, equipment spares arrive just before the maintenance activity. Production data includes all line support personnel - Reward and recognition awards can be given to the teams that achieve high performance on scrap reduction, productivity, and equipment utilization.
Six sigma may be used by companies nowadays to reduce variability in processes, and therefore to ensure consistent peak quality (Six sigma - what is six sigma? 2004). Six sigma is a relatively new (since 2000) software program, whose methodology involves implementation "of a measurement-based strategy that focuses on process improvement and variation reduction through the application of Six sigma improvement projects" (p. 1) Six sigma is potentially useful to manufacturers; there is, after all, a limit to the human ability to monitor quality, especially of a large enterprise and all its systems. Moreover, quality is a two-way street. The purpose of Six sigma, then, is to keep product specifications within specified tolerances and to avoid variences in either direction (Six sigma - what is six sigma?)
The ability to monitor one's processes, and to take early action in order to (for example) avoid excess scrap, a cost that is ultimately passed along to the customer, can be enhanced with proper use of an Internet Technology (it) like Six sigma. Process variabilty can have an adverse affect on labor and material consumption alike. Furthermore, in some cases, excess quality costs the manufacturer dearly, even if it has little impact on customers. It is important, of course, to satisfy the customer, but one still must not price oneself out of the market by providing an extremely high level of quality, if it is beyond the requirements and will not be noticed in a positive way by customers, anyway.
Tight coupling of the manufacturing operation into the greater supply chain, both upstream and downstream, also enhances supply chain operations. This, in fact, could even be extended to the manufacturing process, by ordering one's own raw materials from suppliers. If one enjoys a positive relationship with one's supply base, it is possible to bypass the purchasing arm of an organization and have product shipped directly to the specific manufacturing cell that requires that product.
Real-time machine status software and Production and downtime monitoring software can help manufacturers reduce overtime labor costs. Integrated data mining and reporting software is available to manufacturers, as is Centralized management and distribution of product and process specifications software; software for assigning energy expenses to individual cost centers; and software for analyzing energy usage trend data. Software is available, as well, for assigning orders to plants in order to take optimal advantage of fluctuations in utility rates.
Another Internet Technology (it) currently available to manufacturers to improve their supply chain operations is Total productive maintenance (TPM), which "seeks to reshape the organization to liberate its own potential" (What is total productive maintenance (2004) p. 1), often in combination with another technology, RCM, " a process used to determine the maintenance requirements of physical assets in their present operating context'" (What is total productive maintenance p. 2). Computerized Maintenance Management (CMMS) is an Internet technology (it) that tracks employees; schedules; suppliers; tools; budgets;chasing; procedures, and parts (FaciliWorks - Maintenance management software (2004). Total quality management (TQM) is an Internet technology (it) that may be used by today's manufacturers to satisfy both internal and external customers, and suppliers, by "integrating the business environment, continuous improvement, and breakthroughs with development, improvement, and maintenance cycles while changing organizational culture" (TQM: Definition of total quality management 2001 p. 1)
Inventory management
Inventory, in optimally-efficient supply chain companies like Dell, is almost non-existent (Breen 2004). An important indicator of the health of the inventory management system is inventory turnover (Breen). That is calculated by dividing the cost of sales by the amount of on-hand inventory. When a company manages its processes poorly, wastes in the form of inventory pile up (Breen), especially when frequent shipments of finished goods also appear (Palagyi 2004). However, a good use of previously used warehouse space is when such space is instead utilized for the manufacturing itself; leased to provide another source of income; or converted to an employee recreation area or employee child-care facility (Palagyi).
Economic Order Quantity (EOQ) is yet another relatively new Internet Technology (it) that can be used by manufacturing companies for better managing inventory today. EOQ is "essentially an accounting formula that determines the point at which the combination of order costs and inventory carrying costs are the least. The result is the most cost effective quantity to order" (Piaseki 2001). The most apparent uses for EOQ might be for make-t-stock manufacturers or purchase to stock distributors. However, make to order manufacturers could benefit from use of EOP as well, particularly "when they have multiple orders or release dates for the same items and when planning components and sub-assemblies" (Piaseki, p. 1).
The purchasing of EOP, however, is also one instance where the purchase of an Internet Technology (it) can possibly be counterproductive to one's overall inventory management; when EOP technology is improperly used, poor results will be received due to inaccurate data inputs. Piaseki (2001) explains:
Accurate product costs, activity costs, forecasts, history, and lead times are crucial
In making inventory models work. Ironically, software advancements may also [be]
In part to blame. Many ERP packages come with built in calculations for EOQ which calculate automatically. Often the users do not understand how it is calculated and therefore do not understand the data inputs and system setup which controls the output. When the output appears to be "out of whack" it is simply ignored. This sometimes creates a situation in which the executives who had purchased the software incorrectly assume the material planners and purchasing clerks are ordering based upon the systems [sic] recommendations. (p. 1)
This type of incorrect usage of an Internet Technology (it), in this case EOP, is one of those cases in which the technology creates more problems than it solves. For reasons like the one illustrated here, therefore, manufacturing companies wishing to acquire new Internet Technologies like EOP would do well, first, to (a) make certain that they genuinely need the technology, and the technology to be purchased will in fact meet a present, specific need of the company's, and (B) that those actually using the technology understand its specific purpose and reason for being bought, and know how to use it.
Out-Bound Logistics Internet Technologies (it)
The out-bound logistics of a manufacturing company have to do with how, when, and where a manufacturer's products will be picked up; shipped; delivered; distributed, or sold. Toward the end of making this optimally efficient, through Internet technologies (it) delivery trucks can now be tracked by satellite and can be immediately re-routed when necessary. The trucking industry uses the Web to keep trucks fully loaded and to ensure timely delivery. Web sites match available truck capacity with the shipping needs of many customers who are willing to split the cost of full truckloads. This process called load-matching lowers costs by reducing the number of trucks needed to fill an order. Companies now in possession of such truck-tracking and re-routing technology include: www.FedEx.com;layover.com; trucking.net; getloaded.com; www.tradient.com, and www.gf-x.com.
Any and all of these are companies with which some manufacturers are already partnering, and with which other manufacturing companies might also partner, in meeting their puck-up, shipping, routing, delivery, and other needs. In addition, costs of transportation can now be tracked, and alternate delivery methods are researched, using computerized logistics systems that help to ensure the most efficient, least costly transportation methods for manufactured goods being shipped. Using those same systems, a manufacturer's customers may also track the progress of their ordered goods en route to them.
Marketing and Sales Internet Technologies (it) Innovations
One key function of marketing and sales departments within a manufacturing enterprise is to promote and maintain customer service and flexibility. It costs money, however, to continually attract new customers face-to-face, by mail, or by telephone. Today, however, the sales forces of manufacturing enterprises may switch, via the Internet from scratching up new business and/or retaining existing customers by those older, more labor-intensive, and more time-consuming means.
Further, manufacturers can increase competitive advantage by using a new internet software program, Leadership partner (LCPI home 2004) with other businesses, both in order to achieve synergy, and to enable customers have around the clock access to one's business. Leadership partner "works with executives worldwide to achieve greater heights and meaningful results through transforming themselves and their organizations" (p.1)
Web pages today provide multi-lingual support, and also open up a manufacturing business to worldwide customer base. Differential Pricing Office and Field Communications Accounts Receivable are two relatively new software programs that allow customers to pay their bills and write checks online decreases the time it takes for checks to clear after they have been sent for payment or deposited.
Because the Internet delivers payments faster than the mail does, money can thereby also be transferred more quickly. This reduces accounts receivable.
The nature of the typical consumer has changed over the past 20 years, and today's average consumer is not as easily swayed as was yesterday's by sales pitches or hyperbole. The Internet also enables the average consumer today to shop more aggressively, and to select from wider options. This also means that manufacturers cannot assume, in today's world, that the products sitting in stock will necessarily meet the needs of a fickle, ever more demanding consumer who has more (and quicker and more convenient) options today than ever before.
Many companies, therefore, have scrambled to create e-based channels to interact and sell goods to consumers. Other companies less able to interact with and react to consumer demands in equivalent ways, and at equivalent speeds, might do well, within their own spheres, to follow the example of leading manufacturing entities like Dell and Toyota.
Chapter 3
Research Design/Methodology
Research/Sampling Design
The research sampling and design for the study consisted of close and exhaustive readings of books, journal articles, and various available internet materials, combined with personal experiences and observations, all of which yielded (1) an in-depth review of the available literature, from 1990-2004, on manufacturing supply chains and (2) an in-depth review of available literature, from 1990-2004, on manufacturing supply chains within two leading international manufacturing companies in particular: Dell Computers and Toyota Motor Company.
Based on that in-depth research, the study next identified various chain supply strategies and practices now in use by manufacturers, including inventory-based supply chain usage; Just-in-time supply chain usage, including use of Kanban and other it supply chain methods, as well as the various advantages and disadvantages inherent in those, and various other, supply chain practices and strategies. The study also included a review of the current state of manufacturing within both older factories (which were more likely, overall, to have traditional inventory-based supply chains), and newer ones (which are more likely, overall, to have less traditional Just-in-time (as with Dell) or Kanban-based (as with Toyota) supply chains).
The study also suggested various supply chain improvement opportunities and strategies, many of them basic to the Lean Production movement which was initiated by Toyota Motor Corporation in Japan after World War II (source). Although lean manufacturing methods have been practiced within companies like Toyota and Dell for many years, with great success and profitability for those particular companies, those strategies, nevertheless, have yet to be widely adopted.
In addition, the research suggested ways of removing waste (time, money, resources) from various manufacturing processes. The study also suggested, based on that same research, that many current manufacturing methods fall short, in various ways, in the area of Information Technology it).
Using books and internet materials, the research attempted to uncover some of the historical problems with the use of technology, particularly the belief that technology would magically transform a business. I believe that for this document to have meaning I believe that it would be foolhardy to merely offer up Information Technology solutions to the reader. It doesn't make sense to look for the proper tool until you have identified the improvement opportunities that exist within the typical manufacturing plant.
Research Variables/Measurement
The nine (9) separate research variables within the study were:
The manufacturers studied within the research manufacture different products from each other
The manufacturers studied within the research manufacture products in different ways from one another
The manufacturers analyzed within the study have had different levels of profitability in the past than now Future profitability of the companies analyzed within the study could not be predicted
The companies analyzed within the study differed in size
The companies analyzed within the study differed in terms of internal management structure
The companies analyzed within the study differed in terms of how long they had existed before the study
The companies analyzed within the study differ in terms of internal management structure
The companies analyzed within the study differed in terms of internal management philosophy
The companies analyzed within the study differed in geographical base and origin
Data Collection Methodology
Data collection methodology for the study consisted, first, of location, via university, public, community college and other libraries, and the internet, books, articles, and internet resources that could yield exhaustive analysis of manufacturing supply chain strategies and practices, past and present, as well as suggested practices and strategies in the area of supply chain management for the future.
The study then, again using library and internet resources, analyzed supply chain practices and strategies of two leading global manufacturing companies, Dell Computers and Toyota Motor Company, comparing and contrasting them, along the way, with more traditional supply chain strategies and practices of older or more traditional manufacturing companies more inclined toward inventory-based supply chain management.
Limitations of Research
The research had the following four (4) limitations:
Only two leading global manufacturing companies, Dell Computers and Toyota
Motor Company, among many other such internationally prominent manufacturing companies were profiled in-depth.
The study relied on statistical, analytical, and comparative data, rather than on more empirical data, such as statistical surveys of manufacturing company owners, managers or employees
All library and internet research materials used for the study were from 1991-2004; the research therefore was more contemporary than historical in focus
Information gathered for the study was not empirical
Chapter 4
Two Supply Chain Case Studies: Dell Computer Corporation and Toyota Motor Company
Case Study I: Dell Computer Corporation
The business of Dell Computer Corporation has always been to sell custom-built PCs directly to customers, thereby eliminating the middleman and saving time and money for the company and the customer alike. The Dell business strategy is known today as the direct business model (Magretta Power of virtual integration 1998).
Dell's direct relationship with customers also provides the company with essential information about those customers that it can use (and leverage) in its relationships with suppliers as well as the customers themselves (Magretta Power of virtual integration). Dell's goal, as company founder and owner Michael Dell himself describes it, is to keep making his company, its products, and its processes, ever-better. Dell states: 'Let's get better. I'm 38 years old now. I want to look back in 40 years and be proud' (Fisher 2004 p. 12)
Dell's Origins, Philosophy, 'Soul', and Profitability
The Dell Computer Corporation was founded in 1984, by 19-year-old college sophomore Michael Dell, and initially run (with a $1,000 loan from his parents) from his college dormitory (Fisher 2004). Twenty years later, the rest is global manufacturing history. Today, Dell Computer Corporation easily beats leading competitors like Hewlett Packard, Toshiba, and Gateway each quarter in terms of overall profitability (Schrage 2003). Dell "Is the prototypical flat organization. From the factory floor to corporate communications, decisions are made quickly and without the burdens of superfluous hierarchy"(p.1).
Despite the "unforgiving business environment" (Fisher 2004 p. 10) in which Dell operates, the company is determined to maintain its "Soul" (Fisher) while continuing to beat out its competitors (Fisher). Any by any objective measure, it has done just that so far and more:
Dell met its revenue and earnings forecasts for the quarter ending April 30, 2001, and has met or exceeded analysts' estimates in every quarter since. In the third quarter of fiscal 2004, quarterly income rose a healthy 22%, with the record growth in sales that Dell depends on. (Fisher p. 10)
The supply chain of the Dell Computer Corporation offers an excellent example of a manufacturing entity that possesses optimal supply chain efficiency and profitability, combined with minimal waste. Dell pioneered direct sales of made-to-order PCs to customers by successfully integrating manufacturing, supply chain management, shipping, and customer service.
The company accomplished all of this by focusing on speed of custom production, shipping efficiency, and customer satisfaction (Dell computer pioneered the direct selling of made-to-order PCs to end users 2001). "Among manufacturers, the company is known for extreme reliance on suppliers for components" (Andrews 2001). Clearly, then, in order to succeed as well it has, Dell's supply chain has had to continually operate at optimal efficiency.
First, Dell uses the information it gathers about customers, based on their direct orders through Dell, to erase various obstacles to the value chain, among Dell's suppliers, manufacturers, and customers alike (Magretta Power of virtual integration 1998). Michael Dell himself describes that process as 'virtual integration' (Magretta p. 1). Further, "Technology has allowed coordination between... individual segments such as strategy-customer focus, supplier partnerships, mass customization, and just-in-time manufacturing. This helps to achieve new levels of efficiency, productivity, and remarkable returns to investors" (Magretta Power of virtual integration). Virtual integration; strategy-customer focus; supplier partnerships, mass customization, and just-in-time manufacturing are five keys to Dell Computer Corporation's ongoing success.
Virtual integration. The paradigm of virtual integration (as opposed to more traditional vertical integration, within which key suppliers would be "hard wired" into vertically-controlled supply chains, is, according to Hammant (2000):
one of 'virtual' supply chains made up of loose affiliations of companies; organized as a supply network, where physical assets are replaced by information.
However, to make the new paradigm work, information must flow seamlessly within and across the organizations that make up the virtual supply chain. (p.1)
The most important reasons for virtual, rather than vertical, integration within businesses today are (1) more customer demands and requirements, including reduced costs and shorter lead times, as well as customization requirements by customers; (2) ever-increasing marketplace competition, especially due to e-business, and (3) ever-increasing amounts and directions of information, and the need to act on that information rapidly (i.e., before one's competitors do (Hammant (2000); Tech talk (2001). As Dell Computer Corporation states (Dell services 2004):
By leveraging on best in-class service providers through our virtual integration model, we are able to deliver services, which have been designed to reduce our customers' total cost of ownership (TC0). Our services are delivered as part of personalized, totally accountable relationship with our customers - giving our customers the flexibility and choice to decide which solution best fits our customers' requirements. (pp. 1-2)
The motivation behind Dell's virtual integration strategy, i.e., the erasure of the boundaries that exist within the value chains of many other companies, among suppliers, manufacturers, customers, and others, due to outdated vertical integration has been achieved at Dell because, in Michael Dell's own words: 'The whole idea behind virtual integration is that it lets you meet customers' needs faster and more efficiently that any other model' (Hammant 2000 p. 2).
Virtual integration, moreover, is the best way for any company to stay ahead in a changing world. Dell adds: 'With vertical integration, you can be an efficient producer - as long as the world isn't changing very much. But virtual integration lets you be efficient and responsive to change at the same time' (Hammant).Dell's second-in-command, vice chairman Kevin Rollins adds that, from a management perspective:
Most of the managerial challenges at Dell Computer have to do with what we call velocity - speeding the pace of every element of our business. Managing velocity is about managing information - using a constant flow of information to drive operating practices, from the performance measures we track, to how we work with our suppliers. (Hammart 2000 p. 2).
Manufacturing businesses in today's world, then, so long as they wish to become and remain profitable, and wish to beat out their competitors, have little choice but to move from vertical integration to virtual integration, as manufacturing pioneer Dell has done, or face extinction (Tech talk (2001); Hammart (2000); Magretta Power of virtual integration (1998). Dell has pioneered the use of many of the Internet Technologies (it) that have made its pioneer efforts at virtual integration yield such great benefits to the company over the years.
Strategy-customer focus. Strategy-customer focus at Dell is integral to the company's virtual integration strategy, and benefits customers and the manufacturer alike. When Dell began his company in 1984, with a $1,000 shoestring loan from his parents, he believed then, as he does today, that he could beat competitors by building computers to order and selling them directly to consumers (Murphy 1999). Today, Dell generally "fulfills customer demands within five days, and the firm plans to reduce that time by relying on more extensive Web-based collaborative technologies" (Songini 2004 p. 1). Further, according to Schrage (2003):
Blame Dell for pushing Compaq and Hewlett-Packard into each other's arms. And for the woes of Gateway, which couldn't make money at those prices. And Dell is responsible for IBM's decision to leave the consumer PC business in 2000: 'Price wars in a commodity business are really dumb,' grumbled IBM's then-chair, Lou
Gerstner. Only if you can't consistently make money, Michael Dell said on the Way to the bank. PCs may be a commodity, but what Dell really sells is the network economics of connecting customers to suppliers [emphasis added]. And it's proving more radical and hard to copy than once thought. (p. 1).
Although Michael Dell did not yet realize it back in 1984, his strategies of build-to-order and direct customer interface would serve him well in terms of the strategy-customer focus strategy that later evolved into an integral part of Dell's supply chain practices:
Interestingly... The most valuable benefits of the Dell Direct Model were unintended;
It built strong customer relationships and the free flow of information... [was]...
A the backbone of Dell's success. Both the company and its suppliers benefited from this information, which could not be gleaned through the traditional channels. (Dell (computer: Business to business over the web 2004 pp. 3-4)
And, as Dell itself makes clear in its statement to customers, the company is committed to customer relationships and customer satisfaction, in terms of one to one, direct relationships; providing the best goods and services featuring the best, most relevant technology; creating and leveraging industry standards, and out-performing its competition in providing customers with superior value, quality, and service (Fisher 2004 p. 7). Clearly, along with (and in combination with) virtual integration, Dell's singular, pioneering vision of strategy-customer focus, have been an important ingredient of both its early and its long-term, ongoing, success.
Supplier partnerships. Supplier partnerships at Dell are also integrally important to its successful overall virtual integration manufacturing strategy. First, Dell, as a fledgling business on a shoestring budget back in 1984, dell could not afford to finance all of the many value chain activities that go into constructing and selling a computer. As with many of Dell's present day operations, however, what began as a deficit eventually turned into one of Dell's greatest strengths.
Based at first, then, on financial necessity, Dell's strategy vis-a-vis suppliers grew into one of building its own systems out of components made by other companies (Magretta Managing velocity 1998 p. 2). Therefore (again due to Dell's initial lack of capital) Dell did not invest in either R & D. Or in factories, leaving those sorts of endeavors to other, older, and more prosperous (in Dell's early years) manufacturing entities. (Managing velocity).
Back then (and today) Dell would, instead, in preparation for purchasing each component, scrutinize the field, and then choose the best maker of that component to become its supplier (Magretta; Fisher (2004)). Dell and its suppliers, like Dell and its customers, have become (as Dell puts it) "virtually integrated." In addition, Dell and its suppliers share information with one another, as well as coordinating their activities, thus operating, in a sense, like one huge "vertically integrated" company (with the benefit of Internet Technologies (it) as well, to provide virtual as well as vertical integration).
Within Dell's (virtual and vertical) supply chain, then, its suppliers operate in synchrony with Dell, in a manner that is apparently, at least, (virtually) seamless:
Instead of having suppliers make periodic deliveries to a warehouse, Dell tells them the exact number of components it needs, at what hour of the day, delivered to which loading dock at its factory. This is... The kind of information company would freely share with an internal supplier. (Magretta Managing velocity p.2).
Dell, by making partners out of its suppliers (Magretta Managing velocity (1998; Magretta Power of virtual integration (1998); Fisher (2004); Hammant (2000)), and by employing its unique strategy-customer focus (a tactic that kept on giving) successfully constructed two of the key building blocks of its now enormously successful, and hugely profitable, supply chain operation.
Mass customization. Mass customization, or the building-to-order of computers for customers and organizations, is still Dell's greatest claim to fame, as well as another crucial part of the company's overall virtual integration manufacturing strategy. Dell may have in fact pioneered mass customization within the computer industry, but the concept itself is far from new:
Mass customization is an old idea in many respects. The Chinese restaurant menu system is a good example. Most of the ingredients are nearly prepared, and held in what is now called 'postponement' until a patron orders a specific meal. Then the cooked meat, cooked vegetables, sauces, and spices are blended to order and combined with the choice of noodles or rice. (Mariotti 1998 p.1).
In its mass customization of computers, Dell in fact has done exactly that. Explains Mariotti: "As pressures on out-guessing what the consumer will want next continue to mount and the lost value of deflating inventory continues, more people will discover 'postponement' and 'mass customization'. Michael discovered this idea... Now the rest of the world is waking up... "
Dell's mass customization of computers indeed fits the "Chinese restaurant meal" description (Marriotti 1998 p. 1) extremely well. The custom-made computer ordered by a Dell customer exists, at first, only as a bunch of parts, which will then be assembled as the customer desires them to be. The product components, then, are simply broken down, and offered to the consumer as "customized" choices. The computer is then built to specification and shipped, "custom built" to the waiting buyer.
Lean manufacturing/order fulfillment (2004) lists various ways for companies to organize for mass customization, including capturing individual customer requirements with use of web-tools or internet technologies (it); building a wide variety of modular products; building a network of cells so that a product flows based on customer order; organizing a flexible supply chain; shipping directly to customers, and standardizing modules with common interfaces. Clearly, Dell Computer Corporation does all of that, and more, as part of its optimally-functioning, and extremely profitable virtual integration system.
Dell's Just-in-time manufacturing. Just-in-time manufacturing is an extremely important component of Dell's virtual integration operation. The just-in-time (JIT) inventory method Dell uses offers many advantages, to manufacturers and customers alike (Fisher (2004); Hammer (2004); Cox (2003); Magretta Managing velocity 1998).
For instance, within non-"just-in-time" scenarios, large quantities of raw materials can be at risk of being damaged while in storage. Risks to long-warehoused raw materials may include rusting, corrosion, debris collection, theft, and various other kinds of physical damage. Even more unused stock might have to be on hand, therefore, in case of loss or damage to bulk-purchased (inexpensive) components (or to other, more expensive components as well). Consequently, then, in order to be certain of having sufficient raw material on hand, manufacturers with large inventories often must "cycle count" the inventory in order to accurately keep track of it (Palagyi 2004).
Any missing or damaged inventory must also be accounted for in this way, in order to keep one's financial books in order. This all takes (and wastes) time, manpower and other resources. Therefore, certain "inexpensive" components may in fact become more expensive, in terms of maintenance and replacement costs, than their wholesale price might indicate (Palagyi (2004); Hammer (2004); Coia (2004);)
One enormous advantage, for Dell, then, of maintaining lesser (i.e. "just-in-time") inventory, is avoiding these (often unnoticed) hidden costs associated with maintaining high levels of inventory. Moreover, Dell's just-in-time inventory methods work extremely well, efficiently, and profitably with another of its key virtual integration processes: mass customization of built-to-order computers.
Platinum councils. Dell's Platinum Councils, or meetings between Dell executives and customers, are held twice per year in each of its major regions throughout the world. The purpose of these Platinum Councils is to gather customer feedback, throughout the world, on products and services by Dell that year (Verespej 2004). At those annual meetings, "About 100 members from the company's senior management and key people from engineering and development teams meet with customers to share concerns and to discuss the technology changes" (Verespej p. 7).
These Platinum Council sessions, as with the rest of Dell's virtual integration strategies, are intended by Dell to foster and encourage a free flow of information, and to host free exchange ideas between Dell and its customers: "Groups are...set up to focus on specific product areas and discuss solutions to problems that may not necessarily have anything to do with the commercial relationship to Dell" (Magretta Power of virtual integration 1998 p. 3).
As Dell itself states of its interpersonal communications with customers worldwide (Total cost of ownership 2004) it is committed to seeking customer input and improving its products, services and relationships based on customer input. The Dell website lists: "Webcasts [sic], contact with Dell executives, Customer Advisory Councils, Direct connect events, Dell Technology tours and Platinum Councils" (p. 1) as events that are organized by Dell to provide the company with opportunities to experience direct interactions with its customers. This type of customer-management interaction, like Dell's virtual integration; strategy-customer focus; supplier partnerships; mass customization; and just-in-time manufacturing are all integral, key parts of Dell Computer Corporation's unique, highly innovative, and optimally-functioning manufacturing supply chain.
Case Study II: Toyota Motor Company
History, Philosophy, and Goals of Toyota Motor Company
Toyota Motor Company of Japan, arguably Dell Computer Corporation's equivalent in the area of supply chain innovativeness, although nearly fifty years older than Dell, is equally or more forward-looking in its technological outlook. Toyota Motor Company Ltd. began in 1937 (as a spin-off of a weaving machinery manufacturer and produced its first car in 1947 (History of Toyota 2004).Today "Toyota is the world's third largest manufacturer of automobiles in unit sales and in net sales" (p. 1). The Toyota Production System (TPS) first came into being in the 1950's, and was improved over the next two decades. In 1970's it began to be known by the acronym it has today (TPS). The two leading engineers of TPS were Taiichi Ohno and Shigeo Shingo (Gutierrez 2003).
By the 1980's, the system had been fine-tuned to the point where it began to feature its now famous core characteristics of lean manufacturing (later imitated by Dell and others) and integrated supply chain management (also imitated by other manufacturers) (Gutierrez). Today's TPS is based on three main principles: Jikoda, Just-in-time, and Kaizen. These three principles are also factors in the reduction of inventories and defects within the plants of the Toyota enterprise and its various suppliers. Toyota's successful supply chain processes underpin its manufacturing operations throughout the world (History of Toyota).
Features of Toyota Production System (TPS)
Major features of the Toyota Production System (TPS) include: Greater product variety; fast response (i.e., flexibility); "stable" production schedules; supply chain integration, and demand management (Gutierrez 2003). These features are similar, in terms of their own effects on the manufacturing of automobiles, to Dell's various virtual integration features. Other important elements of TPS, and important aspects of the TPS philosophy, include the highlighting of problems (Jikoda); gradual elimination of waste; continuous improvement (Kaizen); fool-proofing (Poka-Yoke); Just-in-time production, and stable production schedules (Heijunka) (Gutierrez). A few of these, particularly continuous improvement (Kaizen) and Just-in-time production, are similar, in spirit, (Kaizen, for instance) and in fact (Just-in-time production, for example) to Dell's various supply chain characteristics.
Expectations that the Toyota Motor Company has of its suppliers include: frequent deliveries; hours (not days) lead time; rapid response capability (not from stocks); delivery to the assembly line at the right time in the right sequence without inspection, and reliability of quality and timing (Gutierrez 2003). These expectations are similar to Dell's expectations of its suppliers.
Like Dell, Toyota prides itself on long-term, steady relationships with only a few suppliers, rather than having short-term relationships with many suppliers. Also like Dell, Toyota has come to treat its suppliers more like partners than like separate business entities (Sullivan 2004). Also similarly to Dell, Toyota believes in negotiation with its suppliers based on a long-term commitment to productivity and quality improvement (Sullivan (2004); Gutierrez (2003)) with both manufacturer and supplier closely in sync in terms of production objectives and timing of production.
Among its suppliers, Toyota values a commitment to continuous improvement (Kaizen); forward-looking product/process technology, and design manufacturability (Gutierrez). All of these are priorities for suppliers shared by Dell. Toyota offers its suppliers a stable manufacturing environment; steady production volume; leaner processes, and profits (Gutierrez). These are the sorts of benefits also offered to Dell's suppliers.
Nowadays, manufacturing suppliers are very often viewed as extensions of the manufacturing enterprises themselves (Fisher 2004). Japanese automobile manufacturers are reported to have developed and managed superior supplier relationships, characterized as long-term, strategic partnerships, which resulted in significant advantage in new product development lead time and cost (Clark (1989); Nahm, Vonderembse, & Koufteros (2004) p. 586).
A strong case can also be made for partnering with businesses that can compensate for a company's weaknesses. The case of Toyota and its numerous various supply chain partners worldwide, including Transfreight [within its Canadian operations] is one such case: Dyer (2004) states:
Toyota rarely uses arms-length relationships with suppliers... their supplier partners feel a part of a larger collective... suppliers... behave as though they belonged to Toyota. They invest (heavily at times) in dedicated plant, they share valuable intellectual capital... they even transfer people between suppliers and Toyota itself.
The result is a supply network that delivers lower costs, faster product development times, and higher quality than competitive networks or supply chains. (pp. 1-2)
Toyota, Innovation, and Internet Technologies (it)
Toyota, like Dell, is an extremely creative and innovative user of Internet Technologies (it). "Toyota is one of the first automakers to use the Web aggressively to connect with its dealerships... (Songini & Copeland 2000 p. 1). "Toyota is also the first company to pursue an online replacement-parts aftermarket exchange" (Songini & Copeland). Some key aspects of the production portion of Toyota's "virtual integration" include: Just-in-time (JIT) manufacturing (Toyota invented this); kaizen; jikoda; heijunka, kanban, and poka yoke.
Toyota's Just-in-time (JIT) manufacturing system. During the post-World War II period of the 1950's, Toyota, based on dire financial necessity (similar, in that respect, to Dell's financially strapped start-up days, from which Dell's present virtual integration strategies evolved) created its earliest version of Just-in-time (JIT) manufacturing, now emulated, in spirit, by companies entirely outside auto manufacturing, such as Dell. Just-in-time (JIT) as we know it today first evolved at Toyota because:
In the 1950's, the entire Japanese automobile industry produced 30, 000 vehicles, fewer than a half day's production for U.S. automakers. With such low levels of demand, the principles of mass production that worked so well for U.S. manufacturers could not be applied in Japan. Further, the Japanese were short on capital and storage space... efforts to improve performance (and stay solvent) would center on reducing that asset that soaks up... funds... -inventory. (Basic elements of JIT 2004, p. 1).
Toyota's JIT requirements and later Dell's, then, both sprang from a similar source: the companies' financial inabilities to either afford raw materials for, or store inventory. In both instances, also, the innovative JIT methods designed by the companies served to solve a host of current (and potentially future) problems. The cliche "Necessity is the mother of invention" seems, certainly, to apply here.
In each instance, for example, the manufacturer could neither afford, nor afford to store, inventory. And n both instances, financial need combined with the necessity of reducing (or eliminating) waste caused by needing to store and maintain sitting inventory, leading to the creation of both companies' respective Just-in-time (JIT) manufacturing solutions.
Within Toyota's Just-in-time (JIT) system, waste means anything besides the exact necessary amount of equipment, parts, materials, etc. needed for production. Obvious examples of waste (in this capacity) are: letting machines run; waiting for (or counting) parts; storing, maintaining, or servicing inventory, and breakdowns in machinery or production. What is especially interesting in terms of the creation of JIT, in the cases of both Toyota and Dell, is that in both instances a flexible system designed to cut levels of inventory later evolved into one that also encouraged and supported continual improvements in every aspect of the manufacturing process (Basic elements of JIT 2004).
Another important aspect of Just-in-time (JIT) manufacturing at Toyota is the "pull system" (Basic elements of JIT 2004). The "pull system" of Toyota might be best understood by comparing it with the operations of an American supermarket (from which Taiichi Ohno first drew his inspiration for this system):
Ohno struggled... To come up with a system to improve the coordination between manufacturing] processes and thereby eliminate the need for large amounts of inventory. He... got the idea for his pull system from... American...
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