@ Supply Chain Management

Wishing you all a Merry Christmas, a great New Year ahead and the best opportunities to come.

P.S: I’m taking a much needed break and will return to blogging a little into the New Year 07.

In the article Building a lean supply chain, Adam J Fein takes up the notion of building a lean supply chain and how far down along that path supply chain investments and executives really are. The article is dated Feb 2006 and so is not that far from the current state of affairs.
Adam Fein notes,

There is a widely held, but inaccurate, perception that new technologies have led directly to declines in the inventory-to-sales ratio, an important indicator of “buffer inventory” in the supply chain. In theory, information technology-based supply chain practices such as just-in-time (JIT) inventory management, warehouse automation, and the introduction of bar codes should have allowed companies to improve their management of orders and stockpiles of materials.

And further,

However, the empirical evidence for leaner supply chains is surprisingly weak. Economic research studies continue to find that aggregate manufacturing, wholesale, and retail inventory-to-sales ratios remain within historical ranges. For example, the inventory-to-sales ratio for wholesale distribution was essentially unchanged in the 1990s and has only begun trending down slightly in the past four years.

Adam Fein also refers us to the research paper on which this article is based on. From the article, Adam Fein notes the testimony of an official from the Federal Reserve Bank concerning inventory growth:

In testimony to the United States Senate, Federal Reserve Bank of New York Senior Vice President Charles Steindel stated that “…the inventory-sales ratio in manufacturing has declined almost continuously since the early 1990s, which we think is consistent with improved inventory management techniques.” (Steindel 1999). Vice Chairman of the Federal Reserve Board Ferguson offered additional support by noting that “… investments in information technologies have helped firms to cut back on the volume of inventories that they hold as a precaution against glitches in their supply chain or as a hedge against unexpected increases in aggregate demand” (Ferguson 2001).

Further more, he notes in his research paper,

Finally, at least some private companies invest in supply chain technology based on this belief. A 2003 survey found that 56 percent of supply chain management software buyers name “reducing inventory” as the most important factor fueling their investment in supply chain technology.

However, Adam Fein notes that inventory-sales ratios have not been declining,

Filardo (1995) argues the aggregate manufacturing, wholesale trade, and retail trade inventory-sales ratio have all remained within their historical ranges. Stock and Watson (2002) show that the relative volatility of inventories and sales has not changed as much as previously estimated by using more sensitive statistical tests. Khan (2003) questions the impact of technological innovation on the aggregate inventory-sales ratio by noting that the nominal inventory-sales ratio rose before it fell. Ginter and La Londe (2001), in one of the few studies to use financial statements from public companies instead of government data, conclude that some industries have seen substantial declines, while others have shown no improvement or shown an increase in inventory levels.

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In Toyota, Toyota… Part 1, I looked into a recent challenge outlined by Toyota’s CEO, Katsuaki Watanabe, to his firm about competition in the auto business.
In this post, I want to look at older article from HBS Working Knowledge titled How Toyota Turns Workers Into Problem Solvers. The article is an interview by with Steven Spear from HBS. The other author in the background that is referred to is Professor H. Kent Bowen who teaches at HBS.
The rationale for studying Toyota’s Production System (TPS) long after a deluge of similar such efforts by various researchers and journalists in various quarters is articulated by Steven Spear as follows:

However, despite Toyota’s openness and the genuinely honest efforts by other companies over many years to emulate Toyota, no one had yet matched Toyota in terms of having simultaneously high-quality, low-cost, short lead-time, flexible production over time and broadly based across the system.
It was from observations such as these that Kent and I started to form the impression that despite all the attention that had already been paid to Toyota, something critical was being missed. Therefore, we approached people at Toyota to ask what they did that others might have missed.

And furthermore,

To paraphrase one of our contacts, he said, “It’s not that we don’t want to tell you what TPS is, it’s that we can’t. We don’t have adequate words for it. But, we can show you what TPS is.”
Over about a four-year period, they showed us how work was actually done in practice in dozens of plants. Kent and I went to Toyota plants and those of suppliers here in the U.S. and in Japan and directly watched literally hundreds of people in a wide variety of roles, functional specialties, and hierarchical levels. I personally was in the field for at least 180 working days during that time and even spent one week at a non-Toyota plant doing assembly work and spent another five months as part of a Toyota team that was trying to teach TPS at a first-tier supplier in Kentucky.

Empiricism is defined as a reliance on observations of phenomenon as perceived in experience of the observer. But for empiricism to be a profitable (and this word is used loosely), you need observers who bounce of ideas against each other, fine tuning their perceptiveness as they advance along the road of interpreting their experiences and observations of phenomenon. It is this collective work built on their shared individual observations, responses and ensuing discussion that in the most general sense creates a framework, specialized langugage and the basis of integrating future observations. In short, this is a body of knowledge that is not only true in the light of observations but also serves as a basis for the future.
What I think that the employees at Toyota were doing in their response is illustrating this problem of articulating this collective body of knowledge (of which culture is but a representation) pithily or in some easily transferrable form – or in other words, it is not in the saying, it is in the doing, the shared doing, structuring and integrating the learned lessons back into the doing on a continual basis. In this framework, there is an insistence on work, understanding it, refining it but in the back on one’s mind is a reflective process of adjusting work to reality.

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In a short span of ten minutes, I came across three different articles on Toyota, one more than 5 years old (How Toyota turns workers into problem solvers) and the other two quite recent. The first article is from WSJ (Wall Street Journal) As rivals catch up, Toyota CEO spurs big efficiency drive (Only preview is available except to subscribers).
The central points of the article are summarized below:

• Katsuaki Watanabe, Toyota’s CEO, thinks Toyota is losing its competitive edge as it expands around the world.
• He frets that quality, the foundation of its U.S. success, is slipping.
• He grouses that Toyota’s factories and engineering practices aren’t efficient enough.
• Within the company, he has even questioned a core tenet of Toyota’s corporate culture — kaizen, the relentless focus on incremental improvement.
• Mr. Watanabe wants kakushin, or revolutionary change in how Toyota designs cars and factories.
• He is pushing Toyota to reduce the number of components it uses in a typical vehicle by half — a radical idea that would usher in a new chapter in car design.
• He also wants to create new fast and flexible plants to assemble these simplified cars.

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Mark Graban of Lean Blog has put up podcasts with James P. Womack of the Lean Enterprise Institute.

Check it out here.

Part 1 of the podcast with Jim Womack can be accessed here.

Tags: Lean Thinking, Lean, Mark Graban, Jim Womack, , Lean Enterprise Institute, , Lean in China

IndustryWeek reports on investment prioritization for manufacturing operations software and how it varies across different industry segments in a recent article titled – Different Priorities.
According to the report,

# In chemicals, 28% of the manufacturing budget will be applied to advanced process control and simulation.
# In aerospace and defense, 50% of the manufacturing budget will be applied to quality management systems.
# In pharmaceuticals, almost 45% of the manufacturing spending will be applied to quality management (if LIMS is included), 20% on recipe/formula/specification management and 20% on enterprise manufacturing intelligence (EMI).
# Automotive, high-tech and industrial products are prioritizing MES (29%, 32% and 35% respectively).
# The consumer products industry is spending the largest share of any industry’s manufacturing budget on EAM, at 16%.

The other interesting tidbit is captured in this pie graph:

As the report highlights, pharmaceuticals, aerospace and defense are trending towards quality management systems which is a sizeable market area to address if you were a provider of software systems. So the obvious question then is what are the quality management systems out there? Further, is quality management a COTS (Commercial Off-the Shelf Software) type of solution or something more substantial (and messy as well).
The second category of interest is MES (Manufacturing Execution Systems) which garners significant interest across the segments of automotive, high-tech and industrial products. The surprising (or perhaps, not so surprising) thing about MES is highlighted in this article here.

“In 2001 the vast majority of the Fortune 1000 manufacturers AMR Research surveyed were in the throes of massive ERP rollouts,” says senior research analyst Alison Smith. “As these draw to a close, manufacturers are realizing that their ability to effectively measure and manage the performance of their manufacturing assets hasn’t proportionately improved.”

What happened here – manufacturers are realizing that their ability to effectively measure and manage the performance of their manufacturing assets hasn’t proportionately improved? Is it simply that knowing what is happening doesn’t mean that you know what to do about it? Or is it just an informational glut of too many metrics that have not been pulled together into a coherent manufacturing execution philosophy?
The last category of interest is the advanced process control and simulation software as applicable to chemicals industrial segment.

One thing stands out in all these major categories of investment interest i.e. finding the silver bullet for business execution. These systems are central to the functioning of the business i.e. they are core systems. Even in the quality management systems of interest in the first category, I would argue that it is a core function of the firm. From this, there is an indication that the promises of ERP or similar systems have not actually panned out in actuality. That’s good to know because the need is still there.

Tags: Manufacturing Software, Investment Priority, AMR Research, IndustryWeek

How we improve is a snapshot of improvements in industry, economies of the world and methodologies in a 100 year history starting from the pre-1900 era all the way up to the current. This snapshot captures how a better world through industrial management and engineering has been made possible and lists the key stepping stones on the way. Created by RMA (Richard Muther & Associates), I think it should be something to keep in mind as to how we have gotten where we are right now.

Beware that the PDF file is rather large and cannot be printed out as is. If you’d like to order a copy of the timeline, do so here. (No, I don’t get anything out of it).

Also, this is my 100th post since starting this site. I’ve taken a little under six months to get to a 100 posts which works out to a little over 16 posts a month.With self improvement in mind, I think I should be at a run rate of 20 posts a month and so I’ll be heading that way. One more thing – Support my site, click the ads of my sponsors.

HT: Evolving Excellence – Now That’s a timeline.

Tags: How we improve?, RMA, Richard Muther, Industrial Management & Engineering