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Toyota, Toyota … Part 1

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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Podcast: Jim Womack, China – Part 2

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.

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Different Priorities – Investment Prioritization for Manufacturing Software

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.

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How we improve?

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.

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UPS seeking more job cuts

3PLWire alerted me to the news of more job cuts on the way at UPS Supply Chain Solutions. The report from the AP via Yahoo reads,

UPS Inc., the world’s largest shipping carrier, is seeking more job cuts on top of 1,200 positions in its logistics unit it previously said it would cut.
The Atlanta-based company has offered voluntary severance packages to roughly 650 employees at its headquarters and in its Supply Chain Solutions division in the United States.
Those receiving the offers are at least 50 years old and have at least 10 years of experience, spokesman Norman Black said Monday.

In other words, UPS is on a cost cutting spree and according to the report, it might not be done yet.

The cuts are in addition to the 1,200 jobs UPS announced in October that it would shed in its Supply Chain Solutions business, which handles air freight and logistics services.
At an investor conference last month, Chief Financial Officer Scott Davis told analysts there might be more cuts as the company evaluated the best way to deliver non-operating functions such as human resources, finance and accounting, engineering and network planning.

So I wanted to see what might be happening over at UPS and so I headed over to the public financial statements.
Year on Year & quarterly comparison of UPS results
From the Qtr over Qtr EPS Growth Rate, it looks like FY06 results might not be all that good and its certainly trending that way. Let’s see what UPS reports for the year.

On the Interim Income Statements, the only thing that I can see is that SG&A (Selling, General & Administrative Expenses) has been holding steady for 2 quarters at $222 million and reduced from Q1 of 2006 from $252 million. Perhaps, UPS is trying to hold down its operating costs as much as possible through these cost cutting measures which might mean that the top line might not be that great for Q4 and the whole year as well.

Finally comparing UPS with a select few competitors:
The positive side of things for UPS – Net profit margin at 8.8% and sales growth at an astounding 14% for a company of the size of UPS at $46.87 billion of revenue.
However, on the flip side – Income growth over the last year is sluggish at 9.0%. And lastly, if you look at the Relative strength of UPS, the market doesn’t exactly love the stock coming in at an RSI of 57 over the last 3 months.

I guess we have to wait for the 2006 EOY results from UPS to see what might be happening there.

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RFID and Logistics: Four Trends You Need to Know

Manufacturing.net has an article about RFID and logistics trends that the author: Tom Singer advises us to be aware about.
So here are the four trends,
Trend One: The High Cost of Fuel

Improving the efficiency and effectiveness of transportation spending is a hot topic for logistics operations. Approximately 80 percent of North American freight expenditures are on motor carriers. Other transportation modes also depend on petroleum-based fuels. Trying to figure out ways to save on transportation, since oil prices have risen to record levels, will become critical.

Transportation spend is on the rise especially when manufacturing has been outsourced or offshored but the effect has been offset by the advantage of lower costs of production elsewhere. So the essential question is how long is the rising oil price as a trend going to last? Tim notes the following as well,

Carriers and enterprises operating private fleets will redouble their efforts on route and scheduling optimization.

And,

In the past few years, major supply chain software vendors have taken a new look at the Transportation Management System (TMS) marketplace. A new, web-based generation of TMS software is available…

Carriers have troubles, such as driver turnover, other than the high cost of fuel which they routinely pass through onto the shipper through the fuel surcharge. Private fleet owners have the option of hedging fuel contracts in the futures market for their operations and that would take care of that issue. The final point about TMS being available more widely than before misses the fact that TMS were in vogue long before oil began trending higher. From my personal experience, I see much about the way that TMS are used that leaves a lot to be desired. Nevertheless, the efficacy of a TMS is highly dependent on processes that precede it, in manufacturing, in scheduling etc. TMSs can only work within the constraints that has been decided long before the pallet becomes ready at the dock door and that is an illustration of local optimization against global optimization.

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SCM Newz roundup

1. Schneider Logistics Expands International Sales Team

Schneider Logistics, Inc., an international lead logistics provider and part of the Schneider National enterprise, today announced the appointment of Michael Squadrille as team vice president of international sales. The new addition to Schneider’s world-class sales team supports the company’s commitment to further develop and expand its global business initiatives.

And further highlighting their overseas connections,

As team vice president of international sales, Squadrille will focus on international development, working closely with the company’s wholly owned subsidiary, American Overseas Logistics, and with Schneider’s growing international freight forwarding networks in Europe and China. Schneider acquired American Overseas Logistics, an international freight forwarder and a licensed United States Customs Broker, in February 2006.

2. Dubai Ports Company Selling Off U.S. Operations
Earlier this year, this deal was the focus of major political brouhaha and it looks like the final dice has been cast in this case.

Dubai Ports World, the company whose planned takeover of major U.S. port operations ignited a political firestorm earlier this year, has agreed to sell those operations to AIG Global Investment Group.

The company announced the deal Monday. The operations at six major U.S. seaports in New York/New Jersey, Philadelphia, Baltimore, Miami, Tampa and New Orleans were valued at approximately $700 million, but DP World did not disclose the sales price.

3. First Major Storm Of The Season Slams Midwest, But Not The Supply Chain
The first major snowstorm of this season was during the beginning of December and among the publicized accidents,

The first major snowstorm of the season has forced the cancellation of hundreds of flights in the Midwest and caused a Fed Ex cargo plane to slide off the runway at Chicago’s O’Hare International Airport.

However, the article reports,

According to Cliff Waldman, Economist at the Manufacturers Alliance/MAPI, winter storms are just part of doing business.
“The weather can slow things down a bit, but manufacturers are better equipped to handle storms now than 10 years ago,” Waldman said. “The ‘have it when you need it’ mentality of lean manufacturing helps to minimize inventories and improve the technology of the supply chain system.”

This is wrong-headed to say the least. Unless, the firms that are likely to be affected by storms have not proactively changed their inventory target levels, routing guides or supplier collaboration to account for disruptions, the supply chains are going to take a hit when a storm intervenes. If anything, excess inventories provide a wasteful method of buffering a firm from uncertainties – so how does minimizing inventories help ride out a storm, Lean or No-lean?

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About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

@ SCM Clustrmap

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