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INTERNATIONAL JOURNAL OF
ISSN 0960-0035 Volume 27 Number 2 1997
PHYSICAL DISTRIBUTION & LOGISTICS MANAGEMENT
Strategic logistics management Guest Editor Eric Sandelands
Editorial_________________________________________ Viewpoint _______________________________________ SECTION 1: Logistical future Driving future trends___________________________ Looking to the future___________________________ “Customerize”: how it worked for Unisys Corporation ___________________________________ The missing links ______________________________ Business 2000 – China’s consumer markets ______ Supply partnerships – building strategic advantage _____________________________________ SECTION 2: The information challenge Doing business on the information superhighway _ Virtual partners _______________________________ Making electronic data interchange facilities available to all _________________________________ IT in UK industry ______________________________ The marketing information revolution ___________ SECTION 3: 21st century manufacturing The future of manufacturing ____________________ Supplier alliances – Chrysler and MAGNA International __________________________________ The logical step forward________________________ Channel vision_________________________________ The high-performance factory __________________ Ensuring manufacturing excellence______________ SECTION 4: 21st century service industries Overcoming the hurdles in global retailing________ Radical Internet stirs up retailing________________ Banking on the Internet ________________________ Southwest Airlines’ Home Gate _________________ 133 136 139 141 74 75
79 82 85 88 91 94
99 102 105 107 110
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Printed by Printhaus Graphique, 2 North Portway Close, Round Spinney, Northampton NN3 8RQ Subscribers to the full journal service can, at no extra cost, access current and archive material via the Internet from January 1997 at http://www.mcb.co.uk/journals-online/ and will receive a CD archive in April 1997. Please note that two issues of the journal are bound together consecutively within these covers.
Strategic logistics management – the challenges ahead It has been a real pleasure to have this opportunity to scan the literature, conference presentations and reports covering logistics and to pick out strategic briefings which seem to point to the way ahead. This special issue has been put together in association with MCB Business Strategy Publications which publishes briefings for executives on a host of topical strategic issues. The editorial teams cover new thinking and practice as it emerges. The joy in putting this special issue together has been in the need to reflect on what has been recently published, to pick out emerging themes, and look for trends. I have grouped the material under the following headings: • Logistical future; • The information challenge; • 21st century manufacturing; and • 21st century service industries. The material included is concise and to the point. The briefings have been designed in order that a range of issues and ideas can be quickly taken on board by the reader. The aim is not to explore each issue in depth, such learned papers will be published in this journal throughout the year. It is to look at the plethora of challenges facing logistics practitioners and researchers in the interesting times which lie ahead. To quote from Dick Morley’s excellent Viewpoint (page 75), “In all of history, pundits have said: ‘Even if it happens elsewhere, it can never happen here. We are special.’ Nothing is older than the future unheeded…” Not by this readership! Eric Sandelands Guest Editor
International Journal of Physical Distribution & Logistics Management, Vol. 27 No. 2, 1997, p. 74. © MCB University Press, 0960-0035
Technology strategies for manufacturing – the next decade Manufacturing is a passion of mine. It has been in my blood since I was a union machinist in the early 1950s. The money helped pay for my college education. Since that time, I have tried to combine physics, computer science and capitalism into a paying profession. You see, investors require the ability to look into the future. Manufacturing is an investment process. Let us peer into our manufacturing future… Infinite product life Infinite product life? Indeed. We only need to think about white kitchen products and clothing. Replacement of products is based on fashion, not wearout. Computers are replaced because the user wants the “latest”. How fast can we type? Infinite life implies infinite quality. Modern products have a complexity exceeded only in the biological world. These products must be of high quality – where quality is defined by the perception of the user. Quality is a trouble-free lifetime, and satisfactory utilization of the product. Enjoyment becomes more important than the old formal definition of quality. Sports cars need to convey the illusion of the 007 rake. Products are unfixable. Complexity and molecular engineering have zero replication costs, but infinite repair costs. How does one repair a Pentium computer chip? Since products are not repairable, these same products cannot be prototyped. The first units must be made in the production facilities. Surface mount technology and multilayer boards utilizing complex semiconductors need to be modelled in a virtual system and directly coupled to the factory. Cost of manufacture will disappear from pricing considerations, and return of capital will be the overriding consideration. This is now happening in jet aircraft and software manufacture. The definition of product life takes on a new meaning Recycled products used to be called “throwaway”. People are making money on the concept of the recyclable camera. Electronics are recycled more than ten times and the plastic, after reduction, is used about five times. A famous automobile manufacturer is considering the remanufacturing of engines. With the new, agile concepts available, we can envisage the automatic dismembering of the old and remanufacturing into the new. Some of the boutique makers are advertising a high recyclable material content in the new cars. We can envision in the future, 200,000 miles service-free automobiles with a high recyclable content – including consumables. The idea of throwaway products has led society to consider the value of the old, discarded product, which is an unexpected event.
International Journal of Physical Distribution & Logistics Management, Vol. 27 No. 2, 1997, pp. 75-76. © MCB University Press, 0960-0035
Utilizing the Internet (or its cousins). The printer is used for DTP. turbulent change brings problems. union members and politicians will all try to resist. Magazine sales of products. We can expect the usual Luddite reaction to these changes. Software permits the process. Look to the communications and computer industries for future direction. machine tools were high priced devices to be used optimally – as were printers. we will have a “make” button on the menu. or use technology narrowly for selfaggrandizement. Philosophical considerations abound. Innovative replication and manufacturing at point of use will be strong trends. In addition to the “print” button.IJPDLM 27. pundits have said: “Even if it happens elsewhere. 20-year life. Spare parts and small physical products (toys) will be made on demand in the store. We can expect that Internet-connected manufacturing capability will be as close to the customer as possible. Printers of high resolution and colour are available for several hundred to several thousand dollars. not the resource point. rather than the equipment. and for the convenience of the user. We are special”. The conventional small job shop (as in the printer world) will change or die. We must now think in terms of the human. not hardware. In all of history. Now we must think about the under-utilization of machine tools and the inventory in software. manufacturing facilities are located for cheap labour or materials. utilization. Desktop publishing allows the computer user to self-publish. large and small. Nothing is older than the future unheeded… Dick Morley Mason. Machine tools will be lower in price and fully compatible with Windows 95. Historically.and service-free five-year life. as opposed to a high maintenance. NH .2 76 Desktop manufacturing (DTM) What is DTM? A close analogy is desktop publishing. it can never happen here. we can place the replication process at the consumption point. Industrial products will be designed for a trouble. Environmentalists. Now. Finished goods inventory and instant changes are available at the stroke of a key. The dark side Any innovative. DTM must be considered in the same vein. but for only a small percentage of the time. will skyrocket.
1997. 2. 0960-0035 . 77-96. © MCB University Press. 27 No.SECTION 1 Logistical future International Journal of Physical Distribution & Logistics Management. pp. Vol.
Having sought predominantly the opinions of senior executives working in the automotive component supply chain. what today’s critical success factors are perceived to be and how the industry must develop over the next five years. which have been published in the report entitled Partnership or Conflict. an international survey has been conducted by Ingersoll Engineers in co-operation with Financial Times Conferences. other factors include: • increasing pressures from discerning customers and developing competitors – in western Europe in particular. in particular those within the supply chain. Overall. focus on three key Driving future trends 79 . has been rapidly developing to support the complete range of business activities and help revolutionize ways of working. their approach to improving performance has been essentially inward-looking. However.Driving future trends In recent years many companies worldwide have been focusing on their core business. the component supply chain companies are of equal importance to economic interests. Nowhere is this thinking more evident than in the automotive industry. and these companies are now being forced to cope with a much greater range of competitive pressures than ever before. working relationships and partnerships a crucial factor. such as providing higher added value to customers and developing better working relationships and ultimately partnerships. Few can have failed to notice the dramatic changes which have occurred within some of the automotive industry’s major organizations. To examine what is happening in the automotive component supply chain. from CAD to EDI. there is a developing consensus that this tactic may have run its course. downsizing and outsourcing. with the subsequent breaking of new ground in terms of performance requirements. the survey results. Companies. Where this industry – which holds a key position in the manufacturing economies of many countries – leads in terms of international trends. • a range of IT (information technology). the demands being placed on the supply chain have made its management a major issue of the 1990s. • the immense environmental and legislative pressures being imposed on the industry in many areas. However. if they are really to improve their performance and that of industry in general. in order to weather adverse economic conditions. In effect. must now turn to more outward-looking approaches. other industrial sectors follow. this competition (from Eastern Europe and the Far East) is expected to grow. Compounding the difficulties caused by successive worldwide recessions.
However. in the UK there is a sharp contrast in culture and working practices between the new Japanese companies and those of the more traditional US companies. These are critical factors. global presence is the success factor demonstrating the greatest variation between vehicle manufacturers. this view is in stark contrast to that of manufacturers which see this as becoming one of the top success factors within five years. Specific differences How well companies can respond to these developing requirements will provide differentiation and order-winning capability in future. Similarly. Both now and in the future these are order qualifiers which supply chain companies know they must offer to win business.IJPDLM 27. where global sourcing is currently very much an issue. which are commonly seen as most rapidly gaining in importance. the most important critical success factors in the market. Critical success factors Internationally. However. cultures and ways of doing business. component suppliers broadly agreed that quality and delivery are. whereas development risk sharing seems to be a requirement of major European companies. the whole issue of price will remain a major pressure which needs to be resolved. it is also vital that suppliers appreciate the potentially conflicting demands of the various vehicle manufacturers – which have significantly different needs. Also. are those influencing the development of closer relationships and recycleability: • Some of the greatest changes in the success factors over the next five years show a predominant theme of working more closely with customers and suppliers. and the ability to respond specifically. 80 . This includes greater adoption of CAD and EDI links. the general consensus is that it will become less important in five years’ time. will give competitive advantage all the way down the supply chain. and will remain. According to the report. Awareness of these differing priorities. it is much less a feature in Australia and the USA. The notable factors. and the Japanese companies Toyota and Honda in the UK are perceived to be strongly against the trend.2 points for future development. specific differences and strength of partnerships. Although ongoing. to Jaguar and Rover – UK companies with no overseas operations. The range is from Ford and GM in Europe. Although this issue remains a low priority overall for suppliers. • The fact that recycling ability is one of the fastest-growing factors for everyone reflects the increasing environmental pressures being imposed on the industry. while component suppliers feel that there are more important factors to focus on in the future. regular price reduction is today one of the most important factors worldwide.
In tomorrow’s business environment. stated one respondent. Unfortunately. Conclusion There is little doubt that partnership is a thorny issue. finds the report. but also to take on more value-adding work by introducing new technology as part of the price/cost battle. CAD links and direct delivery to the line side. Developing partnerships and building this trust. as many adversarial attitudes remain. particularly given that customers are looking to their suppliers for more product innovation. to help achieve this development of closer relationships many suppliers intend to deploy more people regularly or permanently in one another’s plants up and down the supply chain. faster prototype development times. Specifically. and establish better communications. closer communications and better relationships will be at the heart of supply-chain management. Also evident in this partnership and deployment theme is the issue of working together on product design. As well as practicalities such as EDI links. The views on communication reflect the views on partnerships. although the issue of partnerships may have been on the agenda for some time and the theory well understood. customers still frequently report poor communications. The report reveals that there is still much to do in this area: there are still many frustrations. The purposes are both “hard” issues of quality. progress has been slow. Across all the regions there may be almost uniform agreement that partnerships are better than “OK”. a lack of understanding on the part of their suppliers and a failure to focus on their needs. Driving future trends 81 . Essentially. The accepted way forward. with one general manager of a Tier 1 supplier in France declaring that there is “still a cultural gap between speeches and realities”. however. understanding and mutual benefit – the need is for “true partnership without greed for one another’s profit margins”. is through more efficient collaboration – closer partnerships. therefore. including more technical collaboration. preassembly and other investment-intensive technical support in the future. Suppliers’ grumbles are predominantly about price and the wish to see more fairness. but only 2 per cent of the respondents described their relationship with either customer or supplier as a full partnership. and the links in the supply chain are often under strain. the suppliers recognize that a key business advantage will most likely be the ability to work well with the customer. will involve a great deal of painstaking work and long-term commitment from both sides.Strength of partnerships For the future. as will excellent working relationships both up and down the supply chain. Suppliers not only wish to become involved in the process. the process revolves around trust. and a soft agenda to improve understanding of processes and business strategy. delivery and cost improvements.
being laid to rest. there is a continuing love affair with cost cutting. as illustrated by the manufacturing attitudes survey. or technological leadership (26 per cent). UK industry is facing a skills shortage which. by definition. In such a climate. Instead companies are now recognizing that the future lies in competing on a basis of a higher skill level and providing greater added value. 82 .2 Looking to the future The misplaced assumption that UK manufacturing’s long-term success could lie in becoming Europe’s lowest cost producer is. conducted by Benchmark Research and published by Computervision Ltd. obstructing this vision of future competitiveness are two key problems. most companies surveyed expect competition – especially in the UK and Europe – to get increasingly hotter. and could potentially severely hamper any long-term plans to move to competing on added value and tailoring products to customer needs. The prediction that the majority of UK manufacturers intend to move closer to world class through customer focus. suggests the survey report. the main competitive thrust for the future must lie in providing value-added products tailored to customer requirements (58 per cent). is that in answering the above questions the majority of companies say they realize that: • They need to learn to compete on equal terms with their main competitors. the manufacturing-led recovery is rapidly slowing down. with many companies reexamining the way forward – where they are going. IT – an area where in terms of investment UK industry is ahead of the competition – is regarded as having the potential to provide a significant competitive edge. Moreover. A demand for heavy customization in their orders is reported by 42 per cent of survey respondents. and a continuing coolness apparent within the UK domestic market. the competitiveness debate becomes more intense. And within this marketplace. Changing of attitudes? With the peaking of export growth occuring in the latter half of 1995. in part. In this period of little growth. competing has got tougher and winning orders. if anything. contributing to the skills dilemma. who are already moving into “mass customization”. “Sweatshop Britain”. how do they intend to get there. which is. apparently. is deepening. even with the possible market upturn predicted for later in 1996. is based on the main findings of the fourth annual Manufacturing Attitudes Survey. Also. However. has become harder. “is no longer seen by the country’s manufacturers as a desirable or even achievable way forward”. • Rather than aiming to compete as a low cost producer.IJPDLM 27. and have they got the approach and resources needed? The collective outcome of this situation.
As well as customer service and flexibility. with 57 per cent of survey respondents intending to have closer relations with fewer suppliers – logic suggests that suppliers should be chosen on value provided. cost reduction still comes top. many manufacturers also regard investment in IT as perhaps their most significant weapon. This investment advantage may 83 . is endangered by industry still showing a reluctance to wean itself off its hitherto favoured competitive weapon – short-term cost cutting (not the same as low cost strategy). product development and IT integration. Yet. being the main focus for 23 per cent of respondents. actions may speak louder than words. Building on IT strengths Fortunately. Yet. • Many manufacturers still do not seem to recognize that buying cheap is not the same as buying value. forged on producing quality customized goods. Move on from preoccupation with cost reduction Unfortunately. high product cost is cited by more manufacturers (24 per cent) than any other factor. It is this retained emphasis on cost that is undoubtedly a major factor why many UK suppliers are reluctant to invest in developing design and engineering skills. the survey identifies that many companies are facing skill shortages in engineering and other manufacturing disciplines. the UK has one of the lowest cost bases among European countries. • When asked about the UK’s biggest competitive weakness.• If customer-focused manufacturing is to be successfully established there has to be further development in a number of critical areas – skills. Looking to the future Critical success factors Overcome skills shortage The value-added route to enhanced competitiveness demands that skilled workers are in place at all levels. only a meagre 42 per cent of respondents judge a supplier mainly on the value added. when asked about actual strategic actions. Yet. there are positive factors in UK industry’s favour. as the survey discovered: • Although customer service is naturally cited (by 57 per cent) as the main weapon to be deployed to achieve the new competitive thrust. In accepting that “supplier partnerships” do deliver significant benefits – a view apparently widely held. and the intended marriage with customers. as opposed to 69 per cent who see cost of products as key. This “unhealthy” preoccupation manifests itself in numerous ways. and experiences have proved that the customer is often willing to pay a higher price for the right product. cost. Although initiatives are now in place at school level to attract more young people into engineering. historical neglect in this area means that the main route at present to tackling the shortfall is through training on the job.
and only then. As the survey report highlights. the manufacturers’ business processes are fully understood and reengineered where necessary. the UK seems to be ahead of its main competitors in exploiting IT. This is particularly true of companies with turnovers of more than £100 million. the expectation of emulating such change in more UK manufacturers is not totally unrealistic. Controlling new product information New product development is an increasingly important process. IT is overlaid to automate these optimized processes. and then. To achieve the real breakthrough in competitiveness senior managers are now looking to IT to deliver transformational change on an enterprise-wide level. Developing enterprise-wide IT Although. many (25 per cent claims the survey) have already turned to IT to help improve communications and manage the process. And for many companies. Working together. many companies are now recognizing the need to wring greater returns from their investment. a new approach to implementation needs to be recognized and accepted as the best way forward – both by manufacturers and IT suppliers. those companies which achieved transformational change have done so in close partnership with their IT suppliers. As manufacturers recognize the importance of having to share and control information across teams and with suppliers and customers. Second. which is still the most popular and used by 35 per cent of survey respondents. This approach. First. and in this area the survey found that the majority of companies are still frustrated. there needs to be a move away from the traditional cost accounting payback method for justifying IT investment.2 help to plug part of the skills gap – with IT providing a capacity to release some skilled people for higher value-added activity. with 80 per cent of respondents claiming that IT payback does not yet meet expectations. However. as some leading UK organizations have already delivered business transformation in part through the successful deployment of IT. with manufacturers acknowledging significant IT payback at department level. especially if companies expect to provide more customized offerings. 84 . the answer is twofold. and is one area where IT can prove its worth. in effect forces companies to take a more departmental and short-term view when procuring and implementing IT.IJPDLM 27.
began to implement its transition from a hardware-oriented manufacturer to an organization committed to providing a full range of information services for its customers. The company must look carefully at aligning its customers’ information strategy with their customer service goals. This initiative was researched. to the manufacturer or service provider. coupled with increased demand. to sales and services.000 customers in 100 countries worldwide. In early 1993. this need for Unisys – and its clients – to offer superior service means that it is no longer sufficient just to take care of your clients’ service needs – that benefit must be carried through to their customers as well. Customerize was a philosophy based on the premiss that service to the customer was the prime directive for any of Unisys’ clients. and a major supplier of information services and technology to financial service. telecommunications. airlines and other markets. So. No one was left out. tested and implemented as a corporate-wide programme affecting all disciplines from manufacturing to marketing. government. to the user or buyer. and back to the initial providers.“Customerize”: how it worked for Unisys Corporation Unisys Corporation is a leading information systems company with 60. It was seen as an effective way to market the US$9 billion company’s services and products worldwide. nor a short-term gimmick. Customerize was never intended to be merely an advertising theme or pointof-sale technology: neither an umbrella for all products and services. Its core strengths. service is often the only differentiator among companies. Enter the chain anywhere and you find that the next organization in the chain is dependent on the earlier ones. and from discussions and evaluations with research organizations. it was better than many other forms of customer-orientation because it crossed all the usual borders. Unisys’ global market position and market opportunities were scrutinized. to other users or buyers. Unisys. “Customerize”: Unisys Corporation 85 . Included in this was the concept called Customerize. In this commodity-dominated society (the company reasoned). This helped to identify a key differentiator: a focus on the clients’ customer. created a unique opportunity for Unisys to help its clients attract and retain their customers. There is an endless chain in any business that goes from the suppliers of raw materials. The idea had merit because it was so simple: furthermore. searching for a novel and effective way to provide high quality service at all client levels. internal groups and advertising agencies. For recognition and positioning. Customerize has been a huge success. and to communicate this capability to a widespread and diverse client base. and it applied to all levels of the business and public sector community. but where did it start? Customerize evolved from the company’s experience in working with clients.
it worked with them to understand what their customers expected. but expects it to evolve as clients’ business opportunities and challenges change. did not do well. there were obstacles. and how successful are they? Then. Unisys believes the model is correct. but if competitors focus only on this. It helped Unisys develop a new attitude that will take the company into the next decade. to help reach and educate all employees and management. segmenting the client’s markets and customers and understanding buyer values. The quickest way to modify or create a service is to leverage best practice from other companies. The company had to overcome the usual resistance to a new word. when tested in focus groups.2 86 Thousands of Unisys employees were trained so they were tuned into Customerize. The company appointed a sort of “Czar” – a champion – for the programme. One advertisement asked readers: “Are you Customerized?” and asks ten questions to help readers analyse their business and determine how their company measures up.IJPDLM 27. the best they can achieve is parity: you will not get ahead. like posters and advertisements. listening to hear exactly what customers needed. the Customerize process might begin with (for example) research on market trends. Then. or offer new services based on customer feedback. The next stage could be to assist the client in prioritizing the actions to improve existing services. Some methods of implementation. On first exposure. and getting people on board. Competitors’ best practices were analysed to shorten the time frame in responding to customer needs. Customerize epitomizes the philosophy and practice that will make – and always has made – businesses successful. The fact that a manager was dedicated to the concept provided evidence of management’s strong commitment. The company implemented Customerize by. The greatest measure of all is from clients. Then a process of evaluating and determining the current position of clients – how “Customerized” their operation was already – by answering questions including: • Do they know what their customers really value? • How do they monitor changes in customer needs? • Do all their employees – not just those involved in customer service – understand how they ultimately impact the delivery of service? • How do they segment and service different classes of customers. People got confused and thought Customerize was some sort of . Customerize leads to a quality standard that is not yet fully established. Customers also were trained. The company looks at results from focus groups. first. It pays for research. based on the answers. most important. One simple measure of success is to count responses. some people could not relate to what it meant to them. and from the increase in contracting engagements for Unisys in assisting clients to Customerize their operations. Of course.
clients and third parties. By embedding customer service objectives within your information strategy. and their customers. The company believes that Customerize is a “dig in” concept. technology-based corporation that had recognized the growing need to take care of clients. It discovered a growing rallying cry for employees. Stay with your customers. and got management support early on and took it from there. When times were tough for the company some years ago. it can point to this and other new ideas as being part of the new Unisys. One advertisement read: “When you Customerize. people had given up hope.process. for example. you put the customer at the heart of your world instead of at the periphery. Increased awareness. and their customers will stay with them. once you understand it. “Customerize”: Unisys Corporation 87 . The concept sets the company’s advertising apart. it has been a tremendous help in putting the company well ahead of its two different types of competitor. In both cases. Some thought it was silly. Unisys will help you extend the full capabilities of your enterprise to points of customer contact – the points where business is won or lost. It also helped Unisys gain a unique positioning as a service-led. In addition. and those that are purely consultants recommending to clients what they should do to streamline and grow. and helps Unisys keep the old ones. The strategy is pretty hard to argue with.” Where doesn’t that fit? So what was the pay-off? It stimulated new business and discussions with organizations Unisys did not know before the programme. many of them among the objectives set at the start. Unisys did a lot of selling up front. Now it is back and doing better than its peers. There were also several other benefits. Customerize is proving to be an effective weapon that brings in new customers. those technology companies that are now doing less well.
the factory cycle is now typically measured in hours and days. it would be easy to assume that the early promise of “the right information at the right time”. These have included introducing some shopfloor data capture terminals. However. when other solutions have been sought. which could then make the data available to all those who need them. Importantly. Similarly. and has become more practical than having to comply with the CIM standards of the 1980s. or providing integration with the management systems. such as MRPII/ERP. To do this means companies must install effective controls in the area between business-planning and management systems and the individual machine/process control systems. Yet. with the general industry trend towards short-run and reduced lead time production. Manufacturers of both control 88 . scheduling software. although most companies are awash with electronic data. means that companies not only need to capture data more quickly and accurately. and some do provide facilities for finite scheduling and some shopfloor data capture. Speaking at the CIM Show Conference. it is tied to the typical MRP cycle of days or weeks. with the resultant growth in prominence of Product Data Management systems. or enhancing the limited data capture and analysis capabilities of machine and process controllers through adding SCADA systems. was now being met.2 The missing links With the huge increase in the use of computers that has taken place within most manufacturing organizations over the last decade. this lack of manufacturing data management is not really a technical problem. machine-monitoring equipment and SPC. but also manage these data and make them available to the people on the shopfloor.IJPDLM 27. But. these “office”-based systems tend to be driven more by financial considerations. Managing Director of Information Engineering Group (IEG). manufacturing and shopfloor data are also similarly unmanaged. System integration has been theoretically possible for some time. In fact. these have also failed to provide the missing shopfloor control. According to Pat McCarthy. such as MAP. and the limited time for referring to higher management. as opposed to providing actual support to run the factory floor. perhaps more surprising is that. Moreover. by not tying these systems together. for most companies. The greater level of decision making on the shopfloor. this coverage is only a small proportion of the data management needed. Whereas. the lack of control over engineering data has been recognized over the last few years. McCarthy explained that MRPII systems are good at managing everything up to the factory door. when they need them. But. although most companies now use some form of planning system. which is far too complex and sophisticated for the majority of applications. they still rarely seem to be accessible by the people who need them. the tendency in the past has been for throwing in discrete systems targeted at meeting specific local needs.
process style and priorities. there are some key issues that companies need to recognize. ranging from completely integrated systems that offer everything from an ERP right down to PLCs to “Networked” PC-based factory systems and modular software packages that extend the capability of. and link. work cells. managing inventory. Because of wide variation in manufacturing characteristics. is the need first of all to change substantially the way the factory operates. stated McCarthy. A typical mistake is the belief that there are only two basic dimensions to shopfloor data control. how they are used needs to be tailored to individual needs. However. This is one of the better-known generic terms. in terms of product complexity. for systems that provide the “ability to link business planning and control systems to deliver to manufacturing an achievable and realistic plan”. although there are now sets of tools available. Problem perception. then IT support tools will have little benefit. the factory environment and its control requirements can differ substantially. local empowerment and decision making. Probably the main problem. depending on whether the company has a bulk process operation. and this adds significantly to the complexity of the task. Many activities within industry. The missing links 89 . Unless the processes have been re-engineered and simplified. there can be no “off the shelf” solutions. by enabling them to make operational decisions using the latest and most accurate information. incidence of design change. Although these aspects are important. Operations complexity. existing fragmented shopfloor technology. specializes in design-to-order products or manufactures a range of standard and customized products. There is also now an increasing number of potential software/hardware solutions.systems and management systems now claim that they supply open systems and that connectivity of the diverse systems is possible through standard interfaces and protocols. around integrated teams. Therefore. getting demand information down to the shopfloor from a higher level MRPII and feeding back information so that management can make decisions. Included within these options are Manufacturing Execution Systems (MES). Also the standardization on Windows operating system is making it increasingly easier to provide networked links between the plant floor and office systems. developing relatively standard IT solutions has been possible. Therefore. such as sales order processing. However. People/process issues. when it comes to actually implementing a system to bridge the gap in factory control. do not differ dramatically from one kind of manufacturing organization to another. factory control must also be about what type of IT tools are provided on the shopfloor to enable people to manage the way they do things more effectively. this view completely misses a major part of what is really required. but also ultimately the key to the effective use of information within a factory. As decisions are made every day within the factory. adopted by a number of IT suppliers. financial information or procurement.
In reality, observes McCarthy, there is little point putting these IT systems into traditionally structured factories. They will not be very effective within this environment, and they will not drive change. However, within re-engineered operations, working to simplified processes, IT can provide significant support – in areas such as better factory planning, area/cell scheduling, worklist management, job tracking, traceability, quality control and process monitoring. Moreover, by improving the process flow and so bringing together all of the previously disparate elements, this tends to reduce the overall amount of IT needed, and the systems are often less complicated. According to McCarthy, a typical factory system is based around “Windows” Networked PCs, with a flexible database architecture, and supporting Open System communication tools. In this way integration is not complicated. Providing overall factory control is the main Factory PC. This is interfaced with the MRP system, and from the downloaded master schedules can undertake the reconciliation against resources and actual demand pull to produce an actual worklist. It also maintains a factory database for control purposes, which holds BOM data, and plans and routes that the factory needs but which can be detailed to hold within the MRP system. At the next level within the network, production areas have their own cell control PCs, for providing schedule and product data, measuring performance and which may often maintain cell databases. At a lower level the network includes individual work centre PCs, and interfaces to process and machine control systems. Because of the simplicity, and general greater familiarity of PCs, line managers and operators are in a better position to manage their own systems, and many of the applications, run on a line or within a cell, can be developed by the users themselves, with a minimum of specialist support. This approach tends to generate a level of ownership and commitment to the system, which is often hard to achieve with solutions imposed from above. Overall, concludes McCarthy, there is still plenty of scope for major improvements in shopfloor control in most companies, and if done well the benefits from implementing changed worked practices and supporting IT can be enormous, and unrivalled anywhere else in IT.
Business 2000 – China’s consumer markets
China’s market for mass consumer goods has exploded over the past decade and will continue to grow with breathtaking speed. By 2000, some 260 million people will be able to afford packaged consumer goods, making China the world’s largest market in many categories. Success in China has therefore become a top priority for multinational corporations, many of which see it as a once-in-a-lifetime opportunity. But winning will not be easy say Jim Ayala, principal in McKinsey’s Hong Kong office, and Richard Lai, a former consultant with the firm. Market share a necessity China’s sheer size, its weak distribution infrastructure and increasingly intense competition will make market leadership an elusive prize. Many companies are already having to reconsider their approaches; in all too many cases, early gains have turned into a serious drain on resources. By 2000, leaders will need to have category market shares of at least 20 per cent to 25 per cent nationwide, probably more to be considered clear winners. For mass market categories such as food and beverages this implies achieving annual sales in excess of $1 billion. Yet in a survey of 13 leading multinationals, McKinsey found that most had sales in 1995 of less than $100 million. Leaders will also need far wider geographic coverage. Surveyed companies typically had salespeople in only about 15 cities. But with millions more consumers set to cross the $800 annual income threshold – the level at which consumerism takes off – winning companies will need sales offices and established supply lines in well over 100 cities by 2000. While a number of consumer goods companies are increasing their presence – Procter & Gamble, Coca-Cola, Unilever and Nestlé look set to reach $1 billion in annual sales by 2000 – many are struggling. They face five formidable obstacles: (1) Rapidly escalating competition. Practically all leading consumer multinationals have established operations in China. In addition, many mid-sized Asian manufacturers have used their superior understanding of China to make significant inroads. Market share is therefore volatile. Overcapacity is already apparent. The world’s top beer companies and many smaller ones have rushed to buy or build capacity. If all their capacity announcements materialize, production of premium beer could exceed demand by 80 per cent by the end of the decade. Sales, marketing and advertising costs are rising too. (2) Poor transportation infrastructure. Delivering products reliably and costeffectively will be an enormous challenge given China’s poor transportation. It generally takes four times longer to transport a
Business 2000 – China’s consumer markets 91
container from Beijing to Guangzhou than it does to cover a similar distance in the USA. Moreover, the contents are up to 20 times more likely to arrive damaged. (3) Underdeveloped and fragmented distribution channels. The proliferation of small-scale stores means that less than 10 per cent of grocery sales go through large-format stores, even in major cities. For real market impact, multinationals will have to supply these local groceries, penetrating more than 250,000 outlets. While using local distributors to reach these stores offers a cost-effective answer, most companies feel their distributors are inadequate with respect to delivery, sales, merchandising, promotion and collection. (4) Scarcity of talent. The dearth of good managers is one of the biggest brakes on growth. Most multinationals soon discover that their local partners lack the necessary product and market knowledge, distribution reach and financial resources. (5) Unwieldy joint ventures. As Chinese business expands, manufacturing, logistics, sales and marketing all need to be carefully co-ordinated. That is no easy task in the best of worlds, and all the more difficult in China, where it usually means orchestrating a growing number of complex joint ventures. Choosing the right strategy McKinsey has seen three common business approaches to China. Companies following the first two – “Wait for payback before investing further” and “Bet on a few strong brands” – often get off to a good start but then sputter and stall because they do not have the power to win long term, especially once strong competitors enter the race. The third approach – “Build volume fast” – rightly aims for aggressive growth, but often fails because market expansion gets too far ahead of the organization’s ability to support broad sales and distribution efforts; pricing and positioning control is frequently lost. Some firms underestimate the cost of operating on multiple fronts and run into cash-flow problems too. The winning companies are bold. From the outset they play to dominate key markets, then replicate their strength elsewhere. They do so by building beachheads in cities they can win outright. By generating positive momentum with both consumers and the trade they pull ahead of competitors, then go on to secure their positions by controlling sales and distribution and quickly building deep organizational capabilities. Once in a dominant position, they can weather onslaughts from new entrants. Profits from these early wins can be used to fund expansion into new markets and help maintain corporate commitment. Companies should heed the three principles outlined below. First mover advantage (1) Take charge of sales and distribution. Companies which enter the market early have a distinct advantage. They have their choice of distributors,
For its part. are likely to emerge unscathed from the battles that lie ahead. Companies need the necessary resources and organizational structures to build local capabilities.) under umbrella holding companies. In the cola wars. Only those in dominant positions. and 93 customers with uniform product positioning and availability. then replicate success elsewhere. Multinationals must take an integrated approach. but winning requires playing for high stakes and playing now. However. To succeed in China requires deep financial pockets and commitment from corporate headquarters. multinationals must meet the needs of trade channels and consumers consistently. but you need them. Conclusion One final point. Given the escalating competition. markets However. concentrating on marketing and brand management will not suffice. Ambitious multinationals are also attempting to centralize their key activities (sales. providing distributors and retailers with dependable turnover and margins. China management needs to be explicit about market development priorities. marketing. (2) Over-invest in building organizational capabilities. The rewards in China will be immense. where the basic distribution infrastructure and distribution skills are so inadequate. The better a company’s understanding of what it takes to succeed in China. with deep sales and distribution capabilities. This is enormously difficult in China. As a result. Rapid expansion inevitably strains resources. the parent company must clarify its appetite for investment and willingness to endure negative cash flows because of development expenses. but some companies have learned to form creative alliances. multinationals must play an active role in sales and distribution. . companies can no longer expect to earn easy profits by just skimming the surface of new markets. do not localize too quickly. the first company to establish a China’s consumer bottling plant in a given city has since maintained leadership there. Colgate-Palmolive and Johnson & Johnson are banding together to share warehousing and distribution facilities. not a sprint. distribution. one that enables them to dominate priority markets. Experienced expatriates may be expensive. investment needs and likely returns. to build real depth in the market. etc. Kraft Foods has avoided building new capacity by producing its Maxwell House ice coffee at a Pepsi plant. (3) Pace yourself for a marathon.open access to shelf space and find it easier to build their brands in Business 2000 – uncrowded markets. the easier it will be to set realistic targets.
• When the buyer perceives mutual trust in the supply relationship. firms can attain goals that they could not achieve independently. This article summarizes research undertaken by Alexandra Campbell. . into 114 firms in the European flexible packaging industry. • Joint problem solving with suppliers increases the buying firm’s belief that it is difficult for competitors to match its market responsiveness advantages. • Buyer commitment leads to joint problem solving to increase the efficiency of the supply relationship. the companies developed a longer-term relationship based on co-operative engineering to facilitate the exchange of knowledge and experience between Ford. Instead of forming a relationship centred on price negotiation. The relationship resulted in cross-fertilization of ideas. The role of supply partnerships While there is widespread agreement that business partnerships can be an effective means for firms to leverage their skills and resources in increasingly competitive and turbulent environments.2 94 Supply partnerships – building strategic advantage Competitive firms across industries succeed by developing knowledge and speeding it to market in a stream of rapidly and continually improved products or services. as performance standards rise. By entering collaborative relationships. the scope of what a firm can do alone shrinks. • Firms do commit to suppliers to shorten new product development cycles.IJPDLM 27. the compression of total project time and exceptionally tight schedules. • A strategy of fast delivery does not increase buyer commitment to a supplier. buyer commitment to a supplier increases. few studies have examined the partnerships that develop between firms and their suppliers. The experiences of ABB and the Ford Motor Company during the design and construction of a $300 million facility provides a good example of how co-operation can create value. and investigates the role of supply partnerships in building strategic advantage. assistant professor of marketing at York University. The results from the research include the following: • When the buying firm has a strategy of fast innovation. buyer commitment to a supplier increases. However. ABB and other subcontractors.
All of these differ in their core value proposition and in the capabilities required to execute them. (2) customer responsiveness. Joint problem solving with suppliers improves a firm’s position in other connected relationships. there are other possible approaches. Recent studies of market leaders revealed three such strategies: (1) operational excellence. Fast market responsiveness is influenced by linking activities that occur in a firm’s supply relationships with activities that occur in its customer relationships. The research has focused on one type of firm strategy aimed at consistently offering superior value to the customer: fast market responsiveness. This means that suppliers must broaden their focus beyond the terms of the specific relationship and consider how a supply partnership may provide value to their customer’s customers. However. Thus. firms may elect to cooperate with suppliers to reap benefits that are used to serve the firm’s customers better. The first is the recognition that supply governance decisions are influenced not only by factors stemming from the supply relationship itself. This implies that the extent to which a firm’s strategy choices become distinctive depends on the quality of its supplier relationships. buyers need to consider the ability of a potential supply partner to help the firm execute its marketing strategies further downstream. one that both improves their competitiveness and protects them from imitation. The ability to transfer knowledge derived in one set of relationships to other relationships can be used to execute a number of different firm strategies. Managerial implications So what are the implications of all this? How firms choose to compete will dictate which capabilities managers emphasize. but also by a firm’s strategies in its customer relationships. Joint problem solving with suppliers may represent a distinctive capability for firms. Supply partnerships 95 Creating customer value Campbell’s findings make two significant contributions to the study of buyersupplier relationships. Likewise. Supply partnerships can contribute to maintaining or improving a firm’s competitiveness. .• • • Joint problem solving with suppliers improves a firm’s efficiency or effectiveness through the interlinking of activities. The second lies in the evidence of a buying firm’s perception of the market responsiveness advantages that can arise from co-operation. and (3) performance superiority.
however. Yet in many firms. a major challenge is how to position manufacturing capabilities to combine in-house skills with the strengths of suppliers. purchasing managers can evaluate the strategic benefits of co-operation with suppliers more accurately. Since well-established business practices no longer provide the framework by which to optimize the allocation of resources within ever-shorter timeframes. marketing and purchasing functions operate autonomously. .2 96 Conclusion For many buying firms today. and purchasing managers are unable to assess properly the risks and potential benefits of supply partnerships. Armed with a clearer understanding of the firm’s marketing strategy. purchasing assumes increasing importance as a spanning process.IJPDLM 27.
pp. 27 No. 2. 97-112. © MCB University Press.SECTION 2 The information challenge International Journal of Physical Distribution & Logistics Management. 0960-0035 . 1997. Vol.
Success is not necessarily assured. Research predicts a 16-fold increase in the installed visual telephony base worldwide between 1994 and 2000. The electronic marketspace To assess the impact of the information superhighway. contradictory research and a diverse set of future scenarios and timetables. The opportunities on offer The predicted growth in connected infrastructure is staggering. differing opinions. One reason for the relative lack of commercial success may be the confusion which surrounds the information superhighway. bypass non-value-adding intermediaries and radically revise workplace practices. create and exploit new markets. The average annual revenue earned by Internet vendors has been less than $25. Compounding the confusion is the lack of tools. Executives are bombarded with conflicting viewpoints. There will be opportunities to improve current business processes. managers must understand several concepts. mergers and other projects. This has led Ernst & Young to develop a way of identifying business opportunities to assess the ongoing potential. or some other interactive infrastructure becomes robust and widely adopted.000. Intriguing pilot projects and apparent success stories capture the attention of executives in all manner of industries. cable TV trials.Doing business on the information superhighway You cannot pick up a magazine or newspaper or turn on the TV without hearing something about the information superhighway. This is apparent with the ongoing announcements concerning various alliances. The first is the distinction between the traditional Business on the information superhighway 99 . methods and models for analysing the impact of the information superhighway. telecommunications companies or cable TV. however. It is now possible to try out banking services offered by Bank of America or take a preview of a Hyatt Resort hotel in the Caribbean. Businesses outside the media and telecommunications industry are also beginning to set up World Web pages. A recent issue of its publication CenterPoint provides a starting point for a thorough appraisal of the benefits and associated risks. Once the Internet. the information superhighway does have the ability to create and destroy business value on a scale that could rock the world’s largest and most successful companies. While doubters remain (viewing the rise of the information superhighway as an over-hyped fad offering only cosmetic changes) some managers recognize the potential and have decided that the opportunities outweigh the risks. the potential for business change is colossal. Nonetheless. Other projects such as Mecklermedia’s shared corporate World Wide Web server and several interactive television trials appear to have fizzled out.
The second is the application of three components of the business value proposition – content. Technology will reduce the need to conduct simple transactions like renting a film on a faceto-face basis. and the interactive infrastructures in particular. For example: Xerox falling behind in the desktop copier market or IBM missing the minicomputer market. location is irrelevant and a physical seller may not be present at the time of transaction. vehicles and roads which enable traditional market participation. such as contractual negotiations.IJPDLM 27. This is the paradox of disruptive technologies. the major telecommunications carriers). Since it cannot be physically present. The action to take While mainstream customers may have little interest in conducting business over the information superhighway. Disruptive technologies Many highly skilled managers are caught in a paradox which inexorably leads them to ignore or reject the information superhighway. The traditional marketplace is based on the familiar notions of interactions between a physical seller and buyer in an actual location. This is comparable to the physical network of warehouses. A key challenge to executives is to review their current value propositions in terms of these components: • Content – the product or service to be purchased. Managers must evaluate how the improvements in communication in general. Ernst & Young believes that it is possible for managers to assess and predict the impact of the information superhighway and position the company for maximum advantage. and complex transactions. context and infrastructure – to the electronic marketspace and how it alters business value. this may change quickly in the future. The vendors which previously dominated the market now find themselves lagging far behind and few can recover completely. streamline production economics and change relationships between players. transactions occur electronically. will be increasingly simulated. On the demand side. However. better communications technology will alter the dynamics of purchase decisions. • Infrastructure – the delivery method (i. will have an impact on both demand (the customer) and supply (the industry) through changed communications patterns. .e. On the supply side.2 100 marketplace transaction and the electronic marketspace transaction. successful disruptive technologies follow such a rapid price/performance improvement trajectory that they can meet or beat established technology very quickly and attract mainstream customers in the process. • Context – the electronic environment in which content is offered. At first they appear as an insignificant niche market of little interest to a company’s mainstream customers. new notions of content description are needed. better communications will alter the supply chain. Along the superhighway.
Managers need to anticipate such changes. Avoid thinking of the information superhighway as a simple expansion of your current marketing and delivery systems. Recognize that the information which you already collect about products and customer activity has value itself. (What will be the role of travel agents when travellers can easily find and compare availability and rates for airlines. context and infrastructure to single-handedly dominate a segment of the information superhighway. Determine whether your products or services will be required when customers conduct business over the information superhighway. Here are a number of steps that they can take to ensure their organizations are not caught off-guard: • Confirm your interest. consider developing an online context which offers products and services from your competitors (as the airlines have done with reservation systems). but in partnership a company could quickly bring together the right mix of skills. Few companies will have the variety of skills in the areas of content. Investment and commitment to new ways of working is essential. develop an online context which addresses a niche that has no single physical context. a modest portfolio approach towards investments would be safer. • Leverage your existing infrastructure. Business on the information superhighway 101 . Identify ways you can bypass existing intermediaries and ways you can become a valued intermediary for those in the value chain. At the very least. A utility firm considering a move into the telecommunications service market would benefit from a partnership with an appropriate hightechnology company. But until clearer patterns emerge. create an electronic community around your business through which people can share information. Exploit your existing infrastructure to develop new lines of business or promote existing businesses. Brainstorm clever ways to offer new services and to deliver these services electronically: create an expanded online context. Partnerships allow organizations to move into new areas while leveraging current core competences. extend your existing context to include the electronic community. rental cars and hotels online?) • Look for innovative partnerships. • Innovate your value proposition. while the information superhighway provides an excellent means to deliver that information. Develop offensive and defensive strategies for either possibility. Overnight delivery companies now let customers dial-in to get information on the status of packages in transit. Such information can serve as a significant source of revenue or as a competitive differentiator. • Look beyond customers and suppliers. Managers will need to overcome the paradox of disruptive technologies while continuing to conduct business as usual.
can prove vital. and developing a new forum for active dialogue between its semiconductor engineers and its customers. February 1996. or central switches for the telecommunications industry. (National) has taken a significant step towards realizing this potential. Even if the information is not out of date. National Semiconductor Corp. For semiconductor products this can be anywhere from eight to 16 weeks. and reduce the time lag. And. such as printed catalogues. by mounting its 30. California-based National sees this approach creating a dramatic teaming of product development and marketing possibilities. From the information gathered it was able to define its real customer as the million or so engineers who design workstations. time which can add delay to a designer’s cycle time. in Product Development Best Practice Report. PCs. suffer from a number of problems: • They typically reach only a relatively small percentage of the “right” customers (National estimate 30 per cent). “National semiconductor on the Web”. they really buy the function that they are told it will do. One obvious role is the speeding up of information gathering. Improving information delivery Traditional product information vehicles. Once this customer focus was established. finding the shortest route to establishing firm information about the components needed to turn a concept into a design. published by Management Roundtable Inc. there is always the suspicion that it might be. To improve its product information delivery. • With shrinking development cycles. National first studied its customer base. • The time between product information being created and printed documents getting into the customers’ hands can be relatively lengthy. the growing debate within the industrial community is how companies and engineers can best utilize the information superhighway. with time to market increasingly important for most companies.IJPDLM 27. 102 .000 parts catalogue on the World Wide Web.2 Virtual partners Following the explosion in general interest in the Internet. National decided to solve its information delivery challenge by building individual relationships with the designers themselves. Now. an essential but time-consuming part of a designer’s role. If engineers were to design National’s products into their This is a précis from an article. paper delivered information can often become obsolete by the time it reaches the designer. cutting as much as eight weeks from its customers’ time to market. It also realized that these engineers do not buy the products per se. and sales and advertising literature.
complete and accurate information – and the most up-to-date data become available in minutes. Developing the solution To achieve the desired solution the company has turned to the Web as the optimal vehicle for getting information to the right customers in a way that best serves their needs. National’s full product library of basic technology information (its data sheets) was put on the Web. the need was for the ability to do a text search. looked awkward and impractical for the necessary kind of guided search. meeting these search requirements presented a formidable obstacle. For a 30. Also. has grown cumbersome and unworkable for parts that may now contain more than a million gates. with access to this database established late in 1995. First. the Web is able to meet its customers’ demand for comprehensive. customers identified that they wanted to be able to search by part number and by the industry standards which define a product. what semiconductor components there are which will satisfy these performance criteria. where designers are able to intuitively get through to the right information with complex enquiries. where designers want to search by performance attribute. At the simplest level. These requirements were fairly easy to satisfy. more than access is at stake here. adopting this new approach marks a dramatic shift from the traditional method of storing information in paper documents. without searching by specific part number. they had to be provided with the information they need in their design environment.. and it has also partnered with a publishing company. the then existing technology for creating Web pages. Web accessibility requires moving to a knowledge-based environment which allows customers to search and organize information in ways that fit their needs. The real challenge lay in enabling deeper enquiries. which served its purpose when semiconductor technology was simpler. National linked up with CADIS Inc. More than just access As National has recognized. CADIS paved the way for instant updating of the parts’ database and all of its associated screens as the customer moves through a query. if a designer wants a system to operate on a battery at 250MHz. thus providing potentially significant time savings. The paper format. According to National. By developing the client application in Java.000 part database with parameters running at least eight levels deep. The solution proved to be Sun Microsystems’ new Java technology.system. At the next level. for Ethernet controllers. he/she needs to be able to find out quickly. Hyper Text Mark-up Language. The actual initial process of making the information available comprised two basic steps. For example. As National explain. To develop the necessary Web site. which maintains the Web site. Designers are looking for something far richer than today’s data sheets can Virtual partners 103 . say. The next step was finding efficient ways for designers to get the information they need.
This will in effect make National and its customers virtual partners in the design and development process. not currently embodied in a few discrete numbers. National expects to enhance not only its customers’ product development capabilities. again steepening the cycle curve and bringing the company closer to its customers’ design process. 104 . With this focus on getting the right information quickly into customer’s hands. through continuous enhancement of its Web site information gateway. National is talking about using an attribute search to come up with a request for a part that does not yet exist. And. but its own. National predict that enhancement of its Web access will enable it to eliminate the constriction on information currently delivered on paper and allow for inclusion of data about a product’s performance. It can also make use of failed queries to guess at ideas for new products. such as complex curves. As an example of emerging possibilities. Hands-on experience has spurred new ideas and insights.IJPDLM 27. especially when data sheets can run up to 300 pages long. the company sees the system designer responsible for the end product becoming able to raise new ideas with National directly and effectively – and even the future possibility of facilitating online dialog between an external systems designer and one of National’s own semiconductor designers. a wealth of helpful information is already emerging from blind focus groups the company commissioned to survey response to the Web project. Further possibilities Furthermore.2 convey.
Stocks never run out as replenishments arrive just in time. jewellers and opticians. buying instructions. So why are they so expensive. to order new production runs and to organize shipments. Smaller suppliers have to rely on constant human contact with the retailer to monitor stock levels. information and instructions can be sent and executed without human intervention. Furthermore. Because of the high cost. The opportunity to join the EDI club – and all the attendant electronic commerce. The current architecture for EDI and electronic trading communities is the largely proprietary wide area and value added networks run by a handful of telecommunications and computer giants. the common man now has a champion. prices. needed to trade effectively using EDI technology. and to join the electronic retail trading community was the prerogative of the largest suppliers and retailers who did not shy at the high prices the small band of providers were charging. The key to EDI networks is automation – because the supplier and the retailer are connected through a dedicated network.Making electronic data interchange facilities available to all Electronic data interchange (EDI) systems are essential for transmitting information. However. by using the Internet to conduct electronic commerce. the Internet may be bringing EDI to the masses. the tenacity to get in. Information gleaned from sales information from cashiers’ tills automatically triggers reordering when stocks of a particular good fall below a certain point. resources and money. in terms of time. and the resources to stay a member once admitted. from food purchases to such diverse areas as music stores. stock availability and other transaction exchanges. Electronic data interchange is used primarily between large retailers and their larger suppliers. However. All of this takes considerable time. Trading through EDI has been likened to an exclusive gentlemen’s club: a company has to have the right qualifications. Value-added EDI networks incur a large amount of unnecessary expense for members. as with all the other things it has changed. only 5 per cent of the entire total of trade in the western hemisphere is undertaken through EDI. Like gentlemen’s clubs the world over. groupware and e-mail benefits that membership brings – at a fraction of the costs and set-up times of traditional EDI networks has been made available to all companies since the advent of the Internet. the users of EDI technology will become more Electronic data interchange available to all 105 . In other words. studies have shown that the percentage of purchases being made by EDI is set to rise from 35 per cent to 75 per cent in five years – and this rise is predicted across all sectors of commerce. those without the right connections (money and resources) do not get a look in. effort and expense. exclusive and exceptionally complicated? The traditional reason has been that there have been very few providers of the service. companies can save up to 88 per cent of costs of EDI trading.
it does not inherently know the route. whose smaller volume and resources preclude use of traditional EDI networks. Sterling Software. and the supplier needs to maintain up-to-date manufacturing. all working to similar information and deadlines. . The larger suppliers who are already connected by proprietary wide area networks will continue to use the existing links – and will continue to accept the relatively huge costs that bring a higher degree of security and larger transaction capacity with it. IBM is also currently developing an Internet-based EDI service which will run over its own Internet service. On the second and subsequent journeys. Premenos and other EDI providers use firewalls at both the sender and receiver ends of the commercial link to maximize security. The rise of Internet-based electronic data interchange is slowly changing the way retailers deal with their suppliers – both large and small. the Internet is making great strides to close these gaps. all the electronic data are transmitted to the supplier/retailer in fax form. certainty and security are still the watchwords of wide area network-based EDI systems. but it finds the quickest route nonetheless. All information can be tracked and verified across the networks according to the Internet electronic commerce software provider Premenos.IJPDLM 27. Retailers will increasingly be happy to deal with smaller suppliers. while smaller retailers can manage their purchasing and supply regimes more efficiently. Several companies have already introduced Internet-based EDI products. over the Internet. Speed.2 106 consumer-oriented than the current business-to-business practitioners currently monopolizing the expensive and exclusive EDI networks. Traditional EDI networks have favoured the big suppliers and the big retailers. however. The Internet EDI providers assure that security tracking is not a problem. Some of the proprietary providers are attempting to pour cold water on the blossoming Internet-based EDI systems by saying that transactions made on the Internet are not secure. The new Internet-based providers are building-in data protection measures and tracking procedures. However. Unlike a full EDI service. However. making tracking easier. No extra software packages are needed. Proprietary networks also provide excellent user-identification facilities. the EDI packet picks the same route. and users pay for the service based on the number of transactions they make over the system. The first time a packet of information is sent. forcing the recipient/user to input the data manually into their own system. these same companies are the main drivers of the proprietary wide area networks that service the current EDI systems. Electronic data interchange is crucial for both supplier and retailer – the retailer needs to ensure constant stock levels and a constant supply of goods. the rise of the Internet and the electronic trading capacity inherent in it means that the smaller suppliers can compete with the big guns on an even footing. so the technology inherent in the products is hedged at best. production and delivery schedules in order to meet the needs of the supplier. Larger retailers benefit as they now have access to a wide range of suppliers. an EDI value-added network provider. Data know where they are going – after a fashion. has introduced a package that gives smaller suppliers limited access to an EDI system through their PC. EDI has ceased to be the province of the élite and has become the real engine for egalitarian commerce.
general administration and information searches. Of all sites with over 200 employees.000 PCs in use in UK manufacturing. Even smaller sites (50-199 employees) are able to access the Internet in 33 per cent of all cases. highlighting the drive to provide people with greater access to information. While many people are simply using the Internet for brief e-mail communications. according to the survey: • PC usage has grown significantly over the last year. as PCs have been installed and users look to get greater return out of their investment. In addition. Of the Internet users. • The Internet is now being used by a significant number of companies in the manufacturing sector. This figure. but with control exerted through the use of LANs and WANs. conducted by Benchmark Research Ltd. provides a clear indication of the actual growth in usage of IT throughout UK manufacturing. and its increasing impact on different organizational processes. For instance. • Networking is an area of IT investment that has seen significant growth over the last couple of years. the survey estimates that there are now over 800. which represents a continuation of the recovery in spending from the recessionary low point of 1992/3. As information has become easier to store and retrieve. However. and one that can be deployed throughout the organization. As managers and directors look to use information as a key decision-making weapon.14 billion on IT in 1996/97. 50 per cent now have direct access. one for every six people employed in the industry. although the potential of IT for improving efficiency and customer service. as it allows high quality react time information to be easily passed from one person to another and used effectively. then the use of the network will increase. so networks have begun to become a key part in any investment strategy. With over 200. may now be almost universally recognized. There is a clear drive to migrate processing power at the end user level.000 machines purchased in the last year alone.IT in UK industry The UK manufacturing sector is set to invest £3. Three out of every four manufacturing sites with over 200 employees possess what IT in UK industry 107 . and reducing costs. highlights the importance most managers place on IT as a competitive weapon. is UK industry investing enough and getting value for its money? The 1996 Computers in UK Manufacturing Survey. • Database technology is now widely used in UK manufacturing. 33 per cent are now using the medium to exchange technical information with customers. suppliers and other offices within their own organization. indicating the beginnings of electronic trading over the Internet. the question still remains. there are a significant number of users who are beginning to explore more sophisticated applications. some companies (under 10 per cent) are now using the Internet for purchasing.
with PCs being the most commonly deployed. the effective use of automation systems becomes necessary to track material movements and respond in real time to emerging situations in the factory. the awareness and use of more sophisticated solutions. . Germany contributes the largest share (20 per cent). but this includes a mixed variety of equipment and systems. • MRP is now widely used in all manufacturing sites (over 75 per cent for sites with over 200 employees). This includes basic products performing document management as well as the true enterprise solutions. satisfaction ratings vary greatly by product and user. is the survey conclusion that considerable opportunity is missed because companies still fail to align the IT strategy to the business and manufacturing strategy. • EDM/PDM technology growth has been tracked over the last few years to a current level of approximately 10 per cent of sites using some form of data/document control solution. with France second (16 per cent) and Italy third (13 per cent). It is predicted that this will be one of the major growth areas over the next year. Instead of IT being seen as a core part of the overall business strategy.2 108 may be termed a highly functional database technology and even in smaller sites usage is now as high as 25 per cent. true 3D solid modelling is still only used by a minority.IJPDLM 27. However. • Shopfloor IT is widespread. SCADA and MES. being deployed by 28 per cent of all CAD sites. and this prevents IT taking on its true strategic role. the cultural gap that exists between business and technology. Therefore. although apparently more prevalent within manufacturing organizations. This “disconnect” has been highlighted by research conducted by MORI among senior managers of Times Top 1000 companies for Computer Associates. and the functional fit of the product is not always fully explored until too late in the buying cycle. with good reason. Perhaps. is on the increase. However. manufacturing companies still like to compartmentalize. • CAD is very widely used with over 85 per cent of all manufacturing sites which undertake mechanical or electronic design work now possessing a CAD system of some kind. the survey also highlights that the UK spending represents only 12 per cent of the total investment in IT made by manufacturing across western Europe. However. and which often leads to the failure to develop productive working relationships between senior business managers and the technologists. more important. As manufacturing businesses strive to become more flexible and responsive. tends to exist throughout business. there is still room for greater investment by UK industry. However. although the importance of IT may be well established. In fact. such as barcoding.
However. IT in UK industry 109 . IT must be realigned as an organizational team player. is the need for business executives and technical managers to think more alike and to learn to speak the same language. Otherwise. all business executives – including CEOs – must overcome their techno-illiteracy and become comfortable with technical terms and concepts. if companies wish to avoid the missed opportunities and overcome the poor performance that has characterized the introduction of a large percentage of IT – as recognized by the growing band of younger managers who are less convinced than their elders that they have got value from IT – the challenge is to break the cultural barrier. According to Charles Wang. for this business-oriented approach to happen in practice. In particular. Moreover. and perhaps the key to sorting the whole disconnect. Many believe that their bosses could do with more IT training. if their executives are not part of the management team that decides on those objectives? Similarly. there seems to be general agreement that many of these same managers are not yet fully comfortable with IT concepts and practices. although the overall impression is that the greater need is to bring business managers up to speed about IT. Just as importantly. the message also helps establish the reasoning behind the need for all projects to be actually owned by the customer groups whose requirements the IT system will address. In effect. CEO of Computer Associates. IT managers tend to feel that their board directors are not comfortable with the terminology and talking with IT technologists. The answer to this issue. or even using IT in their everyday working lives. At individual project level. speaking at the 1996 Top Management Forum. There should no longer be any room for managers who boast that they cannot use a PC and employ others for that sort of thing! Just as crucially. the lack of understanding of the others’ perspective does similarly apply to IT managers. the IT staff must be part of a system development team.Although most top managers state a commitment to IT. technology executives must become an integral part of the strategic business-planning process. Therefore. and recognize the contribution that it can make to their business. if IT is to be recognized throughout the business as what it really is – just another business tool – the mystique surrounding computer systems must be dispelled. it is then easier to maintain the crucial requirement that all IT initiatives must be strictly in line with the company objectives. However. how can IT staff and managers really understand what the business objectives of the company are. With this message firmly in place. and their staff. the first step towards change is to ensure that all IT departments keep reminding themselves of the fact that IT has no other legitimate role than to support the business. IT managers in turn must become familiar with elementary business concepts. at senior levels.
and tends to be about segments and markets. However. claimed Blattberg. marketing information is now only analysed at the market and segment level. brand. how many companies really know their customers face to face? The reality is that the information used today is sampled and survey based. and in particular the Internet – which Blattberg stressed is something that is going to “explode” – will now enable companies to go full circle. However. with the advent of low-cost computing (data management). explained Blattberg – the Polk Bros distinguished professor of retailing and director for the Centre for Retail Management in the Kellogg Graduate School of Management at Northwestern University – the problem was that this approach was costly and labour intensive. personal marketing declined. Firms will become truly customer driven The great illusion of modern marketing. and revert to individual marketing using highly detailed customer information. expanded and low-cost telecommunications (information transmission) and the ubiquity of computers (information receipt). Robert Blattberg stated that this “revolution” will now enable firms to return to the invaluable “one-to-one” marketing techniques used at the turn of the twentieth century. a discontinuous change is now taking place in the type and availability of marketing data and information. there is now the capability to use information technology rather than individual effort to reapply 1900 marketing in the year 2000. The result is that typically. and is used to design products. and outlined a number of propositions. Therefore. Unfortunately. as mass marketing evolved through media such as magazines.2 The marketing information revolution Information has always been one of the cornerstones of marketing. Major implications During his presentation Blattberg focused on the managerial implications of this marketing information revolution. and the cause of this “revolution” is information technology. communicate to customers and as a channel service output. But. During that era marketing was characterized by highly personal contact which led to detailed knowledge of customers and a clear individual customer focus. not about individual customer needs. which was organized by Management Centre Europe. However. IT – low-cost computing and integrated databases coupled with data capture techniques – will now allow companies to gather and manage 110 . is that it is customer driven. price. In his address to the 1996 Top Management Forum. trade publications and radio. These drivers of the marketing information revolution.IJPDLM 27.
explained Blattberg. Similarly. they will be able determine when custom is lost. The teams will be focused on acquisition and retention.individual customer information cost effectively. For example.) Crucially. new. marketing will become the “link” of the relationship with the customer. distribution and product servicing are all undertaken by other companies. the rapidly increasing flexibility in manufacturing is starting to complement this marketing approach. customer service and logistics. Blattberg stressed that this situation would raise the question of who controls the customer. and this would need to be understood. Another important implication of this one-on-one marketing is that companies will be able to manage customer relationships better. the marketing. The marketing information revolution 111 . Although Sears maintains the customer lists. Importantly. and use this to design individual products and services. the customer information firm will control the customers and will simply manage the product and service providers who serve the customers. order response. (That is the retailer will be defined based on information management not product flows to the customer. all of the activities typically associated with satisfying customer demand – i. promotion. etc. occasional. such as customer profiles. purchasing. by knowing who individual customers are. production and delivery – are undertaken by different specialist companies. individual price and promotional responses. different stages of the customer life cycle will require separate marketing teams. Customer information firms will become the retailers in the twenty-first century The proposition is that the channels of distribution will change so that the “retailer” will be the firm with customer information and other channel members will provide efficient movement of products and services to this “retailer”.e. This will enable marketing to work directly with individualized customer data. operations. Rapid information flows and telecommunications will allow the creation of virtual firms which serve customers Within this new business environment. In essence. with customers categorized as best. who will control banking customers – the bank or the software companies with access to the retail customer? Marketing will become intercorporational To provide products and services. Therefore. all customer interactions will need to be managed by marketing. An existing example of the virtual firm is the Sears catalog. with the emphasis on different types of customer rather than products or markets. including production. Marketing organization will be restructured Firms will reorganize the marketing organization. product/service usage and preferences. manufacturing. and act accordingly. For example.
feed this information to the right part of the organization.2 112 Action steps To convert the theory into practice. .e. what customers are worth over the long term. Blattberg concluded that companies must learn to use IT to listen to customers and communicate. rather than just the present sale. and gain from the marketing information revolution. Systems must be developed to capture what is going on with customers. • Structure the marketing function around “customer equity” – i. These are: • Design and create integrated customer databases – this will enable companies actually to name individual customers and also identify their actions and needs. and – most importantly – respond accordingly. • Learn how to use database marketing.IJPDLM 27. • Capture all customer interactions – every relationship must be recorded. especially those which are negative. Blattberg recommended a number of action steps that companies should be currently pursuing. • Create a learning marketing function – one which evolves and adapts to its customers as it captures and analyses more and more information.
0960-0035 . 27 No. 113-130. Vol. © MCB University Press.SECTION 3 21st century manufacturing International Journal of Physical Distribution & Logistics Management. 2. 1997. pp.
Process knowledge was mentioned many times as an essential support to the coming generation of manufacturing firms.The future of manufacturing Many companies cannot think about how their manufacturing environment will look in ten months. But that agility and speed. One of these companies’ belief in a social dimension to process knowledge was backed up with cash: the company has dedicated itself to providing training on social processes to 10. in turn. Without the confidence to express their views on how to improve the manufacturing process. For example. The term means the organization’s understanding of core manufacturing processes. The assembled executives also highlighted four major elements as essential to successful manufacturing and technology management in the year 2005. let alone ten years’ time. Instead.000 employees. Process knowledge of core manufacturing processes – be they surface-mount assembly or blast furnace operation – is a critical strategic asset that must be recognized. And this can only be achieved through a learning organization. it will be a system which thrives on a vital and highly complementary relationship between technology and human beings. The first element is ensuring a steady increase in process knowledge throughout the enterprise. ranging from the highly practical to the theoretical. virtually everyone in the symposium agreed that technology confers agility and speed. the factory of the future will not be a “lights out” monument to the triumph of technology over human beings. nourished and renewed. The next element was learning as a core competence. Contrary to what many people believe. The next element to a successful manufacturing and technological organization in the year 2005 is a having a committed workforce. it is now widely recognized that organizations need to engage employees’ minds and hearts. The organizations which learn the fastest are going to be the most successful in years to come. This struggle to leverage value out of investments in people and technology has led to a focus on learning. production workers’ process knowledge would forever remain a hidden and underutilized asset. a colloquium of manufacturing leaders thought about the “long game” and came up with a few critical insights into the world of manufacturing in 2005. They have not abandoned technology. Being able to change continuously is the key. Leadership and personal effectiveness were deemed critical elements of process knowledge in several of the companies involved in the symposium. However. but they are seeking to find more effective ways to balance investments in people and technology. not just their The future of manufacturing 115 . managed. The second working definition of process knowledge expanded the conventional definition of processes as technical or purely physical activities to include the social activities of production. In order to achieve and sustain breakthroughs in performance. requires a workforce with greater latitude to act and therefore more skills and a greater understanding of the company’s overall direction. Most manufacturing companies have abandoned a blind faith in technology as the only key to competitive survival.
they will have established a positive-sum relationship between people and technology: a relationship in which each stimulates the other – and from which greater value is the consistent outcome. rather than fearful of it. commitment is a two-way street. They will define the state-of-the-art in process technology and manufacturing management because they will have found – or more likely invented – the most effective means for harnessing the creative energies of all employees. In sum. Management has to let go of responsibilities. continuously trained and highly committed workforce. What is happening – and will continue to happen at a greater rate – is the reversal of traditional manufacturing philosophy. However.IJPDLM 27. Keying in on the desire for growth through change. In the year 2005. several participants hypothesized that an organization’s “capacity to change” ought to be considered a critical feature in its ability to prosper in an era of high-velocity change. The symposium finished with a roundtable on what the successful manufacturing company will be like in the year 2005. According to the assembled best-of-the-best manufacturing companies at the symposium. The last element the symposium agreed on as critical for future success is the ability to use change as a stimulus to growth. . The “capacity to change” in an individual or an organization is all about gaining mastery over change. the emphasis in manufacturing is swinging from process and machine to the worker. and the workforce has to be willing to pick them up. • Integrate seamlessly with suppliers and customers. • Move information and production quickly around the globe.2 116 hands. quality and price. • Employ a multiskilled. great manufacturing companies will: • Understand their processes deeply and manufacture with virtually no disruptions. • Grow and compete on learning and knowledge as well as speed. This means becoming comfortable with flux and transformation. leveraging technology and capacity. More emphatically. • Design and manufacture with a full understanding of the cost savings and environmental benefits of eliminating waste and pollution. The gathered executives – many of them trained as engineers – unanimously turned to human issues as the greatest challenge for manufacturers going into the next century. Trust and respect have to travel in both directions. the pace-setting manufacturing firms will have become masters of change – in large measure because they will be driving change at all levels. mastery over change becomes a stimulus to growth because the entire workforce is dedicated to expanding and applying its process knowledge. Virtually all the companies represented were weary of exercises in re-engineering which focused solely on cost reduction and downsizing. Ten years from now.
functional departments. Here Thomas Stailkamp. its suppliers have a crucial role to perform in Chrysler’s improvement strategy. with all the functions working together to develop the best possible product at the best possible price. and so on. Designers worked separately in their own building. has made a major contribution to the re-birth of Chrysler. six days a week). the firm introduced cross-functional platform teams. It now has 47 per cent of the North American mini-van market and is claimed to be the lowest cost. Eventually. engineering to purchasing. MAGNA International Stailkamp believes that Chrysler could not have developed any of these products if it had not expanded its internal re-engineering to the supply base. the Dodge Ram and the Town and Country mini-van. A break with tradition Chrysler admits that it has made more than its fair share of near fatal mistakes over the past few years. vice-president of procurement and supply. The company is very decentralized. sales would have something to offer the market. and general manager of large-vehicle operations at Chrysler Corporation. this blend of teamwork and innovation has transformed the company and its product line. examine and evaluate the relationship between the two firms. highest profit per-vehicle car producer in North America. along with other alliances and internal changes. The first experiment in platform engineering – the 400 hp V10 Dodge Viper sports car – proved to be a great success. During the past five years. quality products it needed to remain competitive. In response. One of those suppliers is MAGNA International. president and CEO. it was organized in vertically oriented.000 employees around the world and manufactures in ten countries with 100 different manufacturing plants. MAGNA International. purchasing to manufacturing. organized by The Strategic Leadership Forum. and each design would be thrown “over the wall” from design to engineering. Both were speaking at the 1996 International Strategic Leadership Conference in Atlanta. but it became evident that Chrysler could no longer produce with sufficient speed the cost-effective. after about five years. The system worked well enough for many years. and Donald Walker. Like many other traditional manufacturing companies. Other successful products include: the Grand Cherokee jeep (which attracts so many buyers Chrysler is building them around the clock on three shifts. The system fosters innovative thinking and problem solving as well as faster and cheaper new product development. with each of its Supplier alliances 117 . MAGNA has 25.Supplier alliances – Chrysler and MAGNA International An alliance with MAGNA International.
By 1989 it had debts of over a billion dollars.2 118 plant managers having total control of his operation. the red seats come in. MAGNA also had to restructure and sell off many of its operations. The system convinced Chrysler that a communication link with suppliers was crucial. MAGNA also spends a lot of time with its employees. Chrysler had to swallow its pride. the Canada-based firm is Chrysler’s largest single supplier and was recently voted supplier of the year by General Motors. transmission engine components. Contracts were being auctioned off to the lowest bid and car makers invariably became upset with the cost that crept in after these low cost bids had been accepted. because although it has what it believes is a partnership. has had its share of problems. It has worked well. It gave Chrysler a whole new way of reducing costs and waste without reducing suppliers’ profit margins. and with its large overheads. At one time it just made tools. value-added chain that leads from the raw material to the retail . as Chrysler builds a line of green mini-vans. According to Stailkamp. that the old command and control style of management needed to be replaced with innovative managerial concepts that would be mutually beneficial to both customer and supplier. The result was a programme called SCORE. changing and growing as its customers change. Its products include complete metal body structures. steering wheels. It. It had to spend a great deal of money on product engineering and R&D and suffered all the associated development costs too. MAGNA almost went bankrupt. interiors (seats. Chrysler began to see that change was necessary. Today. It manufactures all the seating for Chrysler’s minivans. MAGNA has had to focus on full capability in all these areas. too. It also proved to be an invaluable communications programme. all the exterior trims. According to Stailkamp the company has “booked a billion and a half dollars in SCORE cost reduction savings”. which has a certain irony as the acronym began as a supplier cost reduction effort. and as it builds a line of red ones. it can react very quickly. then it moved on to parts and assemblies and finally to full systems. etc. it asked its suppliers what it could do to reduce costs internally. carpeting). seamless. Interest rates went up. panels. admit its mistakes and take note of what suppliers were saying. suppliers complained that they did not have any profit margin by the end. and it decided to expand the whole programme into what it calls an “extension enterprise” – a horizontal.IJPDLM 27. airbags. the customer-supplier relationship has not always been a rosy one. car sales went down. has a system of profit sharing and is non-union. it still has to be world-class or else lose business. Like Chrysler. the green seats come in. It scrapped purchase order auctioning and replaced it with target costing. and instead of demanding price cuts from suppliers. delivering just-in-time. In the late 1970s and early 1980s the little trust that existed between suppliers and manufacturers turned into outright hostility. Inevitably. The bad old days Historically. As a result.
improved communication and less bureaucracy. costs and delivery. Conclusion No culture change is easy and a successful one requires time before it can produce results. but Chrysler believes that it is making progress. The improvements are producing higher quality components.customer. Its basic tenet is that the leader of the chain is really the retail Supplier alliances customer. it is not bashful about telling them about its expectations in quality. lower costs. 119 . not the manufacturer. Inventories have been reduced and the firm is getting to market faster. lower warranty costs and less variation in the manufacturing process. Now that Chrysler considers its suppliers true partners. And it wants suppliers to initiate similar programmes with their suppliers to encourage best practice throughout the industry. a changed company culture. reduced overheads. MAGNA has benefited too: sales growth. more value added.
However. obtaining and critiquing information with more timeliness and insight than is today’s normal practice – 120 . automatic material replenishment and engineering input. JIT is advanced – as from inside. as many companies finally begin to recognize that working together as customer and supplier is more profitable for both. the in-plant vendor can interface heavily with planners. In practice. but for him or her to be empowered within the customer purchasing function as the link between the customer’s planning department and the supplier’s production plant. the business concept JIT II (a registered service mark of BOSE Corporation) is now being reviewed and is in the initial phases of implementation in various US corporations.2 The logical step forward Industry is witnessing a significant change in attitudes. The result is that the “in-plant” supplier employee effectively replaces the buyer and the salesman. control is provided through this in-plant representative operating at buyer level. provided an overview of this developing business practice. and creator of the JIT II concept. One aspect of this advance in the way business is being conducted has been the development of the JIT II concept. • an evergreen contract and no bidding rituals. where the ultimate winner is the competition. people and processes. director of purchasing. With all parts having standard costs negotiated and frozen. to provide suppliermanaged inventory. states Dixon. Speaking at the First International Conference on Integrating Product Development Throughout the Supply Chain. than is maintaining an adversarial relationship.. free access to customer data. Lance Dixon. and the old system (of customer planner to buyer to supplier salesman to supplier order intake) becomes customer planner to supplier in-plant. BOSE Corp. organized by The Management Roundtable. a supplier employee sits in the customer’s purchasing office. pioneered by the BOSE Corporation – the international manufacturer of consumer and professional audio equipment. In the process. As the next logical step in two of today’s leading-edge practices – partnership sourcing and concurrent engineering – as well as enhancing aspects of JIT itself. the key element is not only having this person physically located inside. • the provision of supplier access and linkage to customer computers and full.IJPDLM 27. under the normal conditions that the typical purchasing systems and management place on a buyer. Based on the basic JIT premiss of bringing supplier and customer closer together to eliminate inventory. and thus enabled to place customer purchase orders on his or her own company. the JIT II concept further develops the partnering relationship by establishing: • the supplier partner in the customer’s plant full time.
As with all partnerships. with no end date and no rebiddding. The purchased commodities include plastic tooling and parts. metal parts. carrying on a professional and fair relationship with other competing vendors in the same commodity has not proved to be a problem. • an evergreen contract. attending any and all new product design meetings involving his or her company’s product area. Also. Although BOSE only implements one JIT II supplier in a given commodity. claims Dixon. the process has been in operation for well over five years within BOSE. Computer terminals and software from the supplier tie customer and supplier together. effective “design in” of suppliers helps in developing better products. corrugated packaging. to the benefit of both companies. The logical step forward 121 . dramatically improved communications and purchase order placement. and immediate material cost reduction.with efficiency in order placement and material delivery fine-tuned to customer needs greatly enhanced. include: • A headcount reduction or staff reallocation to address other purchasing needs. • efficient invoicing and payment administration as paperwork is reduced and invoices are paid in a timely manner. benefits typically cited include. at the customer location on a full-time basis. having this one “most favoured nation” supplier relationship. Both work from real-time supplier data and have free total data access to each other’s company data. import functions and domestic and international transportation. • a natural foundation for EDI and other short cuts. As a benchmark. an increased volume of business at the start of a programme and an increased critical mass of business. Costs are lowered on new and existing products with savings shared. the aim is mutual benefit. The supplier in-plant person is also empowered to practise concurrent engineering. • the ability to sell their process and skills directly into engineering – this opportunity. all of which more than offset the on-site vendor person costs. and now encompasses nine suppliers. with 11 in-plant supplier personnel addressing 25 per cent of the purchased dollar volume of material. This places concurrent engineering in-plant. provides for increased new business and subsequent process efficiency. leading to paperwork and administrative savings. rather than today’s normal practice of visits. the elimination of the salesman effort and cost. • An ongoing material cost reduction as the supplier employee is also empowered and motivated to pursue concurrent engineering in-plant. being “designed in” early. The benefits for the customer. For suppliers. states Dixon.
IJPDLM 27. The representative is also required to visit other BOSE facilities. etc. it is also being implemented by a number of major US corporations and is the subject of leading university case studies and MIT seminars. planning. shipping to various BOSE plants worldwide – could see the representative start his or her day at his or her own plant checking various production schedules. The representative would then go to an office in the BOSE corporate purchasing department. He or she may also speak to BOSE design engineers about existing parts and processes. Later in the day this representative may attend a new product project review at the BOSE headquarters. using BOSE purchase orders. Once this basic and rather substantial act of faith is accomplished. After any requisitions which exceed his or her monetary authorization have been signed off – as with any other BOSE buyer – the G&F representative would call the orders into his or her own factory. for one of the two representatives from G&F Industries – which supplies plastic injection molding tooling and plastic and metal parts. claims Dixon. in Mexico. these in-plant representatives are not necessarily restricted to any one plant or office. BOSE plans to implement more JIT II vendors. in-plant supplier personnel to place customer purchase orders on themselves and free access to customer plant and engineering programmes. existing vendors are using this practice as a sales tool and have implemented it with other customers. and address a quality control issue with corporate and plant quality personnel. a wide range of daily business activity in purchasing. for example. when new product start-ups take place with various G&F parts. He or she may then visit the BOSE manufacturing plant where the other in-plant representative is heavily involved in the daily planning and ordering of G&F materials for this particular plant. The key to achieving this is the relationship and structure which allows full-time. to gather any information on parts G&F will be supplying. JIT II can be the facilitator and catalyst for change and considerable improvement. Overall. In practising what it preaches. . can be improved beyond today’s norms. Moreover. where he or she would take material requisitions from the planners at another BOSE plant. A typical day. engineering. importing and transportation. concludes Dixon.2 122 As Dixon observed.
Unhappy end-users The first clue is provided by unhappy end-users. as General Motors’ Saturn division found out. and second-hand information lacks the accuracy that could help companies see fresh openings. when companies use distributors they can lose contact with their end-users. entrenched relationships with distributors can affect the decision-making process and mean that unprofitable channels or underperforming distributors remain in place merely because they are already there. the McKinsey researchers provide six clues as to where new opportunities may lie and how to make the most of them. Companies are sometimes reluctant to lose control of certain distribution processes and therefore make decisions based more on a gut feeling than data. In the same fashion. Improving this distribution network would obviously improve manufacturers’ sales figures. but consumer habits traditionally change slowly. John DeVincentis and Trip Levis and they believe investing time and effort in a company’s distribution channels could boost profits and competitiveness. The reputation car dealers have acquired means that opportunities for doing things differently abound. Customer satisfaction ratings rose and car sales went up fourfold between 1991 and 1994. but problems such as these are often overlooked while internal operations are busily being reengineered. relying instead on the distributor to provide them with information. It is relatively easy to spot opportunities when they burgeon overnight. They hate negotiating over price and they often come away feeling cheated. Research has shown that distribution channels account for around 15 per cent of the cost of a car. 28 per cent of gasoline costs and 41 per cent of packaged foods costs. (2) Decisions are driven more by emotion than by cool assessment. For those keen to seek out fresh avenues. At McKinsey & Company the issue of channel management has been scrutinized by Christine Bucklin. If they hate visiting dealers. Channel vision 123 . that means they probably buy fewer cars and this is not good news for the manufacturers. Two factors seem to inhibit the efficient exploitation of channel opportunities: (1) Opportunities are hard to spot. Stephen DeFalco. Similarly. Their dealers try to provide a buying experience normally only associated with the luxury end of the market and eliminated haggling so that car prices are universal.Channel vision Car manufacturers have a problem because consumers hate visiting car dealers. It has taken 20 years for warehouse clubs to attain their current popularity and spotting this opening two years ago must have taken a leap of faith.
Complacent intermediaries The fifth clue is provided by complacent intermediaries. when lower cost alternatives that really satisfy customers are available to those who really find out what customers want. restructuring its entire retailing network and thus achieving the highest volumes and lowest costs in the market. Filling in gaps in market coverage can be highly satisfying and profitable. One oil company did just that in the 1980s. the products it offers and the functions it performs at the outset will ensure that these conflicts will be avoided. It also has the best retention rate and expense ratio in the industry because it tried to provide a cheap service in a new way. that it was dominating the corporate copier market in the 1980s. Gaps in market coverage The third clue can be found by looking to see if there are any gaps in market coverage. Deteriorating total system economics The fourth opportunity lies in taking benchmarking and other improvement tools out of the company and into the distribution channels themselves. New channels still need to be evaluated and compared to current channel distribution networks. but caution needs to be exercised and transitions need to be carefully managed. On the other hand. Xerox fought back by hiring independent sales agents to go after the personal copier segment and saw its market share rise from nothing in 1987 to 27 per cent in 1994. intermediaries can end up competing for the same customers. who are often unwilling to make the same efforts that are being made by the company to . Concentrating more on the food and less on polishing counters paid dividends. Can the new channel meet customer needs effectively and efficiently? Large customers with complex needs and generating high levels of profits may justify the expense of a direct salesforce and may not be adequately served by a cheaper alternative. has found unprecedented success using information technology to provide a cost-effective and fast service to its customers. Unexplored new channels The second clue is to look at unexplored new channels. Establishing the segments served by each channel. fast food. One fast-food franchiser found that although their customers valued cleanliness. The UK’s direct auto insurer.IJPDLM 27.2 124 Before being able to turn unhappy customers into happy customers. Xerox found. In the worst scenario. you need information on what makes customers happy. It is all too easy to spend heavily on features that are not at the top of the list of customer requirements. Direct Line. but that Japanese companies were having success at the lower end of the market. customers really wanted hot. for instance. their outlets did not need to be absolutely spotless.
easier said than done. Channel management has a poor track record.improve their competitive position. Dated systems at interfaces The last clue is found at the point where the company and its distributors meet and where information is exchanged. but the company or the end-users are not. leading to cost savings. One auto manufacturer restructured its reimbursement system to its dealers to strengthen their warranty service. On close inspection it was found that dealers made very little on warranty repairs. Sometimes the fault lies in the way that incentives have been laid down by the company itself. systematic and continuously innovative approach. They may well be satisfied with their own performance. and succeeding requires taking a rigorous. This provides an opportunity for renegotiating arrangements with the intermediary or going elsewhere. Channel vision 125 . The good news is that technological developments are likely to provide fresh opportunities for those capable of making the most of them. Investing in interface systems also benefits the company as it often makes it a preferred supplier and increases switching costs for the channel distributor. For example. Electronic data interchange and efficient consumer response have helped in the more efficient management of inventories. As always. Once the warranty reimbursements were restructured more favourably towards the dealers service performance and customer satisfaction improved dramatically. after customers complained about the servicing of their new automobiles. according to the team at McKinsey. if customer satisfaction ratings are important then incentives have to reflect this. But seeing where the opportunities lie would appear to be the critical factor in successful channel management.
back orders. According to international consultants Pittiglio Rabin Todd & McGrath (PRTM). inventory bulges. as companies struggle to improve their product development. along with a gated product introduction process that is well understood by all parties. BIC computer companies in the 126 . which are typically brought about by product design quality issues and difficulties with component sourcing. The study. telecommunications equipment. and hence beating their competitors two. This emphasis has typically resulted in high manufacturing costs. In the high-tech arena. manufacturing and regulatory authorities. which provides a best practice model of “source and make” manufacturing processes on a global basis. which was co-sponsored by 11 leaders of manufacturing industry and included over 150 participating plants. and save significant revenue. server and mainframe-class computers. the time required to ramp up a product from first prototype to full-volume production is critical. are becoming increasingly successful in overcoming past problems. against which companies can position themselves to evaluate their own performance. examined high-technology factories source and make capabilities in five different industry segments. Close linkages between development. Their research reveals that those companies striving to improve their product supply capabilities. A major factor in a product’s manufacturing launch time is the number of engineering change orders. medical electronics. And best performance can be quite outstanding – within 12 months after the launch of a major new development project. drives outstanding performance in this area. many are discovering that they cannot afford to ignore the essential processes that get their products through the production line and into the customer’s hands.2 The high-performance factory Many technology-based companies have historically placed far more value on developing and selling their products than making and delivering them. The summarized findings of the study are presented under four main headings. by reducing the number of mistakes made in the design process. and other electronic equipment. personal computers. irrespective of their volumes. delayed new product introductions. who can reach production in one-third of the time – top European companies beat average manufacturing launch time by 75 per cent.to three-fold.IJPDLM 27. But the study found that many companies are left far behind their best in class rivals. and reduced customer satisfaction. product shortages. However. where getting to market quickly means the difference between market leadership and a warehouse of obsolete inventory. suppliers. These findings have been established as part PRTM’s 1995 High Performance Factory Benchmarking Study. it now seems that high technology industry leaders are successfully transforming their product supply operations from a necessary evil to a source of sustainable competitive advantage. Best-in-class (BIC) companies (BIC is the average of the top 20 per cent) accelerate their development cycle times.
while median companies needed 56 days. In terms of inspection effort. The same BIC companies can also more easily adjust to a downturn. Proper management of inventory is also critical for cost. down from 55 suppliers in 1992. across all industries. in 1995 82 per cent of incoming material lots were received without inspection. While many factories perform reasonably well in meeting the committed delivery date. The average European computer company obtained 80 per cent of it material from 43 suppliers. best-in-class companies meet 86 per cent of customer request dates. flexibility and cycletime performance. but companies that find ways to reduce sourcing time take a dramatic lead time advantage. Companies that cannot respond quickly to changes in the marketplace run the risk of out-of-control inventory and lost revenue. providing companies with new ways to speed production. up from 18 per cent two years ago. As an example. Currently. compared with 12 per cent in 1992. sourcing time (the time to specify and acquire materials and components) comprises nearly 75 per cent of the entire source-make cycle-time. For Europe alone the picture is slightly different. According to the study. some companies are far ahead of the pack on the issue of supply line flexibility – an increasingly crucial issue as product life cycles decrease and sales volumes become harder to predict. The average company can only sustain a 20 per cent reduction for the same amount of time. and the old practices of inspecting every piece part received is being replaced with vendor certification programmes. sustaining an average of 94 per cent order reduction within 45 days of scheduled product delivery with no inventory or cost penalty. there is a measurable difference between delivering what a company promises and meeting actual customer needs. an increase from 65 per cent in 1992.server and mainframe market report only three ECOs. Supply bases are shrinking rapidly. 33 per cent of transactions are completed via EDI. Although changes in supply-line practice are industry-wide. save money and improve quality. as compared to the median figure of 19 ECOs. PRTM’s new study reveals that supply-line practices are changing dramatically. in 1995 the average computer company obtained 80 per cent of its materials from 22 suppliers. BIC companies needed only 20 days to achieve an unplanned 20 per cent increase in production. 27 per cent of transactions are now completed by electronic data interchange (EDI). they do not come close to meeting the date initially requested by the customer. The personal computing The highperformance factory 127 . This performance is leaving a major opportunity for competitive advantage that is being taken by those companies that recognize the importance of fulfilling customer needs. as opposed to 31 suppliers in 1992. In the computer sector. Supply-line management – formerly known as purchasing – has become an important new tool for gaining competitive advantage. Across all industries. For example. while average companies only meet 50 per cent of those requests. These companies are also phasing out cumbersome paper-based ordering mechanisms.
that these best-in-class companies saw no cost improvement during the last few years. Obviously. some of the other cost-related areas companies can address include plant location. however. median cost per placement for printed circuit board assembly was 32 cents for factories with a volume of 25 million placements. companies buying the most material are going to have the lowest rates. percentage of material procured from international sources. typical companies are still lagging behind the BIC competitors whose costs are 7 cents per placement. This is attributed to a decreasing number of low-volume producers. In fact PC factories have reduced workin-progress and finished goods inventories to less than one week of supply each. For example. from 35 cents to 28 cents. They can improve the efficiency of their acquisition function by examining the number of suppliers. For example. and the material acquisition rate – the cost of acquiring the material as a percentage of material expenditures – was found to vary from 1 per cent to more than 20 per cent. but companies can still find ways to remain competitive. printed circuit board assembly density. Though median assembly costs have dropped.IJPDLM 27. and the percentage of material received without inspection. The study indicated that the high-tech industry has recognized the importance of volume: volumes have risen throughout the industry and reduced overall product assembly costs.2 128 industry has proven itself a leader in this area. While volume is still key. the number of parts procured. Volume is also a major factor in low material acquisition costs. Figures show. median cost per placement for printed circuit board assembly declined by 20 per cent since 1992. suggesting that the influence of volume may have peaked for the leading companies. and only ten cents for those with 800 million. PRTM’s examination of manufacturing processes revealed the continuing significant impact of high volume on factory costs in 1995. and an increasing reliance on outsourced production. concludes the study summary. unique part numbers manufactured. various factory improvements. 15 cents for those with 200 million. and the ratio of indirect to direct employees. observes the study. Finally. . with fewer inventory days of supply than every other study segment.
Simple manufacturing excellence will be. not just the manufacturing side of things. trained and motivated. real-time customer design of product and simultaneous production. The value chain vision will be driven by Ensuring manufacturing excellence 129 . logistics and all the other places where time gets used up with no payback. The Island of Excellence organization will do many things extremely well – manufacturing. and all the rest. The company has a lurching. where they make the biggest impact on product design and introduction. lords or servants. Each employee of an Island company will have been immersed in the culture and the mission of the business before they were let loose on the actual operation – people in a strong and simple culture need time to adapt to such a culture and they need to learn that they will be trusted and are expected to behave accordingly. That reaches beyond manufacturing excellence into three key areas – value chain excellence. procurement. and where they get closer to real customer involvement in product design fulfilment. Through value chain excellence they will have created a perfectly balanced entity that translates customer ideas or wishes instantaneously into perfect products. organizational excellence and the knowledge worker. make only simple. the Island of Excellence enterprise will have achieved excellence in customer fulfilment. the ticket to the corporate big leagues in the next 15 years. in the year 2010 there will be two types of enterprises: the Island of Excellence. but after care. The coming years will see companies either controlling technology or being controlled by it – i. All the rest. These include customer fulfilment. and customer fulfilment. Companies need to extend the definition of excellence to encompass the whole enterprise. These are the areas where innovative manufacturers take huge chunks of time and money out of the system. erratic corporate attention span that makes attention deficit order look like the company’s single unifying theme. How can companies ensure that they are in these big leagues 15 years from now … just read on. as quality has become.Ensuring manufacturing excellence Master or mastered. Whether a company wants to be an Island of Excellence or an other depends on whether the company accepts the challenge of forming an extended enterprise. being controlled by companies which have controlled technology. By 2010.e. at least not yet. They need to concentrate on the front end of the system – design. pans and dog collars. The biggest areas of opportunity in the next decade and half – in terms of manufacturing excellence – is not manufacturing itself. ordinary things – flashlight switches. on the other hand. aware of their position as an élite corps. The whole company has to embrace excellence. packaging and customer service. According to some experts. The workforce will be very special – specially selected. Control does not mean huge budgets and intricate manufacturing processes.
Reward packages will include a mix of rotations. and are extremely adept at creative thinking. Island companies will reward workers for patient and deliberate skills acquisition in a number of complex and challenging areas. Which camp your company will belong to depends on how well you can follow and implement the recipe above of value chain excellence. Finally. with no bricks or mortar – no underlying “philosophy”. The year 2010 will see manufacturing companies split into two camps – the Islands of Excellence and the others. Simple systems will ensure integrated data channels and rigorous information channels throughout the chain. The workforce will be empowered and self-managed – hierarchical organizations will not be able to mobilize quickly enough to capture. more like an élite group of soldiers who can swoop into a problem. An Island company will also audit its workforce to uncover areas of weakness and subsequently alter hiring policies to capture people to fill these areas of weakness. organizational excellence and knowledge workers. When needed. There are three building block for creating an Island.IJPDLM 27. simulation. The way to create this ideal is to build as many opportunities for cross-functional integration into the organization’s hiring. It will mean justin-time training. The third area for an Island company to achieve manufacturing excellence is to create knowledge workers. work as team and solve the problem. training. the organization – as well as the individual. . People development in companies of excellence means customized training and education. in Island of Excellence companies.2 130 simplicity. The US-led era of rugged individualism will give way to an ethic that protects the common good. people development and compensation and rewards. specific – and temporary – group or team profit-sharing plans will be used to encourage entrepreneurial businesses. Supplier development will become a corporate dictum. modified quickly as needed. Essential to this organizational excellence is having a knowledgeable and trusted workforce. The winning organization will be smaller. such as languages. These are boundaryless jobs. product design. Building knowledge workers will in turn fulfil the key factors for manufacturing excellence. delivered on site. there will be a balance between technical specialists and customer fulfilment specialists. Second. the spots where customer fulfilment happens – design. The vision will be stretched and extended to include the “last frontier” opportunity areas. and are comfortable at using IT and other technical applications. they have tremendous skills in communication. partnering skills and changeable technology-driven knowledge. Knowledge workers have strong technical bases and experience. In the year 2010. Organizational excellence means that everybody within the company works for the customer. knowledge workers are ethical and committed to the company. database use. base monetary compensation as well as lifestyle benefits. logistics and procurement. Companies which build reward schemes based on monetary rewards will find severe limitations to workforce flexibility and growth. defend or move markets. development and reward systems as possible. internal recognition.
pp. 1997. 0960-0035 . 2. © MCB University Press. Vol.SECTION 4 21st century service industries International Journal of Physical Distribution & Logistics Management. 27 No. 131-142.
1. from Europe to Asia) as well as greenfield expansion and joint ventures rather than acquisitions. is globalization. But the reality is that it is more difficult for retailing to operate across distinctive national markets in comparison with other industries. Given the substantial productivity advantages enjoyed by the world’s best retailers. Their experiences fall into two distinct “waves” of expansion. IKEA. In the last three years or so. exchange control. restrictions on trading hours and foreign ownership. with movement beyond a retailer’s established trading bloc (i. Many encountered difficulties and some were forced to pull out. No. opportunities to move successful formats abroad would appear to be boundless. toys. Yet the very changes that are needed to satisfy consumer preferences may hamper an entrant’s efforts to leverage its global sourcing scale and stay competitive with local retailers. Retail performance in local markets is highly sensitive to consumer behavior. which began in the late 1980s and is still under way. well-funded grocers and hypermarkets (Tengelmann and Makro). followed a different pattern. One of the most problematic trends. and so on. impenetrable established supplier relationships. Accommodating these differences means tailoring the merchandise: food. and general merchandise retailers such as Marks & Spencer and Sears. The first wave during the 1970s and 1980s included speciality retailers with proprietary brands such as Benetton and Laura Ashley. Gap and Body Shop. 1996. Kathleen McLaughlin and Christiana Smith Shi. Many parts of the world are sustaining much higher rates of growth than the mature Overcoming the hurdles in global retailing 133 . say McKinsey’s Karen Barth. Nancy Karch. leisure goods. barriers have crumbled around the world. Proof can be seen in some of the indicators of market opportunity: currency convertibility. Other problems include: shortages of resources such as land and labour. Carrefour. Entrants in places such as Thailand and Indonesia will find pronounced differences in consumer tastes. The second wave.e. writing in The McKinsey Quarterly. clothes. stock exchange access. Leading this global charge are firms such as Wal-Mart. many participants have ventured overseas in the past 20 years. Toys ‘R’ Us. The Disney Store. luxury brands like Hermès and Gucci. buying habits and spending patterns from one country to another. majority ownership rules and repatriation of capital and earnings. The issues that retailers face and what they do about them trickle down in almost every facet of any business that ultimately sells its products to consumers. Nonetheless. However. freeing up access to more countries and allowing entrants to establish viable market positions. global retailing is still in its infancy – but the momentum is growing.Overcoming the hurdles in global retailing Trends in retailing reverberate far beyond the confines of the industry and many commentators look at retail sector performance as an indicator of general economic wellbeing. unfavourable tariff structures.
productivity – must be re-examined as they expand. a dozen distribution centres and 2.2 134 economies. It has transformed its relationships with consumers. which again reduces manufacturing costs. • manage alliances and partnerships. Similarly. but not exclusive enough for the highly competitive Manhattan market. It has built up a following across widely different markets for a relatively consistent line of Scandinavian-inspired furniture. It has invested in global information systems to manage logistics across more than 120 stores. only a relatively small proportion of demand is currently captured by organized retailers. • create new relationships with vendors. in other words. both locally and globally. • outsource non-critical activities. Difficulties arise when retailers try to export – wholesale and unchanged – a retail formula that is successful at home. it offered such items as Scotch eggs. leaving ample room for new entrants. IKEA leads the way IKEA is beginning to change the retail game as it creates and maintains a superior global business. which few Canadians recognized or liked. Its buying offices scan the globe for potential suppliers. Although it has since moved to address many of these cultural differences.IJPDLM 27. where it exists. It has also transformed its relationships with suppliers. companies need to assess their competitive strengths and position themselves so that they can re-invent advantage in each new market. source raw materials and achieve quality standards. In apparel.300 suppliers in . In food. • build truly international management teams. They will also need to: • restructure their business systems. Many of these fast-growing markets still offer substantial “unstaked” market share. For example. skills. it has cut its manufacturing and distribution costs. M&S may have missed the chance to build something big in Canada. • adjust their concepts and profit formulas in every market to achieve sustainable levels of return. This means that the success factors they have always relied on – brand. and its engineering and business services groups coach these suppliers to raise productivity. it neither provided fitting rooms nor advertised heavily. and by “teaching” them to assemble furniture. when Marks & Spencer introduced a new retail concept to Canada – apparel plus food – it attempted to operate with its successful UK formula largely intact. thus boosting volume. Galeries Lafayette attempted to export a high-end Parisian fashion concept to the USA. and although this is no guarantee of market attractiveness. the concept failed to find a sufficiently large customer base. As in Britain. Perceived as French. To win in international retailing. it maintained a traditional private-label stance against more fashionable competitors. opportunity often follows.
for instance. Wal-Mart. hurdles in global Once a retailer starts to approach globalization in this way. (2) Concept exporter – Benetton’s strategy to export a distinctive concept.nearly 70 countries. Retail formats which have had trouble globalizing in the past may find that this variegated approach allows them to participate selectively in attractive international opportunities. something Benetton continues to struggle with. Makro and Carrefour show signs Overcoming the that they are starting to recognize and adopt this approach. (3) Skills exporter – companies export unique skills rather than entire business systems. A vital ingredient of such an approach is effective control of franchise execution. . Among others. a broad range of retailing strategic options emerge that go beyond the traditional business exporter approach. maintaining that few companies have managed to establish genuinely global businesses. because it has done a better job of reconfiguring its approach to suit individual markets. While many experts consider global retailing to be problematic and unprofitable. but let someone else run it. Marks & Spencer has achieved greater success in Asia than it did in Canada. it is clear that the prospects of long-term growth and tangible financial gains are too real to be ignored. Three less familiar models are now being adopted by retailers expanding abroad: 135 (1) Superior operator – companies expand internationally on the strength of their operating capability (Tengelmann’s acquisition and turnaround of A&P in the USA).
The opportunities actually to purchase through interactive media are far rarer. Marketing is considered to be interactive wherever there is a continuing dialogue with customers that is not subject to the typical promotion lag. It does not achieve its full potential when customers have no incentive to search. and some go as far as to say that shops will no longer exist as all transactions will take place online.2 Radical Internet stirs up retailing One wonders what will happen to Britain – “the nation of shopkeepers” – if the much-touted revolution in retailing occurs. The advantage to the marketer is a much lower cost of providing the information compared with traditional. What interactive marketing actually is and how it may – sensibly – develop is outlined. Much interactive marketing activity has focused on providing information about products. The advantage of providing information interactively is its low cost per contact compared with traditional methods of sending mail pieces or manning the telephones. Over ten million Americans are now connected to the Internet. and the figures are rising daily. locating the particular sources themselves. Interactive marketing is a broad term which takes in any kind of marketing via interactive media. The same trends are in place across Europe. services or other subjects and what attracts the user is the speed of getting this information and its completeness. online computer services and interactive kiosks all the way to shopping by computer. interactive marketing’s penetration in this area is limited to fields where customers have a high degree of interest and voluntarily engage in information seeking. The total figure of people with access to the Internet across the world is projected to be 250 million by the end of the century. labour-intensive methods. Interactivity usually requires the customer to take some form of initiative – to enquire about a product or service. the Far East and the developing world. and to follow through. from video games and TV home shopping through CDROMs. Interactive marketing is ideally suited to perform three key marketing roles: informing customers about a company’s products or services. This latter point is brought home after looking at the global reach of online services. However. The growth of interactive media and interactive marketing is largely driven by the technological development in computers. The revolutionary forces are being led by that all-purpose radical of the 1990s – the Internet. Many industry analysts see interactive marketing – buying and selling through the Internet – completely revolutionizing the marketing process. differentiation and preference among customers and convincing customers in order to obtain orders and sell.IJPDLM 27. Although customers in many parts of the world routinely purchase by 136 . and the acceptance of new forms of communications. creating brand awareness.
or actively seeks to purchase the products because of high interest value. In another category. and where the ratio of transport cost to value favours regional. and the constant need to improve marketing effectiveness in a highly competitive environment. Many such products are sold today via mail order. These developments will have a sweeping impact as companies which use interactive purchasing intelligently will be able to penetrate previously unreachable markets. This will be particularly true for categories in which a vast selection of products is important. In these markets. Companies which harness the potential will be able to improve the efficiency of their information and sales processes and concentrate more on brand building or other means of enhancing their competitiveness. or those which rely on scarce. companies must do the following: establish an Internet connection by obtaining an Internet address. These “unsought” products include low-interest items such as simple business supplies or standard household consumables. and devise procedures to move from information interactivity to transaction interactivity. experienced manpower. Interactivity is likely to become a powerful tool in those markets where the customer has a strong incentive to search for information.telephone. allowing geographically far-flung customers to purchase quickly and easily from companies from even more far-flung suppliers. The electronic superstore has the potential to create an entirely new industry. The degree to which interactivity will affect marketing depends to a great extent on the kind of product involved. or even international shipment. with consumers and businesses passing their orders via the post. fax or telephone. open a World Wide Web page on the Internet allowing customers to self-select information. However. To make the transition to interactive marketing. Here. fax or mail. electronic interactivity may drive out more traditional forms of marketing. the move to provide interactive electronic purchasing has Radical Internet lagged behind the rush to deliver information. these product areas will be ready to move to electronic interactivity. Eventually. The main barriers are data stirs up retailing security and privacy. such as those based on high fixed assets like retail stores. With marketing operations under attack in many firms. interactivity is unlikely to have a great impact in marketing products or services which do not trigger customers to seek information or which rely on constant reminders to purchase. Customers are often reluctant to transmit credit card numbers electronically or other sensitive information which will stay in the selling company’s database. marketing professionals cannot afford to ignore this new technology. thus generating a flow of queries about the company. technological developments that will offer full security are not far 137 away. customers are relatively well informed and do not have a large information need but they actively look for the products. purchasebased. On the other hand. The potential for cost saving in routine marketing operations and concentrating resources where they count most makes interactive marketing a key area of interest. interactive marketing systems may come to dominate because of their low transaction costs. .
IJPDLM 27. How fast the new approach is adopted and mastered by businesses may well make the difference between tomorrow’s winners and losers. Interactive marketing will never take the place of interacting the old fashioned way – with a retail salesperson or shop assistant. However.2 138 This will challenge the company to allow customers actually to perform part of the business electronically. . in many aspects of purchasing life. Therefore companies need to be looking at all forms of interactive marketing now – not when the method becomes an accepted norm. buying electronically will inevitably replace face-toface transactions.
in the age of electronic banking. What is more. Why should two large banks invest in a community bank’s product on such a grand scale? Because Cardinal has developed the most advanced security architecture – a massive pre-requisite for Internet banking. inconvenient opening hours and unhelpful branch staff. in the USA alone. Despite repeated attempts by computer security experts. Telephone banking was introduced in 1977. The lesson of Cardinal and Security First is that. The bank was originally created and designed by a relatively small financial services player – the Kentucky based. Cardinal launched. Now. the security of the software has never been breached. Telephone banking has been fairly popular – nowhere more so than in nonservice-oriented Great Britain – but it is the Internet which sends the most shivers up the spine of the traditional bank branch manager. With this as the background.2 million in the development of a completely Internet-based bank. the technology has been available for over 20 years. Finally. Any bank. in 1994 the sale of PCs exceeded the sale of color televisions for the first time. For once the small fry has had a leading edge on its larger competitors! The launching of Security First Network Bank marks a new beginning in banking – the advent of a secure online financial transaction environment. the computer industry anticipates shipping 12 million PCs in 1996 alone. In May of that year Huntington Bancshares and Wachovia Corporation each invested $1. Banking on the Internet 139 . The electronic ground was well and truly broken in the USA in 1995. Industry reports show that. Both can gain access to the Internet for approximately the same cost. The Security First offered checking and savings accounts to anyone with a computer and a modem. Over 30 million PCs are in homes across the USA already. but it has only been the last three years in which there has been any significant use of the services. and both can compete in the same environment for customers around the world.Banking on the Internet For many years commentators have said that the traditional bank has about as much future as the dinosaur. will be able to create its own online bank – cheaply and effectively. it appears that consumers. many of these commentators secretly hate their bank because of punitive charges. But why is electronic banking finally catching on now? After all. on the whole. The rise of the usage and popularity of the Internet and telephone banking systems may very well have sounded the death knell for the “bank as we know it”. they might be right. it is not surprising that the Huntington/ Wachovia/Cardinal joint venture was – although first – only one of several major partnerships agreements between banks in the month of May 1995 alone. with the other partners’ assistance. both large and small banks are now on equal footing. the Security First Network Bank in October 1995. with the Internet. $580 million-asset Cardinal Bancshares organization. from the smallest community bank to the largest commercial bank. may skip right over telephone banking and go straight to PC banking. Granted.
the makers of the “Managing your money” software package.IJPDLM 27. the Internet or any other electronic method that may be developed in the future. It seems clear that partnerships between banks. Electronic banking makes good economic sense. will become more common as different parties seek to develop cutting-edge abilities and services. and between banks and service providers. This is a critical opportunity to lead the industry as consumer demand for financial products continues to grow. No longer will the winner of the financial services game be the one with the most branches. .2 140 Chief among the many deals was the purchase of software service providers. Banks – and non-bank competitors such as insurance companies – are developing online services as fast as they can. In addition. NationsBank and BankAmerica planned to allow a limited number of banks to join them as owners of the software. A recent study shows that an average transaction performed by a teller in a branch costs $1. Banks will also save a great deal of expense by reducing the number of employees in the bank and in closing some (most?) of the branches. PC banking or through the Internet is a decision each bank will have to make. NationsBank Corporation and BankAmerica Corporation announced their purchase of Meca Software Inc. the banks hoped to maintain their one-to-one relationship with their customers. The message is clear. the winner will be the one with the easiest customer access. exploring telephone banking and screen phone options first. By purchasing this homebanking software.10. In addition to meeting consumer demand by offering electronic alternatives to financial services. There are countless opportunities for banks of all sizes to explore electronic banking. Others have commissioned proprietary software that they will provide to their customers for PC banking. while an equivalent electronic transaction costs about one-fourth that amount. Financial institutions of all sizes – at least 75 in the USA alone – have taken the plunge and created home pages on the Internet. no matter how one looks at it. banks also stand to save significant amounts of money by converting customers to self-service online banking. Banker colleagues and experts alike are urging banks not to fall behind in this rapidly developing environment. Some banks are starting programmes gradually. In the same month. Whether banks choose to address electronic banking through telephone banking. through the telephone.
Southwest continually differentiates itself from the rest of the airline industry. the Home Gate enables Southwest to provide additional services and convenience to customers. In the first few weeks of the Home Gate system.000 hits daily. image. Customers simply click on the departing location. The Home Gate looks up the fare and schedule information and returns the appropriate information. ODBMS facilitate and enable the development of new Internet and Web applications by providing unique capabilities to manage. video and sound. query and retrieve the extended data types and relationships required by the applications. and empty seats mean lost revenues. travel date and approximate departure time. Objects can be any data type. and its foray into the Internet is no exception. Reserving and purchasing tickets for a flight is as easy as pushing a few buttons on the interactive “Home Gate”. Southwest Airlines’ Home Gate 141 . such as “a document contains several images. However. and an audio clip” to be easily represented. Southwest’s Home Gate could not operate as efficiently. From its low cost flights. The company uses an object database management system (ODBMS) as its core application. Failure to be present on the Internet can cost a company business. but is it a worthwhile business tool? There have been relatively few case studies of a Web application actually making a positive impact on business operations – and profitability. store. Filling a seat. This allows relationships. There were a number of reasons why the airline decided to create a presence on the World Wide Web. to its 23 consecutive years of profitability. The Internet is becoming the marketplace. to its casual corporate environment. select a form of payment and purchase the ticket on-line. Second. pieces of text. Objects relate other objects by direct pointers instead of joins on keys. as in a relational database. Although airlines typically sell 80 per cent of their tickets through travel agencies. Airline revenues are based on the number of people in seats per flight. stored and quickly retrieved from the database without computing joins. effectively or as quickly without being based on object applications. The first was market presence. Southwest sells nearly half its tickets directly to passengers. The airline is the first to enable customers to make reservations and purchase tickets on-line via the World Wide Web. Transaction security is assured through the use of encryption technology. it saves the company money. their destination. Southwest Airlines – the American domestic passenger carrier – provides an excellent lesson on how to make the Internet work. Southwest Airlines has always been different. The customer can then make a reservation. including text. Southwest exceeded its initial expectations with over 100. Third.Southwest Airlines’ Home Gate The Web might be good way of idly passing a few hours of leisure time.
The site has to be able to handle and present dynamically updated information. rapidly to search and navigate the Web of reservation information and return information on all inbound and outbound flights that fit the specified criteria. and Southwest’s central reservation system is immediately updated. underlines the growing realization of the power of the Internet for business purposes. When a customer chooses the variable information on the Home Gate pages. and the business benefits the company has enjoyed. the resulting HTML request is translated into an ObjectStore database query. fares and availability data.6 billion by the year 2000. Rate changes can be posted and seats can be sold directly to customers at deep discounts. fueled by the growth of Internet application development and the need to manage multimedia information. Southwest used ObjectStore. to create an effective and efficient presence. To meet these requirements. because reservation information comprises a combination of cities. Finally. Speed is a top consideration. instead of joins as in a relational database.IJPDLM 27. .2 142 even at a discount. companies have to utilize the best application platform for their needs – and for most applications. The usefulness of the Southwest Home Gate. According to recent market research. arrival times. the information is stored in ObjectStore. The logistics and expense of traditional marketing prohibited this kind of reaction. the total market for object databases – which was $115 million in 1995 – will reach $1. adds revenue. Once a customer makes a reservation. ObjectStore executes the query using pointers between objects. an object database management system is probably just the ticket. the Internet allows Southwest to collect data and tailor messages and interactions for specific customers. schedule and availability information changes frequently. Also. Hand in hand with this growing awareness is the growing use of object databases for Internet and Web applications. Fare. choosing the right technology was key to building the site. and the second is that. As noted above. The study of Southwest Airlines has two important lessons. an object-oriented application from Object Design. ObjectStore returns the flight and fare information to the Web server via formated HTML pages. it must also be able easily to manage and quickly traverse a highly complex data model. The first is that the Internet can make a difference financially. departure times. and the Home Gate allows Southwest to react quickly to shortfalls in seat demand on any particular flight.
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