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ISSN 0960-0035 Volume 27 Number 2 1997

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


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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 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

The printer is used for DTP. DTM must be considered in the same vein. Look to the communications and computer industries for future direction. or use technology narrowly for selfaggrandizement. Industrial products will be designed for a trouble. machine tools were high priced devices to be used optimally – as were printers. 20-year life. rather than the equipment. utilization. We are special”. not hardware. Nothing is older than the future unheeded… Dick Morley Mason. Utilizing the Internet (or its cousins). NH . We must now think in terms of the human. Machine tools will be lower in price and fully compatible with Windows 95. Desktop publishing allows the computer user to self-publish. and for the convenience of the user. Printers of high resolution and colour are available for several hundred to several thousand dollars. Now. Spare parts and small physical products (toys) will be made on demand in the store. In addition to the “print” button. will skyrocket. The conventional small job shop (as in the printer world) will change or die. we will have a “make” button on the menu. Magazine sales of products. Finished goods inventory and instant changes are available at the stroke of a key.and service-free five-year life. as opposed to a high maintenance. Software permits the process. not the resource point. We can expect that Internet-connected manufacturing capability will be as close to the customer as possible. We can expect the usual Luddite reaction to these changes. it can never happen here. Now we must think about the under-utilization of machine tools and the inventory in software. The dark side Any innovative. Historically. Philosophical considerations abound.IJPDLM 27. turbulent change brings problems. but for only a small percentage of the time. we can place the replication process at the consumption point. In all of history. Innovative replication and manufacturing at point of use will be strong trends. manufacturing facilities are located for cheap labour or materials.2 76 Desktop manufacturing (DTM) What is DTM? A close analogy is desktop publishing. pundits have said: “Even if it happens elsewhere. Environmentalists. union members and politicians will all try to resist. large and small.

1997.SECTION 1 Logistical future International Journal of Physical Distribution & Logistics Management. 27 No. 77-96. Vol. 2. © MCB University Press. pp. 0960-0035 .


focus on three key Driving future trends 79 . in order to weather adverse economic conditions. their approach to improving performance has been essentially inward-looking. in particular those within the supply chain. the demands being placed on the supply chain have made its management a major issue of the 1990s. with the subsequent breaking of new ground in terms of performance requirements. the survey results. which have been published in the report entitled Partnership or Conflict. Nowhere is this thinking more evident than in the automotive industry. downsizing and outsourcing. other industrial sectors follow. • the immense environmental and legislative pressures being imposed on the industry in many areas. and these companies are now being forced to cope with a much greater range of competitive pressures than ever before. Few can have failed to notice the dramatic changes which have occurred within some of the automotive industry’s major organizations.Driving future trends In recent years many companies worldwide have been focusing on their core business. Overall. However. other factors include: • increasing pressures from discerning customers and developing competitors – in western Europe in particular. from CAD to EDI. To examine what is happening in the automotive component supply chain. In effect. working relationships and partnerships a crucial factor. if they are really to improve their performance and that of industry in general. an international survey has been conducted by Ingersoll Engineers in co-operation with Financial Times Conferences. • a range of IT (information technology). the component supply chain companies are of equal importance to economic interests. has been rapidly developing to support the complete range of business activities and help revolutionize ways of working. this competition (from Eastern Europe and the Far East) is expected to grow. there is a developing consensus that this tactic may have run its course. 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. Where this industry – which holds a key position in the manufacturing economies of many countries – leads in terms of international trends. such as providing higher added value to customers and developing better working relationships and ultimately partnerships. However. Compounding the difficulties caused by successive worldwide recessions. Companies. must now turn to more outward-looking approaches.

to Jaguar and Rover – UK companies with no overseas operations. and the ability to respond specifically. The notable factors. According to the report. However. it is also vital that suppliers appreciate the potentially conflicting demands of the various vehicle manufacturers – which have significantly different needs. Similarly. Although this issue remains a low priority overall for suppliers. Awareness of these differing priorities. the general consensus is that it will become less important in five years’ time. specific differences and strength of partnerships. 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. while component suppliers feel that there are more important factors to focus on in the future. However. Both now and in the future these are order qualifiers which supply chain companies know they must offer to win business. and will remain. whereas development risk sharing seems to be a requirement of major European companies. regular price reduction is today one of the most important factors worldwide. it is much less a feature in Australia and the USA. These are critical factors. will give competitive advantage all the way down the supply chain. 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. component suppliers broadly agreed that quality and delivery are. Specific differences How well companies can respond to these developing requirements will provide differentiation and order-winning capability in future.2 points for future development. 80 . which are commonly seen as most rapidly gaining in importance. • The fact that recycling ability is one of the fastest-growing factors for everyone reflects the increasing environmental pressures being imposed on the industry. Critical success factors Internationally. This includes greater adoption of CAD and EDI links. the most important critical success factors in the market.IJPDLM 27. and the Japanese companies Toyota and Honda in the UK are perceived to be strongly against the trend. this view is in stark contrast to that of manufacturers which see this as becoming one of the top success factors within five years. The range is from Ford and GM in Europe. global presence is the success factor demonstrating the greatest variation between vehicle manufacturers. Although ongoing. Also. the whole issue of price will remain a major pressure which needs to be resolved. cultures and ways of doing business. where global sourcing is currently very much an issue.

with one general manager of a Tier 1 supplier in France declaring that there is “still a cultural gap between speeches and realities”. and the links in the supply chain are often under strain.Strength of partnerships For the future. Specifically. the process revolves around trust. In tomorrow’s business environment. therefore. but only 2 per cent of the respondents described their relationship with either customer or supplier as a full partnership. will involve a great deal of painstaking work and long-term commitment from both sides. The accepted way forward. and a soft agenda to improve understanding of processes and business strategy. and establish better communications. faster prototype development times. including more technical collaboration. Developing partnerships and building this trust. Unfortunately. Suppliers not only wish to become involved in the process. The purposes are both “hard” issues of quality. stated one respondent. customers still frequently report poor communications. as will excellent working relationships both up and down the supply chain. 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. Conclusion There is little doubt that partnership is a thorny issue. although the issue of partnerships may have been on the agenda for some time and the theory well understood. progress has been slow. 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. Suppliers’ grumbles are predominantly about price and the wish to see more fairness. Essentially. As well as practicalities such as EDI links. understanding and mutual benefit – the need is for “true partnership without greed for one another’s profit margins”. as many adversarial attitudes remain. Driving future trends 81 . is through more efficient collaboration – closer partnerships. delivery and cost improvements. The report reveals that there is still much to do in this area: there are still many frustrations. particularly given that customers are looking to their suppliers for more product innovation. preassembly and other investment-intensive technical support in the future. Across all the regions there may be almost uniform agreement that partnerships are better than “OK”. however. closer communications and better relationships will be at the heart of supply-chain management. the suppliers recognize that a key business advantage will most likely be the ability to work well with the customer. a lack of understanding on the part of their suppliers and a failure to focus on their needs. The views on communication reflect the views on partnerships. finds the report. Also evident in this partnership and deployment theme is the issue of working together on product design.

Also. obstructing this vision of future competitiveness are two key problems. UK industry is facing a skills shortage which. the competitiveness debate becomes more intense. being laid to rest. The prediction that the majority of UK manufacturers intend to move closer to world class through customer focus. and have they got the approach and resources needed? The collective outcome of this situation. who are already moving into “mass customization”. competing has got tougher and winning orders. In this period of little growth. most companies surveyed expect competition – especially in the UK and Europe – to get increasingly hotter. apparently. 82 . if anything. In such a climate. “is no longer seen by the country’s manufacturers as a desirable or even achievable way forward”. how do they intend to get there. which is. even with the possible market upturn predicted for later in 1996. 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.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. Instead companies are now recognizing that the future lies in competing on a basis of a higher skill level and providing greater added value. the main competitive thrust for the future must lie in providing value-added products tailored to customer requirements (58 per cent). and could potentially severely hamper any long-term plans to move to competing on added value and tailoring products to customer needs. Moreover. A demand for heavy customization in their orders is reported by 42 per cent of survey respondents. suggests the survey report. with many companies reexamining the way forward – where they are going. has become harder. the manufacturing-led recovery is rapidly slowing down. “Sweatshop Britain”. in part.IJPDLM 27. However. And within this marketplace. or technological leadership (26 per cent). is deepening. Changing of attitudes? With the peaking of export growth occuring in the latter half of 1995. as illustrated by the manufacturing attitudes survey. is based on the main findings of the fourth annual Manufacturing Attitudes Survey. and a continuing coolness apparent within the UK domestic market. • Rather than aiming to compete as a low cost producer. 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. there is a continuing love affair with cost cutting. by definition. conducted by Benchmark Research and published by Computervision Ltd. contributing to the skills dilemma.

cost reduction still comes top. Yet. forged on producing quality customized goods. and experiences have proved that the customer is often willing to pay a higher price for the right product. • When asked about the UK’s biggest competitive weakness. the UK has one of the lowest cost bases among European countries. high product cost is cited by more manufacturers (24 per cent) than any other factor.• If customer-focused manufacturing is to be successfully established there has to be further development in a number of critical areas – skills. 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. historical neglect in this area means that the main route at present to tackling the shortfall is through training on the job. 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. • Many manufacturers still do not seem to recognize that buying cheap is not the same as buying value. This “unhealthy” preoccupation manifests itself in numerous ways. Yet. product development and IT integration. Building on IT strengths Fortunately. 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. when asked about actual strategic actions. cost. actions may speak louder than words. This investment advantage may 83 . as opposed to 69 per cent who see cost of products as key. Yet. As well as customer service and flexibility. many manufacturers also regard investment in IT as perhaps their most significant weapon. there are positive factors in UK industry’s favour. Although initiatives are now in place at school level to attract more young people into engineering. only a meagre 42 per cent of respondents judge a supplier mainly on the value added. being the main focus for 23 per cent of respondents. 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). the survey identifies that many companies are facing skill shortages in engineering and other manufacturing disciplines. Move on from preoccupation with cost reduction Unfortunately. 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. In accepting that “supplier partnerships” do deliver significant benefits – a view apparently widely held. and the intended marriage with customers.

many (25 per cent claims the survey) have already turned to IT to help improve communications and manage the process. As manufacturers recognize the importance of having to share and control information across teams and with suppliers and customers. and only then. the manufacturers’ business processes are fully understood and reengineered where necessary. This is particularly true of companies with turnovers of more than £100 million.IJPDLM 27. the answer is twofold. the expectation of emulating such change in more UK manufacturers is not totally unrealistic. As the survey report highlights. which is still the most popular and used by 35 per cent of survey respondents. with manufacturers acknowledging significant IT payback at department level. those companies which achieved transformational change have done so in close partnership with their IT suppliers. Developing enterprise-wide IT Although. especially if companies expect to provide more customized offerings. This approach. 84 . as some leading UK organizations have already delivered business transformation in part through the successful deployment of IT. 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. there needs to be a move away from the traditional cost accounting payback method for justifying IT investment. many companies are now recognizing the need to wring greater returns from their investment. And for many companies. and in this area the survey found that the majority of companies are still frustrated. with 80 per cent of respondents claiming that IT payback does not yet meet expectations. However. and is one area where IT can prove its worth.2 help to plug part of the skills gap – with IT providing a capacity to release some skilled people for higher value-added activity. Second. a new approach to implementation needs to be recognized and accepted as the best way forward – both by manufacturers and IT suppliers. First. the UK seems to be ahead of its main competitors in exploiting IT. in effect forces companies to take a more departmental and short-term view when procuring and implementing IT. Working together. Controlling new product information New product development is an increasingly important process. IT is overlaid to automate these optimized processes.

it was better than many other forms of customer-orientation because it crossed all the usual borders. The idea had merit because it was so simple: furthermore. 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. and it applied to all levels of the business and public sector community.“Customerize”: how it worked for Unisys Corporation Unisys Corporation is a leading information systems company with 60. telecommunications. coupled with increased demand. For recognition and positioning. Unisys’ global market position and market opportunities were scrutinized. created a unique opportunity for Unisys to help its clients attract and retain their customers. It was seen as an effective way to market the US$9 billion company’s services and products worldwide. This initiative was researched. government. and back to the initial providers. There is an endless chain in any business that goes from the suppliers of raw materials. and a major supplier of information services and technology to financial service. to the manufacturer or service provider. nor a short-term gimmick. to the user or buyer. This helped to identify a key differentiator: a focus on the clients’ customer. So. In this commodity-dominated society (the company reasoned). Customerize has been a huge success. Its core strengths. and to communicate this capability to a widespread and diverse client base. 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. 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. tested and implemented as a corporate-wide programme affecting all disciplines from manufacturing to marketing. to sales and services. searching for a novel and effective way to provide high quality service at all client levels. to other users or buyers. but where did it start? Customerize evolved from the company’s experience in working with clients. airlines and other markets. Customerize was a philosophy based on the premiss that service to the customer was the prime directive for any of Unisys’ clients. Included in this was the concept called Customerize. internal groups and advertising agencies. and from discussions and evaluations with research organizations. “Customerize”: Unisys Corporation 85 .000 customers in 100 countries worldwide. No one was left out. In early 1993. Customerize was never intended to be merely an advertising theme or pointof-sale technology: neither an umbrella for all products and services. The company must look carefully at aligning its customers’ information strategy with their customer service goals. Unisys.

or offer new services based on customer feedback. The fact that a manager was dedicated to the concept provided evidence of management’s strong commitment. when tested in focus groups. listening to hear exactly what customers needed. some people could not relate to what it meant to them. Competitors’ best practices were analysed to shorten the time frame in responding to customer needs. It helped Unisys develop a new attitude that will take the company into the next decade. the Customerize process might begin with (for example) research on market trends. like posters and advertisements. but if competitors focus only on this. The quickest way to modify or create a service is to leverage best practice from other companies. first. based on the answers. there were obstacles. Customers also were trained. and getting people on board. the best they can achieve is parity: you will not get ahead. and how successful are they? Then. Of course. to help reach and educate all employees and management. The company had to overcome the usual resistance to a new word. On first exposure. and from the increase in contracting engagements for Unisys in assisting clients to Customerize their operations. segmenting the client’s markets and customers and understanding buyer values. People got confused and thought Customerize was some sort of . The company appointed a sort of “Czar” – a champion – for the programme. Unisys believes the model is correct. The company implemented Customerize by. Some methods of implementation. One simple measure of success is to count responses. The greatest measure of all is from clients. Customerize leads to a quality standard that is not yet fully established. It pays for research. Then. most important.2 86 Thousands of Unisys employees were trained so they were tuned into Customerize. 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. Customerize epitomizes the philosophy and practice that will make – and always has made – businesses successful. but expects it to evolve as clients’ business opportunities and challenges change. The next stage could be to assist the client in prioritizing the actions to improve existing services. The company looks at results from focus groups.IJPDLM 27. it worked with them to understand what their customers expected. did not do well. One advertisement asked readers: “Are you Customerized?” and asks ten questions to help readers analyse their business and determine how their company measures up.

The company believes that Customerize is a “dig in” concept. technology-based corporation that had recognized the growing need to take care of clients. and helps Unisys keep the old ones. Unisys will help you extend the full capabilities of your enterprise to points of customer contact – the points where business is won or lost. One advertisement read: “When you Customerize. Some thought it was silly. it has been a tremendous help in putting the company well ahead of its two different types of competitor. and their customers.” 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. “Customerize”: Unisys Corporation 87 . you put the customer at the heart of your world instead of at the periphery. once you understand it. it can point to this and other new ideas as being part of the new Unisys.process. Customerize is proving to be an effective weapon that brings in new customers. There were also several other benefits. In addition. Stay with your customers. By embedding customer service objectives within your information strategy. and got management support early on and took it from there. In both cases. those technology companies that are now doing less well. for example. It discovered a growing rallying cry for employees. Unisys did a lot of selling up front. The concept sets the company’s advertising apart. The strategy is pretty hard to argue with. Now it is back and doing better than its peers. people had given up hope. clients and third parties. and their customers will stay with them. It also helped Unisys gain a unique positioning as a service-led. and those that are purely consultants recommending to clients what they should do to streamline and grow. When times were tough for the company some years ago. Increased awareness. many of them among the objectives set at the start.

Whereas. Manufacturers of both control 88 . But. with the general industry trend towards short-run and reduced lead time production. means that companies not only need to capture data more quickly and accurately. the factory cycle is now typically measured in hours and days. although most companies are awash with electronic data. and has become more practical than having to comply with the CIM standards of the 1980s. machine-monitoring equipment and SPC. 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. manufacturing and shopfloor data are also similarly unmanaged. Speaking at the CIM Show Conference. this coverage is only a small proportion of the data management needed. and some do provide facilities for finite scheduling and some shopfloor data capture.IJPDLM 27. The greater level of decision making on the shopfloor. Moreover. they still rarely seem to be accessible by the people who need them. These have included introducing some shopfloor data capture terminals. as opposed to providing actual support to run the factory floor. Importantly. when other solutions have been sought. and the limited time for referring to higher management. perhaps more surprising is that. But. this lack of manufacturing data management is not really a technical problem. According to Pat McCarthy. these “office”-based systems tend to be driven more by financial considerations. the tendency in the past has been for throwing in discrete systems targeted at meeting specific local needs. However. or providing integration with the management systems. Similarly. these have also failed to provide the missing shopfloor control. although most companies now use some form of planning system.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. for most companies. McCarthy explained that MRPII systems are good at managing everything up to the factory door. it is tied to the typical MRP cycle of days or weeks. Managing Director of Information Engineering Group (IEG). In fact. when they need them. or enhancing the limited data capture and analysis capabilities of machine and process controllers through adding SCADA systems. was now being met. which is far too complex and sophisticated for the majority of applications. Yet. System integration has been theoretically possible for some time. scheduling software. by not tying these systems together. but also manage these data and make them available to the people on the shopfloor. such as MAP. it would be easy to assume that the early promise of “the right information at the right time”. with the resultant growth in prominence of Product Data Management systems. which could then make the data available to all those who need them. such as MRPII/ERP. the lack of control over engineering data has been recognized over the last few years.

around integrated teams. Problem perception. Probably the main problem. the factory environment and its control requirements can differ substantially. As decisions are made every day within the factory. However. However. stated McCarthy. adopted by a number of IT suppliers. A typical mistake is the belief that there are only two basic dimensions to shopfloor data control. and this adds significantly to the complexity of the task. when it comes to actually implementing a system to bridge the gap in factory control. There is also now an increasing number of potential software/hardware solutions. Many activities within industry. financial information or procurement. how they are used needs to be tailored to individual needs. although there are now sets of tools available. Although these aspects are important. 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. People/process issues. Included within these options are Manufacturing Execution Systems (MES). Therefore. 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. work cells. incidence of design change. for systems that provide the “ability to link business planning and control systems to deliver to manufacturing an achievable and realistic plan”. there are some key issues that companies need to recognize. Because of wide variation in manufacturing characteristics. but also ultimately the key to the effective use of information within a factory. by enabling them to make operational decisions using the latest and most accurate information. there can be no “off the shelf” solutions. such as sales order processing. then IT support tools will have little benefit. process style and priorities. getting demand information down to the shopfloor from a higher level MRPII and feeding back information so that management can make decisions. existing fragmented shopfloor technology. local empowerment and decision making. This is one of the better-known generic terms. in terms of product complexity. this view completely misses a major part of what is really required. do not differ dramatically from one kind of manufacturing organization to another. developing relatively standard IT solutions has been possible. and link. Operations and management systems now claim that they supply open systems and that connectivity of the diverse systems is possible through standard interfaces and protocols. Unless the processes have been re-engineered and simplified. Therefore. specializes in design-to-order products or manufactures a range of standard and customized products. The missing links 89 . is the need first of all to change substantially the way the factory operates. depending on whether the company has a bulk process operation. managing inventory. Also the standardization on Windows operating system is making it increasingly easier to provide networked links between the plant floor and office systems.



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,

concentrating on marketing and brand management will not suffice. not a sprint. multinationals must play an active role in sales and distribution. Multinationals must take an integrated approach. are likely to emerge unscathed from the battles that lie ahead. In the cola wars. then replicate success elsewhere. Rapid expansion inevitably strains resources. etc. companies can no longer expect to earn easy profits by just skimming the surface of new markets. with deep sales and distribution capabilities. Given the escalating competition. do not localize too quickly. This is enormously difficult in China. Ambitious multinationals are also attempting to centralize their key activities (sales. (2) Over-invest in building organizational capabilities. Conclusion One final point. providing distributors and retailers with dependable turnover and margins. one that enables them to dominate priority markets. to build real depth in the market. Colgate-Palmolive and Johnson & Johnson are banding together to share warehousing and distribution facilities. Kraft Foods has avoided building new capacity by producing its Maxwell House ice coffee at a Pepsi plant. investment needs and likely returns. To succeed in China requires deep financial pockets and commitment from corporate headquarters. . where the basic distribution infrastructure and distribution skills are so access to shelf space and find it easier to build their brands in Business 2000 – uncrowded markets. Only those in dominant positions. China management needs to be explicit about market development priorities. distribution. the easier it will be to set realistic targets. the parent company must clarify its appetite for investment and willingness to endure negative cash flows because of development expenses. The rewards in China will be immense. but you need them. Companies need the necessary resources and organizational structures to build local capabilities. marketing. The better a company’s understanding of what it takes to succeed in China. However. but some companies have learned to form creative alliances. but winning requires playing for high stakes and playing now. As a result. Experienced expatriates may be expensive. and 93 customers with uniform product positioning and availability. multinationals must meet the needs of trade channels and consumers consistently. (3) Pace yourself for a marathon. For its part. the first company to establish a China’s consumer bottling plant in a given city has since maintained leadership there. markets However.) under umbrella holding companies.

few studies have examined the partnerships that develop between firms and their suppliers. buyer commitment to a supplier increases. The results from the research include the following: • When the buying firm has a strategy of fast innovation. the compression of total project time and exceptionally tight schedules. 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. . However. firms can attain goals that they could not achieve independently. the scope of what a firm can do alone shrinks. By entering collaborative relationships. as performance standards rise. • A strategy of fast delivery does not increase buyer commitment to a supplier. the companies developed a longer-term relationship based on co-operative engineering to facilitate the exchange of knowledge and experience between Ford. and investigates the role of supply partnerships in building strategic advantage. 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. 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. The relationship resulted in cross-fertilization of ideas. This article summarizes research undertaken by Alexandra Campbell. • Firms do commit to suppliers to shorten new product development cycles. Instead of forming a relationship centred on price negotiation. • When the buyer perceives mutual trust in the supply relationship. buyer commitment to a supplier increases. assistant professor of marketing at York University. ABB and other subcontractors.IJPDLM 27.2 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. • Buyer commitment leads to joint problem solving to increase the efficiency of the supply relationship.

Managerial implications So what are the implications of all this? How firms choose to compete will dictate which capabilities managers emphasize. 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. but also by a firm’s strategies in its customer relationships. However.• • • Joint problem solving with suppliers improves a firm’s efficiency or effectiveness through the interlinking of activities. Recent studies of market leaders revealed three such strategies: (1) operational excellence. Likewise. Joint problem solving with suppliers may represent a distinctive capability for firms. . and (3) performance superiority. one that both improves their competitiveness and protects them from imitation. The research has focused on one type of firm strategy aimed at consistently offering superior value to the customer: fast market responsiveness. (2) customer responsiveness. This implies that the extent to which a firm’s strategy choices become distinctive depends on the quality of its supplier relationships. Fast market responsiveness is influenced by linking activities that occur in a firm’s supply relationships with activities that occur in its customer relationships. buyers need to consider the ability of a potential supply partner to help the firm execute its marketing strategies further downstream. Joint problem solving with suppliers improves a firm’s position in other connected relationships. there are other possible approaches. The second lies in the evidence of a buying firm’s perception of the market responsiveness advantages that can arise from co-operation. Supply partnerships 95 Creating customer value Campbell’s findings make two significant contributions to the study of buyersupplier relationships. 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. All of these differ in their core value proposition and in the capabilities required to execute them. Supply partnerships can contribute to maintaining or improving a firm’s competitiveness. 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.

purchasing managers can evaluate the strategic benefits of co-operation with suppliers more accurately. purchasing assumes increasing importance as a spanning process. and purchasing managers are unable to assess properly the risks and potential benefits of supply partnerships. Since well-established business practices no longer provide the framework by which to optimize the allocation of resources within ever-shorter timeframes. however. marketing and purchasing functions operate autonomously. . a major challenge is how to position manufacturing capabilities to combine in-house skills with the strengths of suppliers.2 96 Conclusion For many buying firms today.IJPDLM 27. Yet in many firms. Armed with a clearer understanding of the firm’s marketing strategy.

pp. 2. 97-112.SECTION 2 The information challenge International Journal of Physical Distribution & Logistics Management. 0960-0035 . 1997. Vol. 27 No. © MCB University Press.


A recent issue of its publication CenterPoint provides a starting point for a thorough appraisal of the benefits and associated risks. the potential for business change is colossal.000. 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. This is apparent with the ongoing announcements concerning various alliances. telecommunications companies or cable TV. however. Other projects such as Mecklermedia’s shared corporate World Wide Web server and several interactive television trials appear to have fizzled out. create and exploit new markets. or some other interactive infrastructure becomes robust and widely adopted. One reason for the relative lack of commercial success may be the confusion which surrounds the information superhighway. methods and models for analysing the impact of the information superhighway. The opportunities on offer The predicted growth in connected infrastructure is staggering. differing opinions. 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. Success is not necessarily assured. Compounding the confusion is the lack of tools. Executives are bombarded with conflicting viewpoints. Nonetheless. cable TV trials. contradictory research and a diverse set of future scenarios and timetables. This has led Ernst & Young to develop a way of identifying business opportunities to assess the ongoing potential. mergers and other projects. There will be opportunities to improve current business processes. bypass non-value-adding intermediaries and radically revise workplace practices. Businesses outside the media and telecommunications industry are also beginning to set up World Web pages. managers must understand several concepts. The first is the distinction between the traditional Business on the information superhighway 99 . Research predicts a 16-fold increase in the installed visual telephony base worldwide between 1994 and 2000.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. Intriguing pilot projects and apparent success stories capture the attention of executives in all manner of industries. 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. The average annual revenue earned by Internet vendors has been less than $25. The electronic marketspace To assess the impact of the information superhighway. Once the Internet.

On the demand side. The action to take While mainstream customers may have little interest in conducting business over the information superhighway. The traditional marketplace is based on the familiar notions of interactions between a physical seller and buyer in an actual location. will have an impact on both demand (the customer) and supply (the industry) through changed communications patterns. context and infrastructure – to the electronic marketspace and how it alters business value.e. location is irrelevant and a physical seller may not be present at the time of transaction. streamline production economics and change relationships between players. • Context – the electronic environment in which content is offered.2 100 marketplace transaction and the electronic marketspace transaction. better communications technology will alter the dynamics of purchase decisions. The second is the application of three components of the business value proposition – content. However. 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. . Managers must evaluate how the improvements in communication in general. Technology will reduce the need to conduct simple transactions like renting a film on a faceto-face basis. better communications will alter the supply chain. This is the paradox of disruptive technologies. the major telecommunications carriers). Disruptive technologies Many highly skilled managers are caught in a paradox which inexorably leads them to ignore or reject the information superhighway. will be increasingly simulated. 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. new notions of content description are needed. this may change quickly in the future. Since it cannot be physically present. Along the superhighway. The vendors which previously dominated the market now find themselves lagging far behind and few can recover completely. 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. At first they appear as an insignificant niche market of little interest to a company’s mainstream customers. On the supply side. and the interactive infrastructures in particular. • Infrastructure – the delivery method (i. This is comparable to the physical network of warehouses. such as contractual negotiations.IJPDLM 27. For example: Xerox falling behind in the desktop copier market or IBM missing the minicomputer market. vehicles and roads which enable traditional market participation. transactions occur electronically. and complex transactions.

Few companies will have the variety of skills in the areas of content. create an electronic community around your business through which people can share information. while the information superhighway provides an excellent means to deliver that information. Here are a number of steps that they can take to ensure their organizations are not caught off-guard: • Confirm your interest. Such information can serve as a significant source of revenue or as a competitive differentiator. Determine whether your products or services will be required when customers conduct business over the information superhighway. Identify ways you can bypass existing intermediaries and ways you can become a valued intermediary for those in the value chain. extend your existing context to include the electronic community. Exploit your existing infrastructure to develop new lines of business or promote existing businesses. a modest portfolio approach towards investments would be safer. At the very least. • Innovate your value proposition. consider developing an online context which offers products and services from your competitors (as the airlines have done with reservation systems). Investment and commitment to new ways of working is essential. Managers will need to overcome the paradox of disruptive technologies while continuing to conduct business as usual. context and infrastructure to single-handedly dominate a segment of the information superhighway. Develop offensive and defensive strategies for either possibility. Avoid thinking of the information superhighway as a simple expansion of your current marketing and delivery systems. Brainstorm clever ways to offer new services and to deliver these services electronically: create an expanded online context.Managers need to anticipate such changes. Recognize that the information which you already collect about products and customer activity has value itself. But until clearer patterns emerge. (What will be the role of travel agents when travellers can easily find and compare availability and rates for airlines. Partnerships allow organizations to move into new areas while leveraging current core competences. A utility firm considering a move into the telecommunications service market would benefit from a partnership with an appropriate hightechnology company. • Look beyond customers and suppliers. • Leverage your existing infrastructure. Business on the information superhighway 101 . rental cars and hotels online?) • Look for innovative partnerships. Overnight delivery companies now let customers dial-in to get information on the status of packages in transit. but in partnership a company could quickly bring together the right mix of skills. develop an online context which addresses a niche that has no single physical context.

paper delivered information can often become obsolete by the time it reaches the designer. the growing debate within the industrial community is how companies and engineers can best utilize the information superhighway. an essential but time-consuming part of a designer’s role. there is always the suspicion that it might be. And. published by Management Roundtable Inc. National first studied its customer base. National decided to solve its information delivery challenge by building individual relationships with the designers themselves. cutting as much as eight weeks from its customers’ time to market. they really buy the function that they are told it will do. or central switches for the telecommunications industry. with time to market increasingly important for most companies. and developing a new forum for active dialogue between its semiconductor engineers and its customers. Improving information delivery Traditional product information vehicles.IJPDLM 27. and reduce the time lag. finding the shortest route to establishing firm information about the components needed to turn a concept into a design. If engineers were to design National’s products into their This is a précis from an article. suffer from a number of problems: • They typically reach only a relatively small percentage of the “right” customers (National estimate 30 per cent). in Product Development Best Practice Report. “National semiconductor on the Web”. and sales and advertising literature. • With shrinking development cycles. From the information gathered it was able to define its real customer as the million or so engineers who design workstations.2 Virtual partners Following the explosion in general interest in the Internet. To improve its product information delivery. Once this customer focus was established. such as printed catalogues. February 1996. For semiconductor products this can be anywhere from eight to 16 weeks. 102 . time which can add delay to a designer’s cycle time. (National) has taken a significant step towards realizing this potential. PCs.000 parts catalogue on the World Wide Web. One obvious role is the speeding up of information gathering. National Semiconductor Corp. Even if the information is not out of date. by mounting its 30. California-based National sees this approach creating a dramatic teaming of product development and marketing possibilities. • The time between product information being created and printed documents getting into the customers’ hands can be relatively lengthy. can prove vital. Now. It also realized that these engineers do not buy the products per se.

The solution proved to be Sun Microsystems’ new Java technology. At the next level. The actual initial process of making the information available comprised two basic steps. has grown cumbersome and unworkable for parts that may now contain more than a million gates. for Ethernet controllers. National linked up with CADIS Inc. without searching by specific part number. if a designer wants a system to operate on a battery at 250MHz. First. The paper format. the Web is able to meet its customers’ demand for comprehensive. where designers are able to intuitively get through to the right information with complex enquiries. with access to this database established late in 1995. For example. looked awkward and impractical for the necessary kind of guided search. By developing the client application in Java. which maintains the Web site. Hyper Text Mark-up Language. adopting this new approach marks a dramatic shift from the traditional method of storing information in paper documents. which served its purpose when semiconductor technology was simpler. At the simplest level. For a 30. The real challenge lay in enabling deeper enquiries. they had to be provided with the information they need in their design environment. meeting these search requirements presented a formidable obstacle.. Also. he/she needs to be able to find out quickly. According to National. The next step was finding efficient ways for designers to get the information they need. the need was for the ability to do a text search.000 part database with parameters running at least eight levels deep. Designers are looking for something far richer than today’s data sheets can Virtual partners 103 . complete and accurate information – and the most up-to-date data become available in minutes.system. customers identified that they wanted to be able to search by part number and by the industry standards which define a product. more than access is at stake here. say. As National explain. CADIS paved the way for instant updating of the parts’ database and all of its associated screens as the customer moves through a query. These requirements were fairly easy to satisfy. 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. where designers want to search by performance attribute. More than just access As National has recognized. the then existing technology for creating Web pages. and it has also partnered with a publishing company. what semiconductor components there are which will satisfy these performance criteria. National’s full product library of basic technology information (its data sheets) was put on the Web. To develop the necessary Web site. Web accessibility requires moving to a knowledge-based environment which allows customers to search and organize information in ways that fit their needs. thus providing potentially significant time savings.

2 convey. 104 . This will in effect make National and its customers virtual partners in the design and development process. Hands-on experience has spurred new ideas and insights. especially when data sheets can run up to 300 pages long. but its own. And. National expects to enhance not only its customers’ product development capabilities. a wealth of helpful information is already emerging from blind focus groups the company commissioned to survey response to the Web project. As an example of emerging possibilities. Further possibilities Furthermore. 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. again steepening the cycle curve and bringing the company closer to its customers’ design process. 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. not currently embodied in a few discrete numbers. With this focus on getting the right information quickly into customer’s hands. It can also make use of failed queries to guess at ideas for new products. 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.IJPDLM 27. such as complex curves.

jewellers and opticians. 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. companies can save up to 88 per cent of costs of EDI trading. from food purchases to such diverse areas as music stores. as with all the other things it has changed. exclusive and exceptionally complicated? The traditional reason has been that there have been very few providers of the service. So why are they so expensive. buying instructions. The opportunity to join the EDI club – and all the attendant electronic commerce. All of this takes considerable time. Because of the high cost. The key to EDI networks is automation – because the supplier and the retailer are connected through a dedicated network. Like gentlemen’s clubs the world over. However. Furthermore. 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 common man now has a champion. only 5 per cent of the entire total of trade in the western hemisphere is undertaken through EDI. Value-added EDI networks incur a large amount of unnecessary expense for members. In other words. those without the right connections (money and resources) do not get a look in. prices. in terms of time. effort and expense. stock availability and other transaction exchanges.Making electronic data interchange facilities available to all Electronic data interchange (EDI) systems are essential for transmitting information. by using the Internet to conduct electronic commerce. Stocks never run out as replenishments arrive just in time. to order new production runs and to organize shipments. the users of EDI technology will become more Electronic data interchange available to all 105 . and the resources to stay a member once admitted. Information gleaned from sales information from cashiers’ tills automatically triggers reordering when stocks of a particular good fall below a certain point. the Internet may be bringing EDI to the masses. information and instructions can be sent and executed without human intervention. 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. needed to trade effectively using EDI technology. However. Smaller suppliers have to rely on constant human contact with the retailer to monitor stock levels. the tenacity to get in. Trading through EDI has been likened to an exclusive gentlemen’s club: a company has to have the right qualifications. resources and money. 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. Electronic data interchange is used primarily between large retailers and their larger suppliers.

but it finds the quickest route nonetheless. 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. 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. however. while smaller retailers can manage their purchasing and supply regimes more efficiently. all working to similar information and deadlines. EDI has ceased to be the province of the élite and has become the real engine for egalitarian commerce. and users pay for the service based on the number of transactions they make over the system. . forcing the recipient/user to input the data manually into their own system.2 106 consumer-oriented than the current business-to-business practitioners currently monopolizing the expensive and exclusive EDI networks. these same companies are the main drivers of the proprietary wide area networks that service the current EDI systems. All information can be tracked and verified across the networks according to the Internet electronic commerce software provider Premenos. Proprietary networks also provide excellent user-identification facilities. Speed. Several companies have already introduced Internet-based EDI products. Sterling Software. Unlike a full EDI service. Larger retailers benefit as they now have access to a wide range of suppliers. and the supplier needs to maintain up-to-date manufacturing. all the electronic data are transmitted to the supplier/retailer in fax form. Data know where they are going – after a fashion. making tracking easier. an EDI value-added network provider. The rise of Internet-based electronic data interchange is slowly changing the way retailers deal with their suppliers – both large and small. No extra software packages are needed. However. The new Internet-based providers are building-in data protection measures and tracking procedures. has introduced a package that gives smaller suppliers limited access to an EDI system through their PC. Premenos and other EDI providers use firewalls at both the sender and receiver ends of the commercial link to maximize security. the Internet is making great strides to close these gaps. Retailers will increasingly be happy to deal with smaller suppliers. The first time a packet of information is sent. the EDI packet picks the same route. production and delivery schedules in order to meet the needs of the supplier. 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. it does not inherently know the route. over the Internet. Electronic data interchange is crucial for both supplier and retailer – the retailer needs to ensure constant stock levels and a constant supply of goods. However. On the second and subsequent journeys. whose smaller volume and resources preclude use of traditional EDI networks. certainty and security are still the watchwords of wide area network-based EDI systems. Traditional EDI networks have favoured the big suppliers and the big retailers. IBM is also currently developing an Internet-based EDI service which will run over its own Internet service.IJPDLM 27.

but with control exerted through the use of LANs and WANs.000 machines purchased in the last year alone.000 PCs in use in UK manufacturing. there are a significant number of users who are beginning to explore more sophisticated applications. highlights the importance most managers place on IT as a competitive weapon. Of the Internet users. may now be almost universally recognized. and one that can be deployed throughout the organization. some companies (under 10 per cent) are now using the Internet for purchasing. highlighting the drive to provide people with greater access to information. although the potential of IT for improving efficiency and customer service. 33 per cent are now using the medium to exchange technical information with customers. which represents a continuation of the recovery in spending from the recessionary low point of 1992/3. For instance. 50 per cent now have direct access. • The Internet is now being used by a significant number of companies in the manufacturing sector. However. and reducing costs. This figure. as it allows high quality react time information to be easily passed from one person to another and used effectively. provides a clear indication of the actual growth in usage of IT throughout UK manufacturing. Of all sites with over 200 employees. as PCs have been installed and users look to get greater return out of their investment.14 billion on IT in 1996/97. the survey estimates that there are now over 800. indicating the beginnings of electronic trading over the Internet. Even smaller sites (50-199 employees) are able to access the Internet in 33 per cent of all cases. As information has become easier to store and retrieve. then the use of the network will increase. according to the survey: • PC usage has grown significantly over the last year. so networks have begun to become a key part in any investment strategy. suppliers and other offices within their own organization.IT in UK industry The UK manufacturing sector is set to invest £3. • Database technology is now widely used in UK manufacturing. There is a clear drive to migrate processing power at the end user level. Three out of every four manufacturing sites with over 200 employees possess what IT in UK industry 107 . While many people are simply using the Internet for brief e-mail communications. • Networking is an area of IT investment that has seen significant growth over the last couple of years. conducted by Benchmark Research Ltd. With over 200. is UK industry investing enough and getting value for its money? The 1996 Computers in UK Manufacturing Survey. In addition. one for every six people employed in the industry. the question still remains. As managers and directors look to use information as a key decision-making weapon. general administration and information searches. and its increasing impact on different organizational processes.

• Shopfloor IT is widespread. It is predicted that this will be one of the major growth areas over the next year. As manufacturing businesses strive to become more flexible and responsive. • MRP is now widely used in all manufacturing sites (over 75 per cent for sites with over 200 employees). the effective use of automation systems becomes necessary to track material movements and respond in real time to emerging situations in the factory. with good reason. and the functional fit of the product is not always fully explored until too late in the buying cycle. tends to exist throughout business. although the importance of IT may be well established. However. . SCADA and MES. true 3D solid modelling is still only used by a minority. 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. and which often leads to the failure to develop productive working relationships between senior business managers and the technologists.IJPDLM 27. • 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. although apparently more prevalent within manufacturing organizations. However. with PCs being the most commonly deployed. and this prevents IT taking on its true strategic role. such as barcoding. the cultural gap that exists between business and technology.2 108 may be termed a highly functional database technology and even in smaller sites usage is now as high as 25 per cent. Instead of IT being seen as a core part of the overall business strategy. However. In fact. satisfaction ratings vary greatly by product and user. This “disconnect” has been highlighted by research conducted by MORI among senior managers of Times Top 1000 companies for Computer Associates. more important. being deployed by 28 per cent of all CAD sites. but this includes a mixed variety of equipment and systems. the awareness and use of more sophisticated solutions. is the survey conclusion that considerable opportunity is missed because companies still fail to align the IT strategy to the business and manufacturing strategy. is on the increase. with France second (16 per cent) and Italy third (13 per cent). Therefore. This includes basic products performing document management as well as the true enterprise solutions. Germany contributes the largest share (20 per cent). Perhaps. • 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. However. there is still room for greater investment by UK industry. manufacturing companies still like to compartmentalize.

the lack of understanding of the others’ perspective does similarly apply to IT managers. although the overall impression is that the greater need is to bring business managers up to speed about IT. for this business-oriented approach to happen in practice. at senior levels. if their executives are not part of the management team that decides on those objectives? Similarly. or even using IT in their everyday working lives. According to Charles Wang. In particular. how can IT staff and managers really understand what the business objectives of the company are. IT managers tend to feel that their board directors are not comfortable with the terminology and talking with IT technologists. technology executives must become an integral part of the strategic business-planning process. Otherwise. CEO of Computer Associates. However. However. With this message firmly in place. In effect. the IT staff must be part of a system development team. and recognize the contribution that it can make to their business. Just as importantly. The answer to this issue. IT managers in turn must become familiar with elementary business concepts. 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 in UK industry 109 . all business executives – including CEOs – must overcome their techno-illiteracy and become comfortable with technical terms and concepts. 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. 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. Many believe that their bosses could do with more IT training. At individual project level. there seems to be general agreement that many of these same managers are not yet fully comfortable with IT concepts and practices. it is then easier to maintain the crucial requirement that all IT initiatives must be strictly in line with the company objectives.Although most top managers state a commitment to IT. 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. and their staff. Therefore. and perhaps the key to sorting the whole disconnect. speaking at the 1996 Top Management Forum. Moreover. 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. 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.

The result is that typically. and tends to be about segments and markets. trade publications and radio. claimed Blattberg. brand. During that era marketing was characterized by highly personal contact which led to detailed knowledge of customers and a clear individual customer focus. personal marketing declined. expanded and low-cost telecommunications (information transmission) and the ubiquity of computers (information receipt). as mass marketing evolved through media such as magazines. communicate to customers and as a channel service output. However. which was organized by Management Centre Europe. there is now the capability to use information technology rather than individual effort to reapply 1900 marketing in the year 2000. price. But. 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. Major implications During his presentation Blattberg focused on the managerial implications of this marketing information revolution. marketing information is now only analysed at the market and segment level. is that it is customer driven. However. with the advent of low-cost computing (data management). IT – low-cost computing and integrated databases coupled with data capture techniques – will now allow companies to gather and manage 110 . In his address to the 1996 Top Management Forum. and the cause of this “revolution” is information technology.IJPDLM 27. and is used to design products. and in particular the Internet – which Blattberg stressed is something that is going to “explode” – will now enable companies to go full circle. and outlined a number of propositions. Unfortunately. a discontinuous change is now taking place in the type and availability of marketing data and information. However. not about individual customer needs. and revert to individual marketing using highly detailed customer information. These drivers of the marketing information revolution. how many companies really know their customers face to face? The reality is that the information used today is sampled and survey based. Firms will become truly customer driven The great illusion of modern marketing. Therefore.2 The marketing information revolution Information has always been one of the cornerstones of marketing. 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.

Rapid information flows and telecommunications will allow the creation of virtual firms which serve customers Within this new business environment. The marketing information revolution 111 . product/service usage and preferences. Blattberg stressed that this situation would raise the question of who controls the customer. the customer information firm will control the customers and will simply manage the product and service providers who serve the customers. with the emphasis on different types of customer rather than products or markets. individual price and promotional responses. etc. purchasing. all customer interactions will need to be managed by marketing. Importantly. distribution and product servicing are all undertaken by other companies. production and delivery – are undertaken by different specialist companies. (That is the retailer will be defined based on information management not product flows to the customer.) Crucially. Similarly. 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. For example.e. all of the activities typically associated with satisfying customer demand – i. Although Sears maintains the customer lists. and use this to design individual products and services. In essence. For example. This will enable marketing to work directly with individualized customer data. new. including production. An existing example of the virtual firm is the Sears catalog. such as customer profiles. different stages of the customer life cycle will require separate marketing teams. the rapidly increasing flexibility in manufacturing is starting to complement this marketing approach. and act accordingly. explained Blattberg. Marketing organization will be restructured Firms will reorganize the marketing organization. promotion. the marketing. Therefore.individual customer information cost effectively. The teams will be focused on acquisition and retention. Another important implication of this one-on-one marketing is that companies will be able to manage customer relationships better. and this would need to be understood. occasional. order response. by knowing who individual customers are. customer service and logistics. operations. with customers categorized as best. marketing will become the “link” of the relationship with the customer. 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”. manufacturing. they will be able determine when custom is lost.

IJPDLM 27.2 112 Action steps To convert the theory into practice. • Create a learning marketing function – one which evolves and adapts to its customers as it captures and analyses more and more information. especially those which are negative. These are: • Design and create integrated customer databases – this will enable companies actually to name individual customers and also identify their actions and needs. • Capture all customer interactions – every relationship must be recorded.e. feed this information to the right part of the organization. . • Learn how to use database marketing. Systems must be developed to capture what is going on with customers. 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. • Structure the marketing function around “customer equity” – i. Blattberg recommended a number of action steps that companies should be currently pursuing. and – most importantly – respond accordingly. what customers are worth over the long term.

27 No.SECTION 3 21st century manufacturing International Journal of Physical Distribution & Logistics Management. pp. 2. 1997. 0960-0035 . © MCB University Press. 113-130. Vol.


In order to achieve and sustain breakthroughs in performance. And this can only be achieved through a learning organization. in turn. but they are seeking to find more effective ways to balance investments in people and technology. For example. virtually everyone in the symposium agreed that technology confers agility and speed.000 employees. it is now widely recognized that organizations need to engage employees’ minds and hearts. Without the confidence to express their views on how to improve the manufacturing process. Process knowledge was mentioned many times as an essential support to the coming generation of manufacturing firms. Process knowledge of core manufacturing processes – be they surface-mount assembly or blast furnace operation – is a critical strategic asset that must be recognized. But that agility and speed. ranging from the highly practical to the theoretical. managed. The organizations which learn the fastest are going to be the most successful in years to come. it will be a system which thrives on a vital and highly complementary relationship between technology and human beings. Leadership and personal effectiveness were deemed critical elements of process knowledge in several of the companies involved in the symposium. let alone ten years’ time. 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. Most manufacturing companies have abandoned a blind faith in technology as the only key to competitive survival. the factory of the future will not be a “lights out” monument to the triumph of technology over human beings. 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. The next element to a successful manufacturing and technological organization in the year 2005 is a having a committed workforce. not just their The future of manufacturing 115 . requires a workforce with greater latitude to act and therefore more skills and a greater understanding of the company’s overall direction. Being able to change continuously is the key. The first element is ensuring a steady increase in process knowledge throughout the enterprise. 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. The term means the organization’s understanding of core manufacturing processes. nourished and renewed. Instead. However. The next element was learning as a core competence.The future of manufacturing Many companies cannot think about how their manufacturing environment will look in ten months. The assembled executives also highlighted four major elements as essential to successful manufacturing and technology management in the year 2005. 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. They have not abandoned technology. Contrary to what many people believe.

2 116 hands. Virtually all the companies represented were weary of exercises in re-engineering which focused solely on cost reduction and downsizing. the pace-setting manufacturing firms will have become masters of change – in large measure because they will be driving change at all levels. • Move information and production quickly around the globe. Trust and respect have to travel in both directions. • Employ a multiskilled. This means becoming comfortable with flux and transformation. the emphasis in manufacturing is swinging from process and machine to the worker. More emphatically. mastery over change becomes a stimulus to growth because the entire workforce is dedicated to expanding and applying its process knowledge. The symposium finished with a roundtable on what the successful manufacturing company will be like in the year 2005. In the year 2005.IJPDLM 27. • Design and manufacture with a full understanding of the cost savings and environmental benefits of eliminating waste and pollution. 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. great manufacturing companies will: • Understand their processes deeply and manufacture with virtually no disruptions. • Integrate seamlessly with suppliers and customers. Management has to let go of responsibilities. 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. In sum. • Grow and compete on learning and knowledge as well as speed. However. According to the assembled best-of-the-best manufacturing companies at the symposium. . and the workforce has to be willing to pick them up. leveraging technology and capacity. quality and price. What is happening – and will continue to happen at a greater rate – is the reversal of traditional manufacturing philosophy. Keying in on the desire for growth through change. 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. The last element the symposium agreed on as critical for future success is the ability to use change as a stimulus to growth. continuously trained and highly committed workforce. The “capacity to change” in an individual or an organization is all about gaining mastery over change. 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. rather than fearful of it. Ten years from now. commitment is a two-way street.

It now has 47 per cent of the North American mini-van market and is claimed to be the lowest cost. Designers worked separately in their own building. The company is very decentralized. Eventually. six days a week). organized by The Strategic Leadership Forum. In response. it was organized in vertically oriented. MAGNA has 25. has made a major contribution to the re-birth of Chrysler. its suppliers have a crucial role to perform in Chrysler’s improvement strategy. examine and evaluate the relationship between the two firms. functional departments. Here Thomas Stailkamp.Supplier alliances – Chrysler and MAGNA International An alliance with MAGNA International. Other successful products include: the Grand Cherokee jeep (which attracts so many buyers Chrysler is building them around the clock on three shifts. The first experiment in platform engineering – the 400 hp V10 Dodge Viper sports car – proved to be a great success. after about five years. The system fosters innovative thinking and problem solving as well as faster and cheaper new product development. and Donald Walker. purchasing to manufacturing. with each of its Supplier alliances 117 . this blend of teamwork and innovation has transformed the company and its product line. MAGNA International. and so on. 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. vice-president of procurement and supply. Both were speaking at the 1996 International Strategic Leadership Conference in Atlanta. During the past five years. with all the functions working together to develop the best possible product at the best possible price. engineering to purchasing. president and CEO. and general manager of large-vehicle operations at Chrysler Corporation. and each design would be thrown “over the wall” from design to engineering. Like many other traditional manufacturing companies. One of those suppliers is MAGNA International. quality products it needed to remain competitive. the firm introduced cross-functional platform teams. the Dodge Ram and the Town and Country mini-van. highest profit per-vehicle car producer in North America.000 employees around the world and manufactures in ten countries with 100 different manufacturing plants. A break with tradition Chrysler admits that it has made more than its fair share of near fatal mistakes over the past few years. The system worked well enough for many years. but it became evident that Chrysler could no longer produce with sufficient speed the cost-effective. along with other alliances and internal changes. sales would have something to offer the market.

Interest rates went up. and instead of demanding price cuts from suppliers. seamless. By 1989 it had debts of over a billion dollars. suppliers complained that they did not have any profit margin by the end. carpeting). In the late 1970s and early 1980s the little trust that existed between suppliers and manufacturers turned into outright hostility. delivering just-in-time. steering wheels. panels. as Chrysler builds a line of green mini-vans. 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. interiors (seats. it can react very quickly. Today. the green seats come in. admit its mistakes and take note of what suppliers were saying. It has worked well. too. airbags.IJPDLM 27. value-added chain that leads from the raw material to the retail . the red seats come in. the customer-supplier relationship has not always been a rosy one. and it decided to expand the whole programme into what it calls an “extension enterprise” – a horizontal. transmission engine components. Chrysler began to see that change was necessary. MAGNA has had to focus on full capability in all these areas. Inevitably. then it moved on to parts and assemblies and finally to full systems. has had its share of problems.2 118 plant managers having total control of his operation. It manufactures all the seating for Chrysler’s minivans. which has a certain irony as the acronym began as a supplier cost reduction effort. It gave Chrysler a whole new way of reducing costs and waste without reducing suppliers’ profit margins. Its products include complete metal body structures. As a result. 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 Canada-based firm is Chrysler’s largest single supplier and was recently voted supplier of the year by General Motors. According to Stailkamp the company has “booked a billion and a half dollars in SCORE cost reduction savings”. changing and growing as its customers change. it asked its suppliers what it could do to reduce costs internally. MAGNA almost went bankrupt. and with its large overheads. It. It had to spend a great deal of money on product engineering and R&D and suffered all the associated development costs too. The system convinced Chrysler that a communication link with suppliers was crucial. Like Chrysler. all the exterior trims. car sales went down. MAGNA also had to restructure and sell off many of its operations. has a system of profit sharing and is non-union. etc. The bad old days Historically. MAGNA also spends a lot of time with its employees. It scrapped purchase order auctioning and replaced it with target costing. According to Stailkamp. because although it has what it believes is a partnership. it still has to be world-class or else lose business. and as it builds a line of red ones. At one time it just made tools. It also proved to be an invaluable communications programme. The result was a programme called SCORE. Chrysler had to swallow its pride.

not the manufacturer. but Chrysler believes that it is making progress. Now that Chrysler considers its suppliers true partners. it is not bashful about telling them about its expectations in quality. improved communication and less bureaucracy. The improvements are producing higher quality components. lower costs. costs and delivery. 119 . more value added. Its basic tenet is that the leader of the chain is really the retail Supplier alliances customer. a changed company culture. lower warranty costs and less variation in the manufacturing process.customer. Conclusion No culture change is easy and a successful one requires time before it can produce results. Inventories have been reduced and the firm is getting to market faster. MAGNA has benefited too: sales growth. reduced overheads. And it wants suppliers to initiate similar programmes with their suppliers to encourage best practice throughout the industry.

pioneered by the BOSE Corporation – the international manufacturer of consumer and professional audio equipment. With all parts having standard costs negotiated and frozen. In practice. Based on the basic JIT premiss of bringing supplier and customer closer together to eliminate inventory. where the ultimate winner is the competition.IJPDLM 27. to provide suppliermanaged inventory. than is maintaining an adversarial relationship. the in-plant vendor can interface heavily with planners. the JIT II concept further develops the partnering relationship by establishing: • the supplier partner in the customer’s plant full time. In the process. provided an overview of this developing business practice. and creator of the JIT II concept. However. free access to customer data. automatic material replenishment and engineering input. under the normal conditions that the typical purchasing systems and management place on a buyer. obtaining and critiquing information with more timeliness and insight than is today’s normal practice – 120 . 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. as many companies finally begin to recognize that working together as customer and supplier is more profitable for both. One aspect of this advance in the way business is being conducted has been the development of the JIT II concept. 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.2 The logical step forward Industry is witnessing a significant change in attitudes. • an evergreen contract and no bidding rituals. BOSE Corp. 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. JIT is advanced – as from inside. • the provision of supplier access and linkage to customer computers and full. the key element is not only having this person physically located inside. The result is that the “in-plant” supplier employee effectively replaces the buyer and the salesman. director of purchasing.. states Dixon. and thus enabled to place customer purchase orders on his or her own company. organized by The Management Roundtable. a supplier employee sits in the customer’s purchasing office. Speaking at the First International Conference on Integrating Product Development Throughout the Supply Chain. 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. control is provided through this in-plant representative operating at buyer level. people and processes.

states Dixon. and immediate material cost reduction. leading to paperwork and administrative savings. The purchased commodities include plastic tooling and parts. claims Dixon. attending any and all new product design meetings involving his or her company’s product area. the elimination of the salesman effort and cost. effective “design in” of suppliers helps in developing better products. import functions and domestic and international transportation. to the benefit of both companies. The logical step forward 121 . • the ability to sell their process and skills directly into engineering – this opportunity. Both work from real-time supplier data and have free total data access to each other’s company data. • an evergreen contract. with no end date and no rebiddding.with efficiency in order placement and material delivery fine-tuned to customer needs greatly enhanced. all of which more than offset the on-site vendor person costs. the aim is mutual benefit. with 11 in-plant supplier personnel addressing 25 per cent of the purchased dollar volume of material. provides for increased new business and subsequent process efficiency. • a natural foundation for EDI and other short cuts. • efficient invoicing and payment administration as paperwork is reduced and invoices are paid in a timely manner. carrying on a professional and fair relationship with other competing vendors in the same commodity has not proved to be a problem. Costs are lowered on new and existing products with savings shared. having this one “most favoured nation” supplier relationship. dramatically improved communications and purchase order placement. Computer terminals and software from the supplier tie customer and supplier together. For suppliers. include: • A headcount reduction or staff reallocation to address other purchasing needs. at the customer location on a full-time basis. and now encompasses nine suppliers. the process has been in operation for well over five years within BOSE. rather than today’s normal practice of visits. As with all partnerships. metal parts. As a benchmark. corrugated packaging. Although BOSE only implements one JIT II supplier in a given commodity. The benefits for the customer. • An ongoing material cost reduction as the supplier employee is also empowered and motivated to pursue concurrent engineering in-plant. an increased volume of business at the start of a programme and an increased critical mass of business. This places concurrent engineering in-plant. The supplier in-plant person is also empowered to practise concurrent engineering. benefits typically cited include. Also. being “designed in” early.

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. where he or she would take material requisitions from the planners at another BOSE plant. claims Dixon. for example. Overall. can be improved beyond today’s norms. in Mexico. planning. for one of the two representatives from G&F Industries – which supplies plastic injection molding tooling and plastic and metal parts. existing vendors are using this practice as a sales tool and have implemented it with other customers. Once this basic and rather substantial act of faith is accomplished. it is also being implemented by a number of major US corporations and is the subject of leading university case studies and MIT seminars.2 122 As Dixon observed. Later in the day this representative may attend a new product project review at the BOSE headquarters. . He or she may also speak to BOSE design engineers about existing parts and processes. BOSE plans to implement more JIT II vendors. 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. in-plant supplier personnel to place customer purchase orders on themselves and free access to customer plant and engineering programmes. to gather any information on parts G&F will be supplying. JIT II can be the facilitator and catalyst for change and considerable improvement. In practising what it preaches. A typical day. these in-plant representatives are not necessarily restricted to any one plant or office. The representative would then go to an office in the BOSE corporate purchasing department. concludes Dixon. when new product start-ups take place with various G&F parts. using BOSE purchase orders.IJPDLM 27. and address a quality control issue with corporate and plant quality personnel. The representative is also required to visit other BOSE facilities. engineering. importing and transportation. a wide range of daily business activity in purchasing. 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. etc. The key to achieving this is the relationship and structure which allows full-time. Moreover.

In the same fashion. Companies are sometimes reluctant to lose control of certain distribution processes and therefore make decisions based more on a gut feeling than data. relying instead on the distributor to provide them with information. (2) Decisions are driven more by emotion than by cool assessment. 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. For those keen to seek out fresh avenues. John DeVincentis and Trip Levis and they believe investing time and effort in a company’s distribution channels could boost profits and competitiveness. that means they probably buy fewer cars and this is not good news for the manufacturers. If they hate visiting dealers. and second-hand information lacks the accuracy that could help companies see fresh openings. Two factors seem to inhibit the efficient exploitation of channel opportunities: (1) Opportunities are hard to spot. 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. At McKinsey & Company the issue of channel management has been scrutinized by Christine Bucklin. the McKinsey researchers provide six clues as to where new opportunities may lie and how to make the most of them. but consumer habits traditionally change slowly. but problems such as these are often overlooked while internal operations are busily being reengineered. Customer satisfaction ratings rose and car sales went up fourfold between 1991 and 1994. when companies use distributors they can lose contact with their end-users. The reputation car dealers have acquired means that opportunities for doing things differently abound. Similarly. 28 per cent of gasoline costs and 41 per cent of packaged foods costs. They hate negotiating over price and they often come away feeling cheated. Channel vision 123 .Channel vision Car manufacturers have a problem because consumers hate visiting car dealers. Research has shown that distribution channels account for around 15 per cent of the cost of a car. Unhappy end-users The first clue is provided by unhappy 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. It is relatively easy to spot opportunities when they burgeon overnight. Stephen DeFalco. Improving this distribution network would obviously improve manufacturers’ sales figures. as General Motors’ Saturn division found out.

customers really wanted hot. Establishing the segments served by each channel. for instance. restructuring its entire retailing network and thus achieving the highest volumes and lowest costs in the market.2 124 Before being able to turn unhappy customers into happy customers. New channels still need to be evaluated and compared to current channel distribution networks. Direct Line. fast food. the products it offers and the functions it performs at the outset will ensure that these conflicts will be avoided. has found unprecedented success using information technology to provide a cost-effective and fast service to its customers. Filling in gaps in market coverage can be highly satisfying and profitable. Complacent intermediaries The fifth clue is provided by complacent intermediaries. In the worst scenario. The UK’s direct auto insurer. Gaps in market coverage The third clue can be found by looking to see if there are any gaps in market coverage. intermediaries can end up competing for the same customers. when lower cost alternatives that really satisfy customers are available to those who really find out what customers want. 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. but that Japanese companies were having success at the lower end of the market. Unexplored new channels The second clue is to look at unexplored new channels. 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. you need information on what makes customers happy. but caution needs to be exercised and transitions need to be carefully managed. Concentrating more on the food and less on polishing counters paid dividends. It is all too easy to spend heavily on features that are not at the top of the list of customer requirements. On the other hand. who are often unwilling to make the same efforts that are being made by the company to . One oil company did just that in the 1980s. 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. Xerox found. their outlets did not need to be absolutely spotless. 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.IJPDLM 27. One fast-food franchiser found that although their customers valued cleanliness.

Channel vision 125 . Dated systems at interfaces The last clue is found at the point where the company and its distributors meet and where information is exchanged. Electronic data interchange and efficient consumer response have helped in the more efficient management of inventories. Sometimes the fault lies in the way that incentives have been laid down by the company itself. according to the team at McKinsey. easier said than done. after customers complained about the servicing of their new automobiles. if customer satisfaction ratings are important then incentives have to reflect this.improve their competitive position. This provides an opportunity for renegotiating arrangements with the intermediary or going elsewhere. leading to cost savings. and succeeding requires taking a rigorous. As always. The good news is that technological developments are likely to provide fresh opportunities for those capable of making the most of them. But seeing where the opportunities lie would appear to be the critical factor in successful channel management. They may well be satisfied with their own performance. Investing in interface systems also benefits the company as it often makes it a preferred supplier and increases switching costs for the channel distributor. Channel management has a poor track record. systematic and continuously innovative approach. but the company or the end-users are not. Once the warranty reimbursements were restructured more favourably towards the dealers service performance and customer satisfaction improved dramatically. On close inspection it was found that dealers made very little on warranty repairs. One auto manufacturer restructured its reimbursement system to its dealers to strengthen their warranty service. For example.

drives outstanding performance in this area. suppliers. and save significant revenue. and hence beating their competitors two.IJPDLM 27. manufacturing and regulatory authorities. irrespective of their volumes. These findings have been established as part PRTM’s 1995 High Performance Factory Benchmarking Study. which was co-sponsored by 11 leaders of manufacturing industry and included over 150 participating plants. and reduced customer satisfaction. And best performance can be quite outstanding – within 12 months after the launch of a major new development project.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. According to international consultants Pittiglio Rabin Todd & McGrath (PRTM).to three-fold. 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. inventory bulges. examined high-technology factories source and make capabilities in five different industry segments. telecommunications equipment. Best-in-class (BIC) companies (BIC is the average of the top 20 per cent) accelerate their development cycle times. Their research reveals that those companies striving to improve their product supply capabilities. along with a gated product introduction process that is well understood by all parties. But the study found that many companies are left far behind their best in class rivals. medical electronics. Close linkages between development. A major factor in a product’s manufacturing launch time is the number of engineering change orders. as companies struggle to improve their product development. The study. and other electronic equipment. delayed new product introductions. against which companies can position themselves to evaluate their own performance. where getting to market quickly means the difference between market leadership and a warehouse of obsolete inventory. which provides a best practice model of “source and make” manufacturing processes on a global basis. back orders. server and mainframe-class computers. who can reach production in one-third of the time – top European companies beat average manufacturing launch time by 75 per cent. are becoming increasingly successful in overcoming past problems. the time required to ramp up a product from first prototype to full-volume production is critical. 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. However. This emphasis has typically resulted in high manufacturing costs. personal computers. which are typically brought about by product design quality issues and difficulties with component sourcing. In the high-tech arena. BIC computer companies in the 126 . The summarized findings of the study are presented under four main headings. product shortages. by reducing the number of mistakes made in the design process.

Supply bases are shrinking rapidly.server and mainframe market report only three ECOs. The same BIC companies can also more easily adjust to a downturn. sourcing time (the time to specify and acquire materials and components) comprises nearly 75 per cent of the entire source-make cycle-time. compared with 12 per cent in 1992. there is a measurable difference between delivering what a company promises and meeting actual customer needs. providing companies with new ways to speed production. The personal computing The highperformance factory 127 . 33 per cent of transactions are completed via EDI. as opposed to 31 suppliers in 1992. Currently. while average companies only meet 50 per cent of those requests. 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. Proper management of inventory is also critical for cost. and the old practices of inspecting every piece part received is being replaced with vendor certification programmes. While many factories perform reasonably well in meeting the committed delivery date. Supply-line management – formerly known as purchasing – has become an important new tool for gaining competitive advantage. As an example. across all industries. 27 per cent of transactions are now completed by electronic data interchange (EDI). but companies that find ways to reduce sourcing time take a dramatic lead time advantage. In terms of inspection effort. as compared to the median figure of 19 ECOs. in 1995 the average computer company obtained 80 per cent of its materials from 22 suppliers. in 1995 82 per cent of incoming material lots were received without inspection. up from 18 per cent two years ago. sustaining an average of 94 per cent order reduction within 45 days of scheduled product delivery with no inventory or cost penalty. 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. an increase from 65 per cent in 1992. Although changes in supply-line practice are industry-wide. save money and improve quality. For Europe alone the picture is slightly different. BIC companies needed only 20 days to achieve an unplanned 20 per cent increase in production. These companies are also phasing out cumbersome paper-based ordering mechanisms. 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. Companies that cannot respond quickly to changes in the marketplace run the risk of out-of-control inventory and lost revenue. In the computer sector. they do not come close to meeting the date initially requested by the customer. Across all industries. For example. flexibility and cycletime performance. while median companies needed 56 days. PRTM’s new study reveals that supply-line practices are changing dramatically. down from 55 suppliers in 1992. According to the study. The average company can only sustain a 20 per cent reduction for the same amount of time.

2 128 industry has proven itself a leader in this area. observes the study. with fewer inventory days of supply than every other study segment. 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. companies buying the most material are going to have the lowest rates. 15 cents for those with 200 million. Finally. various factory improvements. Volume is also a major factor in low material acquisition costs. the number of parts procured. PRTM’s examination of manufacturing processes revealed the continuing significant impact of high volume on factory costs in 1995. percentage of material procured from international sources. unique part numbers manufactured. Though median assembly costs have dropped. typical companies are still lagging behind the BIC competitors whose costs are 7 cents per placement. Figures show. They can improve the efficiency of their acquisition function by examining the number of suppliers. however. For example. . concludes the study summary. median cost per placement for printed circuit board assembly declined by 20 per cent since 1992. from 35 cents to 28 cents. 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. and the ratio of indirect to direct employees. For example. median cost per placement for printed circuit board assembly was 32 cents for factories with a volume of 25 million placements. that these best-in-class companies saw no cost improvement during the last few years. and only ten cents for those with 800 million. Obviously.IJPDLM 27. In fact PC factories have reduced workin-progress and finished goods inventories to less than one week of supply each. but companies can still find ways to remain competitive. This is attributed to a decreasing number of low-volume producers. some of the other cost-related areas companies can address include plant location. printed circuit board assembly density. suggesting that the influence of volume may have peaked for the leading companies. and the percentage of material received without inspection. and an increasing reliance on outsourced production. While volume is still key.

That reaches beyond manufacturing excellence into three key areas – value chain excellence. Companies need to extend the definition of excellence to encompass the whole enterprise. The company has a lurching. ordinary things – flashlight switches. According to some experts. Control does not mean huge budgets and intricate manufacturing processes. The Island of Excellence organization will do many things extremely well – manufacturing. erratic corporate attention span that makes attention deficit order look like the company’s single unifying theme. and customer fulfilment.e. on the other hand. procurement. in the year 2010 there will be two types of enterprises: the Island of Excellence. lords or servants. pans and dog collars. not just the manufacturing side of things. By 2010. The whole company has to embrace excellence. and where they get closer to real customer involvement in product design fulfilment. logistics and all the other places where time gets used up with no payback. at least not yet. trained and motivated. The value chain vision will be driven by Ensuring manufacturing excellence 129 . but after care. aware of their position as an élite corps. where they make the biggest impact on product design and introduction.Ensuring manufacturing excellence Master or mastered. The biggest areas of opportunity in the next decade and half – in terms of manufacturing excellence – is not manufacturing itself. and all the rest. Simple manufacturing excellence will be. 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. Through value chain excellence they will have created a perfectly balanced entity that translates customer ideas or wishes instantaneously into perfect products. All the rest. as quality has become. the Island of Excellence enterprise will have achieved excellence in customer fulfilment. These are the areas where innovative manufacturers take huge chunks of time and money out of the system. The workforce will be very special – specially selected. being controlled by companies which have controlled technology. The coming years will see companies either controlling technology or being controlled by it – i. real-time customer design of product and simultaneous production. These include customer fulfilment. They need to concentrate on the front end of the system – design. organizational excellence and the knowledge worker. How can companies ensure that they are in these big leagues 15 years from now … just read on. make only simple. the ticket to the corporate big leagues in the next 15 years. 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. packaging and customer service.

with no bricks or mortar – no underlying “philosophy”. more like an élite group of soldiers who can swoop into a problem. The third area for an Island company to achieve manufacturing excellence is to create knowledge workers. delivered on site. and are comfortable at using IT and other technical applications. organizational excellence and knowledge workers. Island companies will reward workers for patient and deliberate skills acquisition in a number of complex and challenging areas. Building knowledge workers will in turn fulfil the key factors for manufacturing excellence. the spots where customer fulfilment happens – design. knowledge workers are ethical and committed to the company. When needed. product design. internal recognition. Supplier development will become a corporate dictum. People development in companies of excellence means customized training and education. It will mean justin-time training. The winning organization will be smaller. they have tremendous skills in communication. defend or move markets. 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. The year 2010 will see manufacturing companies split into two camps – the Islands of Excellence and the others. The way to create this ideal is to build as many opportunities for cross-functional integration into the organization’s hiring. In the year 2010. These are boundaryless jobs. partnering skills and changeable technology-driven knowledge. base monetary compensation as well as lifestyle benefits. Reward packages will include a mix of rotations. There are three building block for creating an Island. Companies which build reward schemes based on monetary rewards will find severe limitations to workforce flexibility and growth.2 130 simplicity. and are extremely adept at creative thinking. simulation. training. Knowledge workers have strong technical bases and experience. Simple systems will ensure integrated data channels and rigorous information channels throughout the chain. there will be a balance between technical specialists and customer fulfilment specialists. in Island of Excellence companies. development and reward systems as possible. such as languages. database use. . logistics and procurement. The workforce will be empowered and self-managed – hierarchical organizations will not be able to mobilize quickly enough to capture. The vision will be stretched and extended to include the “last frontier” opportunity areas.IJPDLM 27. The US-led era of rugged individualism will give way to an ethic that protects the common good. specific – and temporary – group or team profit-sharing plans will be used to encourage entrepreneurial businesses. the organization – as well as the individual. Essential to this organizational excellence is having a knowledgeable and trusted workforce. Organizational excellence means that everybody within the company works for the customer. modified quickly as needed. Second. Which camp your company will belong to depends on how well you can follow and implement the recipe above of value chain excellence. work as team and solve the problem. people development and compensation and rewards. Finally.

© MCB University Press. 2. pp. 27 No. 0960-0035 .SECTION 4 21st century service industries International Journal of Physical Distribution & Logistics Management. 1997. Vol. 131-142.


Many parts of the world are sustaining much higher rates of growth than the mature Overcoming the hurdles in global retailing 133 . is globalization. buying habits and spending patterns from one country to another. Toys ‘R’ Us. luxury brands like Hermès and Gucci. impenetrable established supplier relationships. leisure goods. and general merchandise retailers such as Marks & Spencer and Sears. Accommodating these differences means tailoring the merchandise: food. The Disney Store. But the reality is that it is more difficult for retailing to operate across distinctive national markets in comparison with other industries. Retail performance in local markets is highly sensitive to consumer behavior. 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. Carrefour. Proof can be seen in some of the indicators of market opportunity: currency convertibility. IKEA. unfavourable tariff structures. 1. and so on. Gap and Body Shop. exchange control.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. many participants have ventured overseas in the past 20 years. opportunities to move successful formats abroad would appear to be boundless. freeing up access to more countries and allowing entrants to establish viable market positions. restrictions on trading hours and foreign ownership. which began in the late 1980s and is still under way. No. Leading this global charge are firms such as Wal-Mart. The first wave during the 1970s and 1980s included speciality retailers with proprietary brands such as Benetton and Laura Ashley. well-funded grocers and hypermarkets (Tengelmann and Makro). Their experiences fall into two distinct “waves” of expansion. Given the substantial productivity advantages enjoyed by the world’s best retailers. majority ownership rules and repatriation of capital and earnings.e. The second wave. One of the most problematic trends. Nonetheless. In the last three years or so. stock exchange access. Other problems include: shortages of resources such as land and labour. 1996. However. toys. Kathleen McLaughlin and Christiana Smith Shi. Many encountered difficulties and some were forced to pull out. say McKinsey’s Karen Barth. with movement beyond a retailer’s established trading bloc (i. followed a different pattern. from Europe to Asia) as well as greenfield expansion and joint ventures rather than acquisitions. global retailing is still in its infancy – but the momentum is growing. Entrants in places such as Thailand and Indonesia will find pronounced differences in consumer tastes. writing in The McKinsey Quarterly. clothes. barriers have crumbled around the world. Nancy Karch. 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.

• adjust their concepts and profit formulas in every market to achieve sustainable levels of return. M&S may have missed the chance to build something big in Canada. To win in international retailing. a dozen distribution centres and 2. and its engineering and business services groups coach these suppliers to raise productivity. when Marks & Spencer introduced a new retail concept to Canada – apparel plus food – it attempted to operate with its successful UK formula largely intact. and although this is no guarantee of market attractiveness. It has transformed its relationships with consumers. It has built up a following across widely different markets for a relatively consistent line of Scandinavian-inspired furniture. but not exclusive enough for the highly competitive Manhattan market. it maintained a traditional private-label stance against more fashionable competitors. where it exists. It has invested in global information systems to manage logistics across more than 120 stores. Perceived as French.IJPDLM 27. In apparel. They will also need to: • restructure their business systems. it has cut its manufacturing and distribution costs. only a relatively small proportion of demand is currently captured by organized retailers. the concept failed to find a sufficiently large customer base. This means that the success factors they have always relied on – brand. • create new relationships with vendors. it offered such items as Scotch eggs.2 134 economies. Galeries Lafayette attempted to export a high-end Parisian fashion concept to the USA. In food. • outsource non-critical activities. Difficulties arise when retailers try to export – wholesale and unchanged – a retail formula that is successful at home. • build truly international management teams. For example.300 suppliers in . IKEA leads the way IKEA is beginning to change the retail game as it creates and maintains a superior global business. source raw materials and achieve quality standards. which again reduces manufacturing costs. opportunity often follows. thus boosting volume. both locally and globally. in other words. and by “teaching” them to assemble furniture. As in Britain. which few Canadians recognized or liked. Although it has since moved to address many of these cultural differences. It has also transformed its relationships with suppliers. skills. productivity – must be re-examined as they expand. Many of these fast-growing markets still offer substantial “unstaked” market share. it neither provided fitting rooms nor advertised heavily. companies need to assess their competitive strengths and position themselves so that they can re-invent advantage in each new market. leaving ample room for new entrants. • manage alliances and partnerships. Similarly. Its buying offices scan the globe for potential suppliers.

but let someone else run it. Among others. a broad range of retailing strategic options emerge that go beyond the traditional business exporter approach. 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. Marks & Spencer has achieved greater success in Asia than it did in Canada. Wal-Mart. maintaining that few companies have managed to establish genuinely global businesses.nearly 70 countries. (3) Skills exporter – companies export unique skills rather than entire business systems. something Benetton continues to struggle with. for instance. (2) Concept exporter – Benetton’s strategy to export a distinctive concept. hurdles in global Once a retailer starts to approach globalization in this way. . 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). A vital ingredient of such an approach is effective control of franchise execution. it is clear that the prospects of long-term growth and tangible financial gains are too real to be ignored. 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. Makro and Carrefour show signs Overcoming the that they are starting to recognize and adopt this approach.

The revolutionary forces are being led by that all-purpose radical of the 1990s – the Internet. creating brand awareness. online computer services and interactive kiosks all the way to shopping by computer. the Far East and the developing world. What interactive marketing actually is and how it may – sensibly – develop is outlined. The growth of interactive media and interactive marketing is largely driven by the technological development in computers. locating the particular sources themselves. Although customers in many parts of the world routinely purchase by 136 .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. differentiation and preference among customers and convincing customers in order to obtain orders and sell. Interactive marketing is a broad term which takes in any kind of marketing via interactive media. Marketing is considered to be interactive wherever there is a continuing dialogue with customers that is not subject to the typical promotion lag. Many industry analysts see interactive marketing – buying and selling through the Internet – completely revolutionizing the marketing process. Over ten million Americans are now connected to the Internet. from video games and TV home shopping through CDROMs. and the acceptance of new forms of communications. and to follow through. The advantage of providing information interactively is its low cost per contact compared with traditional methods of sending mail pieces or manning the telephones. The advantage to the marketer is a much lower cost of providing the information compared with traditional. The same trends are in place across Europe. and some go as far as to say that shops will no longer exist as all transactions will take place online. It does not achieve its full potential when customers have no incentive to search. Much interactive marketing activity has focused on providing information about products. labour-intensive methods. Interactivity usually requires the customer to take some form of initiative – to enquire about a product or service. 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. The opportunities actually to purchase through interactive media are far rarer. However. This latter point is brought home after looking at the global reach of online services. and the figures are rising daily. services or other subjects and what attracts the user is the speed of getting this information and its completeness.IJPDLM 27. Interactive marketing is ideally suited to perform three key marketing roles: informing customers about a company’s products or services. 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.

Here. . Many such products are sold today via mail order. companies must do the following: establish an Internet connection by obtaining an Internet address. such as those based on high fixed assets like retail stores. 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. fax or mail. purchasebased. interactive marketing systems may come to dominate because of their low transaction costs. experienced manpower. customers are relatively well informed and do not have a large information need but they actively look for the products. These “unsought” products include low-interest items such as simple business supplies or standard household consumables. The main barriers are data stirs up retailing security and privacy. The potential for cost saving in routine marketing operations and concentrating resources where they count most makes interactive marketing a key area of interest. the move to provide interactive electronic purchasing has Radical Internet lagged behind the rush to deliver information. Interactivity is likely to become a powerful tool in those markets where the customer has a strong incentive to search for information. On the other hand. with consumers and businesses passing their orders via the post. thus generating a flow of queries about the company. and the constant need to improve marketing effectiveness in a highly competitive environment.telephone. or actively seeks to purchase the products because of high interest value. marketing professionals cannot afford to ignore this new technology. This will be particularly true for categories in which a vast selection of products is important. or those which rely on scarce. or even international shipment. Customers are often reluctant to transmit credit card numbers electronically or other sensitive information which will stay in the selling company’s database. These developments will have a sweeping impact as companies which use interactive purchasing intelligently will be able to penetrate previously unreachable markets. 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. 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. open a World Wide Web page on the Internet allowing customers to self-select information. these product areas will be ready to move to electronic interactivity. In these markets. allowing geographically far-flung customers to purchase quickly and easily from companies from even more far-flung suppliers. technological developments that will offer full security are not far 137 away. fax or telephone. electronic interactivity may drive out more traditional forms of marketing. In another category. and where the ratio of transport cost to value favours regional. and devise procedures to move from information interactivity to transaction interactivity. With marketing operations under attack in many firms. However. Eventually. To make the transition to interactive marketing.

IJPDLM 27. Interactive marketing will never take the place of interacting the old fashioned way – with a retail salesperson or shop assistant. . in many aspects of purchasing life. buying electronically will inevitably replace face-toface transactions. Therefore companies need to be looking at all forms of interactive marketing now – not when the method becomes an accepted norm.2 138 This will challenge the company to allow customers actually to perform part of the business electronically. How fast the new approach is adopted and mastered by businesses may well make the difference between tomorrow’s winners and losers. However.

The bank was originally created and designed by a relatively small financial services player – the Kentucky based.Banking on the Internet For many years commentators have said that the traditional bank has about as much future as the dinosaur. Telephone banking was introduced in 1977. in 1994 the sale of PCs exceeded the sale of color televisions for the first time. will be able to create its own online bank – cheaply and effectively. Both can gain access to the Internet for approximately the same cost. inconvenient opening hours and unhelpful branch staff. $580 million-asset Cardinal Bancshares organization.2 million in the development of a completely Internet-based bank. in the age of electronic banking. Finally. with the Internet. In May of that year Huntington Bancshares and Wachovia Corporation each invested $1. Any bank. Over 30 million PCs are in homes across the USA already. Cardinal launched. But why is electronic banking finally catching on now? After all. The electronic ground was well and truly broken in the USA in 1995. Banking on the Internet 139 . the computer industry anticipates shipping 12 million PCs in 1996 alone. 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”. Granted. but it has only been the last three years in which there has been any significant use of the services. both large and small banks are now on equal footing. The lesson of Cardinal and Security First is that. Despite repeated attempts by computer security experts. the security of the software has never been breached. it appears that consumers. 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. and both can compete in the same environment for customers around the world. Industry reports show that. 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. Now. may skip right over telephone banking and go straight to PC banking. 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. from the smallest community bank to the largest commercial bank. on the whole. in the USA alone. the Security First Network Bank in October 1995. With this as the background. the technology has been available for over 20 years. What is more. many of these commentators secretly hate their bank because of punitive charges. The Security First offered checking and savings accounts to anyone with a computer and a modem. 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. they might be right. with the other partners’ assistance.

the banks hoped to maintain their one-to-one relationship with their customers. Electronic banking makes good economic sense. through the telephone. It seems clear that partnerships between banks. PC banking or through the Internet is a decision each bank will have to make. 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. Banks – and non-bank competitors such as insurance companies – are developing online services as fast as they can. will become more common as different parties seek to develop cutting-edge abilities and services. exploring telephone banking and screen phone options first. banks also stand to save significant amounts of money by converting customers to self-service online banking. By purchasing this homebanking software. NationsBank Corporation and BankAmerica Corporation announced their purchase of Meca Software Inc. In the same month. . the winner will be the one with the easiest customer access. the Internet or any other electronic method that may be developed in the future.2 140 Chief among the many deals was the purchase of software service providers. NationsBank and BankAmerica planned to allow a limited number of banks to join them as owners of the software.IJPDLM 27. Financial institutions of all sizes – at least 75 in the USA alone – have taken the plunge and created home pages on the Internet. No longer will the winner of the financial services game be the one with the most branches.10. The message is clear. Whether banks choose to address electronic banking through telephone banking. Some banks are starting programmes gradually. and between banks and service providers. while an equivalent electronic transaction costs about one-fourth that amount. In addition. Others have commissioned proprietary software that they will provide to their customers for PC banking. This is a critical opportunity to lead the industry as consumer demand for financial products continues to grow. A recent study shows that an average transaction performed by a teller in a branch costs $1. Banker colleagues and experts alike are urging banks not to fall behind in this rapidly developing environment. In addition to meeting consumer demand by offering electronic alternatives to financial services. the makers of the “Managing your money” software package. no matter how one looks at it. There are countless opportunities for banks of all sizes to explore electronic banking.

The first was market presence. video and sound. to its 23 consecutive years of profitability. select a form of payment and purchase the ticket on-line. Filling a seat. Southwest Airlines – the American domestic passenger carrier – provides an excellent lesson on how to make the Internet work. it saves the company money. as in a relational database. Southwest Airlines’ Home Gate 141 . The airline is the first to enable customers to make reservations and purchase tickets on-line via the World Wide Web. including text. Third. their destination. to its casual corporate environment. Objects relate other objects by direct pointers instead of joins on keys. Southwest Airlines has always been different. Southwest continually differentiates itself from the rest of the airline industry. This allows relationships. travel date and approximate departure time. Southwest’s Home Gate could not operate as efficiently. The Internet is becoming the marketplace. Failure to be present on the Internet can cost a company business. Reserving and purchasing tickets for a flight is as easy as pushing a few buttons on the interactive “Home Gate”. such as “a document contains several images.Southwest Airlines’ Home Gate The Web might be good way of idly passing a few hours of leisure time. Southwest sells nearly half its tickets directly to passengers. and empty seats mean lost revenues. There were a number of reasons why the airline decided to create a presence on the World Wide Web. and its foray into the Internet is no exception. image. effectively or as quickly without being based on object applications. However. store. The customer can then make a reservation. 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. Customers simply click on the departing location. ODBMS facilitate and enable the development of new Internet and Web applications by providing unique capabilities to manage. the Home Gate enables Southwest to provide additional services and convenience to customers. Transaction security is assured through the use of encryption technology. The company uses an object database management system (ODBMS) as its core application. In the first few weeks of the Home Gate system. From its low cost flights. query and retrieve the extended data types and relationships required by the applications. The Home Gate looks up the fare and schedule information and returns the appropriate information. Although airlines typically sell 80 per cent of their tickets through travel agencies. stored and quickly retrieved from the database without computing joins. Second. pieces of text. Airline revenues are based on the number of people in seats per flight. Objects can be any data type.000 hits daily. Southwest exceeded its initial expectations with over 100. and an audio clip” to be easily represented.

The site has to be able to handle and present dynamically updated information. instead of joins as in a relational database. the information is stored in ObjectStore. Speed is a top consideration.6 billion by the year 2000.IJPDLM 27. it must also be able easily to manage and quickly traverse a highly complex data model. fares and availability data. As noted above. departure times. underlines the growing realization of the power of the Internet for business purposes. and the second is that. Hand in hand with this growing awareness is the growing use of object databases for Internet and Web applications. and Southwest’s central reservation system is immediately updated. schedule and availability information changes frequently. fueled by the growth of Internet application development and the need to manage multimedia information. When a customer chooses the variable information on the Home Gate pages. an object-oriented application from Object Design. because reservation information comprises a combination of cities. The usefulness of the Southwest Home Gate. To meet these requirements. Finally. . Southwest used ObjectStore. The study of Southwest Airlines has two important lessons. the resulting HTML request is translated into an ObjectStore database query. ObjectStore executes the query using pointers between objects. the total market for object databases – which was $115 million in 1995 – will reach $1. arrival times. Also. Fare. ObjectStore returns the flight and fare information to the Web server via formated HTML pages. Rate changes can be posted and seats can be sold directly to customers at deep discounts. According to recent market research. choosing the right technology was key to building the site. adds revenue. an object database management system is probably just the ticket.2 142 even at a discount. the Internet allows Southwest to collect data and tailor messages and interactions for specific customers. Once a customer makes a reservation. 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 the business benefits the company has enjoyed. The first is that the Internet can make a difference financially. to create an effective and efficient presence. companies have to utilize the best application platform for their needs – and for most applications. The logistics and expense of traditional marketing prohibited this kind of reaction. and the Home Gate allows Southwest to react quickly to shortfalls in seat demand on any particular flight.

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