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