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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
The conventional small job shop (as in the printer world) will change or die. In addition to the “print” button. Now we must think about the under-utilization of machine tools and the inventory in software. Historically. We can expect that Internet-connected manufacturing capability will be as close to the customer as possible. we can place the replication process at the consumption point. it can never happen here. In all of history. Utilizing the Internet (or its cousins). Magazine sales of products. union members and politicians will all try to resist.and service-free five-year life. as opposed to a high maintenance. Now. We can expect the usual Luddite reaction to these changes.2
Desktop manufacturing (DTM) What is DTM? A close analogy is desktop publishing. Spare parts and small physical products (toys) will be made on demand in the store. The dark side Any innovative. We are special”. large and small. machine tools were high priced devices to be used optimally – as were printers. Philosophical considerations abound. and for the convenience of the user. Nothing is older than the future unheeded… Dick Morley Mason. not hardware. DTM must be considered in the same vein. NH
. Machine tools will be lower in price and fully compatible with Windows 95. we will have a “make” button on the menu. Desktop publishing allows the computer user to self-publish. Environmentalists. rather than the equipment. Industrial products will be designed for a trouble. not the resource point. will skyrocket. 20-year life.IJPDLM 27. We must now think in terms of the human. turbulent change brings problems. Finished goods inventory and instant changes are available at the stroke of a key. but for only a small percentage of the time. Printers of high resolution and colour are available for several hundred to several thousand dollars. Software permits the process. Look to the communications and computer industries for future direction. utilization. The printer is used for DTP. Innovative replication and manufacturing at point of use will be strong trends. manufacturing facilities are located for cheap labour or materials. pundits have said: “Even if it happens elsewhere. or use technology narrowly for selfaggrandizement.
Vol. pp. 27 No. 0960-0035
. 2. © MCB University Press. 77-96.SECTION 1
International Journal of Physical Distribution & Logistics Management. 1997.
what today’s critical success factors are perceived to be and how the industry must develop over the next five years. in order to weather adverse economic conditions. the survey results. an international survey has been conducted by Ingersoll Engineers in co-operation with Financial Times Conferences. must now turn to more outward-looking approaches. Compounding the difficulties caused by successive worldwide recessions. such as providing higher added value to customers and developing better working relationships and ultimately partnerships. working relationships and partnerships a crucial factor. the component supply chain companies are of equal importance to economic interests. other factors include: • increasing pressures from discerning customers and developing competitors – in western Europe in particular. • the immense environmental and legislative pressures being imposed on the industry in many areas. their approach to improving performance has been essentially inward-looking. However. if they are really to improve their performance and that of industry in general.Driving future trends
In recent years many companies worldwide have been focusing on their core business. Where this industry – which holds a key position in the manufacturing economies of many countries – leads in terms of international trends. there is a developing consensus that this tactic may have run its course. • a range of IT (information technology). To examine what is happening in the automotive component supply chain. Few can have failed to notice the dramatic changes which have occurred within some of the automotive industry’s major organizations. from CAD to EDI. other industrial sectors follow. and these companies are now being forced to cope with a much greater range of competitive pressures than ever before. focus on three key
Driving future trends
. Overall. downsizing and outsourcing. Nowhere is this thinking more evident than in the automotive industry. which have been published in the report entitled Partnership or Conflict. In effect. has been rapidly developing to support the complete range of business activities and help revolutionize ways of working. Having sought predominantly the opinions of senior executives working in the automotive component supply chain. However. with the subsequent breaking of new ground in terms of performance requirements. this competition (from Eastern Europe and the Far East) is expected to grow. Companies. the demands being placed on the supply chain have made its management a major issue of the 1990s. in particular those within the supply chain.
However. Although ongoing. Also. this view is in stark contrast to that of manufacturers which see this as becoming one of the top success factors within five years. the most important critical success factors in the market. and the ability to respond specifically.
. Specific differences How well companies can respond to these developing requirements will provide differentiation and order-winning capability in future. These are critical factors. However. According to the report. it is much less a feature in Australia and the USA. Critical success factors Internationally. This includes greater adoption of CAD and EDI links. global presence is the success factor demonstrating the greatest variation between vehicle manufacturers. will give competitive advantage all the way down the supply chain. to Jaguar and Rover – UK companies with no overseas operations. • The fact that recycling ability is one of the fastest-growing factors for everyone reflects the increasing environmental pressures being imposed on the industry. component suppliers broadly agreed that quality and delivery are. and the Japanese companies Toyota and Honda in the UK are perceived to be strongly against the trend. the whole issue of price will remain a major pressure which needs to be resolved. and will remain.2
points for future development. regular price reduction is today one of the most important factors worldwide. The notable factors. 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. Although this issue remains a low priority overall for suppliers. specific differences and strength of partnerships. 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. the general consensus is that it will become less important in five years’ time. it is also vital that suppliers appreciate the potentially conflicting demands of the various vehicle manufacturers – which have significantly different needs. where global sourcing is currently very much an issue. which are commonly seen as most rapidly gaining in importance. while component suppliers feel that there are more important factors to focus on in the future. The range is from Ford and GM in Europe. Awareness of these differing priorities. Similarly.IJPDLM 27. cultures and ways of doing business. Both now and in the future these are order qualifiers which supply chain companies know they must offer to win business. whereas development risk sharing seems to be a requirement of major European companies.
Specifically. CAD links and direct delivery to the line side. closer communications and better relationships will be at the heart of supply-chain management. and a soft agenda to improve understanding of processes and business strategy. progress has been slow. therefore. The accepted way forward. particularly given that customers are looking to their suppliers for more product innovation. stated one respondent. but only 2 per cent of the respondents described their relationship with either customer or supplier as a full partnership. but also to take on more value-adding work by introducing new technology as part of the price/cost battle. with one general manager of a Tier 1 supplier in France declaring that there is “still a cultural gap between speeches and realities”. finds the report. Also evident in this partnership and deployment theme is the issue of working together on product design. including more technical collaboration. 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. In tomorrow’s business environment. The purposes are both “hard” issues of quality. as will excellent working relationships both up and down the supply chain. Essentially. and establish better communications.Strength of partnerships For the future. as many adversarial attitudes remain. a lack of understanding on the part of their suppliers and a failure to focus on their needs. As well as practicalities such as EDI links. although the issue of partnerships may have been on the agenda for some time and the theory well understood. The views on communication reflect the views on partnerships. preassembly and other investment-intensive technical support in the future. delivery and cost improvements. Suppliers not only wish to become involved in the process. and the links in the supply chain are often under strain. 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. understanding and mutual benefit – the need is for “true partnership without greed for one another’s profit margins”. Suppliers’ grumbles are predominantly about price and the wish to see more fairness. Across all the regions there may be almost uniform agreement that partnerships are better than “OK”. The report reveals that there is still much to do in this area: there are still many frustrations. Unfortunately. however. is through more efficient collaboration – closer partnerships. the process revolves around trust. customers still frequently report poor communications.
Driving future trends
. faster prototype development times. Conclusion There is little doubt that partnership is a thorny issue. Developing partnerships and building this trust.
is deepening. Changing of attitudes? With the peaking of export growth occuring in the latter half of 1995. being laid to rest.
. in part. 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. A demand for heavy customization in their orders is reported by 42 per cent of survey respondents. most companies surveyed expect competition – especially in the UK and Europe – to get increasingly hotter. the manufacturing-led recovery is rapidly slowing down. 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 competitiveness debate becomes more intense. 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. and a continuing coolness apparent within the UK domestic market.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. apparently. which is. In this period of little growth. UK industry is facing a skills shortage which. and could potentially severely hamper any long-term plans to move to competing on added value and tailoring products to customer needs. or technological leadership (26 per cent). even with the possible market upturn predicted for later in 1996.IJPDLM 27. who are already moving into “mass customization”. there is a continuing love affair with cost cutting. by definition. as illustrated by the manufacturing attitudes survey. conducted by Benchmark Research and published by Computervision Ltd. suggests the survey report. obstructing this vision of future competitiveness are two key problems. Also. Moreover. the main competitive thrust for the future must lie in providing value-added products tailored to customer requirements (58 per cent). how do they intend to get there. In such a climate. with many companies reexamining the way forward – where they are going. has become harder. contributing to the skills dilemma. and have they got the approach and resources needed? The collective outcome of this situation. The prediction that the majority of UK manufacturers intend to move closer to world class through customer focus. is based on the main findings of the fourth annual Manufacturing Attitudes Survey. However. • Rather than aiming to compete as a low cost producer. “is no longer seen by the country’s manufacturers as a desirable or even achievable way forward”. if anything. “Sweatshop Britain”. And within this marketplace. competing has got tougher and winning orders.
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. Yet. Yet. cost reduction still comes top. and experiences have proved that the customer is often willing to pay a higher price for the right product. and the intended marriage with customers. as opposed to 69 per cent who see cost of products as key. only a meagre 42 per cent of respondents judge a supplier mainly on the value added. In accepting that “supplier partnerships” do deliver significant benefits – a view apparently widely held. Yet. Move on from preoccupation with cost reduction Unfortunately. product development and IT integration. This “unhealthy” preoccupation manifests itself in numerous ways. 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). As well as customer service and flexibility. high product cost is cited by more manufacturers (24 per cent) than any other factor. historical neglect in this area means that the main route at present to tackling the shortfall is through training on the job. cost. the UK has one of the lowest cost bases among European countries. forged on producing quality customized goods. Building on IT strengths Fortunately. being the main focus for 23 per cent of respondents. • Many manufacturers still do not seem to recognize that buying cheap is not the same as buying value. • When asked about the UK’s biggest competitive weakness. 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. many manufacturers also regard investment in IT as perhaps their most significant weapon. the survey identifies that many companies are facing skill shortages in engineering and other manufacturing disciplines. Although initiatives are now in place at school level to attract more young people into engineering. This investment advantage may
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. there are positive factors in UK industry’s favour. 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. when asked about actual strategic actions. actions may speak louder than words.•
If customer-focused manufacturing is to be successfully established there has to be further development in a number of critical areas – skills.
As the survey report highlights. the expectation of emulating such change in more UK manufacturers is not totally unrealistic. with 80 per cent of respondents claiming that IT payback does not yet meet expectations. the manufacturers’ business processes are fully understood and reengineered where necessary. and in this area the survey found that the majority of companies are still frustrated. IT is overlaid to automate these optimized processes. and then.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. And for many companies. as some leading UK organizations have already delivered business transformation in part through the successful deployment of IT. a new approach to implementation needs to be recognized and accepted as the best way forward – both by manufacturers and IT suppliers. in effect forces companies to take a more departmental and short-term view when procuring and implementing IT. with manufacturers acknowledging significant IT payback at department level. the UK seems to be ahead of its main competitors in exploiting IT. This is particularly true of companies with turnovers of more than £100 million.
. many (25 per cent claims the survey) have already turned to IT to help improve communications and manage the process. This approach. Working together.IJPDLM 27. Controlling new product information New product development is an increasingly important process. As manufacturers recognize the importance of having to share and control information across teams and with suppliers and customers. many companies are now recognizing the need to wring greater returns from their investment. especially if companies expect to provide more customized offerings. those companies which achieved transformational change have done so in close partnership with their IT suppliers. there needs to be a move away from the traditional cost accounting payback method for justifying IT investment. the answer is twofold. Second. However. To achieve the real breakthrough in competitiveness senior managers are now looking to IT to deliver transformational change on an enterprise-wide level. which is still the most popular and used by 35 per cent of survey respondents. First. and is one area where IT can prove its worth. Developing enterprise-wide IT Although.
tested and implemented as a corporate-wide programme affecting all disciplines from manufacturing to marketing. Customerize was never intended to be merely an advertising theme or pointof-sale technology: neither an umbrella for all products and services. Its core strengths. This initiative was researched. This helped to identify a key differentiator: a focus on the clients’ customer. internal groups and advertising agencies. Enter the chain anywhere and you find that the next organization in the chain is dependent on the earlier ones. telecommunications. this need for Unisys – and its clients – to offer superior service means that it is no longer sufficient just to take care of your clients’ service needs – that benefit must be carried through to their customers as well. and to communicate this capability to a widespread and diverse client base. nor a short-term gimmick. to the user or buyer.
“Customerize”: Unisys Corporation 85
. and a major supplier of information services and technology to financial service. and it applied to all levels of the business and public sector community. coupled with increased demand. government. to other users or buyers. but where did it start? Customerize evolved from the company’s experience in working with clients. searching for a novel and effective way to provide high quality service at all client levels. The idea had merit because it was so simple: furthermore. and back to the initial providers. The company must look carefully at aligning its customers’ information strategy with their customer service goals. Unisys. No one was left out. Included in this was the concept called Customerize. So. There is an endless chain in any business that goes from the suppliers of raw materials. to sales and services. In this commodity-dominated society (the company reasoned).000 customers in 100 countries worldwide. It was seen as an effective way to market the US$9 billion company’s services and products worldwide. For recognition and positioning. airlines and other markets. service is often the only differentiator among companies.“Customerize”: how it worked for Unisys Corporation
Unisys Corporation is a leading information systems company with 60. created a unique opportunity for Unisys to help its clients attract and retain their customers. In early 1993. and from discussions and evaluations with research organizations. it was better than many other forms of customer-orientation because it crossed all the usual borders. to the manufacturer or service provider. Customerize was a philosophy based on the premiss that service to the customer was the prime directive for any of Unisys’ clients. Customerize has been a huge success. 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. Unisys’ global market position and market opportunities were scrutinized.
The company implemented Customerize by. Customers also were trained.2
Thousands of Unisys employees were trained so they were tuned into Customerize. the best they can achieve is parity: you will not get ahead. Competitors’ best practices were analysed to shorten the time frame in responding to customer needs. One simple measure of success is to count responses.IJPDLM 27. The greatest measure of all is from clients. when tested in focus groups. did not do well. the Customerize process might begin with (for example) research on market trends. and from the increase in contracting engagements for Unisys in assisting clients to Customerize their operations. and how successful are they? Then. 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. The company appointed a sort of “Czar” – a champion – for the programme. but expects it to evolve as clients’ business opportunities and challenges change. People got confused and thought Customerize was some sort of
. there were obstacles. but if competitors focus only on this. Some methods of implementation. it worked with them to understand what their customers expected. The company looks at results from focus groups. Customerize leads to a quality standard that is not yet fully established. segmenting the client’s markets and customers and understanding buyer values. Then. Of course. listening to hear exactly what customers needed. to help reach and educate all employees and management. It pays for research. The company had to overcome the usual resistance to a new word. some people could not relate to what it meant to them. It helped Unisys develop a new attitude that will take the company into the next decade. like posters and advertisements. The next stage could be to assist the client in prioritizing the actions to improve existing services. first. The quickest way to modify or create a service is to leverage best practice from other companies. Unisys believes the model is correct. 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. The fact that a manager was dedicated to the concept provided evidence of management’s strong commitment. On first exposure. Customerize epitomizes the philosophy and practice that will make – and always has made – businesses successful. most important. and getting people on board. based on the answers.
“Customerize”: Unisys Corporation 87
. The concept sets the company’s advertising apart. Some thought it was silly. it has been a tremendous help in putting the company well ahead of its two different types of competitor. Unisys did a lot of selling up front. In both cases.process. and their customers. When times were tough for the company some years ago. The strategy is pretty hard to argue with. many of them among the objectives set at the start. technology-based corporation that had recognized the growing need to take care of clients. One advertisement read: “When you Customerize. you put the customer at the heart of your world instead of at the periphery. Customerize is proving to be an effective weapon that brings in new customers. and those that are purely consultants recommending to clients what they should do to streamline and grow. The company believes that Customerize is a “dig in” concept.” 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. clients and third parties. Now it is back and doing better than its peers. once you understand it. and helps Unisys keep the old ones. Increased awareness. In addition. for example. and their customers will stay with them. By embedding customer service objectives within your information strategy. Stay with your customers. Unisys will help you extend the full capabilities of your enterprise to points of customer contact – the points where business is won or lost. and got management support early on and took it from there. It also helped Unisys gain a unique positioning as a service-led. those technology companies that are now doing less well. There were also several other benefits. people had given up hope. it can point to this and other new ideas as being part of the new Unisys. It discovered a growing rallying cry for employees.
for most companies. although most companies are awash with electronic data. In fact. means that companies not only need to capture data more quickly and accurately. these “office”-based systems tend to be driven more by financial considerations. such as MAP. which is far too complex and sophisticated for the majority of applications. which could then make the data available to all those who need them. with the resultant growth in prominence of Product Data Management systems. the factory cycle is now typically measured in hours and days. McCarthy explained that MRPII systems are good at managing everything up to the factory door. Moreover. these have also failed to provide the missing shopfloor control. they still rarely seem to be accessible by the people who need them. perhaps more surprising is that. with the general industry trend towards short-run and reduced lead time production. According to Pat McCarthy. But. although most companies now use some form of planning system. but also manage these data and make them available to the people on the shopfloor. when they need them. The greater level of decision making on the shopfloor. scheduling software. the tendency in the past has been for throwing in discrete systems targeted at meeting specific local needs. or providing integration with the management systems.IJPDLM 27. Yet. However. was now being met. Importantly. machine-monitoring equipment and SPC. Managing Director of Information Engineering Group (IEG). such as MRPII/ERP. this coverage is only a small proportion of the data management needed. as opposed to providing actual support to run the factory floor. by not tying these systems together. But. manufacturing and shopfloor data are also similarly unmanaged. and the limited time for referring to higher management. System integration has been theoretically possible for some time. Whereas. 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. Speaking at the CIM Show Conference. the lack of control over engineering data has been recognized over the last few years. this lack of manufacturing data management is not really a technical problem. it would be easy to assume that the early promise of “the right information at the right time”. and some do provide facilities for finite scheduling and some shopfloor data capture. when other solutions have been sought. Similarly. These have included introducing some shopfloor data capture terminals. and has become more practical than having to comply with the CIM standards of the 1980s. or enhancing the limited data capture and analysis capabilities of machine and process controllers through adding SCADA systems. Manufacturers of both control
The missing links
With the huge increase in the use of computers that has taken place within most manufacturing organizations over the last decade. it is tied to the typical MRP cycle of days or weeks.
in terms of product complexity. Probably the main problem. then IT support tools will have little benefit. work cells. depending on whether the company has a bulk process operation. such as sales order processing. Therefore. Included within these options are Manufacturing Execution Systems (MES). financial information or procurement. However. there can be no “off the shelf” solutions. 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. adopted by a number of IT suppliers. process style and priorities. for systems that provide the “ability to link business planning and control systems to deliver to manufacturing an achievable and realistic plan”.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. there are some key issues that companies need to recognize. stated McCarthy. incidence of design change. developing relatively standard IT solutions has been possible. this view completely misses a major part of what is really required. existing fragmented shopfloor technology. Because of wide variation in manufacturing characteristics. Many activities within industry. However. Operations complexity. and this adds significantly to the complexity of the task. Problem perception. and link. the factory environment and its control requirements can differ substantially. This is one of the better-known generic terms. although there are now sets of tools available. People/process issues. As decisions are made every day within the factory. but also ultimately the key to the effective use of information within a factory. specializes in design-to-order products or manufactures a range of standard and customized products. when it comes to actually implementing a system to bridge the gap in factory control. by enabling them to make operational decisions using the latest and most accurate information. do not differ dramatically from one kind of manufacturing organization to another.
The missing links
. Although these aspects are important. getting demand information down to the shopfloor from a higher level MRPII and feeding back information so that management can make decisions. Unless the processes have been re-engineered and simplified. managing inventory. There is also now an increasing number of potential software/hardware solutions. 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. local empowerment and decision making. Therefore. is the need first of all to change substantially the way the factory operates. 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. 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.
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,
then replicate success elsewhere. However. to build real depth in the market. do not localize too quickly. multinationals must play an active role in sales and distribution. markets However. For its part. concentrating on marketing and brand management will not suffice. the first company to establish a China’s consumer bottling plant in a given city has since maintained leadership there. As a result.
. but some companies have learned to form creative alliances. Given the escalating competition. not a sprint. The rewards in China will be immense. (2) Over-invest in building organizational capabilities. Rapid expansion inevitably strains resources. Ambitious multinationals are also attempting to centralize their key activities (sales. Conclusion One final point. where the basic distribution infrastructure and distribution skills are so inadequate. (3) Pace yourself for a marathon. The better a company’s understanding of what it takes to succeed in China. with deep sales and distribution capabilities. Multinationals must take an integrated approach.) under umbrella holding companies. the easier it will be to set realistic targets. but you need them.open access to shelf space and find it easier to build their brands in Business 2000 – uncrowded markets. Colgate-Palmolive and Johnson & Johnson are banding together to share warehousing and distribution facilities. the parent company must clarify its appetite for investment and willingness to endure negative cash flows because of development expenses. and 93 customers with uniform product positioning and availability. Only those in dominant positions. are likely to emerge unscathed from the battles that lie ahead. Companies need the necessary resources and organizational structures to build local capabilities. one that enables them to dominate priority markets. In the cola wars. Kraft Foods has avoided building new capacity by producing its Maxwell House ice coffee at a Pepsi plant. multinationals must meet the needs of trade channels and consumers consistently. companies can no longer expect to earn easy profits by just skimming the surface of new markets. but winning requires playing for high stakes and playing now. China management needs to be explicit about market development priorities. distribution. investment needs and likely returns. To succeed in China requires deep financial pockets and commitment from corporate headquarters. marketing. providing distributors and retailers with dependable turnover and margins. This is enormously difficult in China. etc. Experienced expatriates may be expensive.
assistant professor of marketing at York University. 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. This article summarizes research undertaken by Alexandra Campbell. 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. firms can attain goals that they could not achieve independently. and investigates the role of supply partnerships in building strategic advantage. • A strategy of fast delivery does not increase buyer commitment to a supplier.2
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. into 114 firms in the European flexible packaging industry.IJPDLM 27. the compression of total project time and exceptionally tight schedules. as performance standards rise.
. However. The relationship resulted in cross-fertilization of ideas. • Joint problem solving with suppliers increases the buying firm’s belief that it is difficult for competitors to match its market responsiveness advantages. the scope of what a firm can do alone shrinks. • When the buyer perceives mutual trust in the supply relationship. ABB and other subcontractors. few studies have examined the partnerships that develop between firms and their suppliers. By entering collaborative relationships. the companies developed a longer-term relationship based on co-operative engineering to facilitate the exchange of knowledge and experience between Ford. The results from the research include the following: • When the buying firm has a strategy of fast innovation. buyer commitment to a supplier increases. buyer commitment to a supplier increases. • Firms do commit to suppliers to shorten new product development cycles. • Buyer commitment leads to joint problem solving to increase the efficiency of the supply relationship. Instead of forming a relationship centred on price negotiation.
but also by a firm’s strategies in its customer relationships. Joint problem solving with suppliers improves a firm’s position in other connected relationships. one that both improves their competitiveness and protects them from imitation. buyers need to consider the ability of a potential supply partner to help the firm execute its marketing strategies further downstream. Managerial implications So what are the implications of all this? How firms choose to compete will dictate which capabilities managers emphasize. (2) customer responsiveness. Joint problem solving with suppliers may represent a distinctive capability for firms. This means that suppliers must broaden their focus beyond the terms of the specific relationship and consider how a supply partnership may provide value to their customer’s customers. However.• • •
Joint problem solving with suppliers improves a firm’s efficiency or effectiveness through the interlinking of activities. Thus. Likewise.
Creating customer value Campbell’s findings make two significant contributions to the study of buyersupplier relationships. 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. This implies that the extent to which a firm’s strategy choices become distinctive depends on the quality of its supplier relationships. and (3) performance superiority.
. Fast market responsiveness is influenced by linking activities that occur in a firm’s supply relationships with activities that occur in its customer relationships. The research has focused on one type of firm strategy aimed at consistently offering superior value to the customer: fast market responsiveness. Supply partnerships can contribute to maintaining or improving a firm’s competitiveness. The second lies in the evidence of a buying firm’s perception of the market responsiveness advantages that can arise from co-operation. The first is the recognition that supply governance decisions are influenced not only by factors stemming from the supply relationship itself. Recent studies of market leaders revealed three such strategies: (1) operational excellence. All of these differ in their core value proposition and in the capabilities required to execute them. firms may elect to cooperate with suppliers to reap benefits that are used to serve the firm’s customers better. there are other possible approaches.
purchasing managers can evaluate the strategic benefits of co-operation with suppliers more accurately. Since well-established business practices no longer provide the framework by which to optimize the allocation of resources within ever-shorter timeframes. a major challenge is how to position manufacturing capabilities to combine in-house skills with the strengths of suppliers. Yet in many firms. and purchasing managers are unable to assess properly the risks and potential benefits of supply partnerships.IJPDLM 27.2
Conclusion For many buying firms today. purchasing assumes increasing importance as a spanning process.
. marketing and purchasing functions operate autonomously. Armed with a clearer understanding of the firm’s marketing strategy. however.
2. © MCB University Press.SECTION 2
The information challenge
International Journal of Physical Distribution & Logistics Management. 0960-0035
. 97-112. 27 No. pp. 1997. Vol.
differing opinions. Executives are bombarded with conflicting viewpoints. 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. This is apparent with the ongoing announcements concerning various alliances. however. Once the Internet. One reason for the relative lack of commercial success may be the confusion which surrounds the information superhighway. methods and models for analysing the impact of the information superhighway. There will be opportunities to improve current business processes. cable TV trials. 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. bypass non-value-adding intermediaries and radically revise workplace practices. Success is not necessarily assured. contradictory research and a diverse set of future scenarios and timetables. Nonetheless. the potential for business change is colossal. telecommunications companies or cable TV. managers must understand several concepts. Businesses outside the media and telecommunications industry are also beginning to set up World Web pages. This has led Ernst & Young to develop a way of identifying business opportunities to assess the ongoing potential. While doubters remain (viewing the rise of the information superhighway as an over-hyped fad offering only cosmetic changes) some managers recognize the potential and have decided that the opportunities outweigh the risks. The average annual revenue earned by Internet vendors has been less than $25. The opportunities on offer The predicted growth in connected infrastructure is staggering. A recent issue of its publication CenterPoint provides a starting point for a thorough appraisal of the benefits and associated risks. The electronic marketspace To assess the impact of the information superhighway. Compounding the confusion is the lack of tools. Research predicts a 16-fold increase in the installed visual telephony base worldwide between 1994 and 2000. create and exploit new markets. The first is the distinction between the traditional
Business on the information superhighway 99
. or some other interactive infrastructure becomes robust and widely adopted. Other projects such as Mecklermedia’s shared corporate World Wide Web server and several interactive television trials appear to have fizzled out.000. mergers and other projects.Doing business on the information superhighway
You cannot pick up a magazine or newspaper or turn on the TV without hearing something about the information superhighway. Intriguing pilot projects and apparent success stories capture the attention of executives in all manner of industries.
• Infrastructure – the delivery method (i. such as contractual negotiations. better communications will alter the supply chain. transactions occur electronically. 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. streamline production economics and change relationships between players. Since it cannot be physically present. However. successful disruptive technologies follow such a rapid price/performance improvement trajectory that they can meet or beat established technology very quickly and attract mainstream customers in the process. This is comparable to the physical network of warehouses. On the demand side. location is irrelevant and a physical seller may not be present at the time of transaction. The action to take While mainstream customers may have little interest in conducting business over the information superhighway. Managers must evaluate how the improvements in communication in general. At first they appear as an insignificant niche market of little interest to a company’s mainstream customers. 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. new notions of content description are needed. and the interactive infrastructures in particular.e. 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. • Context – the electronic environment in which content is offered. the major telecommunications carriers). better communications technology will alter the dynamics of purchase decisions. context and infrastructure – to the electronic marketspace and how it alters business value. For example: Xerox falling behind in the desktop copier market or IBM missing the minicomputer market. 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. Technology will reduce the need to conduct simple transactions like renting a film on a faceto-face basis. will be increasingly simulated. This is the paradox of disruptive technologies. The traditional marketplace is based on the familiar notions of interactions between a physical seller and buyer in an actual location.IJPDLM 27. Along the superhighway. The second is the application of three components of the business value proposition – content. On the supply side.
marketplace transaction and the electronic marketspace transaction. and complex transactions. The vendors which previously dominated the market now find themselves lagging far behind and few can recover completely.
extend your existing context to include the electronic community. Here are a number of steps that they can take to ensure their organizations are not caught off-guard: • Confirm your interest. Such information can serve as a significant source of revenue or as a competitive differentiator. 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. Brainstorm clever ways to offer new services and to deliver these services electronically: create an expanded online context. A utility firm considering a move into the telecommunications service market would benefit from a partnership with an appropriate hightechnology company. Partnerships allow organizations to move into new areas while leveraging current core competences. Few companies will have the variety of skills in the areas of content. Exploit your existing infrastructure to develop new lines of business or promote existing businesses. develop an online context which addresses a niche that has no single physical context. Overnight delivery companies now let customers dial-in to get information on the status of packages in transit. create an electronic community around your business through which people can share information. but in partnership a company could quickly bring together the right mix of skills.
Business on the information superhighway 101
. • Innovate your value proposition. • Look beyond customers and suppliers. Avoid thinking of the information superhighway as a simple expansion of your current marketing and delivery systems. consider developing an online context which offers products and services from your competitors (as the airlines have done with reservation systems). rental cars and hotels online?) • Look for innovative partnerships. Recognize that the information which you already collect about products and customer activity has value itself. Develop offensive and defensive strategies for either possibility. (What will be the role of travel agents when travellers can easily find and compare availability and rates for airlines. while the information superhighway provides an excellent means to deliver that information. context and infrastructure to single-handedly dominate a segment of the information superhighway. At the very least. Determine whether your products or services will be required when customers conduct business over the information superhighway. a modest portfolio approach towards investments would be safer. • Leverage your existing infrastructure. Managers will need to overcome the paradox of disruptive technologies while continuing to conduct business as usual. But until clearer patterns emerge. Investment and commitment to new ways of working is essential.
California-based National sees this approach creating a dramatic teaming of product development and marketing possibilities. National decided to solve its information delivery challenge by building individual relationships with the designers themselves. and reduce the time lag. One obvious role is the speeding up of information gathering. National first studied its customer base. (National) has taken a significant step towards realizing this potential. Once this customer focus was established. To improve its product information delivery. can prove vital. National Semiconductor Corp.IJPDLM 27. It also realized that these engineers do not buy the products per se. • The time between product information being created and printed documents getting into the customers’ hands can be relatively lengthy. published by Management Roundtable Inc. with time to market increasingly important for most companies. Even if the information is not out of date. “National semiconductor on the Web”.2
Following the explosion in general interest in the Internet. cutting as much as eight weeks from its customers’ time to market. Improving information delivery Traditional product information vehicles. PCs. And. and developing a new forum for active dialogue between its semiconductor engineers and its customers. an essential but time-consuming part of a designer’s role. suffer from a number of problems: • They typically reach only a relatively small percentage of the “right” customers (National estimate 30 per cent). From the information gathered it was able to define its real customer as the million or so engineers who design workstations. the growing debate within the industrial community is how companies and engineers can best utilize the information superhighway. they really buy the function that they are told it will do. such as printed catalogues. finding the shortest route to establishing firm information about the components needed to turn a concept into a design. and sales and advertising literature. For semiconductor products this can be anywhere from eight to 16 weeks. Now. there is always the suspicion that it might be.
. by mounting its 30.000 parts catalogue on the World Wide Web. or central switches for the telecommunications industry. If engineers were to design National’s products into their
This is a précis from an article. paper delivered information can often become obsolete by the time it reaches the designer. February 1996. • With shrinking development cycles. in Product Development Best Practice Report. time which can add delay to a designer’s cycle time.
system. he/she needs to be able to find out quickly. where designers want to search by performance attribute. By developing the client application in Java. At the simplest level. For a 30. more than access is at stake here. the Web is able to meet its customers’ demand for comprehensive. These requirements were fairly easy to satisfy. As National explain. meeting these search requirements presented a formidable obstacle. According to National. the then existing technology for creating Web pages. looked awkward and impractical for the necessary kind of guided search. 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. without searching by specific part number. what semiconductor components there are which will satisfy these performance criteria. with access to this database established late in 1995. they had to be provided with the information they need in their design environment. which maintains the Web site. The real challenge lay in enabling deeper enquiries. for Ethernet controllers. National linked up with CADIS Inc. Also. The solution proved to be Sun Microsystems’ new Java technology. National’s full product library of basic technology information (its data sheets) was put on the Web. customers identified that they wanted to be able to search by part number and by the industry standards which define a product. adopting this new approach marks a dramatic shift from the traditional method of storing information in paper documents. CADIS paved the way for instant updating of the parts’ database and all of its associated screens as the customer moves through a query. The actual initial process of making the information available comprised two basic steps. First. complete and accurate information – and the most up-to-date data become available in minutes. has grown cumbersome and unworkable for parts that may now contain more than a million gates. Web accessibility requires moving to a knowledge-based environment which allows customers to search and organize information in ways that fit their needs. To develop the necessary Web site. the need was for the ability to do a text search. At the next level. Hyper Text Mark-up Language. For example. where designers are able to intuitively get through to the right information with complex enquiries. More than just access As National has recognized. say. thus providing potentially significant time savings. if a designer wants a system to operate on a battery at 250MHz.000 part database with parameters running at least eight levels deep. The next step was finding efficient ways for designers to get the information they need. The paper format. Designers are looking for something far richer than today’s data sheets can
. which served its purpose when semiconductor technology was simpler. and it has also partnered with a publishing company..
Hands-on experience has spurred new ideas and insights. especially when data sheets can run up to 300 pages long. a wealth of helpful information is already emerging from blind focus groups the company commissioned to survey response to the Web project. National predict that enhancement of its Web access will enable it to eliminate the constriction on information currently delivered on paper and allow for inclusion of data about a product’s performance.IJPDLM 27. And. but its own. This will in effect make National and its customers virtual partners in the design and development process. It can also make use of failed queries to guess at ideas for new products. Further possibilities Furthermore. With this focus on getting the right information quickly into customer’s hands. 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. 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.
. not currently embodied in a few discrete numbers.2
convey. through continuous enhancement of its Web site information gateway. National expects to enhance not only its customers’ product development capabilities. such as complex curves. again steepening the cycle curve and bringing the company closer to its customers’ design process.
In other words. resources and money. jewellers and opticians. exclusive and exceptionally complicated? The traditional reason has been that there have been very few providers of the service. 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. from food purchases to such diverse areas as music stores. Electronic data interchange is used primarily between large retailers and their larger suppliers. So why are they so expensive. Trading through EDI has been likened to an exclusive gentlemen’s club: a company has to have the right qualifications. by using the Internet to conduct electronic commerce. buying instructions. stock availability and other transaction exchanges. Furthermore. the users of EDI technology will become more
Electronic data interchange available to all 105
. companies can save up to 88 per cent of costs of EDI trading. only 5 per cent of the entire total of trade in the western hemisphere is undertaken through EDI. Information gleaned from sales information from cashiers’ tills automatically triggers reordering when stocks of a particular good fall below a certain point. and the resources to stay a member once admitted.Making electronic data interchange facilities available to all
Electronic data interchange (EDI) systems are essential for transmitting information. prices. Value-added EDI networks incur a large amount of unnecessary expense for members. The key to EDI networks is automation – because the supplier and the retailer are connected through a dedicated network. Because of the high cost. Like gentlemen’s clubs the world over. in terms of time. the Internet may be bringing EDI to the masses. However. Stocks never run out as replenishments arrive just in time. 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. information and instructions can be sent and executed without human intervention. studies have shown that the percentage of purchases being made by EDI is set to rise from 35 per cent to 75 per cent in five years – and this rise is predicted across all sectors of commerce. those without the right connections (money and resources) do not get a look in. Smaller suppliers have to rely on constant human contact with the retailer to monitor stock levels. effort and expense. the common man now has a champion. to order new production runs and to organize shipments. All of this takes considerable time. as with all the other things it has changed. the tenacity to get in. groupware and e-mail benefits that membership brings – at a fraction of the costs and set-up times of traditional EDI networks has been made available to all companies since the advent of the Internet. The opportunity to join the EDI club – and all the attendant electronic commerce. needed to trade effectively using EDI technology. However.
The Internet EDI providers assure that security tracking is not a problem. No extra software packages are needed. whose smaller volume and resources preclude use of traditional EDI networks. Proprietary networks also provide excellent user-identification facilities. Data know where they are going – after a fashion.2
consumer-oriented than the current business-to-business practitioners currently monopolizing the expensive and exclusive EDI networks. has introduced a package that gives smaller suppliers limited access to an EDI system through their PC. and users pay for the service based on the number of transactions they make over the system. the EDI packet picks the same route. The first time a packet of information is sent. Premenos and other EDI providers use firewalls at both the sender and receiver ends of the commercial link to maximize security. IBM is also currently developing an Internet-based EDI service which will run over its own Internet service. certainty and security are still the watchwords of wide area network-based EDI systems. The new Internet-based providers are building-in data protection measures and tracking procedures. all the electronic data are transmitted to the supplier/retailer in fax form. All information can be tracked and verified across the networks according to the Internet electronic commerce software provider Premenos. forcing the recipient/user to input the data manually into their own system. making tracking easier. Electronic data interchange is crucial for both supplier and retailer – the retailer needs to ensure constant stock levels and a constant supply of goods. production and delivery schedules in order to meet the needs of the supplier. On the second and subsequent journeys. it does not inherently know the route. 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. EDI has ceased to be the province of the élite and has become the real engine for egalitarian commerce. so the technology inherent in the products is hedged at best. 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. and the supplier needs to maintain up-to-date manufacturing. However. but it finds the quickest route nonetheless. while smaller retailers can manage their purchasing and supply regimes more efficiently. Traditional EDI networks have favoured the big suppliers and the big retailers. an EDI value-added network provider. Speed. all working to similar information and deadlines. Sterling Software. Larger retailers benefit as they now have access to a wide range of suppliers. Several companies have already introduced Internet-based EDI products. however. Unlike a full EDI service. 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. the Internet is making great strides to close these gaps. The rise of Internet-based electronic data interchange is slowly changing the way retailers deal with their suppliers – both large and small. over the Internet. these same companies are the main drivers of the proprietary wide area networks that service the current EDI systems.
. Retailers will increasingly be happy to deal with smaller suppliers. However.IJPDLM 27.
then the use of the network will increase. so networks have begun to become a key part in any investment strategy.000 machines purchased in the last year alone. highlighting the drive to provide people with greater access to information. For instance.14 billion on IT in 1996/97. and its increasing impact on different organizational processes. there are a significant number of users who are beginning to explore more sophisticated applications. Three out of every four manufacturing sites with over 200 employees possess what
IT in UK industry
. which represents a continuation of the recovery in spending from the recessionary low point of 1992/3. some companies (under 10 per cent) are now using the Internet for purchasing. and reducing costs. suppliers and other offices within their own organization. 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. may now be almost universally recognized. While many people are simply using the Internet for brief e-mail communications. However. With over 200. general administration and information searches. although the potential of IT for improving efficiency and customer service. 33 per cent are now using the medium to exchange technical information with customers. • The Internet is now being used by a significant number of companies in the manufacturing sector. • Networking is an area of IT investment that has seen significant growth over the last couple of years. Of all sites with over 200 employees.000 PCs in use in UK manufacturing. as PCs have been installed and users look to get greater return out of their investment. 50 per cent now have direct access. conducted by Benchmark Research Ltd. one for every six people employed in the industry. provides a clear indication of the actual growth in usage of IT throughout UK manufacturing. As information has become easier to store and retrieve. but with control exerted through the use of LANs and WANs. Even smaller sites (50-199 employees) are able to access the Internet in 33 per cent of all cases. There is a clear drive to migrate processing power at the end user level. and one that can be deployed throughout the organization.IT in UK industry
The UK manufacturing sector is set to invest £3. • Database technology is now widely used in UK manufacturing. the question still remains. according to the survey: • PC usage has grown significantly over the last year. In addition. Of the Internet users. This figure. the survey estimates that there are now over 800. As managers and directors look to use information as a key decision-making weapon. indicating the beginnings of electronic trading over the Internet. highlights the importance most managers place on IT as a competitive weapon.
• 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. and which often leads to the failure to develop productive working relationships between senior business managers and the technologists. with good reason. • 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. with France second (16 per cent) and Italy third (13 per cent). • 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. In fact. there is still room for greater investment by UK industry. SCADA and MES. although apparently more prevalent within manufacturing organizations. the cultural gap that exists between business and technology. Therefore. However. manufacturing companies still like to compartmentalize. As manufacturing businesses strive to become more flexible and responsive. but this includes a mixed variety of equipment and systems.2
may be termed a highly functional database technology and even in smaller sites usage is now as high as 25 per cent. tends to exist throughout business. This includes basic products performing document management as well as the true enterprise solutions. although the importance of IT may be well established. Germany contributes the largest share (20 per cent). Instead of IT being seen as a core part of the overall business strategy. and the functional fit of the product is not always fully explored until too late in the buying cycle.
. being deployed by 28 per cent of all CAD sites. and this prevents IT taking on its true strategic role. satisfaction ratings vary greatly by product and user. more important. Perhaps. with PCs being the most commonly deployed. such as barcoding. However. is on the increase. 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. This “disconnect” has been highlighted by research conducted by MORI among senior managers of Times Top 1000 companies for Computer Associates. However. However. is the survey conclusion that considerable opportunity is missed because companies still fail to align the IT strategy to the business and manufacturing strategy. true 3D solid modelling is still only used by a minority. • Shopfloor IT is widespread.IJPDLM 27. the awareness and use of more sophisticated solutions. the effective use of automation systems becomes necessary to track material movements and respond in real time to emerging situations in the factory.
is the need for business executives and technical managers to think more alike and to learn to speak the same language. the lack of understanding of the others’ perspective does similarly apply to IT managers. According to Charles Wang. In particular. technology executives must become an integral part of the strategic business-planning process. With this message firmly in place. CEO of Computer Associates. how can IT staff and managers really understand what the business objectives of the company are. Many believe that their bosses could do with more IT training. speaking at the 1996 Top Management Forum. and their staff. or even using IT in their everyday working lives. Moreover. if their executives are not part of the management team that decides on those objectives? Similarly. and perhaps the key to sorting the whole disconnect. At individual project level. 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. and recognize the contribution that it can make to their business. the IT staff must be part of a system development team. Otherwise. although the overall impression is that the greater need is to bring business managers up to speed about IT. at senior levels. for this business-oriented approach to happen in practice. The answer to this issue.
IT in UK industry
. 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. Therefore. Just as importantly. However. In effect. IT must be realigned as an organizational team player. 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.Although most top managers state a commitment to IT. the first step towards change is to ensure that all IT departments keep reminding themselves of the fact that IT has no other legitimate role than to support the business. there seems to be general agreement that many of these same managers are not yet fully comfortable with IT concepts and practices. the message also helps establish the reasoning behind the need for all projects to be actually owned by the customer groups whose requirements the IT system will address. IT 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. However. all business executives – including CEOs – must overcome their techno-illiteracy and become comfortable with technical terms and concepts. it is then easier to maintain the crucial requirement that all IT initiatives must be strictly in line with the company objectives.
During that era marketing was characterized by highly personal contact which led to detailed knowledge of customers and a clear individual customer focus. However.2
The marketing information revolution
Information has always been one of the cornerstones of marketing.IJPDLM 27. and in particular the Internet – which Blattberg stressed is something that is going to “explode” – will now enable companies to go full circle. with the advent of low-cost computing (data management). explained Blattberg – the Polk Bros distinguished professor of retailing and director for the Centre for Retail Management in the Kellogg Graduate School of Management at Northwestern University – the problem was that this approach was costly and labour intensive. In his address to the 1996 Top Management Forum. However. is that it is customer driven. as mass marketing evolved through media such as magazines. communicate to customers and as a channel service output. But. Major implications During his presentation Blattberg focused on the managerial implications of this marketing information revolution. how many companies really know their customers face to face? The reality is that the information used today is sampled and survey based. and outlined a number of propositions. Unfortunately. not about individual customer needs. and revert to individual marketing using highly detailed customer information. claimed Blattberg. expanded and low-cost telecommunications (information transmission) and the ubiquity of computers (information receipt). and tends to be about segments and markets. trade publications and radio. and the cause of this “revolution” is information technology. Therefore. Firms will become truly customer driven The great illusion of modern marketing. However. and is used to design products. IT – low-cost computing and integrated databases coupled with data capture techniques – will now allow companies to gather and manage
. These drivers of the marketing information revolution. there is now the capability to use information technology rather than individual effort to reapply 1900 marketing in the year 2000. a discontinuous change is now taking place in the type and availability of marketing data and information. marketing information is now only analysed at the market and segment level. price. 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. which was organized by Management Centre Europe. personal marketing declined. brand. The result is that typically.
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”. etc. and act accordingly. individual price and promotional responses. by knowing who individual customers are. different stages of the customer life cycle will require separate marketing teams. such as customer profiles.
The marketing information revolution 111
. explained Blattberg. with the emphasis on different types of customer rather than products or markets.individual customer information cost effectively. Similarly. Rapid information flows and telecommunications will allow the creation of virtual firms which serve customers Within this new business environment. For example. Marketing organization will be restructured Firms will reorganize the marketing organization. occasional. An existing example of the virtual firm is the Sears catalog. operations. For example. Blattberg stressed that this situation would raise the question of who controls the customer. production and delivery – are undertaken by different specialist companies. order response. the marketing. promotion. Although Sears maintains the customer lists. including production. new. the customer information firm will control the customers and will simply manage the product and service providers who serve the customers. they will be able determine when custom is lost. In essence. This will enable marketing to work directly with individualized customer data. product/service usage and preferences. and use this to design individual products and services. and this would need to be understood. all of the activities typically associated with satisfying customer demand – i.e. marketing will become the “link” of the relationship with the customer. purchasing. Therefore. customer service and logistics. The teams will be focused on acquisition and retention. distribution and product servicing are all undertaken by other companies. all customer interactions will need to be managed by marketing.) Crucially. manufacturing. 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. with customers categorized as best. the rapidly increasing flexibility in manufacturing is starting to complement this marketing approach. Another important implication of this one-on-one marketing is that companies will be able to manage customer relationships better. (That is the retailer will be defined based on information management not product flows to the customer. Importantly.
• Capture all customer interactions – every relationship must be recorded. • Create a learning marketing function – one which evolves and adapts to its customers as it captures and analyses more and more information.IJPDLM 27. feed this information to the right part of the organization.e. These are: • Design and create integrated customer databases – this will enable companies actually to name individual customers and also identify their actions and needs. • Learn how to use database marketing. rather than just the present sale. and gain from the marketing information revolution. • Structure the marketing function around “customer equity” – i.
. Systems must be developed to capture what is going on with customers. especially those which are negative. and – most importantly – respond accordingly. Blattberg recommended a number of action steps that companies should be currently pursuing. Blattberg concluded that companies must learn to use IT to listen to customers and communicate. what customers are worth over the long term.2
Action steps To convert the theory into practice.
2. 27 No. 1997. pp. © MCB University Press. 0960-0035
. Vol. 113-130.SECTION 3
21st century manufacturing
International Journal of Physical Distribution & Logistics Management.
the factory of the future will not be a “lights out” monument to the triumph of technology over human beings. not just their
The future of manufacturing
. but they are seeking to find more effective ways to balance investments in people and technology. nourished and renewed. it will be a system which thrives on a vital and highly complementary relationship between technology and human beings. 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. let alone ten years’ time. virtually everyone in the symposium agreed that technology confers agility and speed. In order to achieve and sustain breakthroughs in performance. Leadership and personal effectiveness were deemed critical elements of process knowledge in several of the companies involved in the symposium. The next element was learning as a core competence. The term means the organization’s understanding of core manufacturing processes. The next element to a successful manufacturing and technological organization in the year 2005 is a having a committed workforce. 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. However.The future of manufacturing
Many companies cannot think about how their manufacturing environment will look in ten months. Most manufacturing companies have abandoned a blind faith in technology as the only key to competitive survival. 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. it is now widely recognized that organizations need to engage employees’ minds and hearts. Process knowledge was mentioned many times as an essential support to the coming generation of manufacturing firms. Without the confidence to express their views on how to improve the manufacturing process. For example. in turn. Contrary to what many people believe. Being able to change continuously is the key. And this can only be achieved through a learning organization. requires a workforce with greater latitude to act and therefore more skills and a greater understanding of the company’s overall direction. They have not abandoned technology. The organizations which learn the fastest are going to be the most successful in years to come. Process knowledge of core manufacturing processes – be they surface-mount assembly or blast furnace operation – is a critical strategic asset that must be recognized. The assembled executives also highlighted four major elements as essential to successful manufacturing and technology management in the year 2005. managed.000 employees. This struggle to leverage value out of investments in people and technology has led to a focus on learning. ranging from the highly practical to the theoretical. production workers’ process knowledge would forever remain a hidden and underutilized asset. The first element is ensuring a steady increase in process knowledge throughout the enterprise. Instead.
rather than fearful of it. continuously trained and highly committed workforce. This means becoming comfortable with flux and transformation. and the workforce has to be willing to pick them up. great manufacturing companies will: • Understand their processes deeply and manufacture with virtually no disruptions. The last element the symposium agreed on as critical for future success is the ability to use change as a stimulus to growth. • Move information and production quickly around the globe. However. Virtually all the companies represented were weary of exercises in re-engineering which focused solely on cost reduction and downsizing. What is happening – and will continue to happen at a greater rate – is the reversal of traditional manufacturing philosophy. 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. the emphasis in manufacturing is swinging from process and machine to the worker. Ten years from now. According to the assembled best-of-the-best manufacturing companies at the symposium. quality and price.2
hands. 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. commitment is a two-way street. • Integrate seamlessly with suppliers and customers. the pace-setting manufacturing firms will have become masters of change – in large measure because they will be driving change at all levels.IJPDLM 27. In sum. The symposium finished with a roundtable on what the successful manufacturing company will be like in the year 2005. In the year 2005. • Grow and compete on learning and knowledge as well as speed. • Employ a multiskilled. • 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. mastery over change becomes a stimulus to growth because the entire workforce is dedicated to expanding and applying its process knowledge. More emphatically. Keying in on the desire for growth through change. leveraging technology and capacity. 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. 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.
. Management has to let go of responsibilities. The “capacity to change” in an individual or an organization is all about gaining mastery over change.
with all the functions working together to develop the best possible product at the best possible price. and Donald Walker. quality products it needed to remain competitive. examine and evaluate the relationship between the two firms. along with other alliances and internal changes. Here Thomas Stailkamp. Both were speaking at the 1996 International Strategic Leadership Conference in Atlanta. and so on. and each design would be thrown “over the wall” from design to engineering. A break with tradition Chrysler admits that it has made more than its fair share of near fatal mistakes over the past few years. highest profit per-vehicle car producer in North America. the Dodge Ram and the Town and Country mini-van. organized by The Strategic Leadership Forum. Designers worked separately in their own building. The system worked well enough for many years. and general manager of large-vehicle operations at Chrysler Corporation. sales would have something to offer the market. MAGNA has 25. has made a major contribution to the re-birth of Chrysler. it was organized in vertically oriented.000 employees around the world and manufactures in ten countries with 100 different manufacturing plants. MAGNA International. six days a week). In response. the firm introduced cross-functional platform teams. The company is very decentralized. this blend of teamwork and innovation has transformed the company and its product line.Supplier alliances – Chrysler and MAGNA International
An alliance with MAGNA International. engineering to purchasing. MAGNA International Stailkamp believes that Chrysler could not have developed any of these products if it had not expanded its internal re-engineering to the supply base. purchasing to manufacturing. The first experiment in platform engineering – the 400 hp V10 Dodge Viper sports car – proved to be a great success. vice-president of procurement and supply. its suppliers have a crucial role to perform in Chrysler’s improvement strategy. president and CEO. Like many other traditional manufacturing companies. The system fosters innovative thinking and problem solving as well as faster and cheaper new product development. with each of its
. It now has 47 per cent of the North American mini-van market and is claimed to be the lowest cost. functional departments. One of those suppliers is MAGNA International. Eventually. but it became evident that Chrysler could no longer produce with sufficient speed the cost-effective. Other successful products include: the Grand Cherokee jeep (which attracts so many buyers Chrysler is building them around the clock on three shifts. During the past five years. after about five years.
It. it can react very quickly. Chrysler began to see that change was necessary. carpeting). It manufactures all the seating for Chrysler’s minivans. has a system of profit sharing and is non-union. then it moved on to parts and assemblies and finally to full systems. airbags. car sales went down. and with its large overheads. suppliers complained that they did not have any profit margin by the end. MAGNA also had to restructure and sell off many of its operations. has had its share of problems. delivering just-in-time. which has a certain irony as the acronym began as a supplier cost reduction effort. It also proved to be an invaluable communications programme. and instead of demanding price cuts from suppliers. It had to spend a great deal of money on product engineering and R&D and suffered all the associated development costs too. Its products include complete metal body structures. Today. the customer-supplier relationship has not always been a rosy one. 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. steering wheels. Chrysler had to swallow its pride. panels.IJPDLM 27. and it decided to expand the whole programme into what it calls an “extension enterprise” – a horizontal. too. admit its mistakes and take note of what suppliers were saying. At one time it just made tools. MAGNA has had to focus on full capability in all these areas. etc. transmission engine components. It has worked well. all the exterior trims. It gave Chrysler a whole new way of reducing costs and waste without reducing suppliers’ profit margins. The result was a programme called SCORE. The system convinced Chrysler that a communication link with suppliers was crucial. because although it has what it believes is a partnership.2
plant managers having total control of his operation. changing and growing as its customers change. it still has to be world-class or else lose business. Interest rates went up. the green seats come in. As a result. In the late 1970s and early 1980s the little trust that existed between suppliers and manufacturers turned into outright hostility. value-added chain that leads from the raw material to the retail
. According to Stailkamp. Like Chrysler. the Canada-based firm is Chrysler’s largest single supplier and was recently voted supplier of the year by General Motors. and as it builds a line of red ones. By 1989 it had debts of over a billion dollars. According to Stailkamp the company has “booked a billion and a half dollars in SCORE cost reduction savings”. It scrapped purchase order auctioning and replaced it with target costing. as Chrysler builds a line of green mini-vans. 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. interiors (seats. The bad old days Historically. the red seats come in. it asked its suppliers what it could do to reduce costs internally. MAGNA almost went bankrupt. seamless. Inevitably. MAGNA also spends a lot of time with its employees.
Inventories have been reduced and the firm is getting to market faster. lower warranty costs and less variation in the manufacturing process. more value added. costs and delivery. but Chrysler believes that it is making progress. Now that Chrysler considers its suppliers true partners. lower costs. a changed company culture. reduced overheads. improved communication and less bureaucracy. not the manufacturer. it is not bashful about telling them about its expectations in quality. Conclusion No culture change is easy and a successful one requires time before it can produce results.
. The improvements are producing higher quality components.customer. MAGNA has benefited too: sales growth. Its basic tenet is that the leader of the chain is really the retail Supplier alliances customer. And it wants suppliers to initiate similar programmes with their suppliers to encourage best practice throughout the industry.
One aspect of this advance in the way business is being conducted has been the development of the JIT II concept. In the process. obtaining and critiquing information with more timeliness and insight than is today’s normal practice –
. than is maintaining an adversarial relationship. where the ultimate winner is the competition. control is provided through this in-plant representative operating at buyer level.IJPDLM 27. the in-plant vendor can interface heavily with planners. BOSE Corp. provided an overview of this developing business practice. director of purchasing. the JIT II concept further develops the partnering relationship by establishing: • the supplier partner in the customer’s plant full time. but for him or her to be empowered within the customer purchasing function as the link between the customer’s planning department and the supplier’s production plant. The result is that the “in-plant” supplier employee effectively replaces the buyer and the salesman. and thus enabled to place customer purchase orders on his or her own company. states Dixon. JIT is advanced – as from inside. 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. With all parts having standard costs negotiated and frozen. Based on the basic JIT premiss of bringing supplier and customer closer together to eliminate inventory. • an evergreen contract and no bidding rituals. 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.. under the normal conditions that the typical purchasing systems and management place on a buyer. a supplier employee sits in the customer’s purchasing office. the key element is not only having this person physically located inside. automatic material replenishment and engineering input. and creator of the JIT II concept.2
The logical step forward
Industry is witnessing a significant change in attitudes. • the provision of supplier access and linkage to customer computers and full. to provide suppliermanaged inventory. free access to customer data. Speaking at the First International Conference on Integrating Product Development Throughout the Supply Chain. Lance Dixon. people and processes. and the old system (of customer planner to buyer to supplier salesman to supplier order intake) becomes customer planner to supplier in-plant. organized by The Management Roundtable. In practice. 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. However.
For suppliers. Costs are lowered on new and existing products with savings shared. This places concurrent engineering in-plant. with no end date and no rebiddding. carrying on a professional and fair relationship with other competing vendors in the same commodity has not proved to be a problem.with efficiency in order placement and material delivery fine-tuned to customer needs greatly enhanced. The supplier in-plant person is also empowered to practise concurrent engineering. all of which more than offset the on-site vendor person costs. being “designed in” early. As with all partnerships. As a benchmark. • a natural foundation for EDI and other short cuts. rather than today’s normal practice of visits. and now encompasses nine suppliers. the elimination of the salesman effort and cost.
The logical step forward
. The purchased commodities include plastic tooling and parts. benefits typically cited include. attending any and all new product design meetings involving his or her company’s product area. effective “design in” of suppliers helps in developing better products. metal parts. leading to paperwork and administrative savings. claims Dixon. an increased volume of business at the start of a programme and an increased critical mass of business. • the ability to sell their process and skills directly into engineering – this opportunity. states Dixon. Although BOSE only implements one JIT II supplier in a given commodity. provides for increased new business and subsequent process efficiency. Computer terminals and software from the supplier tie customer and supplier together. having this one “most favoured nation” supplier relationship. • An ongoing material cost reduction as the supplier employee is also empowered and motivated to pursue concurrent engineering in-plant. import functions and domestic and international transportation. and immediate material cost reduction. to the benefit of both companies. The benefits for the customer. Also. corrugated packaging. at the customer location on a full-time basis. the process has been in operation for well over five years within BOSE. the aim is mutual benefit. dramatically improved communications and purchase order placement. include: • A headcount reduction or staff reallocation to address other purchasing needs. Both work from real-time supplier data and have free total data access to each other’s company data. • 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. • an evergreen contract.
shipping to various BOSE plants worldwide – could see the representative start his or her day at his or her own plant checking various production schedules. etc. 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. where he or she would take material requisitions from the planners at another BOSE plant. In practising what it preaches.
. it is also being implemented by a number of major US corporations and is the subject of leading university case studies and MIT seminars. Once this basic and rather substantial act of faith is accomplished. concludes Dixon. these in-plant representatives are not necessarily restricted to any one plant or office. 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. for example. 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. Overall. in Mexico. existing vendors are using this practice as a sales tool and have implemented it with other customers. claims Dixon. JIT II can be the facilitator and catalyst for change and considerable improvement.IJPDLM 27. He or she may also speak to BOSE design engineers about existing parts and processes. a wide range of daily business activity in purchasing. Later in the day this representative may attend a new product project review at the BOSE headquarters. The representative is also required to visit other BOSE facilities.2
As Dixon observed. planning. and address a quality control issue with corporate and plant quality personnel. using BOSE purchase orders. can be improved beyond today’s norms. when new product start-ups take place with various G&F parts. for one of the two representatives from G&F Industries – which supplies plastic injection molding tooling and plastic and metal parts. The key to achieving this is the relationship and structure which allows full-time. BOSE plans to implement more JIT II vendors. importing and transportation. The representative would then go to an office in the BOSE corporate purchasing department. Moreover. engineering. A typical day.
Similarly. Unhappy end-users The first clue is provided by unhappy end-users. Companies are sometimes reluctant to lose control of certain distribution processes and therefore make decisions based more on a gut feeling than data. At McKinsey & Company the issue of channel management has been scrutinized by Christine Bucklin. Two factors seem to inhibit the efficient exploitation of channel opportunities: (1) Opportunities are hard to spot. and second-hand information lacks the accuracy that could help companies see fresh openings. that means they probably buy fewer cars and this is not good news for the manufacturers. Research has shown that distribution channels account for around 15 per cent of the cost of a car. Customer satisfaction ratings rose and car sales went up fourfold between 1991 and 1994. but problems such as these are often overlooked while internal operations are busily being reengineered. but consumer habits traditionally change slowly. relying instead on the distributor to provide them with information. 28 per cent of gasoline costs and 41 per cent of packaged foods costs. Stephen DeFalco. (2) Decisions are driven more by emotion than by cool assessment. The reputation car dealers have acquired means that opportunities for doing things differently abound. In the same fashion. when companies use distributors they can lose contact with their end-users. the McKinsey researchers provide six clues as to where new opportunities may lie and how to make the most of them. as General Motors’ Saturn division found out. It is relatively easy to spot opportunities when they burgeon overnight.Channel vision
Car manufacturers have a problem because consumers hate visiting car dealers. If they hate visiting dealers. Improving this distribution network would obviously improve manufacturers’ sales figures. John DeVincentis and Trip Levis and they believe investing time and effort in a company’s distribution channels could boost profits and competitiveness. 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. 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. 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. They hate negotiating over price and they often come away feeling cheated. For those keen to seek out fresh avenues.
Before being able to turn unhappy customers into happy customers. the products it offers and the functions it performs at the outset will ensure that these conflicts will be avoided. that it was dominating the corporate copier market in the 1980s. for instance. One fast-food franchiser found that although their customers valued cleanliness. but caution needs to be exercised and transitions need to be carefully managed. Direct Line. One oil company did just that in the 1980s. Establishing the segments served by each channel. when lower cost alternatives that really satisfy customers are available to those who really find out what customers want. their outlets did not need to be absolutely spotless. you need information on what makes customers happy. Xerox found. 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. 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. In the worst scenario. The UK’s direct auto insurer. Xerox fought back by hiring independent sales agents to go after the personal copier segment and saw its market share rise from nothing in 1987 to 27 per cent in 1994.IJPDLM 27. Gaps in market coverage The third clue can be found by looking to see if there are any gaps in market coverage. Unexplored new channels The second clue is to look at unexplored new channels. customers really wanted hot. has found unprecedented success using information technology to provide a cost-effective and fast service to its 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. fast food. Complacent intermediaries The fifth clue is provided by complacent intermediaries. 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. New channels still need to be evaluated and compared to current channel distribution networks. Concentrating more on the food and less on polishing counters paid dividends. restructuring its entire retailing network and thus achieving the highest volumes and lowest costs in the market. intermediaries can end up competing for the same customers. Filling in gaps in market coverage can be highly satisfying and profitable. but that Japanese companies were having success at the lower end of the market. who are often unwilling to make the same efforts that are being made by the company to
Sometimes the fault lies in the way that incentives have been laid down by the company itself. As always. systematic and continuously innovative approach.
. and succeeding requires taking a rigorous. Channel management has a poor track record. One auto manufacturer restructured its reimbursement system to its dealers to strengthen their warranty service. according to the team at McKinsey. if customer satisfaction ratings are important then incentives have to reflect this. For example.improve their competitive position. Investing in interface systems also benefits the company as it often makes it a preferred supplier and increases switching costs for the channel distributor. The good news is that technological developments are likely to provide fresh opportunities for those capable of making the most of them. Once the warranty reimbursements were restructured more favourably towards the dealers service performance and customer satisfaction improved dramatically. but the company or the end-users are not. easier said than done. This provides an opportunity for renegotiating arrangements with the intermediary or going elsewhere. They may well be satisfied with their own performance. On close inspection it was found that dealers made very little on warranty repairs. leading to cost savings. But seeing where the opportunities lie would appear to be the critical factor in successful channel management. Dated systems at interfaces The last clue is found at the point where the company and its distributors meet and where information is exchanged. after customers complained about the servicing of their new automobiles. Electronic data interchange and efficient consumer response have helped in the more efficient management of inventories.
along with a gated product introduction process that is well understood by all parties. examined high-technology factories source and make capabilities in five different industry segments.to three-fold. inventory bulges. and other electronic equipment. who can reach production in one-third of the time – top European companies beat average manufacturing launch time by 75 per cent.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. server and mainframe-class computers. The summarized findings of the study are presented under four main headings. against which companies can position themselves to evaluate their own performance. 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. And best performance can be quite outstanding – within 12 months after the launch of a major new development project. product shortages. and hence beating their competitors two. where getting to market quickly means the difference between market leadership and a warehouse of obsolete inventory. which provides a best practice model of “source and make” manufacturing processes on a global basis. which are typically brought about by product design quality issues and difficulties with component sourcing. as companies struggle to improve their product development. According to international consultants Pittiglio Rabin Todd & McGrath (PRTM). A major factor in a product’s manufacturing launch time is the number of engineering change orders. by reducing the number of mistakes made in the design process. telecommunications equipment. irrespective of their volumes. and save significant revenue.IJPDLM 27. These findings have been established as part PRTM’s 1995 High Performance Factory Benchmarking Study. it now seems that high technology industry leaders are successfully transforming their product supply operations from a necessary evil to a source of sustainable competitive advantage. and reduced customer satisfaction. are becoming increasingly successful in overcoming past problems. 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. The study. suppliers. But the study found that many companies are left far behind their best in class rivals. medical electronics. personal computers. back orders. the time required to ramp up a product from first prototype to full-volume production is critical. delayed new product introductions. manufacturing and regulatory authorities. which was co-sponsored by 11 leaders of manufacturing industry and included over 150 participating plants. BIC computer companies in the
. In the high-tech arena. This emphasis has typically resulted in high manufacturing costs. However. Close linkages between development. Their research reveals that those companies striving to improve their product supply capabilities.
they do not come close to meeting the date initially requested by the customer. 27 per cent of transactions are now completed by electronic data interchange (EDI). Although changes in supply-line practice are industry-wide. Proper management of inventory is also critical for cost. For Europe alone the picture is slightly different. in 1995 the average computer company obtained 80 per cent of its materials from 22 suppliers. Currently. In terms of inspection effort. The average company can only sustain a 20 per cent reduction for the same amount of time. compared with 12 per cent in 1992. Supply-line management – formerly known as purchasing – has become an important new tool for gaining competitive advantage. while median companies needed 56 days. there is a measurable difference between delivering what a company promises and meeting actual customer needs. as opposed to 31 suppliers in 1992. but companies that find ways to reduce sourcing time take a dramatic lead time advantage. These companies are also phasing out cumbersome paper-based ordering mechanisms. across all industries. an increase from 65 per cent in 1992.server and mainframe market report only three ECOs. While many factories perform reasonably well in meeting the committed delivery date. The average European computer company obtained 80 per cent of it material from 43 suppliers. Supply bases are shrinking rapidly. save money and improve quality. 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. flexibility and cycletime performance. 33 per cent of transactions are completed via EDI. BIC companies needed only 20 days to achieve an unplanned 20 per cent increase in production. The same BIC companies can also more easily adjust to a downturn. Across all industries. For example. in 1995 82 per cent of incoming material lots were received without inspection. As an example. while average companies only meet 50 per cent of those requests. sourcing time (the time to specify and acquire materials and components) comprises nearly 75 per cent of the entire source-make cycle-time. PRTM’s new study reveals that supply-line practices are changing dramatically. down from 55 suppliers in 1992. and the old practices of inspecting every piece part received is being replaced with vendor certification programmes. up from 18 per cent two years ago. best-in-class companies meet 86 per cent of customer request dates. The personal computing
The highperformance factory 127
. 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. as compared to the median figure of 19 ECOs. According to the study. sustaining an average of 94 per cent order reduction within 45 days of scheduled product delivery with no inventory or cost penalty. In the computer sector. providing companies with new ways to speed production. Companies that cannot respond quickly to changes in the marketplace run the risk of out-of-control inventory and lost revenue.
median cost per placement for printed circuit board assembly was 32 cents for factories with a volume of 25 million placements. Obviously. printed circuit board assembly density. In fact PC factories have reduced workin-progress and finished goods inventories to less than one week of supply each. percentage of material procured from international sources. Figures show. observes the study.IJPDLM 27. This is attributed to a decreasing number of low-volume producers. suggesting that the influence of volume may have peaked for the leading companies. Finally. concludes the study summary. some of the other cost-related areas companies can address include plant location. from 35 cents to 28 cents. and the ratio of indirect to direct employees. various factory improvements. unique part numbers manufactured. that these best-in-class companies saw no cost improvement during the last few years. the number of parts procured. companies buying the most material are going to have the lowest rates. and only ten cents for those with 800 million. 15 cents for those with 200 million. While volume is still key. Volume is also a major factor in low material acquisition costs. 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. however.2
industry has proven itself a leader in this area. For example. but companies can still find ways to remain competitive. PRTM’s examination of manufacturing processes revealed the continuing significant impact of high volume on factory costs in 1995. median cost per placement for printed circuit board assembly declined by 20 per cent since 1992. and the percentage of material received without inspection. They can improve the efficiency of their acquisition function by examining the number of suppliers. typical companies are still lagging behind the BIC competitors whose costs are 7 cents per placement. For example. Though median assembly costs have dropped. with fewer inventory days of supply than every other study segment. and the material acquisition rate – the cost of acquiring the material as a percentage of material expenditures – was found to vary from 1 per cent to more than 20 per cent.
. and an increasing reliance on outsourced production.
at least not yet. How can companies ensure that they are in these big leagues 15 years from now … just read on. 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. on the other hand. the ticket to the corporate big leagues in the next 15 years. in the year 2010 there will be two types of enterprises: the Island of Excellence. lords or servants. The Island of Excellence organization will do many things extremely well – manufacturing. pans and dog collars. The biggest areas of opportunity in the next decade and half – in terms of manufacturing excellence – is not manufacturing itself. aware of their position as an élite corps. The company has a lurching. ordinary things – flashlight switches. packaging and customer service. not just the manufacturing side of things. real-time customer design of product and simultaneous production. The value chain vision will be driven by
Ensuring manufacturing excellence 129
. logistics and all the other places where time gets used up with no payback. All the rest. trained and motivated. procurement. Through value chain excellence they will have created a perfectly balanced entity that translates customer ideas or wishes instantaneously into perfect products. These include customer fulfilment. and where they get closer to real customer involvement in product design fulfilment. make only simple. 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. These are the areas where innovative manufacturers take huge chunks of time and money out of the system. and all the rest. Companies need to extend the definition of excellence to encompass the whole enterprise. where they make the biggest impact on product design and introduction. The coming years will see companies either controlling technology or being controlled by it – i. Control does not mean huge budgets and intricate manufacturing processes. as quality has become. organizational excellence and the knowledge worker.Ensuring manufacturing excellence
Master or mastered. but after care. and customer fulfilment. being controlled by companies which have controlled technology. Simple manufacturing excellence will be. The whole company has to embrace excellence. erratic corporate attention span that makes attention deficit order look like the company’s single unifying theme. They need to concentrate on the front end of the system – design. The workforce will be very special – specially selected. the Island of Excellence enterprise will have achieved excellence in customer fulfilment.e. According to some experts. That reaches beyond manufacturing excellence into three key areas – value chain excellence. By 2010.
When needed. specific – and temporary – group or team profit-sharing plans will be used to encourage entrepreneurial businesses. product design.IJPDLM 27. Building knowledge workers will in turn fulfil the key factors for manufacturing excellence. logistics and procurement. database use. and are comfortable at using IT and other technical applications. and are extremely adept at creative thinking. The US-led era of rugged individualism will give way to an ethic that protects the common good.
. It will mean justin-time training. simulation. The way to create this ideal is to build as many opportunities for cross-functional integration into the organization’s hiring. the spots where customer fulfilment happens – design. delivered on site. The third area for an Island company to achieve manufacturing excellence is to create knowledge workers. The vision will be stretched and extended to include the “last frontier” opportunity areas. There are three building block for creating an Island. Companies which build reward schemes based on monetary rewards will find severe limitations to workforce flexibility and growth. organizational excellence and knowledge workers. people development and compensation and rewards. development and reward systems as possible. defend or move markets. internal recognition. Supplier development will become a corporate dictum. work as team and solve the problem. The winning organization will be smaller. Finally. base monetary compensation as well as lifestyle benefits. such as languages. Island companies will reward workers for patient and deliberate skills acquisition in a number of complex and challenging areas. the organization – as well as the individual. training. 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. with no bricks or mortar – no underlying “philosophy”. partnering skills and changeable technology-driven knowledge. People development in companies of excellence means customized training and education. there will be a balance between technical specialists and customer fulfilment specialists. Second. The year 2010 will see manufacturing companies split into two camps – the Islands of Excellence and the others. Essential to this organizational excellence is having a knowledgeable and trusted workforce. Simple systems will ensure integrated data channels and rigorous information channels throughout the chain. Which camp your company will belong to depends on how well you can follow and implement the recipe above of value chain excellence. The workforce will be empowered and self-managed – hierarchical organizations will not be able to mobilize quickly enough to capture.2
simplicity. Reward packages will include a mix of rotations. in Island of Excellence companies. modified quickly as needed. Knowledge workers have strong technical bases and experience. Organizational excellence means that everybody within the company works for the customer. more like an élite group of soldiers who can swoop into a problem. In the year 2010. they have tremendous skills in communication. knowledge workers are ethical and committed to the company. These are boundaryless jobs.
27 No. © MCB University Press. 1997. Vol.SECTION 4
21st century service industries
International Journal of Physical Distribution & Logistics Management. 2. 0960-0035
. pp. 131-142.
Nancy Karch. Many parts of the world are sustaining much higher rates of growth than the mature
Overcoming the hurdles in global retailing 133
. Other problems include: shortages of resources such as land and labour. writing in The McKinsey Quarterly.e. clothes. unfavourable tariff structures. barriers have crumbled around the world. from Europe to Asia) as well as greenfield expansion and joint ventures rather than acquisitions. Nonetheless. global retailing is still in its infancy – but the momentum is growing. majority ownership rules and repatriation of capital and earnings. with movement beyond a retailer’s established trading bloc (i. Many encountered difficulties and some were forced to pull out. But the reality is that it is more difficult for retailing to operate across distinctive national markets in comparison with other industries. Leading this global charge are firms such as Wal-Mart. 1996. 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. many participants have ventured overseas in the past 20 years. Toys ‘R’ Us. Retail performance in local markets is highly sensitive to consumer behavior. The second wave. say McKinsey’s Karen Barth. IKEA. Accommodating these differences means tailoring the merchandise: food. No. In the last three years or so. 1. The first wave during the 1970s and 1980s included speciality retailers with proprietary brands such as Benetton and Laura Ashley. followed a different pattern. impenetrable established supplier relationships. well-funded grocers and hypermarkets (Tengelmann and Makro). exchange control. stock exchange access. and so on. Gap and Body Shop. One of the most problematic trends. 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. luxury brands like Hermès and Gucci. leisure goods. and general merchandise retailers such as Marks & Spencer and Sears.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. toys. Proof can be seen in some of the indicators of market opportunity: currency convertibility. opportunities to move successful formats abroad would appear to be boundless. freeing up access to more countries and allowing entrants to establish viable market positions. which began in the late 1980s and is still under way. Kathleen McLaughlin and Christiana Smith Shi. The Disney Store. However. Their experiences fall into two distinct “waves” of expansion. restrictions on trading hours and foreign ownership. Entrants in places such as Thailand and Indonesia will find pronounced differences in consumer tastes. Carrefour. is globalization. Given the substantial productivity advantages enjoyed by the world’s best retailers. buying habits and spending patterns from one country to another.
companies need to assess their competitive strengths and position themselves so that they can re-invent advantage in each new market. In apparel. leaving ample room for new entrants. it maintained a traditional private-label stance against more fashionable competitors. In food. which again reduces manufacturing costs. Although it has since moved to address many of these cultural differences. IKEA leads the way IKEA is beginning to change the retail game as it creates and maintains a superior global business. and although this is no guarantee of market attractiveness. and by “teaching” them to assemble furniture. • adjust their concepts and profit formulas in every market to achieve sustainable levels of return. only a relatively small proportion of demand is currently captured by organized retailers. Similarly. it offered such items as Scotch eggs. it has cut its manufacturing and distribution costs. • outsource non-critical activities. a dozen distribution centres and 2. • build truly international management teams. it neither provided fitting rooms nor advertised heavily. It has invested in global information systems to manage logistics across more than 120 stores. opportunity often follows. Galeries Lafayette attempted to export a high-end Parisian fashion concept to the USA. It has transformed its relationships with consumers. For example. As in Britain. This means that the success factors they have always relied on – brand. Difficulties arise when retailers try to export – wholesale and unchanged – a retail formula that is successful at home. M&S may have missed the chance to build something big in Canada. It has built up a following across widely different markets for a relatively consistent line of Scandinavian-inspired furniture. where it exists. Many of these fast-growing markets still offer substantial “unstaked” market share. • create new relationships with vendors. source raw materials and achieve quality standards.IJPDLM 27. They will also need to: • restructure their business systems. • manage alliances and partnerships. To win in international retailing. in other words.300 suppliers in
. Its buying offices scan the globe for potential suppliers. which few Canadians recognized or liked. skills. the concept failed to find a sufficiently large customer base. productivity – must be re-examined as they expand. both locally and globally.2
economies. It has also transformed its relationships with suppliers. thus boosting volume. and its engineering and business services groups coach these suppliers to raise productivity. when Marks & Spencer introduced a new retail concept to Canada – apparel plus food – it attempted to operate with its successful UK formula largely intact. Perceived as French. but not exclusive enough for the highly competitive Manhattan market.
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. Makro and Carrefour show signs Overcoming the that they are starting to recognize and adopt this approach. it is clear that the prospects of long-term growth and tangible financial gains are too real to be ignored. something Benetton continues to struggle with. for instance. 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. Wal-Mart. hurdles in global Once a retailer starts to approach globalization in this way. because it has done a better job of reconfiguring its approach to suit individual markets. maintaining that few companies have managed to establish genuinely global businesses. Among others. (2) Concept exporter – Benetton’s strategy to export a distinctive concept. Marks & Spencer has achieved greater success in Asia than it did in Canada. a broad range of retailing strategic options emerge that go beyond the traditional business exporter approach. A vital ingredient of such an approach is effective control of franchise execution.
.nearly 70 countries. (3) Skills exporter – companies export unique skills rather than entire business systems. but let someone else run it.
This latter point is brought home after looking at the global reach of online services. from video games and TV home shopping through CDROMs.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. Although customers in many parts of the world routinely purchase by
. What interactive marketing actually is and how it may – sensibly – develop is outlined. differentiation and preference among customers and convincing customers in order to obtain orders and sell. However. The same trends are in place across Europe. services or other subjects and what attracts the user is the speed of getting this information and its completeness. 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. Interactive marketing is a broad term which takes in any kind of marketing via interactive media. Marketing is considered to be interactive wherever there is a continuing dialogue with customers that is not subject to the typical promotion lag. 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. labour-intensive methods. The opportunities actually to purchase through interactive media are far rarer. and to follow through. and the figures are rising daily. The advantage to the marketer is a much lower cost of providing the information compared with traditional. and some go as far as to say that shops will no longer exist as all transactions will take place online. The advantage of providing information interactively is its low cost per contact compared with traditional methods of sending mail pieces or manning the telephones. Interactive marketing is ideally suited to perform three key marketing roles: informing customers about a company’s products or services. Much interactive marketing activity has focused on providing information about products. The growth of interactive media and interactive marketing is largely driven by the technological development in computers. Many industry analysts see interactive marketing – buying and selling through the Internet – completely revolutionizing the marketing process. creating brand awareness. Over ten million Americans are now connected to the Internet. locating the particular sources themselves. and the acceptance of new forms of communications. It does not achieve its full potential when customers have no incentive to search. The revolutionary forces are being led by that all-purpose radical of the 1990s – the Internet.IJPDLM 27. the Far East and the developing world. Interactivity usually requires the customer to take some form of initiative – to enquire about a product or service. online computer services and interactive kiosks all the way to shopping by computer.
. fax or mail. and the constant need to improve marketing effectiveness in a highly competitive environment. This will be particularly true for categories in which a vast selection of products is important. technological developments that will offer full security are not far 137 away. These developments will have a sweeping impact as companies which use interactive purchasing intelligently will be able to penetrate previously unreachable markets. purchasebased. or those which rely on scarce. In another category. these product areas will be ready to move to electronic interactivity. interactive marketing systems may come to dominate because of their low transaction costs. or actively seeks to purchase the products because of high interest value. fax or telephone. Eventually. The main barriers are data stirs up retailing security and privacy. To make the transition to interactive marketing. electronic interactivity may drive out more traditional forms of marketing. open a World Wide Web page on the Internet allowing customers to self-select information. The degree to which interactivity will affect marketing depends to a great extent on the kind of product involved. customers are relatively well informed and do not have a large information need but they actively look for the products. experienced manpower. The potential for cost saving in routine marketing operations and concentrating resources where they count most makes interactive marketing a key area of interest. such as those based on high fixed assets like retail stores. On the other hand. thus generating a flow of queries about the company. allowing geographically far-flung customers to purchase quickly and easily from companies from even more far-flung suppliers.telephone. Many such products are sold today via mail order. and where the ratio of transport cost to value favours regional. Customers are often reluctant to transmit credit card numbers electronically or other sensitive information which will stay in the selling company’s database. marketing professionals cannot afford to ignore this new technology. Here. and devise procedures to move from information interactivity to transaction interactivity. the move to provide interactive electronic purchasing has Radical Internet lagged behind the rush to deliver information. 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. Interactivity is likely to become a powerful tool in those markets where the customer has a strong incentive to search for information. In these markets. or even international shipment. 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. These “unsought” products include low-interest items such as simple business supplies or standard household consumables. However. with consumers and businesses passing their orders via the post. The electronic superstore has the potential to create an entirely new industry. With marketing operations under attack in many firms. companies must do the following: establish an Internet connection by obtaining an Internet address.
How fast the new approach is adopted and mastered by businesses may well make the difference between tomorrow’s winners and losers.
.IJPDLM 27. 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. Therefore companies need to be looking at all forms of interactive marketing now – not when the method becomes an accepted norm. in many aspects of purchasing life.2
This will challenge the company to allow customers actually to perform part of the business electronically.
Cardinal launched. with the Internet.Banking on the Internet
For many years commentators have said that the traditional bank has about as much future as the dinosaur. For once the small fry has had a leading edge on its larger competitors! The launching of Security First Network Bank marks a new beginning in banking – the advent of a secure online financial transaction environment. The bank was originally created and designed by a relatively small financial services player – the Kentucky based. Both can gain access to the Internet for approximately the same cost. 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”. Any bank. the security of the software has never been breached. Despite repeated attempts by computer security experts. in the age of electronic banking. in 1994 the sale of PCs exceeded the sale of color televisions for the first time. will be able to create its own online bank – cheaply and effectively. Granted. in the USA alone. they might be right. Finally. What is more. on the whole. $580 million-asset Cardinal Bancshares organization. In May of that year Huntington Bancshares and Wachovia Corporation each invested $1. 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. 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. The Security First offered checking and savings accounts to anyone with a computer and a modem. and both can compete in the same environment for customers around the world. but it has only been the last three years in which there has been any significant use of the services. the technology has been available for over 20 years.2 million in the development of a completely Internet-based bank. both large and small banks are now on equal footing. Telephone banking was introduced in 1977. with the other partners’ assistance. Now.
Banking on the Internet
. But why is electronic banking finally catching on now? After all. Industry reports show that. inconvenient opening hours and unhelpful branch staff. Over 30 million PCs are in homes across the USA already. The electronic ground was well and truly broken in the USA in 1995. the Security First Network Bank in October 1995. may skip right over telephone banking and go straight to PC banking. With this as the background. the computer industry anticipates shipping 12 million PCs in 1996 alone. 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. The lesson of Cardinal and Security First is that. it appears that consumers. many of these commentators secretly hate their bank because of punitive charges. from the smallest community bank to the largest commercial bank.
In addition. exploring telephone banking and screen phone options first. The message is clear. the makers of the “Managing your money” software package. A recent study shows that an average transaction performed by a teller in a branch costs $1. No longer will the winner of the financial services game be the one with the most branches. through the telephone. the winner will be the one with the easiest customer access.10. There are countless opportunities for banks of all sizes to explore electronic banking. while an equivalent electronic transaction costs about one-fourth that amount. This is a critical opportunity to lead the industry as consumer demand for financial products continues to grow. In addition to meeting consumer demand by offering electronic alternatives to financial services.IJPDLM 27. 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. Some banks are starting programmes gradually. will become more common as different parties seek to develop cutting-edge abilities and services. PC banking or through the Internet is a decision each bank will have to make. Others have commissioned proprietary software that they will provide to their customers for PC banking. It seems clear that partnerships between banks. banks also stand to save significant amounts of money by converting customers to self-service online banking. and between banks and service providers. no matter how one looks at it. Whether banks choose to address electronic banking through telephone banking. NationsBank Corporation and BankAmerica Corporation announced their purchase of Meca Software Inc. the Internet or any other electronic method that may be developed in the future. In the same month.2
Chief among the many deals was the purchase of software service providers. the banks hoped to maintain their one-to-one relationship with their customers.
. NationsBank and BankAmerica planned to allow a limited number of banks to join them as owners of the software. By purchasing this homebanking software. Banker colleagues and experts alike are urging banks not to fall behind in this rapidly developing environment. Financial institutions of all sizes – at least 75 in the USA alone – have taken the plunge and created home pages on the Internet. Banks – and non-bank competitors such as insurance companies – are developing online services as fast as they can. Electronic banking makes good economic sense.
Transaction security is assured through the use of encryption technology. Filling a seat. the Home Gate enables Southwest to provide additional services and convenience to customers. Third. stored and quickly retrieved from the database without computing joins. There were a number of reasons why the airline decided to create a presence on the World Wide Web. In the first few weeks of the Home Gate system. Southwest Airlines – the American domestic passenger carrier – provides an excellent lesson on how to make the Internet work. 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. However. effectively or as quickly without being based on object applications. From its low cost flights. pieces of text.Southwest Airlines’ Home Gate
The Web might be good way of idly passing a few hours of leisure time. including text. Reserving and purchasing tickets for a flight is as easy as pushing a few buttons on the interactive “Home Gate”. Objects relate other objects by direct pointers instead of joins on keys.000 hits daily. The company uses an object database management system (ODBMS) as its core application. ODBMS facilitate and enable the development of new Internet and Web applications by providing unique capabilities to manage. store. image. Although airlines typically sell 80 per cent of their tickets through travel agencies. it saves the company money. Customers simply click on the departing location. travel date and approximate departure time. Southwest exceeded its initial expectations with over 100. Southwest’s Home Gate could not operate as efficiently. This allows relationships. query and retrieve the extended data types and relationships required by the applications. Southwest sells nearly half its tickets directly to passengers. as in a relational database. their destination. Southwest continually differentiates itself from the rest of the airline industry. The Home Gate looks up the fare and schedule information and returns the appropriate information. Airline revenues are based on the number of people in seats per flight. video and sound. The airline is the first to enable customers to make reservations and purchase tickets on-line via the World Wide Web. and its foray into the Internet is no exception. select a form of payment and purchase the ticket on-line. to its 23 consecutive years of profitability. such as “a document contains several images. Southwest Airlines has always been different. Second. Objects can be any data type. The customer can then make a reservation. and empty seats mean lost revenues. and an audio clip” to be easily represented. Failure to be present on the Internet can cost a company business.
Southwest Airlines’ Home Gate 141
. The Internet is becoming the marketplace. to its casual corporate environment.
Rate changes can be posted and seats can be sold directly to customers at deep discounts. Hand in hand with this growing awareness is the growing use of object databases for Internet and Web applications. choosing the right technology was key to building the site. underlines the growing realization of the power of the Internet for business purposes. the information is stored in ObjectStore. To meet these requirements. ObjectStore returns the flight and fare information to the Web server via formated HTML pages. because reservation information comprises a combination of cities. fueled by the growth of Internet application development and the need to manage multimedia information. to create an effective and efficient presence. an object database management system is probably just the ticket. it must also be able easily to manage and quickly traverse a highly complex data model.6 billion by the year 2000. an object-oriented application from Object Design. Finally. ObjectStore executes the query using pointers between objects. adds revenue. The first is that the Internet can make a difference financially. fares and availability data. the resulting HTML request is translated into an ObjectStore database query. departure times. arrival times. The study of Southwest Airlines has two important lessons. The logistics and expense of traditional marketing prohibited this kind of reaction. Once a customer makes a reservation. schedule and availability information changes frequently. Fare. the total market for object databases – which was $115 million in 1995 – will reach $1. According to recent market research. and Southwest’s central reservation system is immediately updated.2
even at a discount. instead of joins as in a relational database. The usefulness of the Southwest Home Gate. rapidly to search and navigate the Web of reservation information and return information on all inbound and outbound flights that fit the specified criteria. When a customer chooses the variable information on the Home Gate pages. and the business benefits the company has enjoyed. and the Home Gate allows Southwest to react quickly to shortfalls in seat demand on any particular flight. and the second is that. Southwest used ObjectStore. Speed is a top consideration. companies have to utilize the best application platform for their needs – and for most applications. the Internet allows Southwest to collect data and tailor messages and interactions for specific customers.IJPDLM 27. The site has to be able to handle and present dynamically updated information.
. Also. As noted above.