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ISSN 0960-0035 Volume 27 Number 2 1997

Strategic logistics management Guest Editor Eric Sandelands
Editorial_________________________________________ Viewpoint _______________________________________ SECTION 1: Logistical future Driving future trends___________________________ Looking to the future___________________________ “Customerize”: how it worked for Unisys Corporation ___________________________________ The missing links ______________________________ Business 2000 – China’s consumer markets ______ Supply partnerships – building strategic advantage _____________________________________ SECTION 2: The information challenge Doing business on the information superhighway _ Virtual partners _______________________________ Making electronic data interchange facilities available to all _________________________________ IT in UK industry ______________________________ The marketing information revolution ___________ SECTION 3: 21st century manufacturing The future of manufacturing ____________________ Supplier alliances – Chrysler and MAGNA International __________________________________ The logical step forward________________________ Channel vision_________________________________ The high-performance factory __________________ Ensuring manufacturing excellence______________ SECTION 4: 21st century service industries Overcoming the hurdles in global retailing________ Radical Internet stirs up retailing________________ Banking on the Internet ________________________ Southwest Airlines’ Home Gate _________________ 133 136 139 141 74 75


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Printed by Printhaus Graphique, 2 North Portway Close, Round Spinney, Northampton NN3 8RQ Subscribers to the full journal service can, at no extra cost, access current and archive material via the Internet from January 1997 at and will receive a CD archive in April 1997. Please note that two issues of the journal are bound together consecutively within these covers.


Strategic logistics management – the challenges ahead It has been a real pleasure to have this opportunity to scan the literature, conference presentations and reports covering logistics and to pick out strategic briefings which seem to point to the way ahead. This special issue has been put together in association with MCB Business Strategy Publications which publishes briefings for executives on a host of topical strategic issues. The editorial teams cover new thinking and practice as it emerges. The joy in putting this special issue together has been in the need to reflect on what has been recently published, to pick out emerging themes, and look for trends. I have grouped the material under the following headings: • Logistical future; • The information challenge; • 21st century manufacturing; and • 21st century service industries. The material included is concise and to the point. The briefings have been designed in order that a range of issues and ideas can be quickly taken on board by the reader. The aim is not to explore each issue in depth, such learned papers will be published in this journal throughout the year. It is to look at the plethora of challenges facing logistics practitioners and researchers in the interesting times which lie ahead. To quote from Dick Morley’s excellent Viewpoint (page 75), “In all of history, pundits have said: ‘Even if it happens elsewhere, it can never happen here. We are special.’ Nothing is older than the future unheeded…” Not by this readership! Eric Sandelands Guest Editor


International Journal of Physical Distribution & Logistics Management, Vol. 27 No. 2, 1997, p. 74. © MCB University Press, 0960-0035

Technology strategies for manufacturing – the next decade Manufacturing is a passion of mine. It has been in my blood since I was a union machinist in the early 1950s. The money helped pay for my college education. Since that time, I have tried to combine physics, computer science and capitalism into a paying profession. You see, investors require the ability to look into the future. Manufacturing is an investment process. Let us peer into our manufacturing future… Infinite product life Infinite product life? Indeed. We only need to think about white kitchen products and clothing. Replacement of products is based on fashion, not wearout. Computers are replaced because the user wants the “latest”. How fast can we type? Infinite life implies infinite quality. Modern products have a complexity exceeded only in the biological world. These products must be of high quality – where quality is defined by the perception of the user. Quality is a trouble-free lifetime, and satisfactory utilization of the product. Enjoyment becomes more important than the old formal definition of quality. Sports cars need to convey the illusion of the 007 rake. Products are unfixable. Complexity and molecular engineering have zero replication costs, but infinite repair costs. How does one repair a Pentium computer chip? Since products are not repairable, these same products cannot be prototyped. The first units must be made in the production facilities. Surface mount technology and multilayer boards utilizing complex semiconductors need to be modelled in a virtual system and directly coupled to the factory. Cost of manufacture will disappear from pricing considerations, and return of capital will be the overriding consideration. This is now happening in jet aircraft and software manufacture. The definition of product life takes on a new meaning Recycled products used to be called “throwaway”. People are making money on the concept of the recyclable camera. Electronics are recycled more than ten times and the plastic, after reduction, is used about five times. A famous automobile manufacturer is considering the remanufacturing of engines. With the new, agile concepts available, we can envisage the automatic dismembering of the old and remanufacturing into the new. Some of the boutique makers are advertising a high recyclable material content in the new cars. We can envision in the future, 200,000 miles service-free automobiles with a high recyclable content – including consumables. The idea of throwaway products has led society to consider the value of the old, discarded product, which is an unexpected event.



International Journal of Physical Distribution & Logistics Management, Vol. 27 No. 2, 1997, pp. 75-76. © MCB University Press, 0960-0035

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

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


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

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

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

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

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

and then. many companies are now recognizing the need to wring greater returns from their investment. a new approach to implementation needs to be recognized and accepted as the best way forward – both by manufacturers and IT suppliers. Developing enterprise-wide IT Although. as some leading UK organizations have already delivered business transformation in part through the successful deployment of IT. and in this area the survey found that the majority of companies are still frustrated. Working together. As manufacturers recognize the importance of having to share and control information across teams and with suppliers and customers. And for many companies. which is still the most popular and used by 35 per cent of survey respondents. and is one area where IT can prove its worth. This is particularly true of companies with turnovers of more than £100 million.IJPDLM 27.2 help to plug part of the skills gap – with IT providing a capacity to release some skilled people for higher value-added activity. This approach. many (25 per cent claims the survey) have already turned to IT to help improve communications and manage the process. with 80 per cent of respondents claiming that IT payback does not yet meet expectations. and only then. there needs to be a move away from the traditional cost accounting payback method for justifying IT investment. IT is overlaid to automate these optimized processes. As the survey report highlights. Controlling new product information New product development is an increasingly important process. the expectation of emulating such change in more UK manufacturers is not totally unrealistic. the answer is twofold. the manufacturers’ business processes are fully understood and reengineered where necessary. 84 . especially if companies expect to provide more customized offerings. First. those companies which achieved transformational change have done so in close partnership with their IT suppliers. Second. To achieve the real breakthrough in competitiveness senior managers are now looking to IT to deliver transformational change on an enterprise-wide level. the UK seems to be ahead of its main competitors in exploiting IT. with manufacturers acknowledging significant IT payback at department level. However. in effect forces companies to take a more departmental and short-term view when procuring and implementing IT.

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

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

and got management support early on and took it from there. it can point to this and other new ideas as being part of the new Unisys. One advertisement read: “When you Customerize.process. Some thought it was silly. Unisys will help you extend the full capabilities of your enterprise to points of customer contact – the points where business is won or lost. Stay with your customers. The concept sets the company’s advertising apart. once you understand it.” Where doesn’t that fit? So what was the pay-off? It stimulated new business and discussions with organizations Unisys did not know before the programme. “Customerize”: Unisys Corporation 87 . Unisys did a lot of selling up front. you put the customer at the heart of your world instead of at the periphery. In addition. those technology companies that are now doing less well. There were also several other benefits. technology-based corporation that had recognized the growing need to take care of clients. It discovered a growing rallying cry for employees. people had given up hope. and those that are purely consultants recommending to clients what they should do to streamline and grow. for example. many of them among the objectives set at the start. Increased awareness. and their customers will stay with them. clients and third parties. Customerize is proving to be an effective weapon that brings in new customers. and their customers. In both cases. It also helped Unisys gain a unique positioning as a service-led. When times were tough for the company some years ago. By embedding customer service objectives within your information strategy. The company believes that Customerize is a “dig in” concept. it has been a tremendous help in putting the company well ahead of its two different types of competitor. The strategy is pretty hard to argue with. and helps Unisys keep the old ones. Now it is back and doing better than its peers.

means that companies not only need to capture data more quickly and accurately. such as MAP. the factory cycle is now typically measured in hours and days. or enhancing the limited data capture and analysis capabilities of machine and process controllers through adding SCADA systems. Importantly. Moreover. and some do provide facilities for finite scheduling and some shopfloor data capture. Similarly. Yet. machine-monitoring equipment and SPC. and has become more practical than having to comply with the CIM standards of the 1980s. However.2 The missing links With the huge increase in the use of computers that has taken place within most manufacturing organizations over the last decade. Managing Director of Information Engineering Group (IEG). it is tied to the typical MRP cycle of days or weeks. 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. These have included introducing some shopfloor data capture terminals. this lack of manufacturing data management is not really a technical problem. was now being met. But. by not tying these systems together. and the limited time for referring to higher management. which could then make the data available to all those who need them. with the general industry trend towards short-run and reduced lead time production. when they need them. these have also failed to provide the missing shopfloor control. But. this coverage is only a small proportion of the data management needed. but also manage these data and make them available to the people on the shopfloor. they still rarely seem to be accessible by the people who need them. although most companies are awash with electronic data. Whereas. as opposed to providing actual support to run the factory floor. which is far too complex and sophisticated for the majority of applications. Speaking at the CIM Show Conference. scheduling software. McCarthy explained that MRPII systems are good at managing everything up to the factory door. Manufacturers of both control 88 . such as MRPII/ERP. with the resultant growth in prominence of Product Data Management systems. System integration has been theoretically possible for some time. In fact. The greater level of decision making on the shopfloor. when other solutions have been sought. although most companies now use some form of planning system. these “office”-based systems tend to be driven more by financial considerations. the lack of control over engineering data has been recognized over the last few years. it would be easy to assume that the early promise of “the right information at the right time”. perhaps more surprising is that.IJPDLM 27. for most companies. According to Pat McCarthy. the tendency in the past has been for throwing in discrete systems targeted at meeting specific local needs. manufacturing and shopfloor data are also similarly unmanaged. or providing integration with the management systems.

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



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,

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

firms can attain goals that they could not achieve independently. • A strategy of fast delivery does not increase buyer commitment to a supplier. as performance standards rise. buyer commitment to a supplier increases. buyer commitment to a supplier increases. 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 do commit to suppliers to shorten new product development cycles. By entering collaborative relationships. into 114 firms in the European flexible packaging industry. the compression of total project time and exceptionally tight schedules. • When the buyer perceives mutual trust in the supply relationship. assistant professor of marketing at York University. the scope of what a firm can do alone shrinks. The results from the research include the following: • When the buying firm has a strategy of fast innovation. This article summarizes research undertaken by Alexandra Campbell.IJPDLM 27. 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.2 94 Supply partnerships – building strategic advantage Competitive firms across industries succeed by developing knowledge and speeding it to market in a stream of rapidly and continually improved products or services. . ABB and other subcontractors. • Buyer commitment leads to joint problem solving to increase the efficiency of the supply relationship. and investigates the role of supply partnerships in building strategic advantage. few studies have examined the partnerships that develop between firms and their suppliers. The experiences of ABB and the Ford Motor Company during the design and construction of a $300 million facility provides a good example of how co-operation can create value. the companies developed a longer-term relationship based on co-operative engineering to facilitate the exchange of knowledge and experience between Ford. However. Instead of forming a relationship centred on price negotiation.

one that both improves their competitiveness and protects them from imitation. Supply partnerships can contribute to maintaining or improving a firm’s competitiveness. firms may elect to cooperate with suppliers to reap benefits that are used to serve the firm’s customers better. 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. The second lies in the evidence of a buying firm’s perception of the market responsiveness advantages that can arise from co-operation. and (3) performance superiority. . All of these differ in their core value proposition and in the capabilities required to execute them. Supply partnerships 95 Creating customer value Campbell’s findings make two significant contributions to the study of buyersupplier relationships. Managerial implications So what are the implications of all this? How firms choose to compete will dictate which capabilities managers emphasize. However. Fast market responsiveness is influenced by linking activities that occur in a firm’s supply relationships with activities that occur in its customer relationships. buyers need to consider the ability of a potential supply partner to help the firm execute its marketing strategies further downstream. there are other possible approaches. Likewise.• • • Joint problem solving with suppliers improves a firm’s efficiency or effectiveness through the interlinking of activities. The first is the recognition that supply governance decisions are influenced not only by factors stemming from the supply relationship itself. This implies that the extent to which a firm’s strategy choices become distinctive depends on the quality of its supplier relationships. Recent studies of market leaders revealed three such strategies: (1) operational excellence. The research has focused on one type of firm strategy aimed at consistently offering superior value to the customer: fast market responsiveness. Thus. 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. (2) customer responsiveness. Joint problem solving with suppliers improves a firm’s position in other connected relationships. Joint problem solving with suppliers may represent a distinctive capability for firms. but also by a firm’s strategies in its customer relationships.

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

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


telecommunications companies or cable TV. One reason for the relative lack of commercial success may be the confusion which surrounds the information superhighway. 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. mergers and other projects. managers must understand several concepts. create and exploit new markets. The average annual revenue earned by Internet vendors has been less than $25. Executives are bombarded with conflicting viewpoints. methods and models for analysing the impact of the information superhighway. The electronic marketspace To assess the impact of the information superhighway. The opportunities on offer The predicted growth in connected infrastructure is staggering. Businesses outside the media and telecommunications industry are also beginning to set up World Web pages. Success is not necessarily assured. This has led Ernst & Young to develop a way of identifying business opportunities to assess the ongoing potential. Once the Internet. or some other interactive infrastructure becomes robust and widely adopted. Nonetheless.Doing business on the information superhighway You cannot pick up a magazine or newspaper or turn on the TV without hearing something about the information superhighway. This is apparent with the ongoing announcements concerning various alliances. cable TV trials. The first is the distinction between the traditional Business on the information superhighway 99 . however. It is now possible to try out banking services offered by Bank of America or take a preview of a Hyatt Resort hotel in the Caribbean. bypass non-value-adding intermediaries and radically revise workplace practices. There will be opportunities to improve current business processes. 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. A recent issue of its publication CenterPoint provides a starting point for a thorough appraisal of the benefits and associated risks.000. Intriguing pilot projects and apparent success stories capture the attention of executives in all manner of industries. Research predicts a 16-fold increase in the installed visual telephony base worldwide between 1994 and 2000. the potential for business change is colossal. Other projects such as Mecklermedia’s shared corporate World Wide Web server and several interactive television trials appear to have fizzled out. contradictory research and a diverse set of future scenarios and timetables. Compounding the confusion is the lack of tools. differing opinions.

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

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

102 . cutting as much as eight weeks from its customers’ time to market. published by Management Roundtable Inc. For semiconductor products this can be anywhere from eight to 16 weeks. and sales and advertising literature. suffer from a number of problems: • They typically reach only a relatively small percentage of the “right” customers (National estimate 30 per cent). Once this customer focus was established. National decided to solve its information delivery challenge by building individual relationships with the designers themselves. • With shrinking development cycles.000 parts catalogue on the World Wide Web. an essential but time-consuming part of a designer’s role.IJPDLM 27. (National) has taken a significant step towards realizing this potential. can prove vital. February 1996.2 Virtual partners Following the explosion in general interest in the Internet. To improve its product information delivery. or central switches for the telecommunications industry. finding the shortest route to establishing firm information about the components needed to turn a concept into a design. such as printed catalogues. Improving information delivery Traditional product information vehicles. From the information gathered it was able to define its real customer as the million or so engineers who design workstations. • The time between product information being created and printed documents getting into the customers’ hands can be relatively lengthy. paper delivered information can often become obsolete by the time it reaches the designer. PCs. they really buy the function that they are told it will do. with time to market increasingly important for most companies. in Product Development Best Practice Report. “National semiconductor on the Web”. National Semiconductor Corp. One obvious role is the speeding up of information gathering. It also realized that these engineers do not buy the products per se. National first studied its customer base. If engineers were to design National’s products into their This is a précis from an article. and reduce the time lag. the growing debate within the industrial community is how companies and engineers can best utilize the information superhighway. by mounting its 30. Even if the information is not out of date. there is always the suspicion that it might be. California-based National sees this approach creating a dramatic teaming of product development and marketing possibilities. time which can add delay to a designer’s cycle time. Now. and developing a new forum for active dialogue between its semiconductor engineers and its customers. And.

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

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. National predict that enhancement of its Web access will enable it to eliminate the constriction on information currently delivered on paper and allow for inclusion of data about a product’s performance. It can also make use of failed queries to guess at ideas for new products. but its own. And. National expects to enhance not only its customers’ product development capabilities. 104 . through continuous enhancement of its Web site information gateway. especially when data sheets can run up to 300 pages long. Further possibilities Furthermore. National is talking about using an attribute search to come up with a request for a part that does not yet exist. As an example of emerging possibilities. not currently embodied in a few discrete numbers. Hands-on experience has spurred new ideas and insights.2 convey. again steepening the cycle curve and bringing the company closer to its customers’ design process.IJPDLM 27. With this focus on getting the right information quickly into customer’s hands. This will in effect make National and its customers virtual partners in the design and development process. such as complex curves. a wealth of helpful information is already emerging from blind focus groups the company commissioned to survey response to the Web project.

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

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

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

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

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

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

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

• Learn how to use database marketing. • Create a learning marketing function – one which evolves and adapts to its customers as it captures and analyses more and more information.2 112 Action steps To convert the theory into practice. Systems must be developed to capture what is going on with customers. . • Capture all customer interactions – every relationship must be recorded. • Structure the marketing function around “customer equity” – i. what customers are worth over the long term.e. rather than just the present sale. and gain from the marketing information revolution. and – most importantly – respond accordingly. Blattberg recommended a number of action steps that companies should be currently pursuing. These are: • Design and create integrated customer databases – this will enable companies actually to name individual customers and also identify their actions and needs. Blattberg concluded that companies must learn to use IT to listen to customers and communicate. especially those which are negative. feed this information to the right part of the organization.IJPDLM 27.

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


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

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

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

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

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

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

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

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

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

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

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

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

and the old practices of inspecting every piece part received is being replaced with vendor certification programmes. While many factories perform reasonably well in meeting the committed delivery date. compared with 12 per cent in 1992. BIC companies needed only 20 days to achieve an unplanned 20 per cent increase in production. 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. best-in-class companies meet 86 per cent of customer request dates. across all industries. down from 55 suppliers in 1992. in 1995 the average computer company obtained 80 per cent of its materials from 22 suppliers. Currently. Although changes in supply-line practice are industry-wide. flexibility and cycletime performance. 33 per cent of transactions are completed via EDI. there is a measurable difference between delivering what a company promises and meeting actual customer needs. PRTM’s new study reveals that supply-line practices are changing dramatically. while average companies only meet 50 per cent of those requests. This performance is leaving a major opportunity for competitive advantage that is being taken by those companies that recognize the importance of fulfilling customer needs. In the computer sector. 27 per cent of transactions are now completed by electronic data interchange (EDI). in 1995 82 per cent of incoming material lots were received without inspection. Proper management of inventory is also critical for cost. an increase from 65 per cent in 1992. providing companies with new ways to speed production. while median companies needed 56 days. The average European computer company obtained 80 per cent of it material from 43 suppliers. sustaining an average of 94 per cent order reduction within 45 days of scheduled product delivery with no inventory or cost penalty. they do not come close to meeting the date initially requested by the customer.server and mainframe market report only three ECOs. The personal computing The highperformance factory 127 . save money and improve quality. These companies are also phasing out cumbersome paper-based ordering mechanisms. up from 18 per cent two years ago. sourcing time (the time to specify and acquire materials and components) comprises nearly 75 per cent of the entire source-make cycle-time. Supply bases are shrinking rapidly. but companies that find ways to reduce sourcing time take a dramatic lead time advantage. as compared to the median figure of 19 ECOs. In terms of inspection effort. Supply-line management – formerly known as purchasing – has become an important new tool for gaining competitive advantage. Across all industries. Companies that cannot respond quickly to changes in the marketplace run the risk of out-of-control inventory and lost revenue. The average company can only sustain a 20 per cent reduction for the same amount of time. as opposed to 31 suppliers in 1992. For Europe alone the picture is slightly different. As an example. According to the study. For example. The same BIC companies can also more easily adjust to a downturn.

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

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

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

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


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

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

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

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

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

IJPDLM 27. .2 138 This will challenge the company to allow customers actually to perform part of the business electronically. Therefore companies need to be looking at all forms of interactive marketing now – not when the method becomes an accepted norm. However. in many aspects of purchasing life. How fast the new approach is adopted and mastered by businesses may well make the difference between tomorrow’s winners and losers. 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.

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. 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. Banking on the Internet 139 . Telephone banking was introduced in 1977. Finally. with the other partners’ assistance. Over 30 million PCs are in homes across the USA already. Granted. Industry reports show that. 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. with the Internet. Despite repeated attempts by computer security experts. The electronic ground was well and truly broken in the USA in 1995. inconvenient opening hours and unhelpful branch staff. 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”. the technology has been available for over 20 years. will be able to create its own online bank – cheaply and effectively. and both can compete in the same environment for customers around the world. many of these commentators secretly hate their bank because of punitive charges.Banking on the Internet For many years commentators have said that the traditional bank has about as much future as the dinosaur. in 1994 the sale of PCs exceeded the sale of color televisions for the first time. $580 million-asset Cardinal Bancshares organization. With this as the background. The lesson of Cardinal and Security First is that. it appears that consumers. Now. But why is electronic banking finally catching on now? After all. but it has only been the last three years in which there has been any significant use of the services. Cardinal launched. in the USA alone. the Security First Network Bank in October 1995.2 million in the development of a completely Internet-based bank. they might be right. from the smallest community bank to the largest commercial bank. on the whole. Any bank. 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. In May of that year Huntington Bancshares and Wachovia Corporation each invested $1. the security of the software has never been breached. both large and small banks are now on equal footing. The Security First offered checking and savings accounts to anyone with a computer and a modem. in the age of electronic banking. the computer industry anticipates shipping 12 million PCs in 1996 alone. Both can gain access to the Internet for approximately the same cost. The bank was originally created and designed by a relatively small financial services player – the Kentucky based. may skip right over telephone banking and go straight to PC banking. What is more.

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

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

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

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