CHAPTER-I INTRODUCTION TO WORLD CLASS MANUFACTURING World class manufacturing Information age : Emergence, Competing in the information age,

Business challenges, Operating environment, Manufacturing challenges-Globalization and international Business-Indians Global competitiveness and manufacturing excellenceproblems in the manufacturing industry. SUBJECT DESCRIPTION This very comprehensive and intensive subject is an in-depth, "hands-on" presentation of the World-Class Manufacturing scenario. The subject World class manufacturing exemplify the principles and applications of the globalization of industry. This subject presents and examines both the tools utilized and the employee involvement aspects in achieving manufacturing excellence It also exemplify the cultural prerequisites necessary to switch over to world-class status that should be deployed and applied in a high calibre manufacturing concern of worldclass manufacturing companies. Engineers, managers, and production professionals should recognize the opportunities for improvement in their own manufacturing practices and determine the best approaches for effectively applying preferred methodologies as well as maximizing desired results. Students gain hands-on experience with a variety of tools for closed-loop problem solving, decision making, and continuous improvement in quality and cycle time. The subject provides an indepth analysis of Japanese manufacturing methodology. It assists the students to acquire a better understanding of TQC (Total Quality Control), TQM (Total Quality Management), TPM (Total Productive Maintenance), JIT (Just In Time), TIE (Total Industrial Engineering) practices, Kaizen manufacturing methods (Continous improvement), Lean Thinking (Toyota Production System), Six Sigma, Theory of Constraints, Total Quality Management, Quality Function Deployment (QFD), Seven Basic Quality Tools, Statistical Process Control (SPC), and other methods. Upon completion, students should recognize appropriate selection, application, and deployment of these tools for excellence in their own work environment.

PREREQUISITES: Basic familiarity with business concepts, exposure to manufacturing processes and practices, the ability to critically analyze problems and use quantitative methods to arrive at business decisions. Personal motivation is the primary prerequisite. Knowledge of basic math formulas and their manipulation is an asset. SUBJECT GOAL AND OBJECTIVE: Obtain a basic understanding of the various methods and tools used for Process Improvement and their appropriate application. This subject is tailored: aware of the strategic importance of aiming at high levels of a "Global Market" situation.

- to make the students Performance in

- to make the students acquainted with those principles required to understand, measure, selfassess and monitor Industrial Performance

- to give students an in depth appreciation of the "state-of-the-art" philosophy, disciplines and techniques available to enable every manufacturing enterprise to perform at world-class level, and illustrate principles and methods that can and should be applied in factories of all types and sizes toachieve continuous Performance improvements

- to stress the importance of an integrated, holistic approach to Performance, with emphasis on achieving short, medium and long term goals

- and to highlight the necessity of a strong and modern corporate industrial culture as a prerequisite to direct any manufacturing enterprise towards new performing targets.. The Subject is designed and developed for students pursuing MBA Programme, Entrepreneurs, Company Owners, Managing Directors, General Managers, and high level Managers (Quality Managers, Operations Managers, Production Managers, Plant and Maintenance Managers, Commercial and Marketing Managers, Human Resources Managers.....) from the Manufacturing Industry.

Learning Outcomes
After reading this chapter, the students should Define and describe the key concepts in World Class Manufacturing Know the journey to World class manufacturing Understand the philosophy and techniques in world class manufacturing Be familiar with the features of world class manufacturing Able to recognize the seven keys of world class manufacturing Identify t the principles of world class manufacturing

STRUCTURE

1.1 Introduction to World Class Manufacturing 1.2 World class manufacturing meaning 1.3 The Journey to world class manufacturing 1.4 philosophy and techniques in world class manufacturing 1.5 Main features of world class manufacturing Summary Review Questions

1.1 INTRODUCTION TO WORLD CLASS MANUFACTURER

Many advanced Japanese manufacturing have enjoyed considerable success largely through their adoption, use and development of unique manufacturing principles. Japanese production methods offer the best practice in production, cost deployment, quality assurance and lean production.

Today the markets are becoming global Businesses and operations accordingly are becoming more global . World Class Manufacturers are those that demonstrate industry best practice. To achieve this, companies should attempt to be best in the field at each of the competitive priorities (quality, price, delivery speed, delivery reliability, flexibility and innovation). Organizations should therefore aim to maximize performance in these areas in order to maximize competitiveness. However, as resources are unlikely to allow improvement in all areas, organizations should concentrate on maintaining performance in 'qualifying' factors and improving 'competitive edge' factors. The priorities will change over time and must therefore be reviewed. Manufacturing has evolved considerably since the advent of industrial revolution. In current global and competitive age, it is very important for organization to have manufacturing practice which is lean, efficient, cost-effective and flexible. World Class Manufacturing is a different set of concepts, principles, policies and techniques for managing and operating a manufacturing company. It is driven by the results achieved by the Japanese manufacturing resurgence following World War II, and adapts many of the ideas used by the Japanese in automotive, electronics and steel companies to gain a competitive edge. It primarily focuses on continual improvement in quality, cost, lead time, flexibility and customer service. 1.2 WORLD CLASS MANUFACTURING - MEANING Every commercial organization is focused on making profit. Manufacturing companies are special within these enterprises because they make their products themselves. The objectives of Manufacturing Companies are to satisfy the needs of the customer who wants:

1. Products of consistent high quality 2. Delivery On Time In Full amount ordered

4

3. Products at the lowest possible cost level. World Class Manufacturing [WCM] is the collective term for the most effective methodologies and techniques to realize these objectives.

WCM is the result of many centuries of production knowledge and ability. Starting with the guild structure in the Middle Ages, this knowledge and ability evolved via the manufacturing in the 18th century, scientific management/mass production, socio-technology and lean production in de twentieth century into the State-of-the-Art manufacturing companies in the beginning of the 21st century: World Class Manufacturing. Some of the Well-known WCM methodologies and techniques are TPM, EFQM, Kaizen, TQM, Six Sigma, JIT, and Lean Manufacturing.

1.3 THE JOURNEY TO WORLD-CLASS MANUFACTURING Peter Stonebreaker and Keong Leong presented a hierarchy of steps, appearing as five levels, that lead to world-class operations (see Figure 1). This series of steps will be used to describe the characteristics of world-class manufacturers.

1.3.1 LEVEL ONE: BUSINESS AND OPERATIONS STRATEGY All world-class manufacturers have an explicit, formal manufacturing mission. Within this mission is the operating goal to become world class. They use competitive information to establish organizational goals and objectives, which they communicate to all members of the enterprise. They regularly assess the appropriateness of these objectives to attaining and maintaining world-class status. World-class manufacturing requires an overall willingness to establish closer connections with everyone, from suppliers to workers. It requires an unwavering commitment to self-analysis and improvement. It requires an aggressive approach to technology that can turn visionary strategies into reality. All of these must be reflected in the firm's business and operations strategy if world-class status is to be attained. 1.3.2 LEVEL TWO: ORGANIZATION DESIGN, HUMAN RESOURCES, TECHNOLOGY, AND PERFORMANCE MEASUREMENT The following sections discuss how organization design, human resources, technology, and performance measurement factor into an organization's effort to become a world-class manufacturer. ORGANIZATION DESIGN. World-class manufacturers integrate all elements of the manufacturing system in such a way that the needs and wants of its customers are satisfied in an effective, timely manner. This requires the commitment and the expenditure of efforts and resources by all elements within the system to ensure their proper integration. This commitment extends to outside elements as well, as the world-class manufacturer encourages and motivates its suppliers and vendors to become co-equals with the other elements of the manufacturing system. World-class manufacturers work to eliminate organizational barriers to communication and to organize the firm in such a way that the core values needed to reach world-class status take precedence. In fact, most companies that have succeeded in implementing many of the worldclass toolsuch as just-in-time production (JIT), total quality management (TQM), manufacturing resource planning (MRP II) and total productive maintenance (TPM)lready had the core values
6

well in place. Companies that are already world class are able to quickly absorb other worldclass manufacturing concepts as they are developed and publicized. HUMAN RESOURCES. World-class manufacturers recognize that employee involvement and empowerment are critical to achieving continuous improvement in all elements of the manufacturing system. The continuity of organizational development and renewal comes primarily through the involvement of the employee. World-class companies invest comparatively more in their relationships with their workers, providing significantly more training than their competitors. An Industry Week survey found that firms approaching world-class status were three to five times more likely to report "highly effective" human-resources programs than other firms. Some analysts note that combining lean manufacturing principles with employee participation can help firms become world-class manufacturers. TECHNOLOGY. A great deal of emphasis is placed on technology, equipment, and processes by those trying to attain world-class status. World-class manufacturers view technology as a strategic tool for achieving and maintaining their world-class status. A high priority is placed on the discovery, development, and timely implementation of the most relevant technology available and the identification and support of those who can communicate and implement this technology. The most highly competitive firms have made significantly more progress than others in implementing TQM, reengineering, simultaneous engineering, group technology, computerassisted manufacturing (CAM), material resources planning (MRP), and the use of local area networks (LANs). PERFORMANCE MEASUREMENT. World-class manufacturers recognize the importance of measurement in defining the goals and performance expectations for their organization. They routinely adopt or develop the appropriate performance measurements needed to interpret and quantitatively describe the criteria used to measure the effectiveness of their manufacturing system and its interrelated components. Use of the proper measurements allows world-class manufacturers to assess their performance against themselves (internal benchmarking), their competitors (competitive benchmarking),
7

and against other world-class manufacturing firms that are not competitors (generic and functional benchmarking). World-class status is achieved through a relentless commitment to continuous improvement, which cannot be achieved without measurement. 1.3.3 LEVEL THREE: INFORMATION SYSTEMS, MANAGEMENT DIRECTION, AND OPERATIONS CAPABILITIES The following sections discuss how information systems, management direction, and operations capabilities factor into an organization's effort to become a world-class manufacturer. INFORMATION SYSTEMS. World-class manufacturers require world-class information systems for collecting, processing, and disseminating data and for providing the feedback mechanism that is necessary for meeting their objectives. Information systems are fully integrated into the business processes of firms that adhere to continuous improvement and TQM strategies. Capturing and analyzing customer feedback and designing, manufacturing, and delivering world-class quality products and services is rooted in superior information systems. Richard Schonberger states that functions within a world-class firm all have a common language and signaling system. Worldclass firms embrace computerized maintenance management and computer-integrated manufacturing. Additionally, organizational commitment to continuous improvement is supported by the strategic use of information systems. MANAGEMENT DIRECTION. Management is responsible for directing the manufacturing organization's journey to worldclass status and for creating an organizational culture committed to all that is necessary for achieving continuous improvement. Corporate culture and values are the foundation for superior manufacturing, which in turn reflects and is reflected by the caliber of corporate management. This implies that personal commitment, involvement, and a sense of direction by management are critical to the success of world-class firms. The manufacturing excellence needed for world-class status is nurtured by direction from superior management, which must penetrate the manufacturing function, viewing and

managing it as an integral, indivisible part of the firm. It cannot tolerate mediocrity or even average manufacturing performance. Management must seek to describe and understand the interdependency of the multiple elements of their manufacturing system, to discover new relationships, to explore the consequences of alternative decisions, and communicate unambiguously within the organization and with the firm's customers and suppliers. Stimulating and accommodating continuous change forces management to experiment and assess outcomes. They must be able to translate knowledge acquired in this way into some sort of direction, framework, or model that leads to improved operational decision making, while incorporating a learning process into their fundamental operating philosophy. The objective of world-class status tests management's ability to learn, adapt, and innovate faster in the face of an intensely competitive global market. OPERATIONS CAPABILITIES. World-class manufacturers are concerned with whether their operations systems have the ability to meet design specifications, rather than with evaluating the quality and quantity of products after the fact. In order to attain world-class status, the manufacturing firm has to be given the proper resources. With these resources, the firm must have the capability to produce the right quantity, the right quality, at the right time (often just in time), and at the right price. The proper technology must be on hand or readily attainable. In addition, the firm must have the necessary managerial capabilities to compete successfully on a global basis. For many firms, the necessary operational capability involves the ability to provide customers with a large degree of flexibility of either product or volume, or exceptional response time to orders, changes in orders, or new product development. Beyond the firm itself, operations capability implies a superior interactive relationship with all vendors and suppliers. World-class firms have extensively implemented JIT, are heavily involved with programs that contractually commit suppliers to annual cost cuts, and are making efforts to involve the supplier early in the new product development process. 1.3.4 LEVEL FOUR: QUALITY World-class manufacturers place an emphasis on quality. Firms in this category are usually in an advanced state of TQM implementation, continually seeking to enhance their business. All
9

quality costs (prevention costs, appraisal costs, and cost of defectsoth internal and external) are evaluated and held to the lowest reasonable sum. "Zero defects" is the goal of the world-class manufacturer. In order to achieve zero defects, the world-class firm is educated in and has fully implemented statistical quality control (SQC), sometimes called statistical process control (SPC) or quality at the source. Hence, quality is maintained and elevated through quality planning, quality control, and quality improvement. In conjunction with this effort to improve processes and products, world-class firms utilize an activity called benchmarking. This involves comparing the firm's performance, either overall or in a functional area, with that of other world-class organizations. The use of TQM techniques, according to some analysts, is the most striking differentiator between world-class and non-world-class firms. Quality has also been found to be the most important competitive differentiator in the eyes of the customer. 1.3.5 LEVEL FIVE: CUSTOMER SERVICE World-class manufacturers instill within their organization and constantly reinforce the idea that all who are a part of the organization must know their customers and must seek to satisfy the wants and needs of not only the customers, but also all other stakeholders. The goal of satisfaction is pursued in regards to the product, order processing, delivery, quick response to changes, and service after the sale. After all, the goal of continuous improvement is to improve processes and add value to products and services in such a way as to increase customer satisfaction and loyalty and ensure long-term profitability. 1.3.6 LEVEL SIX: WORLD-CLASS MANUFACTURING While world-class manufacturing may be difficult for manufacturers to define, many say they know it when they see it. Whatever it is, it must be from the customer's vantage point. An Industry Weeksurvey found that, among factories approaching world-class status, a higher percentage were likely to belong to public companies; have corporate parents with revenues greater than $1 billion; participate in an automotive industry value chain; and employ 250 or more people at the location. These firms reported large cost reductions over the previous three years, as well as increased revenues, higher capacity utilization, higher sales per employee, and returns on invested capital (ROIC) that exceeded that of other manufacturers. Daniel F. Baldwin states that truly world-class firms are always examining their business processes and continuously seeking solutions to improve in key areas, such as lead time reduction, cost

10

cutting, exceeding customer expectations, streamlining processes, shortening time to market for new products, and managing the global operation. World-class manufacturers are the ones that possess the knowledge and technology to provide products and services of continually improving quality. It is what separates practitioners of the new paradigm from the industrialist dinosaurs.

1.4 PHILOSOPHY AND TECHNIQUES IN WORLD CLASS MANUFACTURING WCM starts from the theoretically ideal situation; this means that involved employees have the production processes always run without losses. Then one goes back to reality and focuses on differences between the ideal and real process. This difference is called loss. WCM aims to eliminate this loss. In this respect two things are of overriding importance: 1. One learns not to accept losses 2. Creation of ownership, meaning that people carrying out a certain production process, feel ownership of this process and initiate improvements, as well as implement them. World Class Manufacturing is a process-driven approach where implementations usually involve the following philosophies and techniques: a. Make-to-order b. Streamlined flow c. Small lot sizes d. Families of parts e. Doing it right the first time f. Cellular manufacturing g. Total preventive maintenance h. Quick changeover i. j. Zero Defects Just-in-time

k. Variability reduction l. High employee involvement

11

m. Cross functional teams n. Multi-skilled employees o. Visual signaling p. Statistical process control

Companies engaging in World Class Manufacturing strategies focus on improving operations, strive to eliminate waste and create lean organizations. This often results in higher productivity. But these companies also focus on speed of total throughput from order capture through delivery setting new standards for delivery without the heavy dependence on inventory. Sequential methods of performing work are being replaced with concurrent methods to compress time, and functional and hierarchical divisions of duties are being replaced by team-driven activities. 1.5 MAIN FEATURES OF WORLD CLASS MANUFACTURING 1. Make losses visible 2. Improving in team format 3. Organizing process-oriented 4. Standardize working methods.

First of all, WCM focuses on people who are part of the operation. Together with them losses are traced and made visible.

Subsequently, WCM forms teams to find and eliminate the cause of a certain loss, for only by removing the cause of a problem the problem will stay away forever. Solutions not removing the cause only cure the symptoms of a problem and are no real solutions.

The third main feature of WCM is product organization. Instead of dividing the work over as many specialized departments as possible, the so-called functional division, WCM organized in process stream oriented manner. Ideally, every product-market-combination of your company knows its own team, to which activities adding to the total value are assigned, as well as the support services directly and exclusively related to them.
12

The fourth and last main feature is the permanent guarantee of the found solutions: the standardization. A WCM-cycle is only really complete if we made sure that the solution we found cannot ebb away. In addition, the process owners in such a way should take this step that we can verify that the step is guaranteed.

What does it mean to be a world-class competitor? It means being successful in your chosen market against any competitionregardless of size, country of origin or resources. It means matching or exceeding any competitor on quality, lead time, flexibility, cost/price, customer service and innovation. It means picking your battles competing where and when you choose and on terms that you dictate. It means you are in control and your competitors struggle to emulate your success.

What does it take to be world class? Richard Schonberger, a leading manufacturing consultant, created the term world-class manufacturing. According to Schonberger, manufacturing is gained by marshalling the resources for continual rapid improvement. To achieve world-class status, companies must change procedures and concepts, which in turn leads to transforming relations among suppliers, purchasers, producers and customers. Enterprise automation is indispensable to manufacturing innovators who aim to gain market share, operate at peak efficiency and exceed customer expectations so they can be world class in their industry.

Activity
1. World Class Manufacturers are those that demonstrate industry best practice Justify 2. What attempt should be made by companies to become a world class manufacturer?

Summary
World Class Manufacturers are those that demonstrate industry best practice. Companies try to attempt the best in the field at each of the competitive priorities Organizations should therefore aim to maximize performance in these areas in order to maximize competitiveness.

13

World Class Manufacturing is a different set of concepts, principles, policies and techniques for managing and operating a manufacturing company. Today every commercial organization is focused on making profit. Manufacturing companies are special within these enterprises because they make their products themselves. World Class Manufacturing [WCM] is the collective term for the most effective methodologies and techniques to realize the objectives. Some of the Well-known WCM methodologies and techniques are TPM, EFQM, Kaizen, TQM, Six Sigma, JIT, and Lean Manufacturing. WCM aims to eliminate this loss. World Class Manufacturing is a process-driven approach where implementations usually involve philosophies and techniques. Companies engaging in World Class Manufacturing strategies focus on improving operations, strive to eliminate waste and create lean organizations. This often results in higher productivity. There are seven keys that should be considered in order to become a world class manufacturer. Each of the seven keys is an integral part of Lean thinking.. The keys to success are: Reduce lead times , speed time-to-market , Cut operations costs , .Exceed customer expectations, .Manage the global enterprise ,.Streamline outsourcing processes and Improve business performance visibility. There are three main principles, which drive world-class manufacturing. Implementation of just in time and lean management leads to reduction in wastage thereby reduction in cost , implementation of total quality management leads to reduction of defects and encourages zero tolerance towards defects and implementation of total preventive maintenance leads to any stoppage of production through mechanical failure. World class manufacturers tend to implement best practices and also invent new practices as to stay above the rest in the manufacturing sector. The main parameters which determine world-class manufacturers are quality, cost effective, flexibility and innovation.

Review Questions
1.Explain the key concepts in World Class Manufacturing 2.Discuss briefly the journey to World class manufacturing
14

3. Explain the philosophy and techniques in world class manufacturing 4. What are the features of world class manufacturing

15

CHAPTER-II INTRODUCTION TO WORLD CLASS MANUFACTURING-CONTINUITY

Learning Outcomes
After reading this chapter, the students should Able to recognize the seven keys of world class manufacturing Identify t the principles of world class manufacturing Know the various aspects of world class manufacturing Know various world class manufacturers and their practices

STRUCTURE

2.1 Keys to World Class Manufacturing 2.2 Principles of world class manufacturing 2.3 Aspects of World class manufacturing 2.4 World class manufacturers 2.5 World class manufacturing in Aditya Birla Group Summary Review Questions

2.1 SEVEN KEYS TO WORLD CLASS MANUFACTURING

There are seven keys that should be considered in order to become a world class manufacturer. Each of the seven keys is an integral part of Lean thinking. By cutting costs, reducing lead times and exceeding customer expectations, you will be on your way to establishing a Lean enterprise and becoming a world class manufacturer.

How can your company become and remain world class? In this report, each key is presented

16

with a brief discussion and examples of its impact on a manufacturing organization and its competitiveness. The keys to success are: 1. Reduce lead times Shorter lead times are always a good thing. In many markets, the ability to deliver sooner will win business away from competitors with similar product features, quality and price. In other markets, quick delivery can justify a premium price and will certainly enhance customer satisfaction. In all cases, shorter lead times increase flexibility and agility, reduce the need for inventory buffers and lowers obsolescence risk. Lead times are cumulative and bi-directional that is, order handling, planning, procurement, inspection, manufacturing, handling, picking, packing, and delivery all contribute to the lead time; and the time it takes to get signals down the supply chain to initiate each activity adds to the overall time it takes to get the job done. Inflexible business rules and policies can drive undesired effects. Purchasing rules too focused on unit cost lead to large quantity buys that result in high inventory and long lead times. Ironically, this type of buying can also lead to shortages, since longer lead times mean you will be making and buying to a less accurate forecast. The best combination of price and lead time often comes from a stable buyer-supplier collaborative relationship based on long-term contracts with deliveries according to a forecast that is shared with the supplier and updated frequently. The same is true on the customer side. Instead of focusing on securing large, onetime, single orders that clog up the supply chain, companies must focus on creating long-term contracts with customers and sharing forecast information with customers to reduce lead times. The same issues concerning large lot sizes also apply to internally produced parts and products. Large lots, driven by a focus on lowest unit cost, raise inventory and lengthen lead times while reducing flexibility and responsiveness, increasing eventual cost through premium expediting instead of using large fixed lots, companies must dynamically adjust the lot size based on market demand, product mix and capacity. Ongoing continuous improvement efforts focused on reducing setup times can help companies reduce lot sizes, which provides flexibility in responding to market demand. Appropriate measurements contribute to high performance on the plant floor. On-time shipment and inventory turns are good examples of high-level measures that tie to company objectives. Focusing on isolated measurements like equipment utilization on non-constraining resources encourages busy work that creates excess inventory and longer lead-times. Shop floor

17

measurements must encourage overall performanceshipping orders on time at minimal total cost and minimal total cycle times. Performing manual transactions often slows down the supply chain and adds to lead time. Reporting transactions at each operation or creating a paper purchase order before suppliers work on a component are just two examples. In addition, manual transaction reporting often introduces errors and impacts work productivity. Companies must eliminate non-value added transactions and automate transactions to speed up the supply chain. For example, backflushing can be used on the shop floor, and supplier purchase orders can be electronically sent or completely eliminated using Supplier Relationship Management (SRM) solutions.

2. Speed time-to-market Developing and introducing new products and services is vital to most manufacturing companies. Good ideas are not enough; well-managed processes for bringing new products to market can lead to significant competitive advantages. Those activities, however, represent a significant risk that can lead either to missed opportunities or to huge financial losses. In addition to new product development, the same processes and resources are applied to product improvements, corrections and variations throughout the product lifecycle. Based on market research, products are often subject to frequent engineering changes due to customer requests, technological advances, regulatory concerns or competitive pressures. Changes and improvements are easiest to make and least costly and disruptiveearlier in the process. It is good business practice to collaborate with all operational areas of the business while the product and process are still being designed. Cooperation should be focused on the following areas: making sure the new product meets market needs (marketing and sales), that it is priced to sell and generate a profit (marketing and accounting), that it can be manufactured efficiently (production, production engineering, quality, purchasing and key suppliers), and that the product can be maintained and serviced (service). Because customer expectations are increasing, and competition is coming from new players around the world, bringing better and less expensive products quickly to market is more crucial than ever. Research and development is a key success factor in a manufacturers survival and growth. Efficiency and responsiveness of R&D processes will impact the top line as well as the bottom line.

18

Customers are quick to compare and switch vendors. The Internet empowers buyers by providing fingertip access to many more suppliers around the globe; they can even customize products over the Internet without having to ask an engineer to quote their specific requirements. These capabilities change behaviors and expectations, and success in todays markets can only be achieved through innovation, agility and aggressive marketing.

3. Cut operations costs Although recent developments in planning and Customer Relationship Management (CRM) have focused more on top-line benefitsgrowing revenuethe bottom line is still greatly dependent on controlling costs. Companies with a lower operational cost structure enjoy an obvious advantage in profitability, and the ability to adjust pricing to meet competitive pressures if necessary, to maintain or gain market share. Costs are really just part of the scoreboard. When a company implements world-class operational processes, it improves multiple measurements simultaneously, including cost, lead times, inventory and customer service. This approach is superior to a pure cost reduction focus without associated business process change, which can negatively impact other operational measurements. Localized cost reduction efforts can often increase costs in other areas. Moving production overseas to an area with lower labor rates, for example, will increase costs for procurement, transportation, inventory and reduced flexibility, among others. The relative cost of source/make/deliver, and therefore, the opportunities for cost reduction, will vary with the specific industry and the kind of products the manufacturer makes. Most manufactured products today have relatively little direct labor content, generally less than 20% and often less than 10%, whereas the material content of most products is more than one-half the cost-ofgoods sold (COGS). The rest is overhead. Since most direct labor costs tend to be fixed, effective deployment of these resources can reduce unplanned manufacturing overtime, premium expediting and outsourcing, as well as dramatically reduce cycle times. Since material cost is the dominant cost, significant opportunities for reduction lie in analyzing current spending and devising effective sourcing strategies for material. Overhead reduction is always a fertile area for cost reduction, using automation to streamline the procurement, manufacturing and customer management processes.

19

Additionally, fulfillment costs have not received as much attention as it deserves; inventory cost, transportation, admin costs, electronic communications, and storage account for a significant part of the cost of doing business. Fortunately, improving customer service can also generate cost benefits at the same time. Improve business performance visibility Todays fastmoving, ever-changing manufacturing environment demands faster responsiveness to changes in the market, product innovation and supply chain events. In this environment, ignorance is one of the greatest threats to a manufacturing companys health and success. Executives and senior managers must understand how the enterprise is meeting strategic objectives. Middlelevel managers need visibility into how they are performing against tactical objectives. Responsible individuals must be notified immediately when supply chain issues threaten the completion of objectives, so actions can be taken to ensure customer delivery and quality requirements continue to be met.

A well-implemented and effective business solution delivers overall visibility into the health of the company and its operations and provides detailed information for performance

measurement, process management, and problem identification and remediation. Such a system can help improve revenue through competitive advantage, help you understand your business and therefore, manage it better, reduce operational costs, improve performance and improve results for all stakeholdersowners, executives, managers and employees. An enterprise business solution will capture literally thousands of pieces of information each day, as activities are reported throughout the enterprise. All of this detailed data is of little use without placing it in context and seeing each activity in relationship with all the other activities and the overall plan. To turn data into meaningful information is an up-and-down process. Bits of data, taken together and summarized, form higher level contextual information that shows status, accomplishments and importance. From high-level summaries, the observer must be able to drill down to details to understand exactly what is happening and how to drive those activities toward the goals and objectives. Management information and analysis is only as good as the data it is based on. Therefore, data must be collected as quickly as possible and with the least amount of human intervention, which tends to introduce delays and errors. It is equally important to collect data from supply chain partners through automation as much as possible. Electronic Data Interchange (EDI) is the

20

most commonly used method today but EDI is rapidly being replaced by XML-based ecommerce communications and Web-based portal technologies. All systems should be integrated so information can pass freely between them without manual re-entry. Many manufacturers are left with islands of automation after implementation of specialized information systems in isolated portions of the business over the years. While each contains valuable information, absence of integration prevents the effective use of that information for overall management and coordination of effort toward company objectives.

4. Exceed customer expectations The ultimate goal in any business is pleasing your customers. The most successful companies dont just meet customer expectations, they exceed them and beat the competition by setting the bar at a level that makes it difficult, if not impossible, for others to surpass. Successful manufacturers manage the entire customer relationshipfrom prospect to post-sales service and supportinvolving the entire organization in a customer focus. Whether or not they have direct contact with customers, contributors must keep the customers needs in mind as they plan and carry out day-to-day operations. Manufacturers must truly understand the customers goals and objectives. Your products and services must strive to support the customers vision. Communication is very important; neglect is the number one reason that customers terminate a relationship. The key is to give customers access to all appropriate information about your relationship and make it readily available whenever and wherever they might need itthe Web is your ally in achieving this objective. As most companies have painfully learned in recent years, customers often change their mind. To be fair, market conditions are such that product cycles and demand patterns are constantly changing. Agility is extremely important. A solid, collaborative partnership with customers will provide the most reliable advanced information and therefore the earliest warning of upcoming changes. In short, the best strategy is to make the customer want to do business with you. Strive to be the preferred supplier through competitive products, high quality, the right price and superior customer service. Arguably, the most important aspect of customer service is

on-time performance. There are two sides to on-time delivery: promising a realistic date; then delivering on that promise. You must take that promise seriously, meaning that it is not given
21

lightlyall considerations and constraints are factored in before committing to a delivery date. Performance measurements are a must; if you dont know how you are performing, you cannot improve upon it. It is not unusual for companies to consistently have 98% - 99% success in meeting agreed-to shipment dates. Quality must be considered a given. Work with your customers and engineering as early as possible in the product development cycle to determine the required measurements. Measuring and improving all processes through the order and fulfillment cycles, with an eye toward continuous improvement, will allow you to achieve or even surpass expectations.

5. Manage the global enterprise The world in which we do business is shrinking, and virtually every enterprise is now involved in some form of international trade, whether marketing and selling to customers in other countries, or simply using parts or materials that are produced elsewhere. We can thank the Internet, or blame the Internet if you prefer, for opening markets to product and services almost without regard to time and distance. The glass-is-half-full crowd will view these developments as the onset of unlimited opportunity. If you lean toward the half-empty- glass crowd, you are likely to see significant threats in virtually unlimited competition from literally any place on earth. Like it or not, every executive must recognize this new reality and factor global business into plans, processes and strategies. Design products to appeal to international markets. Search for suppliers in other geographies. Understand local regulations and expectations, import/export processes and requirements. Consider language challenges in labeling, documentation and marketing. Establish new sales channels or coordinate manufacturing operations across geographies and time zones. The Internet is a key tool for joining the global business community and conducting business around the globe. Globalization and Web commerce have changed traditional business behaviors and practices. If manufacturers dont expand into new geographic markets, their market share is likely to shrink as new competitors will enter their territory and target their historical customers. Companies must adapt their products and services to those new potential customers. They must leverage the Internet to quickly establish a virtual presence. They must use collaborative technology in order to respond to customers requirements better and faster. Manufacturers often grow and enter new markets by acquiring or merging with other

22

companies. This usually means, however, that different facilities within the newly merged enterprise are using several applications on different hardware platforms, applying different part numbers for the same items and using different operating procedures. The challenge is to bring as much uniformity to the varied facilities as practical without destroying the uniqueness and competitive edge that the individual units had before the merger. The new divisions need to communicate, exchange many kinds of data (product information, customers, suppliers, employees, etc.), coordinate and synchronize logistics operations, provide visibility to materials and components requirements, optimize fixed assets utilization across multiple facilities, consolidate financials and much more. A natural consequence of having operations scattered through multiple locations, whether around the world or in a specific region, is the need to gain visibility across all sites. Visibility can lead to more negotiating power for purchased parts, more efficient centralized credit and collections and accounts payable, and opportunities for improved customer service by gaining access to worldwide inventories and production capabilities.

6. Streamline outsourcing processes Outsourcing of manufacturing operations is a common practice today because it offers flexibilitythe ability to change products or processes rapidly and can often save money by exploiting economies of scale or other favorable cost factors offered by the contractor. There are two approaches to outsourcing: a single process step or group of steps may be performed by an outside resource (heat treating, for example, or electroplating) or the entire manufacturing process might be contracted to a third party. In either case, the manufacturer relieves demand on its own plants and can concentrate on its core competencies which might not include volume manufacturingwhile its partner(s) provide the resources for producing products. Depending upon your current resources and circumstances, outsourcing a part of the manufacturing process could save you from having to expand your manufacturing space (perhaps even adding a new plant), searching for and hiring experienced resources, training the new hires and paying various expenses involved in ramping up a new production line or process. Capital assets can become a liability in a fast-changing marketplace. As customer

23

demands and technologies change the nature and makeup of products, it can be an advantage to not be tied to a relatively inflexible physical plant. For companies large and small, the goal is to become a world-class organization and to be able to compete in todays global markets. For manufacturers, the fastest and easiest way to achieve this goal is through partnerships with companies that have attained superior capabilities in particular phases of the processlike production. By partnering with world class contract manufacturers, you can reap the benefits almost immediatelywell-managed processes, high quality, on-time deliveriesand increase your performance and expectations. At the same time, you can focus your own resources on the things that you do bestproduct innovation, design, marketing, distribution, sales or manufacturing. 7. Improve business performance visibility The keys to becoming a world-class manufacturer are not a secretthey are not even especially profound they are simply a distillation of the experiences of leading companies and how they have managed to excel in their chosen markets. Any company can take advantage of the wisdom and the practices developed in more than 100 years of manufacturing since the Industrial Revolution, but many simply do not have the insight or the will to recognize what must be done and to accomplish it. It is a poor workman who blames his tools for shoddy work, but it is also true that professionals understand the value of good tools and insist on having and using the best whenever possible. When selecting a production machinea machining center, insertion machine, automated assembly line or robotyou would certainly look for one that can handle the tasks you have in mind, but also one that is flexible enough to adapt to additional products and uses that may arise in the future. This practice is even more important with a business solution because the handling and use of information is changing faster than any other technology on the planet. And, remember that information management is a fundamental support for each and every one of the keys to worldclass performance. When looking at extended ERP, supply chain management or CRM solutions some people tend to get distracted by details of the technology and miss the bigger picture. Keep in mind the reasons you are looking for a solution in the first placeto provide tools to manage the information that is essential to growing business value. And thats the application software, not

24

the hardware or operating system. On the technology side, you only have to ensure, as much as you can, that the operating platform is capable of supporting your business needs today and in the foreseeable future, and that the supplier(s) will be around when you need them. Of course, no one knows the future, but you can certainly improve your odds with careful selection. The keys to world-class manufacturing dictate a requirement to deploy capabilities to improve manufacturing operations and processes. Subsequently, technology-based solutions must then be built around the functional processes of design, sell, plan, source, make, deliver, service and finance. Being world class is all about being as good as any competitor in the world, and just a little bit better, quicker, smarter, or more responsive than the rest. World-class manufacturers can choose their battles and compete on their own terms. They are in control of their own destiny and are seldom, if ever, blindsided by something they havent anticipated or cannot handle. Manufacturers that achieve success in these 7 areas are likely to emerge with a distinct competitive advantage.

2.2 PRINCIPLES OF WORLD CLASS MANUFACTURING There are three main principles, which drive world-class manufacturing. Implementation of just in time and lean management leads to reduction in wastage thereby reduction in cost. Implementation of total quality management leads to reduction of defects and encourages zero tolerance towards defects. Implementation of total preventive maintenance leads to any stoppage of production through mechanical failure. 2.3 ASPECTS OF WORLD CLASS MANUFACTURING The main aspects of the world-class manufacturing are as follows: Industrial culture area Market/client area Product development area Operations area E-Performance area
25

2.4 WORLD CLASS MANUFACTURERS Some of the leading world class manufacturers are BMW , Ericcson , Samsung, Blackberry, Sony, Nokia, Toshiba, Toyato, Daimler, Nissan, Honda, 3M, Ford , Microsoft, Apple , Hyundai, Boeing Alcatel-Lucent , General motors Volkswagen , Chrysler , Hitachi, Blue star etc., World class manufacturers tend to implement best practices and also invent new practices as to stay above the rest in the manufacturing sector. The main parameters which determine world-class manufacturers are quality, cost effective, flexibility and innovation. World class manufacturers implement robust control techniques but there are five steps, which will make the system efficient. These five steps are as follows: Reduction of set up time and in tuning of machinery: It is important that organizations are able to cut back time in setting up machinery and also tune machinery before production. Cellular Manufacturing: It is important that production processes are divided into according to its nature, with similar nature combined together. Reduce WIP material: It is normal tendency of manufacturing organization to maintain high levels of WIP material. Increased WIP leads to more cost and decreased WIP induces more focus on production and fast movement of goods. Postpone product mutation: For to achieve a higher degree of customization many changes are made to final product. However, it is important that mutation conceived for the design stage implement only after final operation. Removal the trivial many and focus on vital few: It is important for organization to focus on production of products which are lined with forecast demand as to match customer expectation. 2.5 WORLD CLASS MANUFACTURING IN ADITYA BIRLA GROUP Vision of Aditya Birla Group:To be a Premium global Conglomerate with a clear focus on each business. Mission of Aditya Birla Group:26

To deliver superior value to our customers, shareholders, employees and society at large.

World Class Manufacturing - A definition World Class Manufacturers are those that demonstrate industry best practice. To achieve this companies should attempt to be best in the field at each of the competitive priorities (quality, price, delivery speed, delivery reliability, flexibility and innovation). Organisations should therefore aim to maximise performance in these areas in order to maximise competitiveness. However, as resources are unlikely to allow improvement in all areas, organisations should concentrate on maintaining performance in 'qualifying' factors and improving 'competitive edge' factors. The priorities will change over time and must therefore be reviewed.

Factors to be aware of Though costs will still be monitored and controlled it must be ensured that cost reduction does not remain the overriding priority, as is often currently the case. Organizations should give attention to all of the priorities as stated in the definition of World Class Manufacturing. Control of operations Before commencing implementation of control systems there are always five beneficial things to do which will make any method of control easier to implement and make the system work better operationally. 1. Reduce time wasted in setting and reduce set up times Particularly true for Period Batch Control because the technique requires every part to be made every period, but it is beneficial in all circumstances to reduce batch sizes by reducing set up times on the bottleneck processes. There is little extra benefit in reducing set up times on nonbottleneck processes. The technique "Single Minute Exchange of Die" or "SMED" provided a structured approach to doing this. 2. Form Natural Groups (cells)

27

The processes are divided into groups of families of products or services using Group Technology. This technique was later to be reborn as cellular manufacturing. The technique can be applied wholly or partially and is always beneficial except in pure job shops where product family cells are unstable. 3. Reduce throughput times By far the easiest way of reducing throughput times is to reduce Work in Process. It may be fat and comfortable for the production supervisors to keep lots of Work in Progress. By the same token if there is less WIP, what is in process can be focused on and move more quickly. Typical results of starving the issue of work until a resource is available to work on it are halving of WIP and manufacturing lead-times at a stroke with no loss in output. Secondly by only completing parts when they are required to be despatched and invoiced, WIP tends to only contain parts which are required to be finished and are therefore not likely to be overtaken by more urgent work and left behind in WIP or in finished stock. There is almost never a case for sub-assembly stocks, unless there is very high commonality of sub-assemblies and long sub-assembly lead-times.Whole-assembly kitting can reduce assembly WIP by 50% against sub-assembly kitting and manufacture. Stocking sub-assemblies is almost always an open invitation to rob kits and cannibalise built sub-assemblies for more urgent jobs with corresponding total loss of stock control and rampant WIP. Here we must raise three notes of caution: It is possible that the variety of parts to be produced at short notice may actually result in permanent changeovers and no output. It is at this point that the accountant wants his cake and eat it. He wants less WIP but this can represent less profit if profit is "earned" by producing WIP, and may also result in a reduction in "labour utilisation / efficiency", which actually does not matter unless labour is the bottleneck. There are also examples of increasing "TAKT Time" on the main assembly track by

28

whole-assembly kitting, so this technique needs to be judged against this possibility. In particular this technique should be restricted to non-bottleneck workstations on assembly tracks and sub-assemblies controlled via Kanban systems. Other methods of reducing throughput time include: 1. Redistributing resources to work the bottleneck harder. 2. Close scheduling but also includes "overlapping", i.e. starting op 2 on the first component, before op 1 is finished on the last component of the batch, 3. Reducing the number of operations per part by either combining operations to form one, or including manual operations inspection or de-burring in the working cycle of automatic machines. 4. Postpone product mutation If this technique is considered at the design stage, the mutation induced by customer requirements can be deferred until the final operation rather than at an early manufacturing stage. This makes sophisticated control of mass customisation unnecessary. A common example of this is packaging where it is often beneficial to stock unpacked items and pack into customer livery to order. I.e. convert to assemble to order from make to order. A shorter-term possibility is to consider the trade off between lead-time and stock variety. This is a method of reducing end product variety (SKU's) stocked by deliberately stocking common sub-assemblies instead of final assemblies. For example if there are common sub-assemblies it may be possible to reduce the final assembly stock holding significantly by stocking instead the common sub-assembly. If lead-time is a key selling success factor this may not be acceptable, but if lead-time is not an order winning criteria it may be practical, to stock sub-assemblies. Obviously if final assembly operation lead-times are short the technique is more readily acceptable. Another example from the smelting industry is the stocking of intermediate billet, which can be quickly converted into final sizes.

29

5. Remove the trivial many, to focus on the vital few Using Pareto Analysis increase batch sizes of the low volume value "C" items and preferably employ "Supplier Top Up" arrangements for these. You do not want to run out of these! But why do you need them on the picking list? We have taken the view that the above should be viewed as prerequisites in almost all situations, until they are proven to be impractical. The beauty of this approach is that all steps are beneficial in their own right and can in most cases be implemented separately. The Issues World Class Manufacturing is a process-driven approach to improving manufacturing operations. It is often confused to mean standards of quality and image such as Rolls-Royce or Rolex. It is in direct conflict with traditional capacity-driven manufacturing mentality found in western culture. The implementation will often surface resistance to change and "we've alway done it this way" arguments. The worse resistance is usually found in lower and middle management, but can also can be found in the mindset of workers as well. A case for change has to be created along with high employee involvement. Capitalization is also a major issue when new equipment is required for quick changeover, faster cycle times, and flexibility in operations. Executives may take a piecemeal approach to save on investment costs as an alternative and find themselves disappointed with the lesser results. Just like anything else, World Class Manufacturing is no panacea, nor should it be embraced as a religion. It is an operational strategy that, if implemented properly, will provide a new dimension to competing: quickly introducing new customerized high quality products and delivering them with unprecedented lead times, swift decisions, and manufacturing products with high velocity.

30

Pragmatic Applications World Class Manufacturing techniques have been proven over and over, time and time again and offer alternatives to the traditional capacity-driven approaches of mass production and economic order quantities. Most WCM techniques can be applied in most process and discrete product manufacturing companies in both the factory and office. Benefits can be substantial depending upon the starting point. The best way to approach WCM is through rationalization of operations and identification of opportunities. Most of the time, payback periods tend to be 2 years or less. Our Approach: Tools from a Tool chest The Aditya Birla Group applies concepts and technologies as the situation warrants, that will result in the ultimate benefit to our clients. We treat strategies, technologies, and methodologies as tools in a toolchest, and use them when they offer practical solutions and achievable results. We believe that each client situation is unique, with its own unique set of solutions. Why Us? The Aditya Birla Group can provide long-term assistance to many companies in a variety of industries. The firm has a cadre of the best supply chain consultants in the world today, providing high quality professionalism through the use of experience and innovation. We subscribe to the Institute of Management Consultants Code of Professional Conduct. All consultants engaged on projects adhere to its principles. Whenever possible we will use consultants certified in their particular specialty area. Certification assures that consultants have substantial prior experience in their specialty, and their competencies have been tested by the IMC, and verified by a number of clients. This assures our clients that we are assigning the highest qualified consultants in the profession. We provide technical expertise, team facilitation, leadership, and direction in deciding how you will meet the challenge. We refer you to our Qualification Statement for further details on our

31

background, areas of specialization, concepts and technologies applied, staffing, operating policy, approach, companies and industries served, case studies and references. Equally as important, we train our clients to sustain new methods of manufacturing and the consequential benefits over time. Your company will benefit directly from this training. We have achieved an efficiency in our approach to assignments that allows us to provide high quality technical and managerial advice in a much shorter amount of time than could be accomplished years ago. We are able to do this because of the extensive consulting experience that each of our specialists has.

Activity
1. Globalization and Web commerce have changed traditional business behaviors and practices. Justify 2. Explain some world class manufacturing techniques

Summary
There are seven keys that should be considered in order to become a world class manufacturer. Each of the seven keys is an integral part of Lean thinking.. The keys to success are: Reduce lead times , speed time-to-market , Cut operations costs , .Exceed customer expectations, .Manage the global enterprise ,.Streamline outsourcing processes and Improve business performance visibility. There are three main principles, which drive world-class manufacturing. Implementation of just in time and lean management leads to reduction in wastage thereby reduction in cost , implementation of total quality management leads to reduction of defects and encourages zero tolerance towards defects and implementation of total preventive maintenance leads to any stoppage of production through mechanical failure. World class manufacturers tend to implement best practices and also invent new practices as to stay above the rest in the manufacturing sector. The main parameters which determine world-class manufacturers are quality, cost effective, flexibility and innovation.

32

Review Questions
1. List out the seven keys of world class manufacturing 2. What are the principles of world class manufacturing
3. How can your company become and remain world class?

4. What does it mean to be a world class competitor? 5. What does it take to be world class ? 6.List some of the world class manufacturers in the world

33

CHAPTER-III World class manufacturing and Information age Competition Learning Outcomes After reading this chapter, the students should Know the emergence of information era and its business challenges Know the rise of information intensive industry Understand the various challenges faced by business organizations due to information age competition Be familiar with the business challenges in the global environment Understand how information age has modified the operating environment Be familiar with international business be aware of various manufacturing challenges

STRUCTURE

3.1 Emergence of information era 3.2 The rise of information intensive industry 3.3 Challenges faced by business organizations 3.4 Business challenges in the Global environment 3.5 Information age and operating environment 3.6 International Business 3.7 Manufacturing challenges Activity Summary Review Questions

3.1 EMERGENCE OF INFORMATION ERA

34

The Information Age, also commonly known as the Computer Age or Digital Age, is a period in human history characterized by the shift from traditional industry that the industrial revolution brought through industrialization, to an economy based on the information computerization. The onset of the Information Age is associated with the Digital Revolution, just as the Industrial Revolution marked the onset of the Industrial Age. During the information age, the phenomenon is that the digital industry creates a knowledge-based society surrounded by a high-tech global economy that spans over its influence on how the manufacturing throughput and the service sector operate in an efficient and convenient way. In a commercialized society, the information industry is able to allow individuals to explore their personalized needs, therefore simplifies the procedure of making decisions for transactions and significantly lowers costs for both the producers and buyers. This is accepted overwhelmingly by participants throughout the entire economic activities for efficacy purposes, and new economic incentives would then indigenously encouraged, such as the knowledge economy. The Information Age formed by capitalizing on the computer

microminiaturization advances, with a transition spanning from the advent of the personal computer in the late 1970s, to the Internet's reaching a critical mass in the early 1990s, and the adoption of such technology by the public in the two decades after 1990. Bringing about a fast evolution of technology in daily life, as well as of educational life style, the Information Age has allowed rapid global communications and networking to shape modern society. The information age has affected both industrialized and developing countries. A combination of external and internal factors, including population growth, weak infrastructure, foreign indebtedness, asymmetric world relations, and increasing inequalities among individuals, groups, and regions have prevented many developing countries from achieving significant socio-economic improvements. As
35

a result, some developing countries, such as India, have made economic management their prime agenda. 3.2 THE RISE OF INFORMATION-INTENSIVE INDUSTRY The emergence of the information era, which began in the last decades of the 20th century, made obsolete many of the fundamental assumptions of industrial age competition. Consequently, companies could no longer gain sustainable competitive advantage by merely deploying new technology rapidly. Success in the information age requires new capabilities in organizations. The ability of a company to mobilize and exploit its intangible assets has become far more decisive than investing in and managing tangible assets. Intangible assets enable an organization to develop customer relationships and loyalty, introduce innovative products and services, produce customized high-quality products and services at a low cost and with short lead times, mobilize employee skills and motivation for continuous process improvements, and deploy information technology effectively.

Industry is becoming more information-intensive and less labor and capitalintensive (see Information industry). This trend has important implications for the workforce; workers are becoming increasingly productive as the value of their labor decreases. However, there are also important implications for capitalism itself; not only is the value of labor decreased, the value of capital is also diminished. Global competitors operating in global markets almost always tend to have worldclass status. Therefore, to be globally competitive, Indian manufacturers need to achieve world-class performance. Oddly enough, developing countries such as India, China, and Brazil constitute huge markets that attract world-class companies from other countries to sell their products. Therefore, even the domestic companies in these countries that are not targeting global markets are also constrained to

36

compete with world-class companies. This is facilitated by the liberalization policy of the governments of these countries, often some what at a rate of change that does not give time for domestic companies to ready themselves for world-class performance.

3.3 CHALLENGES FACED BY BUSINESS ORGANIZATIONS DUE TO INFORMATION AGE COMPETITION

Information age competition has initiated some unique challenges that businesses have to cope with:

* Managing uncertainty Uncertainty in the business environment has become a way of life. Consequently, companies find it difficult to predict changes in their competitive environment. Customers are becoming competitors, competitors are becoming partners, and unconventional competition is emerging and businesses must go on despite potentially dramatically new business environments that are at present not well understood.

* Understanding customers It is increasingly important to understand customers' needs and wants, translating them into a unique, value-added business mission. Companies capturing and applying information at each point of customer contact will be better off than those that do not. Companies will have to be able to apply and integrate information technology into the entire product process, including research, design, manufacturing, distribution, marketing, and after-sales service.
37

* Understanding globalization of business As information technology breaks down the barriers of time and location, distinctions between large and small companies break down. Small, agile firms can effectively compete against industry giants because IT can make a consortium of small firms look, feel, and get big, reaching for customers that were once beyond the grasp of individual firms. This has given rise to intense competition that blurs the boundaries between domestic and global markets.

3.4 BUSINESS ENVIRONMENT

CHALLENGES

IN

GLOBAL

BUSINESS

In the changed globalized business environment, it is not feasible to compete only on the basis of costs without paying attention to other customer preferences. Consequently, many new manufacturing approaches have emerged in recent years as a reaction to the dynamic marketplace, where increased competition and globalization have greatly affected the distribution of market share and profit margins. These new approaches to manufacturing are based on a pragmatic philosophy distilled from worldwide experience in manufacturing. The major concepts are independent of technology though they may be applied differently with technical advances. Taken independently, none of these concepts are new; in fact they all have antecedents dating to the early 20th century, if not before. In spite of this, they have a novelty of thinking in that they combine the best and simplest practices into an elegant whole for a given approach.

Manufacturing excellence, which is the aim of these approaches, refers to improvement in the broadest context. This excellence could be attained by a combination of several approaches to manufacturing such as:
38

* Value-added manufacturing, which advocates doing nothing that does not add value to the product or the customer.

* Continuous improvement manufacturing, which suggests that every aspect of manufacturing is dedicated to making it better in ways great and small. * Just-in-time manufacturing and total quality control.

3.5 INFORMATION AGE AND the basis of a new set

OPERATING of operating

ENVIRONMENT assumptions, including:

To compete in the information age, contemporary organizations are structured on

* Business process orientation. Industrial age organizations gained competitive advantage

through specialization of functional skills in such areas as manufacturing, purchasing, distribution, and marketing. This specialization provided several benefits, but it led to enormous inefficiencies, handoffs between departments, and slow-response processes. Information age organizations operate with integrated business processes that cut across traditional business functions to combine the specialization benefits from functional expertise with the speed, efficiency, and quality of integrated business processes.

* Link to customers and suppliers. Industrial age organizations worked with customers and suppliers through arm'slength transactions. Information technology enables today's organizations to integrate supply, production, and delivery processes so that operations are triggered by customer orders, not by production plans alone. An integrated system,
39

from customer orders upstream to raw material suppliers, enables all business units of the organization along the value chain to realize enormous improvements in cost, quality and response time.

* Customer segmentation. Industrial age organizations prospered by offering low-cost but standardized products and services. Information age customers want individualized solutions to their wants and needs. Therefore, information age organizations must learn to offer customized products and services to diverse customer segments without paying cost penalties for high-variety, low-volume operations.

* Global scale. Information age organizations are able to compete against the best in the world because domestic borders are no longer barriers. Organizations must combine the efficiencies and competitive honing of global operations with marketing sensitivity to local customers.

* Managing innovation. Product life cycles continue to shrink. Competitive advantage in one generation of a product's life is no guarantee of product leadership in the next technological platform. Consequently, companies in industries with rapid technological innovation must be capable of anticipating customers' future needs, designing radically new products and services, and rapidly deploying new product technologies into efficient operating processes.

* Knowledge workers.

40

Industrial age organizations created sharp distinctions between white-collar managers and engineers who used analytical skills to design products and processes, select and manage customers, and supervise day-to-day operations, and blue-collar workers who produced the products and delivered the services. This direct labor workforce was a principal factor of production for industrial age organizations, but only their physical capabilities were used. In the information age, the percentage of blue-collar workers has reduced considerably, and there has been a significant increase in the number of white-collar workers. More than ever before, contemporary blue-collar workers are involved in giving suggestions about how to improve quality reduce costs, and decrease cycle times. All employees are required to contribute value by what they know and the information they can provide. They are becoming knowledge workers, Investing in, managing, and exploiting the knowledge of every employee have become critical success of organizations. to the

3.6 INTERNATIONAL BUSINESS

Since World War II, a number of factors have changed the manner of competition in the global business community. The catalyst for globalization varies among industries, but among the causative factors have been increased similarity in available infrastructure, distribution channels, and marketing approaches among countries, as well as a global capital market that allows large flows of funds between countries. Additional causes include falling political and tariff barriers, a growing number of regional economic pacts that facilitated trade relations, and the increasing impact of the technological revolution in restructuring and integrating industries. Manufacturing issues associated with flexibility, labor cost differentials, and other factors play an important role in these market trends. Widespread globalization is evident in a number of industries.

41

Economic activity today is becoming not merely internationalized, but also increasingly globalized. "Internationalization" refers simply to the increasing geographical spread of economic activities across national boundaries, which as such is not a new phenomenon. Globalization of economic activity is qualitatively different. It is a more advanced and complex form of internationalization that implies a degree of functional integration between internationally dispersed economic activities. Globalization is a more recent phenomenon; however, it has already emerged as the norm in a growing range of economic activity Almost every sector of business is influenced by global forces due to globalization, which is characterized by a tightly linked global financial market; global sourcing of inputs, marketing, and distribution of production and manufacturing; increased pressure for improved product quality and reduced product price; and evolution of business toward comprehensive and continuous global integration. To compete successfully in this dynamically changing environment, firms need to be able to address several key strategic issues:

* Cost-quality improvement through coordinated manufacturing - Global competitive pressures push strongly to reduce the delivered cost of products while improving the quality of products and all aspects of customer service. A common strategy used by the firms for achieving this goal is to tighten all aspects of the manufacturing process through strategies such as just-in-time and overall quality improvement programs.

* Cost-quality improvement through concurrent engineering - The design of products for better manufacturability is achieved by using integrated teams that bring together product design, engineering, and manufacturing. In addition to manufacturability, packing, distribution, marketing, and R&D functions may also
42

be

addressed

in

the

concurrent

engineering

process.

* The order cycle - In many industry sectors (such as the automobile industry), products are built to customer specification. The order cycle begins when the customer places an order and ends with the delivery of the product to the customer. In these sectors a key competitive issue is shortening the cycle time to deliver products as soon after order placement as possible.

* After-sales customer support - Customers are demanding a high level of service for maintenance, including spare parts availability and technical skills in the service staff. Add on products and services such as training, documentation, and product upgrades are also required, but these things can also be profitable. * The design cycle - The time it takes to conceive of a new product, design it, put it into manufacturing, and deliver it to the market with a full support network in place is becoming shorter. Technology is also a factor here, since a shorter design cycle means that newer technologies are being put on the market. * Globally coordinated flexible manufacturing - Global sourcing of component and sub-assemblies, global distribution into multiple markets, and an efficient use of a network of global manufacturing and assembly parts is leading to globally coordinated manufacturing. In this new style of flexible manufacturing, the objective is to coordinate production planning and scheduling among multiple plants in many countries and across product lines to respond to changing market and production conditions.

* Globally coordinated R&D - Global coordination of research and development is driven by the need for product development for global markets and by the recognition that unique research competency exists in many different countries and
43

cultures. At the same time that a company strives to tap these competencies, it also wants to take a cost-effective approach by minimizing duplication. Managing R&D in a global situation is especially critical. For example, in the pharmaceutical industry, clinical trials and regulatory approval applications must be undertaken in many countries relatively simultaneously.

The uncertainty and complexity of the business environment is increasing with time. Uncertainty and complexity bring about the need for an organizational capacity to handle greater and faster communication and information processing. Succeeding in this information-intensive world will require a new organizational form and IT capabilities that operate on a global scale.

3.7 MANUFACTURING

CHALLENGES

Time is the primary competitive motive of business in the 21st century. It does not mean that other motives such as cost, quality and service can be ignored. In fact, these are prerequisites to sustain competitiveness. But the winning factors are time and enhancements to the basic products. Reducing time is not critical in and of itself. The benefits achieved through time reduction (in the form of greater cash flow less inventory, quicker customer response, and greater profits) make timebased competition worthwhile. Moreover, time-based competition does not refer solely to manufacturing but to the entire supply chain, which includes product development, order processing, supplier delivery, pre-production, manufacturing, final assembly and distribution. In the manufacturing environment, time-based competition becomes the highest priority to gain responsiveness and flexibility. Responsiveness and flexibility have several important dimensions. One is product mix: the need to support maximum variety in end products with minimal disruption to the manufacturing operations. The other relates to upgrading the plant and its equipment so that products can be started quickly. The driving force behind this
44

priority setting is the need to respond to virtually any customer request just-intime. Flexibility, on the other hand, is the response of a system to environmental uncertainties (i.e., the unknown customer). Therefore, an information culture is needed to manage uncertainties. This leads us to the second challenge industries face today: managing knowledge.

In the 21st century, the productivity and effectiveness of managers and whitecollar workers will become critical to long-term survival. The effectiveness of these experts depends on their smooth integration into the organization. In the era of advanced specialization, integration of dispersed knowledge will become progressively difficult to accomplish and more costly to achieve. Knowledge will become scarce -- a crucial and expensive economic resource. Of late, the dependence of organizations upon its experts (mainly through the increase of informal power generated by expert knowledge), has been analyzed in detail. Managing knowledge will be a big challenge in the 21st century due to its strategic potential. Once a company has defined its manufacturing strategy, it has to initiate mechanisms for managing product complexity and for managing demand uncertainty, both perhaps at the same time. The challenge of managing product complexity is to improve productivity (the goal of a mass production strategy), whereas the challenge of market uncertainty is to improve flexibility (the goal of a mass customization strategy).

Product complexity is managed by breaking down manufacturing tasks into subtasks and operations. Executing these subtasks and operations in parallel improves productivity. But if different subtasks are performed by different workers, then the productivity improvement is restricted by coordination costs that may otherwise exceed the productivity gains. This is also true for expert
45

knowledge, which is the other resource required to execute operations. A basic problem in manufacturing is the problem of coordination:

* After exploding a manufacturing task into thousands of subtasks, how difficult and costly is it to assure their proper sequencing, scheduling, and interaction over a period of time?

* After dividing the task expertise among hundreds of "incomplete expert" workers, how difficult and costly is it to maintain their coordination, motivation, and performance?

* After dividing information into tiny bits, how difficult and expensive is it to achieve its requisite integration and to record and update them?

The answer to these questions is that it is progressively more difficult and more costly. Therefore, as the complexity and cost of integration and coordination becomes too large, we tend to focus on the question of reintegration. In this context, just-in-time efforts aim at the reintegration of physical labor (via flow lines), whereas computer-integrated manufacturing anticipates the reintegration of special expertise organized in functional departments through integrated information processing. As for managing task complexity, coordination is required; to manage market uncertainty, planning and control are required. Management by hierarchical planning and control copes with uncertainties by adaptation to the environment and optimization of controller parameters. For instance, a production schedule should be optimized to increase system responsiveness to demand (i.e., (i) to keep due dates and (ii) to reduce total flow-time). This is the planning problem. On the other hand, the control problem deals with machine sharing, lot splitting, and job
46

sequencing. That is, with (i) exploiting resources efficiently and (ii) respecting due dates in the face of uncertainty. In general, the breakdown of long-to-short term planning decisions indicates levels in the complexity of decisions. This is managed by defining a family of decision problems and generating solutions in a sequential top-down manner.

The manufacturing industry is still striving for stability of its production system as a major organizational goal. Therefore, in most manufacturing firms, management of change is not yet considered a permanent objective. Whichever way the task coordination is managed, a seamlessly integrated information infrastructure is a must. However, information processing is still very much fragmented, even in computerized applications. Therefore, in many companies the decision-making process is still based on traditional information processing: information gathering with paper and pencil on request and from inconsistent sources. This process is time consuming and may yield insufficient or unreliable information. In addition to having a fragmented information infrastructure, most companies are still not organized for fast decision making. Departments are managed according to their own sub-goals rather than to real enterprise goals. The responsibilities are still structured in one-dimension hierarchies that mix responsibilities for enterprise assets with those for enterprise operations.

ACTIVITY 1. How Indian manufacturers can achieve world class performance in the globally competitive environment? 2. What are the key strategic issues the firm should address in the dynamic competitive environment?
47

SUMMARY With the dawn of the information age, the requirements for remaining competitive in manufacturing have become more demanding. Only recently, high quality and efficiency were the "necessary and sufficient" conditions for staying in business, but no longer. Now manufacturers must be able to develop and produce customized products rapidly to meet customer needs. To further complicate matters, the requirements for economies of scale, based on the traditional assumptions of mass production, are coming into direct conflict with the requirements for economies of scope -- that is, mass customization by maintaining continuous innovation while using people and equipment to cost-effectively produce smaller amounts of a range of products. On top of it, globalization has imposed an additional constraint: manufacturers must achieve world-class manufacturer status to compete effectively in both domestic and global markets. This requires a paradigm shift within organizations, which may be termed integrated manufacturing, and aims to eliminate barriers by creating a streamlined flow of automated, value-added activities uninterrupted by transportation, storage, or rework. Integrated manufacturing is driven by the widespread adoption of advanced manufacturing technology, total quality management, and just-in-time inventory control, which together have important strategic potential in that they blend the stages, functions, and goals of manufacturing. Rather than viewing performance as the result of trade-offs between, for example, cost and quality, the integrated manufacturing perspective posits that firms can pursue several outcomes simultaneously.

Only recently, high quality and efficiency were the "necessary and sufficient" conditions for staying in business. Not anymore. Manufacturers must be able to develop and produce customized products rapidly.
48

Organizations are in the midst of a revolutionary transformation as the world moves from the industrial age to the information age. During the industrial age, companies succeeded by how well they could capture the benefits from economies of scale and scope. Technology was important, but success ultimately accrued to companies that could embed the new technology into physical assets that offered efficient mass production of standard products. The emergence of the information era, which began in the last decades of the 20th century, made obsolete many of the fundamental assumptions of industrial age competition. Consequently, companies could no longer gain sustainable competitive advantage by merely deploying new technology rapidly. Success in the information age requires new capabilities in organizations. The ability of a company to mobilize and exploit its intangible assets has become far more decisive than investing in and managing tangible assets.

REVIEW QUESTIONS 1. Explain the emergence of information era and its business challenges 2. Discuss the growth of information intensive industry 3. What are the various challenges faced by business organizations due to information age competition 4. Explain various business challenges in the global environment 5. Explain how information age has modified the operating environment 6. What are the manufacturing challenges faced by Global manufacturers

49

Chapter-IV Globalization and International Business After reading this chapter, the students should outline the historical perspective of globalization of business explain the concept of globalization know about economic globalization discuss financial globalization know political globalization know cultural globalization examine various dimensions of economic globalization

STRUCTURE 4.1 Introduction to Globalization 4.2 Historical perspective of globalization of business 4.3 Concept of globalization 4.3.1 Economic Globalization 4.3.2 Financial Globalization 4.3.3 Cultural Globalization 4.3.4 Political Globalization 4.4 Dimensions of economic globalization

Summary Review Questions

4.1 INTRODUCTION TO GLOBALIZATION

50

The forces of globalization have hardly been as intense before as to be explicitly evident as influencing our daily lives. The advents in information and communication technology (ICT) and the rapid economic liberalization of trade and investment in most countries have accelerated the process of globalization. Markets are getting flooded with not only industrial goods but also with items of daily consumption. Each day, an average person makes use of goods and services of multiple originsfor instance, the Finnish mobile Nokia and the US toymakers Barbie doll made in China but used across the world; a software from the US-based Microsoft, developed by an Indian software engineer based in Singapore, used in Japan; the Thailand-manufactured US sports shoe Nike used by a Saudi consumer. The increased integration of marketsgoods and financialthe mobility of people with transnational travels for jobs and vacations, and the global reach of satellite channels, the Internet, and the telephone all have virtually transformed the world into a global village. Globalization, one of the most complex terms used in international business, has wide connotations. Interestingly, globalization is a term not only used and heard frequently, but also as often misused and misinterpreted. Globalization is used to refer to the increasing influence exerted by economic, political, socio-cultural, and financial processes across the globe. Globalization not only offers numerous challenges to business enterprises but also opens up new opportunities. In the earlier era of restrictive trade and investment regimes with much lower degree of interconnectedness among countries, companies solely operating in their home markets were generally protected and isolated from the vagaries of upheavals in the international business environment. Therefore, developing a thorough conceptual understanding of international business has become inevitable not only for the managers who operate in international markets, but also for those who operate only domestically.

51

This chapter brings out the historical perspective of the globalization of business, which reveals that India and China were the worlds two most dominant economies till the early nineteenth century whereas the US, the UK, and Japan emerged as strong economies only lately. Economic restrictions became pervasive around the world after World War I, leading to de-facto de-globalization. Besides, the import substitution strategies followed by most developing countries, which gained independence from colonial rule in the post-World War II era, considerably restricted international trade and investment. A number of multilateral organizations set up after World War II under the aegis of the United Nations, such as the World Bank (WB), the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT), and the World Trade Organization (WTO), facilitated international trade and investment. Elucidating the conceptual framework of globalization, the chapter delineates a holistic approach to define the term, encompassing financial, cultural, and political aspects, besides the economic. Movers and restraining factors of globalization have also been examined at length. The arguments both for support and criticism of globalization have also been critically evaluated. Globalization offers challenges and opportunities for business enterprises and firms are required to adopt the most effective response strategy, which has been discussed with the specific perspective of emerging market companies. The later part of the chapter also provides the conceptual framework of international business, elaborating various related terminologies. It examines the reasons for expanding business operations internationally. The distinguishing features of domestic versus international business have also been explicated. At the end, the chapter propounds strategy to manage businesses in the era of globalization.

52

4.2 GLOBALIZATION OF BUSINESS :A HISTORICAL PERSPECTIVE Globalization is not a new phenomenon. In the initial years of human history, people remained confined to their communities, villages, or local regions. There were hardly any formal barriers, such as tariffs or non-tariff restrictions, for the movement of goods or visa requirements for people. The concept of globalization can be traced back to the phenomenon of a nation-state.

Source: The World Economy, Vol. 1: A Millennium Perspective, Vol. 2: Historical Statistics, Development Centre Studies, OECD, 2006, pp. 63643; World Economic Outlook, Spillovers and Cycles in the Global Economy, IMF, April 2007, p. 204. In the beginning of the Christian era, India was the most populated country with 75 million people constituting 32.5 per cent of the world population (Fig. 1.1), followed by China (25.8%) with 59.6 million, Italy (3%) with 7 million, France (2.2%) with 5 million, Spain (1.9%) with 4.5 million, Germany (1.3%) and Japan
53

(1.3%) each with 3 million people, whereas the UK (0.34%) and the US (0.29%) inhabited merely 0.8 million and 0.7 million people, respectively, out of the total world population of 230 million. Moreover, during this period, India was the worlds largest economy with 32.9 per cent share of the worlds GDP, followed by China (26.1%), the former USSR (1.5%), and Japan (1.2%). It was only after AD 1500 that some western economies, such as Italy, France, and Germany emerged with 4.7 per cent, 4.4 per cent, and 3.3 per cent share, respectively, in the world GDP whereas the UK and the US merely contributed 1.1 per cent and 0.3 per cent, respectively, of the world GDP (see Fig. 1.2). India and China continued to remain the two most dominant economies till the early nineteenth century.

Venice played a key role from AD 1000 to AD 1500 in opening up trade within Europe and in the Mediterranean. It opened trade in Chinese products via caravan routes in the region around the Black Sea and in Indian and other Asian products
54

via Syria and Alexandria. Trade was important in bringing high value spices and silks to Europe and also helped transfer technology from Asia, Egypt, and Byzantium. Portugal played the key role in opening up European trade, in navigation and settlement in the Atlantic islands, and in developing trade routes around Africa, into the Indian Ocean, and to China and Japan. Portugal became the major shipper of spices to Europe for the whole of the sixteenth century, usurping this role from Venice. Right up to the eighteenth century, the Indian methods of production and of industrial and commercial organization could stand in comparison with those in vogue in any other part of the world as written by Vera Anstey.2 India was a highly developed manufacturing country and exported her manufactured products to Europe and other nations. Her banking system was efficient and well organized throughout the country, and the bills of exchange (hundis) issued by the great business or financial houses were honoured everywhere in India, as well as in Iran, Kabul, Herat, Tashkent, and other places in Central Asia. Merchant capital had emerged and there was an elaborate network of agents, jobbers, brokers, and middlemen. The ship-building industry was flourishing and one of the flagships of an English admiral during the Napoleon wars was built in India by an Indian firm. India was, in fact, as advanced industrially, commercially, and financially as any country prior to the industrial revolution. No such development could have taken place unless the country had enjoyed long periods of stable and peaceful government and the highways been safe for traffic and trade. Foreign adventurers originally came to India because of the excellence of her manufacturers, who had a big market in Europe. The British East India Company was started with the objective of carrying manufactured goods, textiles, etc., as well as spices and the like from the East to Europe, where there was a great demand for these articles. Such trading was highly profitable, yielding enormous
55

dividends. So efficient and highly organized were the Indian methods of production, and such were the skills of Indias artisans and craftsmen, that India could compete successfully even with the higher techniques of production that were being established in England. Even when the big machine age began in England, Indian goods continued to pour in and had to be stopped by very heavy duties and, in some cases, by outright prohibitions. By the middle of the eighteenth century, the main exports into Europe were textiles and raw silk from India and tea from China. The purchases of European products into India were financed mainly by the exports of bullion and raw cotton from Bengal, whereas the purchases into China were financed by the exports of opium. Until the eighteenth century, the British generally maintained peaceable relations with the Indian Mughal empire, whose authority and military power were too great to be challenged by the British. It was only after the development of new industrial techniques that a new class of industrial capitalists emerged in Britain and under their influence, the British government began to take greater interest in the affairs of the East India Company. The British government now adopted the strategy to close the British market for Indian goods and get the Indian market opened for British manufacturers. To begin with, Indian goods were excluded by legislation in Britain. Since the East India Company had the monopoly in the Indian export business, the exclusion influenced other foreign markets as well. During the pre-World War I period from 1870 to 1914, there took place a rapid integration of economies in terms of trade flows, movement of capital, and migration of people. The pre-World War I period witnessed the growth of globalization, mainly led by technological forces in the field of transport and communication. However, between the first and second world wars, the pace of globalization decelerated. Various barriers were erected to restrict free movement of goods and services
56

during the inter-war period. Under high protective walls, most economies perceived higher growths. It was resolved by all leading countries after World War II that the earlier mistakes committed by them to isolate themselves should not be repeated. Although, after 1945, there was a drive to increased integration, it took a long time to reach pre-World War I levels. In terms of percentage of imports and exports to total output, the US could reach the pre-World War level of 11 per cent only around 1970. Most developing countries that gained independence from colonial rule in the immediate post-World War II period followed imports substitution strategies to promote local industrialization. The East European countries shielded themselves from the process of global economic integration. Multilateral organizations, especially the World Bank, the IMF, and the GATT, set up in the post-war era contributed considerably to the economic integration of countries. Setting up of the WTO in 1995 provided an effective institutional mechanism for multilateral trade negotiations, integration of trade policies under the WTO framework, and even the settlement of trade disputes among the member countries. During the recent decades, most developing countries made a strategic shift from their restrictive trade and investment policies to economic liberalization. The transformation of the Indian economy from one following the import substitution strategy with a highly complex system of licences and multiple procedures to an economy open to globalization is summarized in Exhibit 1.1. The breakthroughs in information, communication, and transportation technologies and the growing economic liberalization have accelerated the process of global economic integration. The major concerns about present-day globalization are significantly higher than ever before because of the nature and speed of transformation. What is striking about the current globalization is not only its rapid

57

pace but also the enormous impact of new information and communication technologies on market integration, efficiency, and industrial organization

4.3 CONCEPT OF GLOBALIZATION Globalization has become the buzzword that has changed human lives around the world in a variety of ways. The growing integration of societies and national economies has been among the most fervently discussed topics during recent years. Globalization refers to the free cross-border movement of goods, services, capital, information, and people. It is the process of creating networks of connections among actors at multicontinental distances, mediated through a variety of flows including people, information and ideas, capital, and goods. The breakthroughs in the means of transport and communication technology in the last few decades have also made international communication, transport, and travel much cheaper, faster, and more frequent.
58

Globalization is the closer integration of the countries and peoples of the world, brought about by the enormous reduction in the costs of transportation and communications and the breaking down of artificial barriers to the flow of goods and services, capital, knowledge, and (to a lesser extent) people across the borders. With the arrival of the Internet, the transaction costs of transferring ideas and information have declined enormously. Global village is the term used to describe the collapse of space and time barriers in human communication, especially by using the World Wide Web, enabling people to interact on a global scale. Globalization tends to erode national boundaries and integrate national economies, cultures, technologies, and governance, leading to complex relations of mutual interdependence. Globalization refers to the intensification of cross-national economic, political, cultural, social, and technological interactions that leads to the establishment of transnational structures and the integration of economic, political, and social processes on a global scale. Further, globalization is widely understood to imply economic globalization by way of free movement of factor inputs (both labour and capital) as well as output between countries. It is not only the economic integration of countries but also various other aspects such as financial, cultural, and political integration across the world, as depicted in Fig. 1.3.Therefore, Globalization may be defined as the process of integration and convergence of economic, financial, cultural, and political systems across the world.

4.3.1 ECONOMIC GLOBALIZATION The term globalization is widely used in business circles and economics to describe the increasing internationalization of markets for goods and services, the
59

financial system, corporations and industries, technology, and competition. In the globalized economy, distances and national boundaries have substantially diminished with the removal of obstacles to market access. Besides, there have been reductions in transaction costs and compression of time and distance in international transactions.

The changes induced by the dynamics of trade, capital flows, and transfer of technology have made markets and production in different countries increasingly interdependent. The growing intensity of international competition has increased the need for cross-border strategic interactions, necessitating business enterprises to organize themselves into transnational networks. Globalization is characterized by the growing interdependence of various facets. For instance, foreign direct investment (FDI) is accompanied by transfer of technology and know-how, along with the movement of capital (equity, international loans, repatriation of profits, interest, royalties, etc.) generating exports of goods and services from the investor countries. The growth in global economic integration is evident from the increase in the percentage share of world merchandise trade in the world GDP from 32.3 per cent in 1990 to 47.3 per cent in 2005, whereas trade in services grew from 7.8 per cent to 11 per cent during the same period. The gross private capital flows rapidly rose
60

from 10.3 per cent of the world GDP in 1990 to 32.4 per cent in 2005. Here are some definitions of economic globalization.

The increasing integration of national economic systems through growth in international trade, investment and capital flows. Dictionary of Trade Policy Terms, WTO A dynamic and multidimensional process of economic integration whereby national resources become more and more internationally mobile while national economies become increasingly interdependent . OECD Economic globalization constitutes integration of national economies into international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology . Jagdish Bhagwati The activities of multinational enterprises engaged in foreign direct investment and the development of business networks to create value across national borders. Alan Rugman For the purposes of this book, globalization is defined as the increasing economic integration and interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology, and capital.

61

4.3.2 FINANCIAL GLOBALIZATION The liberalization of capital movements and deregulations, especially of financial services, led to a spurt in cross-border capital flows. The globalization of financial markets has triggered a rapid growth in investment portfolio and a large movement of short-term capital borrowers and investors interacting through an increasingly unified market. The growing integration of financial markets has greatly influenced the conduct of business and even the performance of the industrial sector. This has significantly enhanced the vulnerability of stocks that were hitherto considered impervious. A liquidity crunch in the US makes stock markets across the world go berserk. Globalization of financial markets makes them inherently volatile with few options to control left with the national governments.

4.3.3 CULTURAL GLOBALIZATION The convergence of cultures across the world may be termed as cultural globalization. Indias rich cultural heritage has a glorious history of globalization (Exhibit 1.3), which is evident even today by its profound impact on people and their lives. Globalization has led to the development of global pop culture. CocaCola is sold in more countries than the United Nations has as members. Coke is claimed to be the second-most universally understood word after OK. McDonalds has more than 30,000 local restaurants serving 52 million people everyday in more than 100 countries. Levis jeans are sold in more than 110 countries. Ronald McDonald is second only to Santa Claus in name recognition for most school children.

62

Fig. 1.4 A grandiose sculpture at the entrance of Bangkoks Suwarnabhoomi International Airport, depicting the Hindu mythological story of the Churning of the Oceans (samudra-manthan) between the demons and the gods, evidences Indias deep-rooted cultural globalization.

4.3.4 POLITICAL GLOBALIZATION The convergence of political systems and processes around the world is referred to as political globalization. International business is increasingly conducted across the juridical, socio-cultural, and physical borders of sovereign states. After World War II,there has been a proliferation of sovereign states. In 1914 there were 62 separate states, 74 in 1946, 149 in 1978, 193 in 1991,11 and 209 in 2007.12 The administrative set-ups and the decision-making processes in multilateral organizations and UN forums have considerably influenced the governance within sovereign states. Democratic processes of decision making and governance to a varying extent are increasingly receiving wider acceptance in most countries.

4.4 DIMENSIONS OF ECONOMIC GLOBALIZATION

63

The rapid growth in integration and interdependence of economies can be explained by the interconnectedness of the various dimensions of economic globalization, as depicted in Fig. 1.5, such as the globalization of production, markets, competition, technology, and corporations and industries. 4.4.1 GLOBALIZATION OF PRODUCTION The increased mobility of the factors of production, especially the movement of capital, has changed countries traditional specialization roles significantly. Consequently, many firms in developing countries seek to strengthen their competitive advantage by specializing in differentiated products with an increasingly large technological content. Such specialization has given rise to intraindustry trade between developing countries.Abandoned activities are often acquired by other firms in the same industry to strengthen their positions. As a result, many firms, in all industries and different countries, establish co-operative agreements or adopt strategies of mergers and acquisitions and network organizations, which has contributed to a surge in FDI during recent decades. Moreover, the privatization of public enterprises across the world has also accelerated cross-border investments. The globalization of production has led to multinational origin of product components, services, and capital as a result of transnational collaborations among business enterprises. Firms evaluate various locations world-wide for manufacturing activities so as to take advantage of local resources and optimize manufacturing competitiveness. Companies from the US, the EU, and Japan manufacture at overseas locations more than three times of their exports produced in the home country. Intrafirm export-import transactions constitute about onethird of their international trade.

64

4.4.2 GLOBALIZATION OF MARKETS Marketing gurus in the last two decades have extensively argued over customized marketing strategies in the globalization of markets. Theodore Levitt, in his pathbreaking paper Globalization of Markets,13 views the recent emergence of global markets on a previously unimagined scale of magnitude. Technology as the most powerful force has driven the world towards converging commonality. Technological strides in telecommunication, transport, and travel have created new consumer segments in the isolated places of the world. Kenichi Ohmae also advocates the concept of a borderless world and the need for universal products for global markets. Standardized products are increasingly finding markets across the globe. Such globalization of markets has on one hand increased the opportunity for marketing internationally while on the other has increased the competitive intensity of global brands in the market. The simultaneous competition in markets between the numerous new competitors across the world is intensifying. This offers tremendous challenge to the existing business competitiveness of firms, compelling them to globalize and make rapid structural changes.

4.4.3 GLOBALIZATION OF COMPETITION This refers to the intensification of competition among business enterprises on a global scale. Such globalization of competition has resulted in the emergence of
65

new strategic transnational alliances among companies across the world. Increasingly, more firms need to compete with new players from around the globe in their own markets as well as foreign ones. To cope with global competition, firms need to simultaneously harness their skills and generate synergy by a broad range of specialized skills, such as technological, financial, industrial, commercial, cultural, and administrative skills, located in different countries or even different continents. 4.4.4 GLOBALIZATION OF TECHNOLOGY The rapid pace of innovations with international networks and convergence of standards across countries has contributed to the globalization of technology. This rapid dissemination of technology internationally and the simultaneous shortening of the cycles of production has led to the globalization of technology. Countries with advanced technologies are best placed to innovate further. Moreover, unlike in the past when inventions and innovations were considered breakthroughs, today they are a regular occurrence. This implies that the transformation process is continuous and thus has important consequences both for the overall organization of firms and for policy making. Global firms rely on technological innovations to enhance their capabilities. Thus, technology is both driven by and is a driver of globalization. Moreover, it has led to the emergence of new technologically driven character of the global economy.

4.4.5 GLOBALIZATION OF CORPORATION AND INDUSTRIES The worldwide economic liberalization led to the rapid growth in FDIs and the relocation of business enterprises heavily driven by the various forms of international strategic alliances and mergers and acquisitions across the world. As a result, there has been widespread rise in the fragmentation of production
66

processes, whereby different stages of production for a given product are carried out in different countries.

ACTIVITY 1.Select any five firms that have been affected by the globalization forces. Identify the business strategies these firms adopted to respond. .Evaluate the strategy used for their effectiveness with the help of the framework studied in the chapter. 2. Carry out a comparison of trade openness of your country with the major economies of the world. Also examine its changes over the last two decade . Explore the reasons for the same.

SUMMARY Globalization, one of the most widely-used terms in recent times, refers to free cross-border movement of goods, services, capital, information, and ideas. Movement of goods, capital, and people was much less restricted prior to World War I. Globalization has been defined as increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology and capital. Besides, a number of interesting terms such as Westernization, Americanization, Walmartization, McDonaldization, Disneyfication, Coca- Colanization, etc. have been coined to imply globalization. A holistic approach to globalization includes economic, financial, cultural, and political aspects. The various dimensions of economic globalization include globalization of production, markets, competition,
67

technology, and corporations and industries. Economic liberalization, rise in R&D costs, multilateral institutions, international economic integration, the move towards free marketing systems, breakthroughs in manufacturing, transportation, information and communication technologies, advents in logistics managements, and emerging global customers segments have been the prime movers of Globalization, whereas regulatory controls, emerging new trade barriers, cultural factors, nationalism, war and civil disturbances, and management myopia restrain globalization. REVIEW QUESTIONS 1. Briefly describe the historical perspective of globalization of business. 2. Explain the concept of globalization, using the holistic approach. 3. Critically evaluate various dimensions of economic globalization and their impact on business enterprises. 4. Write short notes on (a) Cultural globalization (b) Globalization of markets (c) Globalization of production

68

CHAPTER V GLOBALIZATION INTERNATIONAL BUSINESS After reading this chapter, the students should

AND

ITS

EFFECT

ON

discuss globalization and its effects on International Business examine the factors that influence globalization know the factors restraining globalization outline the techniques for measuring globalization know the reality or myth of Globalization know various Supports of globalization know the criticism of globalization differentiate developed versus developing countries

STRUCTURE 5.1 Globalization and its effects on International Business 5.2 Factors influencing globalization 5.3 Factors restraining globalization 5.4 Techniques for measuring globalization 5.5 Globalization : Reality or myth 5.6 Support of globalization 5.7 Criticism of globalization 5.8 Developed versus developing countries :unequal players in globalization Summary Review Questions

69

5.1 GLOBALIZATION AND ITS EFFECTS BUSINESS

ON

INTERNATIONAL

The ongoing globalization increases the overall need for knowledge of cultural differences between not only countries but also corporate cultures. More and more employers start transferring their experts from country to country to help build new subsidiaries or to support existing ones in certain projects . Their success is closely linked to not only the obvious need for language skills but also the understanding of sub cultural influences, different communication styles and social behaviors of each society. But in many companies these challenges have not been addressed yet. In a lot of cases experts/employees are transferred to foreign subsidiaries with almost no cultural training based on the erroneous assumption that the subsidiary cannot be too different from the home countries and its headquarters culture. To understand the effects of globalization we will take a look at the two possible definitions of globalization. Per A.G. Frank in his book ReOrient: Global Economy in the Asian Age globalization is either a conceptualized modern phenomena involving the breakdown of borders, the emergence of new technologies and a mix of different cultures or a phenomena with a long history which dates back to the first known connections between countries and people in the world. With this definition the questions arises if globalization and the freedom of trade and travel actually existed before all the boarders were set up and trade regulations have been put in place. It also raises the question why these regulations and boarders have been set up in the first place why we start tearing them down a couple of centuries later. Was it based on fear to be invaded or was to protect the own economy? Anyways, these are questions to be answered at another time, coming back to the present globalization is happening and it is happening very fast due to the
70

improvement of technology, the faster communication as well as the fast travel possibilities via cars, ships and aircrafts. The actual status of globalization can be Global Awareness Society International 21st Annual Conference - New York City, May 2012 described by three major changes. First of all we all see the change in job markets. The search for multilingual personnel increases, people moving from country to country for jobs or traveling all over the world for their businesses. Also the internet business seem to have a major effect on competition and market developments as the actual location of a company does not really matter anymore. Looking at the increased international travel and moving activities it seems that traditional cultures move more and more into the background. People adapt to world habits. Looking around in our societies the entertainment industry seems to conglomerate to an international mix of music and movies which is available everywhere, international food choices are available in almost every town or city. Also most of the larger cities have multilingual habitants and a variety of different religions. Furthermore we see developments of subcultures within countries or even cities. Subcultures meaning that there are places in a country or a city which keep holding on to their original culture and get not touched by the change of their environment. A perfect example for this would be the Amish people in Pennsylvania, while you have everybody else around them changing and adopting to the global habits the Amish keep their culture and do not let the developments around them influence their believes, ways of living and values. Also there are places which adapt the culture of the citizens who moved there and start a different culture, an example for that would be all the China Towns in the big metropolis. The question is why this is happening, why do people develop subcultures? To answer this questions a definition of culture will help to understand the need for subcultures. Geert H. Hofstede defined culture as follows:Culture consists of the patterns of thinking
71

that parents transfer to their children,teachers to their students, friends to their friends, leaders to their followers, and followers to their leaders. This means that our perspective of culture is influenced by the people we surround are surrounded by. If we all would have had the same parents, same teachers and friends and worked for the same company and boss we would all have the same viewpoints, values and way of doing things. The change of just one of these components changes perspectives and might change the perceived culture we live in but still would give us some points which let us connect. Baumeisters research has shown that most humans seem to have a basic need for belongingness and therefore feel happier in the culture they know. Certain individuals might not be able to Global Awareness Society International 21st Annual Conference - New York City, May 2012 adjust to new cultures and surround themselves with the known national culture to maintain the safety of belonging to a certain group with the same or very similar background and cultural understanding, which leads to more subcultures and therewith cultural differences within countries (Baumeister & Leary, 1995). This means, that we are looking for people in foreign countries who allow us to connect with them due to similar values, viewpoints and thinking patterns which we were taught by our own culture. Included into these thinking patterns are also stereotypes of cultures which we are taught by our environment. Let us compare the American and German stereotypes in pictures: Everybody has some kind of stereotype in mind when talking about a different country or culture and most likely it is a very different idea than it is when we finally meet the people we were trying to picture before. Parts of the stereotype will fit to the person you meet some of them, never all. This makes it really difficult to descripe cultures in a certain way. The difficulties with cultural differences for international business became obvious in the 1960s already and have also been recognized by IBM. Therefore Geert H. Hofstede was hired to
72

conduct research on human behavior and preferences across countries to get a better understanding of cross-cultural management. Hofstede questioned 60.000 employees from 71 different nations in his survey. In 1980, Hofstede published his model of five cultural dimensions based on the results of his research (Hofstede, 1984). The five dimensions defined are, in his opinion, the most influential on differentiating Global Awareness Society International 21st Annual Conference New York City, May 2012 behaviors of people and therewith help to define the countrys culture (Hofstede, Geert H. Hofstede, 2011). This provides a better understanding on stereoptypes of peoples thought processes and decision making. The five dimensions: 1) Power Distance Measures the extent to which power is distributed equally within a society and the degree that society accepts this distribution. 2) Uncertainty Avoidance The extent to which individuals require set boundaries and clear structures. 3) Individualism versus Collectivism The extent to which individuals base their actions on self-interests versus the interest of the group 4) Masculinity versus Femininity A measure of societys goal orientation A higher focus on status or human relations 5) Long-term vs. short-term orientation 5.2 FACTORS INFLUENCING GLOBALIZATION The process of globalization is characterized by the interplay of dynamic forces that act as movers and restraining factors, as shown in Fig. 1.6, which offers significant challenges to traditionally established ways of doing businesses. Since the driving forces of globalization are considerably stronger than the restraining factors, globalization of business assumes much higher significance.
73

5.2.1 MOVERS OF GLOBALIZATION ECONOMIC LIBERALIZATION Economic liberalization, both in terms of regulations and tariff structure, has greatly contributed to the globalization of trade and investment. The emergence of the multilateral trade regime under the WTO has facilitated the reduction of tariffs and non-tariff trade barriers. In the coming years, the tariffs are expected to decline considerably further.

TECHNOLOGICAL BREAKTHROUGH The breakthroughs in science and technology have transformed the world virtually into a global village, especially manufacturing, transportation, and information and communication technologies, as discussed here.
74

Manufacturing technology Technological advancements transformed manufacturing processes and made mass production possible, which led to the industrial revolution. The production efficiency resulted in cost-effective production of uniform goods on a large scale. In order to achieve the scale economies to sustain large-scale production, markets beyond national boundaries need to be explored. Transportation technology The advents in all means of transports by roads, railways, air, and sea have considerably increased the speed and brought down the costs incurred. Air travel has become not only speedier but cheaper. This has boosted the movement of people and goods across countries. Information and communication technology The advent of information and communication technology and the fast developments in the means of transport have considerably undermined the significance of distance in country selection for expanding business. There has been a considerable reduction in international telecommunication costs due to improved technology and increased competition. This has given rise to new business models, such as the off-shore delivery of services to global locations and electronic business transactions. MULTILATERAL INSTITUTIONS A number of multilateral institutions under the UN framework, set up during the post-World War II era, have facilitated exchanges among countries and became prominent forces in present-day globalization. Multilateral organizations such as the GATT and WTO contributed to the process of globalization and the opening up of markets by consistently reducing tariffs and increasing market access through various rounds of multilateral trade negotiations. The evolving multilateral framework under the WTO regime, such as Trade-Related Investment Measures (TRIMS), Trade-Related Aspects of Intellectual Property Rights (TRIPS), General
75

Agreement on Trade in Services (GATS), dispute settlement mechanism, antidumping measures, etc., has facilitated international trade and investment. Besides, the International Monetary Fund has contributed to ensuring the smooth functioning of the international monetary system. INTERNATIONAL ECONOMIC INTEGRATIONS Consequent to World War II, a number of countries across the world collaborated to form economic groupings so as to promote trade and investment among the members. The Treaty of Rome in 1957 led to the creation of the European Economic Community (EEC) that graduated to the European Union (EU) so as to form a stronger Economic Union. The US, Canada, and Mexico collaborated to form the North American Free Trade Agreement (NAFTA) in 1994. The reduction of trade barriers among the member countries under the various economic integrations around the world has not only contributed to the accelerated growth in trade and investment but also affected the international trade patterns considerably.

MOVE TOWARDS FREE MARKETING SYSTEMS The demise of centrally planned economies in Eastern Europe, the former USSR,and China has also contributed to the process of globalization as these countries gradually integrated themselves with the world economy. The Commonwealth of Independent States (CIS) countriesall former Soviet Republicsand China have opened up and are moving towards market-driven economic systems at a fast pace. However, the exceptions to free market systems are the autocratic countries, such as North Korea and Cuba.

RISING RESEARCH NAD DEVELOPMENT COST The rapid growth in market competition and the ever-increasing insatiable consumer demand for newer and increasingly sophisticated goods and services compel businesses to invest huge amounts on research and development (R&D). In order to recover the costs of massive investments in R&D and achieve economic
76

viability, it becomes necessary to globalize the business operations. For instance, software companies such as Microsoft, Novel, and Oracle, commercial aircraft manufacturers like Boeing and Airbus, pharmaceutical giants such as Pfizer, Glaxo SmithKline, Johnson & Johnson, Merck, and Novartis, etc., can hardly be commercially viable unless global scale of operations are adopted.

GLOBAL EXPANSION AND BUSINESS OPERATIONS Growing market access and movement of capital across countries have facilitated the rapid expansion of business operations globally. Since the comparative advantages of countries strongly influence the location strategies of multinational corporations, companies tend to expand their businesses overseas with the growing economic liberalization. As a result, multinational corporations constitute the main vectors of economic globalization.

ADVENTS IN LOGISTIC MANAGEMENT Besides these, the greater availability of speedier and increasingly cost-effective means of transport, breakthroughs in logistics management such as multimodal transport technology, and third-party logistics management contributed to the faster and efficient movement of goods internationally.

EMERGENCE OF THE GLOBAL CUSTOMER MARKET Customers around the world are fast exhibiting convergence of tastes and preferences in terms of their product likings and buying habits. Automobiles, fastfood outlets,music systems, and even fashion goods are becoming amazingly similar across countries. The proliferation of transnational satellite television and telecommunication has accelerated the process of cultural convergence. Traditionally, cultural values were transmitted through generations by parents or grandparents or other family members. However, with the emergence of unit families that have both parents working, television has become the prominent
77

source of acculturation not only in Western countries but in oriental countries as well. Besides, advances in the modes of transport and increased international travel have greatly contributed to the growing similarity of customer preferences across countries. Thus, the process of globalization has encouraged firms to tap the global markets with increased product standardization. This has also given rise to rapid increase in global brands.

5.3 FACTORS RESTRAINING GLOBALIZATION REGULATORY CONTROLS The restrictions imposed by national governments by way of regulatory measures in their trade, industrial, monetary, and fiscal policies restrain companies from global expansion. Restrictions on portfolio and foreign direct investment considerably influence monetary and capital flows across borders. The high incidence of import duties makes imported goods uncompetitive and deters them from entering domestic markets.

EMERGING TRADE BARRIERS The integration of national economies under the WTO framework has restrained countries from increasing tariffs and imposing explicit non-tariff trade barriers. However, countries are consistently evolving innovative marketing barriers that are WTO compatible. Such barriers include quality and technical specifications, environmental issues, regulations related to human exploitation, such as child labour, etc. Innovative technical jargons and justifications are often evolved by developed countries to impose such restrictions over goods from developing countries, who find it very hard to defend against such measures.

CULTURAL FACTORS Cultural factors can restrain the benefits of globalization. For instance, Frances collective nationalism favours home-grown agriculture and the US fear of
78

terrorism has made foreign management of its ports difficult and restrained the entry of the Dubai Port World.

NATIONALISM The feeling of nationalism often aroused by local trade and industry, trade unions, political parties, and other nationalistic interest groups exerts considerable pressure against globalization. The increased availability of quality goods at comparatively lower prices generally benefits the mass consumers in the importing country but hurts the interests of the domestic industry. On one hand, consumers in general are hardly organized to exert any influence on policy making, while on the other, trade and industry have considerable clout through their associations and unions to use pressure tactics on national governments against economic liberalization.

WAR AND CIVIL DISTURBANCES The inability to maintain conducive business environment with sufficient freedom of operations restricts foreign companies from investing. Companies often prefer to expand their business operations in countries that offer peace and security. Countries engaged in prolonged war and civil disturbances are generally avoided for international trade and investment.

MANAGEMENT MYOPIA A number of well-established business enterprises operating indigenously exhibit little interest in expanding their business overseas. Besides, several other factors such as resource availability, risks, and the attitude of top management play a significant role in the internationalization of business activities.

5.4 TECHNIQUES FOR MEASURING GLOBALIZATION

79

Although quantifying globalization is difficult, a number of approaches have been used to measure globalization. As international managers are especially concerned about economic globalization that affects businesses the most, it can be measured based on the trade openness of a country, FDI inflows and outflows, capital account restrictions, trade barriers, etc.

5.4.1 TRADE OPENNESS The trade openness of a country can be measured as the percentage share of total trade in the total GDP. The total trade is arrived by summing up exports and imports of goods and credit and debits of services. The cross-country comparison reveals that Singapore is the most open economy with 474 per cent share of total trade to GDP in 2007, followed by Hong Kong (409%), Malaysia (210%), Netherlands (137%), Switzerland (115%), China (76%), Canada (68%), and South Africa (67%), whereas Brazil is the least open economy with the share of total trade to GDP as 26 per cent followed by the US (29%), Japan (35%), Australia (39%), India (45%), Russian Federation (51%), France (54%), and the UK (56%). The percentage share of total trade in GDP increased only marginally for the US and the UK from 23.1 per cent and 54.3 per cent in 1998 to 29 per cent and 56 per cent, respectively, in 2007 whereas the percentage share of India and China increased remarkably from 25.7 per cent and 39.2 per cent in 1998 to 45 per cent and 76 per cent, respectively, in 2007. Countries with a higher degree of trade openness generally grew relatively faster compared to those with low trade openness. Switzerland is home to the largest number of the worlds top global companies in relation to its population, followed by the US, Scandinavia, Britain, Belgium, Netherlands, and France 5.4.2 KOF INDEX OF GLOBALIZATION A holistic approach to assess globalization is adopted under the KOF overall Index of Globalization based on three sub-indices, which are
80

Economic globalization This refers to the long distance flows of goods, capital, and services as well as information and perceptions that accompany market exchanges. Social globalization This is characterized by the spread of ideas, information, images, and people. Political globalization This is expressed as a diffusion of government policies. Each of the above indices is allocated different weights: economic globalization (36%), social globalization (38%), and political globalization (25%). In constructing the indices of globalization, each of the variables introduced above is transformed to an index on a scale of one to hundred, where hundred is the maximum value for a specific variable over the period 1970 to 2005, and one is the minimum value. The higher values denote a higher degree of globalization. The availability of the indices for 122 countries consistently since 1970 enables the empirical comparison of globalization trends during the period. Belgium tops in overall globalization with a score of 92.09 under the KOF Index of Globalization, as shown in Table 1.1, followed by Austria (91.38), Sweden (90.02), and Switzerland (88.60), whereas the UK ranks seventh with a score of 86.67, the US 22nd (76.76), China 43rd (64.56), India 81st (50.54), and Burundi and Saudi Arabia rank the last. KOF INDEX OF GLOBALIZATION

81

5.5 GLOBALIZATION :REALITY OR MYTH Rugman argues that globalization is a myth that never occurred anyway.17 The riots in Seattle in December 1999 during the WTO ministerial and subsequent protests, sometimes violent, were interpreted as defeat of free trade and globalization. It is also interesting to learn that 43 per cent (i.e., 107) of the worlds top 250 retailers have not yet ventured beyond their own borders. An additional 35 companies operate in just twotypically contiguouscountries, such as the US and Canada, Spain and Portugal, or Australia and New Zealand. Foreign operations of the worlds top 250 retail companies, on average, still account for only 14.4 per cent of their total retail sales. A country-wise analysis of the worlds top 250 retailers reveals the following astonishing facts: _ Over half of the US-based companies (i.e., 49 of 93 retailers) operate only in a single country. _ Japan remains the most insular as two-thirds of the top 250 Japanese retailers operate only in Japan. _ Asian, Latin American, and North American retailers are the least likely to have foreign operations, although globalization is slowly accelerating.
82

_ European and African retailers dominate in terms of the degree to which they operate internationally. _ On an average, the top 250 European firms did business in 9.9 countries in 2005, generating 28.1 per cent of their sales from foreign operations. _ The five South African retailers in the top 250 list operated in an average of 8.8 countries, primarily throughout the African continent. _ French and German retailers are the most international in scope, primarily due to low consumer spending, fierce market competition, and the tough regulatory environment in home markets. The sales analysis of the worlds largest 500 firms astonishingly reveals that 70 per cent or more of their sales takes place in their home triad rather than global sales. It leads to infer that the worlds largest companies hardly bother to be global; rather they act local (see Exhibit 1.4) to harness their core competencies.

5.6 SUPPORT OF GLOBALIZATION Globalization means different things to different people and is considered to have both positive and negative impacts. Opinions vary widely on its influence on national economies. The major arguments in support of globalization include the following.

83

5.6.1 Maximization of economic efficiencies The global integration of economies has prompted a rapid rise in the movement of products, capital, and labour across the borders. It contributes to the maximization of economic efficiencies, including the efficient utilization and allocation of resources, such as natural resources, labour, and capital on a global scale, resulting in a sharp increase in global output and economic growth. 5.6.2 Enhanced trade Besides rapid trade growth, new patterns on international trade are fast evolving. The creation of foreign-based affiliates by national firms and of host-country affiliates by foreign parent companies has led to a rise in intra-firm trade. 5.6.3 Increased cross border capital movement The economic liberalization across the world has paved way for FDIs even in a large number of developing countries that had a restrictive regulatory framework. This has opened up business opportunities for transnational corporations to expand their operations by way of ownership on one hand and benefited developing countries from increased flow of capital and other forms of finance on the other. Direct investment is increasingly becoming crucial to companies international
84

expansion strategies. This has led to the globalization of manufacturing and fragmentation of the production process into its sub-component parts in multiple countries. 5.6.4 Improved efficiency of local firms The heightened competition by multinationals compels local businesses to adopt measures to cut down costs and improve quality for survival. On one hand, competition makes the survival of inefficient businesses difficult; on the other, it encourages firms to evolve innovative methods to improve productivity. As a result, business enterprises become more competitive not only domestically but also internationally at times . 5.6.5 Increased in consumer welfare Consumers benefit by increased access to products and services from manufactures across the world. Import restrictions in a large number of developing countries has deprived consumers of global brands and the quality thereof. Besides the intensification of market, competition has also compelled domestic producers to reduce prices. As all domestic and multinational companies compete with each other to woo the customer, the consumer became the ultimate gainer.

5.7 CRITICISM OF GLOBALIZATION Globalization is often denounced by social organizations, NGOs, politicians, consumers, and even the general public on multiple grounds as the sole cause of all ills. It is often decried as just another term for Americanization and US global imperialism. There have been numerous protests against globalization in various parts of the world. Contrary to general belief, the support for globalization is the lowest in the US and even in certain other developed countries, including France, Britain, and Germany, whereas it is much higher in developing countries such as India and China

85

5.8 DEVELOPED VERSUS DEVELOPING COUNTRIES :UNEQUAL PLAYERS IN GLOBALIZATION The dynamics of the globalization process reveals that developed and developing countries participate on unequal footings. Developed countries along with their mighty multinational corporations exert a very strong force globally while developing country governments and civil society organizations hold much less sway. Developed country governments often reserve and exercise the right to take unilateral and bilateral actions that have global scope and implications concurrently with their participation in debates and negotiations. According to the neo-classical economic theories of equilibria, capital will flow towards areas of cheap labour but labour will flow towards the areas of expensive labourthereby raising the cost of labour where it was once cheap by reducing the available numbers and bringing down the cost of labour where it was once expensive. Although there have to be some bottlenecks in the theoretical framework, it seems

86

that the powerful countries, the superpowers themselves, use their power to create such bottlenecks. In the developed world, quotas, controls, and oppressive legislation curtailing the movement of people, derogatorily called economic refugees, are justified in the name of protecting national principle but similar measures are seldom applied against the movement of capital. Economic efficiency is often one of the strong reasons for advocating globalization in that allowing free movement of goods and capital across borders would lead to the lowest costs and thus the lowest prices. But this argument ignores the real social consequences of the search for economic efficiency. For instance, farmers in developing countries commit suicides as the commodity prices crash, workers are thrown out of jobs as factories close, unique and specialized businesses are driven out of the market because they do not have the advantage of economies of scale, etc. Developing countries are continually preached about on the need to reduce tariffs by multilateral organizations. Ironically, the West and the European Union impose such rigid non-tariff barriers that firms from developing countries hardly have any chance to break into their markets. Global pharmaceutical companies often gang up against drug companies from developing countries. For most Europeans and Americans, globalization only means two types of fear : fear of cheap Chinese goods and fear of Islamic immigrants. Business process outsourcing (BPO) still remains a big political issue in the US.19 Getting Bangalored is often used in a pejorative way in the US to refer to the loss of a job because it has been exported to India.

ACTIVITY 1. What are the driving forces of Globalization. 2. Has globalization done more harm than led to benefits for your country?

SUMMARY

87

The ongoing globalization increases the overall need for knowledge of cultural differences between not only countries but also corporate cultures. More and more employers start transferring their experts from country to country to help build new subsidiaries or to support existing ones in certain projects. Globalization is happening and it is happening very fast due to the improvement of technology, the faster communication as well as the fast travel possibilities via cars, ships and aircrafts. The process of globalization is characterized by the interplay of dynamic forces that act as movers and restraining factors. The empirical methods to measure globalization include trade openness, KOF index of globalization, and the A.T. Kearney/Foreign Policy globalization index. Globalization is often supported on the grounds of maximization of economic efficiencies, enhancing trade, and increased cross-border capital movements. Developing and developed countries are unequal players in the process of globalization. Critics often accuse globalization for widening the gap between the rich and the poor, of wiping out domestic industry, leading to unemployment and mass lay-offs, bringing in balance of- payments problems, increasing volatility of markets, diminishing power of nation states, leading to loss of cultural identity, and causing a shift of power to multinationals. Response strategies for globalization forces for emerging market companies include defender, extender, dodger, and contender. International business refers to the conduct of business activities beyond national boundaries. Reasons for expanding business operations overseas include market-seeking, economic, and strategic motives. International business varies from operating domestic, primarily because of environmental differences such as economic, socio-cultural, legal, and political environment, besides competition, infrastructure, and technology.

REVIEW QUESTIONS
88

1. Discuss globalization and its effects on International Business 2. Examine the factors that influence globalization 3. Explain the factors restraining globalization 4.Outline the techniques for measuring globalization 5. Discuss the reality and myth of Globalization 6. Write short notes on i) Supports of globalization ii)criticism of globalization 7. Differentiate between developed and developing countries

89

UNIT-II GAINING COMPETITIVE EDGE THROUGH WORLD CLASS MANUFACTURING CHAPTER-VI Manufacturing excellence and competitiveness Learning Outcomes After reading this chapter, the students should Discuss the emergence of manufacturing excellence

Examine the issues in traditional performance measures Need for Design new performance effective performance measures measures

List out the steps to develop effective performance measures: Deploy the specific performance measures for monitoring manufacturing performance Cite specific examples of performance measures for manufacturing competitive priorities

90

STRUCTURE

6.1 The road to manufacturing excellence 6.2 The emergence of manufacturing excellence

6.3 Issues in traditional performance measures 6.4 Need for new performancemeasures effective performancemeasures

6.5 Designing

6.6 Steps to develop effective performance measures: 6.7 Deployment of specific performance measures for monitoring manufacturing performance 6.8 Specific examples of performance measures for manufacturing competitive priorities Summary Review Questions

6.1 THE ROAD TO MANUFACTURING EXCELLENCE : USING PERFORMANCE MEASURES TO BECOME WORLD CLASS Since the 1970s, we have witnessed the emergence of manufacturing excellence in various countries across the globe. Faced with very high environmental instability, primarily due to increased global competition and faster technological changes, companies in a variety of industries had to re-evaluate their manufacturing strategies and practices. In many companies, new manufacturing strategic directions were developed and new manufacturing practices were adopted. Customer focus, total quality management, just-in-time, continuous improvement, employee involvement, and other approaches have been collectively referred to as manufacturing excellence or world-class manufacturing.
91

Often these new practices have had limited success in achieving the desired strategic goals. Many experts see the lack of appropriate performance measures as a main contributor. They argue that traditional performance measures do not support and even inhibit the implementation of new manufacturing strategies and practices. It is imperative that manufacturing firms develop new performance measures that can guide the organization and measure progress toward manufacturing excellence. Many firms are reevaluating the adequacy of their performance measures.

6.2 THE

EMERGENCE

OF

MANUFACTURING

EXCELLENCE

To succeed and prosper, a manufacturing organization has to keep abreast of changes in the environment and adapt to those changes. In the past couple of decades, manufacturing organizations have had many adjustments to make. In most industries, globalization has been the main factor affecting manufacturing operations. Global economic and political forces have led to dramatic expansion in the amount of global trade competition, as well as in the size of the global market. Twenty years ago, world export of goods and services was 9.3 percent of the world gross domestic product. But according to Karen Pennar, the trade share of the world's GDP is currently 24.3 percent.. The impact of global competition is well known, as it led to a devastating loss of market share in industries such as automobiles and steel. Many companies were caught off-guard and suffered heavy damages. On the other hand, globalization has created and opened new markets to many firms across the world.. However, the success of the firms in taking on their competitiveness. advantage of these opportunities has depended

Globalization has expanded the market and opportunities, but at the same time it
92

has increased competition and its threats. This high-stake game has increased the emphasis on technological developments and innovations. To gain a competitive advantage, many companies have focused on improvements in product or process technologies, or both. The rate of technological developments has

increased exponentially, particularly in high-tech industries such as electronics, computers, biotechnology, and telecommunications. These technological

developments will have a major impact on the economy. There's going to be a fundamental change in the global economy unlike anything we've had since cavemen began bartering." The pursuit of technological developments and innovations influences the company's goals, practices, and performance heavily.

Together, globalization and technological developments have created a highly dynamic environment. In particular, they have led to shorter product life cycles. For example, in the personal computer industry, product life cycles have decreased from years to months. As a result, companies are facing an increasingly fastchanging market with a window of opportunity that is smaller and moving very rapidly To succeed in this environment, manufacturers have to be quick in designing and producing products - and do it at low cost with high quality Consequently, in response to the new environment, four competitive priorities cost, quality, time, and flexibility - have emerged as critical factors for success. These competitive priorities have enhanced the role of manufacturing in the organization dramatically, because achievement of these priorities is highly influenced by the performance of the manufacturing function. While in the past manufacturing was considered a necessary nuisance and its role was to get the product out the door on time at the lowest cost, today it is considered a strategic asset that has a major impact on achievement of competitive priorities. Thus, the importance of manufacturing management has been rediscovered, and creating

93

manufacturing excellence has become a strategic goal of many organizations.

6.3 ISSUES IN TRADITIONAL

PERFORMANCE

MEASURES

Traditional performance measures in many manufacturing companies are primarily financial and are mostly the output of manufacturing cost accounting systems. Cost accounting was developed in the 1920s. Manufacturing systems and practices have changed enormously since then, particularly in the last two decades, but accounting systems have not kept up. Brian Maskell has outlined some

specific shortcomings of traditional, accounting-based performance measures:

Lack of relevance. Accounting reports usually are not directly related to manufacturing strategy While some strategic goals are financial, many are not. Today's manufacturing must track performance in customer satisfaction, quality, flexibility, and innovation. Such strategic goals cannot be monitored with traditional reports. Financial reports often are not relevant for operational control, either. To control operations, factory managers need information such as production rates, yield quantities, cycle time, reject rates, and stock-outs.

* Cost distortion. The nature of manufacturing cost elements has changed dramatically since the 1920s. At that time, labor was by far the largest cost, followed by material cost. Overhead was only a very small portion of total costs. These days, however, overhead counts for the largest portion of manufacturing cost, while the labor content of an average product produced in the United States is under 10 percent. According to Peter Drucker, Beckman Instruments, a large manufacturer of medical instruments, now considers labor costs as "miscellaneous" expenses. Cost accounting carefully calculates and reports the labor costs and allocates the over-head costs based on direct proportion to a product's labor costs. This approach can lead to a major cost distortion, particularly if there is a large
94

variation in the use of resources among the products of the firm. Recent developments in activity-based costing are aimed at fixing this flaw.

* Inflexibility. Objectivity and consistency are strengths of accounting. Accounting confines itself to measurable and objective data and produces consistent reports. The performance measurement needs vary among plants, products, processes, departments, and teams. The manufacturing management should be able to modify the measures. As change and improvements are introduced in manufacturing, the measures need to be changed over time.

Frequency and timing of the reports is another problem. The accounting reports are typically issued monthly and are available a few days after the closing of the financial period. So, the data in the report is typically a few weeks old. That is often too late for operational decision-making. Manufacturing excellence puts high emphasis on quick feedback and response. Also, another issue is that accounting does not consider intangibles that might be of great significance to factory performance.

* Impediment to progress in manufacturing excellence. The cost accounting mentality creates hurdles in manufacturing excellence implementation. Typically, any product improvement or process innovation has to be justified based on the costs, particularly labor costs. Emphasizing labor costs and ignoring intangibles blocks many sound improvement projects. For example, investing in more expensive equipment to increase flexibility is hard to justify, as flexibility is not measured and reported. Also, the inappropriate focus of cost accounting leads to some wasteful activities. The high emphasis on machine and labor efficiency, for example, results in production in large batch size with the focus on production quantity These are clearly opposite the manufacturing excellence positions on
95

small lot size, synchronized production, fast changeover, zero inventory, and high quality.

6.4 NEED FOR NEW PERFORMANCE

MEASURES

Many experts insist that implementation of manufacturing excellence requires establishing new performance measures. Adopting manufacturing excellence practices requires a major overhaul of manufacturing systems and operations. It typically brings major changes to the operation's structure and processes that subsequently lead to significant modification of organizational, behavioral, and cultural aspects of the operations. Creating such major changes demands constant reinforcement from top management through appropriate performance measures. However, typical performance measures in most manufacturing organizations are inappropriate and inadequate. For example, most manufacturing companies do not have any specific performance metrics for measuring customer satisfaction, which is the primary focus of manufacturing excellence.

6.5 DESIGNING EFFECTIVE

PERFORMANCE

MEASURES

It's been said that "What gets measured gets managed and gets done." On the other hand, what does not get measured often gets ignored. So, defining the right measures is critical to achieving the desired results. When deciding on what to measure, one should start with the company's purpose: its vision, mission statement, and strategic goals. Company-wide measures should link directly to the strategic objectives. As the strategic objectives are deployed and cascade down to intermediate and lower level goals, they define what the performance measures should be for the lower levels in the organization. Once the objectives or expected results for each organizational unit - such as departments, plants, work centers, or individuals - are defined, the performance measures can be established. Some
96

experts focus on identifying the "critical success factors" in defining the performance measures. The managers are to indicate the critical success factors, including resources, capabilities, processes, and results for achieving the unit's goals. Then performance measures are developed to monitor the attainment of these factors.

In deciding what to measure, a controversial issue is the use of financial vs. nonfinancial measures. While some companies advocate the use of purely financial measures, some others argue for the use of non-financial measures, and a third group insists on a balanced use of the two. The Shell Oil Co. is an example of the first group. In the early 1990s it established its Shell Business Model, which gets managers of the operating units to think in the context of running the business profitably. Their primary yardsticks are purely financial, with indicators such as revenue growth and return on investment. Alternatively, companies like Motorola almost ignore the financial measures in monitoring manufacturing performance and focus instead on the key drivers of operations. How is the manufacturing yield rate managed? Cycle time? Operating unit productivity? It is argued that if you manage the key drivers, the financial results will follow. While these companies do not totally ignore the financial measures, they do play them down.

Robert Kaplan and David Norton try to combine the two types of measures in their "balanced scorecard." The scorecard includes four different sets of measures focusing on the organization's strategic objectives and competitive demands. The four perspectives include: Financial perspective: How do we look to shareholders?

97

Customer

perspective: How do

customers

see

us?

Internal

business perspective :At what

must

we

excel?

Innovation and learning perspective: Can we continue to improve and create value?

Managers are required to define goals and select a limited number of critical indicators within each of the four perspectives. The scorecard, which has been well-received, allows managers to combine the financial and non-financial measures systematically.

In defining what to measure, some companies use benchmarking to review practices of the best in class and compare those to their own. Caterpillar recently went through an overhaul of its corporate structure and instituted performance measures appropriate for the new structure. Early in the process of defining the performance measures, Caterpillar visited companies such as Texas Instruments, AT&T and IBM to benchmark their approach.

6.6 STEPS TO DEVELOP EFFECTIVE PERFORMANCE MEASURES: Step-1: Focus on leading indicators. Performance measures can be classified as reactive and proactive. Proactive performance measures are preventive in nature and can be called leading indicators. These measures can anticipate and impact the future desired results. Rising defect rates and employee turnover often precede lower customer satisfaction.

98

In contrast, the reactive or lagging indicators are descriptive of what has happened in the past. They show the results of the completed performance of a system. Traditional financial measures such as revenue, profits, and ROI are lagging indicators. Though they are needed to show the company's performance to the shareholders, creditors, and government agencies, they are not typically helpful in operations decision-making regarding future decisions and action.

Step-2 : Focus on measures that are controllable. The purpose of using performance measures is to monitor the actual performance and compare it to a pre-specified goal in order to measure progress toward the goal. If there is a significant dispersion between the two, a corrective action is needed. But does the manager have control over the resources, inputs, and processes to take the required corrective action? It not, the performance measures are useless. It is crucial that the performance measures crafted for each unit of the organization be consistent with the level of authority, responsibility, and skill of the person overseeing that unit. Otherwise, at best, it is a waste of resources in setting up a measure and collection data and then not using it; at worst, it can lead to employees' resistance to the use of measures. Employees may then falsify documents to reflect what they believe are the desired results.

Step-3 : Focus on measures for which you can collect the required data. Ability to collect the required data for a performance measure is a critical consideration. Some companies develop interesting and relevant measures only to discover that they currently do not collect the required data and it is not practical to do so. If the required data is not readily available through the accounting or information system, managers have to figure out where, when, and how the data is to be collected, analyzed, and reported. The cost of the data collection and reporting should be calculated and compared to the perceived benefits of the
99

performance measure. The cost might be too high to justify the use of the measure. Current computer technologies have lowered the cost of data collection significantly and made the use of many performance measures practical. As the use of information technologies expands and as the data integration within and between organizations increases, many new performance measures can be deployed.
Step-4 : Focus on "soft" issues as well as "hard" ones.

Many companies do not set performance measures for soft issues. Despite all the rhetoric about "customer caring," "employee empowerment," and "learning organizations," many companies do not measure their performance in these areas. This is partly because of the influence of the accounting mindset that focuses on objective and measurable factors only. Soft issues are harder to measure and compare, but this does not justify ignoring them. Often, these soft issues are leading indicators that can lead to improvement of hard issues, such as financial results..

Step-5 : Focus on measuring results as well as activities and capabilities. Measuring results such as profit, sales, and meeting shipment dates is necessary, to monitor performance of the company, but it does not show what went wrong or what must be done to improve the performance Measuring results of a product development process such as schedule and cost might indicate that a project is late and over budget However, that does not tell what to do differently. Companies need to establish what activities and capabilities are critical for achieving a given result and measure results as well as the activities and capabilities.

Step-6 :* Focus on the users.

100

Performance measures are effective only if they are consistent with users' needs and consequently are used by them. These needs are to be explored and determined by talking to supervisors and employees who use the measures.

6.7 DEPLOYMENT OF SPECIFIC PERFORMANCE MEASURES FOR MONITORING MANUFACTURING PERFORMANCE

What specific performance measures should be deployed for monitoring manufacturing performance? As discussed above, the manufacturing performance measures should reflect the manufacturing goals and objectives. However, the manufacturing goals are derived from the business goals and strategies. One should define what role manufacturing has to play in order for business to achieve its goals. In a pioneering work, manufacturing role is not just achievement of high efficiency and low cost. Rather, manufacturing should focus on other issues such as quality, flow of inventory, and time. "competitive priorities" can be used as a guide in manufacturing for setting up performance measures. A set of competitive priorities includes cost, quality, flexibility, and speed.

Based on an exhaustive search for performance measures for world-class manufacturing operations, Gregory White has compiled some popular specific measures for these competitive priorities that can provide guidance for manufacturing managers tackling the challenge of defining performance measures. The performance measures should be adapted to the needs of the manufacturing operation and can change over time.

6.8 SPECIFIC EXAMPLES OF PERFORMANCE MEASURES FOR MANUFACTURING COMPETITIVE PRIORITIES

101

Cost measures, Cost relative to competitors , Manufacturing cost , Total product cost ,Direct labor ,Indirect labor ,Percentage improvement in labor/desired labor Relative labor cost ,Labor productivity ,Labor efficiency ,Percentage reduction in employee turnover ,Materials ,Inventory ,Percentage inventory turnover increase , Scrap ,Repair or rework ,Cost of quality ,Design cost ,Relative R&D expenditure , Overhead , Quality measures ,Perceived relative quality performance ,Quality relative to competitors ,Product reliability relative to competitors ,Customer satisfaction , Reputation , Expected product life , Number of complaints ,Service call rate , Retention rate, renewal rate , Value of returned merchandise ,Field failure , Mean time between failures ,Uptime percentage ,Pass

rate ,Percentage conform to targets ,Percentage with no repair work ,Percentage repair reduction, Percentage scrap value reduction , Vendor quality , Percentage supplier reduction , Flexibility measures , How quickly plant responds to product mix changes ,Production cycle time ,Set-up time , Perceived relative volume flexibility ,How well plant adapts to volume change , Smallest economical volume ,Lot size ,Ability to perform multiple tasks efficiently ,Number of job classifications ,Percentage work force cross-trained ,Percentage programmable equipment ,Percentage multipurpose equipment ,Percentage of slack time for equipment, labor ,Percentage products using pull system ,WlP (work on station/total) ,Vendor lead time ,Percentage of material readily obtainable , Speed measures ,Lead time ,Cycle time ,Order processing time ,Response time , Percentage on-time for rush jobs ,Paperwork throughput time ,Material throughput time ,Value added as percent of total elapsed time ,Distance traveled ,Decision cycle time ,Time lost waiting for decisions ,New product introduction vs. competition ,Development time for new products ,Break-even time ,Time from idea to market ,Average time between innovations ,Number of changes in projects , and time from customer need recognition to delivery
102

ACTIVITY 1. Global economic and political forces have led to dramatic expansion in the amount of global trade competition, as well as in the size of the global market-Justify 2. "competitive priorities" can be used as a guide in manufacturing for setting up performance measures-Explain SUMMARY

Recent dramatic changes in the external environment have led many manufacturing firms to develop new strategies and to adopt new practices. The success and payoffs of these strategies and practices have been limited because of the use of inappropriate performance measures. Traditional performance measures are inadequate and inappropriate. To succeed in implementing new strategies and attain the maximum payoffs, manufacturing firms need to develop a set of financial and non-financial performance measures that guide their actions and measure their progress toward the new goals. The primary challenge is in developing and using non-financial measures. The use of non-financial measures is critical to guiding and monitoring manufacturing operations, as its primary goal is no longer cost minimization. Rather, in the new environment, manufacturing operations should focus on other equally important priorities such as quality, speed, and flexibility, in addition to cost. Managers need to be able to define new non-financial measures, to set up the system for collecting information, analyzing and reporting the new measures, and to use these measures in decision-making. REVIEW QUESTIONS 1. Discuss the emergence of manufacturing excellence

2. Examine the issues in traditional performance measures 3. Explain the need for new performance measures
103

4. Design

an effective performance

measure system

5. List out the steps to develop effective performance measures: 6. What specific performance measures should be deployed for monitoring manufacturing performance?
7.

Cite specific examples of performance measures for manufacturing competitive priorities

104

CHAPTER-VII COMPETITIVE ADVANTAGES OF ADVANCED MANUFACTURING TECHNOLOGY Learning Outcomes After reading this chapter, the students should Know how to achieve competitive advantages of advanced manufacturing technology Understand the evolving manufacturing systems List out the Barriers on adoption of advanced manufacturing technology Know the requirements for achieving AMT competitive advantages Explain the role of strategy
STRUCTURE

7.1 Achieving competitive advantages of advanced manufacturing technology 7.2 Evolving manufacturing systems 7.3 Barriers on adoption of advanced manufacturing technology 7.4 Requirements for achieving amt competitive advantages 7.5 The role of strategy Summary Review Questions

105

7.1 ACHIEVING COMPETITIVE ADVANTAGES OF ADVANCED MANUFACTURING TECHNOLOGY Change is an essential business trait. Manufacturing, in particular, is transforming at an unprecedented pace. Profound changes driven by increasingly unpredictable, dynamic and fiercely competitive markets, rapidly expanding manufacturing capabilities worldwide, increasingly available inexpensive microelectronics-based technologies, and development of complementary and overlapping organizational practices greatly complicate business. While computing technology permits increased automation of a wide range of operations, world-class manufacturing (WCM) practices such as total quality management (TQM), just-in-time (JIT), kaizen, and employee empowerment possess great potential for increasing the importance of manufacturing. Adopting effective management practices, capable of keeping pace with the changing technological environment, is particularly important to success in global markets. WCM requires continuous improvement because world standards constantly change. Naturally, global competitors such as Ford, GE, Motorola, Toyota, and Xerox focus on being world-class manufacturers. However, small companies or focused factories owned by a large company are often better positioned to make the quantum leaps required to become a world-class manufacturer. Fostering a WCM culture in an old plant, saddled with outdated methods, systems and attitudes, is indeed difficult. However, to remain competitive in todays global economy, progressive management must integrate manufacturing and computing technologies and divest itself of old patterns of thinking that restrict manufacturing to a narrow concept of efficiency. Reversing the historical trend towards segmentation and specialization requires substantial commitment. World-class manufacturers identify and understand customers needs all along the value chain. A WCM mind-set emphasizes dedication to higher quality levels, greater flexibility, reducing manufacturing cycle times, and lowering costs. Manufacturers employing advanced manufacturing technology (AMT) are often
106

more flexible than their traditional counterparts since AMT permits the integration of product design and production processes. Consequently, this synergistic effect facilitates achievement of WCM objectives by allowing more rapid product development with fewer flaws and at lower costs. Being the best in the world at manufacturing an obsolete product does not make an organization world-class. Increasingly turbulent task environments, characterized by truncated product life cycles and segmented consumer markets, require worldclass manufacturers to be flexible enough to satisfy changing market demands. Before presenting issues of managerial and strategic concern. The managers and leaders should advantages. do things right for successfully achieving AMT competitive

7.2 EVOLVING MANUFACTURING SYSTEMS There are three types of manufacturing systems: craft shops; dedicated manufacturing systems (DMS); and advanced manufacturing technology-based systems (AMT). DMS are considered long-linked industrial systems employing hard automation whereas AMT are post-industrial enterprises employing flexible resources. There are many distinctions between craft shops and DMS. While craft shops employ skilled artisans who use various hand tools, DMS deploy specialpurpose machinery operated by unskilled manual labourers. In a craft shop, workers are organized into task-oriented work groups. Work functionally specialized and usually a single task is assigned to a worker in a DMS. In a craft shop, performance measures are based on customs and the work is evaluated by other craftsmen. DMS are controlled through a hierarchical structure. In addition to the above characteristics, DMS are product-oriented, concerned with efficiency and productivity. An information system controls task execution and co-ordinates sequential activities within a DMS. Numerous definitions of AMT exist. For example, Youssef defines AMT as a group of integrated hardware-based and
107

software-based technologies, which if properly implemented, monitored, and evaluated, will lead to improving the efficiency and effectiveness of the firm in manufacturing a product or providing a service. AMT employs a family of technologies that includes computer-aided design (CAD), computer-aided manufacturing (CAM), flexible manufacturing systems (FMS), manufacturing resource planning (MRP II), automated material handling systems, robotics, computer-numerically controlled (CNC) machines, computerintegrated manufacturing (CIM) systems, optimized production technology (OPT), and just-in-time (JIT). Although AMT places great emphasis on the use of technological innovation, managements role is significant since AMT systems require continual review and readjustment. To a large extent, DMS and AMT use similar technologies but have different missions. Manufacturings mission, when deploying DMS, is strictly to execute operational plans in support of the firms strategic objectives. However, information technology has altered the underlying assumptions of manufacturing by making AMT possible. While the mission of AMT is still evolving, significant focus is on economies of scope and information flow rather than material flow. AMT enterprises are customer-oriented, concerned with time to market and responsiveness. Consequently, from a management perspective, the critical feature of the progression from DMS to AMT is not so much more complex manufacturing machinery, but rather the greater levels of integration of the social, work and control systems. AMT uses an array of flexible resources that are monitored by an extensive information system. In addition, large numbers of self-organizing and self-directed work groups exist. Performance is evaluated based on multiple and global measures and control consists of direct and continuous feedback from operations. Businesses once thought of automation as a mechanism for achieving economies of scale by using DMS to improve process efficiency, lower costs, and produce acceptable quality
108

products. Historically, DMS have justified themselves through mass production of a standard product on dedicated machinery and often operate in environments of low uncertainty created by stable market demands. Products produced are of low differentiation and are typically marketed based on low cost. Many global markets are no longer capable of being supported by DMS because of turbulent market conditions; hence, DMS are experiencing a competitiveness crisis. AMT permits strategic options such as quality-based differentiation, rapid market responsiveness fostered by product design and product mix flexibility, and greater process control. Computer-based technologies, such as those associated with AMT, are increasingly being viewed as decisive weapons in attaining a competitive edge in todays hazardous business environment. Although AMT implementation is a much more complex and difficult undertaking than DMS, manufacturers must strategically employ AMT to enjoy a new era of prosperity. With AMT, manufacturers no longer emphasize the passive supportive role of production, but rather its ability to facilitate enterprise-wide integration. This integration of computer-based control systems and manufacturing processes creates production systems that are more flexible, reliable, and productive than DMS. How successful AMT is depends primarily on selecting and managing projects that enhance organizational capabilities, rather than on measuring and controlling costs. A survey conducted of US manufacturing executives found that 81.2 per cent believed AMT was either essential or very important as a competitive weapon for US industry. Approximately 66 per cent felt AMT was an important cornerstone of world-class manufacturing. However, only 33 per cent believed their companies have long-term strategies for implementing AMT.

7.3 BARRIERS ON ADOPTION OF ADVANCED MANUFACTURING TECHNOLOGY The top five obstacles to more rapid adoption of AMT, as stated by these executives, are:
109

(1) lack of necessary funding; (2) lack of in-house technical expertise; (3) failure of top management to grasp the benefits of AMT; (4) inadequate planning or lack of vision; and (5) inadequate cost-justification methods.

7.4

REQUIREMENTS

FOR

ACHIEVING

AMT

COMPETITIVE

ADVANTAGES Albert Einstein believed problem solving requires different thinking from that which created the problems. Top managements reluctance to admit their own culpability for existing problems presents a barrier to organizational improvements such as AMT adoption. Operational requirements consistently beat the competition using AMT. For practical purposes, customers exchange money for organizational services; in turn, organizations exchange money for employee services (see Figure 1). AMT improves competitiveness by enhancing this exchange process by lowering costs, improving quality and providing greater flexibility. focus on improving AMT implementation; strategic competitive advantages concentrate on how to

7.4.1 LONG-TERM FINANCIAL HEALTH REQUIRES BALANCING PRODUCT AND

PROCESS INNOVATION

Maintaining a proper balance between product and process innovation is necessary for companies to use AMT as an offensive competitive weapon. By facilitating the design and production of superior products, this balance maintains the
110

organizations long-term financial health. Maintaining a short term perspective tends to delay AMT implementation. According to the Council on Competitiveness, US firms currently invest only 21 per cent of their R&D budgets in long-term projects, while Japanese and European firms spend nearly 50 per cent and more than 60 per cent respectively on long-term projects. Another survey, conducted of 250 top manufacturing executives, indicates that the US is still perceived as the product innovation world leader . However, a study conducted by Ernst & Young and the American Quality Foundation International shows that US businesses fall well short of Japan and Germany in terms of translating customer expectations into the design of new products and services.
7.4.2 AMT CHAMPIONS ARE REQUIRED TO OVERCOME ORGANIZATIONAL INERTIA

Organizational inertia is a principal obstacle to AMT implementation. An AMT champion provides the impetus for change. In fact, an effective champion appears absolutely necessary to AMT success. There are three leadership roles, defined by Leavitt, that illustrate the necessary skills to be an effective champion. These roles are that of pathfinder, problem solver, and implementor. Through these roles, a champion facilitates the conversion process. The pathfinder wholeheartedly believes in an AMT vision and promotes it throughout the firm. Analytical and technical skills are necessary for the role of problem solver. Through this role, an effective champion successfully identifies problems, develops and analyses alternatives, implements the best processes, and monitors results to ensure that the AMT project proceeds unimpeded. The implementor motivates and persuades individuals to pursue AMT objectives. This role translates the vision into reality. Together, these three roles provide solid leadership necessary for building trust, acceptance, and commitment to AMT projects.

7.4.3 WORLD-CLASS COMPETITIVENESS

OPERATIONS

REQUIRE

TIME-BASED

111

Boston Consulting Group industry studies show that companies which are twice as responsive to customer demands expand at five times the industry average with prices 20 per cent higher. For example, the difference between being first and second in new pharmaceutical market entry often results in profitability differences of four to eight times. In the computer industry, estimates show that one company lost 35 per cent in profits by marketing its laser printer 90 days late. In an effort to create competitive advantages, many progressive firms are substantially decreasing their manufacturing cycle times. For example, Honeywell Inc.s IAC decreased their manufacturing cycle time by 89 per cent, Edys Grand Ice Cream by 67 per cent, Unisys Corp.s Government Systems Group by 75 per cent, Exxon Chemicals by 74 per cent. Keeping in mind that time is equivalent to money, productivity , quality, and even innovation, these reductions represent tremendous savings Often firms become more time-based competitive by identifying sources of waste and inefficiency streamlining current production processes.

7.4.4

AMT

OFTEN

IMPLICITLY

REQUIRES

AN

ORGANIC

BI-MODAL

ORGANIZATION

Superimposing AMT on rigid mechanistic organizational structures impedes creation of AMT competitive advantages and often results in implementation failure. New organizational structures are necessary to allow for greater employee participation and subsequent empowerment. Consequently, a potential constraint on AMT adoption is managements resistance to sharing power with subordinates. How extensive resistance to organizational changes is depends upon the breadth and depth of the AMT project. Bi-modal organizations recognize that management is widely shared. Bi-modal organizations broach three types of tension: centralization versus decentralization, stability versus change, and uniformity versus diversity. Decentralization fosters creative initiatives and rapid responsiveness while centralization provides cohesion
112

by charting a strategic direction within which initiatives are pursued. Stability is achieved by articulating a clear strategic vision and strategic statement while an extensive reliance on team building, team problem solving and subsequent disbandment encourages flexibility. A strong commitment to the strategic vision provides uniformity while the manufacturing strategic statement allows the organization to pursue a set of AMT proposals congruent with skills cultivated from the diverse background of the companys employees. Bi-modal organizations recognize that employees are versatile, adaptable and flexible if properly trained. By distributing good management throughout the organization, organic bi-modal firms inhibit crisis management, and increase productivity and flexibility. On the other hand, mechanistic enterprises typically can only improve productivity and never fully realize flexibility benefits. Exploiting complementarities requires co-ordination among separate functional areas. There is an increasing tendency for world-class manufacturers to introduce new products and new processes simultaneously. Startup is particularly problematic when skills are inadequate. Actively selecting and implementing courses of action that are complementary, not only at the level of manufacturing but rather in terms of the entire organization, creates competitive advantages. However, exploiting such an extensive system of complementarities requires a multi-disciplinary team to provide substantial co-ordination. CAD-CAM is an example of such a complementary technology. Schlumberger Well Services, a major supplier of oil-field equipment, using complementary advanced manufacturing technologies (e.g. CAD-CAM) is now able to process 300 engineering change notices compared to only 100 prior to AMT implementation. More importantly, the change cycle has decreased from six weeks to less than one

113

week. Consequently, by functionally integrating both product innovation and AMT, organizations create powerful competitive advantages.
7.4.5 PRODUCTIVITY REQUIRES AUTOMATION TO EMPOWER PEOPLE

Technology, by itself, offers a limited competitive advantage, but when leveraged by the power of peoples minds, the result can be a winning execution as well as a process of continuous improvement. AMT should leverage employee knowledge, creativity, and initiative. Increasing productivity is the objective, not replacing employees. After purchasing and installing automation, managements job does not end; rather it just begins. AMT requires continuous management just like any resource. However, leaving control of technology strictly to technicians often results in isolated tasks being optimized. The implementation of an AMT project should use machines to enhance task consistency and efficiency while utilizing workers decision-making flexibility to improve productivity

7.4.6 AUTOMATION REQUIRES FEWER MANAGEMENT LEVELS

Taylors principles of scientific management essentially reduce tasks to mindless repetition, preventing workers from making intellectual contributions. Rather than empowering workers, layer upon layer of management supervises production. This division between management and labour is the result of years of socialization in the belief that managers know it all and workers do it all. AMT pushes decision making to lower levels, often making middle management obsolete. Middle managers who do remain become a resource for training and coaching employees rather than directing and controlling them. Consequently, reintroducing common sense requires dismantling institutionalized labour-management practices. The trend toward decoupling and downsizing further reduces the need for management layers. It is not unusual for firms to go from seven, eight, or even nine levels of management to as few as four or five.

114

Understanding and organizationally internalizing the requirements for achieving AMT competitive advantages is essential for successfully deploying AMT. Creating an environment conducive to utilizing AMT fully requires a manufacturing strategy to be formulated. Next, the role of strategy in achieving AMT competitive advantages is considered.

7.5 THE ROLE OF STRATEGY The principles of total quality management (TQM) need not only be applied to manufacturing; unquestionably, scrutinizing strategic planning using TQM principles is invaluable. Strategic planning process is a six-phase procedure. Each phase transforms inputs into outputs; consequently, phases naturally have suppliers, customers (both internal and external), and products. The definition of quality varies substantially from phase to phase. Capturing the competitive advantages of AMT requires an understanding of the unique characteristics of each phase, particularly from a TQM perspective. The goal of the strategy formulation process is to create synergy. Moreover, AMT creates synergy if properly implemented. Consequently, strategically planning AMT implementation is key to achieving AMT competitive advantages. Strategic development consists of enterprise-level, corporate-level, business level and functional-level strategies. Enterprise-level strategies concentrate on the organizations interaction with its socio-cultural environment whereas diversified firms or businesses pursuing growth through diversification create corporate-level strategies. Firms competing in a single domain construct business-level strategies while functional-level strategies specify how available resources are to facilitate overall business success. The proposed strategic formulation process primarily concentrates on businessand functional-level strategies. The procedure consists of vision foundation, strategic intention, environmental assessment, manufacturing design, operational

115

delivery, and post-audit feedback. The last five phases comprise a cycle that essentially is a variant of plan-do-check-act (PDCA). As shown in Figure , strategic intention, environmental assessment and manufacturing design constitute the plan facet of PDCA. Operational delivery and post-audit feedback correspond to do and check respectively. The process of cycling through the strategic formulation process coincides with the act of PDCA.

ACTIVITY 1. WCM requires continuous improvement-Justify 2. List out some advanced manufacturing technologies SUMMARY
116

Companies seeking to compete against the worlds most imaginative and competent competitors, in sophisticated and demanding markets, create sustainable global competitive advantages. World-class manufacturers realize that the only constant is the need to satisfy customers. WCM systems are flexible, timely, and responsive. Installing AMT, in itself, is not enough to create a WCM system; technology is neutral. In order to achieve a unique and sustainable source of competitive advantage, organizations must leverage their human capital. How successful AMT is at achieving competitive advantages depends primarily on correctly selecting and properly managing AMT projects that enhance an organizations core competences. Management practices are key to successful AMT implementation; and even though AMT places great emphasis on the use of technological innovation, managements fundamental role is to build trust and cooperation, change negative attitudes, educate and train, and enhance team building. It is imperative that the decisions to invest in AMT and the subsequent roles of management are strategically directed.

REVIEW QUESTIONS 1. Explain how to achieve competitive advantages of advanced manufacturing technology 2. Write short notes on evolving manufacturing systems 3. What are the barriers in adoption of advanced manufacturing technology 4. What are the requirements for achieving AMT competitive advantages 5. Explain the role of strategy

117

CHAPTER-VIII GAINING COMPETITIVE EDGE THROUGH DEVELOPMENT Learning Outcomes After reading this chapter, the students should Know how the companies can gain competitive advantages through Global product development Know about Global product development Understand the basics in Global product development Identify the manufacturing leaders who deploy global product development Differentiate between offshoring and outsourcing Able to deploy global maturity model Identify risks and challenges in global product development GLOBAL PRODUCT

118

STRUCTURE

8.1 Overview 8.2 Global Product Development 8.3 Domino Theory 8.4 The Basics of Global Product Development 8.5Manufacturing leaders deploy global product development 8.6 Off shoring versus outsourcing 8.7 Global Deployment maturity model 8.8 Value Proposition 8.9 Risks and challenges in Global product development Summary Review Questions

8.1 OVERVIEW OF GAINING COMPETITIVE EDGE THROUGH GLOBAL PRODUCT DEVELOPMENT Companies who manage to develop higher levels of productivity in product development compared to their peers enjoy a well-documented competitive advantage in the marketplace. Because productivity is ultimately defined as the amount of output per unit of input, companies who can find a means to develop great products while containing product development costs enjoy a distinct advantage in terms of market share and profitability. Within their product development process, few companies effectively balance their inputs and outputs today. By concentrating both higher value-add and lower value-add resources in a single high-cost region, most companies simply overpay for their respective level of output. Other companies may spend less across the board by mandate, but in so
119

doing they compromise on value-add and therefore achieve correspondingly lower returns as well. Fortunately, for most companies, there is not just an opportunity but actually an entitlement to improved productivity. Just as levels of value-add vary significantly across activities, so too do costs vary dramatically from region to region. By simply rearranging product development activities and personnel in a globally distributed fashion that better aligns cost structures with levels of valueadd, companies can immediately increase product development productivity by 10%, enjoying a cost savings equal to 0.5% of total company revenues.
8.2 GLOBAL PRODUCT DEVELOPMENT

Simply put, Global Product Development means maximizing the financial and operational productivity of the product development process by spreading product development activities across multiple regions of the world in order to better match value-add to cost. In this context, the definition of product development ranges from marketing activities that identify and document customer needs; to engineering activities that conceptualize, design, analyze and refine new product ideas; to activities that plan and document manufacturing, operation, and maintenance processes; to sustaining activities that make ongoing product changes and refinements. Regions with high 12costs include industrialized countries like the United States, United Kingdom, Germany, France, Italy, and Japan. The list of lower cost regions is long but includes India, China, Russia, and various other Eastern European and Asian countries. 8.3 DOMINO THEORY Simply for the advantage of lower costs, manufacturing companies in high-cost regions consistently shifted manual blue-collar manufacturing activities to lower cost regions throughout the 1980s and 1990s. In certain market segments, this phenomenon has played out entirely to the point where there are now very few textile mills and television factories left in the United States, for example. Though
120

not simple, offshoring manufacturing was straightforward in the sense that the process is discrete with crisp and clear inputs and outputs as hand-offs. For example, given a complete set of specifications, drawings, and parts lists, an offshore manufacturing site could fabricate and assemble the product, and deliver finished goods directly to the customer or distribution center. Arguably the process needed careful quality control and was slowed by the additional time it takes to transfer ideas to an offshore location and ship tangible products back, but still the cost advantage was overwhelming. Entire new industries were born of this trend, a great example being the massive electronics manufacturing industry that now exists in Taiwan. As with any great business success, innovators look to migrate the core concepts to new applications in hopes that they can deliver similar successful outcomes. In the mid-1990s, thanks to the information technology (IT) revolution based on the Internet and World Wide Web, the concept of using remote low-cost resources to develop software and maintain information systems was born. For the first time, software applications were available to make the work product digital, and the Internet allowed this digital work product to be instantaneously portable to nearly anywhere in the world. Seizing this cost savings opportunity, software companies began to offshore select functions like Documentation and Quality Assurance, while companies of all types looked for opportunities to offshore major portions of their internal IT organizations as a means to cut back on this growing overhead cost. Another new crop of companies, the Indian IT suppliers being a prime example, was born in response to this trend. The trend didnt stop within IT, however. Companies began to realize that many other business processes that had become IT-enabled for purposes of automation offered the very same opportunities for realignment of cost and value-add. Claims processing, loan processing, help-desk support and many
121

similar functions that were performed by people sitting in front of computer screens all day offered another opportunity why not teach offshore resources to perform the very same function at a fraction of the cost? Many of the offshore IT services companies jumped into this adjacent business opportunity, while a new class of pure play business process outsourcing (BPO) firms was created as well. All of which brings us to todays opportunity in Product Development. Thanks to the power of modern computer-aided design (CAD), computer-aided engineering (CAE), computer-aided manufacturing (CAM), and Product Lifecycle Management (PLM) technologies that manufacturing companies have deployed over the last 10 years, a growing list of companies now have a fully digital (or ITenabled) product development process that again affords the same opportunities for resource portability and better alignment of cost and value-add. At PTC, we call this concept Global Product Development.

8.4 THE BASICS OF GLOBAL PRODUCT DEVELOPMENT Implementing Global Product Development requires reconfiguring product development activities across multiple regions of the world. This must be done, of course, with an eye toward maximizing productivity while mitigating risk. With a Global Product Development approach, process decomposition is used to identify and segregate high value activities and resources from lower value-add activities and resources. Those activities that add higher levels of value become candidates to remain in higher cost regions because their critical value add justifies their higher cost, while many of the lower value-add activities may become candidates for subsequent transfer to lower-cost regions. The ability to characterize value-add is somewhat subjective and naturally varies from industry to industry and even company to company. Further, given the need to mitigate risk within the mission critical product development process, the move to Global Product Development should be viewed as evolutionary, not revolutionary. Most companies simply

122

cannot switch to a highly globalized model overnight, but can migrate toward increasing levels of globalization over a period of years.

Global Product DevelopmentIs It Real? The phenomenon of Global Product Development is quite early in its progression, but is definitely real and gaining momentum quickly. A recent study commissioned by PTC found that, among those manufacturing customers who were likely candidates for Global Product Development (i.e., with a concentration of resources in high cost regions and with no regulatory barriers such as the U.S. State Departments International Traffic in Arms Regulations or ITAR ), 35% have already begun active offshore development (typically on a small scale), an additional 18% more were piloting the concept, and more than 80% overall felt that they would have global product development operations within a three to five year window.

8.5 MANUFACTURING LEADERS DEPLOY GLOBAL PRODUCT DEVELOPMENT General Electric (GE), United Technologies Corporation (UTC), Siemens, and Cummins Engine represent a sampling of worldwide manufacturing leaders who are aggressively adopting the principles of Global Product Development. GE, a $134B US diversified technology, media and financial services company, is widely recognized as one of the founders of Indias Business Process Outsourcing (BPO) industry. GE installed its first Indian power plant in 1902; by 1930 it opened a sales center; and today, GE Capital International Services executes various back office operations such as call centers and IT support. After growing to become the largest shared services center in India (11,500 employees), GE recently monetized its success by selling 60% of the business to a consortium of US private equity firms. Building on a strong BPO heritage, GE also does significant product development in India; design is done at captive centers and GE approved Global
123

Development Centers run by third-party engineering service providers. Established in September 2000, the John F. Welch Technology Center, in Bangalore, India, is General Electric's largest Research and Development center outside the U.S., with an $80 million infrastructure and approximately 1,800 professionals. A variety of GE products are designed here, including some of its most complex jet engines. United Technologies, a $37B US conglomerate, recently made an investment and took an ownership stake in an Indian pure play engineering services business. Various UTC business units have begun to transition CAD modeling and other forms of engineering support work to this and various other Indian engineering services companies. Siemens, a 74B German company, while citing competitive pressures, recently made a public announcement of its intention to shift 1/3 of its 30,000 embedded software engineers to China, India, and Russia. The shift will affect product development operations in Siemens fixed line and wireless telecom, automation and drives, transportation, and energy transmission businesses. Cummins Engine, a $6B US diesel engine and generator manufacturer, recently commissioned a new Regional Technical Center in Pune, India where it had already been manufacturing engines for over 40 years. Consolidating customers and an impending tightening of EPA emission standards prompted a corporate mandate to boost innovation without incurring a corresponding increase in engineering spend. The technical center, managed in cooperation with Satyam, currently employs 100 people and is expecting to double within the next year. It focuses on embedded software and mechanical design analysis. While product development is led from Cummins Indiana U.S. headquarters, significant pieces of work are now done in India. One of the primary benefits that Cummins has reaped from its Pune center is the ability to run analyses on literally hundreds of product variations both quickly and inexpensively, enabling innovation to happen faster and without the time and cost of many physical prototypes.
124

Although GE, UTC, Siemens, and Cummins are all sizeable industrial companies, the phenomenon doesnt end there. Manufacturing companies of all sizes within light industrial, heavy industrial, heavy equipment, automotive, commercial aerospace, and electronics industries are moving forward with strategies for Global Product development.

8.6 OFFSHORING VERSUS OUTSOURCING

Ultimately, the value of Global Product Development is unlocked when a balanced alignment of cost and value-add is achieved. Offshoring and outsourcing are fundamental tools to be appropriately used to achieve the desired balance. Offshoring, however, is the core strategy. As a rule of thumb, companies typically look at keeping in-house (i.e., insourcing) that which is core to their business, and distributing to others (i.e., outsourcing) that which is context, or less critical. Historically, manufacturing companies have done a high degree of outsourcing of components of their products to companies that specialize in their design and manufacture. Much of the outsourced work remained onshore, though some went offshore. Another form of outsourcing is the large onshore industry of

125

engineering services companies within high cost regions that offer contract engineering talent. While traditional outsourcing of manufacturing and engineering will remain a viable method to improve products while managing fixed costs, many companies have little additional room to drive incremental productivity with this technique. As a similar rule of thumb, companies look at retaining high valueadd activities onshore while offshoring low value-add activities. For example, functions that require high degrees of product or market expertise as well as functions that require high levels of direct customer interaction are difficult to replicate offshore. Supporting activities to those functions, however, may be good candidates for offshoring. Given the complexity, initial startup costs, and ongoing management challenges associated with managing a captive offshore facility, many companies choose to develop their offshore capacity via an outsourcing partner. Labor rates vary with the outsourcing and offshoring strategy deployed. Using typical US labor rates as a baseline, an in-house onshore engineer would cost $40$60/hour fully loaded with compensation, benefits and overhead. An equivalent engineer, when contracted from an onshore engineering services firm, may cost $60 -$70/hour given the need for an additional profit margin to be added to the same basic underlying cost. An equivalent engineer from an Indian offshore outsourcing firm would cost $15-$25/hour. Moving to a direct offshore employee model would subtract the necessity for the contractors profit margin and the resulting cost would drop to the $10-$15/hour range. Obviously, the lowest steadystate cost is associated with the captive offshore model,

8.7 A GLOBAL DEVELOPMENT MATURITY MODEL To help mitigate the risk of disruptions to their product development process, most companies evolve toward a Global Product Development model over a period of time. Even within a single company, different business units or product lines may very well be at different points in their evolution toward global distribution and balance of cost and value-add.
126

The Maturity Model presented in the above figure helps to characterize common states of evolution in the Global Product Development practices of various manufacturers. The states may be described as follows: Many Western companies are currently at Level 1None, with no meaningful degree of global distribution of product development activities. Numerous companies at Level 2Ad Hoc find themselves with some degree of offshore product development capability, but lack a meaningful strategy regarding how to use this capability to achieve a balance of cost and value-add. Typically, companies at Level 2 have inherited distributed operations through mergers and acquisitions, but this was an adjunct to some other strategy and not a primary strategy in and of itself. True Global Product Development begins at Level 3Discrete Services, where companies deploy a relatively conservative strategy to retain control of product development projects and core activities in-house and onshore, but farm out various discrete support activities to offshore locations. For example, a company may retain requirements capture and core design responsibilities in high-cost regions, but shift drafting, technical publications, and even simulation and testing activities toward lower-cost offshore resources. Companies who are at Level 3 may achieve as much as 30% portability (to low cost regions) of their product development activities. At Level 4Co-Development, companies become more aggressive and begin to segment their overall product portfolio in order to identify select subsets that can be carved out and transferred with full responsibility to their offshore counterparts. Examples of Level 4 would include transferring responsibility for a complete subassembly design for a new product effort, sustaining engineering for

127

existing products, or a specific value-engineering project aimed at improving profitability of an existing design. Most companies in high-cost regions envision getting to Level 4 over a period of time. A small minority of companies envision getting to the Level 5 Transformational Outsourcing model as the basis for a complete reinvention of how their company does business. In Level 5, the onshore resources capture customer requirements, and become the interface to the offshore operation, which in turn designs and perhaps even manufactures the final product. The risk of completely losing product development capabilities keeps most companies from seriously considering Level 5.

8.8 VALUE PROPOSITION Companies who deploy Global Product Development models stand to gain significant financial and operational benefits. Financial Benefits There is a significant hard dollar savings entitlement available to manufacturers who implement Global Product Development strategies. The gross savings entitlement is typically in the range of 0.5% of total company revenue and 10% of the product development budget. This savings can be clearly seen by following the intuitive logic of the equation in figure 4 (feel free to substitute your actual figures). For companies pursuing a reduce costs and grow profits strategy, a total savings of 0.5% of revenue attributable to Global Product Development would translate into a 3% to 10% growth in operating profits if taken to the bottom line (assuming typical manufacturing operating profit ranges of 5% to 15%), while maintaining fixed levels of capacity. For companies pursuing a grow revenues profitably strategy (i.e., needing additional product development resources while monitoring costs), some or all of the Global Product Development savings entitlement could be reinvested into increased capacity and capability while

128

continuing to maintain a fixed cost structure. Either way, the benefit to a company and its shareholders is both tangible and significant.
HIGH LEVEL GDP ENTITLEMENT MODEL

Operational Benefits In addition to the tangible hard dollar financial savings entitlement, there are important additional soft dollar operational improvements that may follow the deployment of a Global Product Development model By conducting product development operations around the world, around the clock, manufacturers have the opportunity to shave time-to-market and gain competitive advantage. Many manufacturers are beginning to structure their product development processes so that core design work is performed during the day in higher cost regions, then those designs are handed off at the end of the day to personnel in lower cost regions who (sometimes via multiple shifts) perform analysis and simulation of those designs so that the feedback is immediately available when the core design team returns to work the next morning. Additionally, by changing their cost structure with Global Product Development and then reinvesting some of that cost savings entitlement in new resources, companies can add both general and highly specialized capacity. For example, additional resources might enable the exploration of more product alternatives, or even the development of entirely new product lines. Also, the addition of
129

specialized resources, for example those who perform sophisticated computerized simulations of product behavior, can allow companies to further optimize designs for higher levels of quality, performance, and reliability. While this specialized capability was always theoretically possible, it may have been cost-prohibitive before the deployment of a Global Product Development strategy. Companies that improve their product development infrastructure for purposes of enabling a more effective deployment of Global Product Development stand to receive benefits from this new capability across the board, not just as it relates to interaction with their offshore operations. Previously, companies have justified investments in product development infrastructure purely on the basis of returns from internal process improvements. Now, the savings accruing from Global Product Development alone provide a compelling justification for the necessary investments, and the internal process improvements come as an ancillary benefit of that investment. These additional benefits might include improved engineering change and configuration management processes as well as improved collaborative development capabilities that could be further extended into customer-facing operations or upstream into the companys supply chain. Other benefits of globalization that might prove important include access to significantly greater human resources capacity to fuel growth initiatives, improved local market presence in developing markets, further dismantling of the wall between engineering and manufacturing via co-location of design resources with existing offshore manufacturing resources, and geographic diversification.

8.9 RISKS AND CHALLENGES IN GLOBAL PRODUCT DEVELOPMENT The degree to which Global Product Development is viewed as politically incorrect suggests the magnitude of risks people have associated with it. The topic of offshoring, especially white-collar jobs, has been the source of many heated debates. To protect their own economies, some local and national governments
130

have even proposed legislation to prevent the migration of jobs to low-cost regions. When viewed at the global level, this protectionist approach is inefficient and prevents businesses from achieving optimal productivity levels. Furthermore, protectionist legislation usually invites counter-productive retaliation in the form of trade sanctions that further limit global economic growth. Most people would agree that the free market should remain free to pursue its natural equilibrium. While governments can mandate short-term policies, pure economics manages to win out over the longer timeframe. There is a long list of potential risks and challenges associated with Global Product Development, but in aggregate they could be characterized in four primary forms that merit discussion: Political Business Technical Organizational Activity 1. Global Product Development means maximizing the financial and operational productivity -Justify 2. How Offshoring and outsourcing are used as fundamental tools to achieve the desired balance.? Summary Companies who manage to develop higher levels of productivity in product development compared to their peers enjoy a well-documented competitive advantage in the marketplace. Within their product development process, few companies effectively balance their inputs and outputs today. Global Product Development means maximizing the financial and operational productivity of the

131

product development process by spreading product development activities across multiple regions of the world in order to better match value-add to cost. Simply for the advantage of lower costs, manufacturing companies in high-cost regions consistently shifted manual blue-collar manufacturing activities to lower cost regions Though not simple, offshoring manufacturing was straightforward in the sense that the process is discrete with crisp and clear inputs and outputs as hand-offs. Entire new industries were born of this trend. As with any great business success, innovators look to migrate the core concepts to new applications in hopes that they can deliver similar successful outcomes. Seizing this cost savings opportunity, software companies began to offshore select functions like Documentation and Quality Assurance, while companies of all types looked for opportunities to offshore major portions of their internal. Another new crop of companies, the Indian IT suppliers being a prime example, was born in response to this trend. Implementing Global Product Development requires reconfiguring product development activities across multiple regions of the world. With a Global Product Development approach, process decomposition is used to identify and segregate high value activities and resources from lower value-add activities and resources. The phenomenon of Global Product Development is quite early in its progression, but is definitely real and gaining momentum quickly. General Electric (GE), United Technologies Corporation (UTC), Siemens, and Cummins Engine represent a sampling of worldwide manufacturing leaders who are aggressively adopting the principles of Global Product Development. Ultimately, the value of Global Product Development is unlocked when a balanced alignment of cost and value-add is achieved. Offshoring and outsourcing are fundamental tools to be appropriately used to achieve the desired balance.

132

To help mitigate the risk of disruptions to their product development process, most companies evolve toward a Global Product Development model over a period of time. Even within a single company, different business units or product lines may very well be at different points in their evolution toward global distribution and balance of cost and value-add. Companies who deploy Global Product Development models stand to gain significant financial and operational benefits. Companies that improve their product development infrastructure for purposes of enabling a more effective deployment of Global Product Development stand to receive benefits from this new capability across the board, not just as it relates to interaction with their offshore operations. The degree to which Global Product Development is viewed as politically incorrect suggests the magnitude of risks people have associated with it. The topic of offshoring, especially white-collar jobs, has been the source of many heated debates. To protect their own economies, some local and national governments have even proposed legislation to prevent the migration of jobs to low-cost regions. When viewed at the global level, this protectionist approach is inefficient and prevents businesses from achieving optimal productivity levels. Review Questions 1. What is competitive advantage? How a company can achieve competitive advantage? 2. What is Global Product Development ? 3. Explain Domino Theory 4. Explain the basics of Global Product Development 5. Name some Manufacturing leaders who deploy global product development 6. Differentiate between Off shoring and outsourcing 7. Explain Global Deployment maturity model with a neat sketch 8. What do you mean by value Proposition?
133

9.

What are the risks and challenges in Global product development ?

134

CHAPTER-IX QUALITY IN WORLD CLASS MANUFACTURING

Learning Outcomes After reading this chapter, the students should Know the importance of Quality in world class manufacturing Understand the basic concepts and principles of WCM Differentiate the technical and managerial pillars of WCM List the steps in WCM

STRUCTURE

9.1 Overview of quality in WCM 9.2 Basic concepts of WCM 9.3 Pillars of WCM 9.3.1 Technical pillars in WCM 9.3.2 Managerial pillars in WCM 9.4 Steps in WCM Summary Review Questions

9.1. OVERVIEW OF QUALITY IN WCM

135

The World Class Manufacturing (WCM) is a contemporary concept that is applied by the world leaders in the business. In this concept, one of the nine pillars is directly related to the quality and the other eight are related to it indirectly. That is why is very important to investigate relations between this concept and concept of model of quality. Although we have witnessed the changes of economic structure from manufacturing to services, there remains a significant influence of production in creating new value and competitiveness, the level of organization, region or state. Therefore, it is still very contemporary concept of world class manufacturing (WCM - World Class Manufacturing), which was developed in nineties of the twentieth century, Hausan, Schnberger and many others. They found that existing methods of measuring the excellence of manufacturing organizations, especially those that make the products according to work orders (MTO - Make To Order) no longer meeting requests, and it was necessary to develop a new concept that, in addition to a more realistic description of the processes, allows benchmarking on the global level . This concept is used mostly by foreign owned companies, with international or combined management, where they monitor changes in the competitiveness of any organization on a monthly basis. If they are a part of international company, they conduct regular internal benchmarking with other companies.

9.2. CONCEPTS OF WCM World Class Manufacturing represents a synthesis of various concepts, principles, policies and techniques for the management and operation of companies engaged in production. It's guided by the results of which enabled the revival of Japanese manufacturing after World War II and adapted the ideas that were used in the Japanese automotive, electronic and black industry, in order to achieve competitive advantage. The primary goals are to continually improve the quality, cost, production time, flexibility and customer service. World Class Manufacturing is
136

not a cure and should not be accepted as a religion. This is an operating strategy that if it is properly applied, gives a new dimension of production which correspond to rapid inclusion of new high quality products, faster decisions and increased productivity products. WCM system is based on systematic reduction of all types of costs and losses from the contribution of all employees and the precise use of methods, standards and tools required by world class production. The picture below shows the functioning of WCM methodology, where it is clear that the main goal of this system will reach zero in the waste, defects, faults and stocks, and values of this system are greater involvement of people, creating better values and more satisfied customers .

9.3 PILLARS OF WCM 9.3.1 TECHNICAL PILLARS OF WORLD CLASS MANUFACTURING World class manufacturing is based on twenty pillars. On the figure 2 WCM pillars are listed, which are divided into two groups. There are ten technical and ten managerial pillars of production. Figure 2. WCM Pillars

137

Each technical pillar must achieve a certain goal and they have full support from managerial pillars. With managerial pillars are requirements have been prescribed that needs to be met in order to gain better working conditions and progress of technical pillars. Each technical pillar, following prescribed standards, must go through seven steps, where each needs to fulfill certain tasks in order to go to the next step. Although we have a variety of pillars with different objectives and targets, they are closely affiliated with each other and one without the other can not work. For example, the pillar of Safety has the target to eliminate accidents, Cost Deployment aims to identify the problems from the standpoint of cost and to show to others where the same are at maximum in order to focus on their elimination. The pillar for Focused Improvement develop new knowledge and reduce costs by using appropriate methods, the pillar of Workplace Organization and Autonomous Maintenance aims to raise the competence of people on the shop floor with right organization of the workplace where the costs are highest and where intensive work is needed. Thus, the pillars are like a linked chain, build upon each other and their cooperation, providing support for company WCM temple.

9.3.2 MANAGERIAL PILLARS OF WORLD CLASS MANUFACTURING

138

Ten managerial pillars in short are foundation of WCM: 1) Commitment If the board members are not aware of or do not support the management in their objective of achieving world class levels of performance, the company is doomed to fail. 2) Involvement- All the people are not only aware of the goals and objectives of the business but they are a part of achieving them. 3) Communication Before people can commit to a concept or an ideal they need to be told about it. They need to understand the hows and the whys of a decision and an objective. It is important for people to know how well they are performing against their objectives and also how the overall business is progressing towards its goals. 4) Understanding Understanding what and where problems are is the starting point for making improvements. 5) Measurement Measurement is key to quantify problems and prioritize them and to determine the effectiveness of improvement activities. It is necessary to measure performance before and after implementation to determine if and to what extent the changes have improved performance. 6) Deployment Deployment relates to how objectives are translated into action. 7) Implementation Implementation of right solutions with rigor by right people to identified problems is central to success. People can also learn things better by doing them and grow. 8) Evaluation Evaluation needs to be an integral part of the improving process to see whether the identified problems have been solved. 9) Standardization Once the evaluation cycle is completed, solving the problem and not to have the same problem again. 10) Documentation Documentation is to accumulate created knowhow to prevail and use it in other area and in the future. The WCM system must first
139

it

is

time

to

standardize the method to manage the process to sustain the obtained result after

identify the issues to be discussed, then determine where they are and prioritize them according to cost analysis. After that, it is necessary to determine the right methods to estimate how much it cost solution to the problem with these methods. It is necessary to implement a solution with rigor and evaluate the results obtained from the original objective. 9.4 STEPS IN WCM The 7 steps of WCM way: 1. Identify What problems need to be addressed 2. Detect Where they are 3. Prioritize them based on cost deployment 4. Analyze them and choose Right methods 5. Estimate How much they cost to be solved 6. Implement solutions with rigor 7. Evaluate the achieved results against the original objective To solve problems we can use WCM tools which can be split into three groups: tools for the description of the problem (eg 5W +1 H, 5G), to find the root cause (4M, 5Whys) and to standardize the results (eg, OPL, GAV ). When problem arise it needs to be described with the use of appropriate tools. Tools 5W +1H we can describe deeply the problem by completing a standardized form with questions. After detailed problem description we can start to search for the root cause of the problem with the tools 4M (Men, Machine, Material, Method), which uses a fish bone diagram for describing all possible root causes of the problem, which can be caused by man, machines, methods or materials. After generating all possible root causes they needs to be analyzed one by one in order to eliminate ones that are not really root cause. In the end, the remaining possible root causes are analyzed into the depth of the problem using the tool 5Whys. Ask ourselves Why, at least five times, we can determine the actual root cause of the problem. The above tools are

140

tested and they can help in faster and easier problem elimination with removing possibility of arising again. At the end of a successful problem elimination, solution of the problem is accepted as a standard and helps to eliminate future same or similar problems. As all the WCM pillars, and implementation of WCM approach has 7 steps. Those steps are presented on Figure 3, with all the major activities that are necessary to be completed in order to finish full implementation.

Step 1 deals with safety and environment These are fundamental issues for a manufacturing company to be responsible for the safety of the people who work there and for being a respectable existence for the community surrounding it. Step 2 relates to reliability and availability These require to develop the skills, capabilities and experience of operators under the heading of Autonomous Maintenance and to involve the maintenance crew in doing work to ensure that plant and equipment do not break down during required production periods. The maintenance crew need to develop a deep understanding of the plant and equipment under their care. This process needs to be carefully managed to balance the cost-benefit relationship between maintenance costs and delivered performance improvements. Step 3 seeks to build on the quality and the yields being achieved from processes The focus is on buildingin quality at the process, and maximizing yields, looking
141

for ways to minimize waste and losses by the use of the tools of quality and especially Total Quality Control. Step 4 brings the full focus on to performance By this time the company and its people understand their operations and processes in a very deep way. Planned daily production output must be achieved and plant performance is at its highest level. Achievements being made at steps 1, 2 and 3 enable the improvements at step-4 Step 5 moves towards the use of the tools and techniques of Total Industrial Engineering The focus is on rationalization in both the areas of logistics (production and service delivery). Efforts must be made to reduce the logistics burden both internally and externally. Step 5 is also meant to introduce LCA and labour saving devices. Step 6 looks at completing synchronization between the sales and manufacturing areas. Efforts must be used in order to look at the full supply chain and to identify and remove waste and losses throughout the system. Companies focus their attention on the advanced use of Just in Time techniques, using their responsiveness to meet market needs rather than relying on large inventories of either finished goods or raw materials. It is important to realize that Step 6 looks at waste along the full supply chain. This chain stretches from the raw material suppliers right through to the consumer. Step 7 is the point where businesses are fully aligned with market requirements. Automated and autonomated plants and machines are producing at world class levels in terms of both internal and delivered Quality, where product, warranty and full life Costs are at the highest levels, where Deliveries are made as and when the customers require, each and every time and where the workforce can operate in a safe and healthy environment. The best way to achieve good results in WCM implementation is to apply Kaizen methodology. AS shown on Figure 4, performance level can be reached at very high level with Kaizen methodology, by improving working standards.

142

ACTIVITY 1.What are the primary goals to develop WCM? 2.WCM is an operating strategy that gives a new dimension for productionJustify SUMMARY In a world class company, there are a few positive differences in many aspects from other companies. There is no short cut to become a world class one. The essence of success is to do right things thoroughly. Company should not make wrong efforts but right efforts to become a world class one. To apply WCM gives a way to become a world class one. For this company must create competent leaders. WCM implementation is a matter of time. The main question is whether it is possible to have long term commitment of the top management?

Review Questions
143

1. Discuss the importance of Quality in WCM 2. Explain the basic concepts of WCM 3 Briefly discuss the pillars of WCM with a neat sketch 4.List out and explain the steps in WCM

144

UNIT-III WCM FUNCTIONS-I

THROUGH

PRODUCTION

MANAGEMENT

World class manufacturing system: Lean production, Agile manufacturing, FMS, Just in time (JIT) Toyota production system: An overview of the principles

CHAPTER-X LEAN PRODUCTION Learning Outcomes After reading this chapter, the students should Understand about Lean production Know the evolution of lean production Define lean production List out the principles of lean Learn and apply the rules of lean Understand how the Lean implementation was developed Know the meaning of lean leadership and their role towards lean Know about various Lean services Examine the various goals of lean and strategy List down the steps to achieve lean system

145

STRUCTURE

10.1 Introduction to Lean production 10.2 Overview of Lean production 10.3 Origin of Lean production 10.4 Basic concepts of lean 10.5 Principles of lean 10.6 Rules of lean 10.7 Lean implementation develops from TPS 10.8 Lean leadership 10.9 Lean services 10.10 Goals of lean and strategy 10.11 Steps to achieve lean system

Summary Review Questions

Lean Production - introduction Lean production is a Japanese approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business from design, through production to distribution. Lean production aims to cut costs by making the business more efficient and responsive to market needs. This approach sets out to cut out all activities that do not add value to the production process, such as holding of stock, repairing faulty product and unnecessary movement of people and product around the plant. The most important aspects of lean production are as follows:
146

Just in time production (JIT) Cell production Kaizen (Continuous improvement) Quality Circles Total Quality Management (TQM) and zero defect production - see notes on quality management Time based management Simultaneous engineering OVERVIEW Lean principles are derived from the Japanese manufacturing industry. The term was first coined by John Krafcik in his 1988 article, "Triumph of the Lean Production System," based on his master's thesis at the MIT Sloan School of Management.[4] Krafcik Krafcik's research had been a quality by engineer in the ToyotaVehicle GM NUMMI joint venture in California before coming to MIT for MBA studies. was continued the International Motor Program (IMVP) at MIT, which produced the international best-seller book coauthored by Jim Womack, Daniel Jones, and Daniel Roos called The Machine That Changed the World.[1] A complete historical account of the IMVP and how the term "lean" was coined is given by Holweg . For many, Lean is the set of "tools" that assist in the identification and steady elimination of waste (muda). As waste is eliminated quality improves while production time and cost are reduced. A non exhaustive list of such tools would include: SMED, Value Stream Mapping, Five S, Kanban (pull systems), pokayoke (error-proofing), Total batching, mixed model Productive Maintenance, Order elimination Clustering, of time single processing, Rank

point scheduling , redesigning working cells, multi-process handling and control charts (for checking mura).
147

There is a second approach to Lean Manufacturing, which is promoted by Toyota, in which the focus is upon improving the "flow" or smoothness of work, thereby steadily eliminating mura ("unevenness") through the system and not upon 'waste reduction' per se. Techniques to improve flow include production leveling, "pull" production (by means ofkanban) and the Heijunka box. This is a fundamentally different approach from most improvement methodologies, which may partially account for its lack of popularity. The difference between these two approaches is not the goal itself, but rather the prime approach to achieving it. The implementation of smooth flow exposes quality problems that already existed, and thus waste reduction naturally happens as a consequence. The advantage claimed for this approach is that it naturally takes a system-wide perspective, whereas a waste focus sometimes wrongly assumes this perspective. Both Lean and TPS can be seen as a loosely connected set of potentially competing principles whose goal is cost reduction by the elimination of waste. These principles include: Pull processing, Perfect first-time quality, Waste minimization, Continuous improvement, Flexibility, Building and maintaining a long term relationship with suppliers, Autonomation, Load leveling and Production flow and Visual control. The disconnected nature of some of these principles perhaps springs from the fact that the TPS has grown pragmatically since 1948 as it responded to the problems it saw within its own production facilities. Thus what one sees today is the result of a 'need' driven learning to improve where each step has built on previous ideas and not something based upon a theoretical framework. Toyota's view is that the main method of Lean is not the tools, but the reduction of three types of waste: muda ("non-value-adding work"), muri ("overburden"), and mura("unevenness"), to expose problems systematically and to use the tools where the ideal cannot be achieved. ORIGIN OF LEAN PRODUCTION
148

Lean implementation is focused on getting the right things to the right place at the right time in the right quantity to achieve perfect work flow, while minimizing waste and being flexible and able to change. These concepts of flexibility and change are principally required to allow production leveling (Heijunka), using tools like SMED, but have their analogues in other processes such as research and development (R&D). The flexibility and ability to change are within bounds and not open-ended, and therefore often not expensive capability requirements. More importantly, all of these concepts have to be understood, appreciated, and embraced by the actual employees who build the products and therefore own the processes that deliver the value. The cultural and managerial aspects of Lean are possibly more important than the actual tools or methodologies of production itself. There are many examples of Lean tool implementation without sustained benefit, and these are often blamed on weak understanding of Lean throughout the whole organization. Lean aims to make the work simple enough to understand, do and manage. To achieve these three goals at once there is a belief held by some that Toyota's mentoring process,(loosely called Senpai and Kohai, which is Japanese for senior and junior), is one of the best ways to foster Lean Thinking up and down the organizational structure. This is the process undertaken by Toyota as it helps its suppliers improve their own production. The closest equivalent to Toyota's mentoring process is the concept of "Lean Sensei," which encourages companies, organizations, and teams to seek outside, third-party experts, who can provide unbiased advice and coaching. BASIC CONCEPTS OF LEAN LEAN PRODUCTION-DEFINITION Lean production is an assembly-line methodology developed originally for Toyota and the manufacturing of automobiles. It is also known as the Toyota Production System or just-in-time production.
149

Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Working from the perspective of the customer who consumes a product or service, "value" is defined as any action or process that a customer would be willing to pay for. Essentially, lean is centered on preserving value with less work. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS) (hence the term Toyotism is also prevalent) and identified as "Lean" only in the 1990s. TPS is renowned for its focus on reduction of the original Toyota seven wastes to improve overall customer value, but there are varying perspectives on how this is best achieved. The steady growth of Toyota, from a small company to the world's largest automaker, has focused attention on how it has achieved this success. Lean manufacturing is a variation on the theme of efficiency based on optimizing flow; it is a present-day instance of the recurring theme in human history toward increasing efficiency, decreasing waste, and using empirical methods to decide what matters, rather than uncritically accepting pre-existing ideas. Lean manufacturing is often seen as a more refined version of earlier efficiency efforts, building upon the work of earlier leaders such as Taylor or Ford, and learning from their mistakes. Engineer Taiichi Ohno is credited with developing the principles of lean production after World War II. His philosophy, which focused on eliminating waste and empowering workers, reduced inventory and improved productivity. Instead of maintaining resources in anticipation of what might be required for future manufacturing, as Henry Ford did with his production line, the management team at Toyota built partnerships with suppliers. In effect, under the direction of Engineer Ohno, Toyota automobiles became made-to-order. By maximizing the
150

use of multi-skilled employees, the company was able to flatten their management structure and focus resources in a flexible manner. Because the company was able make changes quickly, they were often able to respond faster to market demands than their competitors could. It aims to combine the flexibility and quality of craftsmanship with the low costs of mass production Lean production is the name given to a group of highly efficient manufacturing techniques developed (mainly by large Japanese companies) in the 1980s and early 1990s. Lean production was seen as the third step in an historical progression, which took industry from the age of the craftsman through the methods of mass production and into an era that combined the best of both. It has been described as the most fundamental change to occur since mass production was brought to full development by Henry Ford early in the 20th century. The methods of lean production aim to combine the flexibility and quality of craftsmanship with the low costs of mass production. In lean-production systems a manufacturer's employees are organized in teams. Within each team a worker is expected to be able to do all the tasks required of the team. These tasks are less narrowly specialized than those demanded of the worker in a mass-production system, and this variety enables the worker to escape from the soul-destroying repetition of the pure assembly line. With lean production, components are delivered to each team's work station justin-time, and every worker is encouraged to stop production when a fault is discovered. This is a critical distinction from the classic assembly-line process, where stoppages are expensive and to be avoided at all costs. Faulty products are put to one side to be dealt with later, and a large stock of spares is kept on hand so

151

faulty components can be replaced immediately without causing hold-ups. With such a system, workers on the assembly line learn nothing and the faults persist. When a lean-production system is first introduced, stoppages generally increase while problems are ironed out. Gradually, however, there are fewer stoppages and fewer problems. In the end, a mature lean-production line stops much less frequently than a mature mass-production assembly line. Lean production gains in another way too. In typical assembly-line operations, design is farmed out to specialist outsiders or to a separate team of insiders. Gaining feedback from both the production-line workers and the component suppliers is a long and awkward process. With lean production, designers work hand-in-hand with production workers and suppliers. There is a continuous twoway interchange. Snags can be ironed out immediately and machine tools adapted on the hoof. With the assembly-line model, the communication is linear. Lean-production methods have been introduced by many companies without sacrificing economies of scale. Japanese car manufacturers have achieved unit costs of production well below those of more traditionally organised European and American manufacturers with twice their volume. These same Japanese companies have also been leaders in the speed and efficiency of new product design, a crucial skill in a world where time to market is an important competitive lever. According to Michael Cusumano, who wrote a book on the Japanese car industry, the high productivity achieved by the lean-production methods of Japan's car manufacturers depends not as some have maintained on a peculiarity of Japanese culture or of Japanese workers, but on technology and management. PRINCIPLES OF LEAN PRODUCTION Lean development can be summarized by seven principles, very close in concept to lean manufacturing principles:
152

1. Eliminate waste 2. Amplify learning 3. Decide as late as possible 4. Deliver as fast as possible 5. Empower the team 6. Build integrity in 7. See the whole Eliminate waste Everything not adding value to the customer is considered to be waste (muda). This includes:

unnecessary code and functionality delay in development process unclear requirements insufficient testing, leading to avoidable process repetition bureaucracy slow internal communication

In order to be able to eliminate waste, one should be able to recognize it. If some activity could be bypassed or the result could be achieved without it, it is waste. Partially done coding eventually abandoned during the development process is waste. Extra processes and features not often used by customers are waste. Waiting for other activities, teams, processes is waste. Defects and lower quality are waste. Managerial overhead not producing real value is waste. A value stream mapping technique is used to distinguish and recognize waste. The second step is to point out sources of waste and eliminate them. The same should be done iteratively until even essential-seeming processes and procedures are liquidated. Amplify learning The learning process is sped up by usage of short iteration cycles each one coupled with refactoring and integration testing. Increasing feedback via short feedback sessions with customers helps when determining the current phase of development and adjusting efforts for future improvements. During those short sessions both customer representatives and the development team learn more about the domain problem and figure out possible solutions for further development. Thus the customers better understand their needs, based on the existing result of development efforts, and the developers learn how to better satisfy those needs. Another idea in the communication and learning process with a customer is set153

based development this concentrates on communicating the constraints of the future solution and not the possible solutions, thus promoting the birth of the solution via dialogue with the customer. Decide as late as possible As software development is always associated with some uncertainty, better results should be achieved with an options-based approach, delaying decisions as much as possible until they can be made based on facts and not on uncertain assumptions and predictions. The more complex a system is, the more capacity for change should be built into it, thus enabling the delay of important and crucial commitments. The iterative approach promotes this principle the ability to adapt to changes and correct mistakes, which might be very costly if discovered after the release of the system. An agile software development approach can move the building of options earlier for customers, thus delaying certain crucial decisions until customers have realized their needs better. This also allows later adaptation to changes and the prevention of costly earlier technology-bounded decisions. This does not mean that no planning should be involved on the contrary, planning activities should be concentrated on the different options and adapting to the current situation, as well as clarifying confusing situations by establishing patterns for rapid action. Evaluating different options is effective as soon as it is realized that they are not free, but provide the needed flexibility for late decision making. Deliver as fast as possible In the era of rapid technology evolution, it is not the biggest that survives, but the fastest. The sooner the end product is delivered without considerable defect, the sooner feedback can be received, and incorporated into the next iteration. The shorter the iterations, the better the learning and communication within the team. Without speed, decisions cannot be delayed. Speed assures the fulfilling of the customer's present needs and not what they required yesterday. This gives them the opportunity to delay making up their minds about what they really require until they gain better knowledge. Customers value rapid delivery of a quality product. Empower the team There has been a traditional belief in most businesses about the decision-making in the organization the managers tell the workers how to do their own job. In a Work-Out technique, the roles are turned the managers are taught how to listen to the developers, so they can explain better what actions might be taken, as well as provide suggestions for improvements. The lean approach favors the aphorism
154

"find good people and let them do their own job," encouraging progress, catching errors, and removing impediments, but not micro-managing. Another mistaken belief has been the consideration of people as resources. People might be resources from the point of view of a statistical data sheet, but in software development, as well as any organizational business, people do need something more than just the list of tasks and the assurance that they will not be disturbed during the completion of the tasks. People need motivation and a higher purpose to work for purpose within the reachable reality, with the assurance that the team might choose its own commitments. The developers should be given access to the customer; the team leader should provide support and help in difficult situations, as well as ensure that skepticism does not ruin the teams spirit. Build integrity in The customer needs to have an overall experience of the System this is the so called perceived integrity: how it is being advertised, delivered, deployed, accessed, how intuitive its use is, price and how well it solves problems. Conceptual integrity means that the systems separate components work well together as a whole with balance between flexibility, maintainability, efficiency, and responsiveness. This could be achieved by understanding the problem domain and solving it at the same time, not sequentially. The needed information is received in small batch pieces not in one vast chunk with preferable face-to-face communication and not any written documentation. The information flow should be constant in both directions from customer to developers and back, thus avoiding the large stressful amount of information after long development in isolation. See the whole Lean thinking has to be understood well by all members of a project, before implementing in a concrete, real-life situation. "Think big, act small, fail fast; learn rapidly" these slogans summarize the importance of understanding the field and the suitability of implementing lean principles along the whole software development process. All of the lean principles are implemented together, combined with strong "common sense" with respect to the working environment leads to success. RULES OF LEAN PRODUCTION
155

The ten rules of lean production can be summarized: 1. Eliminate waste 2. Minimize inventory 3. Maximize flow 4. Pull production from customer demand 5. Meet customer requirements 6. Do it right the first time 7. Empower workers 8. Design for rapid changeover 9. Partner with suppliers 10. Create a culture of continuous improvement (Kaizen)

LEAN IMPLEMENTATION DEVELOPS FROM TPS The discipline required to implement Lean and the disciplines it seems to require are so often counter-cultural that they have made successful implementation of Lean a major challenge. Some would say that it was a major challenge in its manufacturing 'heartland' as well. Implementations under the Lean label are numerous and whether they are Lean and whether any success or failure can be laid at Lean's door is often debatable. Individual examples of success and failure exist in almost all spheres of business and activity and therefore cannot be taken as indications of whether Lean is particularly applicable to a specific sector of activity. It seems clear from the "successes" that no sector is immune from beneficial possibility.

Lean is about more than just cutting costs in the factory. One crucial insight is that most costs are assigned when a product is designed, (see Genichi Taguchi). Often an engineer will specify familiar, safe materials and processes rather than inexpensive, efficient ones. This reduces project risk, that is, the cost to the engineer, while increasing financial risks, and

156

decreasing profits. Good organizations develop and review checklists to review product designs.

Companies must often look beyond the shop-floor to find opportunities for improving overall company cost and performance. At the system engineering level, requirements are reviewed with marketing and customer representatives to eliminate those requirements that are costly. Shared modules may be developed, such as multipurpose power supplies or shared mechanical components or fasteners. Requirements are assigned to the cheapest discipline. For example, adjustments may be moved into software, and measurements away from a mechanical solution to an electronic solution. Another approach is to choose connection or power-transport methods that are cheap or that used standardized components that become available in a competitive market.

LEAN LEADERSHIP The role of the leaders within the organization is the fundamental element of sustaining the progress of lean thinking. Experienced kaizen members at Toyota, for example, often bring up the concepts of Senpai, Kohai, and Sensei, because they strongly feel that transferring of Toyota culture down and across Toyota can only happen when more experienced Toyota Sensei continuously coach and guide the less experienced lean champions.

One of the dislocative effects of Lean is in the area of key performance indicators (KPI). The KPIs by which a plant/facility are judged will often be
157

driving behaviour, because the KPIs themselves assume a particular approach to the work being done. This can be an issue where, for example a truly Lean, Fixed Repeating Schedule (FRS) and JIT approach is adopted, because these KPIs will no longer reflect performance, as the assumptions on which they are based become invalid. It is a key leadership challenge to manage the impact of this KPI chaos within the organization.

Similarly, commonly used accounting systems developed to support mass production are no longer appropriate for companies pursuing Lean. Lean Accounting provides truly Lean approaches to business management and financial reporting.

After formulating the guiding principles of its lean manufacturing approach in the Toyota Production System (TPS), Toyota formalized in 2001 the basis of its lean management: the key managerial values and attitudes needed to sustain continuous improvement in the long run. These core management principles are articulated around the twin pillars of Continuous Improvement (relentless elimination of waste) and Respect for People (engagement in long term relationships based on continuous improvement and mutual trust).

This formalization stems from problem solving. As Toyota expanded beyond its home base for the past 20 years, it hit the same problems in getting TPS properly applied that other western companies have had in copying TPS. Like any other problem, it has been working on trying a series of countermeasures to solve this particular concern. These countermeasures have focused on culture: how people behave, which is the most difficult challenge of all. Without the proper behavioral principles and values, TPS can be totally misapplied and fail to deliver results. As with TPS, the values
158

had originally been passed down in a master-disciple manner, from boss to subordinate, without any written statement on the way. Just as with TPS, it was internally argued that formalizing the values would stifle them and lead to further misunderstanding. However, as Toyota veterans eventually wrote down the basic principles of TPS, Toyota set to put the Toyota Way into writing to educate new joiners. Continuous Improvement breaks down into three basic principles: 1.Challenge: Having a long term vision of the challenges one needs to face to realize one's ambition (what we need to learn rather than what we want to do and then having the spirit to face that challenge). To do so, we have to challenge ourselves every day to see if we are achieving our goals. 2.Kaizen: Good enough never is, no process can ever be thought perfect, so operations must be improved continuously, striving for innovation and evolution. 3.Genchi Genbutsu: Going to the source to see the facts for oneself and make the right decisions, create consensus, and make sure goals are attained at the best possible speed.

LEAN SERVICES Lean, as a concept or brand, has captured the imagination of many in different spheres of activity. Examples of these from many sectors are listed below.

Lean principles have been successfully applied to call center services to improve live agent call handling. By combining Agent-assisted Automation and Lean's waste reduction practices, a company reduced handle

159

time, reduced between agent variability, reduced accent barriers, and attained near perfect process adherence. Lean principles have also found application in software application development and maintenance generally, and the other use of areas Lean of information in information technology (IT). More

technology has become known as Lean IT. The challenge in moving Lean to services is the lack of widely available reference implementations to allow people to see how directly applying lean manufacturing tools and practices can work and the impact it does have. This makes it more difficult to build the level of belief seen as necessary for strong implementation. However, some research does relate widely recognized examples of success in retail and even airlines to the underlying principles of lean. Despite this, it remains the case that the direct manufacturing examples of 'techniques' or 'tools' need to be better 'translated' into a service context to support the more prominent approaches of implementation, which has not yet received the level of work or publicity that would give starting points for implementers. LEAN GOALS AND STRATEGY The espoused goals of Lean manufacturing systems differ between various authors. While some maintain an internal focus, e.g. to increase profit for the organization, others claim that improvements should be done for the sake of the customer. Some commonly mentioned goals are: Improve quality: To stay competitive in today's marketplace, a company must understand its customers' wants and needs and design processes to meet their expectations and requirements.

160

Eliminate waste: Waste is any activity that consumes time, resources, or space but does not add any value to the product or service. See Types of waste, above. Taking the first letter of each waste, the acronym "TIM WOOD" is formed. This is a common way to remember the wastes. Reduce time: Reducing the time it takes to finish an activity from start to finish is one of the most effective ways to eliminate waste and lower costs. Reduce total costs: To minimize cost, a company must produce only to customer demand. Overproduction increases a companys inventory costs because of storage needs. The strategic elements of Lean can be quite complex, and comprise multiple elements. Four different notions of Lean have been identified: 1.Lean as a fixed state or goal (Being Lean) 2.Lean as a continuous change process (Becoming Lean) 3.Lean as a set of tools or methods (Doing Lean/Toolbox Lean) 4.Lean as a philosophy (Lean thinking)

STEPS TO ACHIEVE LEAN SYSTEMS The following steps should be implemented to create the ideal lean manufacturing system: 1.Design a simple manufacturing system 2.Recognize that there is always room for improvement 3.Continuously improve the lean manufacturing system design

DESIGN A SIMPLE MANUFACTURING SYSTEM

A fundamental principle of lean manufacturing is demand-based flow manufacturing. In this type of production setting, inventory is only pulled
161

through each production center when it is needed to meet a customer's order. The benefits of this goal include: 1.decreased cycle time 2.less inventory 3.increased productivity 4.increased capital equipment utilization

There is always room for improvement The core of lean is founded on the concept of continuous product and process improvement and the elimination of non-value added activities. "The Value adding activities are simply only those things the customer is willing to pay for, everything else is waste, and should be eliminated, simplified, reduced, or integrated" (Rizzardo, 2003). Improving the flow of material through new ideal system layouts at the customer's required rate would reduce waste in material movement and inventory. Continuously improve A continuous improvement mindset is essential to reach the company's goals. The term "continuous improvement" means incremental improvement of products, processes, or services over time, with the goal of reducing waste to improve workplace functionality, customer service, or product performance . Measure Overall equipment effectiveness (OEE) is a set of performance metrics that fit well in a Lean environment. Implementation pitfalls One criticism of lean perennially heard among rank-and-file workers is that lean practitioners may easily focus too much on the tools and methodologies of lean, and fail to focus on the philosophy and culture of lean. The
162

implication of this for lean implementers is that adequate command of the subject is needed in order to avoid failed implementations.

ACTIVITY 1. With examples explain how lean manufacturing differs from lean services 2. Lean is about more than just cutting costs in the factory-Explain it with examples SUMMARY Lean production is a Japanese approach to management that focuses on cutting out waste, whilst ensuring quality. This approach can be applied to all aspects of a business from design, through production to distribution. Lean production aims to cut costs by making the business more efficient and responsive to market needs.The most important aspects of lean production are Just in time production (JIT), Cell production, Kaizen (Continuous improvement), Quality Circles, Total Quality Management (TQM) and zero defect production.Lean principles are derived from the Japanese manufacturing industry. The term was first coined by John Krafcik in his 1988 article, "Triumph of the Lean Production System," based on his master's thesis at the MIT Sloan School of Management. Lean implementation is focused on getting the right things to the right place at the right time in the right quantity to achieve perfect work flow, while minimizing waste and being flexible and able to change. Lean aims to make the work simple enough to understand, do and manage. Lean production is an assembly-line methodology developed originally for Toyota and the manufacturing of automobiles. It is also known as the Toyota Production System or just-in-time production. Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any

163

goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Lean manufacturing is a variation on the theme of efficiency based on optimizing flow; it is a present-day instance of the recurring theme in human history toward increasing efficiency, decreasing waste, and using empirical methods to decide what matters, rather than uncritically accepting pre-existing ideas. Engineer Taiichi Ohno is credited with developing the principles of lean production after World War II. His philosophy, which focused on eliminating waste and empowering workers, reduced inventory and improved productivity. The methods of lean production aim to combine the flexibility and quality of craftsmanship with the low costs of mass production. In lean-production systems a manufacturer's employees are organized in teams. Within each team a worker is expected to be able to do all the tasks required of the team. When a lean-production system is first introduced, stoppages generally increase while problems are ironed out. Lean-production methods have been introduced by many companies without sacrificing economies of scale. Lean development can be summarized by seven principles, very close in concept to lean manufacturing principles :They are Eliminating waste, Amplify learning, Decide as late as possible, Deliver as fast as possible, Empower the team, Build integrity in and See the whole. Lean is about more than just cutting costs in the factory. Companies must often look beyond the shop-floor to find opportunities for improving overall company cost and performance. The role of the leaders within the organization is the fundamental element of sustaining the progress of lean thinking. Lean, as a concept or brand, has captured the imagination of many in different spheres of activity. Examples of these from many sectors are listed below. Lean principles have been successfully applied to call center services to improve live agent call handling. Lean principles have also found application in software application development and maintenance and other areas of information
164

technology (IT). More generally, the use of Lean in information technology has become known as Lean IT.A fundamental principle of lean manufacturing is demand-based flow manufacturing. In this type of production setting, inventory is only pulled through each production center when it is needed to meet a customer's order.

REVIEW QUESTIONS 1. Discuss the origin of Lean production 2. Explain the basic concepts of Lean production 3. Explain the basic Principles of lean 4. Explain the Rules of lean 5. Write short notes on i) Lean leadership ii) Lean services 6. What are the goals of lean 7. Explain the steps to achieve lean system 8. What are the benefits of lean manufacturing

165

CHAPTER-XI AGILE MANUFACTURING

Learning Outcomes
After reading this chapter, the students should

Understand the concepts of Agility Know the significance of Agile manufacturing examine the key attributes of agility know the development and definitions of agile manufacturing analyse the pros and cons of agile differentiate between agile and world class manufacturing differentiate between agile and lean know about agile supply chain

166

STRUCTURE

11.1 Overview of Agility 11.2 Concepts of agility 11.3 Significance of Agile manufacturing 11.4 Key attributes of agility 11.5 Development and definitions of agile manufacturing 11.6 Pros and cons of agile 11.7 Difference between agile and world class manufacturing 11.8 Difference between agile and lean 11.9 Agile supply chain

Summary Review Questions

11.1 OVERVIEW Agility, as a manufacturing strategy, provides enterprises with the capability to capitalise on dynamic and continuous changes in the business environment proactively and reactively. Traditionally, agility is considered as a holistic concept. Agility may be considered as an ability to cope with rapid change. Kidd , in 1944, noted that '.... agile manufacturing can be considered as the integration of organisation, highly skilled and knowledgeable people and advanced technologies to achieve co-operation and innovation in response to the need to supply our customers with high quality, customised products'.

167

Agile Manufacturing (AM) has gained increasing attention from the manufacturing enterprises to deal with todays hypercompetitive market environment. Given the significant investment in manufacturing operating systems, an investigation of how AM operations can contribute to the industry best performance and competitiveness is essential for its justification.

Agile manufacturing as it continues to search for an enduring definition, has been put forward as the 21st century manufacturing paradigm. It is seen as an advance on Lean manufacturing and as another step in the search for the manufacturing equivalent of the Unification Theory, where one concept covers all eventualities. Lean and Agile manufacturing are indeed differing concepts and that contingency factors drive manufacturing companies along a continuum from the traditional paradigm towards agility. If manufacturing is indeed on the verge of a paradigm shift then successful companies operating in an economically disadvantaged region should exhibit the features of the new paradigm. Significant findings of this paper are that agility is multi-dimensional, multi-discipline and that not all roads to agility necessarily have to go through Lean.

Agile manufacturing is a term applied to an organization that has created the processes, tools, and training to enable it to respond quickly to customer needs and market changes while still controlling costs and quality. An enabling factor in becoming an agile manufacturer has been the development of manufacturing support technology that allows the marketers, the designers and the production personnel to share a common database of parts and products, to share data on production capacities and problems particularly where small initial problems may have larger downstream effects. It is a general proposition of manufacturing that the cost of correcting quality issues increases as the problem moves downstream, so that it is cheaper to correct quality problems at the earliest possible point in the process. Agile manufacturing is seen as the next step after Lean manufacturing in the evolution of production methodology. The key difference between the two is like between a thin and an athletic person, agile being the latter. One can be neither, one or both. In manufacturing theory, being both is often referred to as leagile. According to Martin Christopher, when companies have to decide what to be, they have to look at the Customer Order Cycle (the time the customers are willing to wait) and the lead time for getting supplies. If the supplier has a short lead time, lean production is possible. If the COC is short, agile production is beneficial.

168

11.2 CONCEPT OF AGILITY The original concept of agility was popularised in 1991 by the Iaccoca Institute of Lehigh University in USA (Kidd, 1994). The concept builds on the enduring features of previous paradigms of manufacturing from Taylorism, through, inter alia, MRP, JIT, WCM, OPT, TQM to Supply Chain Management and Lean manufacturing .The underpinning principles of agility comprise; delivering value to the customer; being ready for change; valuing human knowledge and skills; and forming virtual partnerships. The first three of these are also attributes of lean manufacturing. It is through a thorough review of the lean manufacturing paradigm and particularly the limitations of it that agile emerges as an enhancement and subsequently as a paradigm shift in its own right. Agile manufacturing requires an enterprise wide view and embodies such concepts as being receptive to changes in the business environment, rapid formation of multi-company alliances and breaking out of the mass production mode by producing more highly customised products (Sheridan, 1996). While many of the principles are the same and both lean and agile paradigms draw from the same pool of practices and techniques, Dove (1999) defines the concept of agility as the ability to thrive in a time of uncertain, unpredictable and continuous change.

11.3 SIGNIFICANCE OF AGILE MANUFACTURING Agile manufacturing is a term applied to an organization that has created the processes, tools, and training to enable it to respond quickly to customer needs and market changes while still controlling costs and quality. Agility or Agile Manufacturing is a method of designing your process in such a ways so as to be able to respond to your customer needs for customized products faster and at a lower cost. Modern consumers want choice and service. What this means for manufacturers is more models, shorter life cycles, greater customization, and prompt product engineering. Most manufacturers in developed economies cannot compete on cost for standardized mass produced products. The internet enables consumers to customize products on line to fit their personal needs. An enabling factor in becoming an agile manufacturer has been the development of manufacturing support technology that allows the marketers, the designers and the production personnel to share a common database of parts and products, to share data on production capacities and problems particularly where small initial problems may have larger downstream effects. It is a general proposition

169

of manufacturing that the cost of correcting quality issues increases as the problem moves downstream, so that it is cheaper to correct quality problems at the earliest possible point in the process. Agile manufacturing is seen as the next step after Lean manufacturing in the evolution of production methodology. The key difference between the two is like between a thin and an athletic person, agile being the latter. One can be neither, one or both. In manufacturing theory, being both is often referred to as leagile. According to Martin Christopher, when companies have to decide what to be, they have to look at the Customer Order Cycle (the time the customers are willing to wait) and the leadtime for getting supplies. If the supplier has a short lead time, lean production is possible. If the COC is short, agile production is beneficial. 11.4 KEY ATTRIBUTES Goldman et al. suggest that Agility has four underlying components: delivering value to the customer; being ready for change; valuing human knowledge and skills; forming virtual partnerships. The first three of these are also attributes of lean manufacturing. 11.5 DEVELOPMENT AND DEFINITIONS OF AGILE MANUFACTURING Agility was coined as a concept in manufacturing by a group of researchers at the Iaccoca Institute, Lehigh University, USA in 1991. The thrust of the report by the group was to convey an industry-led vision for a possible profound shift in manufacturing paradigm. The view of agile manufacturing enterprise included components, infrastructure and operating mechanisms as well as identifying competitive foundation, characteristics, elements and enabling sub-systems of agility (Iaccoca Institute, 1991). The main drivers of agility include; Quality and speed to market; Widening customer choice and
Co re Co mp eten ce M an agemen t

Virtu al En terp ris e

Ag ile M a nu fac turing

Cap ab ility fo r Reco n fig u ratio n

170
Kn o wled g e-d riv en En terp ris e

expectation; Competitive priorities of responsiveness, new product introduction, delivery, flexibility, concern for the environment and international competitiveness . Agility has four underlying components; Delivering value to the customer; Being ready for change; Valuing human knowledge and skills; Forming virtual partnerships Figure 1. The core concepts of agility

The core concepts of agile manufacturing are outlined in Figure 1. The core competence management relates to the organisations workforce and products at the level of the individual and the organisation. Individual core competencies include skills, knowledge, attitude and expertise and have been described as the critical resource . A virtual enterprise can be formed in two ways: A large corporation can re-organise its business units, re-focus on core competencies and operate as a virtual enterprise. Small companies can come together and deliver the quality, scope and scale of products and services that they could not have provided individually. The capability for re-configuration can be accomplished by agile enterprises easily making a significant shift in focus, diversity, configuration and re-alignment of their businesses to take advantage of a window of opportunity. By organising to take advantage of speed to market, new product introductions and pro-activity. 11.6 PROS AND CONS OF AGILE MANUFACTURING Agile manufacturing is a business production strategy that uses modular parts and automation, rather than an assembly line model, to increase customer satisfaction by enabling goods to be produced and supplied faster and with greater customization. This production design has many benefits, including the ability to change product types quickly and the ability to maintain smaller inventory levels. Agile production also has drawbacks, however, like extensive preparation and high initial cost investment. Many production companies shift to an agile manufacturing model to better meet consumers' desire for instant gratification. The automation required to construct a product in an agile

manufacturing environment results in fast production times, better serving demand for a particular item. Retailers and distributors supplied by agile manufacturing processes will have a large stock of

171

desired products ready for consumers to purchase, rather than having to backorder items, which can frustrate excited shoppers. The agile manufacturing strategy employs a modular construction for all products; as a result, each product can be broken down into its individual modular components for easier customization or alteration. As it is often possible to avoid creating new designs and parts, production time and cost per unit tend to be lower in this form of manufacturing. An older product can be revamped into a new form; some examples might be changing the uniquely colored housing on a cell phone or adding a camera to an existing product.

Inventory levels are reduced significantly with this production method since most tasks are performed by machines; there are no extra pieces to be saved for later use from a manual manufacturing line. A smaller inventory results in lower supply fees and taxes, which directly reduces the cost of each product. This reduction in cost allows the final retail item to be sold at an extremely competitive price, leading to overall higher profits.

One of the main drawbacks to agile manufacturing is the preparation it requires. Each automated machine needs to be purchased and programmed for the specific modular production items. Suppliers, such as raw material companies, must be contractually bound to the production company to ensure that a constant stream of product is available for manufacturing processes. In addition, employees must be prepared by servicing the machines on a consistent basis to prevent any unexpected failures. Along with preparation, the initial start-up costs can be an obstacle. A company must spend a substantial amount of money to purchase machines and materials to begin the agile manufacturing process. Many businesses do not have the liquid assets available for such a large initial investment; however, for those that do, a successful production line will return the investment in a just a few years.

11.7 DIFFERENCE BETWEEN AGILE MANUFACTURING AND WORLD CLASS MANUFACTURING

Lean or world class manufacturing is being very good at doing the things you can control. Agile manufacturing deals with the things we can NOT control. Agility is the ability to thrive and prosper in an environment of constant and unpredictable change. Agility is not only to accommodate change but to relish the opportunities inherent within a turbulent environment. Here are some of the axioms of agile manufacturing: Everything is changing very fast and unpredictably. The market requires low volume, high quality, custom and specific products. These products have very short life-cycles and very short development and production lead times are required. Mass production is moribund. Customers want to be treated as individuals. This leads to a people intensive, relationship driven operation. Perfect quality and very high levels of service are expected and required. Products and services become informationrich.

172

The swift trend towards a multiplicity of finished products with short development and production lead times has lead many companies into problems with inventories, overheads, and efficiencies. They are trying to apply the traditional mass-production approach without realizing that the whole environment has changed. Mass production does not apply to products where the customers require small quantities of highly custom, design-to-order products, and where additional services and value-added benefits like product upgrades and future reconfigurations are as important as the product itself. While it is difficult for many people to accept that mass production must be replaced with new approaches, there are many telling signs. The proliferation of finished products; the rapidly increasing introduction of new products; short product life cycles; the customer demand for products that specifically address their needs. All these trends negate the fundamental ideas of mass production that have served western industry so well for decades. Even world class manufacturing and best practice approaches are based upon the time-honored concepts of mass production of standard products. The famed Toyota Production System (TPS) has two kinds of products; type A and type B. Type A is a standard product and type B is custom product. Practitioners of TPS strive hard to eliminate type B parts and products because they do not fit the concepts of one piece part flow and rate-based schedules . An agile approach to manufacturing faces the reality that we must serve customers. With small quantities of custom designed parts with perfect quality, 100% on-time delivery, and at very low cost. To approach agile manufacturing requires that the company already be world class and using lean manufacturing methods. These changes are more apparent in some industries that others. In the consumer electronics and automotive industries the need for agility is most apparent. New products are coming very fast. The range of products is increasing at an astonishing level. The customers and the markets are becoming continuously more fragmented and specialized. Only the innovative and agile companies will survive these changes. All of these trends lead away from the old ideas of large factories making huge quantities of relatively few standard products. Other industries will need a few more years before these changes begin to bite, but already the pharmaceutical industry, the metals industries, garments, industries supplies, and many others are seeing the start of these trends through product proliferation and increased customer requirements for custom products. Here are some of the important aspects of agile manufacturing; customer prosperity, people and information, cooperation within and between firms, and fitting a company for change.

11.8 DIFFERENCE BETWEEN LEAN AND AGILE There are many differences between lean and agile manufacturing, including production style, inventory levels, and customization abilities. A lean manufacturing technique is based on the mass assembly line strategy with a mixture of employees and machines creating products from the smallest components to the larger outside assemblies. In contrast, agile manufacturing depends mainly on production automation and modular pieces to form a desired product.

173

One main difference between lean and agile manufacturing is production configuration. Lean manufacturing relies heavily on employees to physically construct a part or group of parts; that product portion is passed to another employee for attachment of additional components. Automated machines may be added along the employee assembly line for more precise manufacturing, such as aligning electronic components on a printed circuit board (PCB). By comparison, agile manufacturing uses automation as its main production strategy. The number of employees is reduced, to save on labour costs; the workers that remain along the production line are normally present to adjust or repair the robotic machines when necessary, rather than to physically create a product. As a result, the manufacturing line is efficient and cost effective for the business and consumers.
Inventory levels vary greatly between lean and agile manufacturing. Lean manufacturing requires numerous small parts, from washers to screws, to construct a product; the abundance of various parts contributes to high inventory storage fees. In contrast, agile manufacturing depends on a modular part construction. This standardized part structure allows different products to be made with the same few modules held in inventory which contributes to lower supply levels. Lean and agile manufacturing processes also differ in terms of how easily products can be customized under each system. Changing any part of a product in lean production to customize its operation or appearance requires a redesign of the internal and external parts, as well as generating prototypes to verify functionality. Customized products are extremely expensive due to the high costs of this research and design. Additionally, the production line is interrupted while updating it to produce the customized product, which negatively impacts normal manufacturing times and costs. In contrast, agile production can accommodate customized product orders since the modular construction can be altered quickly. The production line simply needs to adapt or add new modules to the existing product. As a result, the consumer can acquire a competitively priced custom product without impeding the normal business production line. Many consumers will seek out products from companies that can specialize in this manner. Both lean and agile manufacturing processes can satisfy customer needs, but with a direct effect on final product cost.

11.9 AGILE SUPPLY CHAIN

An agile supply chain is a chain of supply that is capable of responding to changing needs in a manner that expedites delivery of ordered goods to customers. In general, supply chain agility is a trait that many companies look for when selecting vendors, since a retail supply chain that is flexible and able to quickly respond to emergency needs can in turn help the business respond more efficiently to its customers. Along with flexibility, speed and accuracy are also hallmarks of a truly agile supply chain.

174

In order to understand the benefits of an agile supply chain, it is first important to understand the components found in any type of chain of supply. These include elements such as order collection and processing, inventory of materials to create the goods used to fill orders, packaging and transport of finished goods, and the quality of customer service that is exhibited throughout the process from the point of sale to the actual delivery and beyond. In order for the supply chain operations to be considered agile, each one of these components must be managed efficiently, and organized in a manner that makes it possible to adapt to changing circumstances. With an agile supply chain, vendors are able to respond to shifts in customer needs with relatively little time required. For example, if a client has already placed a sizable order but finds that the items are needed a week before the projected delivery date, a vendor with a truly agile supply chain will be able to accommodate that change in the customers circumstances, at least in part. Working together, the vendor and the customer develop a strategy to allow the delivery of as much of the order as possible within the new time frame required. At times, this may require creative thinking on the part of the vendor, as well as the demonstration in some flexibility in terms of scheduling production time, selecting shippers, and generally looking closely at each step in the order fulfillment process to find ways to minimize the time needed to successfully complete those tasks and comply with the customers request. It is important to note that while an agile supply chain is a very attractive feature, attempting to be too flexible can actually damage a business. For this reason, many companies do initiate policies and procedures designed to prevent situations that could endanger the overall operation and its relationship with the entire client base. This sometimes means invoking order minimums that must be in place in order to qualify for expedited shipping, assessing additional charges for early delivery, or similar deterrents that prevent customers from constantly expecting service levels beyond what is considered standard. ACTIVITY 1. Lean and Agile manufacturing differ in concepts-Justify 2. What are the main drivers of agility? SUMMARY Many industries and markets are increasingly requiring much greater flexibility and timeliness from their manufacturers. The need to manufacture small quantities of highly customized products with perfect quality and 100% on-time delivery, and at a low cost is forcing companies to abandon the old ideas of mass production; even lean or world class mass production. To compete in this changing and unpredictable marketplace, and to thrive upon it, these companies are adopting agile manufacturing methods. These methods require highly integrated and flexible technologies of production; not necessarily high-tech methods, but highly capable. To adequately address their customers fast changing and focused needs, the company's people must be very highly educated and trained, and significantly empowered within the constraints of a clear vision and delineated company principles and goals. The company itself must have the ability to effect change rapidly, have highly flexible management structures, and comprehensive methods of introducing change and prospering from it. There must also be a mechanism for readily creating informal alliances with other companies and organizations - even competitors - to design and produce products and service that address the needs of the customers and the emerging marketplace. These changes are

175

taking place very fast in some industries, and more slowly in others. But the companies that will meet the challenges of the ever-changing global marketplace of the twenty-first century are those that are able to become agile in every aspect of their business. Agility is not a "magic wand" to solve all ills. It is built upon the firm foundation of world class or lean manufacturing methods, coupled with an organization that is physically, technologically, and managerial established for rapid and unpredictable change.

REVIEW QUESTIONS
1. 2. 3. 4. 5. 6. 7. 8. Explain the basic concepts of agility? Discuss the significance of agile manufacturing What are the key attributes of agility? Explain the core components for development of agile manufacturing with a neat sketch What are the pros and cons of agile manufacturing? Differentiate between lean and agile Differentiate between agile and world class manufacturing What is an agile supply chain?

176

CHAPTER-XII FLEXIBLE MANUFACTURING SYSTEM Learning Outcomes After reading this chapter the students should
Understand the meaning for flexibility Classify various approaches of flexibility Discuss the evolution of FMS Define flexible manufacturing system Understand the significance of FMS explain Industrial Flexible manufacturing system know the core elements of Flexible manufacturing system classify the different levels of FMS list out the advantages and disadvantages of FMS STRUCTURE Introduction to FMS Flexibility concept-Different approaches Evolution of FMS Definition of flexible manufacturing system Significance of FMS Industrial Flexible manufacturing system Core elements of Flexible manufacturing system Different levels of FMS ? Advantages and disadvantages of FMS implementation SUMMARY REVIEW QUESTIONS

12.1 INTRODUCTION

177

In the middle of the 1960s, market competition became more intense. During 1960 to 1970 cost was the primary concern. Later quality became a priority. As the market became more and more complex, speed of delivery became something customer also needed. A new strategy was formulated: Customizability. The companies have to adapt to the environment in which they operate, to be more flexible in their operations and to satisfy different market segments (customizability). Thus the innovation of FMS became related to the effort of gaining competitive advantage. First of all, FMS is a manufacturing technology. Secondly, FMS is a philosophy. "System" is the key word. Philosophically, FMS incorporates a system view of manufacturing. The buzz word for todays manufacturer is "agility". An agile manufacturer is one who is the fastest to the market, operates with the lowest total cost and has the greatest ability to "delight" its customers. FMS is simply one way that manufacturers are able to achieve this agility. An MIT study on competitiveness pointed out that American companies spent twice as much on product innovation as they did on process innovation. Germans and Japanese did just the opposite. In studying FMS, we need to keep in mind what Peter Drucker said: "We must become managers of technology not merely users of technology". Since FMS is a technology, well adjusted to the environmental needs, we have to manage it successfully. 12.2 FLEXIBILITY CONCEPT- DIFFERENT APPROACHES Today flexibility means to produce reasonably priced customized products of high quality that can be quickly delivered to customers. Different approaches to flexibility and their meanings are shown Table 1. Table 1

Approach

Flexibility meaning
178

Manufacturing

The capability of producing different parts without major retooling A measure of how fast the company converts its process (es) from making an old line of products to produce a new product The ability to change a production schedule, to modify a part, or to handle multiple parts The ability to efficiently produce highly customized and unique products The ability to exploit various dimension of speed of delivery The ability of a company to offer a wide variety of products to its customers The ability to rapidly increase or decrease production levels or to shift capacity quickly from one product or service to another

Operational

Customer Strategic

Capacity

12.3 EVOLUTION OF FMS- AN EXAMPLE OF TECHNOLOGY AND AN ALTERNATIVE LAYOUT

The idea of an FMS was proposed in England (1960s) under the name "System 24", a flexible machining system that could operate without human operators 24 hours a day under computer control. From the beginning the emphasis was on automation rather than the "reorganization of workflow". Early FMSs were large and very complex, consisting of dozens of Computer Numerical Controlled machines (CNC) and sophisticate material handling systems. They were very automated, very expensive and controlled by incredibly complex software. There were only a limited number of industries that could afford investing in a traditional FMS as described above. Currently, the trend in FMS is toward small versions of the traditional FMS, called flexible manufacturing cells (FMC). Today two or more CNC machines are considered a flexible cell and two ore more cells are considered a flexible manufacturing system.

179

Thus, a Flexible Manufacturing System (FMS) consists of several machine tools along with part and tool handling devices such as robots, arranged so that it can handle any family of parts for which it has been designed and developed.
12.4 DEFINITION OF 'FLEXIBLE MANUFACTURING SYSTEM - FMS'

A Flexible Manufacturing System is one that can be changed or adapted rapidly to manufacture different products or components at different volumes of production. Flexible manufacturing systems are usually seen at their most efficient when manufacturing components rather than finished products. A method for producing goods that is readily adaptable to changes in the product being manufactured, in which machines are able to manufacture parts and in the ability to handle varying levels of production. A flexible manufacturing system (FMS) gives manufacturing firms an advantage in a quickly changing manufacturing environment.
12.5 SIGNIFICANCE OF FLEXIBLE MANUFACTURING SYSTEM

A flexible manufacturing system (FMS) is a manufacturing system in which there is some amount of flexibility that allows the system to react in the case of changes, whether predicted or unpredicted. This flexibility is generally considered to fall into two categories, which both contain numerous subcategories. A flexible manufacturing system (FMS) is a type of industrial process that allows equipment to be used for more than one purpose, though they may be somewhat related. The equipment is often used to make customized parts, or make different parts for different models of product. This type of flexible manufacturing system may be changed by hand, but is more likely to be controlled by a computer, and changed through an entirely automated process.

The main goal of a flexible manufacturing system is to offer the speed needed to change with market conditions quickly, but not sacrifice any quality. Equipment that does this most effectively is likely designed for two or more purposes. While it may be possible to modify or retrofit some types of industrial equipment to do a job adequately, most flexible

manufacturing systems are designed for more than one purpose from the very outset.

Though the equipment for a flexible manufacturing system may initially be more expensive than traditional equipment, the overall goal is to reduce expenses. Manufacturers can save money by
180

using the same equipment to essentially perform two or more functions. With traditional equipment, manufacturing two different products may not only require different pieces of equipment, but also two different lines and perhaps two different facilities. Therefore, a flexible manufacturing system may reduce overhead, despite higher start-up costs initially. One of the most common examples of a flexible manufacturing system can be seen in the manufacturing of automobiles. Certain equipment is used to attach doors to a sedan. With just a few simple adjustments, that same line and equipment may be used to attach doors to a sport utility vehicle or some other type of vehicle. Often, the switchover can take place with very little disruption to the line, and may even happen during shifts.

In fact, the automobile industry can potentially save a substantial amount of money using a flexible manufacturing system. A report in 2004 indicated that Ford Motor Company saved approximately $2.5 billion US Dollars by putting flexible systems in at five manufacturing plants. The company estimated it can save at least half of the cost of manufacturing updated models using the systems.

In some cases, the machines may not only be used to produce or assemble different parts for different models, but to make customizations. These customizations, without a flexible system in place, would take much longer, and be much more expensive for the customer. Using machines with the ability to be flexible can not only speed the process up, but can improve customer satisfaction by bringing down the price.

A flexible manufacturing system (FMS) is an approach to arranging the production effort of a business so that it is possible to change or adapt manufacturing policies and procedures with relative ease. The idea behind this type of flexibility is often to allow the business to anticipate and shift priorities depending on innovations in technology or shifts in demand for the companys products. There are a number of benefits and liabilities associated with a flexible manufacturing system that should be considered before attempting to use this approach for company operations. One of the main benefits of a flexible manufacturing system is the change to adapt the operation to meet emerging demands for certain products by customers. Doing so can aid the business in capturing a significant market share and enjoying increased revenues for as long as the demand for those products remains in place. For example, a textile plant that operates with a flexible
181

manufacturing system may be able to quickly adapt carding and spinning machinery to accommodate the production of corduroy instead of terry cloth, if the general public begins to demand more clothing made with corduroy, then shift back to the production of terry cloth once the trend has subsided. Another advantage of a flexible manufacturing system is the chance to minimize labor costs during seasonal downturns, then increase the labor force during busy seasons. This approach can be achieved by cross training employees who can take on additional responsibilities during lean seasons, then turn a portion of those responsibilities over to part-time personnel during busy seasons. The end result is an efficient operation that still helps to keep the cost of production for each unit produced under a certain level. While there are a number of benefits to a flexible manufacturing system, there are also a few potential drawbacks that should be taken into consideration. Converting to this type of arrangement often has a significant up-front cost, since machinery may have to be modified to allow for an easier conversion of goods produced. This approach also often calls for changing the corporate culture, a process that can take a lot of time and result in some loss of efficiency in the short-term. Technological barriers may also slow the efforts to be more adaptable, requiring additional planning to overcome those obstacles and creating additional expense for the company. Before deciding that a flexible manufacturing system is the right option, company owners should weigh the benefits against the liabilities and decide if the effort will ultimately be in the best interests of the company. The first category, machine flexibility, covers the system's ability to be changed to produce new product types, and ability to change the order of operations executed on a part. The second category is called routing flexibility, which consists of the ability to use multiple machines to perform the same operation on a part, as well as the system's ability to absorb large-scale changes, such as in volume, capacity, or capability. Most FMS consist of three main systems. The work machines which are often automated CNC machines are connected by a material handling system to optimize parts flow and the central control computer which controls material movements and machine flow. The main advantages of an FMS is its high flexibility in managing manufacturing resources like time and effort in order to manufacture a new product. The best application of an FMS is found in the production of small sets of products like those from a mass production.
182

12.6 INDUSTRIAL FLEXIBLE MANUFACTURING SYSTEM

An Industrial Flexible Manufacturing System (FMS) consists of robots, Computer-controlled Machines, Numerical controlled machines (CNC), instrumentation devices, computers, sensors, and other stand alone systems such as inspection machines. The use of robots in the production segment of manufacturing industries promises a variety of benefits ranging from high utilization to high volume of productivity. Each Robotic cell or node will be located along a material handling system such as a conveyor or automatic guided vehicle. The production of each part or work-piece will require a different combination of manufacturing nodes. The movement of parts from one node to another is done through the material handling system. At the end of part processing, the finished parts will be routed to an automatic inspection node, and subsequently unloaded from the Flexible Manufacturing System.
12.7 CORE ELEMENTS OF FLEXIBLE MANUFACTURING

Meaning for flexibility While variations abound in what specifically constitutes flexibility, there is a general consensus about the core elements. There are three levels of manufacturing flexibility. (a) Basic flexibilities

Machine flexibility - the ease with which a machine can process various operations Material handling flexibility - a measure of the ease with which different part types can be transported and properly positioned at the various machine tools in a system

Operation flexibility - a measure of the ease with which alternative operation sequences can be used for processing a part type

(b) System flexibilities

Volume flexibility - a measure of a systems capability to be operated profitably at different volumes of the existing part types

Expansion flexibility - the ability to build a system and expand it incrementally Routing flexibility - a measure of the alternative paths that a part can effectively follow through a system for a given process plan

183

Process flexibility - a measure of the volume of the set of part types that a system can produce without incurring any setup

Product flexibility - the volume of the set of part types that can be manufactured in a system with minor setup

(c) Aggregate flexibilities

Program flexibility - the ability of a system to run for reasonably long periods without external intervention

Production flexibility - the volume of the set of part types that a system can produce without major investment in capital equipment

Market flexibility - the ability of a system to efficiently adapt to changing market conditions

12.8 DIFFERENT LEVELS OF FMS

Different FMSs levels are: Flexible Manufacturing Module (FMM). Example : a NC machine, a pallet changer and a part buffer; Flexible Manufacturing (Assembly) Cell (F(M/A)C). Example : Four FMMs and an AGV(automated guided vehicle); Flexible Manufacturing Group (FMG). Example : Two FMCs, a FMM and two AGVs which will transport parts from a Part Loading area, through machines, to a Part Unloading Area; Flexible Production Systems (FPS). Example : A FMG and a FAC, two AGVs, an Automated Tool Storage, and an Automated Part/assembly Storage; Flexible Manufacturing Line (FML). Example : multiple stations in a line layout and AGVs.
12.9 ADVANTAGES AND DISADVANTAGES OF FMS IMPLEMENTATION

Advantages

Faster, lower- cost changes from one part to another which will improve capital utilization
184

Lower direct labor cost, due to the reduction in number of workers Reduced inventory, due to the planning and programming precision Consistent and better quality, due to the automated control Lower cost/unit of output, due to the greater productivity using the same number of workers

Savings from the indirect labor, from reduced errors, rework, repairs and rejects

Disadvantages

Limited ability to adapt to changes in product or product mix (ex. machines are of limited capacity and the tooling necessary for products, even of the same family, is not always feasible in a given FMS)

Substantial pre-planning activity Expensive, costing millions of dollars Technological problems of exact component positioning and precise timing necessary to process a component

Sophisticated manufacturing systems

ACTIVITY 1. What are the main goals of FMS? 2. Mention some types of Flexible manufacturing line and Flexible production system SUMMARY

In the middle of the 1960s, market competition became more intense. During 1960 to 1970 cost was the primary concern. Later quality became a priority. As the market became more and more complex, speed of delivery became something customer also needed.A new strategy was formulated: Customizability. The companies have to adapt to the environment in which they operate, to be more flexible in their operations and to satisfy different market segments (customizability). Thus the innovation of FMS became related to the effort of gaining competitive advantage. Today flexibility means to produce reasonably priced customized products of high quality that can be quickly delivered to customers. The idea of an FMS was proposed in England (1960s) under the name "System 24", a flexible machining system that could operate without human operators 24 hours a day under computer control. The trend in FMS is toward small versions of the traditional FMS, called flexible
185

manufacturing cells (FMC). Today two or more CNC machines are considered a flexible cell and two ore more cells are considered a flexible manufacturing system. Thus, a Flexible Manufacturing System (FMS) consists of several machine tools along with part and tool handling devices such as robots, arranged so that it can handle any family of parts for which it has been designed and developed. A flexible manufacturing system (FMS) is a manufacturing system in which there is some amount of flexibility that allows the system to react in the case of changes, whether predicted or unpredicted. The main goal of a flexible manufacturing system is to offer the speed needed to change with market conditions quickly, but not sacrifice any quality. A flexible manufacturing system (FMS) is an approach to arranging the production effort of a business so that it is possible to change or adapt manufacturing policies and procedures with relative ease. One of the main benefits of a flexible manufacturing system is the change to adapt the operation to meet emerging demands for certain products by customers. Another advantage of a flexible manufacturing system is the chance to minimize labor costs during seasonal downturns, then increase the labor force during busy seasons. An Industrial Flexible Manufacturing System (FMS) consists of robots, Computer-controlled Machines, Numerical controlled machines (CNC), instrumentation devices, computers, sensors, and other stand alone systems such as inspection machines. There are three levels of manufacturing flexibility. (a) Basic flexibilities flexibilities and (c) Aggregate flexibilities . Different FMSs levels are Flexible Manufacturing Module (FMM). Flexible Manufacturing (Assembly) Cell (F(M/A)C). Flexible Manufacturing Group (FMG). Example Flexible Production Systems (FPS). Flexible Manufacturing Line (FML). (b) System

REVIEW QUESTIONS 1. What do you mean by flexibility? What are the various approaches of flexibility?

186

2. Discuss the evolution of FMS 3. Define flexible manufacturing system 4. Explain the significance of FMS 5. Explain Industrial Flexible manufacturing system 6. Explain the core elements of Flexible manufacturing system 7. What are the different levels of FMS ? 8. What are the advantages and disadvantages of FMS implementation ?

187

CHAPTER-XIII JUST IN TIME

Learning Outcomes

After reading this chapter, the students should

Define JIT Know about JIT Production List out the key elements of JIT Understand the philosophy of JIT Assess the effects of JIT Know the benefits of JIT Identify the problems of JIT Able to design JIT implementation

188

STRUCTURE

13.1 Overview of JIT 13.2 Definition of JIT 13.3 JIT Production 13.4 Key elements of JIT 13.5 Philosophy of JIT Transaction cost approach Environmental concerns Price volatility Quality volatility Demand stability Supply stability 13.6 Effects of JIT 13.7 Benefits of JIT 13.8 Problems of JIT 13.9 JIT implementation design Within a JIT System Within a raw material stream SUMMARY REVIEW QUESTIONS

13.1 OVERVIEW OF JIT Just in time (JIT) is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals or Kanban between different points in the process, which tell production when to make the next part. Kanban are usually 'tickets' but can be simple visual signals, such as the presence or absence of a part on a shelf. Implemented correctly, JIT focuses on continuous improvement and can improve a manufacturing organization's return on

189

investment, quality, and efficiency. To achieve continuous improvement key areas of focus could be flow, employee involvement and quality. Quick notice, which requires personnel to order new stock once existing stock is depleting, is critical to the inventory reduction at the center of the JIT policy, which saves warehouse space and costs. However, JIT relies on other elements in the inventory chain as well. For instance, its effective application cannot be independent of other key components of a lean

manufacturing system or it can "end up with the opposite of the desired result. In recent years manufacturers have continued to try to hone forecasting methods such as applying a trailing 13week average as a better predictor for JIT planning; however, some research demonstrates that basing JIT on the presumption of stability is inherently flawed.

13.2 DEFINITION OF 'JUST IN TIME - JIT' An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.

This method requires that producers are able to accurately forecast demand. A good example would be a car manufacturer that operates with very low inventory levels, relying on their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not arrive before nor after they are needed, rather they arrive just as they are needed.

This inventory supply system represents a shift away from the older "just in case" strategy where producers carried large inventories in case higher demand had to be met. 13.3 JUST-IN-TIME (JIT) PRODUCTION Just-in-time (JIT) is defined in the APICS dictionary as a philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity. It also has been described as an approach with the objective of producing the right part in the right place at the right time (in other words, just in time). Waste results from any activity that adds cost without adding value, such as the unnecessary moving of materials, the accumulation of excess inventory, or the use of faulty production methods that create products requiring subsequent rework. JIT should improve profits and return on investment by reducing inventory levels
190

(increasing the inventory turnover rate), reducing variability, improving product quality, reducing production and delivery lead times, and reducing other costs (such as those associated with machine setup and equipment breakdown). In a JIT system, underutilized (excess) capacity is used instead of buffer inventories to hedge against problems that may arise. JIT applies primarily to repetitive manufacturing processes in which the same products and components are produced over and over again. The general idea is to establish flow processes (even when the facility uses a jobbing or batch process layout) by linking work centers so that there is an even, balanced flow of materials throughout the entire production process, similar to that found in an assembly line. To accomplish this, an attempt is made to reach the goals of driving all inventory buffers toward zero and achieving the ideal lot size of one unit. The basic elements of JIT were developed by Toyota in the 1950's, and became known as the Toyota Production System (TPS). JIT was well-established in many Japanese factories by the early 1970's. JIT began to be adopted in the U.S. in the 1980's (General Electric was an early adopter), and the JIT/lean concepts are now widely accepted and used. 13.4 KEY ELEMENTS OF JIT 1. Stabilize and level the MPS with uniform plant loading (heijunka in Japanese): create a uniform load on all work centers through constant daily production (establish freeze windows to prevent changes in the production plan for some period of time) and mixed model assembly (produce roughly the same mix of products each day, using a repeating sequence if several products are produced on the same line). Meet demand fluctuations through end-item inventory rather than through fluctuations in production level. Use of a stable production schedule also permits the use of back flushing to manage inventory: an end items bill of materials is periodically exploded to calculate the usage quantities of the various components that were used to make the item, eliminating the need to collect detailed usage information on the shop floor. 2. Reduce or eliminate setup times: aim for single digit setup times (less than 10 minutes) or "one-touch" setup -- this can be done through better planning, process redesign, and product redesign. A good example of the potential for improved setup times can be found in auto racing, where a NASCAR pit crew can change all four tires and put gas in the tank in under 20 seconds. (How long would it take you to change just one tire on your car?) The pit crews
191

efficiency is the result of a team effort using specialized equipment and a coordinated, wellrehearsed process. 3. Reduce lot sizes (manufacturing and purchase): reducing setup times allows economical production of smaller lots; close cooperation with suppliers is necessary to achieve reductions in order lot sizes for purchased items, since this will require more frequent deliveries. 4. Reduce lead times (production and delivery): production lead times can be reduced by moving work stations closer together, applying group technology and cellular manufacturing concepts, reducing queue length (reducing the number of jobs waiting to be processed at a given machine), and improving the coordination and cooperation between successive processes; delivery lead times can be reduced through close cooperation with suppliers, possibly by inducing suppliers to locate closer to the factory. 5. Preventive maintenance: use machine and worker idle time to maintain equipment and prevent breakdowns. 6. Flexible work force: workers should be trained to operate several machines, to perform maintenance tasks, and to perform quality inspections. In general, JIT requires teams of competent, empowered employees who have more responsibility for their own work. The Toyota Production System concept of respect for people contributes to a good relationship between workers and management. 7. Require supplier quality assurance and implement a zero defects quality program: errors leading to defective items must be eliminated, since there are no buffers of excess parts. A quality at the source(jidoka) program must be implemented to give workers the personal responsibility for the quality of the work they do, and the authority to stop production when something goes wrong. Techniques such as "JIT lights" (to indicate line slowdowns or stoppages) and "tally boards" (to record and analyze causes of production stoppages and slowdowns to facilitate correcting them later) may be used. 8. Small-lot (single unit) conveyance: use a control system such as a kanban (card) system (or other signaling system) to convey parts between work stations in small quantities (ideally, one unit at a time). In its largest sense, JIT is not the same thing as a kanban system, and a kanban system is not required to implement JIT (some companies have instituted a JIT program along
192

with a MRP system), although JIT is required to implement a kanban system and the two concepts are frequently equated with one another.

13.5 PHILOSOPHY OF JIT The philosophy of JIT is simple: the storage of unused inventory is a waste of resources. JIT inventory systems expose hidden cost of keeping inventory, and are therefore not a simple solution for a company to adopt. The company must follow an array of new methods to manage the consequences of the change. The ideas in this way of working come from many different disciplines including statistics, industrial engineering, production management, and behavioral science. The JIT inventory philosophy defines how inventory is viewed and how it relates to management. Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say JIT is implemented without an awareness that removing inventory exposes pre-existing manufacturing issues. This way of working encourages businesses to eliminate inventory that does not compensate for manufacturing process issues, and to constantly improve those processes to require less inventory. Secondly, allowing any stock habituates management to stock keeping. Management may be tempted to keep stock to hide production problems. These problems include backups at work centers, machine reliability, process variability, lack of flexibility of employees and equipment, and inadequate capacity. In short, the Just-in-Time inventory system focus is having the right material, at the right time, at the right place, and in the exact amount, without the safety net of inventory. The JIT system has broad implications for implementers. Transaction cost approach JIT helps in keeping inventory to minimum in a firm. However, a firm may simply be outsourcing their input inventory to suppliers, even if those suppliers don't use Just-in-Time Newman (1994) investigated this effect and found that suppliers in Japan charged JIT customers, on average, a 5% price premium. Environmental concerns During the birth of JIT, multiple daily deliveries were often made by bicycle. Increased scale has required a move to vans and trucks . Cusumano (1994) highlighted the potential and actual

193

problems this causes with regard to gridlock and burning of fossil fuels. This violates three JIT waste guidelines: 1. Timewasted in traffic jams 2. Inventoryspecifically pipeline (in transport) inventory 3. Scrapfuel burned while not physically moving Price volatility JIT implicitly assumes a level of input price stability that obviates the need to buy parts in advance of price rises. Where input prices are expected to rise, storing inventory may be desirable. However, decision of storing higher inventory, which will mean higher intentory cost need to be weighed with increased cost due to volatility in prices. Quality volatility JIT implicitly assumes that input parts quality remains constant over time. If not, firms may hoard high-quality inputs. As with price volatility, a solution is to work with selected suppliers to help them improve their processes to reduce variation and costs. Longer term price agreements can then be negotiated and agreed-on quality standards made the responsibility of the supplier. Fixing up of standards for volatility of quality according to the quality circle Demand stability Karmarker (1989) highlights the importance of relatively stable demand, which helps ensure efficient capital utilization rates. Karmarker argues that without significantly stable demand, JIT becomes untenable in high capital cost production.

13.6 EFFECTS OF JIT A surprising effect was that factory response time fell to about a day. This improved customer satisfaction by providing vehicles within a day or two of the minimum economic shipping delay. Also, the factory began building many vehicles to order, eliminating the risk they would not be sold. This improved the company's return on equity. Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. This caused a quality assurance crisis, which led to a dramatic improvement in product quality. Eventually, Toyota redesigned every part of its vehicles to widen tolerances, while simultaneously implementing careful statistical controls for quality control. Toyota had to test
194

and train parts suppliers to assure quality and delivery. In some cases, the company eliminated multiple suppliers. When a process or parts quality problem surfaced on the production line, the entire production line had to be slowed or even stopped. No inventory meant a line could not operate from inprocess inventory while a production problem was fixed. Many people in Toyota predicted that the initiative would be abandoned for this reason. In the first week, line stops occurred almost hourly. But by the end of the first month, the rate had fallen to a few line stops per day. After six months, line stops had so little economic effect that Toyota installed an overhead pull-line, similar to a bus bell-pull, that let any worker on the line order a line stop for a process or quality problem. Even with this, line stops fell to a few per week. The result was a factory that has been studied worldwide. It has been widely emulated, but not always with the expected results, as many firms fail to adopt the full system. The just-in-time philosophy was also applied to other segments of the supply chain in several types of industries. In the commercial sector, it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment. Examples in sales, marketing, and customer service involve applying information systems and mobile hardware to deliver customer information as needed, and reducing waste by video conferencing to cut travel time. 13.7 BENEFITS OF JIT Main benefits of JIT include: Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of dies). The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management. Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed. Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by not having to pay workers overtime or by having them focus on other work or participate in training.

195

Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important. Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced. Minimizes storage space needed. Smaller chance of inventory breaking/expiring.

13.8 PROBLEMS Within a JIT system Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes. For internal reasons, Ohno saw this as a feature rather than a bug. He used an analogy of lowering the water level in a river to expose the rocks to explain how removing inventory showed where production flow was interrupted. Once barriers were exposed, they could be removed. Since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup downstream. A key tool to manage this weakness is production levelling to remove these variations. Just-in-time is a means to improving performance of the system, not an end. Very low stock levels means shipments of the same part can come in several times per day. This means Toyota is especially susceptible to flow interruption. For that reason, Toyota uses two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk because of the 1997 Aisin fire. However, since Toyota also makes a point of maintaining high quality relations with its entire supplier network, several other suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. Within a raw material stream As noted by Liker (2003) and Womack and Jones (2003), it ultimately would be desirable to introduce synchronized flow and link JIT through the entire supply stream. However, none followed this in detail all the way back through the processes to the raw materials. With present

196

technology, for example, an ear of corn cannot be grown and delivered to order. The same is true of most raw materials, which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery. The part of this currently viewed as impossible is the synchronized part of flow and the linked part of JIT. It is for the reasons stated raw materials companies decouple their supply chain from their clients' demand by carrying large 'finished goods' stocks. Both flow and JIT can be implemented in isolated process islands within the raw materials stream. The challenge becomes to achieve that isolation by some means other than carrying huge stocks, as most do today. Because of this, almost all value chains are split into a part made-to-forecast and a part that could, by using JIT, become make-to-order. Historically, the make-to-order part has often been within the retailer portion of the value chain. Toyota took Piggly Wiggly's supermarket replenishment system and drove it at least halfway through their automobile factories. Their challenge today is to drive it all the way back to their goods-inwards dock. Of course, the mining of iron and making of steel is still not connected to an order for a particular car. Recognizing JIT could be driven back up the supply chain has reaped Toyota huge benefits and a dominant position in the auto industry.

13.9 JIT IMPLEMENTATION DESIGN 1) F Design Flow Process F Redesign/relayout for flow L Reduce lot sizes O Link operations W Balance workstation capacity M Preventive maintenance S Reduce setup Times 2) Q Total Quality Control C worker compliance I Automatic inspection M quality measures M fail-safe methods
197

 W Worker participation

3) S Stabilize Schedule S Level schedule W Establish freeze windows UC Underutilize Capacity 4) K Kanban Pull System D Demand pull B Backflush L Reduce lot sizes 5) V Work with Vendors L Reduce lead time D Frequent deliveries U Project usage requirements Q Quality expectations 6) I Further Reduce Inventory in Other Areas S Stores T Transit C Implement carrousel to reduce motion waste C Implement conveyor belts to reduce motion waste

7) P Improve Product Design P Standard production configuration P Standardize and reduce the number of parts P Process design with product design Q Quality expectations
198

ACTIVITY 1.What do you mean by back flushing ? 2.What are the impact of JIT?

SUMMARY Just in time (JIT) is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costs. An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.

Just-in-time (JIT) is defined in the APICS dictionary as a philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity. It also has been described as an approach with the objective of producing the right part in the right place at the right time (in other words, just in time In a JIT system, underutilized (excess) capacity is used instead of buffer inventories to hedge against problems that may arise. JIT applies primarily to repetitive manufacturing processes in which the same products and components are produced over and over again. The basic elements of JIT were developed by Toyota in the 1950's, and became known as the Toyota Production System (TPS). JIT was well-established in many Japanese factories by the early 1970's. The key elements of JIT are 1. Stabilize and level the MPS with uniform plant 2. Reduce or eliminate setup times 3. Reduce lot sizes 4. Reduce lead times 5. Preventive maintenance: 6. Flexible work force: 7. Require supplier quality assurance and implement a zero defects quality program: 8. Small-lot (single unit) conveyance: The philosophy of JIT is simple: the storage of unused inventory is a waste of resources. The JIT inventory philosophy defines how inventory is viewed and how it relates to management. The Just-in-Time inventory system focus is having the right material, at the right time, at the right place, and in the exact amount, without the safety net of inventory.

199

Main benefits of JIT include: Reduced setup time, The flow of goods from warehouse to shelves improve, Employees with multiple skills are used more efficiently. Production scheduling and work hour consistency synchronized with demand, Increased emphasis on supplier relationships , Supplies come in at regular intervals throughout the production day, Minimizes storage space needed and Smaller chance of inventory breaking/expiring. Just-in-time operation leaves suppliers and downstream consumers open to supply shocks and large supply or demand changes. JIT can be implemented in isolated process islands within the raw materials stream. The challenge becomes to achieve that isolation by some means other than carrying huge stocks, as most do today.

REVIEW QUESTIONS 1. Define JIT 2.Explain JIT Production system 3. What are the key elements of JIT ? 4. Discuss the philosophy of JIT 5. What are the effects of JIT? 6. What are the benefits of JIT 7. What are the problems of JIT ? 8. Explain JIT implementation design

200

CHAPTER-XIV TOYOTA PRODUCTION SYSTEM Learning Outcomes After reading the chapter the students should Know the evolution of TPS List out the goals of TPS Understand the origin of TPS List out the principles of TPS Know about the brief history of waste reduction thinking List out the types of wastes Know how to implement TPSs Know the results of implementing TPS Know the commonly used terminology STRUCTURE 14.1 Evolution of TPS 14.2 Goals of TPS 14.3 Origin of TPS 14.4 Principles of TPS 14.5 A brief history of waste reduction thinking 14.6 Types of wastes 14.7 Implementation of TPSs 14.8 Results of implementing TPS 14.9 Commonly used terminology SUMMARY REVIEW QUESTIONS

14.1 EVOLUTION OF TOYOTA PRODUCTION SYSTEM

201

The Toyota Production System (TPS) is an integrated socio-technical system, developed by Toyota, that comprises its management philosophy and practices. The TPS organizes manufacturing and logistics for the automobile manufacturer, including interaction with suppliers and customers. The system is a major precursor of the more generic "lean manufacturing." Taiichi Ohno, Shigeo Shingo and Eiji Toyoda developed the system between 1948 and 1975. Originally called "just-in-time production," it builds on the approach created by the founder of Toyota, Sakichi Toyoda, his son Kiichiro Toyoda, and the engineer Taiichi Ohno. The principles underlying the TPS are embodied in The Toyota Way. Toyota's development of ideas that later became Lean may have started at the turn of the 20th century with Sakichi Toyoda, in a textile factory with looms that stopped themselves when a thread broke, this became the seed of autonomation and Jidoka. Toyota's journey with JIT may have started back in 1934 when it moved from textiles to produce its first car. Kiichiro Toyoda, founder of Toyota Motor Corporation, directed the engine casting work and discovered many problems in their manufacture. He decided he must stop the repairing of poor quality by intense study of each stage of the process. In 1936, when Toyota won its first truck contract with the Japanese government, his processes hit new problems and he developed the "Kaizen" improvement teams. Levels of demand in the Post War economy of Japan were low and the focus of mass production on lowest cost per item via economies of scale therefore had little application. Having visited and seen supermarkets in the USA, Taiichi Ohno recognised the scheduling of work should not be driven by sales or production targets but by actual sales. Given the financial situation during this period, over-production had to be avoided and thus the notion of Pull (build to order rather than target driven Push) came to underpin production scheduling. It was with Taiichi Ohno at Toyota that these themes came together. He built on the already existing internal schools of thought and spread their breadth and use into what has now become the Toyota Production System (TPS). It is principally from the TPS, but now including many other sources, that Lean production is developing. Norman Bodek wrote the following in his foreword to a reprint of Ford's Today and Tomorrow: I was first introduced to the concepts of just-in-time (JIT) and the Toyota production system in 1980. Subsequently I had the opportunity to witness its actual application at Toyota on one of our numerous Japanese study missions. There I met Mr. Taiichi Ohno, the system's creator. When bombarded with questions from our group on what inspired his thinking, he just laughed and said he learned it all from Henry Ford's book." The scale, rigor and continuous learning aspects of TPS have made it a core concept of Lean.

202

14.2 GOALS OF TPS The main objectives of the TPS are to design out overburden (muri) and inconsistency (mura), and to eliminate waste (muda). The most significant effects on process value delivery are achieved by designing a process capable of delivering the required results smoothly; by designing out "mura" (inconsistency). It is also crucial to ensure that the process is as flexible as necessary without stress or "muri" (overburden) since this generates "muda" (waste). Finally the tactical improvements of waste reduction or the elimination of muda are very valuable. There are seven kinds of muda that are addressed in the TPS: 1. Waste of over production (largest waste) 2. Waste of time on hand (waiting) 3. Waste of transportation 4. Waste of processing itself 5. Waste of stock at hand 6. Waste of movement 7. Waste of making defective products The elimination of waste has come to dominate the thinking of many when they look at the effects of the TPS because it is the most familiar of the three to implement. In the TPS many initiatives are triggered by inconsistency or overburden reduction which drives out waste without specific focus on its reduction.

14.3 ORIGIN OF TPS This system, more than any other aspect of the company, is responsible for having made Toyota the company it is today. Toyota has long been recognized as a leader in the automotive manufacturing and production industry. It is a myth that "Toyota received their inspiration for the system, not from the American automotive industry (at that time the world's largest by far), but from visiting a supermarket." The idea of Just-in-time production was originated by Kiichiro Toyoda, founder of Toyota. The question was how to implement the idea. In reading descriptions of American supermarkets, Ohno saw the supermarket as the model for what he was trying to accomplish in the factory. A customer in a supermarket takes the desired amount of goods off the shelf and purchases them. The store restocks the shelf with enough new product to fill up the shelf space. Similarly, a work-center that needed parts would go to a 'store shelf' (the inventory storage point) for the particular part and 'buy' (withdraw) the quantity it needed, and the 'shelf' would be 'restocked' by the work-center that produced the part, making only enough to replace the inventory that had been withdrawn.
203

While low inventory levels are a key outcome of the Toyota Production System, an important element of the philosophy behind its system is to work intelligently and eliminate waste so that only minimal inventory is needed. Many American businesses, having observed Toyota's factories, set out to attack high inventory levels directly without understanding what made these reductions possible. The act of imitating without understanding the underlying concept or motivation may have led to the failure of those projects.

14.4 PRINCIPLES OF TPS The underlying principles, called the Toyota Way, have been outlined by Toyota as follows: Continuous Improvement

Challenge (We form a long-term vision, meeting challenges with courage and creativity to realize our dreams.) Kaizen (We improve our business operations continuously, always driving for innovation and evolution.) Genchi Genbutsu (Go to the source to find the facts to make correct decisions.)

Respect for People

Respect (We respect others, make every effort to understand each other, take responsibility and do our best to build mutual trust.) Teamwork (We stimulate personal and professional growth, share the opportunities of development and maximize individual and team performance.)

External observers have summarized the principles of the Toyota Way as: Long-term philosophy 1. Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals. The right process will produce the right results 1. Create continuous process flow to bring problems to the surface. 2. Use the "pull" system to avoid overproduction. 3. Level out the workload (heijunka). (Work like the tortoise, not the hare.) 4. Build a culture of stopping to fix problems, to get quality right from the first. 5. Standardized tasks are the foundation for continuous improvement and employee empowerment. 6. Use visual control so no problems are hidden.
204

7. Use only reliable, thoroughly tested technology that serves your people and processes. Add value to the organization by developing your people and partners 1. Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others. 2. Develop exceptional people and teams who follow your company's philosophy. 3. Respect your extended network of partners and suppliers by challenging them and helping them improve. Continuously solving root problems drives organizational learning 1. Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu, ); 2. Make decisions slowly by consensus, thoroughly considering all options (Nemawashi,); implement decisions rapidly; 3. Become a learning organization through relentless reflection (Hansei, ) and continuous improvement (Kaizen, ). The Toyota production system has been compared to squeezing water from a dry towel. What this means is that it is a system for thorough waste elimination. Here, waste refers to anything which does not advance the process, everything that does not increase added value. Many people settle for eliminating the waste that everyone recognizes as waste. But much remains that simply has not yet been recognized as waste or that people are willing to tolerate. People had resigned themselves to certain problems, had become hostage to routine and abandoned the practice of problem-solving. This going back to basics, exposing the real significance of problems and then making fundamental improvements, can be witnessed throughout the Toyota Production System

14.5 A BRIEF HISTORY OF WASTE REDUCTION THINKING The avoidance of waste has a long history. In fact many of the concepts now seen as key to lean have been discovered and rediscovered over the years by others in their search to reduce waste. Lean manufacturing builds on their experiences, including learning from their mistakes. Pre-20th century

205

The printer Benjamin Franklin contributed greatly to waste reduction thinking Most of the basic goals of lean manufacturing are common sense, and documented examples can be seen as early as Benjamin Franklin. Poor Richard's Almanac says of wasted time, "He that idly loses 5s. worth of time, loses 5s., and might as prudently throw 5s. into the river." He added that avoiding unnecessary costs could be more profitable than increasing sales: "A penny saved is two pence clear. A pin a-day is a groat a-year. Save and have." Again Franklin's The Way to Wealth says the following about carrying unnecessary inventory. "You call them goods; but, if you do not take care, they will prove evils to some of you. You expect they will be sold cheap, and, perhaps, they may [be bought] for less than they cost; but, if you have no occasion for them, they must be dear to you. Remember what Poor Richard says, 'Buy what thou hast no need of, and ere long thou shall sell thy necessaries.' In another place he says, 'Many have been ruined by buying good penny worths'." Henry Ford cited Franklin as a major influence on his own business practices, which included Just-in-time manufacturing. The concept of waste being built into jobs and then taken for granted was noticed by motion efficiency expert Frank Gilbreth, who saw that masons bent over to pick up bricks from the ground. The bricklayer was therefore lowering and raising his entire upper body to pick up a 2.3 kg (5 lb.) brick, and this inefficiency had been built into the job through long practice. Introduction of a non-stooping scaffold, which delivered the bricks at waist level, allowed masons to work about three times as quickly, and with less effort. 20th century Frederick Winslow Taylor, the father of scientific management, introduced what are now called standardization and best practice deployment. In his Principles of Scientific Management, (1911), Taylor said: "And whenever a workman proposes an improvement, it should be the
206

policy of the management to make a careful analysis of the new method, and if necessary conduct a series of experiments to determine accurately the relative merit of the new suggestion and of the old standard. And whenever the new method is found to be markedly superior to the old, it should be adopted as the standard for the whole establishment." Taylor also warned explicitly against cutting piece rates (or, by implication, cutting wages or discharging workers) when efficiency improvements reduce the need for raw labor: "after a workman has had the price per piece of the work he is doing lowered two or three times as a result of his having worked harder and increased his output, he is likely entirely to lose sight of his employer's side of the case and become imbued with a grim determination to have no more cuts if soldiering [marking time, just doing what he is told] can prevent it." Shigeo Shingo, the best-known exponent of single minute exchange of die and error-proofing or poka-yoke, cites Principles of Scientific Management as his inspiration. American industrialists recognized the threat of cheap offshore labor to American workers during the 1910s, and explicitly stated the goal of what is now called lean manufacturing as a countermeasure. Henry Towne, past President of the American Society of Mechanical Engineers, wrote in the Foreword to Frederick Winslow Taylor's Shop Management(1911), "We are justly proud of the high wage rates which prevail throughout our country, and jealous of any interference with them by the products of the cheaper labor of other countries. To maintain this condition, to strengthen our control of home markets, and, above all, to broaden our opportunities in foreign markets where we must compete with the products of other industrial nations, we should welcome and encourage every influence tending to increase the efficiency of our productive processes." Ford starts the ball rolling Henry Ford continued this focus on waste while developing his mass assembly manufacturing system. Charles Buxton Going wrote in 1915: Ford's success has startled the country, almost the world, financially, industrially, mechanically. It exhibits in higher degree than most persons would have thought possible the seemingly contradictory requirements of true efficiency, which are: constant increase of quality, great increase of pay to the workers, repeated reduction in cost to the consumer. And with these appears, as at once cause and effect, an absolutely incredible enlargement of output reaching something like one hundredfold in less than ten years, and an enormous profit to the manufacturer.
207

Ford, in My Life and Work (1922), provided a single-paragraph description that encompasses the entire concept of waste: I believe that the average farmer puts to a really useful purpose only about 5% of the energy he expends.... Not only is everything done by hand, but seldom is a thought given to a logical arrangement. A farmer doing his chores will walk up and down a rickety ladder a dozen times. He will carry water for years instead of putting in a few lengths of pipe. His whole idea, when there is extra work to do, is to hire extra men. He thinks of putting money into improvements as an expense.... It is waste motion waste effort that makes farm prices high and profits low. Poor arrangement of the workplacea major focus of the modern kaizenand doing a job inefficiently out of habitare major forms of waste even in modern workplaces. Ford also pointed out how easy it was to overlook material waste. A former employee, Harry Bennett, wrote: One day when Mr. Ford and I were together he spotted some rust in the slag that ballasted the right of way of the D. T. & I [railroad]. This slag had been dumped there from our own furnaces. 'You know,' Mr. Ford said to me, 'there's iron in that slag. You make the crane crews who put it out there sort it over, and take it back to the plant. In other words, Ford saw the rust and realized that the steel plant was not recovering all of the iron. Ford's early success, however, was not sustainable. As James P. Womack and Daniel Jones pointed out in "Lean Thinking", what Ford accomplished represented the "special case" rather than a robust lean solution. The major challenge that Ford faced was that his methods were built for a steady-state environment, rather than for the dynamic conditions firms increasingly face today. Although his rigid, top-down controls made it possible to hold variation in work activities down to very low levels, his approach did not respond well to uncertain, dynamic business conditions; they responded particularly badly to the need for new product innovation. This was made clear by Ford's precipitous decline when the company was forced to finally introduce a follow-on to the Model T. Design for Manufacture (DFM) also is a Ford concept. Ford said in My Life and Work (the same reference describes just in time manufacturing very explicitly): ...entirely useless parts [may be]a shoe, a dress, a house, a piece of machinery, a railroad, a steamship, an airplane. As we

208

cut out useless parts and simplify necessary ones, we also cut down the cost of making. ... But also it is to be remembered that all the parts are designed so that they can be most easily made. This standardization of parts was central to Ford's concept of mass production, and the manufacturing "tolerances", or upper and lower dimensional limits that ensured

interchangeability of parts became widely applied across manufacturing. Decades later, the renowned Japanese quality guru, Genichi Taguchi, demonstrated that this "goal post" method of measuring was inadequate. He showed that "loss" in capabilities did not begin only after exceeding these tolerances, but increased as described by the Taguchi Loss Function at any condition exceeding the nominal condition. This became an important part of W. Edwards Deming's quality movement of the 1980s, later helping to develop improved understanding of key areas of focus such as cycle time variation in improving manufacturing quality and efficiencies in aerospace and other industries. While Ford is renowned for his production line it is often not recognized how much effort he put into removing the fitters' work to make the production line possible. Until Ford, a car's components always had to be fitted or reshaped by a skilled engineer at the point of use, so that they would connect properly. By enforcing very strict specification and quality criteria on component manufacture, he eliminated this work almost entirely, reducing manufacturing effort by between 60-90%. However, Ford's mass production system failed to incorporate the notion of "pull production" and thus often suffered from over-production. 14.6 TYPES OF WASTE While the elimination of waste may seem like a simple and clear subject it is noticeable that waste is often very conservatively identified. This then hugely reduces the potential of such an aim. The elimination of waste is the goal of Lean, and Toyota defined three broad types of waste: muda, muri and mura; it should be noted that for many Lean implementations this list shrinks to the first waste type only with corresponding benefits decrease. To illustrate the state of this thinking Shigeo Shingo observed that only the last turn of a bolt tightens itthe rest is just movement. This ever finer clarification of waste is key to establishing distinctions between value-adding activity, waste and non-value-adding work. Non-value adding work is waste that must be done under the present work conditions. One key is to measure, or estimate, the size of these wastes, to demonstrate the effect of the changes achieved and therefore the movement toward the goal.

209

The "flow" (or smoothness) based approach aims to achieve JIT, by removing the variation caused by work scheduling and thereby provide a driver, rationale or target and priorities for implementation, using a variety of techniques. The effort to achieve JIT exposes many quality problems that are hidden by buffer stocks; by forcing smooth flow of only value-adding steps, these problems become visible and must be dealt with explicitly.

Muda is a Japanese word meaning "futility; uselessness; idleness; superfluity; waste; wastage; wastefulness", and is a key concept in the Toyota Production System(TPS) as one of the three types of waste (muda, mura, muri) Waste reduction is an effective way to increase profitability. Toyota merely picked up these three words beginning with the prefix mu- which in Japan are widely recognized as a reference to a product improvement program or campaign. A process adds value by producing goods or providing a service that a customer will pay for. A process consumes resources and waste occurs when more resources are consumed than are necessary to produce the goods or provide the service that the customer actually wants. The attitudes and tools of the TPS heighten awareness and give whole new perspectives on identifying waste and therefore the unexploited opportunities associated with reducing waste. Muda has been given much greater attention as waste than the other two which means that whilst many Lean practitioners have learned to see muda they fail to see in the same prominence the wastes of mura (unevenness) and muri (overburden). Thus while they are focused on getting their process under control they do not give enough time to process improvement by redesign. The original seven muda are: Transport (moving products that are not actually required to perform the processing) Inventory (all components, work in process and finished product not being processed) Motion (people or equipment moving or walking more than is required to perform the processing) Waiting (waiting for the next production step) Overproduction (production ahead of demand) Over Processing (resulting from poor tool or product design creating activity) Defects (the effort involved in inspecting for and fixing defects)

MNEMONICS - An easy way to remember the 7 wastes is TIMWOOD.

T: Transportation I: Inventory
210

M: Motion W: Wait O: Over-processing O: Over-production D: Defect

An other easy way is NOW TIME: It's now time to eliminate Mudas:

N: Non-Quality O: Over-production W: Wait T: Transportation I: Inventory M: Motion E: Excess-processing

An even better way is DOWNTIME which includes the all important 8th waste of Non-utilized talent

D = Defects O = Overproduction W = Waiting N = Non-utilized talent T = Transportation I = Inventory M = Motion E = Extra processing

14.7 IMPLEMENTATION OF TPS Shigeo Shingo divides process related activity into Process and Operation.[6] He distinguishes "Process", the course of material that is transformed into product, from "Operation" which are the actions performed on the material by workers and machines. This distinction is not generally recognized because most people would view the "Operations" performed on the raw materials of a product by workers and machines as the "Process" by which those raw materials are transformed into the final product. He makes this distinction because value is added to the product by the process but not by most of the operations. He states that whereas

211

many see Process and Operations in parallel he sees them at right angles (orthogonal) (see Value Stream Mapping). This starkly throws most of operations into the waste category. Many of the TPS/Lean techniques work in a similar way. By planning to reduce manpower, or reduce change-over times, or reduce campaign lengths, or reduce lot sizes the question of waste comes immediately into focus upon those elements that prevent the plan being implemented. Often it is in the operations area rather than the process area that muda can be eliminated and remove the blockage to the plan. Tools of many types and methodologies can then be employed on these wastes to reduce or eliminate them. The plan is therefore to build a fast, flexible process where the immediate impact is to reduce waste and therefore costs. By ratcheting the process towards this aim with focused muda reduction to achieve each step, the improvements are 'locked in' and become required for the process to function. Without this intent to build a fast, flexible process there is a significant danger that any improvements achieved will not be sustained because they are just desirable and can slip back towards old behaviours without the process stopping.

Taiichi Ohno's Workplace Management (2007) outlines in 38 chapters how to implement the TPS system. Some important concepts are:

Chapter 1 Wise Mend Their Ways - See the Analects of Confucius for further information. Chapter 4 Confirm Failures With Your Own Eyes Chapter 11 Wasted Motion Is Not Work Chapter 15 Just In Time - Phrase invented by Kiichiro Toyoda - the first president of Toyota. There is conflict on what the actual english translation of what 'just in time' really means. Taiichi Ohno quoted from the book says " 'Just In Time' should be interpreted to mean that it is a problem when parts are delivered too early".

Chapter 23 How To Produce At A Lower Cost - "One of the main fundamentals of the Toyota System is to make 'what you need, in the amount you need, by the time you need it', but to tell the truth there is another part to this and that is 'at lower cost'. But that part is not written down."[11] World economies, events, and each individual job also play a part in production specifics.

14.8 RESULTS OF IMPLEMETING TPS

212

Toyota was able to greatly reduce leadtime and cost using the TPS, while improving quality. This enabled it to become one of the ten largest companies in the world. It is currently as profitable as all the other car companies combined and became the largest car manufacturer in 2007. Due to the success of the production philosophy's predictions many of these methods have been copied by other manufacturing companies, although mostly unsuccessfully. Also, many companies in different sectors of work (other than manufacturing) have attempted to adapt some or all of the principles of the Toyota Production System to their company. These sectors include construction and health care. 14.9 COMMONLY USED TERMINOLOGY

Andon ( Signboard) Genba ( The actual place, the place where the real work is done) Genchi Genbutsu ( Go and see for yourself) Hansei ( Self-reflection) Heijunka ( Production Smoothing) Jidoka ( Autonomation - automation with human intelligence) Just-in-Time (JIT) Kaizen ( Continuous Improvement) Kanban ( Sign, Index Card) Manufacturing supermarket where all components are available to be withdrawn by a process Muda ( Waste) Mura ( Unevenness) Muri ( Overburden) Nemawashi ( Laying the groundwork, building consensus, literally: Going around the roots) Poka-yoke ( fail-safing - to avoid (yokeru) inadvertent errors (poka)

ACTIVITY 1. Toyota Production System (TPS) is an integrated socio-technical system-Justify 2. Differentiate between muda , mura and muri SUMMARY The Toyota Production System (TPS) is an integrated socio-technical system, developed by Toyota, that comprises its management philosophy and practices. The TPS organizes manufacturing and logistics for the automobile manufacturer, including interaction with
213

suppliers and customers. Taiichi Ohno, Shigeo Shingo and Eiji Toyoda developed the system between 1948 and 1975. Originally called "just-in-time production," it builds on the approach created by the founder of Toyota, Sakichi Toyoda, his son Kiichiro Toyoda, and the engineer Taiichi Ohno. Toyota's development of ideas that later became Lean may have started at the turn of the 20th century with Sakichi Toyoda, in a textile factory with looms that stopped themselves when a thread broke, this became the seed of autonomation and Jidoka. . It was with Taiichi Ohno at Toyota that these themes came together. He built on the already existing internal schools of thought and spread their breadth and use into what has now become the Toyota Production System (TPS). The main objectives of the TPS are to design out overburden (muri) and inconsistency (mura), and to eliminate waste (muda). The most significant effects on process value delivery are achieved by designing a process capable of delivering the required results smoothly; by designing out "mura" (inconsistency). There are seven kinds of muda that are addressed in the TPS.The elimination of waste has come to dominate the thinking of many when they look at the effects of the TPS because it is the most familiar of the three to implement. The underlying principles, called the Toyota Way, have been outlined by Toyota as follows: Continuous Improvement Respect for People Long-term philosophy The right process will produce the right results Add value to the organization by developing your people and partners Continuously solving root problems drives organizational learning

The elimination of waste is the goal of Lean, and Toyota defined three broad types of waste: muda, muri and mura; it should be noted that for many Lean implementations this list shrinks to the first waste type only with corresponding benefits decrease. Shigeo Shingo divides process related activity into Process and Operation.[6] He distinguishes "Process", the course of material that is transformed into product, from "Operation" which are the actions performed on the material by workers and machines. Many of the TPS/Lean techniques work in a similar way. By planning to reduce manpower, or reduce change-over times, or reduce campaign lengths, or reduce lot sizes the question of waste comes immediately into focus upon those elements that prevent the plan being implemented.

214

Toyota was able to greatly reduce leadtime and cost using the TPS, while improving quality. This enabled it to become one of the ten largest companies in the world REVIEW QUESTIONS 1.Discuss the evolution of TPS 2.What are the goals TPS? 3.Narrate the origin of TPS 4.Explain the principles of TPS? 5.Briefly narrate the history of waste reduction thinking 6.Explain various types of wastes 7. How TPS is implemented ? 8.What are the results of implementing TPS? 9.Mention some Commonly used terminology in TPS

215

CHAPTER-XXV UNIT-V WCM : The Indian scenario and Requirements : Competitiveness of Indian Manufacturing WCM and Indian firms Manufacturing objectives and strategy-Usage of management tools and technologies Manufacturing management practices Leading Indian companies towards WCM: Strategic planning methodology, Implementing the WCM plan, Human resource dimensions in WCM After reading this chapter the students should Explain how Indian companies can become a world class manufacturer Narrate the Indian manufacturing scenario after and before 1991 Brief the competitiveness of Indian manufacturing industries Explain the agenda for Indian manufacturing sector Explain the Strategies adopted by world class manufacturers

216

STRUCTURE 25.1 Introduction 25.2 Becoming world class manufacturer Indian perspective 25.3 Indian manufacturing scenario 25.4 Ccompetitiveness of Indian manufacturing industries 25.5 Indian manufacturing and Global competiveness 25.6 Agenda for Indian manufacturing sector 25.7 WCM and Indian firms 25.8 Strategies adopted by world class manufacturers ACTIVITY SUMMARY DISCUSSION QUESTIONS

25.1 INTRODUCTION Indian economy was liberalized in 1991 to allow foreigncontribution Indian companies to pick up important lessons and tips on and improving

participation in the Indian manufacturing industries. This would allow competitiveness and India would find a place in the worldeconomy. But 1991 to 2001 has been a decade of all hope lost. In the year 1991 India had a debt of $ 72 billion which rose of $103 billion in 2000. India has a total export of only $ 42 billion in 2000 while a USA has a total export of $607 billion.

217

25.2 BECOMING WORLD MANUFACTURER-INDIAN PERSPECTIVE

CLASS

Indian manufacturers have faced many challenges in the past 20 years, such as increased competition in worldwide markets, a demand for more complex products and pressure from consumers for more options in the goods that are produced. The one style/color fits all idea behind the mass assembly line has long passed. Instead, mass customization is now the goal for many manufacturers. Everyone wants to buy a higher quality item but not at a higher price. To meet these challenges, manufacturers have had to look at all aspects of how they do business. To remain competitive, Indian manufacturers must:

understand the business trends that are driving the global economy. employ proven and effective management practices and processes. understand and capitalize on the competitive enablers of information technology. implement proven manufacturing technologies and supporting software. appreciate and employ the world-class human resource practices that are attracting todays best talent and making best-in-class companies even more fierce in terms of intellectual capital and skill capabilities.

Indian manufacturers should strive to meet the faster, better, cheaper mantra of todays economy. To do so, they are looking for new ideas, designs and ways of doing things. They look at each aspect of production, identifying time-consuming or skill-demanding aspects and looking for ways to improve those processes. The challenges for companies relate to product, process and people. Drivers in manufacturing are technology and knowledge. Manufacturing is being continually

218

re-invented. This results from a combination of factors, but it has been a product of improvements in manufacturing technologies. New technologies prompt new ways of thinking about processes, systems and goals. Those, in turn, have led to new, innovative uses of, and improvements in, manufacturing technology. Improvements in machines and tool materials have resulted in faster production of higher-quality items. Those, combined with a reduction in setup times, have helped make advanced manufacturing processes economically viable. Smarter machines combined in a better, more efficient manner have helped companies reduce labor requirements, inventories and plant size while improving the quality of production and reducing the rework rate. In the CASA/SME booklet titled, Insight for Adaptation and Survival in the 21st Century, several manufacturing industry macro-trends were identified. They were as follows:

Globalization of markets Evolving gaps in competitiveness Rise of the virtual enterprise Use of collaboration for competitive positioning The importance of effective supply chain management practices Mass customization and savvy consumers

Collaboration among design, manufacturing and support groups within an enterprise and up and down a supply chain is becoming essential. Collaborative engineering tends to minimize lead times, design changes, use of critical processes, unit costs, product variability and unrealistic tolerancing. It promotes maximum standardization, supplier knowledge, process predictability and design simplicity. Collaborative manufacturing is important when several plants, which may be geographically separated, do manufacturing of identical or similar parts, part families or assemblies. The focus of Web-based collaborative manufacturing is on
219

standardization, optimizing processes and tool systems, improvement of manufacturing management. Global manufacturing, a component of collaborative manufacturing, is using worldwide resources to produce identical or similar parts, components and subassemblies with the same quality, within the same timeframe and at comparable cost structures. The Internet is employed to share information across an enterprise. Manufacturers go global to expand to new markets, conduct design and manufacturing worldwide on a 24/7 basis, be a local player, take advantage of local resources and worldwide technology, and save on transportation costs. Further benefits of global manufacturing include:

metrics,

outsourcing,

quality

standards,

and

information

creating a global mindset greater exchange of ideas increased flexibility more uniform product quality greater standardization shorter time to market quicker response to changes

Over time, global competitors will market, design and produce locally. The objective is closer, quicker customer contact and lock-in; the expectation is faster cash generation and cleaner, cheaper product flows. It is expected that there will be growth in customized products. To make this method commonplace will require improvements in design, manufacturing and information systems.

25.3 INDIAN MANUFACTURING SCENARIO

220

It

is

common

knowledge

that

India's

manufacturing

economy

is

now facing a crisis. Since the year 1991, the year in which the Indian economy was liberalized - brought closer to the world economy - so that the world may participate and contribute to the Indian economy and that the Indian manufacturing companies, on the other hand, would pick up important lessons and tips on improving competitiveness and would find a place in the world economy, the hopes were raised. 1991 to almost 2001 - a decade should have been a sufficient enough period for the Indian manufacturing to tone up its muscles, sharpen its specific competitive weaponry, consolidate thecollective strategy, face the world and win some matches in the international arena of business. The plan and hope had been to go from strength to more strength. After all, in our country, the share of industry in Indian GDP has been going up at the expense of agriculture since 1960s. Indian government, on its part, had been busy setting up and embellishing the 'modern temples of Indian economy' which, in a large measure, consisted of large industrialproducti on units. That these units were mostly in the public/governmentsector is a different issue, several manufacturing industries in the engineering, motor vehicles, cement, mineral exploitation and production, metalsproduction, chemical and petrochemicals production, consumer products(dur able and consumable), textiles, garments etc., came up in the private sector also in a very large measure The emergence and growth of new Indian manufacturing giants such as Reliance Industries in polyester fibber production and in petrochemicals, Arvind Mills and Bombay Dyeing in the textile sector, HMT and other machine tool manufacturers entering into the then newer technology o f C N C ma c h i n e s , t h e w a t c h ma k e r s l i k e Ti t a n I n d u s t r i e s , t h e r i s e o f t h e bicycle manufacturers Hero Cycles and the phenomenon in two wheelers particularly scooters - Bajaj Auto are only a few cases in point. At the end of the
221

1990s, the status of India in the world of production / manufacturing was creditable enough, as the Table # 1, given below depicts ACTIVITY Coal Production Bauxite production Electricity generation GNP Contribution of manufacturing Sector in GDP Commercial vehicles production Crude steel production Merchant vessels Machine tools production Passenger cars production Crude petroleum production Exports RELATIVE POSITION 9th 9th 10th 11th 13th 14th 15th 16th 18th 19th 19th 38th

Source : 'This is CEI' confederation of engineering industries, India

It, therefore, appears that a little more than ten years ago, it was confident India confident of its manufacturing base because of a network natural
222

of several industries producing different items as required by the internal economy. We produced coal, petroleum, natural gas and other essential

resources, we produced electricity, steel and cement the buildingblocks

of

any

industrial economy, we produced vehicles and other transport machinery which could facilitate the movement of goods and people, and we produced consumable too.

25.4 COMPETITIVENESS OF INDIAN MANUFACTURING INDUSTRIES The liberalization of the Indian economy in the early 1990s brought about major changes in the manufacturing sectors. Many firms entered into technical collaboration and equity partnership agreements with global OEMs (Original equipment manufacturers) and Tier 1 suppliers. Many Indian manufacturing firms also began to focus on improving quality. Their efforts included quality initiatives like ISO 9000 certification (QS-9000 and TS 16949 certifications in early 2000) and deployment of TQM. Many firms also aimed for quality awards like the Deming, and several companies such as Sundaram-Clayton and Mahindra & Mahindra succeeded during the last decade. Competitiveness of Indian Manufacturing Industries gains, controlling for factors such as age, export orientation, and firm size. The award-winning firms, whose initial characteristics were no different from the rest of the industry, do not show significantly higher productivity gains during either period. Firms that were certified after 1998 are associated with significantly higher technical and relative efficiency gains. In addition, larger firms exhibited higher technical gains, and newer firms exhibited both technical and relative efficiency gains. There is a positive correlation between quality initiatives and productivity improvement in the Indian auto component industry.

25.5 INDIAN MANUFACTURING AND GLOBAL COMPETITIVENESS

223

The best-performing companies in the global benchmark research, called complexity masters, are far better at synchronizing innovation across the enterprise. They invest in better processes and technologies for optimizing the entire life cycle of products and services. The result is far better performance with profit levels up to 73 percent higher than the competition. Many domestic Indian manufacturers as well as multinationals operating in India have a hard time keeping up and building the capabilities needed to succeed. In Indian manufacturing, the most worrying evidence is that of the lack of visibility into strategic information. In fact, and somewhat alarmingly, the more strategic the information, the less the visibility! This makes it difficult to take the right decisions in strategy, planning and execution. The other major challenge is that of flexibility. Indian companies will face increased complexity and constraints on flexibility as they continue their domestic and global expansion. In fact, the average Indian company is not lean at all. Even companies that operate with just five or six customers have frozen timeframes for production of two weeks or more. Were they to aim for less time, they believe they would lose money reconfiguring their manufacturing schedules. They have difficulty connecting their sales forecast to material plans or even their production plans. Indian manufacturers lack the technology support for looking at the life cycle data of the products. Without this data, innovating on the product portfolio is difficult, if not impossible. Indian manufacturers are far behind multinationals in India when it comes to adopting leading technologiesdespite the low cost of technology in India compared to the more developed countries. This low rate of technology adoption poses a real risk to Indian manufacturers futures, limiting their participation in global value chains where these technologies are required. In the absence of lean processes or visibility, a lot of management time goes into day-to-day issues and fire fighting with very little time left over for future planning
224

and innovation. Despite a lackluster record when it comes to R&D, Indian manufacturing has recorded high growth, creating a unique opportunity for innovation. In fact, India is the top destination in the world for R&D investment. The cost of innovation in India is typically one-third that in developed markets; it is among the lowest globally. Manufacturers need to seize this opportunity to innovate with respect to products, processes, technologies and business models. Reverse currents: going overseas for growth. Crompton Greaves is an excellent example of the new breed of Indian companies that have cut their teeth competing with multinationals on the home turf after the liberalization of the Indian economy. Success on the home front has prompted a foray overseas. The 68-year-old company is the largest private electrical company in India. It is also the first Indian electrical multinational. The realization that it was a leader in all the fields in which it had a presence in India prompted the company to consider entering the world market. India comprised only 2.5 percent of the world market. The search for a bigger slice of the pie led Crompton Greaves to acquire Belgium-based Pauwels Transformers. The decision to enter developed markets via an acquisition came about after the company determined that a recognizable brand was crucial. Product approvals, experience and image are the main barriers for Indian companies entering developed markets. Customer relationships and quick service are also essential for success in developed markets. Building such a brand from scratch would take time and be very expensive, and serving developed markets from an Indian base would prove costly. In addition, acquiring a company in the developed market would provide access to the latest technology. After the acquisition, Crompton Greaves opted not to run Pauwels as a stand-alone company but to convert it to a solutions company for customers and integrate it into the business. The integration was achieved by forming several cross-functional
225

teams in fields including design, manufacturing, technology and marketing. The design and technology were moved to the back end in India. The front end, consisting of sales and marketing, continued as before. The objective of the integration was to create a multinational organization that was not focused on the location of the corporate headquarters, but centered on performance. The guiding principles were performance excellence, customer orientation and engineering knowledge. The chief advantage that Crompton Greaves brought to the integration was its operational excellence, as well as its access to the abundant engineering talent available in Indiaa young workforce eager to learn and motivated to work hard. Then, of course, there was the advantage of low-cost manpower in India. Today, out of Crompton Greaves consolidated sales of Rs. 43.57 billion, Rs. 15.30 billion, or more than 33 percent, comes from developed countries. The companys acquisition strategy is focused on companies that are not doing well financially but have good brands that were leaders in their segment not long ago. The brands would still have customer relationships and customer access.

25.6

AGENDA

FOR

INDIAN

MANUFACTURING

SECTOR

Based on current assessment of Problems of Indian manufacturers, the infrastructure available in the country, the Indian industry experiences and capability and national economical priorities, it would be appropriate to work on following lines:

- Substantial increase in R &D expenditure to the tune of 5% of GDP with matching investments from Indian manufacturing sector (over next 3 years)

226

- Privatization of r esearch in India and dismantling of University research in its present form, which is worthless. Opening of Several IIT like Institutes, Increasing capacity to five times of the present.

- Strengthening of Tool Room sector and Specific Industrial Product development and testing centers, to strengthen SMEs base which is important both for exports and employment generation

- Expeditious privatization of Power Sector and raising National power generation load factor to 90%

- Focus on following sectors in first phase of 10 years: Textiles and Garment Industry, Pharmaceuticals, Machine tools, Automobiles (Passengers and Commercial), Software products (not development contracts), Leather Industry, Food processing and Horticulture, Primary metallurgy including Steel and Aluminum, Defence equipment and Jewellery.

- Strategic marketing alliances with world class trading companies with pro active role of Ministry of commerce

- Right combination of Indigenous technology and the Bought out technology, with the former having at least 25% component (Eventually to become 75% and 25% respectively) - Developing product based industrial clusters with international level facilities and Regulations in place of present mixed and diluted economic zones like SEZs and EPZs. - Intensified investment in infrastructure sector taking the benefits to B class city
227

level. - Encourage movement of Skilled Labor and technologists into and out of the country There is hardly any other way to make Indian Manufacturing internationally competitive , besides required transformation of the Indian Corporations themselves on suggested lines by various experts.

25.7 WCM AND INDIAN FIRMS India is on its way to becoming a world-class manufacturer to a rapidly changing business environment, according to a new study by a noted US business school and a firm of consultants. Poor infrastructure, bureaucratic red tape and restrictive labour laws have kept India's manufacturing sector at the back, while its services have turned red hot. But beneath the surface, things are changing rapidly, and India could become a manufacturing powerhouse within five to 10 years. Driven by the emergence of a vast domestic market and relatively low-cost workers with advanced technical skills, more and more multinationals are setting up manufacturing operations in India, notes the report, entitled "What's Next for India: Beyond the Back Office." Ford, Hyundai, Toyota , Honda and Suzuki all export cars from India in significant numbers. LG, Motorola and Nokia all either make handsets in India or have plans to start, with a sizeable share of production being exported. ABB, Schneider, Honeywell and Siemens have set up plants to manufacture electrical and electronic products for domestic and export markets.

228

"Over the past five or six years, many firms have restructured their manufacturing operations and implemented world-class practices. Slowly but surely, they have started building a globally competitive manufacturing base in industries like pharmaceuticals, auto components, cars and motorcycles. Every major company has India on its radar screen. As the success of firms such as auto parts maker Bharat Forge shows, India's competitiveness lies in relatively high-end manufacturing. "Indian universities graduate 400,000 engineers a year, second only to China," notes Harold L Sirkin, a senior partner in BCG's Chicago office and leader of the firm's global operations practice. "It's only a matter of time until India converts its engineering prowess into manufacturing capabilities."

25.8 STRATEGIES ADOPTED BY WORLD CLASS MANUFACTURERS Areas relevant to achieve the competitive advantage in productions and operations management -Developing manufacturing / operations strategy -Effective forecasting in operations management -High quality designing and developing products and production process -Outstanding long range capacity planning and flexibility in facility location/layouts -Realistic aggregate planning and Master production schedule -Real time customer demand and Inventory systems.

229

-Resource-Requirement planning adopting MRP, CRP,MRP-II and ERP systems. -Shop floor planning and control in manufacturing using computer programmes like SAP-R/3, Macola , order links etc., -Advanced planning and scheduling service operations approaches -Adopting Just-in time manufacturing techniques -Efficient supply chain management -Implementation of proven productivity, teamwork and empowerment techniques -Strong commitment to TQM and TPM by top management

ACTIVITY 1. In order to remain competitive what strategies should Indian manufacturers should follow? 2.What are the benefits of Global manufacturing ? SUMMARY

Indian economy was liberalized in 1991 to allow foreign Indian companies to pick up important lessons and

contribution tips on

and

participation in the Indian manufacturing industries. This would allow improving competitiveness and India would find a place in the worldeconomy. For past 20 years Indian manufacturers have faced many challenges such as increased competition in worldwide markets, a demand for more complex products and pressure from consumers for more options in the goods that are produced. Indian manufacturers should strive to meet the faster, better, cheaper mantra of todays economy. They look at each aspect of production, identifying time-consuming or
230

skill-demanding aspects and looking for ways to improve those processes. The challenges for companies relate to product, process and people. Indian manufacturers should look on to new technologies that may prompt new ways of thinking about processes, systems and goals. Global manufacturing, a component of collaborative manufacturing, is using worldwide resources to produce identical or similar parts, components and subassemblies with the same quality, within the same timeframe and at comparable cost structures. Over time, global competitors will market, design and produce locally. The objective is closer, quicker customer contact and lock-in; the expectation is faster cash generation and cleaner, cheaper product flows.

The emergence and growth of new Indian manufacturing giants are entering into the then newer technology The liberalization of the Indian economy in the early 1990s brought about major changes in the manufacturing sectors. Many firms entered into technical collaboration and equity partnership agreements with global OEMs (Original equipment manufacturers) and Tier 1 suppliers. The best-performing companies in the global benchmark research, called complexity masters, are far better at synchronizing innovation across the enterprise. They invest in better processes and technologies for optimizing the entire life cycle of products and services. The other major challenge is that of flexibility. Indian companies will face increased complexity and constraints on flexibility as they continue their domestic and global expansion. Based on current assessment of Problems of Indian manufacturers, the infrastructure available in the country, the Indian industry experiences and capability and national economical priorities, it would be appropriate to work on various areas like increase in R &D , - Privatization of research , Opening of Several IIT like Institutes, Increasing capacity to five times
231

of

the

present, Strengthening of Tool Room sector and Specific Industrial both for exports and employment generation

Product development and testing centers, to strengthen SMEs base which is important

- Expeditious privatization of Power Sector and raising National power generation load factor to 90%

India is on its way to becoming a world-class manufacturer to a rapidly changing business environment. Driven by the emergence of a vast domestic market and relatively low-cost workers with advanced technical skills, more and more multinationals are setting up manufacturing operations in India, "Over the past five or six years, many firms have restructured their manufacturing operations and implemented world-class practices. Slowly but surely, they have started building a globally competitive manufacturing base in industries like pharmaceuticals, auto components, cars and motorcycles. Every major company has India on its radar screen.

DISCUSSION QUESTIONS 1. How to become a world class manufacturer ? Explain it with Indian perspective 2. Discuss the competitiveness of Indian manufacturing industries 3. Explain Indian manufacturing and Global competiveness 4. What are the agenda for Indian manufacturing sector? 5.Explain the sstrategies adopted by world class manufacturers

232

CHAPTER XXVI CONTINUITY After reading this chapter the students should Understand the need of best management practices Know some of the Leading Indian companies that implement world class manufacturing Explain the Entry of Multinational companies in to Indian market Discuss the Operational excellence of Indian manufacturing Know the Work environment in the manufacturing organization Explain Strategic planning methodology Know how WCM can be implemented Know the various human resource dimensions in WCM

233

STRUCTURE 26.1 Best management practices 26.2 Leading Indian companies that implement world class manufacturing 26.3 Entry of Multinational companies in to Indian market 26.4 Operational excellence of Indian manufacturing 26.5 Work environment in the manufacturing organization 26.6 Strategic planning methodology 26.7 Implementation plan of WCM 26.8 Human resource dimensions in WCM
ACTIVITY SUMMARY DISCUSSION QUESTIONS

26.1 BEST MANAGAEMENT PRACTICES Todays market and competitive pressures require companies to develop and maintain a high level of coherence between their strategy (objectives), action programmes (implementation), practices (instantiation) and performance (realization). A lot of effort has been put into identifying best practices to support companies achieve superior performance. Focusing on manufacturing practices and performance and dening best practices as the practices used by, and having signicant effect on the performance of, the best performing companies. In the late 1970s and early 1980s, the best practice approach to manufacturing strategy seriously entered the industrial and academic agenda with the recognition of the extraordinary process and product improvement success of Japan Inc.
234

Western industries and academics alike began to look at Japanese companies achievements in order to understand the principles behind that. Best practice achievement has since become a driving force amongst industry. The best practice approach to manufacturing strategy encapsulates the world class manufacturing (WCM) philosophy and benchmarking, and is based on the assumption that The continuous improvement of best practice in all areas of the organization will lead to superior performance capability leading to increased competitiveness

Researchers

Key concept to Best Results Practice

regarding

practice-performance Relationship

Swamidass and Newell (1987)

Cross-functional co-operation, design for

Corporate

performance

is

positively related to the role of manufacturing managers manufacturability in strategic decisions Voss (1995a) World-class manufacturing, to superior performance and bench-marking, business process re-engineering, TQM, learning from the Japanese, continuous improvement (CI) Ahmed et al. (1996) TQM, JIT, FMS, CE, When practices (operations capability Implementation of best (world class) practices leads

235

benchmarking

strategies) are examined individually, companies using any of seven practices (FMS, CE,

benchmarking, TQM, JIT, manufacturing cells and

computer networking) have higher performance than those not using them Bolden et al. (1997) WCM, employee development taxonomies developed provides insight into the role of individual practices, The classication of

manufacturing practices

implementation and outcomes Flynn et al. (1997) WCM, TQM, JIT The best users of unique TQM practices, combined with common infrastructure

practices, are capable of solving problems to improve production processes Harrison (1998) WCM, CI WCM appears to facilitate

operator commitment to

236

continuous

improvement,

but

leaders become more frustrated because they expected to achieve more. Cellular manufacturing in a UKbased company acted as a powerful change agent, which has led to more in terms of manufacturing improvement than previous initiatives, such as MRP II Flynn et al. (1999) WCM, CI, JIT, TQM The use of WCM, alone and together with other new practices, competitive performance Kathuria and Partovi (1999) Cross-functional co-operation strongly relationship-oriented practices, such as team building and support, participative leadership and demonstrate Better performing manufacturing managers leads to improved

delegation, especially

237

when the emphasis on exibility is high Rondeau et al. (2000) Davies and Kochhar (2002) Work system practices, time-based competition standardization, formalization as Best practices, performance, manufacturing planning and control Garver (2003 Benchmarking, CI well as integration. A structured approach used to identify direct qualitative relationship between practice and performance Integrating customer Time-based manufacturing

practices tend to lead to

performance measures with internal performance measures (internal quality, productivity

etc.) to identify improvement opportunities is found to be critical Ketokivi and Schroeder (2004) TQM, JIT, WCM, contingency competitive manufacturing There are only few best practices contributing to

performance in multiple dimensions

(1) Best practices are those that lead to improvement in performance. That is, they help a low performing company become a medium performer, a medium performer become a high performing company, and a high performer stay successful. (2) Best practices must be investigated within the specic context in which they

238

operate. (3) The investigation of best practices should be approached holistically. 26.2 LEADING INDIAN COMPANIES TOWARDS WCM Few top Indian manufacturing companies that adopts world class manufacturing are 1. Aditya Birla group 2. Hindustan Lever network 3. TATA motors 4. Mahindra 7 Mahindra 5. Bombay Dyeing 6. Reynolds India 7. Hindustan Paper corporation Ltd 8. Emani Group 9. Mittal Dhatu Rashayan Udyog 10.Haldia petrochemicals 11.SAB Miller India Ltd 12.Reliance petrochemicals

26.3 MULTINATIONAL COMPANIES ENTERING INDIAN MARKETS Global companies that come to India need to have a very clear vision of what they want to achieve. For example, after Saint-Gobain Glass decided to seek a longterm business opportunity in India, it discovered that its India operations could be leveraged for its global operations. Had this been the plan right from the start, the company probably would have evolved differently. Multinationals setting up operations in a new country usually pass through three stages.

239

The first stage is that of building the basecrucial, as the first three to four years determine what happens down the road. The second phase is scaling up; the third, innovation. In the first stage, using global relationships to establish a presence in the local market in India is a good strategy for MNCs. Also, everything in India, even the availability of power and water, is variable. Companies have to take this variability into account as they build up their business. Indias high-quality, low-cost engineering talent can be a huge advantage if used properly. Saint-Gobain introduced a large number of engineering methods on the line to make process improvements, and trained the engineers to adapt themselves very quickly to these. Investing in people should be a priority, starting from recruitment. Choosing the right people will ensure that a team works well together because getting a team to function well is often more difficult in India than it is in some other cultures. Also, with rising attrition, it is essential that a second and third layer be in place in the event the first tier of employees leaves. Overinvesting in physical space and logistics can be a wise move. Getting land in India is very difficult, and it is common for the value of the land to exceed that of the company. It is therefore advisable to acquire more land than may seem necessary in the beginning. Other infrastructure needs such as water and power should also be anticipated by investing in rainwater harvesting and alternative technologies. Multinational Companies Entering Indian Markets The second phase of scaling up calls for rapid product development and prototyping. This in turn calls for a significant investment in tools and people skills, as well as in laying the ground for innovation. For Saint-Gobain, creating an expert pool on tool design and simulation was made easier because these are areas of strength for India. The company is now looking at sourcing machine-building capabilities, also from India. Employees in the Indian operations have already made over 100 small improvements on machines bought from European vendors.

240

As a next step, the company is looking at working with world class research institutions in India like the IITs and the Indian Institute of Science. In the third phase of innovation, the company hopes to leverage such a collaborative network for incubating and encouraging innovation. As national borders have blurred, the rules of doing business have changed rapidly. For 3M, this new reality is reflected in the fact that 61 percent of its top-line sales come from outside of the United Statesgrowing from about 35-40 percent just ten years ago. A well-thought-out strategy has the company investing in the countries it does business in: it has 69 subsidiaries and 33 laboratories in different countries. Also, 99 percent of the companys international employees are local employees of the country where the business is based. Such a strategy helps speed up service in addition to saving on costs. By locating R&D and manufacturing near final markets, 3M is able to better tailor its products and services to local markets and respond faster to customer demands. The low cost of labor, however, is not a key issue in the decision to source from a particular geography. The low cost of labor may be useful in a basic converting operation. Moving up the technology chain, however, the cost of labor is not as important as the skill level. In the absence of skills, the cost of mistakes tends to become very high. From 3Ms perspective, Indias excellent academic structure is a major strength in considering it as a sourcing destination. The country has first-rate universities and a great network. Its other strengths are domestic entrepreneurialism and the base of local manufacturing. A growing middle class is one of the keys to having successful manufacturing, particularly on a global basis. If you have a growing middle class, those are really the consumers that drive manufacturing. Without that middle class, it is very hard to get manufacturing to grow. The challenge for India is how to leverage and grow the foundation that it possesses, spread it across the country, and get more entrepreneurs to invest in manufacturing growth.

241

A major handicap is the limited infrastructure that has not been able to keep up with industrial growth. For example, the longer and the more complicated the transportation network is, the more difficult it is to have an efficient supply chain. Whereas the preoccupation in other geographies is with speeding up the supply chain and limiting inventory, in India the major concern is buffering inventory. Capital spending by companies to deal with the lack of infrastructure is not really an option and it is difficult, for example, to explain to headquarters why you have to put up your own power plant. Bureaucracy surfaces as another handicap: investors become very discouraged when it takes a couple of weeks to get a paper through a government authority in order to release goods from the customs department. Also, the different regulations in different states slow down the supply chain considerably. To move goods from the south to the north, you have to stop at every state border to be inspected, and appallingly enough it can take a week to go from north to south. The different tax structures in different states make things very complicated, and thus create significant inefficiencies for businesses. On top of a convoluted system, there is corruption to the point where it can have a significant financial impact.

26.4 OPERATIONAL EXCELLENCE IN INDIAN MANUFACTURING The importance of going lean One of the difficult things about customers is that they prefer prices to keep going down. Yet, it need not be that hard to keep satisfying this desire. To keep pushing prices lower without affecting profits or quality, a company needs to take a hard look at the waste generated in the production system. On an average, 95 percent of what any manufacturing company does falls under the headings of non-value242

adding activity, non-value-adding time or non-value-adding cost. Removing this waste and passing on the savings to customers in the form of lower prices can be sustained for several years. This is what lean manufacturing aims to do. The acknowledged benchmarks are Toyota and Canon, and even they have reduced waste only to 50 percent. Clearly, there is plenty of potential for the average company to extract value from waste. Southwest Airlines, Apples iPod, and the dabbawalas of Mumbai are some examples of success achieved through going lean. The opportunities for going lean exist everywhere in a production system. For example, expensive equipment used for only 10 percent of its potential constitutes waste. In lieu of buying readymade machines from a catalog, a company can minimize waste by buying a machine customized to its needs. Low-cost automation is another option. India has a strong corps of talented design engineering people, a strength that can be used to implement low-cost automation to bring down equipment cost by over 70 percent. Buy standard parts and once a project is completed, dismantle the machine and reuse the parts. The same principle applies to people. Stretch productivity through accountability and incentives. Ensure that employees are not constantly in fire fighting mode and hence unable to think up ideas. This will unleash their full potential. Inventory is often an opportunity to cut waste. Inventory requires space, equipment and people to handle it, all of which translates into needless cost. The solution is to go lean and scrap inventory through a sophisticated tracking system and single-piece flow. Waste is also inherent in not reaching out to the customer basefor example, by focusing on the urban market and ignoring the rural market which constitutes 90 percent of the Indian market. Reducing developmental time, the time to market, and using innovation to provide customers with what they want are other ways to save on time and avoid wasting opportunity.

243

Lean manufacturing is a broad-based system that requires considering the totality of the business and not just manufacturing. The entire process, from order to delivery to collecting cash, has to be mapped and made lean. The first important step is to include all employees in the strategy. The next is improvement in management and housekeeping. Then comes a sound quality system that ensures stable quality. An ownership culture in which cost, quality and delivery are owned by the person who produces the product is crucial. And then a total production maintenance that assures zero breakdown. For Sundaram-Clayton Limited, going lean has meant being able to offer prices that are 2.5 to 5 percent lower, at a time when commodity prices and wage costs have been going up. At the company, going lean has taken several formsgoing from 12 operators to 3 operators, from an output of 40 per hour to 60, and employee productivity that has gone up over 500 percent. Not surprisingly, Jim Womack, the founder of lean enterprise in the United States, visited SundaramClayton two years ago and called it one of the leanest operations I have ever seen outside of Toyota. In pursuit of quality For Reliance, combining quality with profits began with lowering costs through backward integration. This translated into a lower cost of raw material. The company has a captive power plant and utility generation on an economical scale. In-house development of catalysts, a supply-customer interface that lowers the cost of packing material, and common service to multi-plants also combine to achieve a low cost of production. Compared with competitors, the company has the lowest cost of raw material, the lowest cost of power, and world-scale plants with lowcost utility, all of which translate to low fixed costs. Optimizing cost has become a particular strength for the company. Another important element in achieving quality is delivery.

244

The companys plants in Mumbai and Surat supply to far-flung countries like Egypt, Turkey, China and several in Europe. Delivering the product to the right place, on time, and in a cost-effective manner is a crucial part of quality. So is safety safety of the material, safety at the workplace, as well as safety of the product. A breakdown in safety such as an accident would mean additional cost and a delayed schedule. Attempts to make up the delay could result in work that is of poor quality. The companys pursuit of quality is reflected in its values of customer focus, involving its people in decision making, the process approach and the system approach to management. The company focuses on building mutually beneficial relationships with suppliers and concentrates on continual improvement. Reliances strong customer focus is realized through identifying customer needs and converting those needs into product specifications through its quality function deployment. The companys emphasis on state-of-art technology for its plants as well as its reliance on Six Sigma, benchmarking, quality control circles and customer satisfaction index further reflect its culture of Quality

26.5 WORK ENVIRONMENT IN A MANUFACTURING ORGANIZATION Any unit that is engaged in manufacturing would be using many factors of production and shall be interacting with several internal and external environmental factors, some of which are quite predominant. The following criteria should be adopted for each category to become world class. These are suitably revised in view of Indian conditions and limitations Factors Material inputs Manufacturing Systems-Production World Class Manufacturer Global Procurement, MRP Multiple Locations, Outsourcing, State of art

245

equipment, Laboratories & Maintenance Manufacturing Process Power & fuels

(Continuous reinvestments) Cellular Layouts, Numerically Controlled, High speed of through put Total Productive Maintenance (TPM) Lowest Specific Consumption Multi Ethnic/cross cultural composition, Group targets, duration of Training 10% of the work time, highest Value output per person in industry Leadership Status Always in top three, globally TQM/ QS 9000/Six Sigma Lowest Globally. Built in pollution control technology Internal R &D with Capital layout 10% to 30% of projected Turnover At least 30% new product features each Year. Lowest Cycle time Guaranteed delivery period/Off-the-shelf JIT/Turnover ratio: 80 and above At least 33 % or 1/3rd of Manufacturing time in value addition component of product Data Acquisition system/ ERP Industry Standard Customer delight

Labour-Supervisory and Skilled workers

Technology Production Capacity Quality systems Wastage and Effluents from the processes Design and Engineering Innovations, product flexibility Distribution & Logistics Inventories Value Addition Information (internal/External) Response time Customer satisfaction

To achieve excellence in manufacturing, a manufacturing manager should keep in mind five goals

246

1. Throughput should go up 2. Inventory should come down 3. Operating expenses should come down 4. Cycle time should come down 5. Yield should go up

Some of the key features of world class manufacturing shop floor practices would be: - The use of visual controls as aids for problem eradication. - The use of the SMED (single minute exchange dies) system for quick setups - The use of kanbans for implementing a pull system of material flow - The use of autonomation, which enables workers to attend to more than one machine each - Production Leveling, which ensures the pull system is workable - Cellular manufacturing, which makes ' single piece flow " or very small batches possible. - Production Planning and control systems - Sound new product development practices (Source: World Class manufacturing; Sahay and Saxena, Macmillan , 2000) World-Class manufacturers know how to improve business performance visibility

In an environment where change is the rule and not the exception; manufacturers must be vigilant about performance issues. They need to understand which customers, products and sales channels are profitable, and where problems hide in their enterprise.

247

World-class manufacturers consistently meet and beat their objectives by improving upon their business performance visibility. Understanding what drives their business allows them to improve revenue through competitive advantages, measure performance to set accurate expectations, improve relationships with all stakeholders, and reduce operations costs.

The

challenges

of

improving

business

performance

visibility

Manufacturers face specific business performance visibility challenges that can prevent them from improving performance. Voluminous and/or outdated data, inconsistent performance measurements, and a general lack of access to the right information allow issues to continue unchecked.

Best

practices

for

improving

business

performance

visibility

If you are not already making the transformation to world-class performance; consider the following best practices for improving business performance visibility: Turn Provide Establish Implement data into consistence exception alerts summarized, with current measurements usable and and information accurate data objectives

management

These best practices, driven by suitable software and hiring external services if needed, help world-class manufacturers better understand their business, grow revenue, achieve faster time-to-market, speed customer deliveries and reduce operations costs.
248

26.6 STRATEGIC PLANNING METHODOLOGY Growth strategies for Indian manufacturing One can look at competitiveness at various levelsat the level of individual corporate firms, at the industry level and at the national level. Of course, these three are not independent but are highly correlated. An individual firms competitiveness is dependent on the competitiveness of the environment in which the vertical industry and the national economy operate. Excellent logistics and IT infrastructure are becoming prerequisites for global competitiveness among manufacturing and service companies. The need of the hour for India is to meet local and global markets under open and fair economic conditions. It is possible for India to achieve very dynamic growth based upon labor-intensive manufacturing, which combines the vast supply of Indian labor, including skilled managerial and engineering services, with foreign capital, technology and markets. But to succeed, India must follow a balanced approach of developing its manufacturing capabilities, service infrastructure and operational capabilities, follow the right economic and trade policies, and finally develop the right kind of resource management skills. The Four Forces framework provides a basis for creating a competitive global manufacturing network in this context. The Four Forces Model. Manufacturing in the supply chain era is primarily influenced by four forces. The first is the product/process; the second is connecting technology, including logistics and information technology; the third is economic integration that includes tariffs and economic policy; and the fourth is resource management. Globalization of manufacturing and service industries is the result of advances in technologies as well as the desire of countries to integrate their industries with world markets. Driven by a need to cut costs while preserving

249

quality, change is underway: production is moving to low-cost locations with good service infrastructure and services are moving to locations with low-cost, skilled manpower. These changes affect how countries as well as companies must plan their strategic operations, and provide guidance as to how India can become a globally competitive manufacturing hub and a preferred destination for MNCs seeking new factory locations Modular product and modular supply chains. Prior to the 1980s, manufacturing was dominated by large, vertically integrated firms (for example, GM, GE, IBM, DEC, Fujitsu and Hitachi) that produced most parts and components within their country and firm boundaries using proprietary architecture. Today industries have increasingly become vertically segmented, with each segment managed by a different company, perhaps in a different country. Each stage in the value chain involves significant competition and the value and market power lie in the standards that create intellectual property-based monopolies (Intel chips and Windows operating systems, for example). This has led to a growing proportion of international trade occurring in components and other intermediate goods, resulting in the growing integration of world markets, with an increased service component (for example, logistics and customs clearance) in the production of the final product. The new strategic weapon for assemblers (Dell, GM and Nokia) is supply chain management. Connecting technologies. Technology enables and facilitates globalization. It is a fundamental force shaping the pattern of transformation of economies. Transportation and communication technologiesfrom commercial jets to container shipping, satellites and, of course, the Internethave shrunk the world dramatically. Recent innovations such as wireless and RFID will create further efficiencies in supply chain co-ordination.

250

Economic integration. Nations collaborate in several ways to achieve specific economic and welfare goals. There is a tendency for states to develop politicaleconomic relationships at the regional scale. These regional blocs have considerable influence on the world trade as evidenced by European Union, NAFTA and AFTA. Given the geography, it would be an interesting study to investigate the regions with which India should seek economic integration. The government of India is promoting special economic zones (SEZs), with the objective of freeing available goods and services of taxes and duties. This objective is supported by integrated infrastructure for export production, quick approval mechanisms, and a package of incentives to attract foreign and domestic investments for promoting exports. Resource management. India has vast natural resources: coastlines, fertile agricultural land, waterways, a large population of young talent, and a world-class education system in place to train engineers, R&D specialists and managers. Seemingly absent, however, is the vision to leverage its geography and resources to gain sustainable advantage as a supply chain hub. Located midway between Australia, the Middle East and Europe, India can play the role of a transshipment hub, knowledge services hub and, potentially, a food hub for the oil-rich Middle Eastern neighbors. Several South- East Asian countries have created wealth with world-class resource management skills with minimal or no resources. In the case of India, the countrys abundant natural resources are wasted for lack of management skills and political will. Our analysis shows that national competitiveness is the product of the above four elements. To gain competitiveness, nations need to choose the products and location of supply chain partners, prioritize the development of logistics infrastructure, make trade policies, and develop human, financial and managerial resources as appropriate to the vertical industry

251

Scale and innovation For Indian companies, it is a problem of plenty as far as opportunities go. Typically, companies react to opportunities by going low-cost, expanding geographically or through mergers and acquisitions, or innovating continuously. The low-cost story is becoming less applicable in Indian manufacturing because of rising wages and firming interest rates. As for geographic expansion, most manufacturing companies do not necessarily have the managerial capability to run profit centers in other parts of the world. Also, few Indian companies are cash-rich. Most would therefore end up acquiring very small companies that might not add value. Mergers and acquisitions, again, are often difficult to accomplish for Indian manufacturing companies. That leaves innovation, which has not yet been fully exploited. An ongoing Deloitte benchmark study of more than 35 Indian manufacturing companies against 140 multinational companies that have manufacturing operations in India has shed light on what Indian manufacturing companies are doing right and what they need to change. Companies across the spectrum agree that innovation is probably the manufacturing industrys most underexploited strategy. If the Indian manufacturing industry is to remain competitive over the next 15 years, it will need to focus on its innovation capabilities. The opportunity for dramatic improvement and transformation of business models in Indian manufacturing is significant. With average annual growth rates of nearly 20 percent among the companies benchmarked based in India, companies are presented with an unprecedented chance for re-inventing themselves. Growing at that rate, just five or ten years down the road, the vast majority of investments in the business will be new investments. As opposed to the multinational companies that have stopped depending on the well-being of the economy or just the market in which they operate, Indian companies seem to consider those two as the main drivers for business in the foreseeable future. Indeed, Indian companies lag behind their global competitors in research and development. This is, however, something that will
252

start to change in the coming months and years as these companies look to launch products and services on a continual basis. The challenge is doing it right.

26.7 IMPLEMENTING THE WCM PLAN The most important variables that promote the implementation of WCM techniques are reduced operating costs (marketing and production) and global issues (environment-market). Poor planning and lack of knowledge are the most signicant barriers to WCM implementation in the manufacturing sector. Rapid changes in business environment due to its unique characteristics, the raise of international competition among companies, shrinkage of markets, and diffusion of the IT through organizations have put pressure on businesses to continually review and adopt their traditional manufacturing strategy. Thus, in order to compete in global markets, Indian manufacturing necessarily needs to acquire world-class performance. WCM companies are those companies which continuously outperform the industrys global best practices and which know intimately their customers and suppliers, know their competitors performance capabilities and know their own strengths and weaknesses. All of which form a basis of continually changing competitive strategies and performance objectives. WCM is composed of six dimensions: workforce skills and capabilities, management technical competence, competing through quality, workforce participation, rebuilding manufacturing engineering, and incremental improvement approaches. Schonberger (1986) provided a list of 16 principles of WCM which fall into eight categories: general, design, operations, human resources, quality and process improvement, information for operations and control, capacity, promotion and marketing.
253

Implementation drivers: Perhaps, one of the strongest drivers is the increasing level of competition in the global markets. Also, another important driver is the never-ending needs of customers who are looking for better services and products. Finally, competitors use of the WCM techniques and their ability to respond to customers has a strong effect on the adoption of the WCM. Reducing costs by substituting the WCM for other traditional techniques is yet another driver for WCM use since it is associated with cost savings. Barriers to implementation: Partial implementation of WCM techniques More optimistic expectations Implementation of WCM to conform to societal norms rather than for its instrumentality Some of the prominent problems in WCM implementation include partial implementation, lack of a well-dened routine for attaining the objectives of implementation, cultural resistance to change, lack of training and education, and lack of organizational communication Lack of a clear understanding of what are the fundamental and complementary manufacturing practices. Companies that encountered failure in their program implementation neglected the development of practices that support the implementation of WCM techniques. The major barrier that will possibly affect WCM implementation is the inability of a company to coordinate its human resource practices, management policies and technology

254

26.8 HUMAN RESOURCE DIMENSIONS IN WCM Making the most of human resources is one of the final frontiers in all the sectors. While machines, methods and materials receive most of the attention and investment, manpower remains the deciding factor in tying them all together and making the whole more than the sum of the parts.

With this being the case, human resources remains overlooked and underresearched as a core competitiveness element in the automotive components industry. At the same time, it's undeniable that the ability to fully utilise the labour force has been a driving factor in the success and sustained competitive advantage of Japanese OEM's in particular.

But what exactly constitutes human resource best practice in the international automotive components industry, and how can it be applied?

"World Class Manufacturing: Best practices in supplier human resources" answers this question by identifying best practice in a range of human resource (HR) performance areas, as well as how firms should be striving to achieve this in respect of their existing HR performance levels. It examines best practice standards according to five key pillars of the human resource challenge facing automotive component manufacturers, irrespective of their sub-sector of operation, or specific geographical 1. 2. 3. 4. 5. Skills Employee Development Development Commitment of Levels Improvement Processes Continuous location:

Efficiency Enhancement Workplace Safety

255

ACTIVITY 1. List some of the best practices to be followed by companies to become world class manufacturer 2. What are the barriers in implementing WCM SUMAMRY: The Indian manufacturer should acknowledge that the aim of being world-class is not merely a matter of simply reducing costs; it is, in fact, the ability to link the manufacturing capabilities with market requirements to enhance the rms performance in order to satisfy its customers. Based on the results of this study, lack of employee education and training is the most important barrier to implement the WCM. Therefore, world-class practices should be implemented through a process of mature learning, and not be used as a quick x reaction to a problem. Because, the implementation of WCM techniques takes a long time, manufacturing rms that are willing to implement them should be patient and persistent until the expected benets of WCM techniques implementation are obtained. The Indian manufacturers must think globally. The consequences of not doing so would be a penetration of their own markets by overseas competition. They must also expect more complexity in business, products, and process. Policy makers in the Indian industrial sector should enhance the capability of manufacturing rms that are willing to implement WCM techniques through increased funding, grants, incentives, and educational programs.

DISCUSSION QUESTIONS 1. Discuss the need of Best management practices and explain how these practices could lead the companies to become World class manufacturers 2. List out some of the leading Indian companies that implement world class manufacturing
256

3.Discuss the entry of Multinational companies in to Indian market 4. Explain the Operational excellence of Indian manufacturing companies with examples 5. Discuss the work environment in the manufacturing organization 6. Explain the strategic planning methodology followed by Indian companies 7..Explain the plan of implementation of WCM 8. Explain the role of Human resources in WCM and what are its dimensions?

257

MASTER OF BUSINESS ADMINISTRATION

ELECTIVE OPERATIONS MANAGEMENT

WORLD CLASS MANUFACTURING

Course Writing Mr.S. Senthil Gavaskar Associate Professor, RMK Engineering College, Chennai, Tamil Nadu, India

Editing Dr.B.Devamaindhan, Assistant Professor, Management Studies, Institute of Distance Education, University of Madras, Chennai-600 005, Tamil Nadu, India

2013 Institute of Distance Education, University of Madras, Chennai-600005

258