America’s Response to China’s Belt and Road Initiative
China ambitious Belt and Road Initiative has attracted the attention of many economists worldwide. Many of these economists believe that the Belt and Road Initiative is part of China’s vision of a world where America will no longer be the dominant superpower. It is possible that this may be true. China has committed a large […]
The Ugly Face of Contract Farming
Contract farming has been hailed by many experts as the perfect economic arrangement between farmers and companies. Corporations like Monsanto, McDonalds, Starbucks and KFC have become champions in the use of contract farming. Companies claim that it is a beautiful arrangement that cuts out non value adding middlemen and therefore increases the prosperity of the […]
Demand Forecasting – Meaning, Objectives, Classification & Characteristics
Forecasting For an organization to provide customer delight it is important that organization can understand what customer wants and how much does they want. If an organization can gauge future demand that manufacturing plan becomes simpler and cost effective. The process of analyzing and understanding current and past information to understand the future patterns through […]
Definition of Key Performance Indicator (KPI) and relationship with SLA
A KPI is a great tool to measure and control the performance of any given process. In management jargon, there is a famous saying which says “That which cannot be measured cannot be managed”. The whole process of control, therefore relies on real time measurement and transfer of information from the site where the task […]
Business Intelligence Architecture and Tools
Introduction Business intelligence is an important to ensure the following: Various decision-makers and analyst have a direct and un-interrupted access to data. The data been used across the organization should be non-disputable. Decision makers spend their time analyzing the data rather than collecting and formatting them. Decision makers are able to focus their energy in […]
Polar opposite to the concept of Business Process Re-Engineering is the concept of continuous improvement. It was developed by the Japanese after World War-2. Whilst BPR relies on radical change, lean management relies on small incremental change. It stems from Japanese term called “Kaizen” which means small improvement.
The concept relies on successive small improvements to bring about a big change over a period of time. Instead of changing the process completely, only minor modifications are made to the process and over time they accumulate to provide big benefits.
Corporations such as Toyota and Sony have dominated global markets with the help of this concept. Even Wal-Mart has deployed it to make its supply chain powerful enough to offer EDLP (Every Day Low Prices). Here are some examples of continuous improvement and how information technology contributes:
Inventory Management: Toyota Inc realized that it was occurring costs of over 26% per annum for maintaining inventory. So were all the other car manufacturers. This inventory was maintained because the process was aiming at local optimization instead of total optimization.
The inventory department was trying to minimize its own costs rather than total costs and so were all the other departments. Toyota used technology to build an impressive forecasting system. Then it streamlined its supply chain to ensure that inventory arrived Just in Time (JIT). This cut all the storage, administration and interest expenses. Toyota could price better and still reap higher profits. Toyota used continuous improvements in its forecasting, inventory management and warehousing processes to gain a cost advantage over the others.
Logistics: Wal-Mart used processes to its advantage when it built a world class inventory tracking system. It cut administrative costs and supply shortages as it built information systems to share information with the suppliers.
P&G could see when the inventory had fallen below a certain level and could replenish it without Wal-Mart making any effort. The use of RFID chips and barcodes enabled the Wal-Mart to track its customer behavior better and develop relationships with them. Thus a small change like introduction of RFID coupled with other small changes like automated ordering brought down the clerical costs of the purchase department and also increased efficiency manifold.
Push v/s Pull Supply Chain: While most PC manufacturers in the US were reeling from falling prices and rising inventory, Dell Inc found a way to use processes to turn the situation in its favor.
Dell used technology to sell its computers as opposed to brick and mortar stores saving on overheads. But this is just a small part in the strategy.
Dell’s masterstroke was to change the supply chain from push to pull strategy. Dell would manufacture only when ordered. It used information systems to ensure that when an order was placed, all its suppliers got it simultaneously. They would then keep the order ready and Dell would assemble all the parts and use a high-tech assembly line to build and deliver the PC in no time. The customer didn’t mind waiting 4-5 days if Dell took 20% off. Even at this low price Dell was earning superior profits thanks to the power of technology
Processes can also be used to solve a major problem called the Bullwhip effect in the supply chain. It means that minor changes in demand are amplified as they move upwards in the supply chain. The manufacturers anticipate larger demand, produce more and end up with excess inventory. This problem has been curbed by using processes to develop a real time sales monitoring system.
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