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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-Indian’s Global competitiveness and manufacturing excellence-

problems 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 world-

class 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 in-

depth 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.

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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:

- to make the students aware of the strategic importance of aiming at high levels of

Performance in a "Global Market" situation.

- to make the students acquainted with those principles required to understand, measure, self-

assess 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 to achieve 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.

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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.

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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

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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.

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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 world-

class 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

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well in place. Companies that are already world class are able to quickly absorb other world-

class 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, computer-

assisted 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),

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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. World-

class 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 world-

class 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

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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

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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

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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. Zero Defects

j. Just-in-time

k. Variability reduction

l. High employee involvement

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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.

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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 competition—regardless 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.

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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

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3. Explain the philosophy and techniques in world class manufacturing

4. What are the features of world class manufacturing

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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

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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, one-

time, 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

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measurements must encourage overall performance—shipping 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 disruptive—earlier 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 manufacturer’s survival and growth. Efficiency and responsiveness of

R&D processes will impact the top line as well as the bottom line.

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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 today’s

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 benefits—growing revenue—the 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-of-

goods 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.

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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 Today’s fast-

moving, 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 company’s health and success. Executives and

senior managers must understand how the enterprise is meeting strategic objectives. Middle-

level 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 stakeholders—owners, 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

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most commonly used method today but EDI is rapidly being replaced by XML-based e-

commerce 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

don’t 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 relationship—from prospect to post-sales service

and support—involving 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 it—the 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

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lightly—all considerations and constraints are factored in before committing to a delivery date.

Performance measurements are a must; if you don’t 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 don’t 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 customer’s requirements better and faster.

Manufacturers often grow and enter new markets by acquiring or merging with other

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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

flexibility—the 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 manufacturing—while 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

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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 today’s 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 process—like production. By partnering with world class contract

manufacturers, you can reap the benefits almost immediately—well-managed processes, high

quality, on-time

deliveries—and increase your performance and expectations. At the same time, you can focus

your own resources on the things that you do best—product innovation, design, marketing,

distribution, sales or manufacturing.

7. Improve business performance visibility

The keys to becoming a world-class manufacturer are not a secret—they 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 machine—a machining center,

insertion machine, automated assembly line or robot—you 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 place—to provide tools to manage the

information that is essential to growing business value. And that’s the application software, not

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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 haven’t 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

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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:-

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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 non-

bottleneck processes. The technique "Single Minute Exchange of Die" or "SMED" provided a

structured approach to doing this.

2. Form Natural Groups (cells)

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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

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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.

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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.

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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

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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.

33

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

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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

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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

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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 capital-

intensive (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 world-

class 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

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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.

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* 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 CHALLENGES IN GLOBAL BUSINESS

ENVIRONMENT

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:

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* 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 OPERATING ENVIRONMENT

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

the basis of a new set of operating assumptions, including:

* 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's-

length 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,

40

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.

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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 to the

success of organizations.

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.

42

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

43

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

44

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 time-

based 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

45

priority setting is the need to respond to virtually any customer request just-in-

time. 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 white-

collar 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

46

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

47

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?

48

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.

49

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

50

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

51

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 origins—for instance, the Finnish mobile Nokia and the US toy-

maker’s 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

markets—goods and financial—the 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.

52

This chapter brings out the historical perspective of the globalization of business,

which reveals that India and China were the world’s 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.

53

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. 636–43; 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

54

(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

world’s largest economy with 32.9 per cent share of the world’s 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

55

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

56

dividends. So efficient and highly organized were the Indian methods of

production, and such were the skills of India’s 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

57

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

58

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.

59

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

60

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

61

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’.

62

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. India’s 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. Coca-

Cola 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. McDonald’s

has more than 30,000 local restaurants serving 52 million people everyday in more

than 100 countries. Levi’s jeans are sold in more than 110 countries. Ronald

McDonald is second only to Santa Claus in name recognition for most school

children.

63

Fig. 1.4 A grandiose sculpture at the entrance of Bangkok’s Suwarnabhoomi International Airport, depicting the Hindu mythological story of the ‘Churning of the Oceans’ (samudra-manthan) between the demons and the gods, evidences India’s 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

64

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 intra-

industry 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 one-

third of their international trade.

65

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

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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

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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,

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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

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CHAPTER –V GLOBALIZATION AND ITS EFFECT ON

INTERNATIONAL BUSINESS

After reading this chapter, the students should

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

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5.1 GLOBALIZATION AND ITS EFFECTS ON INTERNATIONAL

BUSINESS

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

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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

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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 1960’s already and

have also been recognized by IBM. Therefore Geert H. Hofstede was hired to

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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

country’s 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 society’s 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.

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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.

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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

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Agreement on Trade in Services (GATS), dispute settlement mechanism, anti-

dumping 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) countries—all former Soviet

Republics—and 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

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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, fast-

food 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

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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, France’s

collective nationalism favours home-grown agriculture and the US fear of

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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

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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 world’s 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

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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

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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 world’s

top 250 retailers have not yet ventured beyond their own borders. An additional 35

companies operate in just two—typically contiguous—countries, such as the US

and Canada, Spain and Portugal, or Australia and New Zealand. Foreign operations

of the world’s 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 world’s 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.

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_ 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 world’s 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 world’s 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.

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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

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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

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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 labour—thereby

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

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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

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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

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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

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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 new performance measures

� Design effective performance 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

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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 performance measures

6.5 Designing effective performance measures

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.

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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

advantage of these opportunities has depended on their competitiveness.

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

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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 fast-

changing 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

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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

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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

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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

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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. non-

financial 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?

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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.

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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

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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.

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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

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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

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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

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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

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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

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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 today’s 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

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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 world-

class manufacturers to be flexible enough to satisfy changing market demands.

Before presenting issues of managerial and strategic concern. The managers and

leaders should do things right for successfully achieving AMT competitive

advantages.

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 special-

purpose 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

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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, computer-

integrated manufacturing (CIM) systems, optimized production technology (OPT),

and just-in-time (JIT). Although AMT places great emphasis on the use of

technological innovation, management’s 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. Manufacturing’s mission, when

deploying DMS, is strictly to execute operational plans in support of the firm’s

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

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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 today’s

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:

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(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 management’s reluctance to admit their own

culpability for existing problems presents a barrier to organizational improvements

such as AMT adoption. Operational requirements focus on improving AMT

implementation; strategic competitive advantages concentrate on how to

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.

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

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organization’s 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 OPERATIONS REQUIRE TIME-BASED

COMPETITIVENESS

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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, Edy’s 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 management’s 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

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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

company’s 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

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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 people’s 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, management’s 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

Taylor’s 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.

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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 organization’s 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 business-

and functional-level strategies. The procedure consists of vision foundation,

strategic intention, environmental assessment, manufacturing design, operational

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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

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Companies seeking to compete against the world’s 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

organization’s core competences. Management practices are key to successful

AMT implementation; and even though AMT places great emphasis on the use of

technological innovation, management’s fundamental role is to build trust and co-

operation, 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

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CHAPTER-VIII

GAINING COMPETITIVE EDGE THROUGH GLOBAL PRODUCT

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

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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

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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 value-

add, 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 1980’s and 1990’s. 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

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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-1990’s, 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 didn’t 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

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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 today’s 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 IT-

enabled) 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

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cannot switch to a highly globalized model overnight, but can migrate toward

increasing levels of globalization over a period of years.

Global Product Development–Is 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

Department’s 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 India’s 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

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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 Siemen’s 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.

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Although GE, UTC, Siemens, and Cummins are all sizeable industrial companies,

the phenomenon doesn’t 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

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“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 value-

add 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 contractor’s profit margin and the

resulting cost would drop to the $10-$15/hour range. Obviously, the lowest steady-

state 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.

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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 1–None, with no meaningful

degree of global distribution of product development activities.

• Numerous companies at Level 2–Ad 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 3–Discrete 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 4–Co-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

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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

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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

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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 company’s 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

131

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

132

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.

133

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?

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9. What are the risks and challenges in Global product development ?

135

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

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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, Schönberger 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

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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

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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

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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 how’s and the why’s 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, it is time to

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

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

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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, 5Why’s) 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 5Why’s. Ask ourselves Why, at least five

times, we can determine the actual root cause of the problem. The above tools are

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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 building–in quality at the process, and maximizing yields, looking

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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.

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ACTIVITY

1.What are the primary goals to develop WCM?

2.WCM is an operating strategy that gives a new dimension for production-

Justify

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

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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

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UNIT-III WCM THROUGH PRODUCTION MANAGEMENT

FUNCTIONS-I

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

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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:

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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 had been a quality engineer in the Toyota-

GM NUMMI joint venture in California before coming to MIT for MBA studies.

Krafcik's research was continued by the International Motor Vehicle

Program (IMVP) at MIT, which produced the international best-seller book co-

authored 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), poka-

yoke (error-proofing), Total Productive Maintenance, elimination of time

batching, mixed model processing, Rank Order Clustering, single

point scheduling , redesigning working cells, multi-process handling and control

charts (for checking mura).

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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

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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.

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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

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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 just-

in-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

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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 two-

way 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:

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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 set-

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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

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"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 team’s 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 system’s 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

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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

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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

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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

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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

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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 and other areas of information

technology (IT). More generally, the use of Lean in information

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.

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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 company’s 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

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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

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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

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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

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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

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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

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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'.

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Agile Manufacturing (AM) has gained increasing attention from the manufacturing enterprises to deal

with today’s 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.

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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

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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

Agile

Manu fac turing Capab ility fo r

Recon figuration Virtual En terpris e

Core Co mpetence M anagemen t

Knowledge-d riven En terpris e

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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 organisation’s 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

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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 information-

rich.

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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.

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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.

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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

customer’s 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 customer’s 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

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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. Explain the basic concepts of agility?

2. Discuss the significance of agile manufacturing

3. What are the key attributes of agility?

4. Explain the core components for development of agile manufacturing with a neat sketch

5. What are the pros and cons of agile manufacturing?

6. Differentiate between lean and agile

7. Differentiate between agile and world class manufacturing

8. What is an agile supply chain?

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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

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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 today’s 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

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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

Operational • The ability to efficiently produce highly customized and unique products

Customer • The ability to exploit various dimension of speed of delivery

Strategic • The ability of a company to offer a wide variety of products to its customers

Capacity • The ability to rapidly increase or decrease production levels or to shift capacity quickly from one product or service to another

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.

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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

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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

company’s 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

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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.

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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 system’s 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

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• 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

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• 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

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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 (b) System 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).

REVIEW QUESTIONS

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

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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 ?

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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

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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

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

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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 13-

week 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

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(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 item’s 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 crew’s

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efficiency is the result of a team effort using specialized equipment and a coordinated, well-

rehearsed 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

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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

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problems this causes with regard to gridlock and burning of fossil fuels. This violates three JIT

waste guidelines:

1. Time—wasted in traffic jams

2. Inventory—specifically pipeline (in transport) inventory

3. Scrap—fuel 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

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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 in-

process 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.

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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

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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

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– 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

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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.

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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

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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

14.1 EVOLUTION OF TOYOTA PRODUCTION SYSTEM

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

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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.

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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.

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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.

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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

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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

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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.

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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 workplace—a major focus of the modern kaizen—and doing a job

inefficiently out of habit—are 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

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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 it—the 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.

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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

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• 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

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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

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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

214

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.

215

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

216

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

217

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 and

participation in the Indian manufacturing industries. This would allow

Indian companies to pick up important lessons and tips on improving

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.

218

25.2 BECOMING WORLD CLASS

MANUFACTURER-INDIAN

PERSPECTIVE

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 today’s 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

today’s 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

219

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

220

standardization, optimizing processes and tool systems, improvement of

manufacturing metrics, outsourcing, quality standards, and information

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:

• 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

221

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 CNC mach ines , the

watch makers l ike Ti tan Indus t r i es , the r i se o f the 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

222

1990s, the status of India in the world of production / manufacturing was creditable

enough, as the Table # 1, given below depicts

ACTIVITY RELATIVE POSITION

Coal Production 9th

Bauxite production 9th

Electricity generation 10th

GNP Contribution of manufacturing 11th

Sector in GDP 13th

Commercial vehicles production 14th

Crude steel production 15th

Merchant vessels 16th

Machine tools production 18th

Passenger cars production 19th

Crude petroleum production 19th

Exports 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

of several industries producing different items as required by the internal

economy. We produced coal, petroleum, natural gas and other essential natural

223

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

224

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 technologies—despite 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

225

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

226

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 India—a 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 company’s 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)

227

- 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

228

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.

229

"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.

230

-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 contribution and

participation in the Indian manufacturing industries. This would allow

Indian companies to pick up important lessons and tips on 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 today’s

economy. They look at each aspect of production, identifying time-consuming or

231

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

232

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%

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

233

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

234

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

Today’s 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 defining best practices as the practices used by, and

having significant 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.

235

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

Practice

Results regarding

practice-performance

Relationship

Swamidass and

Newell (1987)

Cross-functional

co-operation, design for

manufacturability

Corporate performance is

positively related to the

role of manufacturing managers

in strategic

decisions

Voss (1995a) World-class

manufacturing,

bench-marking, business

process re-engineering,

TQM, learning from the

Japanese, continuous

improvement (CI)

Implementation of best (world

class) practices leads

to superior performance and

capability

Ahmed et al. (1996) TQM, JIT, FMS, CE, When practices (operations

236

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

The classification of

manufacturing practices

taxonomies developed provides

insight into the role

of individual 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

237

continuous improvement, but

leaders become more

frustrated because they expected

to achieve more.

Cellular manufacturing in a UK-

based 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, leads to improved

competitive

performance

Kathuria and

Partovi (1999)

Cross-functional

co-operation

Better performing manufacturing

managers

strongly demonstrate

relationship-oriented

practices, such as team building

and support,

participative leadership and

delegation, especially

238

when the emphasis on flexibility

is high

Rondeau et al.

(2000)

Davies and

Kochhar (2002)

Work system practices,

time-based competition

Best practices,

performance,

manufacturing planning and

control

Time-based manufacturing

practices tend to lead to

standardization, formalization as

well as integration. A structured

approach used to identify direct

qualitative relationship between

practice and performance

Garver (2003 Benchmarking, CI Integrating customer

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

There are only few best practices

contributing to

competitive manufacturing

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 specific context in which they

239

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 long-

term 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.

240

The first stage is that of building the base—crucial, 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.

India’s 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.

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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

States—growing 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

company’s 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 3M’s perspective, India’s 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.

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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-value-

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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, Apple’s 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 base—for 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.

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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 forms—going

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 Sundaram-

Clayton 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 low-

cost 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.

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The company’s 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 company’s 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.

Reliance’s strong customer focus is realized through identifying customer needs

and converting those needs into product specifications through its quality function

deployment. The company’s 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 World Class Manufacturer

Material inputs Global Procurement, MRP

Manufacturing Systems-Production Multiple Locations, Outsourcing, State of art

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equipment, Laboratories & Maintenance (Continuous reinvestments)

Manufacturing Process

Cellular Layouts, Numerically Controlled,

High speed of through put Total Productive

Maintenance (TPM)

Power & fuels Lowest Specific Consumption

Labour-Supervisory and Skilled workers

Multi Ethnic/cross cultural composition,

Group targets, duration of Training 10% of

the work time, highest Value output per

person in industry

Technology Leadership Status

Production Capacity Always in top three, globally

Quality systems TQM/ QS 9000/Six Sigma

Wastage and Effluents from the processes Lowest Globally. Built in pollution control

technology

Design and Engineering Internal R &D with Capital layout 10% to

30% of projected Turnover

Innovations, product flexibility At least 30% new product features each Year.

Lowest Cycle time

Distribution & Logistics Guaranteed delivery period/Off-the-shelf

Inventories JIT/Turnover ratio: 80 and above

Value Addition At least 33 % or 1/3rd of Manufacturing time

in value addition component of product

Information (internal/External) Data Acquisition system/ ERP

Response time Industry Standard

Customer satisfaction Customer delight

To achieve excellence in manufacturing, a manufacturing manager should keep in

mind five goals

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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.

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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 data into summarized, usable information

Provide management with current and accurate data

Establish consistence measurements and objectives

Implement exception alerts

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.

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26.6 STRATEGIC PLANNING METHODOLOGY

Growth strategies for Indian manufacturing

One can look at competitiveness at various levels—at 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 firm’s

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

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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 technologies—from commercial jets to

container shipping, satellites and, of course, the Internet—have shrunk the world

dramatically. Recent innovations such as wireless and RFID will create further

efficiencies in supply chain co-ordination.

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Economic integration. Nations collaborate in several ways to achieve specific

economic and welfare goals. There is a tendency for states to develop political-

economic 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 country’s 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

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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 industry’s 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

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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 significant 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

industry’s 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.

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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-defined 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

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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 under-

researched 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 location:

1. Skills Development

2. Employee Commitment Levels

3. Development of Continuous Improvement Processes

4. Efficiency Enhancement

5. Workplace Safety

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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 firm’s

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 fix reaction to a problem. Because, the implementation of WCM techniques

takes a long time, manufacturing firms that are willing to implement them should

be patient and persistent until the expected benefits 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 firms 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

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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?

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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