Gma Tyagi

TAKING MANUFACTURING BEYOND WORLD CLASS

ALOK TYAGI

Goa Management Association Panaji 20 September 2003

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If you ride the tiger…

you can neither slow down nor stop…

without getting eaten up

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Beyond world class principles

What will it need to take manufacturing beyond world class

Supply chain: Strategic design considerations

Drivers of complexity in global manufacturing

The paradoxes of complexity

Agenda

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Agenda

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What does becoming ‘beyond world class’ mean ?

Strategy towards “beyond world class’

Covenanting

Seeing the customers’ future

The character of the ‘beyond world class’ company

Implementing ‘beyond world class’ principles

Beyond world class ( BWC)

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World Class Beyond World Class

Profitability

Shareholder value

Market position

ROS/ROI/RONW

Creating intrinsic value

Long term employee

retention

High retention rate of

suppliers

Retaining best customers

Emerge long-term winners

The paradigm shift

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Q.1 Are BWC principles mutually exclusive from other

business

models ?

Yes – they de-emphasise low-end targets, which are

actually consequences

Key point: success is the proven outcome of hard work

Q.2 Is it difficult to become a BWC company ?

Although it is not difficult to achieve, it is often difficult

to start

Like several transformational processes, it needs the

CEO’s thinking aligned to it, and a leadership cascade all the

way

Some key questions

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Q.3 Will the change to be a BWC company worth it ? Yes, BWC companies achieve the lower level outcomes –

profitability, market share, shareholder value- as

consequences To realise intrinsic higher order results, in addition One mindset this needs is that the current leadership is

committed to prepare, mentor, and empower the leadership

of the generation next

Q.4 How do we change to BWC ? By applying these basic principles

- being customer focussed

- distinguishing between external and internal customer

- seeking continuous solutions development

Some key questions

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A commitment to excellence

Establishing covenantal relationships

Value plus – aligning a horizontal delivery system

Storm clouds – withstanding tests

A question of character – setting a character culture

Strategy towards BWC

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From contracts to covenants: moving from “what is permissible” to “what is possible” unleashes both individual creativity and collaborative progress

Vision and covenant alignment

Covenantal relationships cover customers, employees, suppliers

Building covenantal relationships

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The problem with assumptions

1. We cannot assume that our customer know where they are going

2. We cannot assume that our customers’ industries are stable and consistent just because they have been stable and consistent in the past

3. We cannot assume that our customers want our help

Four key questions to ask the customers:

1. What changes must you make to meet the needs of your customers in the future ?

2. What are the most significant threats – long term and short term – to your strategy ?

3. What are the three most significant opportunities that you have to serve your customers in the future ?

4. How will you meet the challenges in your industry ?

Seeing the customer’s future

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Humility: The ability to focus more on the needs and situation of others, without thinking less of ourselves

Sponsoring champions: “Show how”, not “know how”

Integrity: The complete, end-to-end alignment between the goals and objectives of the company, and the personal destiny of its employees

Modelling: Employees, customers and suppliers should see covenantal behaviour modelled across the organisation, standing with leadership

Fairness: People who are treated fairly are more likely to support the decisions of leaders who ask them to move outside their comfort zones

Caring: The most powerful tool for employee encouragement and growth

The character of a BWC company

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Phase One: Alignment audit VMV Structure, competencies Culture, communications Follower commitment to shared vision

Phase Two: Shared vision and guiding principles Destination Mutual impact Impact on customers Impact on suppliers /other departments

Phase Three: Strategic initiatives Giving meaning to the vision Serve customers Develop solutions for increasing customer competency Develop solutions for increasing internal competency Create interdependence between employees

Implementing BWC principles

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Phase Four: Vital objectives Specific, measurable, observable, time-sensitive actions Assign responsibility to single person Tactically implement the strategy Maintain implementation focus

Phase Five: Alignment feedback and mutual accountability Review results Adjust methods Celebrate successes Teach / learn from experience Share the BWC impact

Implementing BWC principles (contd.)

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Agenda

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Achieving strategic fit

Expanding strategic scope

Facilitates decisions in supply chain design

Framework for network design decisions

Supply Chain: Strategic design considerations

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The first step in achieving strategic fit between competitive and supply chain strategies is to understand customers by mapping where the demand is located on the implied uncertanity spectrum

Low implied demanduncertanity

Purely functional

products:gasoline

Somewhat uncertaindemand

Established goods:Cresttoothpaste

Somewhatuncertaindemand

New models of existinggoods:Ford Taurus

Highimplied demanduncertanity

Entirely newproducts: theintroductionof the PalmPilot

The implied uncertanity spectrum

Uncertainity spectrum

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The second step in achieving strategic fit between competitive and supply chain strategies is to understand the supply chain and map it on the responsiveness spectrum

Highly efficient

Integrated steelmills:

productionscheduled

weeksor months inadvance withlittle variety orflexibility

Somewhat efficient

Hanes apparel: atraditional make-to stock manufacturerwith production lead time ofseveral weeks

Somewhatresponsive

Most automotiveproduction:delivering a

largevariety of

productsIn a couple of weeks

Highly responsive

Dell: customermade PCs andservers in a few days

The responsiveness spectrum

The responsiveness spectrum

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High Low

High

Low

Cost

Responsiveness

Cost- Responsiveness efficient frontier

Establishing the responsiveness-efficiency frontier

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The final step in achieving strategic fit is to match supply chain responsiveness with the implied demand uncertanity in the zone of strategic fit. All functional strategies in the value chain support the supply chain responsiveness

Certain Demand

EfficientSupply chain

ImpliedUncertanit

ySpectrum

Uncertain

Demand

ResponsiveSupply chain

Responsiveness

SpectrumZone fo

r stra

tegic fi

t

Finding the zone of strategic fit

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Efficient Supply Chain Responsive Supply Chain

Primary goal Supply demand at the lowest cost Respond quickly to demand

Product design strategy

Maximize performance at the minimum product cost

Create modularity to allow postponement of product differentiation

Pricing strategyLower margins because price is a prime customer driver

Higher margins as price is not a prime customer driver

Manufacturing strategy

Lower cost through high utilizationMaintain capacity flexibility to meet unexpected demand

Inventory strategy Minimize inventory to lower costMaintain buffer inventory to meet unexpected demand

Lead time strategyReduce but not at the expense of costs

Aggressively reduce even if the costs are significant

Supplier strategy Select based on cost and qualitySelect based on speed, flexibility, and quality

Transportation strategy

Greater reliance on low cost modes Greater reliance on responsive modes

What is the right supply chain for your product ?

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Competitivestrategy

ProductDevelopmentstrategy

Supply chainstrategy

Marketingstrategy

SuppliersManufacturerDistributorRetailer Customer

Framework to analyze supply chains

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Competitivestrategy

ProductDevelopmentstrategy

Supply chainstrategy

Marketingstrategy

SuppliersManufacturerDistributorRetailer Customer

The intercompany scope of strategic fit is essential today because the competition has shifted from company v/s company to supply chain v/s supply chain. The company’s partners in its supply chain have the casting vote on its business success !

Intercompany scope

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Offshore

Facility Type

Lead

Source

Server

Contributor

Outpost

Purpose of facility

Low cost – for export

Low cost – for global production

Regional production

Regional production with Development skills

Regional production, built to

gain local skillsLeads in development

andProcess technologies

Deciding facility type

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Relationship between Number of

facilities and Inventory costs

Number of facilities

Inven

tory

costs

Number of facilitiesTra

nsp

ort

ati

on

costs


facilities and Transportation costs

Determining number of facilities

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facilities and Facility costs


Facilit

y c

osts

Variation in logistics costs and response time with Number of facilities


Response time

Total logisticsCost

Determining number of facilities (contd.)

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COMPETITIVE STRATEGY

INTERNAL CONSTRAINTSCapital growth strategy,

Existing network

PRODUCTION TECHNOLOGIES

Capital growth strategy,Existing network

COMPETITIVE ENVIRONMENT

PRODUCTION METHODSSkill needs, response time

FACTOR COSTSLabour, materials,

site specific

PHASE ISupply Chain

Strategy

PHASE IIRegional Facility

Configuration

PHASE IIIDesirable Sites

PHASE ISupply Chain

Strategy

GLOBAL COMPETITION

TARIFFS & TAXINCENTIVES

REGIONAL DEMANDSize, growth, homogeneity,

Local specification

POLITICAL,EXCHANGE RATE,

AND DEMAND RISK

AVAILABLE INFRASTRUCTURE

LOGISTICS COSTSTransport, inventory,

coordination

Framework for network design decisions

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AgendaAgenda

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The profitability imperative: cost focus

The growth imperative: pursuit of markets

The value imperative: product innovations

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To reduce costs, many companies are being forced to relocate or outsource parts of their supply chain

Outsource manufacturing functions

Use outsourced engineering services

Close production facilities to shed excess capacity

Outsource distribution & logistics functions

Move production to lower cost geography

0 20 40 60 80Percentage of companies with some or more implementation

The cost squeeze

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The phenomenon of hollowing out

Companies without production in home markets

0

5

10

15

20

25

30

35

North America Western Europe

%

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Top destinations for engineering outside home region for North American and Western European manufacturer over the next three years

North America(percent) Western Europe (percent)

China (22)China (16)

United States/Canada (16)India (12)

Eastern Europe (11) Eastern Europe (15)

South East Asia (10) Central Europe (14)

Mexico/Central America (10)India (8)

Western Europe (10)

(percentage of companies indicating entry and expansion plans)

Exploiting country advantage

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The pursuit of markets

Top 5 market destinations for North American and Western European companies outside home region over the next three years

North America(percent) Western Europe (percent)

China (48) Eastern Europe (60)

Western Europe (47) Central Europe (50)

Eastern Europe (42) China (44)

Mexico/Central America (42) US/Canada (43)

Central Europe (41) South America (29)

(percentage of companies indicating entry and expansion plans)

Companies increasingly look at markets all over the world, given the escalating cost of developing new products and servicesGoing for growth

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No other strategy for driving the top line is more important than developing innovative new products and services

(Percentage of companies indicating moderate to high importance)

New products & services launch

Economic turnaround

Industry market growth rate

Developing new market channels

Entering new geographical markets

20 60 80 100Percentage of companies with some or more implementation

89

85

80

72

66

Top five revenue drivers – next three years

Product innovation

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The unrelenting push for innovation: new product revenue expected to exceed 30% in 2006

0

5

10

15

20

25

30

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1998 2003 2006

% a

ge

of r

even

ue

fro

m n

ew p

rod

uct

s in

tro

du

ced

op

ver

the

last

3 y

rs

Note:# Based on Deloitte Research, Global Report – Vision in manufacturing(New York:Deloitte Research, 1998)## Expected

# ##

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The three main penetration points

Inventory management Purchasing

Distribution Packaging Manufacturing





Ship to order

Pack to order

Make to order

Retailer’s demand chain



Manufacturer’s supply chain



Supply chain: The traditional order penetration points

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The three main value-offering points



Offer to purchasing







Assortmentplanning

Assortmentplanning

WarehousingOffer to inventory management





Assortmentplanning

WarehousingRetailingOffer to planning

Tweaking supply chain to create value

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The conventional demand-supply chain: College textbooks

WarehousingandDistribution

Printing of booking

Bookstore’s demand chain

Assortment planning(campus bookstore)

Purchasing(campus bookstore)

Course reading lists(Instructors)

OPP:Ship to order

VOP:Offer to purchasing

Tailor book to its course(instructor)

Place order for course(instructor)

Review standardTextbook(Instructors)

OPP:Settle copyright with publisher

VOP: students takingthe instructor’s course buyonly the material they need

The new demand-supply chain: College textbooks

On-demandPrinting(campus bookstore)

ElectronicTextbook repository(publisher)

Use textbookFor course(student)

Publisher’s supply chain

Supply chain

Demand chain

Tweaking supply chain to create value – an example

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Agenda

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The paradox of optimisation

The paradox of customer collaboration

The paradox of innovation

The paradox of flexibility

The paradox of risk

The paradoxes of manufacturing complexity

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Despite the huge economies from designing global supply chain most manufacturers optimise locally

Why are most companies optimising their supply chains from a local, rather than a global perspective ? Why aren’t executives focused on cross-functional or cross-enterprise collaboration ?

Issues

What supply chain improvements should companies invest in to gain competitive advantage ? What should they do to optimise costs and profitability globally ?

How are the role models overcoming the barriers to network improvements ? What benefits are actually being realized ?

The paradox of optimisation

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Despite the need to be much more responsive to customers, few manufacturers are collaborating closely with them

What are the obstacles to customer collaboration ? Why aren’t more manufacturers investing in this area ?

Issues

How do successful manufacturers overcome the obstacles to customer collaboration ?

How can SCM and CRM strategies be deployed to support customer collaboration ?

What are the main benefits for customers ? For manufacturers ?

The paradox of customer collaboration

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While product innovation is accelerating, few manufacturers are preparing their supply chains for faster new product introductions

What must manufacturers do to their supply chain to support accelerating product innovation ?

Issues

How can product lifecycle management principles be applied to greater advantage to manage products and offerings ?

What are the main barriers to making supply chains ready for accelerating product innovation ? How are the industry leaders addressing them ?

The paradox of innovation

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Flexibility is a key priority, but is being sacrificed to cut unit costs

How are manufacturers keeping their supply chains flexible in the face of poor visibility ? Will visibility ever be good enough given global market demand fluctuations ?

Issues

How can techniques be honed to improve flexibility and visibility ? How do manufacturers de-risk themselves when forecasting approaches are inaccurate or unsupportive ?

How important is supply chain collaboration to increasing visibility and flexibility ?

The paradox of flexibility

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Keeping supply chain quality is critical, yet manufacturers risk of supply chain failures keep growing

What new or accentuated risks for product quality and service delivery arise from outsourcing and locating supply chain activities across the world ? How are the successful manufacturers addressing them ?

Issues

How does the acceleration of new product introductions increase these risks ?

Does collaboration with customers and suppliers reduce quality risk ?

The paradox of risk

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Agenda

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Choose appropriate model

Walk the talk

1. Create a culture of business excellence

Business strategy realignment

HR / Culture setting intervention

2. Align Vision-Mission-Values with BWC principles

3. Create a climate of dissatisfaction with status quo; promote innovations


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4. Commence journey towards effective covenantal relationships with employees, customers, suppliers

5. Position yourself as an enhancer of your customers’ successin their markets

6. Pay attention to the rigours of supply chain design to strike the right balances

Efficiency vs. responsiveness

Suiting the life – cycle

Scope

Facility decisions

What will it need to take manufacturing beyond world class (contd.)

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7. Innovate value-creating options by tweaking demand and supply chains

8. Balance paradoxes to provide the value edge

9.

Optimisation

Customer collaboration

Innovation

Flexibility

Risk

Innovate innovate innovate!

What will it need to take manufacturing beyond world class (contd.)

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THANK YOU

Gma Tyagi

Entertainment & Humor

Transcript of Gma Tyagi