Operations P. 5

In a study of lean production in a global computer company, Levy determined that the necessary flow of goods and information was costly and difficult to achieve. Managers frequently underestimated the associated costs because they did not plan for a complex, dynamic supply chain. However, some aspects of lean production such as reduction of defects and engineering change orders may facilitate globalization. In the case of CCT, a PC company, Levy compared various aspects of domestic and international sourcing. Distance was often responsible for severe delays, and the company frequently used air rather than sea freight to expedite deliveries. The expense wiped out the location's cost advantages. Managers often did not plan for the extra inventory needed to cope with fluctuating demand when the source of supply was one month away. Distance affected the accuracy of sales forecasts and impaired communications. Design-for-manufacture issues, which relied on face-to-face communication, also suffered. And production problems, which normally took a day or two to resolve with local suppliers, took almost a week with foreign suppliers. Quality control was also hampered. Levy warns companies to plan for the additional costs of operating an international supply chain. He suggests locating value chain activities close to each other, for example, in Mexico and the United States. Managers need to anticipatefrequent disruptions and see the chain as a dynamic system, with some links more critical than others.

As a tool for business process reengineering, "the matrix" can help managers determine how to approach change and change management.

In an overview of the future role of the IT organization, the authors examine the business and technological changes that are effecting change in many IT units. There are four major process changes in the way firms operate -- reengineering operational processes, reengineering support processes, rethinking managerial information flows, and redesigning network processes -- that all have a major impact on the IT unit. A distributed computing environment, new development software methods, capabilities like the Internet and other networks, new entrants in the computer industry, and outsourcing are the technological changes affecting the IT organization. The authors cite eight imperatives in which IT organizations must excel in order to succeed: -- Achieve two-way strategic alignment. Management and IT must work together to ensure that their initiatives are aligned. -- Develop effective relationships with line management. Communication between IT and line personnel will ensure integration of business and technology capabilities. -- Deliver and implement new systems. Systems delivery will include not only development but also procurement and integration. -- Build and manage infrastructure. IT units must develop an architecture, establish standards, communicate the value of the infrastructure, and operate the increasingly complex infrastructure. -- Reskill the IT organization. New skills -- not just technical skills but business skills -- will be needed. -- Manage vendor partnerships. IT managers must be informed buyers and negotiators. -- Build high performance. The IT unit must meet increasingly demanding performance goals. -- Redesign and manage the federal IT organization. Firms must establish the placement of IT decision-making power and the distribution of managerial responsibilities. Rockart et al. also examine the new role of IT management in ensuring that all line managers understand the potential of IT and how to use it effectively and that business strategies are effectively implemented. Success is dependent on line managers' response in planning and implementing new IT-based processes.

Blaine attributes the U.S. trade deficit to the declining capacity of the United States to satisfy domestic demand for manufactured products with domestic production. Every year, more Americans buy more from other countries than foreigners purchase from the United States. U.S. companies have contributed to the problem by shifting their manufacturing to companies overseas. At the same time, foreign firms are exporting more goods to the United States. Thus, says Blaine, the bulk of trade occurs between foreign units of companies rather than between independent companies located in foreign countries. According to Blaine, in his study of extensive data from a multitude of sources, multinational corporations will have a greater role in shaping international trade flows than will nations themselves. This, in turn, diminishes the efficiency of traditional macroeconomic policies. And countries like the United States that rely on the exchange rate to give firms an incentive to increase exports are less successful than countries like Japan that develop policies to give firms an incentive to increase export activities. Thus, says Blaine, changes in the value of the dollar will have only minimal effect on the trade deficit. The only way to correct the trade imbalance, then, is for U.S. firms to increase domestic production and stop satisfying U.S. demand with products made abroad.

Although returns policies have been widely used for many years, they continue to be a source of controversy. The authors present a framework that explains when and how to adopt returns policies. They analyze the benefits and costs of accepting returns from distributors, and also compare returns policies to alternative ways of coordinating the distribution channel.

Although on the surface, toyota's development process seems extraordinarily cumbersome, it is a model of how to make better cars more quickly and cheaply. Toyota's engineers and managers delay decisions and give suppliers partial information, while exploring numerous prototypes. The authors examine what they call "set-based concurrent engineering," a method prevalent at Toyota but not at other Japanese and U.S. automakers. Toyota designers think about sets of design alternatives, rather than pursuing one alternative iteratively. They gradually narrow the sets until they come to a final solution. Through extensive research, case studies, and interviews, the authors present their argument - that this apparently inefficient system has made Toyota the fastest and most efficient developer of autos.

Japan's distribution systems, long the target of criticism, are changing. Deregulation, new manufacturing imperatives, consumer behavior, and the economy have interacted to reshape Japanese distribution. The trends have important implications for global business, since the system now offers areas of opportunity for Western manufacturers and retailers.

In a time of shortening product life cycles, complex corporate joint ventures, and stiffening requirements for customer service, it is necessary to consider the complete scope of supply chain management, from supplier of raw materials, through factories and warehouses, to demand in a store for a finished product. Hewlett-Packard has developed a framework for addressing the uncertainty that plagues the performance of suppliers, the reliability of manufacturing and transportation processes, and the changing desires of customers. The author describes several cases in which entire product families have been reevaluated in a supply chain context. The methodology he presents should help others to manage their own supply chains more successfully.

Vertical integration is a risky strategy -- complex, expensive, and hard to reverse. Yet some companies jump into it without an adequate analysis of the risks. The authors have developed a framework to help managers decide when it's useful to vertically integrate and when it's not. They examine four common reasons to integrate and warn managers against a number of other, spurious reasons. Their primary advice: don't vertically integrate unless it is absolutely necessary to create or protect value.

Do you consider distribution and inventory costs when you design products? Can you keep your customers informed of when their orders will arrive? Do you know what kind of inventory-control systems your dealers use? If not, you've succumbed to the pitfalls of inventory management. You're not alone. Manufacturers have been concentrating on quality of incoming materials and outgoing products, but they haven't been paying as much attention to the costs associated with transporting and storing them. Lee and Billington describe fourteen pitfalls of supply-chain management and some corresponding opportunities. The more complex your network of suppliers, manufacturers and distributors, the more likely you can gain operational efficiencies by attending to inventory.