'You' have become the most prized asset for firms

This is the headline of an article in the Mumbai edition of Economic times, 29th Dec 2009, page 8. Companies like Google, Yahoo!, DoCoMo, Lays, Kurkure, etc. are trying to involve the customers in designing the product. Early involvement of customers is supposed to 'hook' them. It becomes easier to get more customers and retain the existing ones by giving them the exact product that they want.

The only issue in doing this is the lead time from the time the customer expresses the desire to have the product to the time when she actually has it. High lead times could offset all the gains of giving a highly customised product. While a customer would love a personalised product, she might hate to wait to receive it. The key would be speed up the product / service delivery process and make it seem 'fun'.

It is close to impossible to allow the customers to completely design the products they want from scratch. 'Modularisation' works out here. As Yahoo!, I allow my customers to use certain modules on their home page, allow them to locate it on the home page and then probably configure a background. This is exactly how a Volkswagen Beetle is custom designed. Again, exactly how a Boeing Jumbo is made specifically for an airline company.

Manufacturing skill development

Check this article

http://blog.seattlepi.com/gettowork/archives/188875.asp

All major factories for industrial tooling have closed down in the United States. Now, obviously with no demand of technicians, the technical schools offering these trades would close down also. So in a way the complete supply chain of a particular skill type would come to a halt. This is a huge risk as restarting this supply chain would be very very difficult.

At a business level, we routinely keep at least two vendors alive for most items. It is a risk management strategy. Surprisingly this fact seems to have been ignored at the national level. Countries spend billions of dollars in creating oil reservoirs to de risk oil shortages. I guess somewhere a similar investment is needed to ensure the basic level of technical skill. The risk of losing out on these skills is just too high.

The Chicken and egg story in Logistics

What come first - setting up a good logistics network and then starting the business or starting the business and then setting up a logistics network to support the requirements that crop up? A lay man answer would be to say 'business' comes first. But sometimes the cost of such rear guard action may be prohibitive and in fact cause the business to shut shop.

The US government committed additional combat troops to Afghanistan. As per a report in today's Wall Street journal, the supplies necessary for this deployment are just not here. The building material (concrete blocks - to be procured from Pakistan), fuel (Afghanistan is land locked) and blast resistant trucks ( to be imported from US) have all to reach Afghanistan before the troops actually arrive.

I am not questioning if the troops should be sent or not. Obama already has a Nobel prize for peace so I will keep my personal views away from this. The issue is of planning the logistics and sequencing the deployment of troops in sync with logistics deployment. We certainly not want troops to be in war zone without the necessary equipment and logistics support.

It is easy to take a 'consultant' position and advice the armed forces. In our businesses however the logistics side of business is totally ignored. The modern trade in India has set up retail shops and are now, at a much later stage, thinking of logistics optimisation. New products are being designed without too much thinking of the increase in component SKUs and thee corresponding affect on inventory related costs.

It is a simple proposition that I am trying to put forward - Business requirements have to be met. There is no question of this. This, however can not be done at the cost of ignoring the constraints of logistics. For every step of business growth and change, the corresponding logistics resources should be planned also. And, this logistics planning must be done in the same forum that does the business planning and not by a department head.

Adidas shifting NBA jerseys out of USA

Adidas is planning to move the manufacturing of NBA jerseys from American Classic Outfitter (ACO)- a firm based in Wyoming, USA to Thailand. Check this article here

http://buffalo.bizjournals.com/buffalo/stories/2009/11/30/daily4.html

There are a number of issues here. First is the Adidas side of the story. NBA happens every year and unlike the Soccer world cup, the uniforms do not change very often. Though every year some new stars are created, the older players definitely do their job. The point of the two sentences is that the demand for the jerseys is more or less stable and obsolescence low. Given these parameters, outsourcing to Thailand would definitely make a lot of sense. "Moving manufacturing closer to the source of raw materials", as Adidas says, surely makes sense.

Adidas plans to continue making jerseys for college and amateur teams in the United States. Given the unstable demand in this sector, again this makes sense. However an increasing price differential between the US and Thailand (plus the cost of transporting bulky raw material instead of finished goods), Adidas may be forced to revisit this decision also.

Another issue is the statement that Adidas had promised ACO a five year deal based on which ACO had invested USD 1 million in new machines. At this point it would be difficult to say if this was true. It could be a political hype being created to force Adidas to reverse its decision.

In case it is true, it is again not something that has never been done. Companies are known to treat their vendors with disdain. Buyers of large firms limit their reach to the sales personnel of the vendors. Contracts are short term and the changes in schedules are high. While this may reduce the 'price' the firm pays its vendors, the 'cost' incurred by the vendor increases. The vendor has to compensate the drop in his profits. This is where the the vendor may resort to means that are not exactly ethical. He / she would definitely cut service levels to the customers in some form.

In some cases it is very easy for the buyer to shift vendors, but relatively difficult for the vendors to find new buyers. If the vendors in such cases do not have long term contracts they try to recover all their costs of capital and process changes in the first period of the contract. this would mean substantially higher prices for the buyer.

The message here is very simple. Toyota has been doing this for ages. The point is in continuation to my last post. Resorting to pressure tactics and changing vendors may create a mirage of reducing prices. However the increase of cost is sure to reflect somewhere. Unreliability (meaning increased inventory and lost capacity) and the increased firefighting efforts that we see in our firms are a reflection of these very unhealthy practices that we are following.

Logistics cost reduction

Logistics cost is generally around 4 - 10% of the total product cost in most manufacturing firms. Of this amount 60% to 80% is fuel cost. There are of course also the costs of the driver, cleaner and the vehicle fixed costs. The numbers make it clear that any reduction of logistics cost by further squeezing the Logistics service providers (LSPs) would clearly not be a feasible option. Yet this is the most common means of cost reduction resorted to.

Faced with such pressures, the reliability of LSPs becomes suspect. The LSPs may offer 'bargain' prices to garner initial business but such 'bargain' business often becomes low priority work. LSPs bundle loads of other customers with the load of the contracted customer. This forces them to make unnecessary detours and stops. For the customer, using such low cost resource invariably results in either inventory buildup or lost capacity.

All this is not rocket science. Yet most companies do not seem to see and realise this. One reason is of course the heavily fortified 'departments' that do not communicate with each other. The KRAs are generally designed to create local optimums. A logistics department with minimum cost may have a star status - that it create problems for other departments is a different issue.

Logistics cost is a direct out of pocket expense that is 'seen' by the entire firm. Inventory costs, obsolescence, cost of lost capacity and cost of expedited delivery are never a part of financial statements. They are thus ignored. There is a tremendous scope of improvement here. But the scope is not in reducing logistics cost. It is in reducing the total supply chain costs and in increasing sales.

Maturing of Indian organised retail

Check this article from Business World, its about Spencer's retail and their efforts to survive (and then probably thrive). The article has impressive numbers and graphs about Indian retail scenario.

http://www.rpggroup.com/images/News/shopping_bw_5_10_09.pdf

The most important point for me is that Spencer's will be shutting down three formats and focus on hypermarket and supermarket. I believe this is a very very smart move. The so called organised players of Indian retail have chosen to dabble in all formats simultaneously. Every format served a different customer but they were served by the same supply chain. This was a sure way to ensure dissatisfied customers and high operating costs.

A small store like Spencer's Express or Spinach needs frequent deliveries and in small quantities. Every delivery assortment would have different types of items. However, A large format Big Bazaar could easily store and accept deliveries of full truck loads. Every aspect of inventory planning and distribution would be different. We cannot expect the same supply chain to serve both needs.

It is good to see that Spencer's has seen the light. Am sure with the realisation that the fabled growth of Indian (so called) organised retail not happening, others have no option but to join in.

Promotions and change of jobs

Two incidents -

In a faculty meeting at NMIMS we were waiting for the tea to be served. The person manning the tea arrangements outside refused to serve us as he was the 'supervisor' and person supposed to serve tea had gone down.

At a Pizza Hut outlet at Borivali, peak time, the staff were trying to clear and re arrange tables as fast as they could. There was a rush of customers waiting outside. As soon as the table next to us became empty, the supervisor started collecting the tissues strewn on the table. Till the waiter arrived a lot of the table was clean. Both of them together cleared and cleaned the table.

I am sure all of us can take our own lessons. Job roles in processes are sometimes defined very narrowly. The definitions are also internally oriented and have nothing to do with the customer. Internally oriented job roles may lead to some hypothetical efficiency calculation, but they may be detrimental to customer service.

I am not looking at criticizing individuals. Of course a point could also be made that the faculty could have taken tea on their own. An employee behaves in a manner that is defined in his job role. In an era of less competition job roles and processes defined to create high efficiencies were okay, but in the current competitive scenario they are a sure way to ruin.

Clean technologies - CSR or business?

I was invited to take a session at an small MBA institute in Gujarat. I had given then a few pages of reading material. I saw that the institute had edited the layout of my material so that it fit in only four pages and printed it on both sides of the paper. I began my session by appreciating the editing that saved lot of paper, an environmentally conscious action. A student stood up to reply that she was responsible for this and her prime motivation was to save money. Printing on both sides was obviously cheaper than two sheets with one side printed.

This incident reemphasized my concern that we had a wrong approach to clean technologies and sustainable environment based practices. Many companies had a special department that looked at these initiatives and these were paraded to the world as CSR (Corporate Social responsibility) initiatives. Firms used such actions to occupy high moral ground among consumers and the society.

A better way to look at these initiatives would be to assess them as normal business projects. They would have an investment and a straight monetary return. This would be the only way to ensure that the projects are taken up willingly by many companies. Businesses should be convinced that clean technologies save money and that they save the environment is a by product.

try forecasting this

In the 1976 edition of the Sunday league, the last playing day had three matches scheduled. The winner of the league would be decided only after all three matches were over. The problem was that there was only one trophy and it had to be given to the winner immediately after the match. All the three grounds (Cardiff, Edgbaston and Maidstone) were approximately 200 kms from each other.

BBC, the sponsor, hired a helicopter, and kept the trophy at their Birmingham studio and very close to Edgbaston. They decided to fly the trophy to Cardiff but changed plans and sent it to Maidstone. In a thrilling game, that went to the last ball, Somerset lost at Cardiff and the winner was Kent at Maidstone.

Read here for the complete article:

http://www.cricinfo.com/magazine/content/story/426659.html

Luckily, BBC's decision to send the trophy to Kent turned out to be right. Read the previous sentence again - the reason for the right decision was 'luck.' The last ball could easily have nicked to the third man for four runs and Somerset would have been the winner. They would then have to wait for almost 3 hours to get the trophy back from Maidstone. It could very well been a disastrous decision. Cricket experts would have surely written reports of how BBC should have sent the trophy to Cardiff and not to Maidstone.

In business, we face so many situations like this everyday. Every decision has some assumptions. If those assumptions come true the decision is hailed. If the decision does not come true, academicians like me will write a case study on how 'elementary business principles' had been violated.

I have always taught forecasting from a premise that it could always and easily go wrong. Investing in good forecasting systems is good, but effort also should be invested in creating agile systems that can survive inaccurate forecasts. We must never forget that most forecasting methods, whether time series of regression based have an inherent assumption that the past will repeat itself. Given the dynamic nature of markets, I am not sure if this is a valid suggestion.

And, at the end of the day its okay for forecasts to wrong. We could create a tracking signal and so long as the variation is within limits we should be okay. So, should the forecasting method be reviewed if the tracking signal is violated? As a good academician I will leave this question with a simple answer - "It depends".

One more thing, what would you do if you had to take the trophy decision in 1976.
1. Would you have housed the trophy in Edgbaston?
2. Would you have directed the helicopter to Maidstone on the basis of gut feel?
3. Do you have a third out of the box solution?

one more JIT

Fiat Spa. has taken over the management of Chrysler. Fiat is implementing JIT - the system they have at Toyota, at Chrysler. So now, there will be larger teams, less supervisors, error eradication at source, and lots of other things. Check this article here -

http://www.detnews.com/article/20090824/AUTO01/908240334/Fiat-takes-aim-at-waste-in-Chrysler-plant-overhauls

I can bet that this will be a grand failure. It is understandable that Fiat had to start with a bang. They had to show that they are doing something different. This was the only way they could have generated some hope of survival.

Toyota Production System or JIT or Lean, needs willing cooperation from the workers. The system needs everyone in the company to be convinced of the way ahead. Only then can the changes succeed. Pushing in the JIT based changes create a hollow system. Lot of posters are put on the walls, new jargons introduced, but nothing substantial changes.

It is not to say that Chrysler can't be made profitable. There are always many different philosophies. Lean is not the only way to run a company. The only problem is that if Lean is to be implemented then the complete package needs to be spread out. Using just the tools, without introducing the culture can never work. Forcing the people to wear uniforms and keep just one bottle of water at work stations is definitely not how Lean should start.

Cash for clunkers

It is not necessary that you make good products. It is however necessary that you can get the government to issue some policy that favours the sale of your product. I have never understood the tax breaks for home loans in India. Most of these loans have been used in urban areas and urbanisation in the already massively infested cities is not at all desirable. If construction industry is necessary for the economy, so is automobiles and every other sector.

One thing that I am happy to note is that this situation is not limited to India. Check this link on "Cash for clunkers program" sponsored by the US government.

http://agmetalminer.com/2009/08/24/cash-for-clunkers-has-burned-through-3b-what-now/

It seems that if a polluting car is exchanged for a less polluting version, the government gives the buyer a certain subsidy. This scheme has caught on and the sales of the automobiles are zooming up. There are three parties here - mother earth (pollution), the automakers and the government.

1. As technology matures, any average new car is better than an old car. So any average person wanting to exchange would be eligible for subsidy.
2. A low pollution car that is being used is more polluting than an old car that is not being used.
3. Car sales now, in this poor economy, may cause future sales to plummet
4. Subsidy money may cause huge deficit to the government

So, who benefits? Everyone seems to lose.

..And this is how SCM does not work

" Indian organised retail is more unorganised than the unorganised retail." I love this statement. and though it may seem shocking it is 100% true. The retail industry has seen reckless expansion. The players have multiple formats of stores and are trying to sell everything to everyone. This goes against the basic tenets of sound SCM. That the organised retail industry in India is not making money is not at all a surprise.

In order to survive from their own wayward ways, the retailers are indulging in further senseless activities. Have a look at this article -
http://epaper.timesofindia.com/Repository/ml.asp?Ref=RVRELzIwMDkvMDgvMTAjQXIwMDEwMA==&Mode=HTML&Locale=english-skin-custom

Of course good capacity utilisation is good. And yes, selling more private labels also help. This will of course save a few crore rupees for everyone. But, was this really part of the problem? The problem with the organised retailers is a top heavy structure (super high man power costs) and a knee jerk reaction based supply chain design. None of these factors are getting addressed by the actions the article suggests. Small savings are not going to save the ship from sinking.

Indian retail industry had a golden chance. They could have used all the learnings of the American and European retail industry, coupled it with local knowledge and avoided the growth pangs. But they seemed to have ignored everything. They started with a bank with an inadequate infrastructure and an ill trained staff. Instead of first creating the systems, the retailers progressed with short cuts. With such management bad results are definite.

This is how SCM works

With the prices of Oil flowing down, the refineries have reduced their output. Reliance in India is a major refinery that has also taken a massive cut. They use chlorine as part of their process. Reduction of refining has meant a reduced demand for chlorine. A huge quantity of chlorine that would otherwise be used up in the refining process was thus diverted to the open market.

With an excess of chlorine in the open market the prices of chlorine went down. In order to control the prices, the manufacturers of chlorine reduced their production. This is a simple standard story till here. Chlorine manufacturing has a by product - caustic soda. This is used by a lot of industries to make many other products. With reduced chlorine production, the caustic production also reduced. However the caustic demand was still the same. This caused the caustic price to jump up.

Thus while we have oil prices coming down, the prices of caustic products and its allied industries have gone up. Every product in the supply chain has some connections and not every connection is direct. Complicated relationships may cause surpirsing behaviour in the movement of prices of seemingly unrelated commodities.

Profit from manufacturing knowledge

The Boeing Co is planning to invest in India - in the form of research centres and manufacturing of spares by tying up with firms like L&T etc. They are doing this to target the defence and commercial aerospace market here. Look at this story in Business Standard - http://www.business-standard.com/india/news/boeing-to-replicate-us-business-structure-in-india/366477/

There are three straight plausible reasons -
1. It could seem to be a magnanimous act of a company developing local businesses.
2. Strengthening its appeal (to sell in India) by having local Indian partners
3. Preempting laws that would force local partnerships for such large contracts.

I believe there is a larger business sense in this. Ideally all manufacturing should be as localised as possible. There is no point of Indian iron ore being shipped to Japan and US and then returning to this country in the form of turbines. More so when it is know that heavy engineering items do not enjoy the economies of increasing the scale of production. And, still more so when it is known that there is a heavy variation in the specific nature of these goods produced.

Instead of producing it themselves companies like Boeing could tie up with local companies. Boeing here would not earn from manufacturing, but would earn a substantial revenue from their knowledge sharing. Per unit, this contribution (= unit sales price - unit variable costs) could be lesser than if they could have shipped the product from United States. But making in the local country would reduce costs (and price), substantially increase the demand and the resulting total contribution would be significantly higher.

The waste of intercontinental transportation would be totally avoided. That the company gets a better image as a responsible player (employing local citizens), etc. would be a very good and desirable by-product!!

New auto factories?

This is a clear proof that financial heads still rule the automobile companies. They have been very successful in taking their companies' towards financial disasters and have not seemed to have learnt anything out of it. Check this link

http://online.wsj.com/article/SB124884028240989277.html?mod=googlenews_wsj#articleTabs%3Darticle

In spite of the existing recession and the low capacity utilisation of the auto industry, Honda and Nissan have announced setting up of new plants in China. The article says that they are doing this to end the slump. Wow! Ever heard a dietitian tell her obese client to eat more? That is what is exactly happening here. Logically the move makes no sense. But finance has nothing to do with logic.

The way I see it, setting up new plants in China to sell cars in China will impact the transportation costs. Instead of importing vehicles from Japan or any other part of the world, the cars can be made and sold locally. They would also benefit from the low labour rates in China. Wonderful - the cost per car comes down. But, what about the capital cost of setting up the new plant? Well, that could very easily be engineered to reflect as depreciation at a low level. This way, the Chinese venture would easily show profits. And the existing plants? Again, the finance wizards are sure to have done something here also. They would probably defer the depreciation for the existing plants or hive them off as a separate company and ensure that the parent company 'shows' profits.

The first thing that makes me sad is that banks do not seem to realise this game. They seem to merely look at ratios and freely lend to companies. So, an over leveraged company can easily pass of its debts to another subsidiary and present themselves to banks for new loans. And, most of these companies do get the new loans they had applied for.

The worse thing is that the manufacturing companies themselves do not recognise their follies. Sometime everything is going to catch up. The recession is here and nothing has happened to make it go away. Some people never seem to learn.

Cheaper way to get energy efficiency

Energy efficient processes have for long been peddled as expensive applications with high pay back periods. The manufacturers of such devices have always lobbied for government support in the form of lower taxes and support. They would then devious devious spreadsheets and use novel jargons to justify and promote their products. Somewhere this is what has prevented these manufacturers from making their products mass based.

Check this link

http://www.fastcompany.com/blog/ariel-schwartz/sustainability/clayton-homes-brings-energy-efficiency-modular-design-multi-famil

A company is designing new homes that are supposed to be energy efficient. They would save the user around USD 40 per year in terms of energy costs. Most important part, they are also cheaper than the regular homes.

This is what the energy efficient products should be. Their capital cost should be at least equal, if not lower than the regular products they seek to replace. That is the only way they are ever going to build up some mass appeal. Rather than using 'clean energy' as a marketing pull they should use the plain simple total cost of ownership concept.

Toyota closing the NUMMI plant

It seems that after the pull out of GM, Toyota is considering 'closing' the NUMMI plant. See the link.

http://www.nytimes.com/2009/07/25/business/global/25toyota.html?_r=1&hpw

The article says it all actually. Workers have willingly given suggestions because they have been guaranteed jobs. And when one facility is closed the motivation in others is surely going to take a hit.

My take is that there is something more than what is in print in this case. I still feel that Toyota can definitely bear the loss making plant for around a year at least. May be this is a ploy to get the unionised workers to the bargaining table. Maybe it could be to prompt the government to dole out sops.

That the plant was a joint venture with GM, and it survived so long is itself a surprise in a way. GM and Toyota have totally different cultures. Now with GM gone, Toyota should have been very happy. So, this announcement of 'closing' comes as a surprise. Somehow I cannot see this happening. We can wait and watch, the drama should climax soon.

How the growth comes

Growth actually comes only when the consumers buy more products. With the population increasing at a steady rate, higher rate of money growth ensures that people buy more. It is this increased propensity to consume that creates overall growth. We would need more electricity, more turbines and more mining. So, if the consumer spend does not increase, and assuming that there is no existing unfulfilled demand, any other indicator measuring industrial growth would be pure a pure illusion.

Check this link -
http://www.hindu.com/2009/05/10/stories/2009051055611400.htm
In a survey conducted by CII for March April 2009, they have said that there is a slight improvement in the manufacturing sector. They have created some categories like negative, moderate and high growth and have said that most of the sectors have inched up in the March April period.

For first, the measures of classifying industries in the three segments have not been specified. I am sure that the survey must have had some measures, but the CII press release or the reporter, assuming a reader of limited intelligence, spared him of details. That these details would have allowed him to make his own unbiased judgement is a different story.

Inn many cases many surveys with an aim of proving growth. Their aim is of course something very noble - maybe to lead to an increase in the sentiment. They use, abuse and twist standard measurements to prove the hypothesis that they had started with. This is a major reason to give categorical data and avoid specifying the survey method and assumptions in reports. The company chieftains having an access to the complete report are of course too busy to go in to the nitty gritty issues.

As far as growth is concerned, without an increase in consumer spending all growth would either be for two reasons -
1. A buildup of inventory
2. Data / Method manipulation
An inventory buildup is nothing but postponing the slowdown. Besides blocking capital, it could have disastrous results of building up stocks that may not sell. Data and method manipulation is like a self fulfilling prophecy. It keeps the firms happy till the time they suddenly have to shut shop. This may be partly due to the psychological behaviour that says that humans create self belief worlds to avoid recognising situations that are potentially dangerous.

A good measure to measure the automobile sector growth would be to trace the out flow of auto loans issued by the finance companies. Finance industries are highly regulated and getting this data would not be a problem. Measuring gowth on the basis of factory dispatches would be skewed by the change of pipeline inventories with the dealers.

In all this circus I can conclude that companies are intent to hide the real growth or fall. They use selective measures at different points of time to prove the point they want to prove. Maybe in some other post I will discuss the motivations for this.

My simple prescription - macro indicators like growth can be measured by very simple and straight indicators. To make real use of the published growth indicators it is very important to investigate the method used and the assumptions. Any jubilation or a planned course of action without this simple probe would be a dangerous step.

Survivors of Overcapcity in Chinese semiconductor industry

The capacity utilisation in Chinese semiconductor industry is at 40%. Check this article here for details.

http://www.circuitsassembly.com/cms/news/8212-nearly-60-of-china-chip-manufacturing-goes-unused-in-q1

Who will survive, the large plants or the small ones? The obvious answer and also suggested by the article was that this low capacity utilisation was a death knell for small and marginal players. There is an assumption here that smaller companies would be unable to compete on technology and price.

The costing that have been arrived for large companies have been with the assumption of close to a full capacity utilisation. These large companies with a larger components of fixed costs would not be able to sell the products at the same price in case of a recession. The smaller and flexible companies with their abilities to produce smaller batch sizes at the same prices as before. So, who would survive?

Besides this it depends a lot on the source of capital. A company with little or no borrowed funds would have no fixed interest burdens. They would definitely find it easier to survive. Assuming that the smaller players would probably be less leveraged this again gives the advantage to smaller players.

The large players however might be able to influence government policies. They might be able to extract interest set offs and other tax decisions. Being larger they of course have a louder voice to influence the government. However this alone will not be sufficient to ensure their survival . The demand needs to pick up faster. All said I would vouch for the smaller players surviving.

Product proliferation

Companies had recklessly increased their product offerings in the last few years. I think in one my the earlier posts I have called this a corporate Hara kiri. Production capacity was a constraint and an increase on variety would mean a higher setup time component. This would further reduce the output.

One thing that has changed is that Production capacity is not a constraint now. Demand has drastically come down. In this period if surely makes sense to offer more variety of products and try to win over more customers.

There are two costs associated with variety. One of them is the cost of setup and changeover. The cost is the value of time in which the machine and operators are not productive. It does not involve an actual cash outflow. More changeovers would mean more idle time and less production and hence the cost. This cost is applied assuming that capacity is a constraint. If there is excess capacity more change overs would not have any impact. This part of the costs could be totally ignored.

The second set of costs would be the costs of inventory. Higher variety would mean a higher variety. Companies would have to take care of these costs. Higher inventories could cause a drastic increase in costs. Companies could look into modularisation or product postponement as a solution to this.

Companies have to and should expand their product offerings. That done, they will have to do it smartly and avoid the costs of inventories that it would create. Costs of set up could be ignored. Check this report on Grainger coming out with its largest ever catelogue.

http://www.inddist.com/article/CA6634851.html?nid=3901

A few months back I would have called it a stupid move. But, with the current reality and the an assumption that Grainger will manage it well, I think it was a smart move.

Location

Dell shifts from Limerick to Poland. Check the link below

http://uk.reuters.com/article/UKNews1/idUKTRE5076PT20090108?pageNumber=1&virtualBrandChannel=0

This change is a continuation in the changing paradigm at Dell. For one it started selling computers through a third party (Walmart) last year. Dell has traditionally been strong in the B2B segment. The move to retail computers through Walmart was probably to take a pie in the individual consumer market. This decision could have been taken as Dell sees a reduced growth or stagnation in the B2B market.

In the individual consumer segment (home segment) the major differentiation is on price, except for Apple of course. This is forcing Dell to look at all possible sources to save money. This includes shifting to a different location and even getting more work done by its vendors. This is a new game for Dell. And like I had written in an earlier post, it is too early to say if Dell will thrive in this change.

modified JIT

The American media has never understood the Toyota Production System (TPS). Like I mentioned in the last post, by using "JIT" to denote TPS, an image has been created of an ultra efficient factory with 'zero' inventory and all supplies coming in small lots. Inventory is just one of the many wastes in TPS.

Check this link
http://www.bloomberg.com/apps/news?pid=20601101&sid=a67TdTDZscbQ&refer=japan

One more time an American newspaper is predicting a 'modified' JIT. They had done this about 18 months back when Japan had an earthquake and Riken, Toyota's key piston rings supplier had suffered extensive damages. The article predicts / prophesies that JIT will have to be modified as a lot of suppliers may shut shop. The tone of the article seems like a little kid who has always lost and sees a faint hope of getting back one.

America's automakers have never been able to match up to the Japanese. They tried superficial implementations without much success. All this seems to have hurt their ego a bit too much. The American press has always tried to belittle the Japanese systems and has quite often come up with predictions of the end of TPS. This article is nothing but one more such attempt.

The recession is sure going to force Toyota to change some policies. A few Japanese companies may also close. But, keeping extra inventory definitely does not mean a modification in JIT. JIT is more about an approach of continuous improvement and waste eradication. If the current nature of industry demands higher inventory than keeping it certainly would not go against the tenets of JIT/ TPS.