Tuesday, August 25, 2009

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 -


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.


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.

Wednesday, August 12, 2009

..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 -

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.

Monday, August 10, 2009

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!!