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.
Saturday, February 7, 2009
Monday, January 12, 2009
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.
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.
Friday, January 2, 2009
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.
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.
Monday, December 29, 2008
lean healthcare
The Toyota Production System (TPS) earned the sobriquet 'JIT' in the 1960s. It created a very narrow view of TPS and created an image that it was suitable only for discrete and repetetive manufacturing industries. It created an image that implemeting TPS meant 'zero inventories'. Actually zero inventories are only possible when the production shop is shut down for good.
The word 'lean' has replaced JIT to describe TPS. The word first surfaced in an article by Krafcik in the Sloan Management Review in the Fall 1988 issue. Womack's book 'The machine that changed the world gave the word 'lean' worldwide acceptance. Both Krafcik and Womack talked about TPS. The only difference was that they talked in terms of generic principles. This caused a
huge change in the nature of TPS implementations. Service organisations started implementing their own version of TPS.
Check this article of lean implementation at a small hospital.
http://minnesota.publicradio.org/display/web/2008/12/23/leanhealth/
It gives a very good message. TPS / Lean / JIT is not merely about inventory reduction. They are a set of principles. It is about making work more simple and reliable. Kanban, TPM, etc are merely tools. Lets hope more organisation abandon the jargons and fall in love with the simplicity of TPS.
The word 'lean' has replaced JIT to describe TPS. The word first surfaced in an article by Krafcik in the Sloan Management Review in the Fall 1988 issue. Womack's book 'The machine that changed the world gave the word 'lean' worldwide acceptance. Both Krafcik and Womack talked about TPS. The only difference was that they talked in terms of generic principles. This caused a
huge change in the nature of TPS implementations. Service organisations started implementing their own version of TPS.
Check this article of lean implementation at a small hospital.
http://minnesota.publicradio.org/display/web/2008/12/23/leanhealth/
It gives a very good message. TPS / Lean / JIT is not merely about inventory reduction. They are a set of principles. It is about making work more simple and reliable. Kanban, TPM, etc are merely tools. Lets hope more organisation abandon the jargons and fall in love with the simplicity of TPS.
Thursday, December 18, 2008
End of an era?
The GM and Chrysler bailout funding drama just does not seem to end. Both sides have their points. But that the Christmas vacations may never end in these two companies is definitely a possible situation. Read this article:
http://www.nytimes.com/2008/12/15/business/15costs.html?fta=y
It is a common academic statement that rarely have companies survived by cutting costs. Yet, it seems sad that such huge multi billion dollar enterprises have to stoop to a level of monitoring all purchases of over $10,000. Everything in the press is about how these and other auto companies are acting to reduce costs. Nothing is about new strategies on how to earn more money. If saving costs is a prime requirement, pensions - they are said to be as much as $1500 per car for GM, could be first reworked. Better deals with hospitals could be worked out, lower insurance premiums negotiated. A 10% savings here would be a lot higher than the savings from saving a few sheets of paper or electricity.
That sales will fall is an accepted fact. Earning more money means increasing margins. It also could mean doing something else with the spare capacity / resources. Auto companies could think of a business where they refurbish old cars. People still would need to move and cheaper used cars (that are refurbished by the original company) could be a good business.
The companies need to do something positive and not merely cut costs. I am sure there would be a way. If nothing is possible maybe they could prepare for a grand end that has a minimal impact. All said, with the current spree of cost cutting and waiting for the 'bridge' loan seems to be a stop gap measures. The sales are going to continue to fall and a new loan would again be required in due time. All the Best Gm and Chrysler.
http://www.nytimes.com/2008/12/15/business/15costs.html?fta=y
It is a common academic statement that rarely have companies survived by cutting costs. Yet, it seems sad that such huge multi billion dollar enterprises have to stoop to a level of monitoring all purchases of over $10,000. Everything in the press is about how these and other auto companies are acting to reduce costs. Nothing is about new strategies on how to earn more money. If saving costs is a prime requirement, pensions - they are said to be as much as $1500 per car for GM, could be first reworked. Better deals with hospitals could be worked out, lower insurance premiums negotiated. A 10% savings here would be a lot higher than the savings from saving a few sheets of paper or electricity.
That sales will fall is an accepted fact. Earning more money means increasing margins. It also could mean doing something else with the spare capacity / resources. Auto companies could think of a business where they refurbish old cars. People still would need to move and cheaper used cars (that are refurbished by the original company) could be a good business.
The companies need to do something positive and not merely cut costs. I am sure there would be a way. If nothing is possible maybe they could prepare for a grand end that has a minimal impact. All said, with the current spree of cost cutting and waiting for the 'bridge' loan seems to be a stop gap measures. The sales are going to continue to fall and a new loan would again be required in due time. All the Best Gm and Chrysler.
Wednesday, December 3, 2008
Effect of terror attacks
Check this link -
http://online.wsj.com/article/SB122828423164375463.html?mod=googlenews_wsj
If we go by this article, the terror attacks in Mumbai are by themselves not going to have a major impact on the investments in India. While Indians may cheer it as great news and a measure of confidence on the so called "Great Indian Dream", I believe it is a lack of foresight.
The continuous acts of terrorism in India clearly demonstrate the lack of security and political will in India. Add to this the token and glamour based opposition from the people (candle light vigils, human chains) clearly show that the situation is not about to change very soon. In fact it would get worse. Especially for American and Israel based companies in India. Given the solid planning demonstrated in the current strike, it would not be difficult for the terrorists to strike selective targets. Targeting the factories that are in rural areas would even be easier.
There could be a few reasons for the international manufacturing companies not changing their plans
1. They already have invested substantial capital and pulling back now would be a major loss
2. They see India as an extremely cheap manufacturing destination. Given the current economic downturn, the companies might feel that the India cost advantage might make survival possible.
3. They plan to staff the Indian Operations with very few expatriates and so the death / damage would be of locals only.
4. Suitable insurance policies to take care of all possible financial losses.
I believe all the points are myopic.
1. As companies are reducing production, with new capacity in India coming up they would have to stop something. Either way capital loss is certain. The continued cost of keeping non operating plants in Europe / USA (pensions and other overheads) might work out to be substantial.
2. Given the lack of infrastructure the real costs of producing in India might be higher. The added security and insurance costs would also add up.
3 & 4. The disruption of supply from the India plant would be a huge loss. Especially in a recession based market. Competitors would take away the market share in the time in which the supply resumes. Getting it back would be very difficult and costly. No insurance policy or alternate manpower planning can reduce this loss.
My message - India is a huge risk proposition.
http://online.wsj.com/article/SB122828423164375463.html?mod=googlenews_wsj
If we go by this article, the terror attacks in Mumbai are by themselves not going to have a major impact on the investments in India. While Indians may cheer it as great news and a measure of confidence on the so called "Great Indian Dream", I believe it is a lack of foresight.
The continuous acts of terrorism in India clearly demonstrate the lack of security and political will in India. Add to this the token and glamour based opposition from the people (candle light vigils, human chains) clearly show that the situation is not about to change very soon. In fact it would get worse. Especially for American and Israel based companies in India. Given the solid planning demonstrated in the current strike, it would not be difficult for the terrorists to strike selective targets. Targeting the factories that are in rural areas would even be easier.
There could be a few reasons for the international manufacturing companies not changing their plans
1. They already have invested substantial capital and pulling back now would be a major loss
2. They see India as an extremely cheap manufacturing destination. Given the current economic downturn, the companies might feel that the India cost advantage might make survival possible.
3. They plan to staff the Indian Operations with very few expatriates and so the death / damage would be of locals only.
4. Suitable insurance policies to take care of all possible financial losses.
I believe all the points are myopic.
1. As companies are reducing production, with new capacity in India coming up they would have to stop something. Either way capital loss is certain. The continued cost of keeping non operating plants in Europe / USA (pensions and other overheads) might work out to be substantial.
2. Given the lack of infrastructure the real costs of producing in India might be higher. The added security and insurance costs would also add up.
3 & 4. The disruption of supply from the India plant would be a huge loss. Especially in a recession based market. Competitors would take away the market share in the time in which the supply resumes. Getting it back would be very difficult and costly. No insurance policy or alternate manpower planning can reduce this loss.
My message - India is a huge risk proposition.
Saturday, November 29, 2008
Manufacturing cuts in Japan
Manufacturing cuts are a rule now. Check this link that talks of cuts in the supposedly super efficient companies from Japan.
http://www.google.com/hostednews/ap/article/ALeqM5jmfkCQFvxtt6IXRmfAjmFGTya2yAD94NR8580
The production cuts would of course be useful only if they create a substantial reduction in the costs. For companies with a high level of fixed costs in the form of expensive machinery or pension expenses, the cuts would not help much. They might be better off in reducing prices and hoping (and praying) that the demand picks up.
I am sure there would be other things to do. Companies of course have a reserve fund that they can use to survive in such periods. But there should definitely be other techniques that manufacturers can leverage on in these hard times. Reducing production and firing people seems to be a knee jerk reaction. I do not have a solid proof on what I am saying, but I hope I can create a complete picture in the next few posts.
http://www.google.com/hostednews/ap/article/ALeqM5jmfkCQFvxtt6IXRmfAjmFGTya2yAD94NR8580
The production cuts would of course be useful only if they create a substantial reduction in the costs. For companies with a high level of fixed costs in the form of expensive machinery or pension expenses, the cuts would not help much. They might be better off in reducing prices and hoping (and praying) that the demand picks up.
I am sure there would be other things to do. Companies of course have a reserve fund that they can use to survive in such periods. But there should definitely be other techniques that manufacturers can leverage on in these hard times. Reducing production and firing people seems to be a knee jerk reaction. I do not have a solid proof on what I am saying, but I hope I can create a complete picture in the next few posts.
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