WCM/U1 Topic 5 World Class Manufacturing and Information Age Competition
In the changed globalize business environment, it is no longer feasible to compete only on the basis of costs without paying attention to real customer preferences represented by other product dimensions. Consequently, many new manufacturing approaches have emerged, mostly as a reaction to the dynamically changing situation in the market place, where increased competition and market globalization have greatly affected the distribution of market share and profit margins. These new approaches to manufacturing are based on a pragmatic philosophy distilled from worldwide experience in manufacturing. The major concepts are independent of technology, though they may be applied differently with technical advances. Taken independently, none of these concepts are new; in fact, they all have antecedents dating to the early twentieth century, if not before. In spite of this, they have a novelty of thinking in that they combine the best and simplest practices into an elegant whole for a given approach. Manufacturing excellence, which is the aim of these approaches, refers to an improvement in its broadest context. This excellence can be attained by a combination of several approaches to manufacturing such as the following (Hall 1987):
- Value-added manufacturing, which means do nothing that does not add value to the product or to the customer.
- Continuous improvement manufacturing, which suggests that every aspect of manufacturing is dedicated to making it better in ways, great and small.
- Just-in-time (JIT)/Total quality control.
World-Class manufacturing was the term introduced for referring to the goal of achieving and/or sustaining World-Class competitiveness through manufacturing excellence, attained through best practices. In this context, different experts have expressed the goal and necessary practices for World Class manufacturing differently, but always with the implicit goal of sustained competitiveness in the global, market place. For example, Schonberg, who introduced the term ‘World-Class manufacturing’ (1986), states that it has the goal of continual improvement in quality, cost, lead time and customer service, as also the flexibility. Gunn (1987) suggests a number of criteria for evaluating a company’s World-Class manufacturer status, such as inventory turnover, quality defects and lead times. According to Gunn, a company needs inventory turnovers in raw materials and work-in-process (WIP) of some 25 to 30 per year to be a Class C World Class manufacturer, about 50 to 60 turns per year for a Class B status, and of the order of 80 to 100 turns or more per year to be a Class A World Class manufacturer. As a measure of world-class quality, a Class A manufacturer should have fewer than 200 defective parts per million of any product it manufactures. As for lead times, the ratio of value-added lead time to cumulative manufacturing lead time must be greater than 0.5 for a company to be a
Maskell (1991) states that World-Class manufacturing is a very broad term which generally includes focus on product quality, just-in-time (JIT) production techniques, workforce management and flexibility in meeting customer requirements. Kinni (1996) characterizes
World-Class manufacturing by three core strategies of customer focus, quality and agility, (i.e. the ability to quickly, efficiently and effectively respond to change) and six supporting competencies-employee involvement, supply management, technology, product development, environmental responsibility and employee safety, and corporate citizenship.
The information age has affected not only the industrialized countries but also the developing countries. Consequently, the environment facing developing countries has become increasingly more turbulent, dynamic and complex. A combination of external and internal factors, including population growth, weak infrastructure, foreign indebtedness, and asymmetric world relations and increasing inequalities between individuals, groups and regions, has prevented many developing countries from achieving significant socio-economic improvements. Some developing countries such as India have, therefore, made economic management their prime agenda. They are going through a process of restructuring their economy to emphasize competition, integration with global markets and increasing level of privatization. Thus, the
Indian manufacturing industry has been thrust from the protected environment of the ‘licensepermit- quota’ raj to an uncertain environment of global competition and global markets.
Global competitors operating in global markets almost always tend to have world-class status.
Therefore, to be globally competitive, Indian manufacturers necessarily need to achieve worldclass performance. Oddly enough, as stated earlier, developing countries such as India, China and Brazil themselves constitute a huge market that attracts many world-class companies from other countries to sell their products. Thus, even domestic companies in these countries, who are not targeting global markets, are forced to compete with these world-class companies by virtue of their entry into the domestic market. This is facilitated by the liberalization policy of the governments of these countries, often somewhat at a pace that does not give time to domestic companies to be really ready for world-class performance. Thus, as is clear from
Figure 1.2, Indian manufacturers need to acquire World-Class status, irrespective of the fact that they operate only in the domestic market or are exporters. Achieving world-class performance is a great opportunity for those who can make it, and for others a serious threat.
Though to some extent, Indian manufacturers have realized this and are trying to rise to the challenge, their battle for survival and growth has just begun. Their success will depend on their readiness to move from a protected domestic to world-class global manufacturing status quickly and confidently.
Time will be the primary competitive motive of business in the twenty first century. It does not mean, however, that other motives, such as cost, quality and services, can be ignored. In fact, these are prerequisites to sustain competitiveness. But the winning factor is provided by time
(Stalk 1988) and enhancement to basic products. Reducing time is not critical in itself-it is the benefits achieved through time reduction, in the form of greater cash flow, less inventory, quicker customer response and ultimately, greater profits, that make time-based competition worthwhile (Handfield 95). Moreover, time-based competition does not just refer to manufacturing but to the entire product/value supply chain, which includes product development, order processing, supplier delivery, pre-production, manufacturing, final assembly and distribution.
Thus, in the manufacturing environment, time-based competition becomes the highest priority to gain responsiveness and flexibility (Figure 1.3) (Meyer 1990).
Responsiveness and flexibility have several important dimensions (Table 1.1). One is productmix, the need to support maximum variety in end products with minimal disruption to the manufacturing operations. Others relate to upgrading of plant and equipment in order to start production quickly. The driving force behind this priority setting is the need and the wish to respond to virtually any customer request just-in-time.
Flexibility, on the contrary, is the response of a system to environmental uncertainties (‘the unknown customer’). Thus, the 1990s will need an information culture to manage uncertainties, which will no longer be pushed.
Forward by technology but will be controlled by information feedback. This leads us to the second challenge industries are facing today: how to manage knowledge?
Managing Knowledge: In the twenty-first century, the productivity and, even more important, the effectiveness managers and white-collar workers will become critical to long-term survival.
The effectiveness of these experts depends on their smooth integration in to the organization.
Therefore, in the era of advanced specialization, integration of dispersed knowledge will become progressively more difficult and more costly to achieve. Knowledge will become scarce and the most crucial and expensive economic resource. Of late, the dependence of organizations on experts, mainly through the increase of informal power generated by expert knowledge, has been analyzed in detail. Managing knowledge would, therefore, be a big challenge in the twenty first century due to its strategic potential.