There are many ways of looking at a manufacturing enterprise. A very good one is to look at it from the perspective of the people who are involved with it. Figure 3.4 shows our basic model, which is based on this perspective. The entities which make up the enterprise are customers, employees, owners, suppliers and the community that is affected by the functioning of the enterprise. The equipment used by the employees is of course a part of the enterprise. These entities typically have long-term associations with the enterprise. From another perspective, manufacturing activity is composed of three kinds of flows: material, information and money. Figure 3.4 puts these two perspectives together.
Figure 3.4: Model of a Manufacturing Enterprise
World-Class manufacturing practices, which follow from the philosophy outlined in the previous section, cut across the entire model. The numbers 1 to 9 in the model represent the individual sets of practices that collectively constitute World-Class manufacturing. We briefly mention these practices:
- The enterprise produces to order with short lead times for manufacturing and product development, thus providing a flexible response to the customers needs.
- Information flows across the enterprise are transparent. Information technology is used as a strategic tool to further the concepts of World-Class manufacturing. Visual controls are used to provide relevant information to employees at their workplaces.
- The people in the enterprise show respect for humanity. They design systems that are tailored to the needs of society and strive to eliminate waste of resources.
- The owners provide leadership, instill constancy of purpose and drive out fear. Their objective is to make money, but not at any cost to society.
- Employees are given cross-functional inputs to the extent possible. They are trained in the use of simple analytical tools which can be deployed for continuous improvement.
- Operators are taught to be capable of handling multiple processes. Quality and productivity are improved largely through suggestions from a motivated workforce.
- Routine maintenance and housekeeping activities are entrusted to the operators of the equipment. Operators have a sense of ownership of the equipment they use. This is the essence of Total Productive Maintenance (TPM).
- Equipment is not unnecessarily sophisticated. The capacity utilization of equipment is not sought to maximize. Capacity utilization is simply viewed as a function of demand for the company’s finished goods. Cellular manufacturing concepts are used in plant layout.
- Material flows throughout the system in a manner similar to the working of a giant assembly line.
- A supplier’s manufacturing facility is simply viewed as a remote work centre. Long-term associations are built up with a limited number of suppliers. These suppliers are helped to manage their costs, and the benefits of cost reduction are shared between the company and its suppliers. Product development is hastened by outsourcing a large part of the design and engineering activity to suppliers at an early stage in the product development effort. This practice is called early supplier involvement (ESI. One of the, objectives of strategic sourcing is to buildup capabilities and trust to the extent that suppliers can directly send small lots of materials or components to the shop floor. This eliminates the waste of defective parts, inspection and storage.
The remainder of this section deals with World-Class manufacturing practices fewer than three categories:
- The customer interface (point I).
- The suppliers interface (point 9).
- World-Class practices in the factory (points 2 to 8).
The Customer Interface: Womack et al. (1990) have described the management of the customer interface at Toyota. One objective of a World-Class manufacturer is, as they put it, ‘to develop a long-term, indeed a life-long relation between the assembler, the dealer and the buyer by building the dealer into the production system and the buyer into the product development process.’
The level of quality attained by Toyota enabled them to focus relentlessly on repeat buyers.
Toyota decided never to loose a former buyer. This objective was realised by using the data on incomes, family sizes, driving patterns and tastes in its consumer database to predict changes in the demands of Toyota buyers.
In sum, the order fulfillment process and the new product development process are shortened to enable the linking of the factory, the distribution system and the consumers in a well-knit system.
Supplier involvement is an integral part of the process. The ‘economy of scale’ mentality givesway to the ‘economy of scope’. The result is flexibility of three kinds:
- Volume flexibility
- Mix flexibility
- Design flexibility (i.e. an ability to develop new products faster)
This explains how, (Womack et al. 1990), Japanese automakers made 500,000 units of a car model on an average, while Western automakers made 2,000,000. The biggest gainer from this flexibility is the marketing function. Also marketing personnel help production keep a smooth production schedule, an essential ingredient of World-Class manufacturing.
Apart from being used to track the changes in the market, IT is used extensively by World-Class manufacturers to root out hidden delays in the order processing stage in the office.
The Supplier Interface: The conventional approach to purchasing began with a trade-off: the all important make/buy decision. It was perceived that buying a raw material or component would mean less control over quality and delivery. Against this, it would provide flexibility to the company because it could vary the off-take depending on its needs. It did not need to incur fixed costs. The need for antagonistic relationships between manufacturers and their suppliers was reinforced by conceptual frameworks such as Michael Porter’s five-force model for industry analysis.
World-Class manufacturing turned this trade-off on its head as well. The point of departure from conventional thinking here was to focus on the building up of durable, ten relationships with suppliers. Holding an equity stake in the supplier resolved the problem of control. The concept was that the destiny of the suppliers would be linked to a large extent with the World-Class manufacturer.
The old system, which was equivalent to tendering, focused on the prices quoted by suppliers.
The order would be awarded to the supplier who quoted the lowest price after all the suppliers had been played against one another. At best, there would be some weight age in the decisionmaking process for quality, delivery and flexibility.
A World-Class manufacturer focuses on the supplier’s costs. The objective is not to estimate his margin and then squeeze it, but to help the supplier reduce his costs. The benefits of cost reduction exercises are shared between the supplier and the manufacturer. The capabilities of the
Supplier are not taken as. a given variable. The manufacturer, who is more advanced, sends his personnel to the suppliers’ works to upgrade these capabilities. Suppliers’ are organized into tiers. The manufacturer directly deals with the first tier suppliers. The idea is to source systemsfrom a smaller no of first tier suppliers instead of sourcing components of hundreds of suppliers.
Supplier base reduction –SBR-reducing the number of suppliers is viewed as a means of cutting down on purchasing overheads and building up the capabilities of selected suppliers to meet the needs of the manufacturer.
In the product development process, first-tier suppliers are an integral part of the product development team. Their knowledge of the systems that they make is tapped extensively. They are responsible for developing systems, which work in harmony with other systems and meet the needs of the manufacturer. Early supplier involvement (ESI) is a key to faster product development.
A key change, which takes place in the relations between the manufacturer and the supplier, is that interaction between the two organizations is not the prerogative of the manufacturer’s purchase department and the supplier’s marketing department. Interaction takes place across all departments. For example, an operator who actually uses a component in assembly would provide feedback to make assembly easier for the supplier’s design department.
The goal of the World-Class manufacturer is to upgrade suppliers to the stage where they can make 100 per cent on-time deliveries, just-in time and without any defects. This goal is not to be achieved by forcing the supplier to build up stock piles; the supplier organization must also practice World-Class manufacturing. Once this goal is reached, suppliers can directly ship raw material and components to the manufacturer’s shop floor. These items are not inspected or held in a central store. This key achievement in the drive is to eliminate waste.
Maskell (1996) has advocated the following steps for world-class purchasing:
Step 1. Use contract or blanket orders with call-off reports. Purchase orders are not used for every batch of purchased items. ‘Rate contract’ type agreements are signed with key suppliers. Individual batches are pulled from the supplier through call-off reports.
Step 2. Introduce call-off from the shop-floor cells. Production personnel issue the calls for raw materials or components themselves, instead of conveying this information indirectly through stores and purchase.
Step 3. Eliminate inspection and dock-to-stock activities through standardization and certification.
Step 4. Eliminate three-way matching. The manual matching of purchase order, receipt and invoice information should be eliminated through the use of IT.
Step 5. Eliminate invoicing by creating automatic invoices through the receipt transaction.
Effective use of IT enables receipts to be checked against purchase orders. If the order materials have been received, payment is due. Invoices can be done away with once this is realised,
Step 6. Eliminate the receipt and invoice process by creating transactions through back flushing or electronic data interchange advance sales notices (EDI ASNs). Back flushing is the computerized calculation of raw material or component consumption from production data.
Essentially, it implies having systems in place that reduce the available stock of refills by 1000 at the end of a shift if 1000 pens have been produced. The concept of EDI ASNs is that if 1000 pens have been produced, 1000 refills must have been used and, therefore, payment for these is due.
Step 7. Pay vendors just-in time through electronic funds transfer.
Needless to say, these steps are tenable only in a World-Class manufacturing environment.
Indian managers may consider the Maskell’s scenario weird, but a closer examination of the recommended steps reveals that only the last two are too futuristic for India, given its infrastructural deficiencies. What the first five steps require is essentially a change in attitude as well as a low-stock environment; good inter department communication and sound IT infrastructure within the company.