Wednesday, September 24, 2008
After announcing plans to more aggressively enter the retail channel and shutter a legendary computer plant in Austin, TX earlier this year, Dell is currently shopping its remaining company-owned factories, according to a report in the Wall Street Journal. The move follows another disappointing quarter in which Q2 earnings dropped 17%, from 2007, causing a sharp drop in Dell’s stock price as well. Unlike most computer manufacturers, Dell continues to build most of its own computers, in part to support the “build to order” model that had for more than a decade defined its supply chain greatness (Read article “Jit – The Dell Way”) and which the company said it was substantially abandoning in Spring 2008 announcements. It also said at the time it was planning to make greater use of contract manufacturers (CMs). Dell currently does use Asian-based CMs for first-stage production of many of its notebook computers, but the work is actually completed in Dell-owned facilities to add final options, a process Dell refers to internally as “two touch.” While the approach added extra logistics and manufacturing costs versus a single-touch system, for many years profit margins were fat enough to absorb the hit. But market conditions have changed, both in terms of lower prices and margins and a rapid shift to notebooks, making the two-touch process more of a financial burden than when notebooks were a smaller percent of sales.
Tata Motors may outsource distribution to a new unit
India’s largest auto maker is planning to outsource the logistics and distribution part of its business to a fully owned unit, TML Distribution Co. Ltd, which was incorporated on 28 March, according to the company’s latest annual report. Tata Motors Ltd’s plan to outsource distribution to a newly created unit may help it keep some costs off its books and make money from through contracts with other manufacturers, analysts say. Tata Motors’ distribution plan is not new in the Indian automobiles business. Rival Mahindra and Mahindra Ltd, India’s largest utility vehicle maker, has a unit called Mahindra Logistics, which manages the logistics business for the entire Mahindra Group and also for other manufacturers.
Videocon Targets Over 100 Logistics Centre Sites
Videocon Industries has identified sites in over 100 cities where it plans to set up logistics centres through a joint venture with Japan’s Mitsui and Hitachi firms. The report in the Economic Times said the JV is likely to be operational by the third quarter of this year, and will have Videocon offering its infrastructure for setting up back-end services, while Mitsui and Hitachi will provide expertise and know-how. They will initially provide back-end support to Videocon's retail businesses, including consumer electronics chain Next, cash and carry chain Bolld, and entertainment store Planet M. The centres may later on provide services to third parties, and become business centres in themselves.
Interestingly, this idea of reuse is not a new phenomenon. Recycling of plastics, papers, metals, reuse of glass bottles, etc. are being practiced for a few decades. In contrast to recycling, where recovery is done for useful material, remanufacturing is done for recovery of parts, components, modules or even at product level. These recovered parts/components are thoroughly cleaned, inspected and if necessary repaired and replaced with new ones and then reassembled to build up a product with quality 'as good as new'. One should remark that a remanufactured item is often cheaper than a new one as the reprocessing and manufacturing expenditures (time, energy, cost, etc.) are avoided. For example, a used machine can be remanufactured to "as good as new" for 50-60% of the cost of new machine and Berkeley Auto Mall is selling refurbished Maruti 800 series 1997 (AC) model at Rs. 130,000.
With global concern over environmental issues, various countries have formed stringent laws on disposal of goods and take-back policies are made mandatory for companies. Disposal cost has drastically increased several times. Consumers too demand for a 'green' image of the company. The best option available for a company to come out with such pressures from the government and customers is 'Green manufacturing'. It is not only economically profitable but also ecologically beneficial.
'Green manufacturing' is successfully operating in western world like US and Europe. Several companies, like Xerox, IBM, Kodak, etc., have adopted it for their products. There are estimated to be in excess of 73000 firms engaged in remanufacturing in USA directly employing over 350 000 people with total sales accounting for $ 53 billion per year. In India, unfortunately product recovery is still not well known in business sector and market. Although, environment has already become a serious issue in strategic plans for an Indian manufacturer, no organized effort has yet been seen in recovery of used products or remanufacturing. On the other hand, India being a developing country, perhaps, bears enough potential as a market for remanufactured products. We cannot deny the facts that product recovery practices exist in the Indian market as an unorganized business sector and there is a presence of strong secondhand market segment. In a price sensitive market like India, if there is availability of refurbished/remanufactured products, one would definitely plan to buy a remanufactured product from the company as the price is comparable to a secondhand product and the quality is comparable to a new product.
'Green manufacturing' involves product recovery activities and reverse logistics. The former reflects on various operations, which are directly applied on the returned product to convert it to a usable one. There are various types of such activities like remanufacturing, recycling, refurbishing, etc. On the other hand, reverse logistics is the area that focuses on inbound supply and distribution of the used products and the inventory management. This once again can be divided into inventory management activities and reverse distribution processes.
The uniqueness of these activities is mainly centered on the uncertainty factors, particularly relating to timing, quality and quantity of supply of used products. The following facts justify the reasons for the complexity inherent to 'Green manufacturing'.
• The timing, quality and the quantity of returns are unknown
• Demand is also stochastic in nature, so balancing returns with demand is vital
• Disassembly operations are highly variable with respect to the time required which, in fact depends on the condition of the returned product, modules, components or parts
• There exist various methods of product recovery depending on the condition of the product, for example, returned items may either be remanufactured or used for spares or sold to secondary market or recycled
• Reverse logistics network is also a complex domain of 'Green manufacturing' due to the involvement of stochasticity both in supply of returns and demand of remanufactured products, and existence of both forward and reverse distribution channels
• Uncertainty exists also in routing and processing times, as the condition of a returned product is not known before disassembly operation
As a scientific field, 'Green manufacturing' is still young. It needs new inter- and intra organizational processes. However, the inherent scarcity in natural and environment resources is creating the necessity and the motivational forces to make it a field of active research and an efficient business proposition in years is yet to come. In addition, within a few years, like a newspaper boy or a milkman, you may not be surprised to see a company-van coming to your doorstep collecting their products back.
Rajan Jindal (PGP24041)
JIT, Just-In-Time is a term usually thought of as describing inventory arriving or being produced just in time for the shipment or next process. Just-In-Time inventory systems depend upon logistics that include transportation, warehousing and several strategies for handling the potential supply chain uncertainties. Just-in-time is easy to grasp conceptually, everything happens just-in-time. Conceptually there is no problem about this; however achieving it in practice is likely to be difficult!
Many corporations have adopted JIT since its inception but no one has gone as far as Dell. It is well known, of course, for nearly eliminating finished-goods inventory by cutting out resellers and connecting directly to customers. What is less known is how it has transformed the back end of its operations -- its assembly lines and supply chain -- into one of the fastest, most hyper efficient organizations on the planet. Eleven years ago, Dell carried 20 to 25 days of inventory in a sprawling network of warehouses. Today, it has no warehouses. Though it assembles nearly 80,000 computers every 24 hours, it carries no more than two hours of inventory in its factories and a maximum of just 72 hours across its entire operation. The key to this robust production system is a solid process that monitors demand and supply on a real-time, continuing basis. "But when you have basically zero inventory, it's like draining a swamp -- all of the stumps start to show," Dell says. "The problems reveal themselves, and you can take immediate corrective action to fix them."
The New Finance Model in place
The implications of working in this kind of hyper drive are profound. Dell changes the finance model, and it is an enormous competitive weapon. On average, computer makers pay their suppliers 30 days before a PC is shipped to market, bought by a customer, and paid for. However, Dell's build to-order model lets it receive payments from its customers immediately -- through credit cards, either online or over the phone. It pulls the parts directly from its suppliers; builds and ships the product within four days. Yet the company does not pay those suppliers until 36 days after it receives payment from the customer. So Dell has achieved a cash-conversion cycle of negative 36 days. That means it operates with negative working capital, eliminating the need to finance its operations. Dell turns its inventory 107 times per year -- an astounding advantage over HP and IBM, which flip their inventories 8.5 and 17.5 times per year, respectively. It's a fundamental law of manufacturing that the faster you turn inventory the lower are your costs. To get a slice of its lavish procurement pie, Dell's legions of suppliers must do things its way. They must be flexible enough, cost-competitive enough -- and above all, fast enough -- to compete on Dell's terms.
The Constant drive for development
Dell is every bit as hard on itself as it is on the folks who make its disk drives and batteries. Dell has brought a maniacal focus to shaving minutes off the time it takes to assemble and ship a computer. By studying videotapes of "the build," as they call it, factory managers have slashed in half the number of times a computer is touched by workers. They have counted the screws in a PC and redesigned it so that the major components -- hard drive, graphics card, CD player – simply snap in place. In a blur of synchronized movements, a veteran builder can piece together a Dell PC in three minutes. The software burn and testing, which is powered by Dell servers with enough bandwidth to download the entire Encyclopedia Britannica in eight seconds, takes several hours, depending on the amount of customization that is required. The entire process, from the time the order is taken to when the finished PC exits the factory, is wrapped up in four to eight hours. Dell is always on a mission to outdo itself, and the factory is expected to increase its production by 30% every year.
The Thin White Line: Kanban Analogy
Dell's clout with its suppliers is epitomized by a set of thin white lines on the floor of the manufacturing plant. The lines form a rectangle that fronts each of the 110 cargo bays encircling the factory. Tractor-trailers loaded with parts line up at the bays. When an assembly line runs low on disk drives, a signal goes out. A forklift wheels onto a trailer bed, snatches a pallet of disks, and pulls out onto the floor. When the forklift crosses the white line, a scanner records the shipment's bar code and the parts move from the supplier's books to Dell's. Dell does not pull the part until it has a customer order; it does not take ownership until it pulls the part.
In effect, that thin white line demarcates Dell's entire supply chain. Dell holds inventory only for the six to eight hours it travels across the assembly line and for the 18 hours it takes for the completed CPU to be trucked to merge center, where the unit is bundled with a monitor and shipped to the customer. Total inventory time: two to three days. Most suppliers, however, are required to stage anywhere from 8 to 10 days' worth of buffer stock in those multivendor warehouses located within 90 minutes of the plant
The constant Pressure on vendors
Dell is hardly coy about pressuring its suppliers to do better. A metrics-obsessed organization measures everything, not least its suppliers' performance. It rates all of its vendors on their ability to compete on cost, technology, supply predictability, and service, and posts their scores daily on a password-protected Web site. Every quarter, the suppliers' executive team meets in Round Rock, Texas, where Dell is headquartered, for a formal feedback session. In these meetings, dubbed QBRs (quarterly business reviews), suppliers are ranked against their competitors. Based on that comparison, they are awarded a percentage of Dell's purchases for the upcoming quarter. Dell is cold-eyed in these assessments, unflinching and unsentimental.
Despite being one of the market leaders, Dell is still relentlessly striving to get better faster; Dell intends to slash $2 billion in costs which will come from manufacturing operations and the supply chain. That will put even more pressure on Dell's component makers. As Michael Dell aptly says, ‘In the high-tech business, you either grow or die’.
Praneet Gourav Mishra (PGP 24151)
Integrated Electrical Maintenance
We now look into the Mechanical maintenance area in an integrated steel plant.
Integrated steel plant means that the firm makes finished products like cold rolled sheets from basic raw materials like iron ore, coal, and fluxes. The role of Maintenance is to ensure equipment availability as per annual business plan of the firm.
The sheer size and complexity of process requires a dynamic maintenance process and hence Tata steel the world 6th largest steel manufacturer adopts Total Quality Management (TQM) practice in to achieve this target.
Components of TQM:
Daily management: Deals with sustenance of current level of performance
Policy management: Deals with future high level performance.
Individual responsibility for different work is assigned and the data is collected. For better understanding of data graphs are attached with individual data. A review is done on this data on a monthly basis and all the deviations are noted. The action plan for those deviations are made and implemented on next month. Since working in a steel plant is hazardous, due importance is given to safety aspects. Tata Steel focuses on continuous improvements, hence suggestions from individuals are encouraged, and progress on those is tracked through this. (Concept borrowed from Total Productive Maintenance, TPM)One important misconception about daily management is that people consider it as a daily affair. Daily management can be done on monthly or weekly basis. Policy management in maintenance function is not of much use as not much of significant changes are happening in this.
Written on experience gathered while working in Tata Steel Limited by
AshishKumar (PGP 24187)
It then links these customer requirements directly to operational processes. It illustrates how the manufacturing methodology fundamentally affects the customer satisfaction. This is in illustrated in many different ways ranging from quality and cost (directly related to operations); to service (delivery time and schedule). Then the book goes on to show how competitors attack existing companies whenever they fall short on customer expectations. They improve their manufacturing setup to enable them to provide better customer service.
It shows how this is accomplished by the help of linear solutions (like reorganization, decentralization, de-layering, continuous improvement, benchmarking, and participative management) & more importantly, through non-linear solutions. The book emphasizes on the non-linear solutions (Also called re-engineering by some people) and shows how linear solutions help the company to remain in competition (at least for a short time) but non-linear solutions make a company soar ahead of its competitors and hunt them down. The book provides some valuable insights into the world of manufacturing. It shows us that a bad system cannot be improved endlessly. Eventually it has to be replaced by a better system.
Some of the key points discussed are
1. Customer orientation (operating in customer time, quality, cost etc)
2. Cycle time & system response time
3. Inspection, inventory & feedback
4. Strategy, process model, process intent & value delivery system
5. Linear & non-linear solutions
6. Quality & Cost, Flexibilty & Delivery
The book tries and manages to present theories in a compelling manner. Even counter-intuitive points are presented in a logical and easy to understand manner. As a literature of management this book provides for a very compelling read and is quite thought provoking in nature.
Jagrit Minocha (PGP 23064)
Monday, June 30, 2008
As you read these lines, I presume that you have already explored the campus in its wilderness & beyond. But this is only a beginning of the memorable years that you are stepping into. While the mountain of books collected from the PGP office lies unsettled in your rooms, the freshness of a new book does create inquisitiveness to atleast flip through once. The campus air would be rent with who’s who of campus including the faculty. ‘Mark ‘, ‘Ops’, ‘Fin’ etc are just a few slangs in academia that you will live by for atleast next two years. While ‘facchas’ do have access to PGP2s 24x7 to quell their anxiety & resolve all queries under the planet, let me do my bit to decode & break the myths for one i.e. ‘OPS’.
Operations Management, better known as ‘Ops’ has its share of history too like any other subject. Put it simply, this area of management forms the heart of any business. The analogy with heart is not to highlight that this is the most important aspect but to signify that it pertains to executing your business plans on ground. The efficacy of any planning is realized when it is executed. And Operations deals with execution!
The junta with work ex would surely have more idea of what operations entails, the uninitiated might easily assume that operations is all about factory, union, transportation etc. Well, it is surely much beyond all these. And it does not pertain to manufacturing only. It has come a long way since the Industrial revolution of 40’s. You have operations in services as well. Eg. Banks, Hotels, Retail, Railways etc. And operations or for that matter any business function should never be viewed in isolation. All work together for growth of a company.
The latest avatar of Operations - Supply Chain Management (SCM) has become a buzz word across campuses, businesses & research labs. SCM has encompassed all the aspects right from product design to manufacturing to distribution to after sales service. It interfaces with other functions like marketing & finance at various nodes & time frames. It has given a ‘process view’ of delivering the products & services in a business. That also explains the vastness of this subject & the interest it has generated in the business world for last two decades.
I do not intend to make this editorial a literary of definitions & theories. The curriculum will give you enough gyaan on history, present & future of SCM. And some of the Profs do ‘Rock’, pay heed to them. Library at L is one of the best in country. This monthly newsletter from OIG itself shall be a good source of information on Operations. Do track it.
Some of you might have already started grilling your seniors on subject combinations & specs to be taken in 2nd year. Relax! There is no hurry for that & you have loads of time & opportunities to come to a decision. Keep your mind open & do not form opinions at the outset. Just sail along!!!
- Sachin JayaramThe guest editor is an alumni of IIML (Batch of 2007), working as a SCM consultant with Bristlecone India Ltd. He can be reached at email@example.com
Introduction to Operations Management
A WARM WELCOME TO YOU ALL FOR MAKING THROUGH TO IIM
The main purpose of writing to you is to give you a basic concept of Operations Management and dispel any notions attached to it. Moreover I will try to explain what all you can expect from Operations in IIML and finally where you can be if you wish to pursue operations as a career option.
The basic functions of an organization viz. a viz. the functions of management are always the same: designing, planning, organizing, directing, and controlling albeit with a little modification according to the business needs. Management establishes the goals and objectives of the firm or organization and plans how to attain them. It is management that organizes the system and directs it so that its goals can be reached. Finally, management must be able to analyze the working of the system in order to control it and to correct any variations from the planned procedures in order to reach the goals. These functions interact with one another and managers must be skilled in these coordinating processes and functions if they are to accomplish their goals through the efforts of other people.
The basic building block of every organization is Operations. The driving force here must be an overriding goal of continually improving service to the end customers. Services here encompass all those facilities that are essential/will help to improve the quality of work of the next process/customer. Therefore Operations Managers seek to control the processes that determine outputs from businesses. In other words, as an Operations Management major you’ll study operating systems, quality management, product design, supply chain management, and inventory control. You’ll study how equipment, information, labor, and facilities are used in the production process. You’ll learn about every step that goes into making a product or service and how to make each step as efficient and beneficial to the company as possible.
Within Operations management, an MBA is expected to go through the various disciplines such as Basic Operations Management, Supply Chain Management, Logistics and Vendor Management, Manufacturing System Design, Manufacturing Planning and Control, Service Operations, Operations Strategy. Many and most of these courses are floated by the IIM Lucknow Operations faculty over the two year course. The best part of this is that students can learn the best of both worlds, namely the strategic view as well as the operational view of Operations Management through these courses. The current faculty in IIML is also pretty best in class in the operations group and learning from them is an experience altogether.
Throughout the two year course, there is a general feeling in the students that the courses are monotonous and mainly academic in nature. Herein lies the functionality of groups like OIG which organizes events throughout the year which can be considered fun, challenging as well as educative. Paper writing competitions covering recent developments in Operations allows students to showcase their talent across the best B-Schools not just in
All said and done, B-school grads will always look at events through the view-point of “How a particular activity will help/give direction to my career?”. With the large number and variety of companies coming to campus for placements, students can have a focus towards Operations and venture into diverse areas like Supply Chain Management across FMCG sector, Banking Operations, Consulting Firms etc. Companies like McKinsey, Accenture Consulting, Cadburys, Nestle, Asian Paints, Reliance (The list just goes on…) are really looking out for B-School grads with interests in the operations side. The need of management graduates with sound operations knowledge is highly valued in any and every organization and that is why the 1st year has a number of courses to introduce the offerings.
I hope that atleast a few of those who will be reading this article will find the concept of operations interesting and see the courses offered in a new light. Set your priorities when you are in IIM Lucknow and work towards them in the best possible manner. But within all this, remember one thing. NEVER FORGET TO ENJOY AT THE CAMPUS as these two years will be one of the best you will ever have. All the best to you all for the coming years!!!
Ronjay Chakraborty (IIML’ 08) is working as a Senior Consultant with Capgemini India Ltd. He can be reached at firstname.lastname@example.org