The Rise of Oligarchies and Monopolies and What this Means for Businesses
The Rise of Oligarchies and its Effect on Consumers A noticeable phenomenon in the business world ever since the 1970s has been the rise of large corporations whose turnover sometimes exceeds that of the budgets of entire nations. These conglomerates or oligarchies are the direct result of neoliberal policies pursued in the West starting from […]
Fiat Currency and Trade Deficit
The United States has one of the largest trade deficits in the world. Many critics have been of the opinion that it is only because of the existence of fiat currency that such huge imbalances are possible. These critics believe that if the world were to return to a gold standard, these imbalances would resolve […]
Investing in Sin Industries: Are They Worth the Hassle ?
Some professions in the world are not considered to be as acceptable as others. This notion of acceptability is widely influenced by the cultural norms in the society where one is conducting business. However, in the modern world, being associated with sin does not seem to be much of a deterrent to investors. Cities like […]
The 5 Whys Analysis and How to Effectively Use it
What is Five Why’s Analysis? The Five Why’s analysis, also known as the root cause analysis is one of the seven basic tools that are used in Six Sigma. The principle idea behind the tool is the fact that for every effect there is a cause. Therefore the quality problem can be viewed as an […]
Talent Management and Corporate Strategy: Aligned for Driving Excellence
Talent Management in the contemporary scenario has received increasing importance from the corporate world and have been acknowledged as the key for providing a competitive edge and a leadership advantage by developing the top talents and resources in an organizations. Talent Management can be regarded as a process of acquisition, hiring and retaining the most […]
Polar opposite to the concept of Business Process Re-Engineering is the concept of continuous improvement. It was developed by the Japanese after World War-2. Whilst BPR relies on radical change, lean management relies on small incremental change. It stems from Japanese term called “Kaizen” which means small improvement.
The concept relies on successive small improvements to bring about a big change over a period of time. Instead of changing the process completely, only minor modifications are made to the process and over time they accumulate to provide big benefits.
Corporations such as Toyota and Sony have dominated global markets with the help of this concept. Even Wal-Mart has deployed it to make its supply chain powerful enough to offer EDLP (Every Day Low Prices). Here are some examples of continuous improvement and how information technology contributes:
Inventory Management: Toyota Inc realized that it was occurring costs of over 26% per annum for maintaining inventory. So were all the other car manufacturers. This inventory was maintained because the process was aiming at local optimization instead of total optimization.
The inventory department was trying to minimize its own costs rather than total costs and so were all the other departments. Toyota used technology to build an impressive forecasting system. Then it streamlined its supply chain to ensure that inventory arrived Just in Time (JIT). This cut all the storage, administration and interest expenses. Toyota could price better and still reap higher profits. Toyota used continuous improvements in its forecasting, inventory management and warehousing processes to gain a cost advantage over the others.
Logistics: Wal-Mart used processes to its advantage when it built a world class inventory tracking system. It cut administrative costs and supply shortages as it built information systems to share information with the suppliers.
P&G could see when the inventory had fallen below a certain level and could replenish it without Wal-Mart making any effort. The use of RFID chips and barcodes enabled the Wal-Mart to track its customer behavior better and develop relationships with them. Thus a small change like introduction of RFID coupled with other small changes like automated ordering brought down the clerical costs of the purchase department and also increased efficiency manifold.
Push v/s Pull Supply Chain: While most PC manufacturers in the US were reeling from falling prices and rising inventory, Dell Inc found a way to use processes to turn the situation in its favor.
Dell used technology to sell its computers as opposed to brick and mortar stores saving on overheads. But this is just a small part in the strategy.
Dell’s masterstroke was to change the supply chain from push to pull strategy. Dell would manufacture only when ordered. It used information systems to ensure that when an order was placed, all its suppliers got it simultaneously. They would then keep the order ready and Dell would assemble all the parts and use a high-tech assembly line to build and deliver the PC in no time. The customer didn’t mind waiting 4-5 days if Dell took 20% off. Even at this low price Dell was earning superior profits thanks to the power of technology
Processes can also be used to solve a major problem called the Bullwhip effect in the supply chain. It means that minor changes in demand are amplified as they move upwards in the supply chain. The manufacturers anticipate larger demand, produce more and end up with excess inventory. This problem has been curbed by using processes to develop a real time sales monitoring system.
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