Archive for the ‘Lean and Just-In-Time’ Category

Can Lean Manufacturing Backfire?

Wednesday, February 3rd, 2010

Note: The following posting can also be viewed and commented upon within the Kinaxis Supply Chain Expert community web site.

Amidst all of the attention being made to Toyota’s ongoing product recall and sales suspension crisis related to sudden unattended acceleration of certain model vehicles, another interesting question has been posed.  In the weekend edition of The Wall Street Journal, reporter Daisuke Wakabayashi penned an article (subscription may be required) noted that lean manufacturing can sometimes backfire.

The premise is that the utilization of common designed parts (i.e. the accelerator assembly) across multiple product models can backfire when major quality control issues arise. Toyota utilized one supplier, CTS Corp., to supply the subject accelerator pedal assemblies.  The argument is that cross-model component sourcing risks are magnified as companies expand globally.  The other premise noted in the article is that growing technological complexity… makes it harder for manufacturers to diagnose problems in the early stages, before the issue becomes more widespread.

My view is to reject this broad argument.

Lean manufacturing methods and common platform designs are a long proven method for insuring cost, as well as quality efficiency.  In fact it was Toyota that led the way in pioneering these efforts.  Common part designs can enhance product quality and cost by allowing product designers to source from approved suppliers with consistent quality and on-time performance capabilities. Lean production methods, when performed correctly, can also spot any quality malfunctions at the source of production, insuring that corrective actions are taken before a build-up of non-conforming parts.

The incident with Toyota, in my view, appears to be more related to a broader feedback loop, one that involves the actual operating use of vehicles and reporting of incidents.  We can all speculate as to when Toyota first became aware of the SUA problem in its vehicles, and what actions were taken to ascertain the scope of such problems.  No doubt, Toyota and certain governmental agencies will be pursuing such investigations.  This has more to do with product management and design than lean manufacturing.

I believe the headline for Toyota is not about the backfire in lean manufacturing, but rather an awareness of both design and supply risk management. This should not be the purview of manufacturing and supply chain, but rather product management and design.

What’s your view?  Do you view this ongoing recall as being exacerbated by lean, or by other shortfalls?

Bob Ferrari

Disclosure: Kinaxis is one of other sponsors of the Supply Chain Matters blog, and as such provides financial consideration for having its product logo and product information linked to this blog.


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A Statement: The Semiconductor Industry is in Good Shape- But What About the Rest of the Electronics Supply Chain?

Thursday, January 21st, 2010

Note: This blog posting can also be found on the Kinaxis Supply Chain Expert Community Site.

Recent developments regarding inventory and capacity in the semiconductor industry have rather interesting connotations for this and other related industries.   The significance is important for two important reasons.  First, semiconductors are the lowest tier of many high tech, consumer electronic, and lately automotive component supply chains.  Decline or growth in production or capacity is an important sign of what will ripple up the value-chain.  Second, trends occurring in the lowest tiers of supply chain have implication for what those at the far-end of supply chain, the component buyers, planners and brand owners can expect to encounter as they plan for 2010 supply chain needs.

Two important stories appeared almost simultaneously this week.  Taiwan Semiconductor Manufacturing (TSMC), one of the world’s largest chip foundry producers, is rushing to build new capacity to meet surging demand.  An article featured in The Industry Standard notes that TSMC is speeding up plans for new Fab lines as demand for chips used in electronics surges. The conclusion noted is that aggressive building plans in an environment of rising demand indicate that recovery in the global technology industry continues to strengthen.  That is certainly good news for the industry, but we need to dwell a bit on other industry-related news.

An article featured in Electronic Design News boasts that semiconductor inventories are in good shape, a key to 2010 recovery.  Analysts at iSuppli note that overall inventory levels are at very healthy levels, and proper inventory management will be a key to a 2010 growth recovery.  By iSuppli’s calculations, inventory levels at semiconductor makers declined to 66.4 days, or 15% from 74.6 days for the same period in 2008. Inventory at distributors was reported as 36.9 days at the end of Q3, down 15% from the 43.4 days in Q3-2008.  The article conclusion is that tight control of  overall inventories throughout the electronics supply chain bodes well for the industry.  Here is the most important quote for our community to focus on: “This means that any increase in demand for such end products is likely to translate directly into rising semiconductor sales, …”

As I try to connect these two developments, I see the potential for other conclusions.  TSMC’s aggressive expansion is noted as being motivated by needs for smaller and faster multiple function chips needed in computing, video and music playing devices.  New breakthrough technology translates to the need for newer innovation in products. Now couple the two developments: industry demand has precipitated the need to build additional chip capacity for both TSMC and competitor GlobalFoundries, and that overall inventory levels up the chain are at their lowest levels.  The conclusion that I come to is a different.  My sense is that increases in end-item product demand, especially new product demand, will equate to a need to ramp-up capacity and adequate inventory.  This will likely translate into more headaches for planners and product management teams as they try to take advantage of opportunities to expand top-line revenue growth opportunities.

I would sure like to hear the comments and observations from those of you in the electronics supply chain community who are on the ground, closest to the action..  But from my lens, keep those seat belts fastened and prepare for moderate turbulence.

 Bob Ferrari

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Black Friday-Cyber Monday Weekend: Challenges Compound for Supply Chains

Monday, November 30th, 2009

As I pen this posting on Cyber Monday, there are already lots of predictions in the blogsphere regarding the sales activities for the 2009 holiday buying season.  The headline in today’s Wall Street Journal, More Shoppers Hit Stores, but Spend Less Each, (subscription may be required) summarizes a consensus of industry observers noting that while more shoppers turned out this weekend for the traditional start of the holiday buying season,  they spent less per shopper and tended to favor lower-priced items. The National Retail Federation estimated that 195 million U.S. consumers will have shopped both stores and online over this past weekend, up from 172 million last year.

If this trend continues, there will be revenue and supply chain implications not only for retailers, but also producers.

Last week, a Business Week article, Amazon Paces Holiday Tech Discount Drive, noted that early price cuts on consumer electronics led by Amazon and Wal-Mart may be good for consumers but not so good for profits.  Retailers began planning holiday price promotions for consumer electronics in mid-November, working with various brand suppliers to pre-select specific promotional items. Lowered prices and highly planned and marketed promotional items have definitely drawn the interest of consumers. The Consumer Electronics Association (CEA) estimates that these lower prices will boost unit volumes by 6% for consumer electronics, but cut overall sales by 7.5 %, Consumers are opting for cheaper netbooks instead of traditional laptops, or smaller flat-panel TV’s rather than bigger sizes.

I myself was a participant in Black Friday activity. Spending a few hours on Friday afternoon searching for a good deal on a 32 inch flat panel TV, it was rather interesting to note that while there were deals to be had, it appeared to me that most of the larger volume outlets were doing their homework and working with manufacturers to match price on the same model of TV’s.  

If this weekend’s trends hold for the remainder of this holiday buying period, supply chain and retail managers will be facing even more cost and business planning challenges.  Higher unit volumes with lesser revenue yield mean that previous cost efficiencies in production, logistics and transportation will be tested yet again, particularly if retailers attempt to replenish certain inventory prior to end of the period. Imagine being LG, Panasonic, Samsung or Sony, and being asked to possibly replenish a last minute shipment of hot-selling TV’s, but having to adsorb a lower margin transportation cost.  Since many retailers have already been practicing smarter inventory management to reduce overall inventory exposure prior to this period, their overall ability to make-up potential revenue shortfalls by a last minute buy may present an interesting scenario among seller and buyer.

As the Journal article also points out, if you were hoping to get your hands on that Zhu Zhu pet hamster, electronic reader, or bargain flat panel TV, you may well find yourself on an online auction site outbidding someone.

While others argue that in the past sales on Black Friday weekend have not been an accurate barometer of for the season as a whole, 2009 may well be different as this era of lean inventories across supply chains may dampen the ability to meet or surpass revenue and profitability goals. Having supply chain wide agility and responsiveness capability may be the acid-test for the 2009 holiday selling season.

 Bob Ferrari

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CSCMP 2009 Annual Conference Live- Post Four

Wednesday, September 23rd, 2009

This is my fourth live posting of observations and commentary related to events at this year’s Annual Conference of Supply Chain Management Professionals (CSCMP).

When I performed my pre-planning prior to the conference, one of the sessions that had been on my “must attend” list was the session titled Wall Street’s Perspective on Supply Chain. This session did not disappoint.

It consisted of a panel of four senior investment professionals experienced in private equity and investment banking, with first-hand knowledge of how the Wall Street community looks to supply chain as a measure of value.  The firms represented included Frontenac, Jeffries and Company, Inc., MERK Capital Corporation and NKF Consulting. Each panelist began by providing an overview of their firm activities as well as a perspective on how they view supply chain.  The session then turned to an open Q&A exchange among the panelists and the audience.

Some of the summary messages from the consensus of the panelists follow.

The focus of mining supply chain for continued cost savings must continue over the coming months.  A statement by William Hunter, Managing Partner at Jeffries was that companies have done a great job of rationalizing costs and shedding excess people. Even though most feel we have begun to turn the corner, recovery across broader industry sectors will take more time.  The perspective echoed by many CEO’s / CFO’s is that top-line revenue growth will not begin to occur until mid-2010.  This implies that profitability will continue to come from reductions in cost as well as increased efficiencies. Cash is still king, and Wall Street will punish unexpected surprises.

CFO’s must respond to Wall Street, and the panelist consensus was that many CFO’s will continue to not only have a keen eye toward continued profitability, but will also look to:

  • Top line innovation
  • Capacity rationalization
  • Specifics of risk management

I was especially tuned to the validation that supply chain risk sensitivity has now become a top item of interest within the C-suite.

A slide shared by Hess addressed his view of Wall Street’s expectation as we transition to the next phase of the business recovery.  Whereas the current phase has had a primary focus on optimizing business liquidity, the next will focus toward optimizing performance management and operations execution.  One other noteworthy quote from Robert Hess, Managing partner of NKF Consulting specifically addressed supply chain equilibrium.  Going forward, Wall Street will look negatively on companies that attempt to plan demand based on forecast history.  “Forecasting on the past is dead wrong” noted Hess.  Forward-looking demand planning and operational excellence, especially process-related excellence, will continue to make positive impressions on the value of a company.  “It’s all about “doing fewer things better, and proving it.”

An observation by two of the panelists relates to the ability to get money for transformation and/or rationalization initiatives related to supply chain.  According to the panelists, credit markets remain very tight, and access to additional money will remain a challenge. ROI and hurdle rates need to be very strong, and eliminating a couple of distribution centers may not necessarily be a positively received investment by private equity investors.  Reduction in inventory turns or bottom-line inventory, on the other hand is looked on as positive.

Let’s end on a positive note.  The panelists did indicate that experienced supply chain talent will continue to be in demand across multiple industry sectors, which was phrased as good news for the audience.  My reaction was simply, who else in the organization has the scope and knowledge to deliver continued process excellence- supply chain, of course.  But don’t ask for that raise just in salary, at least not for a few more months.

Bob Ferrari

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Posted in Controlling Supply Chain Costs, Lean and Just-In-Time, Supply Chain Performance, Supply Chain Planning, Supply Chain Strategy | 3 Comments »

CT&T’s RAAS Process- Is it Different?

Thursday, August 13th, 2009

The South Korean electric vehicle provider, CT&T, who produces two-seater city cars and other small electric utility vehicles, recently announced its entry into the U.S. market through its new subsidiary, CT&T United.   This new joint-venture also includes Japan’s PUES Corporation. 

 I recently noted postings on both the autoblog and Procurement Leaders blogs, commenting on CT&T United’s new Regional Assembly and Sales System (RASS) process approach

David Rae noted on Procurement Leaders in his headline that this process was “as revolutionary as Just in Time manufacturing.”  Sebastian Blanco noted on autoblog that the RASS idea is to invest $8 to $10 million on each regional facility.  He quotes CT&T Chairmen and company founder Young Gi Lee that the RAS system has the potential to revolutionize the auto industry the way Toyota’s just-in-time parts delivery did by “regionalizing manufacturing and sales and allowing us to offer EV’s at an incredibly responsive price point.”

Without knowing more about the details of this process, I’m not inclined to as yet go along with that bold of a headline, but I do applaud more creative thinking. My sense is that this process may be similar to that of providing finished goods assembly kits that many Asian based manufacturers practice when they extend sales presence to other countries. The process essentially avoids the need to establish a large capital or inventory investment in component production or supply chain resources until volumes warrant such an investment. This process may possibly be different in that the context is a much smaller vehicle which hopefully not includes a complex supply base as larger gasoline powered vehicles. The other issue would be where most of the finished materials are being shipped from.

In a past posting, Lessons of the Tata Nano and Rethinking Big Three Supply Chains, I noted the novel means that Tata Motors utilized around supply chain process to meet the goal of building a $2500 vehicle with a small margin. The Nano ships as a kit to a local facility, where it is assembled. Similar to the challenge I issued to the big three U.S. automotive OEM’s, perhaps CT&T has indeed embraced new thinking in supply chain and distribution.

I would certainly like to hear more about the RASS process and I’m asking CT&T as well as my readers to share what specifics they have heard. Readers can post in the Comments section related to this posting.

 Bob Ferrari

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