Chapter 1 1 9 9 Value Chain Management Avoiding Waste (muda)
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Transcript of Chapter 1 1 9 9 Value Chain Management Avoiding Waste (muda)
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Value Chain ManagementValue Chain Management
Avoiding Waste (muda)
9-2© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
OverviewOverview
How to achieve superior quality, efficiency and responsiveness to customers by managing your value chain properly
How to implement Total Quality Management (TQM)
9-3© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
OverviewOverview
Why innovation and effective product development are crucial components of competitive advantage
How to avoid smothering innovation with Value Chain Management (VCM) and Total Quality Management (TQM)
Discipline versus creativity
9-4© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Premium Wine over the InternetPremium Wine over the Internet
One 12-bottle Case Package: 3 pounds (5%) Wine: 22 pounds (39%) Bottles: 33 pounds (56%) Total: 58 pounds
9-5© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Wine ExampleWine Example
FedEx ground: $36
About 62 cents per pound or…
1. Box: $1.80
2. Wine: $14.00
3. Glass: $20.00
9-6© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
WasteWaste
$20 to make thiss marketing statement:
“I’m heavy so I must be good.”
9-7© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Beaujolais PlastiqueBeaujolais Plastique
Boisset Family Estates in France using plastic bottles for its Beaujolais (BusinessWeek 9/29/08, p. 19).
9-8© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Value ChainValue Chain
Coordinated activities that transform four inputs (manpower, money, material, information) into goods or services customers want to buy Design/engineering Purchasing Production Materials management Information systems Marketing, sales and service
9-9© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Value ChainValue ChainProduct Development
Research customer needs and desires then design and manufacture a new product or improve an existing one to meet them
ProductionProduce the goods or service
Marketing and Sales Create the perception of product value and motivate customers to buy
Service functionProvide loyalty-building after-sales service and support to the customer; get them to come back
9-10© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Value ChainValue Chain
Materials management function Controls the movement of physical materials
through the value chain – avoid waste and make money (JIT) – “pulling on a rope”
Information systems function Electronic system to minimize inventory, track
sales, price products and – most important – managing the customer relationship to build market share and loyalty; quick, lean and accurate
9-11© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Value Chain ManagementValue Chain Management
Value Chain Management
Improve the process of turning inputs into outputs by removing waste to increase value; requires that all company activities be defined in terms of customer needs (commoditize input and differentiate output)
9-12© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Strategies to Build Competitive Advantage
Strategies to Build Competitive Advantage
1. Superior efficiency, quality, flexibility, speed, innovation and responsiveness to customers
2. Simultaneously generate cost savings and build product reputation so you can charge more
3. Re-invest in product and process, further increasing competitive advantage
4. Do it over and over, better and better to gain and sustain competitive advantage
9-13© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Improving Responsiveness to Customers
Improving Responsiveness to Customers
What do customers want? Everything:Low priceHigh qualityMany featuresProducts customized to their needsExcellent after-sale support
EVERYTHING!
You do not want to be at their mercy
9-14© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Price versus AttributesPrice versus Attributes
Strike a balance between cost and featuresFirms offering high quality, fast service and
other attributes customers desire may have to raise prices to cover additional costs
Operations management focuses on lowering production costs or producing more features at the same cost
A firm can enhance its competitiveness by increasing the price/feature relationship; example -- Toyota and Hyundai
9-15© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Improving QualityImproving Quality
The concept of quality applies to the products of both manufacturing and service firms A firm that provides higher quality than competitors
at the same or a lesser price will please customers and gain market share
Higher quality also can increase efficiency by decreasing waste and operating costs (quality as a cost-saving technique).
9-16© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Impact of Increased Quality“High” and “Low” Road
Impact of Increased Quality“High” and “Low” Road
Figure 9.4
9-17© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Total Quality ManagementTotal Quality Management
Total Quality Management (TQM) A company-wide management philosophy
that focuses all activities on improving the quality of a firm’s goods or services
Primary principle: customer defines quality Developed by Deming, Juran, and
Feigenbaum.
9-18© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Steps to Successful TQM Implementation
Steps to Successful TQM Implementation
Build organizational commitment to quality
Focus on the customerFind ways to measure
quality (KPIs)Solicit input from employeesSet goals and create
incentivesIdentify defects and trace to
root cause
Introduce just-in-time (JIT) inventory systems
Work closely with suppliers
Design for ease of production
Break down barriers between functions
9-19© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Improving EfficiencyImproving Efficiency
Improved efficiency leads to lower costs and better performance.
TQM and Efficiency> TQM can lead to much higher labor productivity> When quality rises, less is wasted on scrap and rework.> Example: Ford’s “dinosaur pen”
9-20© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
WarningWarning
TQM and VCM (left-brain) can smother creativity (right-brain) by defining false starts and exploration as “waste.”
Solution: > protect R&D from the value-chain
disciplinarians.> celebrate/learn from mistakes instead
of punishing them
9-21© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Flexible ManufacturingGigs instead of Jigs
Flexible ManufacturingGigs instead of Jigs
Most firms face major expenses when setting up to produce a product. These costs must be paid before production begins
(Example: $1.8-billion TMMT). The more often products to be built change, the higher setup
costs become. Flexible manufacturing reduces setup costs by reducing
the time required to reset the production line for a different product. Using easily replaced or reprogrammable manufacturing
equipment Redesigning the production system itself to be more productive.
9-22© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Just-in-Time Inventory and Efficiency
Just-in-Time Inventory and Efficiency
Just-in-Time (JIT) Inventory system Originally developed by Toyota; also adds to
efficient production. JIT reduces inventory holding costs for warehousing,
storage, tracking, and the cost of capital tied up in inventory (beware of supplier transfer); also reveals problems
A drawback to JIT is that a firm does not maintain a large buffer stock of parts which makes the firm vulnerable to strikes or supply problems that can quickly deplete on-hand inventories and shut down production.
9-23© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Efficient ManufacturingEfficient Manufacturing
Self-managed teams boost efficiency by allowing a flatter organization.
The team takes on the role of the supervisor.Teams working
together often become very skilled at enhancing productivity
9-24© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Process Reengineering and Efficiency
Process Reengineering and Efficiency
Process Re-engineeringThe fundamental rethinking and redesign of
the business process in order to dramatically improve performance. > Boosts efficiency with activities that add value to
the product and deletes those that don’t
> Example: Toyota’s TQM “black belts”
9-25© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Product InnovationProduct Innovation
Quantum innovation: developing a radically different product or service that meets new, emerging customer needs, provides first-mover advantage and makes existing products or services obsolete
Incremental innovation: gradual improvement and refinement of existing products and services to keep them at the leading edge of existing customer needs
9-26© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Effective Product-development Strategies
Effective Product-development Strategies
Involve both suppliers and customers in order to enhance quality/value and improve “fit.”
Force choice among competing projects to avoid spreading product-development support too thinly.
Use cross-functional teams.
9-27© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Effective Product-development Strategies
Effective Product-development Strategies
Study the environment, including future intentions of competitors
Identify potential new customersIdentify suppliers with the best
emerging technology and get them on your side