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Why should time be so complicated? Making FOCUS a habit ought to simplify things. Reminds me of an Ancient Buddhist saying that goes, “If you chase two rabbits, both are likely to escape.”
To create, transform, and deliver something of value – the kind that customers are willing to pay for — needs focused time, resources, energy, and close attention to detail. This is especially crucial in Operations Management, defined as “planning, organizing, staffing, and leading the activities of any business precisely relating to the creation, production and delivery of goods and services, through the transformation of inputs into outputs.” In its barest sense, Operations Management manages the company’s “value-fulfillment” system. If it fails to do that, it fails period. OM thus attempts to focus on value, and align organizational resources in order to synchronize the company’s perceptions of value with that of the customer, i.e. business requirements must match customer, and deliver VALUE, within business constraints. What do we mean by value? Some call it quality products and services or benefits thereof. Some say buyer utility or satisfaction. Collectively, value might mean the combination of X-factors that customers are willing to pay for. OM, then, hopes to concoct how value can be delivered at a profit. All business functions need to support this overlying purpose.
Operations Managers have long discussed Just in Time, or JIT, as a clue to the most efficient value-delivering approach. JIT promises – if properly set up and executed – to dramatically reduce production or service lead times, boost up system throughput, and subsequently, slash fixed costs per unit, by managing operations leanly and efficiently. Unfortunately, JIT is an elusive operations management philosophy that escapes most of us as to its essence and meaning. Very few souls understand it. In a nutshell, JIT is about lean, synchronous manufacturing, in order to reduce inventory. By lowering the systemic need for in-process inventory (i.e. excess capacity stock), JIT literally frees the company’s time, energy, and money/resources — previously committed to producing inventory “just in case” it is needed. By releasing the system of ‘just in case’ inventory, resources are freed for productive, saleable goods and services, which actually add real value to real people’s lives.
What’s up with Inventory? Disclaimer: not all Inventory is bad. In fact, some are absolutely necessary. There is an evil kind of Inventory, however – i.e. the excess kind that is not yet needed, and/or, is “needed just in case people have nothing more to work on” or “just in case someone wants it”. Such excess inventory hides problems and gives a false sense that people are “working” when in fact they are just .. well.. fiddling with inventory. By reducing excess inventory to near zero, work flow will naturally stop when one or another “sub-process” encounters problems, quality defects and so forth. JIT mandates that the team immediately work on, discuss and find the root causes of the problem, say the problem of a recurrent defect, and initiate action to solve this problem permanently. This is when new jigs are designed, new quality assurance procedures introduced, and new systemic policies are formulated.
JIT thus exposes real problems, that cause real delays in operations, real lead time bloaters, say, in manufacturing operations, or any part of the value chain thereof. In a sense, JIT allows teams to “sacrifice” short term operation time for current throughput, to solve problems that will protect future multiple throughputs. Too much unnecessary inventory, gives operations managers the “illusion” that people are doing a lot of things everywhere, but in truth they are only working on the pieces or batches of product or jobs they are currently working on, nothing else.
JIT, a concept allegedly developed by Japanese Kenichi Ohmae, and first popularized by Toyota, stems from the idea that inventory, especially work-in-progress (WIP) inventory, is the “twin brother” of lead time. It means that the more WIP a system or organization allows to exist, the longer the average cycle time, or time each product, batch, job order — or in the case of service, each service order – moves within the business premises until it finally gets to the consumer. For example, if a job shop furniture exporter’s factory and warehouses are full of parts and pieces of, say, 60 days worth of inventory of unfinished job orders, then if an order of 100 dining sets is placed by a hotel, then technically the company will need 60 days to deliver the unfinished WIP, first before starting the 100 dining set order.
JIT requires giving up your authorized safety net inventories located everywhere, and control supplies and inventory to levels that will just synchronize and support production, and importantly, to feed operations. The main emphasis of JIT is to reduce inventory-related costs and waste, by eliminating “Just In Case” inventory.
JIT implementation requires Operations teams to take a very close look at every stage of production and inventory carrying points, per product or service stream. This exercise alone is useful in highlighting areas in need of improvement. Ultimately, the more efficient you are and the higher quality product you provide, the lower your costs, the faster your lead times, and so the more appealing you become to customers and clients.
Reduced Inventory means reduced warehouse and factory space requirements, security and handling costs, air conditioning or dehumidifying costs, packaging, labeling, interest expense (on sleeping inventory) and every othe rcost that comes with excess inventory.
JIT is synonymous with Lean Operations which clarifies what leaders, employees, suppliers, should pay attention to, to produce value, and that includes solving obstacles to the swift delivery of value. JIT eliminates non-value adding activities that drive up costs and extend total delivery time.
With JIT, a company can focus on creating and delivering value – in the Customer’s persception – rather than excess inventory, wasted materials and supplies, useless movement, unnecessary delays, and so much “noise” that customers are absolutely unwilling to pay for.
The only thing customers are willing to pay for is value, or the benefits and features that go with good (not poor quality) product, and this is exactly what the goal of Operations is… to transform the inputs of time, energy, people, and other resources into Value which the customer will pay for. Lean operations gives the Operations manager an excellent basis for Operating strategy, which is to reconcile the firm’s resources to meet marketing requirements, to invest in the right strategic elements to increase the company’s long term capability to deliver value (say in differentiation) and/or to lower cost (in low cost strategy), and to organize systems to help employees execute whatever strategy is selected.
A saying goes that “the best time to have an inventory part ready for production, ready for the next step in production, and ready for delivery to a customer, is Just in time.” The same account goes that “manufacturers build inventory of both finished goods and raw materials Just in case!”
The time buffers of inventory that populate most production master schedules, give a false sense of security and are extremely expensive. First you tie a huge amount of cash to inventory costs, i.e. non-value-adding handling, storage, movement, security, pilferage, and all other. Inventory can be lost or damaged, and may deteriorate.
The presence of idle, non-moving stock – or orders authorized for production but are not yet needed – interfere with more critical ordered stock. Shipments get delayed, when countless stocks are produced! Worse, non-moving stock become obsolete so quickly in today’s world of nano-speed time-to-market product introductions. Warehouses, could instead be factories or showrooms or rented to someone else! All of this means lost profit or lost opportunity (to make money).
When JIT is implemented, a company’s costs are lower. It has more cash. It is more reliable in its promises to customers. Its quality is improved, because people can concentrate and WIP does not hide it. IT gives a company a sustainable competitive edge. And best of all, in my opinion, you need not annoy clients by forcing them “fire sales” of old useless stock.
To execute JIT, you need to complete a jigsaw puzzle of elements. At the heart and sould of this, is the kanban , a Japanese shop-floor visual card system that ensures that a continuous supply of inventory or product are fed to the system “just-in-time”. Kanbans were designed to support the JIT philosophy. For example, as the supply, say, of needed parts approaches a visual MINIMUM red mark, the supervisor then prepares a requisition for such parts, and so forth.
Next equally critical JIT needs KAIZEN, TQM, 6-Sigma and other continuous improvement systems, usually worked on by small-groups called Quality Circles or Lean Production Teams that work on problems precisely exposed by JIT, but not in a shallow way, but rather in a strategic, permanent way, because root causes are investigated. All techniques of process, product, and service improvement are employed; but in a methodical way, and prioritized on breaking one systemic constraint after another.
Obviously, JIT is not only meant for manufacturing or operations, but throughout the business/firm. JIT requires that operations work beyond the business – e.g. it involves working with most institutions along the supply chain: suppliers, government, logistics, telco, IT firms and so forth, to synchronize the whole order-fulfillment system.
Finally, and most importantly, to execute JIT, Operations needs to work very closely with Marketing. All value must be consistent with the customer’s idea of value, and not just the company’s. JIT must closely monitor market behavior and history. One problem is that when orders suddenly spike, the company needs to be very flexible and adjust quickly. Fortunately, if JIT is properly executed, the company is likely to have the money to solve whatever that positive problem is, to begin with.
LINKING OPERATIONS with Corporate and Marketing –
It is the task of Operations to reconcile both the demands of the consumer, that hopefully are consistent with Marketing requirements, and the resources of the company, in terms of time, production capacity, staff, systems and methods, logistics and so forth. Marketing decides on the mixes of Product or Service, distribution outlets/ promises to customer in terms of price, lead time, payment terms. Marketing – through sales or accounts people develop the sales forecasts, and so they “decide” when they want the goods delivered and in what quantities, sizes, designs, shapes, features included and so forth. Production needs to confer with Marketing all the time, with respect to lead time estimates. Status of orders, and actual delivery schedule commitments. Delivery instructions, packaging standards, mode of shipment, delivery address, communication, so many such details need to be coordinated. Finally information on after-sales commitments, and customer feedback are important, for production, product development, and quality assurance people for example, to make necessary improvements, or such appropriate responses to feedback.
Linking Operations with the Marketing and Corporate strategy cannot be over emphasized. Unless there is alignment between these three (3), and the rest of the company for that matter, a host of problems can be expected to happen, or recurring problems will not be solved (which means lost customers), but for the most part no new strategy can be properly executed, unless the parts that are tasked to execute it, are aligned.
Information asymmetry can cause delays, mistakes in strategy execution, or a host of many wrong, some even devastating, decisions.
Let me list down some questions an Operations manager needs to ask Marketing. Who is the target customer? What qualities are important to him? What products are the most in demand? What are his/her priorities/ recurring problems in terms of design, quality, lead time, supply chain logistics, delivery performance, packaging, distribution, or other operations issues? What is the target customer’s perceptions of value? What products are in trend for the next few years? What might be phased out? There will be redundancy, miscommunication, and so many other wrong strategic decisions, if there is no linkage.
For corporate matters, OM has to work with Finance to approve new plant capital budgets (assuming layouts are done), new machines for process flow designs. Operations needs to work with HR to design the work and jobs, identify the right skills sets, personnel needs, prepare/approve job descriptions, performance evaluations, training requirements, and even negotiate with labor union leaders. OM also needs to work with Admin/Legal to understand legal requirements, say environmental bureau standards and maybe food or other standards for other industries.
To execute the linkage between Operations, Marketing, and Corporate strategy, I would recommend that a common Strategic Planning workshop be done. This begins with corporate Situational Assessment meetings first, prior to Business Unit or Department planning workshops. As many key managers, assistant managers, the Board if possible, Finance, Marketing, HR, Operations, some key rank and file (especially tribal leaders and Union officers if they exist). This way we build a cadre of Strategy Advocates.
At this juncture – we assess the company’s internal (competitive strengths, weaknesses/exposures, performance history, in sales, finance, marketing, HR, operations) and external (opportunities, threats, future trends). We look at Socio Demographic, Technology-Supply Chain trends Political-Legal and other key external environmental issues and concerns, mostly threats and opportunities are listed. Key issues must be highlighted by concensus. We then analyze the competitive or Industry environment, again looking for Opportunities. From here we build a SWOT matrix, and use other tools like Boston Consulting Group matrix, SPACE/IE GSM and other tools to match internal and external data detailing areas for the purpose of generating alternative strategies (corporate first, then later complementary business and departmental generic strategies). Some suggest we need to jointly decide on over-arching corporate and business strategies – such as Differentiation, or Low Cost, Focus, or Broad Market strategies.
Some think there is no trade off if we focus on reducing inventory and non-value-adding costs, and pour such savings towards differentiation strategies and tactics. Powerful way to find the money for building competitive advantage.
We then agree on the frameworks (using critical success criteria) to decide which strategies to jointly commit to execute, and finally, most importantly, we must agree on what Implementing mechanisms to inject in the solution –including but not limited to – choosing leadership champions, setting preventive and contingency measures, staffing/ training, hiring and motivating, strategy-supportive systems, changing structure and layouts, allocation of operating funds, as well as addressing resistance to change
Finally, the team ought to be well led – as nothing happens without the leadership of champions — who will scout, select, coach, inspire, equip, and empower team players, leveraging on best practices, frameworks, and technologies – including qualitative and quantitative methods and measures of success. This JIT Lean Dreamland may only come to pass, if leaders are both competent and committed– mentally, emotionally, and psychologically – to build the team that matches this dream.
One of my favorite quotes is from renowned psychologist Carl Jeung and it goes this way, “When I dream alone, my dream remains a dream; but when we dream together, it is the beginning of reality.”
– Written by Joseph Pangilinan, CEO Arrowhead Consulting, for DLSU RVR Graduate School of Business, WCE in Operations Managment