1. TAKING MANUFACTURING BEYOND WORLD CLASS ALOK TYAGI Goa Management Association Panaji 20 September 2003

2. If you ride the tiger… you can neither slow down nor stop… without getting eaten up

3. Agenda Beyond world class principles What will it need to take manufacturing beyond world class Supply chain: Strategic design considerations Drivers of complexity in global manufacturing The paradoxes of complexity

4. Agenda Beyond world class principles What will it need to take manufacturing beyond world class Supply chain: Strategic design considerations Drivers of complexity in global manufacturing The paradoxes of complexity

15. Agenda Beyond world class principles What will it need to take manufacturing beyond world class Supply chain: Strategic design considerations Drivers of complexity in global manufacturing The paradoxes of complexity

17. Uncertainity spectrum The first step in achieving strategic fit between competitive and supply chain strategies is to understand customers by mapping where the demand is located on the implied uncertanity spectrum The implied uncertanity spectrum Low implied demand uncertanity Purely functional products: gasoline Somewhat uncertain demand Established goods:Crest toothpaste Somewhat uncertain demand New models of existing goods: Ford Taurus High implied demand uncertanity Entirely new products: the introduction of the Palm Pilot

18. The responsiveness spectrum The second step in achieving strategic fit between competitive and supply chain strategies is to understand the supply chain and map it on the responsiveness spectrum The responsiveness spectrum Highly efficient Integrated steel mills: production scheduled weeks or months in advance with little variety or flexibility Somewhat efficient Hanes apparel: a traditional make-to stock manufacturer with production lead time of several weeks Somewhat responsive Most automotive production: delivering a large variety of products In a couple of weeks Highly responsive Dell: customer made PCs and servers in a few days

19. Establishing the responsiveness-efficiency frontier High Low High Low Cost Responsiveness Cost- Responsiveness efficient frontier

20. Finding the zone of strategic fit The final step in achieving strategic fit is to match supply chain responsiveness with the implied demand uncertanity in the zone of strategic fit. All functional strategies in the value chain support the supply chain responsiveness Certain Demand Efficient Supply chain Implied Uncertanity Spectrum Uncertain Demand Responsive Supply chain Responsiveness Spectrum Zone for strategic fit

21. What is the right supply chain for your product ? Greater reliance on responsive modes Greater reliance on low cost modes Transportation strategy Select based on speed, flexibility, and quality Select based on cost and quality Supplier strategy Aggressively reduce even if the costs are significant Reduce but not at the expense of costs Lead time strategy Maintain buffer inventory to meet unexpected demand Minimize inventory to lower cost Inventory strategy Maintain capacity flexibility to meet unexpected demand Lower cost through high utilization Manufacturing strategy Higher margins as price is not a prime customer driver Lower margins because price is a prime customer driver Pricing strategy Create modularity to allow postponement of product differentiation Maximize performance at the minimum product cost Product design strategy Respond quickly to demand Supply demand at the lowest cost Primary goal Responsive Supply Chain Efficient Supply Chain

22. Framework to analyze supply chains Competitive strategy Product Development strategy Supply chain strategy Marketing strategy Suppliers Manufacturer Distributor Retailer Customer

23. Intercompany scope Competitive strategy Product Development strategy Supply chain strategy Marketing strategy Suppliers Manufacturer Distributor Retailer Customer The intercompany scope of strategic fit is essential today because the competition has shifted from company v/s company to supply chain v/s supply chain. The company’s partners in its supply chain have the casting vote on its business success !

24. Deciding facility type Offshore Facility Type Lead Source Server Contributor Outpost Purpose of facility Low cost – for export Low cost – for global production Regional production Regional production with Development skills Regional production, built to gain local skills Leads in development and Process technologies

25. Determining number of facilities Relationship between Number of facilities and Inventory costs Number of facilities Inventory costs Number of facilities Transportation costs Relationship between Number of facilities and Transportation costs

26. Determining number of facilities (contd.) Relationship between Number of facilities and Facility costs Number of facilities Facility costs Variation in logistics costs and response time with Number of facilities Total logistics Cost Number of facilities Response time

27. Framework for network design decisions COMPETITIVE STRATEGY INTERNAL CONSTRAINTS Capital growth strategy, Existing network PRODUCTION TECHNOLOGIES Capital growth strategy, Existing network COMPETITIVE ENVIRONMENT PRODUCTION METHODS Skill needs, response time FACTOR COSTS Labour, materials, site specific PHASE I Supply Chain Strategy PHASE II Regional Facility Configuration PHASE III Desirable Sites PHASE I Supply Chain Strategy GLOBAL COMPETITION TARIFFS & TAX INCENTIVES REGIONAL DEMAND Size, growth, homogeneity, Local specification POLITICAL, EXCHANGE RATE, AND DEMAND RISK AVAILABLE INFRASTRUCTURE LOGISTICS COSTS Transport, inventory, coordination

28. Agenda Beyond world class principles What will it need to take manufacturing beyond world class Supply chain: Strategic design considerations Drivers of complexity in global manufacturing The paradoxes of complexity Agenda

29. Drivers of complexity in global manufacturing The profitability imperative: cost focus The growth imperative: pursuit of markets The value imperative: product innovations

30. The cost squeeze To reduce costs, many companies are being forced to relocate or outsource parts of their supply chain Outsource manufacturing functions Use outsourced engineering services Close production facilities to shed excess capacity Outsource distribution & logistics functions Move production to lower cost geography 0 20 40 60 80 Percentage of companies with some or more implementation

31. The phenomenon of hollowing out

32. Exploiting country advantage Top destinations for engineering outside home region for North American and Western European manufacturer over the next three years (percentage of companies indicating entry and expansion plans) Western Europe (10) India (8) Mexico/Central America (10) Central Europe (14) South East Asia (10) Eastern Europe (15) Eastern Europe (11) India (12) China (16) United States/Canada (16) China (22) Western Europe (percent) North America(percent)

33. The pursuit of markets Top 5 market destinations for North American and Western European companies outside home region over the next three years (percentage of companies indicating entry and expansion plans) Companies increasingly look at markets all over the world, given the escalating cost of developing new products and services Going for growth South America (29) Central Europe (41) US/Canada (43) Mexico/Central America (42) China (44) Eastern Europe (42) Central Europe (50) Western Europe (47) China (48) Eastern Europe (60) Western Europe (percent) North America(percent)

34. Product innovation No other strategy for driving the top line is more important than developing innovative new products and services (Percentage of companies indicating moderate to high importance) New products & services launch Economic turnaround Industry market growth rate Developing new market channels Entering new geographical markets 20 60 80 100 Percentage of companies with some or more implementation 89 85 80 72 66 Top five revenue drivers – next three years

35. The unrelenting push for innovation: new product revenue expected to exceed 30% in 2006 Note: # Based on Deloitte Research, Global Report – Vision in manufacturing (New York:Deloitte Research, 1998) ## Expected # ##

36. Supply chain: The traditional order penetration points The three main penetration points Inventory management Purchasing Ship to order Pack to order Make to order Retailer’s demand chain Retailer’s demand chain Retailer’s demand chain Manufacturer’s supply chain Manufacturer’s supply chain Manufacturer’s supply chain Distribution Packaging Manufacturing Inventory management Purchasing Distribution Packaging Manufacturing Inventory management Purchasing Distribution Packaging Manufacturing

37. Tweaking supply chain to create value The three main value-offering points Offer to purchasing Retailer’s demand chain Manufacturer’s supply chain Manufacturer’s supply chain Retailer’s demand chain Assortment planning Assortment planning Warehousing Offer to inventory management Manufacturer’s supply chain Retailer’s demand chain Assortment planning Warehousing Retailing Offer to planning Distribution Packaging Manufacturing Distribution Packaging Manufacturing Inventory management Purchasing Inventory management Purchasing Distribution Packaging Manufacturing Inventory management Purchasing

38. Tweaking supply chain to create value – an example The conventional demand-supply chain: College textbooks Bookstore’s demand chain OPP:Ship to order VOP:Offer to purchasing Tailor book to its course (instructor) Place order for course (instructor) Review standard Textbook (Instructors) OPP:Settle copyright with publisher VOP: students taking the instructor’s course buy only the material they need The new demand-supply chain: College textbooks Publisher’s supply chain Supply chain Demand chain Warehousing and Distribution Printing of booking Assortment planning (campus bookstore) Purchasing (campus bookstore) Course reading lists(Instructors) On-demand Printing (campus bookstore) Electronic Textbook repository (publisher) Use textbook For course (student)

39. Agenda Beyond world class principles What will it need to take manufacturing beyond world class Supply chain: Strategic design considerations Drivers of complexity in global manufacturing The paradoxes of complexity

46. Agenda Beyond world class principles What will it need to take manufacturing beyond world class Supply chain: Strategic design considerations Drivers of complexity in global manufacturing The paradoxes of complexity

50. THANK YOU