June 25, 2011

Mc Donald's Fast Food Restaurant JIT

At Mc Donald’s Fast Food Restaurant, strategy of Just in time has been applied and has brought many benefits to the organization and added value to the organization. This just in time system has helped in reducing the costs by drastically cutting down on inventory levels and wastages.

Previously at Mc Donald's Fast Food Restaurant the strategy was to pre cook all the burgers and place them under the lamps to keep them hot. As long as possible they were kept and the unsold went as waste. Special orders were expensive and time taking. Later on it transitioned itself totally to Just in Time approach. For this, extensive staff had to be hired to quickly prepare the burgers and training had to be given. It looked expensive in the short term but it reduced the wastages drastically and helped Mc Donald's excel at customer satisfaction in the long terms.
                                          A lot of advantages were brought in by this JIT method:

1.      Improved Quality – The burgers are prepared freshly and hence the quality has improved.
2.      Customer service – As the burger is made only after the order is placed, making special orders is not an issue.
3.      Cost Reduction – Due to significant reduction in wastage as uncooked material has a higher shelf life.

This strategy was first attempt to bring JIT manufacturing techniques to service industry. It was the ‘Made for You’ strategy and also helped Mcdonalds in setting up demonstrative kitchen techniques which is a unique aspect and is its USP.

The writer of this article, Naman Jain is a PGP student of Indian Institute of Management, Raipur . He has done his B.Tech in Computer Science & Engineering from Vellore Institute of Technology, Vellore and can be reached at namanvit @ gmail . com

June 22, 2011

Supply Chain Improvements in Wal-Mart

Wal-Mart the retail giant has been successful to attract customers through the unbelievably low prices it charges for its products. ‘Everyday Low prices’ is the atrocious slogan Wal-Mart dared to use for a long period and which it has displayed in action. Such an accomplishment could be achieved by Wal-Mart as it was successful in creating a great supply chain on which it had a high degree of command. The growth model which Wal-Mart followed was based on excelling in the logistics. The real power derived by Wal-Mart was due to the fact that it could put pressure on its suppliers on account of its huge purchasing power. Wal-Mart has an enormous control over its suppliers and dictates terms in what to produce, when to produce and the price of the produced goods.
Wal-Mart can exercise the power it does on its suppliers as it is the organization in the supply chain which is controlling the end sales. The sales information which is vital to all players of the supply chain can be provided only by the end retailer. Wal-Mart maintains a collection of last two years sales data which it shares with its suppliers. Thus, it saves the effort on Wal-Mart’s part in situations where they can do away with the purchase orders. The suppliers themselves analyze the sales data and determine how much to produce. Wal-Mart also uses this system to predict future sales data which is again very attractive to the suppliers. Thus, handling of such a huge volume of data has become a core competency of Wal-Mart. It just has to provide the adequate training to the suppliers to use this data effectively, and thereby minimize its own and its suppliers’ costs.
Another area of the supply Chain where Wal-Mart has shown innovative thinking is the area of transportation. The complex transportation network necessitates bringing all the supplies from different producers from different areas to one location which is highly complicated and requires sophistication. This is where the second core competency of Wal-Mart lies. Wal-Mart has also achieved high levels of Logistics Coordination by establishing buying offices around the world. It does not use intermediate warehouses and has abolished middle men from the chain. This has also led to lowering of costs resulting in higher revenues.
Wal-Mart has chosen to establish suppliers in countries which have lower costs of production to lower costs. It has thus utilized technology, invested creatively trained the members of its supply chain and used its purchasing power to create an effective supply chain which has been at the core of its success. It thus has established a pioneering position in the retail industry which is now being emulated worldwide.
Supratik Saha is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech. in Computer Science & Engineering from Siliguri Institute of Technology, West Bengal and can be reached at totoslg @ gmail . com

June 12, 2011

Lean Manufacturing at Dell

Dell has also used Just in Time principles to make its manufacturing process a success.  They leverage their suppliers use JIT. Dell is about quickly assembling the part which are sourced from their suppliers and delivering to customers. They force their suppliers to carry inventory and Dell stays lean on inventory. Short lead times are provided to customers and thereby shorter lead times are demanded from their suppliers. Quick assembling and quick shipping is the USP of Dell. They have been able to do successfully implement JIT because of variety of reasons. It has had a Dependable supplier base. They have been able to meet Dell’s demanding lead time requirements. Also it has a seamless system that allows Dell to transport its system requirements. The systems are very efficient as they arrive in time to help Dell fulfill its lead times. Somehow Dell has been able to fore the suppliers to carry inventory and this willingness of suppliers to carry inventory on hand allows Dell to have low costs on inventory.
Because of JIT it has been able to successfully reduce the inventory related costs.  In 1993 it followed a practice of carrying over 10 weeks of inventory. Since 2001 it carries 1 week of inventory. This saves it majority of costs now. Inventory costs are even higher in computer industry as rate of depreciation is very high. By this rate Dell used to lose roughly 10% of the value of inventory per year.  After implementing JIT it loses roughly 1%. By this calculation dell has been able to save 9% costs in inventory management.
References : www.inventorymanagementreview.org/justintime/
The writer of this article, Naman Jain, a PGP student of Indian Institute of Management, Raipur has worked in GE Healthcare Labs. He has done his B.Tech in Computer Science & Engineering from Vellore Institute of Technology, Vellore and can be reached at namanvit @ gmail . com

June 02, 2011

3M: A struggle between Efficiency and Creativity

In the late 1990s, 3M was facing a huge crisis of large costs. James McNerney was then made the CEO of 3M in such a time. It was the first time an outsider was made the CEO in the company’s 100 year long history. Right from the beginning of his stint as the CEO, McNerney initiated cost cutting measures in the organization. These included downsizing the company by removing 11% of its workforce. He also intensified the performance review process and tightened the purse strings.  He also imported the Six Sigma process which was just then embraced by GE. Thousands of the staff became black belts. The plan appeared to work: McNerney jolted 3M's moribund stock back to life and won accolades for bringing discipline to an organization that had become unwieldy, erratic, and sluggish.

 When McNerney left the company abruptly after four and a half years, the company was faced with the question whether the large cost cutting measures actually made the company a less creative one. George Buckley was roped in as the next CEO. He dialed back many of the initiatives taken by McNerney. The new CEO felt that invention by its very nature is a disorderly process.
The tension between innovation and efficiency is felt in every organization and by every CEO in the world. Once the organizations have become profitable global competitors, the onus shifts to growth and innovation. While process excellence demands precision, consistency, and repetition, innovation calls for variation, failure, and serendipity.
Buckley has loosened the reins a bit by removing 3M research scientists' obligation to hew to Six Sigma objectives. There was a one-size-fits-all approach to the application of Six Sigma as the initial implementation got under way. As a part of the cost cutting drive introduced by McNerney there were metrics established across the organization and some of them did not make as much sense for the lab as they did other parts of the organization. Metrics involved keeping track of how many black-belt and green-belt projects were completed.
To help get the creative juices flowing, Buckley has opened the treasury. There was an increased spending on R&D, acquisitions, and capital expenditures. The overall R&D budget grew by 20% that year to $1.5 billion. Even more significant than the increase in money was Buckley's reallocation of those funds. He funneled cash into the core areas of 3M technology from abrasives to nanotechnology to flexible electronics.
Quietly, the McNerney legacy was revised at 3M. While there is no doubt the former CEO brought some positive change to the company, many workers said that they were reinvigorated now that the corporate emphasis has shifted from profitability and process discipline to growth and innovation.

Karthik KVR has done his B.Tech. in Mechanical Engineering from National Institute of Technology, Surathkal and can be reached at kvrkarthik at gmail dot com