Understanding of Lean and Just-in-Time Production. Zara's innovative business organization - Essay Example

?What is meant by lean production? Describe two ways in which lean production at Portakabin leads to a more efficient use of resources. (12 marks, 300 words) Lean production means uses of such techniques through which only required amount of resources are used with minimum amount of wastage or overuse of resources whilst ensuring quality as it’s the most important aspect. The resources can be workforce, the raw materials, size of the production facility or even the time required to complete the task. This approach can be used at all stages of the business be it production, manufacturing, designing, logistics etc. Using this approach all such activities are eliminated which do not create any value. The Just-In-Time production is the first way which ensures more efficient use of resources. Many firms incur extra and overhead costs who stock-up resources beforehand. Through this firms waste space and monetary resources. At Portakabin JIT production methodology is used which pulls the resources itself into the production process. Portakabin only holds resources for orders which are in process hence no extra cost is incurred for idle materials and resources. Also advance systems are being used which make calculate exact reorder points with little or no error hence keeping the production process on time. Another way that Portakabin utilizes in lean production is the reduction of waste. How Portakabin reduces waste is quite innovative and hadn’t been done in the construction industry before. Portakabin started modular production of components required for an order at separate sites which greatly reduced the size of on-site production facility and the no of laborers required there hence reducing the traffic and environmental pollution at on-site facility. It also used such designs which required standard size resources easily available hence no customization or trimming would be required. Re-use of materials along the production process which were up to the mark and passed testing. Portakabin also promotes recycling of the little waste produced during the construction process and also employees advice of waste contractor. Explain how just-in-time production would operate in delivering and assembling a new Lilliput Children’s Centre. (15 marks, 300 words) Just-in-time production technique eliminates the cost of storage of resources while at the same time no cash is tied up in the holding stock hence the cost of the nursery significantly reduced. At Portakabin advance replenishment systems have been employed which work efficiently with zero or little error margin which is quite less to pose a threat to the production process. This system identifies the exact reorder points necessary to place order for the resources hence reducing the cost by no extra inventory while the production stays on schedule as the resources are replenished at the right time. Also Portakabin enjoys an ISO 14001 international standard assuring it is an environmental friendly organization and follows procedures which reduce pollution and works for the benefit of the organization. As it’s a Children’s center it has to have an environment that is healthy through usage of quality material. Portakabin follows quite rigid and though safety policies for children safety and does not compromise on it. In the case it has been highlighted these children’s centre provide work as a resource for the whole community. Using JIT this resource can be created in half the time as compared to other methods if employed also using modular building techniques make the rooms multipurpose which can be used as kitchens, creche facilities, and training rooms as well as nurseries. If other traditional methods which employed on-site construction and non-modular designs were used the construction process time would have exceeded by many folds and would have limited the center’s usage because of its specific design and texture of rooms. Evaluate the impacts on Portakabin of using lean production. (15 marks, 400 words) Usage of lean production at Portakabin yielded many positive benefits which impacted the growth, popularity and reputation of the company quite positively. Operational and Financial benefits The Portakabin production methods reduce the cost of constructing high quality building projects through introduction of modular and reusable designs. Also the company did not face any inventory stock-out or over stocking issues due to usage of JIT production process which greatly reduced many extra overhead costs. The construction is not effected by unpredictable weather conditions as the construction of various components take place at various sites. Portakabin has established a reputation of delivering almost all of their projects on time and stay within the given budget. Speed of construction is 1.5 times greater than traditional processes. Usage of various systems like Quality management system ensure production of the right product of the desired quality in the first go saving extra cost of redesigning if a problem is found. Environmental benefits The constructions made by Portakabin are one of the most environmental friendly constructions in the industry. Tests conducted proved that an excess of 70% air permeability was found in the Ultima buildings constructed by Portakabin showing they are quite efficient thermally and allow minimal air leakage. Material that are used are Ozone friendly and do not harm the Ozone layer in anyways contributing to the benefit of the environment. Most of the construction is distributed along different sites hence reducing on-site pollution and traffic. Usage of assembling building in modules and setting them up on site indicates that they can be taken apart in modules aswell and can be easily recycled when needed. All these environmental benefits make Portakabin an environmental friendly company and this environmental friendliness yields positive impacts on customers and individuals of the society given the company a good name. Social benefits The company’s lean production methodology also gave birth to policies about factory based construction instead of on-site construction which promotes safety of the society in many ways. We have seen in many cases around the globe that construction sites which were located near population have had mishaps which have lead to much damage. Keeping this in view factory based construction are quite safe. Also noise pollution is also eliminated which is a factor of concern for many communities. Apart from these advantages few disadvantages are there aswell. The process is linear i.e. completion of phase is necessary for the other phase to proceed. Also maintaining quality over the years has added to the cost of production of buildings. But all in all if the processes are managed properly than no such issues will be faced and the advantages outweigh the benefits by quite a margin. Part B: Innovation Using an example of an innovative business organization of your choice, describe why and how this organization is innovative. (42 marks, 1000-1500 words) Supply change management (SCM) in simple words can be defined as the process of transformation of goods from the raw materials state to the final product and finally handing it over to the end customer. SUPPLY CHAIN MODEL Zara is one of the five apparel retailing chains owned by Inditex group. Although Inditex manages designing, manufacturing and retailing of its goods but it enjoys major presence globally in the market through its chain of retail stores. The key to Zara’s success was the implementation of a innovative SCM strategy which was unique and different from the other retailer in the apparel segment. While other retailers in the business were focusing on completely outsourcing there manufacturing to offshore; mostly countries like China, India, Bangladesh etc. saving costs by utilizing cheap labor, Inditex decided to digress from this convention being followed and managed to succeed in its approach. With all the firms entangled between the decision of manufacturing the products in-house or outsource it to off-shore suppliers majorly because of cost saving which involves availability of labor at much cheaper cost i.e. margins 18 to 20 times less for hiring of what you get locally in Europe or America or more expertise available across borders and other reasons. Similarly these factors have influenced the decisions in the Apparel industry as well with the entire thought process working behind the reason that cost saving in the manufacturing will yield much more profit in comparison to opting to an in-house or nearer manufacturing options. The giants of the fashion apparel industry like GAP, H&M and many other smaller brands choose to outsource their manufacturing completely offshore. Although one benefit they yielded through this that their manufacturing process saved heavily by employing cheap labor but on the other hand they became open to many risk factors including Global trade policies. International treaties. The social responsibility of providing employment to local labor. The harmful manufacturing process to the environments as a result of mass production which recently gained awareness of population and started to effect the sales and the image of companies and brands. Longer lead times i.e. the replenishment time for the inventory were quite high and could affect sales quite heavily in case the company and stores fell victim to inventory stock-outs. Unexpected weather risking the timely delivery of product. While on the other hand Inditex choose to be different and innovative from the trend of outsourcing manufacturing offshore and made the most of this opportunity. Zara being an emergence of Spain opted to the innovative strategy of opening manufacturing plants near to where the retail stores were located. Apart from that it also made another smart move that Zara does not entirely own the manufacturing process but in Spain and Portugal it own a series of workshops which are bonded in contract with the firm. In doing so Zara was affording labor cost 18 to 20 times higher than its major competitors but still managed to yield profits on the same scale and competitive advantage on the competitors by Quicker replenishments. Continuous and innovative designs. The Entire process of SCM was interlinked. Environmental friendly projects. Proving it more socially responsible by hiring local employees. While all the major competitors of Inditex specifically to ZARA like The American GAP and the Swedish H&M INNOVATION IN SOURCING STRATEGIES AND SUPPLY CHAIN CONFIGURATIONS The sourcing strategies in the apparel industry were majorly divided between two major chunks. One was relying on cheaper product sourcing by outsourcing offshore which lead to few designs being in limelight for longer periods throughout the seasons. While Inditex selected innovation in its sourcing, manufacturing and supply chain to keep their sourcing in-house or nearer to retail sites but decided to keep the manufacturing and designing a continuous and dynamic process throughout the year. The first strategy followed by H&M,GAP etc had a supply chain configuration which had gaps within supply chain partners There was no real time link between the designers and the manufacturers. No assurance of the quality of product as demanded. Higher replenishment times and hindering the sales process during seasons. The capacity was not being utilized to the fullest. Timely reaction to instant demand was not possible by manufacturers even if it was then it could not be timely delivered. While the innovative and bold supply chain configuration at ZARA helped boost its performance by An innovation at Zara’s retail outlets was that the store managers were provided with handheld computers which would continuously update sales trend to the manufacturing sites and contractors through the headquarters. This innovation promoted accurate demand forecasts and gave an idea of what design were considered HOT in the apparel world hence giving designers an overview of what lines to think upon while designing new products. The suppliers for the basic raw material like cloth weren’t even very far away from reach. As the company was monitoring sales and predicting sales trends the order for raw material was automatically given hence giving them a competitive edge over other apparel makers in the industry through shorter lead times and continuous design activities. The sourcing process under this configuration was so agile that even if any product failed, there was no significant effect on sales or the reputation because that designed was replaced within a matter of weeks by newer and fresher designs. Also inventory was made according to the approach that each product would only become available to few lucky customers hence making them the fashionable few in the market. STRATEGIC SUPPLIER SELECTION The process of strategic supplier selection process is a mix of analysis of various business activities. These activities involved selecting such a supplier that not only provides acceptable rates for the products demanded but at the same time understands the needs of the organization and is willing to work with the organization in long run. Establishing strategic relations with suppliers are mostly beneficial as they are for longer spans and the trust relation between the organization and supplier elevates to quite a high level and risk of disputes minimize. Zara would have to select suppliers which would understand the innovative business model of the company, coping up with core competency and meet the company’s demand for goods that are required. For this purpose Inditex has established its own manufacturing plants within the heart of where the brand emerged from’ Spain. The main reason for this can be related to core competency of the business of always being ahead of market and having inventory which customer will demand. On the other hand Zara needs subcontracted manufactures and suppliers are there to merge in the joint effort to fulfill the demand need of the ever rising number of styles. ALIGNING SUPPLY WITH INNOVATIVE CORPORATE STRATEGY The strategy of Zara with its contracted manufacturing partners works on a short term model basically because of the reason that Zara relies on the quick and agile designing and even quicker delivery to its retail outlets. Zara has a design team of 200 people who are constantly busy in coming up with new and customized designs and is known for coming up with about 12000 styles a year which are exponentially more than any other apparel retailer out there. Keeping this in mind, not all suppliers and manufacturers can cope up at this pace and being able to deliver end products. For this reason Zara maintains short term contracts with the manufacturers because in case any supplier ill-performs, it wouldn’t affect the company in the long run. Also Zara follows a JIT system in which goods are ordered on demand and to follow this system and matching the replenishment times the manufacturing sites should be close to retail stores. This is another major factor to be considered while selecting supplier which could meet the company’s demand and supply needs. CONCLUSION If Zara would choose to outsource its manufacturing, it would lose this very competitive edge over its competitors and at the same time would be digressing from the core competency of its business which we effect the overall brand image and persona. Choosing this innovative manufacturing and supply chain strategy was a key decision took by Inditex giving Zara that very competitive edge. Zara is also expanded its business and is not only limited to Europe. For capitalizing on the growth opportunity Zara must contain that single image which the brand is globally recognized. Opening a manufacturing plant in Asia was a positive step showing its conviction and dedication on maintaining its reputation. REFERENCES Jim Thompson, JT, 1997. Lean production: how to use the highly effective Japanese concept of Kaizen to improve your efficiency. 1st ed. -: Productive Publications. Portakabin. 2010. Morecambe Bay NHS Trust. [ONLINE] Available at: http://www.portakabin.co.uk/morecambe-bay-nhs-trust.html. [Accessed .]. Davangshu Dutta. 2002. Retail @ Speed of fashion. [ONLINE] Available at: http://www.3isite.com/articles/ImagesFashion_Zara_Part_I.pdf. [Accessed -]. Lyes Benyoucef —Hongwei Ding — Xiaolan Xie. 2003. Supplier selection problem : selection criteria and methods. [ONLINE] Available at: http://hal.inria.fr/docs/00/07/18/60/PDF/RR-4726.pdf. [Accessed -]. Technology in business. 2011. Analyzing Zara's business model. [ONLINE] Available at:http://www.harbott.com/2011/03/03/analysing-zaras-business-model/. [Accessed -]. Read More