International Operational and Logistical Strategies - Assignment Example

PORTFOLIO Topic: Capa Management 1 What Capa Management is about. Capa can be defined in many ways, one of which is “the level of activity or output that can be achieved (by an operation, facility, or organization) in a given period of time under normal working conditions” (Barnes, 2008, p. 138). Alternatively, it may also be thought of as “the upper limit or ceiling on the load that an operating unit can handle” (Stevenson, 2005, p. 5-3). Admittedly, these are very simplistic, generalized definitions that could apply to any organisation. In order to relate the concept of “capacity” to a particular industry or company, there is a need to identify the parameters by which “level of activity” or “load” is measured. For airlines, this may be in the form of the number of seats in its aircraft; for hotels, this would be the number of rooms available for occupancy; for retailers, capacity is denoted by the amount of floor space; and for manufacturers, this is the expected operating output of their machinery – or where several machines are operated in a product line, the output of that line. Even these refinements are insufficient in describing capacity in a way that would be meaningful or useful in management decision making. Many other factors influence capacity. For hotels, this would be the number of persons in each room, for manufacturers the availability of qualified machine operators and raw materials; for airlines the number of pilots, length of trips and turnaround time between flights, and for retailers the accessibility of its location to the customers (Barnes, 2008, p. 138). Making the right decisions in capacity planning is important for several reasons. According to Stevenson (2005, p. 5-4), correctly planning for capacity: 1. Impacts on the ability of the firm to meet future demands 2. Affects operating costs 3. Is a major determinant of initial costs 4. Involves long-term commitment by the company to its set goals 5. Affects the competitiveness of the firm 6. Determines the ease by which the firm may be managed 7. Is made more complex by globalization 8. Impacts upon long-range planning Having an understanding of capacity, the next step is to try to define capacity management. According to Grummitt (2009, p. 23), capacity management is defined by its primary objective, which is “to serve the needs of the business by ensuring that the organization understands and tracks demand and can maintain required service levels under both normal and contingency conditions both now and in the future within agreed cost constraints.” Simply stated, capacity management ensures that the firm possesses the right amount and type of resources available where and when needed to meet demand as it materializes, and thereby attains the target performance level of the business. This main objective may be reduced to a number of strategic objectives which capacity management must meet, which are: 1. to ensure the appropriate level of investment, resource and capacity; 2. to provide the necessary equipment to meet the business need; 3. to identify and address the bottlenecks; 4. to evaluate current strategies and report on performance; 5. to ensure timely and accurate procurements; 6. to ensure the effective level of service delivery; 7. to plan for increase in workload, for new applications and new sites; and 8. to avoid performance disasters and achieve performance assurance. (Grummitt, 2009, p. 23-24). 1.2 How Capacity Management is managed globally in Toyota Since the year 2000, Toyota and other car manufacturing companies have been aware that there is an excessive global capacity in the manufacture of automobiles; added to this is the need to reduce costs and increase efficiency. Toyota’s capacity management strategy is to enhance production efficiency “by increasing the number of automobiles that are produced using common vehicle platforms and by sharing research and development expenses for environmental and other technology” (TMC Form 20-F, 2011, p. 12). Furthermore, while decreasing capacity overall particularly in the developed countries, Toyota is establishing productive capacity in the emerging markets to take advantage of lower costs in labour and cheaper raw materials from local sources. These markets include China, Thailand, Indonesia, India, Malaysia, and Taiwan in Asia. Other host countries include those in South and Central America, Oceania, Africa, and so forth. Toyota does not necessarily conduct its overseas operations with its own assets, plants and machineries, but through joint ventures and partnerships, enabling it to increase its productive capacity with the assets of collaborating companies (TMC Form 20-F, 2011, p. 21). In this manner, through consolidation of productive capacity, management of common platforms and sharing of research and development, and by transferring productive capacity to more advantageous global locations, Toyota is able to conduct its capacity management in a way that significantly contributes to its strategic agenda. 1.3 Reflection on how you worked in the team Our team simulated a supply chain that has a single process, but four different sets of colours representing four different sets of materials. As a team, we felt that since the processes were exactly the same, there was no need to change the system from one product to the other. Available capacity had therefore been maximized as to number of products, but we had to work out some system so there was sufficient planning and scheduling in the use of the different colours. After the first few runs, we ended up with a workable solution that became more efficient as we progressed through the exercise. We have learned that while plans may look good on paper and in theory, capacity management becomes more efficient the more runs the system is put through, so practice is an important component in accelerating the learning curve. 2. Supply Chain Game 2.1 Concept of lean and agile strategies According to Hormozi (2001), there are three phases in the modern development of industrial production methods. These include: (1) craft production, characterised by the job-by-job production. Craftsmen were contracted for specific projects or unique products that were custom made according to the client’s specifications; (2) mass production, which is associated with the advent of the mass production assembly line envisioned and first implemented by Henry Ford. High volumes of “Cookie-cutter” goods (i.e. uniform products with low product variety) were produced during a short period of time; and (3) Lean production, which combined the principles of high-speed mass production with methods for minimizing storage, eliminating waste, and cutting down the total production cost by reducing order and carrying costs, such as those exemplified by the just-in-time (JIT) logistics management techniques (Banomyong & Supatn, 2002, p.3). The lean system is an approach that “defines the value inherent in specific products, identifies the value stream for each product, supports the flow of value, lets the customer pull value from the producer, and pursues perfection.” Noticeable is the enterprise-wide, at the same time holistic implementation that makes lean transcend the functional limitations and extend to the company’s broad supply chain strategy (Supply Chain Digest, 2006). The aim of lean production is to reduce the inventory on site to half the volume traditionally kept in stock; this allows for fewer defects due to smaller and better inspected bulk deliveries and fewer storage defects, while the ability to design for a growing number of product varieties because of the greater flexibility in the type and quality of materials ordered for delivery (Womack, Jones & Roos, 1990). The idea for lean production was largely developed in the TPS or the Toyota Production System; it aimed at the reduction and elimination of waste with particular attention given to “pulling” goods through the system (throughput) according to the demand (Supply Chain Digest, 2006). Almost simultaneous to the lean approach is the agile system which focuses on flexible, efficient response to unique customer demand. While lean systems are still essentially maket-to-stock systems that rely on short-term forecasts based on demand by next-tier distributors agile systems employs a make-to-order (MTO) process to obtain and comply with manufacturing and order fulfilment. Lean systems are moderately speculative because they try to predict to an extent the products for which demand shall increase, the quantity and quality of the product demanded, and the location of the demand. On the contrary, Agile systems make use of a “wait-and-see” approach and avoid making commitments until the demand is ascertained (Supply Chain Digest, 2006). Clearly, agile systems are not applicable to all firms. The key lies in having the flexibility to meet customer demand. The production system must be able to deliver flexible lot sizes, make quick changeovers, and incorporate customer specification with short lead times. Agile systems are suited to companies whose product life cycles are relatively short, such as electronics, or for whom demand for products is very erratic, and therefore storage of finished products is impractical and costly, such as specialty golf clubs (Supply Chain Digest, 2006). Finally, there is the “leagile” or the hybrid between lean and agile systems. Depending upon the approach, there are different strategies that may be classified as “hybrid”. 2.2 Appropriateness of strategies for supply chain game In our supply chain simulation, we found that purely lean systems may not entirely be advantageous because of the strain placed in coordinating and scheduling. The lean supply chain lacks in flexibility, and may not always be suitable for responding to sudden contingencies that may develop in the system. 2 3. Team performance as a supply chain As earlier mentioned, the team required to exert more effort in delivering the product as planned, because the lean system did not allow for quick adjustments and tended to be slowed down when the materials were not on hand when the rest of the system is ready. At times, there were delays and mismatches among team members due to lapses in communication, and when this happens higher in the chain then the delay gets magnified down the system and the costs of inefficiency becomes more pronounced. 2.4 Reflective how you worked in the team Working in the team using the lean approach tends to heighten stress among the team members. When unexpected occurrences happen, then the team is not able to meet its goals and troubleshooting the system tended to degenerate into some form of fault-finding, even when there was no intention to. Also, the tightness of the space tended to affect performance. We found out that when we opted for a slightly more agile system, with provisions for greater flexibility, then there was less tension among the team members, greater productivity, and improved chances of meeting the targeted plans. 3. Application of supply chain and logistical tool and techniques 3.1 Chosen topic: Enterprise Resource Planning (ERP) applied to Toyota The following diagram shows the ERP as applied in the Toyota Motor Corporation. Production planning is centralized at headquarter, for which forecasts are transmitted to Toyota’s suppliers, while the actual plans are implemented by the issuance of production and transportation instructions. Materials are transported from parts suppliers to the production line, while finished products, pursuant to Toyota’s chain system, are transported from the production facility to the Toyota supply chain diagram Available at http://www.productivityinc.com/images/toyota-logistics.gif There is no single agreed-upon definition of Enterprise Resource Planning (ERP), but all are agreed that ERP systems are integrated, all-encompassing and complex “megapackages” the principal function of which is to support the main functional processes in an organisation (Adam & Sammon, 2004, p.4). ERP systems have been described as “software packages composed of several modules, such as human resources, sales, finance and production, providing cross-organizational integration of data through embedded business processes” that can be customized to a specific organisation’s needs (Esteves & Pastor, 2001). According to the American Production and Inventory Control Society (APICS), ERP is defined as “an accounting-oriented information system for identifying and planning the enterprise-wide resources needed to take, make, ship and account for customer orders” (Hodge, 2002). Because of this, ERP is considered by some writers as an operational-level and transaction oriented, rather than strategic level, information system (Adam & Sammon, 2004). On the other hand, other writers take the opposite view and describe ERP as a strategic business solution because it integrates the information pertaining to manufacturing, finance, distribution, and all other business functions (Watson & Schneider, 1999). Because of the wide scope and varying definitions of ERP, it might actually be considered a generic term that may be adjusted to suit the organisation’s specific needs (Esteves & Pastor, 2001). ERP and how it is applied at Toyota. Enterprise resource planning at Toyota refers to “an expanded effort to integrate standardized record keeping that will permit information sharing throughout the organization” (MRP, MRPII & ERP – The Toyota Way, n.d., p. 17). In this diagram, one may see the relationships among materials resource planning, just-in-time, capacity planning, contract management, and the other functions of the business – business planning, sales, and accounting. Enterprise Resource Planning (ERP) as applied in Toyota Motors (MRP, MRPII & ERP – The Toyota Way) ERP in Toyota already makes use of lean logistics, in the form of its just-in-time (JIT) system. In fact, JIT was first established by the Toyota Production System, or TPS. Unfortunately, the firm was forced to abandon the use of this method because of the massive earthquake, tsunami, and nuclear meltdown that hit Japan early in 2011. Blanchard (2011) underscores the weaknesses of lean production, partially due to its reliance on the keiretsu, an integrated group of suppliers operating as a joint partnership and thus limiting and simplifying Toyota’s supply chain. During normal operating situations, this dedicated relationship is able to reduce costs normally encountered in shopping around for suppliers individually. However, during the 2011 series of linked disasters, several of Toyota’s key suppliers were damaged and their operations disrupted. This caused supply shortages for Toyota which caused it some $80 million per day. The problem was exacerbated because the firm practiced zero-storage inventory system which is the key feature of the JIT system. As a result, when supply lines were suddenly disrupted by the disaster, there was no safety stock of parts or supplies which the firm might have used to continue production while new suppliers are established. The problem behind the lean production technique had been its rigidity, which disabled the company from quickly adopting a more flexible system at the time the regular supply chain was broken. The merits of multiple sources and a safety stock become apparent. As a result, Toyota decided to “unlean” its supply chain, and implemented an “earthquake-proof supply chain”. The goal was to create a logistics system which will enable the company to recover full capacity production within two weeks from the occurrence of another disaster. The supply chain will be widened to include some of the major competitors (Blanchard, 2011). The earthquake-proof strategy adopted by Toyota, according to Sinichi Sasaki, included the following: (1) Standardize parts and components among Japan’s automakers in order to make possible the sharing of common parts, which may be fabricated in various locations. (2) Collaborate with suppliers and convince these firms to hold sufficient inventory (e.g., several months’ stock) of those parts which are specialized, or which are manufactured in a single location. (3) Allow each region to be independent when it comes to procurement of parts, in order to delink each region from the home country and from each other. The purpose of this is to arrest the possible contagion that will move from one location to another (Blanchard, 2011). 4. Logistics/supply chain plans Identify and explain implications on time, cost, and human resources The following steps are needed to be taken to improve resource planning in Toyota, most specifically the lean production methods. Stage Description Duration Predecessor Successor Start A Determine production forecast per product line. 2 weeks Start B, C B Calculate for the average order and carrying costs 2 weeks A D C Determine the target stock levels. 1 week A D D Inform all concerned, conduct meeting 1 week B, C E E Set up changes in between units through meetings 4 weeks D F, G, H F Update management operations and info systems 6 weeks E I G Establish budget, financing, resources 2 weeks E I H Determine best location/s for inventory storage 1 week E I I Coordinate system with the different departments including accounting and procurement 4 weeks F, G, H J J Train personnel 8 weeks I K K Conduct trial run 12 weeks J K L Commission new system 4 weeks K End End B,2 F,6 A,2 D,1 E,4 G,2 I,4 J,8 K,12 L,4 C,1 H,1 The critical path is the path with the longest duration, and which if delayed shall delay the whole project. In this above network diagram, the critical path is A-B-D-E-F-I-J-K-L. The project duration will take a minimum of 43 weeks, or just short of 11 months. Because of the delay in production in shifting to the new system, production will fall slightly and eventually the company will incur opportunity costs in the form of foregone productions. Other cost implications are the high initial cost, the high cost to maintain, the necessity for future upgrades as the company’s operations expand or evolve, and the necessity of training personnel to adopt to the new system. References Adam, F & Sammon, D 2004 The Enterprise Resource Planning Decade: Lessons Learned and Issues for the Future. Idea Group Publishing, Covent Garden, London Banomyong, R & Supatn, N 2002 “Comparing lean and agile logistics strategies: a case study”. Thammasat Business School, Thammasat Univerisity, Bangkok. Accessed 23 April 2012 from http://www.bus.tu.ac.th/usr/ruth/file/Lean%20vs%20Agile.pdf Barnes, D 2008 Operations Management: An International Perspective. Thomson Learning, Bedford Row, London Blanchard, D 2011 “Toyota Unleans Its Supply Chain” Industry Week, 16 November, p. 45. Accessed 2 May 2012 from http://www.industryweek.com/articles/thwart_cargo_thieves_with_covert_technology_26018.aspx?ShowAll=1 Esteves, J & Pastor, J 2001 “Enterprise Resource Planning Systems Research: An Annotated Bibliography” Communications of the Association for Information Systems. Vol. 7, Article 8, August 2001. Accessed 23 April 2012 from http://profesores.ie.edu/jmesteves/cais2001.pdf Grummitt, A 2009 Capacity Management: A Practitioner Guide. Van Haren Publishing, Zaltbommel Hodge, G L 2002 “Enterprise Resource Planning in Textiles” Journal of Textile and Apparel, Technology and Management. Vol. 2, Issue 3, Summer 2002. Accessed 23 April 2012 from http://faculty.mu.edu.sa/public/uploads/1333542577.0227hodge_full.pdf Hormozi, A M 2001 “Agile manufacturing: The next logical step.” Benchmarking. Vol.8, issue 2, pp. 132-143. Iyer, A; Seshadri, S; & Vasher, R 2009 Toyota Supply Chain Management: A Strategic Approach to the Principles of Toyota’s Renowned System. McGraw-Hill Kinaxis 2012 An Integrated Approach to Global Capacity Management: A White Paper. Accessed 1 May 2012 from http://www.kinaxis.com/downloads/register/WP-Integrated-Global-Capacity-Management.pdf?elq=a6d42405b50840d5b70dc236b5be657a “MRP, MRPII and ERP: The Toyota Way” (n.d.) Accessed 2 May 2012 from http://www.scribd.com/doc/46102666/31154470-MRP-MRPII-ERP-of-TOYOTA SCDigest Editorial Staff 2006 “How do Lean, Agile, and “Leagile” Supply Chain Strategies Compare?” Supply Chain Digest, 31 Aug 2006. Accessed 23 April 2012 from http://www.scdigest.com/assets/newsviews/06-08-31-2.cfm Stevenson, W J 2005 Operations Management, Eighth Edition, McGraw-Hill Companies, Inc. Toyota Motor Corporation (Toyota Jidosha Kabushiki Kaisha) 2011 Form 20-F. Accessed 1 May 2012 from http://www.toyota-global.com/investors/ir_library/sec/pdf/20-F_201103_final.pdf Womack, J P, Jones, D T; & Roos, D 1990 The Machine That Changed The World. Rawson Associates, New York Watson, E & Schneider, H 1999 "Using ERP Systems in Education" Communications of the Association for Information Systems CAIS. vol. 1, article 9, Feb. 1999 Yu-Lee, R T 2002 Essentials of Capacity Management. John Wiley & Sons, Inc., New York, NY Read More