THE EIGHT KEYS TO MAKE WORLD-CLASS ORGANIZATIONS


By
Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 


THE EIGHT KEYS TO MAKE WORLD-CLASS ORGANIZATIONS

What does it mean to be world class competitor? It means being successful in your chosen market against any competition-regardless of size, country of origin or resources. It means matching or exceeding any competitor on quality, lead time, flexibility, cost/price, customer service and innovation.

Needless to emphasize that such organizations invariably use the latest and best technology available for manufacturing and delivery of product and services. They would also need to use best tools of information flow within and from outside the organization.

You must be first of all in control of your processes and resources, in control of your markets and customers and in control of your information. You thus will have all the knowledge so as not to be thrown off with surprises. Many companies have been doomed to their ill fate due to such situation, overnight.

The Eight Keys:

1. Reduce Time-to-Market

Developing and introducing new products and services is vital to most organizations. Good ideas are not enough; well managed processes for bringing new products to market can lead to significant competitive advantages. Those activities, however, represent a significant risk that can lead either to missed opportunities or to huge financial losses.

In addition to new product development, the same processes and resources are applied to product improvements, corrections and variations through out the product life cycles. Based on market research, customer request, technological advances, regulatory concerns or competitive pressures, products are often subject to frequent engineering changes.

Cooperation with all operational areas of business should be focused on making sure that the new products meet market needs ( Marketing and Sales), are priced to sell and generate profits ( Marketing & Accounting), can be manufactured efficiently ( Production , Engineering, quality, purchasing and key suppliers), and can be easily and efficiently maintained and serviced (Customer Service).

Because customer expectations are increasing, their power to acquire information is increased tremendously, and competition is coming from new players around the world, bringing better and cheaper products quickly to market is more crucial than ever. Research and Development is a key success factor in survival and growth. With TRIPs and amendments in copyright Acts etc., it will be difficult and risky for organizations in India to copy other easily as hitherto had been the case.

I believe that any manufacturer, regardless of the size can incorporate to some extent R&D activity in the organization. Such efficiency will impact both top and bottom line of the business.

Innovation, agility and aggressive marketing with visible presence in market place like internet, stockists and distributors or direct selling (Triple channel marketing) are now pre-requisite to survival and profitability.

THERE IS NO INDUSTRY WHERE INNOVATION AND PRODUCT IMPROVEMENTS WITH COST REDUCTION IS NOT POSSIBLE.

For innovation and quick processing of orders, many techniques like Modular construction, Flexible manufacturing System (FMS), CAD & Manufacturing Resource planning (MRP II) come quite handy.

2. Reduce Lead-Times

Ability to deliver soon by compressing your cycle time can win customers away from competitors, particularly in export markets and Quick delivery in other markets can fetch you premium price. It will enhance customer satisfaction too. It reduces obsolescence and inventory pile-up too.

Lead times are cumulative and bi-directional–that is, order handling, planning, procurement, inspection, manufacturing, handling, picking, packing and delivery all contribute to the lead-time. When you buy based on the Unit cost basis, you order large quantities which in turn relate to a longer consumption period in future and thus lead to more inaccuracy in forecasting, further aggravating inventory situations.

ERP modules and online contact with vendors make this task easy. Direct online deliveries and use of MRP (Materials Requirement Planning) software can help a lot in this task.

Companies must eliminate non-value added transactions and automate transactions to speed up the supply chain.

A kanban pull system in production has been successfully used by Japanese companies for decades.

3. Reduce Operational Costs

Although recent developments in planning and Customer Relationship Management (CRM) and Sales Force Automation (SFA) have focused more on top-line benefits (Increased Revenue), the bottom line is still greatly dependent on controlling costs. Low cost in your company can give tremendous leverage in warding off competitive pressures.

WCOs (World Class organizations) actually improve multiple measurements simultaneously including -cost, lead times, and inventory and customer service. This approach contrasts with a pure cost reduction focus without associated business process changes, which can negatively impact other operational measurements. Localized cost reduction efforts can often increase costs in other areas. For example  moving production overseas to an area with lower labor rates, will increase costs for procurement, transportation, inventory and reduced flexibility, among others.

Activity Based Costing (ABC) can help improve gross margins by differentiating between profitable and unprofitable customers. Company can improve its gross margin averages by this method setting customer specific pricing or dropping unproductive customers.

Most manufactured products today have less than 20% direct labor cost, often less than 10%; whereas material content is more than half of the C.O.G.S (cost of goods sold). The rest is overhead. Overhead reduction is always a fertile area for cost reduction, using automation to streamline the procurement, manufacturing and customer management processes.

Similarly fulfillment costs are an area that has not received as much attention as it deserves; inventory cost, transportation and storage account for a significant part of the cost of doing business. Improving customer services can also generate cost benefits at the same time.

Most recent attempts by the companies to setup call centers and customer service automation, without flexibility in the system package to rectify errors in billing and other issues like warranty, as also not empowering the customer service executives to make quick amends have been found to be counter productive.

4. Streamline Outsourcing Processes

Outsourcing of manufacturing operations, delivery and support services is a common practice today because it offers flexibility-the ability to change product or processes rapidly-and can often save money by exploiting economies of scale or other favorable cost factors the contractor has to offer (India's IT strength lies in this; China has tremendous labor cost and infrastructure cost advantage; dispatching, recruitment and training activities are largely outsourced now a days).

Whether it is single process step or group of steps you outsource, in either case the manufacturer can concentrate on Core competencies, which might not include volume manufacturing, while its partner(s) provide the resources for producing the products. Capital assets can be liability in fast changing market assets. For manufacturers big or small, fastest and easiest way to achieve goal of being world class is through partnerships with companies that have attained superior capabilities in particular phases of the process like production. And you focus on the things you do best- product innovation, design, or distribution, sales or manufacturing.

5. Increase Visibility to Business Performance

In present environment, ignorance is one of the greatest threats to a manufacturing company's health and success. Executives and senior managers must understand how the Enterprise is meeting strategic objectives. Middle level managers need visibility into how they are performing against tactical objectives.

A well implemented and effective enterprise information system delivers overall visibility into health of the company and its operations and provides detailed information for performance measurement, process management, and problem identification and remediation.

An enterprise information system will capture literally thousands of pieces of information each day, as activities are reported throughout the enterprise.

To turn data into meaningful information is an up-and–down process. Bits of data, taken together are summarized to form higher level contextual information, which shows status, accomplishments and importance. From high level summaries, the observer must be able to dive back down to details to understand exactly what is happening and how to drive those activities towards the goals and objectives.

Electronic Data Interchange (EDI) is the most commonly used method today but EDI is rapidly being replaced by XML based e-commerce communications and Web based portal technologies.

Many manufactures are often left with "islands of automation". While each contains valuable information gathered over the years, absence of integration prevents the effective use of that information for overall management and coordination of effort toward company objectives.

Large world class organizations have implemented ERP modules, SCM module and CRM modules, but very few have reported real benefits because of inflexibility in systems and limited delegation and visibility in the organizations.

Even today most of organizations have poor customer interface, feedback and redressing systems.

It is now well known realization that sustaining and nourishing existing customer relationships are much cheaper and easy than bagging new business.

6. Satisfy Customer Expectations

The ultimate key to success in any business is to please your customers.

The most successful companies don't just meet customer expectations, they exceed them and beat the competition by setting the bar at a level that makes it difficult if not impossible for others to surpass. Entire chain of processes from prospecting to after sales support should become customer driven (TQM). Your products and services must strive to support customer's vision. Neglect is number one reason for customers to terminate relationships. This has been found in research world over, repeatedly. The Web is your natural ally in making right information available to your customers. It would serve well if the companies have well defined customer feedback and satisfaction surveys and pay attention to small aberrations which hey generally tend to ignore.

As Mac Henon once said "Your competitiveness depends upon your ability and willingness to make your customer competitive". When your organization is dealing in industrial products, make sure to incorporate Ingredient Branding or Ingredient marketing that can pull your product through the customer chain to improve your profitability.

Customers change their mind. Some will always change and switch brands and competitors (Markov Chain model), but they should return. Agility is extremely important to meet ever changing product cycles and demand patterns. A solid partnership and collaboration with your customers (Particularly channel partners or key customers in industrial products) will provide you with most reliable advanced information and therefore, the earliest warning of upcoming changes. Strive to be a preferred supplier to your customer. Make them want to do business with you.

Arguably the most important factor of customer service is on-time performance, be it delivery or service. There are two sides to this: Promising a realistic date; then delivering on the promise. At least 98% success in this would catapult you into world class league. It is not difficult, if tried seriously.

Kaizen or continuous improvement into your processes and product design will secure you a position as WCO.

7. Managing Global Operations

You can thank or blame the Internet if you prefer, for opening the markets to products and services almost without regard to time, distance and political boundaries.

Design your products to appeal to international markets. Search for suppliers in other geographies. Understand their local regulations and expectations, import/export processes and requirements. Consider language challenges in labeling, documentation and marketing (Cross Cultural management). The internet is a key tool for joining the global business community and conducting business around the globe. Globalization and e-commerce have changed traditional business behaviors and practices. IF MANUFACTURERS DON'T  EXPAND INTO NEW GEOGRAPHICAL MARKETS THEIR MARKET SHARE IS LIKELY TO SHRINK AS NEW COMPETITORS WILL BE ENETERING THEIR EXISTING TERRITORY AND TARGETING THEIR HISTORICAL CUSTOMERS.

Manufacturers often grow and enter new markets by acquiring or merging with other companies. This usually means, however, that different facilities within the newly merged companies are using different systems on different hardware platforms, they might have different part numbers for the same items, and operating procedures are undoubtedly different. The challenge is to bring as much uniformity to the varied facilities as practical without destroying the uniqueness and competitive edge that the individual units displayed before the merger. Several acquisitions and mergers have failed internationally due to this single factor of organizational restructuring needs.

8. Managing Technology

The technology in later twentieth century started developing in leaps and bounds driven by IT tools, powerful software available, micro electronics and bio genetics. Obsolescence is the key word. Though environmentally and ethically how good obsolescence is is a subject matter of concern. World Class organizations should strive to make their products or services upgradeable for the customers.

New materials, processes, and logistic systems are in place faster than you can collect information on them. To be world class you have to rapidly absorb technology as relates to designing, materials used, testing and delivery of products and services (like B2 B or B2C portals).

Most often fundamental change in your plant and facilities is not needed. The technology should be relevant to your scale of operations and focus on either improving the product benefits or cost reduction.

Vale addition is a must in WCO products. At least 1/3rd of your manufacturing time should go in value addition component of your product.
 


Prof R K Gupta
BE (Hons), MBA, FIE
Aravali Institute of Management
Jodhpur (Rajasthan)
E-mail :
cityju@rediffmail.com / rkgupta_India@hotmail.com
URL :
www.Geocities.com/rkgupta_india
 

Source : E-mail December 20, 2003

 

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