Advantages of Networking in Business

BUSINESS-AID NETWORKING IN PRODUCTION Jyri Riives Eesti Talleks Ltd. Mustamäe tee 4, Tallinn 10621, Estonia jyri@eestitalleks.ee Tauno Otto Tallinn Technical University, Institute of Machinery Ehitajate tee 5, Tallinn 19086, Estonia tauno@edu.ttu.ee Madis Olt Tallinn Technical University, Virumaa College Järveküla tee 35, Kohtla-Järve 30328, Estonia madis@vk.edu.ee ABSTRACT The general advantages of networking in business process resulting from the acquisition of complementary information, knowledge, production and financial resources not only make networks as a subject of broad analytical treatment and research but also mainly grant an increasing option in innovation and technology policy. This paper focuses on a model of virtual database as a main tool for realising the networking system between companies. The concept includes following company business service features: permanent information service system, dynamic information service system, information search engine and connective information. Keywords: engineering management, exchange, networking, cooperation 1. INTRODUCTION Manufacturing can be defined both as creation of utilities or as an increase of the value of economic goods which are outputs, generated through activities of conversion from inputs called factors of production. The conversion or transformation processes are technological and called also as production processes. The business efficiency of a company depends on how the conversion processes are carried out. Nowadays manufacturing is characterised by short life cycles of goods, minimal production throughput times and high quality of products. By stimulating contacts and cooperation between the different factors in business systems, synergies can be achieved to realise the abovementioned main criteria successfully. Otherwise company could not be competitive. However, achievement of this goal could become very expensive, therefore technology networking and cooperation are remarkable resources of a company on the way to become more efficient. 2. STRUCTURAL CHANGES IN PRODUCTION Quality and product development are the keywords of the current decade. Formerly the management scheme was simple: the manufacturers made products for the trade mark owner, who in turn forwarded these in production chain to wholesalers, and the latter in turn to resellers (see Fig. 1, upper part). Nowadays a manufacturer offers products to several trademark owners (e.g. Elcoteq make cellular phones both to Nokia and Ericsson) and latter send products into market using several different ways. At the same time subcontractors make sub-parts to several different manufacturers (see Fig. 1, lower part). Manufacturers are able to assist their suppliers by providing knowledge, skills, and experience, and to benefit in turn from suppliers’ improved delivery performance and from fewer production disruptions than are caused by poor quality materials (Lee et al., 2001). Production chains proceed with elaboration their separate marketing, design, technology segments into parallel, enabling to multiple the launching speed of new products. Separate teams consisted of different area specialists are put together for target projects. Also tendencies of transition from local subcontracts to global cooperation have been noted. Owners of intellectual property as patents, trademarks, utility models share their rights through licensing and benefit from larger markets and increased number of contractual manufacturers. Wholesaler/ reseller Wholesaler / reseller Wholesaler / reseller Trade mark owner Trade mark owner Trade mark owner its main target is to promote wellbeing of each participant. Activities in the network can be performed both in longterm or short-term. The business aid network enables to look beyond adjacent neighbors and order in necessity additional know-how or production resources. The structure of business-aid network is shown in Fig.2. INDUSTR. COMPANY INTUSTR. COMPANY Manufacturer Manufacturer Manufacturer CONNECT. DOMAIN RESEARCH INSTITUTE CONNECT. DOMAIN Manufacturer Manufacturer Manufacturer UNIVERSITY ENTERPRISE ENTERPRISE Fig. 2. The structure of business-aid network Whole saler and complementer Whole saler and complementer 4. POSSIBLE BAN RISKS Business-aid networks created so far in the world have problems in succeeding of cooperation of large and small sized enterprises, mutual relationships between competitive enterprises and shortage of really participating enterprises. Researches in Finland (Pyöriä, 2000) however have proved that representatives of enterprises respect the cooperation and majority of them have positive experience in that. Appeared, that for network partnership in one hand clearly defined conjoint tasks, and in other hand concrete activities to fulfill the tasks are required. Large and small enterprises have different motives for partnership. Large companies search possibilities for implementation of new and alternative technologies and try to benefit. Achievement of highly qualified labor reserves and new innovative technological know-how are vital for them. Big companies are able to assist small-size enterprises, which often have not any other possibilities than join forces with large enterprises, whence small enterprises get complementary resources. Trends as decrease of significance of size and increase of importance of knowhow have been noticed as well. There are also risks related to contracts. Companies signing long-term contracts with suppliers within the framework of outsourcing run the risk of paying the supplier for extra contractual charges and of getting stuck with old technology when the technological environment changes (Harris et al., 1998). A survey of organizations, in which enterprise systems management solutions were deployed, found that only 24% of the implementations were considered successful, 64% of management had mixed feelings about the success of the projects, and the remainder felt their projects were failures (Gallagher, 1998). To minimize this risk the business-aided Trade mark owner Trade mark owner Trade mark owner Contractual manufacturer Contractual manufacturer Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Subcontractor Fig. 1. Structural changes in production scheme 3. INTERORGANIZATIONAL COLLABORATION In global large corporations dissipate production into smaller and flexible units. European enterprises can answer to that by establishment of technology and production cooperation networks to obtain the same assets like rapid growth due to flexibility of production and resources management. Subcontracts have been in use for a long time and their arrangement through the business-aid network (BAN) or technology exchange network is rather expanding subcontracting as cooperation between different firms deepens. In this context term ‘business-aid network’ refers to an amount of enterprises having mutual relations, information exchange and in good chances also business related contacts. Business-aid network means good relationships both between enterprises and individuals and network has to be planned and specified namely by current industry field specialists very carefully. The career path can be divided into three phases: engineering (0-5 yrs) for technical skills, engineering management (5-25 yrs) for interdisciplinary skills, and management of technology (25-30 yrs) for integrative business skills (Lannes, 2001). As information technology (IT) specialists are mostly young, they cannot specify technology-related industry needs by themselves. One of the important factors in cooperation is trust. Mutual trust creates presumptions to further investments of time and finances into cooperation. Trust also generally diminishes partners’ wish to gain unbalanced benefits. Therefore involving universities and industry field associations into the network is a key of success. 3. OBJECTIVES: INTEGRATION OF TECHNOLOGY AND MANAGEMENT World leading industrial countries are already establishing the business-aid networks in a way or another. In Finland has been prepared a long-term project (1996-2006) for southern area forest industry development and cooperation with Russia. Currently exists a special web page, but it is only in Finnish (http://www.cefis.net/fin/porssi/). Kareltek, TEKES and South-Karelian Association are the supporters of the project. The technology exchange network has been developed also for a long time in Germany (www.change-online.de). As drawbacks can be mentioned that all information is accessible only in German and user interface is rather complicated. Remarkable is its integration with city and county councils, financing foundations and banking organizations. At the beginning of 2002 already 631507 web page visits were counted. In Great Britain exists “Technology Exchange” (www.uktech.net), connecting 15,000 enterprises. In the USA technology exchange has been networked between biotechnology companies (www.techex.com). Estonian machine and apparatus building industry enterprises are relatively small-sized, characterized by low turnovers and similar profiles. Enterprises with turnover below 50 million EEK constitute about 94% from the total number of enterprises corresponding industry sector. The enterprises themselves have been stated on industry forums shortage of qualified labor resources and high production costs due to low cooperation level to be the main problems. Considering restricted possibilities for investments is another problem of enterprises to survive in market competition. As average profitability remains 10% then two to four million EEK for investments per year could be predicted in the industry sector. Modern technology, apparatus and software systems are expensive and therefore purchasing all thinkable equipment pieces into every single enterprise exceeds financial resources capability and remains economically senseless, especially when considering that distances between different enterprises in Estonia are relatively small. There has to be a tool for active cooperation and coherence between enterprises. This tool has to enable reviewing of general capability, technological possibilities, certain needs and remaining resources. As a result should be created a web database. In case of geographic location of Estonia it should have options in three languages (e.g. in Estonian, Russian and English) to enable quick cooperation partner search both in West and East directions. The database connects in a certain field manufacturing enterprises, consultancy firms, educational organizations and universities to handle Estonian resources for larger subcontract orders and production volumes. Such a network increases directly the competivity of enterprises located in periphery regions. Elaborated model is usable with minor changes also in other industry fields as forest industry etc. Phases of business-aided network could be defined as follows (see fig. 3). PHASE 1 Clusters or enterprises having similar purposes and producy groups are defined ENTERPRISE • Purpose, motivation • Structure • Main functions of departments • Products • Technologies 1 2 3 5 6 7 4 PHASE 2 Macro-operations in certain fields 1. Marketing 2. Development (of enterprise, product, technology) 3. Purchasing and logistics 4. Manufacturing 5. Service, guarantee service 6. Inspection 7. Sales PHASE 3 1. 2. 3. 4. 5. Technologies Machine tools Technological capability Production logistics Transportation logistics PHASE 4 1. 2. 3. 4. Technology exchange Knowledge exchange Software exchange IT exchange Fig. 3. Phases of cooperation Cooperation in such network can be build up as: • Distribution or exchange of knowledge and knowhow • Division of expenses • Procreation and exploitation of jointed resources • Operation in joint project • United business development The main goals are specified as organized marketing of Estonian machinery industry subcontracting and production capabilities. More specific, the goals are: • Increasing of competivity of existing enterprises • Starting new subcontracts Widening international trade Activation of regional economy Increasing of employment Development of environment-friendly technologies The virtual BAN database concept includes following company business service features: permanent information service system, dynamic information service system, information search engine and connective information. The permanent part of the database enables to introduce technology level of the current enterprise (see Fig. 4), comprising • General data • Technological capability • Technological information • Products Also it declares the current limits: • Maximal size of workpiece • Presence of quality certificates • Machine cost • Dateline • Incoterms ISO 9000 QS 9000 Other Process control Product control • • • • • Subject • Turnover of the enterprise (classified) • Number of employees (classified) • Presumed cost of dealership • Year of the enterprise establishment • Address data • Contact person • E-mail • Web page The search engine has to be added to enable user-friendly data mining. 4. CONCLUSION The use of the virtual database radically changes the traditional approach to collaborative activities. The experience of world leading industrial countries suggests that implementation of BAN not only provides an effective approach for the management of industry resources, but also cultivates a better working environment for SME. Presence of universities, industry associations and research institutions is a key factor for success. Adequate training has to provide to all participants to increase their confidence in the use of the system. The findings of this study should have practical implications to the development of real virtual database. Elaborated model of the virtual BAN can be implemented with minor changes also in other fields of industry. 5. REFERENCES Process monitoring Presence of monitoring methodology Process data inspection and analysis Measurement of products manually Measurement of products manually and composing measurement reports Composing product quality folders Statistical data analysis Total measurement and testing of products Gallagher, S. (1998), Beat the systems management odds, Information Week, vol. 675, pp. 61-76. Harris, A., Giunipero, L.C., Hult, G.T.M. (1998), Impact of organizational and contract flexibility on outsourcing contracts, Ind.Marketing Manage., vol. 27, pp. 373-384. Lannes W.J. (2001), What is Engineering Management? , IEEE Trans. Eng. Manage,. vol. 48, no. 1, pp. 107110. Lee, E.-K., Ha, S., Kim, S.-K.(2001), Supplier Selection and Management System Considering Relationships in Supply Chain Management, IEEE Trans. Eng. Manage,. vol. 48, no. 3, pp. 307-318. Pyöriä, T. (2000), Erikokoisten yritysten verkostoituminen, Lappeenrannan Teknillinen Korkeakoulu, Pro-Gradu tutkielma. Fig. 4. A quality control module of fixed BAN part The dynamic part has to include a marketplace, where ads for selling/buying of technological resources/apparatus/labor can be exhibited. Dynamic information notice should include information like: • Name of the enterprise • Date of notice • Waiting-list number