AGENDA - Rotman School of Management by lanyuehua

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									INTEGRATIVE THINKING AND
 TIME BASED COMPETITION

             by

       George Stalk


       Rotman School
       October 10, 2001
                     THE IMPLICIT PROCESS OF MAKING A
                                  DECISION

                             Salience



                                        Causality



                                                    Sequencing



                                                                 Resolution



Rothman Pres-10Oct01-GS-rm.ppt                                                -1-
                                       WHAT IS THE WAY OUT?
                                    Requirements for Integrative Thinking*


                                                   Passion




                                 Innovation                                Mastery




             *Based on work in conjunction with Hillary Austen, Santa Cruz, California

Rothman Pres-10Oct01-GS-rm.ppt                                                           -2-
                                 OUR AGENDA TODAY


         What is Time Based Competition?


         The History of the Development of Time Based Competition


         Time Based Competition now and in the future




Rothman Pres-10Oct01-GS-rm.ppt                                      -3-
                  TIME-BASED COMPETITORS PERFORM ABOVE
                      THE AVERAGE OF THEIR INDUSTRIES
                                                     Delivery
                                                      Time       Growth           Profit
            Company                  Business       Advantage   Difference      Difference

    Wal-Mart                     Discount stores      80%       36 vs. 12%   19 vs. 9% ROCE

    Century Door                 Industrial doors     66%       15 vs. 5%     10 vs. 2% ROS

    Wilsonart                    Decorative           75%        9 vs. 3%    40 vs. 10% RONA
                                 laminates

    Thomasville                  Furniture            70%       12 vs. 3%    21 vs. 11% ROA

    Sun                          Engineering          33%       79 vs. 16%   28 vs. 6% RONA
    Microsystems                 work stations

    USAA                         Insurance          Very high   21 vs. 6%    21 vs. 12% ROE

Rothman Pres-10Oct01-GS-rm.ppt                                                                 -4-
              THE EMERGENCE OF TIME-BASED COMPETITION

                                          Flexible value delivery



                                           Flexible operations



                                 Flexible new product/service development



                                         Time-based competitors

Rothman Pres-10Oct01-GS-rm.ppt                                              -5-
          PRINCIPLES OF FAST, FLEXIBLE MANUFACTURING


                                     Traditional       Time Based

            Lot size               Large batches      Small batches

            Factory Layout       Technology centers       Cells

            Scheduling                Central            Local

            Productivity                100             200-300

            Throughput Time             100                10




Rothman Pres-10Oct01-GS-rm.ppt                                        -6-
          THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETY

            Cost




                                             Scale
                                             Related

                                          Volume



Rothman Pres-10Oct01-GS-rm.ppt                               -7-
          THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETY


                     Cost
                                                Complexity
                                                Related




                                                Scale
                                                Related


                                            Volume

                                         Complexity
Rothman Pres-10Oct01-GS-rm.ppt                               -8-
          THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETY


            Cost                 New Cost Curve
                                                         Complexity
                                                         Related



                                                         New Complexity
                                                         Related


                                                         Scale
                                                         Related


                                                     Volume

                                                  Complexity
Rothman Pres-10Oct01-GS-rm.ppt                                            -9-
                     COMPRESSING TIME IN THE MAKE AND SELL
                           VALUE DELIVERY SYSTEM


                                                                        Premanufacturing
                                                                        and Manufacturing


                                                                                   Delivery
                                 Order     Order              Order     Sched-
    Sales                                         Engineering                        and
                                 Entry     Coding             Coding     uling      Prep

-0             -10               -20     -30   -40   -50    -60   -70    -80     -90   -100
                                                     Days




Rothman Pres-10Oct01-GS-rm.ppt                                                            -10-
                                                                                           Sales
                                                          Sales
                        Customer         Sales                             Sales         Adm inis-                                                      Sales
                                                       Engineering
                                                                                          tration


  Phase
    1
                                                                                                                                                         Sales
                                                                                                                              Pricing                 Engineering
                         Sales        Plant               Sales         Engineering       Sales                   Sales                    Sales
                                                                                                     Costing                   and
                      Engineering   Planning           Engineering        Design       Engineering             Engineering              Engineering
                                                                                                                             Contract



                                    Quote                     1   Change to Original Quote                                                               Sales
                                                                                                                                                       Adm inis-
  Phase                                                   Sales                            Sales                  Sales
                                                                                                                                                        tration
    2                                                                                                Product                 Product
                        Customer         Sales          Adm inis-          Sales         Adm inis-              Adm inis-
                                                                                                     Coding                  Coding
                                                         tration                          tration                tration



                                                                                                                                                         Plant
                                                                                                                                                       Planning


                                      Plant
                                                           Material
                                    Planning


  Phase               Engineering
    3                   Design                         1      2   x4


                                         Plant            Plant
                                        Coding          Planning




                                    1      2       3

  Phase
    4                     Plant
                                        Line Set
                       Processing



Rothman Pres-10Oct01-GS-rm.ppt                                                                                                                                      -11-
                                                                                           Sales
                                                          Sales
                        Customer         Sales                             Sales         Adm inis-                                                         Sales
                                                       Engineering
                                                                                          tration


  Phase
    1
                                                                                                                                                            Sales
                                                                                                                                 Pricing                 Engineering
                         Sales        Plant               Sales         Engineering       Sales                      Sales                    Sales
                                                                                                       Costing                    and
                      Engineering   Planning           Engineering        Design       Engineering                Engineering              Engineering
                                                                                                                                Contract



                                    Quote                     1   Change to Original Quote                                                                  Sales
                                                                                                                                                          Adm inis-
  Phase                                                   Sales                            Sales                     Sales
                                                                                                                                                           tration
    2                                                                                                  Product                  Product
                        Customer         Sales          Adm inis-          Sales         Adm inis-                 Adm inis-
                                                                                                       Coding                   Coding
                                                         tration                          tration                   tration



                                                                                                                                                            Plant
                                                                                                                                                          Planning


                                      Plant
                                                           Material
                                    Planning


  Phase               Engineering
    3                   Design                         1      2   x4

                                                                                                     One day or less
                                         Plant            Plant
                                        Coding          Planning
                                                                                                     1-3 days
                                                                                                     3-10 days
                                    1      2       3
                                                                                                     10-15 days
  Phase
    4                     Plant                                                                      Potential for more than1 5 days if loop effect
                                        Line Set
                       Processing



Rothman Pres-10Oct01-GS-rm.ppt                                                                                                                                         -12-
                                                                                           Sales
                                                          Sales
                        Customer         Sales                             Sales         Adm inis-                                                      Sales
                                                       Engineering
                                                                                          tration


  Phase
    1
                                                                                                                                                         Sales
                                                                                                                              Pricing                 Engineering
                         Sales        Plant               Sales         Engineering       Sales                   Sales                    Sales
                                                                                                     Costing                   and
                      Engineering   Planning           Engineering        Design       Engineering             Engineering              Engineering
                                                                                                                             Contract



                                    Quote                     1   Change to Original Quote                                                               Sales
                                                                                                                                                       Adm inis-
  Phase                                                   Sales                            Sales                  Sales
                                                                                                                                                        tration
    2                                                                                                Product                 Product
                        Customer         Sales          Adm inis-          Sales         Adm inis-              Adm inis-
                                                                                                     Coding                  Coding
                                                         tration                          tration                tration



                                                                                                                                                         Plant
                                                                                                                                                       Planning


                                      Plant
                                                           Material
                                    Planning


  Phase               Engineering
    3                   Design                         1      2   x4


                                         Plant            Plant
                                        Coding          Planning
                                                                                                                                  Field (North America)
                                                                                                                                  State 1 CST
                                    1      2       3                                                                              State 2 EST
  Phase                                                                                                                           State 3/Canada EST
    4                     Plant
                                        Line Set
                       Processing
                                                                                                                                  State 4 CST

Rothman Pres-10Oct01-GS-rm.ppt                                                                                                                                      -13-
                                                                                           Sales
                                                          Sales
                        Customer         Sales                             Sales         Adm inis-                                                      Sales
                                                       Engineering
                                                                                          tration


  Phase
    1
                                                                                                                                                         Sales
                                                                                                                              Pricing                 Engineering
                         Sales        Plant               Sales         Engineering       Sales                   Sales                    Sales
                                                                                                     Costing                   and
                      Engineering   Planning           Engineering        Design       Engineering             Engineering              Engineering
                                                                                                                             Contract



                                    Quote                     1   Change to Original Quote                                                               Sales
                                                                                                                                                       Adm inis-
  Phase                                                   Sales                            Sales                  Sales
                                                                                                                                                        tration
    2                                                                                                Product                 Product
                        Customer         Sales          Adm inis-          Sales         Adm inis-              Adm inis-
                                                                                                     Coding                  Coding
                                                         tration                          tration                tration



                                                                                                                                                         Plant
                                                                                                                                                       Planning


                                      Plant
                                                           Material
                                    Planning


  Phase               Engineering
    3                   Design                         1      2   x4


                                         Plant            Plant
                                        Coding          Planning




                                    1      2       3

  Phase
    4                     Plant
                                        Line Set
                       Processing



Rothman Pres-10Oct01-GS-rm.ppt                                                                                                                                      -14-
                                    NEW PRODUCT DEVELOPMENT
                                                  Marine Gears

             Develop design concept
                     Complete layout and
                                  design
                                 Design review

                                 Detail design

             Manufacture prototypes

            Pilot test and power test

                                     Field test

          Manufacture first product
                                              0   4     8   12 16 20 24 28         32   36   40
                                                              Months to Complete

                                                      Western Company    Japanese Company
Rothman Pres-10Oct01-GS-rm.ppt                                                                -15-
     MANUFACTURING VS. NEW PRODUCT DEVELOPMENT

     Factory
    Dimension                               Traditional                        Flexible
Lot size                         Significant improvements         Plan for small improvements but
                                 planned but fewer projects       more of them

Flow pattern                     Move through functional center   Put relevant development
                                                                  resources together

Scheduling                       Centrally scheduled              Scheduled within the group

Productivity                                   100                               200

Throughput                                     100                                50
times

Other                            Extensive market research,       Market experimentation that, if
                                 testing and deliberation         successful, results in a full
                                                                  rollout

Rothman Pres-10Oct01-GS-rm.ppt                                                                      -16-
Rothman Pres-10Oct01-GS-rm.ppt   -17-
Rothman Pres-10Oct01-GS-rm.ppt   -18-
Rothman Pres-10Oct01-GS-rm.ppt   -19-
Rothman Pres-10Oct01-GS-rm.ppt   -20-
Rothman Pres-10Oct01-GS-rm.ppt   -21-
Rothman Pres-10Oct01-GS-rm.ppt   -22-
Rothman Pres-10Oct01-GS-rm.ppt   -23-
                                 NEW PRODUCT REALIZATION CYCLE
                                      CAN BE ACCELERATED
                                     Consumer Electronics Company

                                                  5 Years Ago         Today

     Time to Market                                30 Months        8 Months

     Product Introductions/Year                        6                26

     Growth Relative to Market                        <1x              2.5x

     Cost Position                                 20% High         Near Parity

     Price Premium                                    15%              15%

     Return on Sales                               Breakeven           10%


Rothman Pres-10Oct01-GS-rm.ppt                                                    -24-
                                  NEW PRODUCT REALIZATION LEADS
                                        TO NEW STRATEGIES


                                    Before                  After

                   Consumer Electronics            Consumer Communications

                    Slow to Fast Follower             Technology Leader

                                 North America             Global




Rothman Pres-10Oct01-GS-rm.ppt                                               -25-
                  LEADING EDGE OF COMPETITIVE ADVANTAGE
                       IN BUSINESS STRATEGY IS NOW
                          TIME-BASED MANAGEMENT

          Lower                                              Flexible
                                   Scale        Focused                      Increased
          Wage                                                Value
                                  Facilities   Production                      Variety
          Rates                                              Delivery


                                                                              Faster
                                                             Increased
                                                                             Response
                                                            Innovation
                                                                               Time

                           Cost-based Competition:           Time-based Competition:
                              The Direct Costs                   The Interfaces


                                 Past and Current
                                                                 Future Strategies
                                    Strategies

Rothman Pres-10Oct01-GS-rm.ppt                                                           -26-
                                     AS TIME IS COMPRESSED


                                 Productivity and quality increase




                                 Risks are reduced




                                 Prices can be increased




                                 Share increases


Rothman Pres-10Oct01-GS-rm.ppt                                       -27-
                                 The History of the Development of
                                     Time Based Competition




Rothman Pres-10Oct01-GS-rm.ppt                                       -28-
             THE HISTORY OF THE DEVELOPMENT OF
                   TIME BASED COMPETITION

1980        Japan – BDH – Ford Europe               1987-88     M9 – Training tapes – Training
                                                                sessions in Munich and Chicago
1981        Deere case – Komatsu – Yanmar Diesel    1987-89     Go for “share of mind”

1982        ROK paper on automotive industry        1987-90     First personal failure

1983        Formed a manufacturing interest group   1988-1992   Spread to other industries: Health
                                                                Care, Financial Services,
1983-1985   Honda Yamaha war                                    Universities

                                                    1989        Capabilities
1984        Leave of Absence
                                                    1989-90     NPIC
1985        Synthetic conceptual development
                                                    1987-96     TBC and Re-engineering
1986        Albany International and ATT CPD
                                                    1997-2001   TBC revival with e-commerce
1987        Focused group formed




                                                                                          Backup
            BREAKING THE VARIETY BARRIER: AUTOMOBILE
                     SUSPENSION COMPONENT
                                                       U.S.        Japanese
                                                     Competitor   Competitor

                     Annual unit volume                  10M         3.5M

                     Finished part numbers                11           38

                     Units per employee                43,100       61,400

                     Employees
                       • Direct                          100           50
                       • Indirect                        135            7
                     Total                               242           57

                     Unit cost per comparable part      $100          $49


                                                                               Back
Rothman Pres-10Oct01-GS-rm.ppt                                                        -30-
        ESTIMATED LABOR PRODUCTIVITY IMPROVEMENTS
                   FOR A FACTORY WITH JIT
                                                     “New” Factory
                                  “Old” Factory       with JIT (Man      Multiples of
                                 (Man hours per      hours per ton       Productivity
                                  ton machined)        machined)        Improvement

      Direct labor                    12.3                5.2                2.4

      Direct Overhead and              2.6                1.1                2.4
      Production Control

      Inventory Management             4.2    10.1        0.8     3.1        5.3     3.3
      and Material Handling

      General Overhead at 17           3.3                1.2                2.8
      percent Loading

      Total                           22.4                8.3                2.7



                                                                              Back
Rothman Pres-10Oct01-GS-rm.ppt                                                             -31-
            THE EFFECT OF DELAYS ON A BUSINESS SYSTEM
                                           A Schematic of the System

                                 Factory               Factory
                                                      warehouse

                                    6                                         2
                                                      1       1                           Distributors’
                                                                                          warehouse


                                                                    0.5           2   1
                                                              0.5


                                   Retailers’    3
                                                          1                   1
                                  inventories



                                        Orders from           Deliveries to
                                        customers             customers




Rothman Pres-10Oct01-GS-rm.ppt                                                                            -32-
    RESPONSE OF A PRODUCTION-DISTRIBUTION SYSTEM
           TO A SUDDEN INCREASE IN SALES

                          Order/production    1,500
                          rate (units/week)                       +40%
                                                                                                   Factory
                                                                                                   output


                                                      +10%                    Retail orders

                                              1,000




                                               500
                                                             10    20    30        40         50         60
                                                                                                     Week




Rothman Pres-10Oct01-GS-rm.ppt                                                                                -33-
                        EFFECTS OF RANDOM DEVIATIONS IN
                     RETAIL SALES ON FACTORY PRODUCTION (I)



                                 Retail production
                                 rate (units/week)
                                 1,500

                                 1,000

                                   500
                                                Year I   Year II   Year III   Year IV




Rothman Pres-10Oct01-GS-rm.ppt                                                          -34-
                       EFFECTS OF RANDOM DEVIATIONS IN
                    RETAIL SALES ON FACTORY PRODUCTION (II)


                                 Retail production
                                 rate (units/week)
                                 1,500

                                 1,000

                                   500
                                               Year I        Year II                Year III      Year IV
                                                                   Original situation

                                 Retail production
                                 rate (units/week)
                                 1,500

                                 1,000

                                   500
                                               Year I        Year II                Year III      Year IV
                                                        End-to-end elapsed time reduced by half




                                                                                                            Back
Rothman Pres-10Oct01-GS-rm.ppt                                                                                     -35-
                                        THE FIRST VARIETY WAR
                       “As primarily a motorcycle producer, you cannot expect us to
                       remain in our number two position forever … In one year, we will
                       be the domestic leader. And in two years, we will be number one
                       in the world.”

                                                         - Yamaha's President Koike
                                                           January 1982 Shareholder's Meeting



                       “As long as I am president of this company, we will surrender our
                       number one spot to no one …         Yamaha wo tsubusu! *”

                                                         - Honda’s President Kawashima
                                                           January 1982


                      *We will (crush, squash, butcher, slaughter, destroy) Yamaha

Rothman Pres-10Oct01-GS-rm.ppt                                                                  -36-
                                           THE VARIETY WARS
                                            Japanese Motorcycles
                 Number of       60                                    60
                 Changes
                                 50                                         53

                                                     Honda
                                 40

                                 30

                                 20                                    21
                                                                            16
                                 10
                                                      Yamaha
                                  0
                                      70   72   74   76      78   80   82        84
                                                                            Year


Rothman Pres-10Oct01-GS-rm.ppt                                                        -37-
                                         YAMAHA'S SURRENDER


                             “We cannot match Honda’s product development or sales
                             strength … and would like to end the Honda-Yamaha war, …
                             moving cautiously toward a cooperative stance with other
                             companies ensuring Yamaha’s relative positions.”
                                                            - President Koike,
                                                              February 1983


                             “We plunged like a diving jet. My ignorance is to blame.”
                                                             - Chairman Kawakame,
                                                               June 1983



                             President Eguchi replaced President Koike in June 1983


                                                                                         Back
Rothman Pres-10Oct01-GS-rm.ppt                                                                  -38-
Rothman Pres-10Oct01-GS-rm.ppt   -39-
                                                 FOUR KEY “LAWS” AT WORK

                   Moore’s Law: Cheap Processing                                        Metcalf’s Law: The Value of Networks
     Index 120
                                                                                   Value,   100
                                 Workers per bushel of manufactured cotton
                                 England 1770-83                                   cost                                                                                                                                     Value
              100                                                                             80                                      Value increases as the
                                                                                                                                      square of connections
                                                                                                                                                                                                                            exceeds
                                                                                              60                                                                                                                            cost
               80                                                                                       Cost increases linearly
                                           Price of the Model T touring car
                                           1908-20                                            40          w ith connections                                                                                                Cost
               60                                                                                                                                                                                                          exceeds
                                                                                              20
                                                                                                                                                                                                                           value
               40                                                                               0
                                                                                                    0         1           2           3           4       5       6       7           8           9       10       n
                     Price of CPU                                                                                                                                                                                        Connections
               20    computing power                                                        Value


                     $/MIPS 1982-95                                                                      0           2v          6v       12v          20v     30v     42v     56v         72v          90v    n(n-1)v

                0                                                                           Cost

                1770                      1775                  1780
                            1910                  1915                   1920                           F+0       F+ 2c       F+ 3c       F+ 4c       F+ 5c   F+ 6c   F+ 7c   F+ 8c       F+ 9c       F+ 10c    F+ nc

                               1985                  1990                   1995


                    Gilder’s Law: Cheap Bandwidth                                   Coase’s Law: Enabling Virtual Companies

                       5
         Fiber    10                                                                  Transaction
         capacity                                                                     cost




             103    104
             102      0
                                                                    Time                                                                                                                                   Time


Rothman Pres-10Oct01-GS-rm.ppt                                                                                                                                                                                                         -40-
                                     AS TIME IS COMPRESSED


                                 Productivity and quality increase




                                 Risks are reduced




                                 Prices can be increased




                                 Share increases


Rothman Pres-10Oct01-GS-rm.ppt                                       -41-
Rothman Pres-10Oct01-GS-rm.ppt   -42-
                                 TBC                  E-TBC
 Pull vs. push process                 Pull vs. push environment

 Physically integrated supply chain    Networked supply chain

 Low-cost variety                      Even lower-cost variety

 More variety                          Virtually limitless variety

 Variety defined by products and       Variety defined by customers and
 services                              consumers

 High quality required                 Perfect quality required

 Process reengineering                 Business reengineering


Rothman Pres-10Oct01-GS-rm.ppt                                            -43-
Rothman Pres-10Oct01-GS-rm.ppt   -44-

								
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