Perspectives on Various Issues of Interest

UK's perishable food supply chain - Documentation related expenses

A report by SITPRO Ltd. presents some interesting finding regarding the usage and cost of paper in UK's perishable food supply chain. Some of the key revelations are as follows:

1. UK's import perishable food supply chain generates 1 billion pieces of paper annually. Duplicate consignment data is keyed in at least 189 times every year.

2. Over 90% of paper documentation in the perishable food supply chain is destroyed.

3. The cost of document-related administration is estimated to be around 11% of the supply chain value per annum.

4. The cost of incorrect, delayed, or missing paperwork cost about 1 billion pounds per annum.

5. The total cost of generating paper documentation (4.5 million document sets) is estimated at 126 million pounds per annum.

6. The cost associated with paper results in higher prices for the consumers.

7. The industry absorbs more than 112 million pounds towards the cost of courier services used for transacting the paper documents. 

8. In 2005 the industry expended about 13 million man hours for entering data, chasing late or missing documents or preparing claims for deferment monies deposited with HMRC (HM Revenue and Customs). The total cost of the expended man-hour is about 354 million pounds a year. 

9. The cost of short delay in obtaining documentation or clearance due to the inability to present documentation in suitable time at the critical point of importation is estimated to be between 200% to 400% of the original consignment cost.

10. The report suggests that e-documentation could potentially save about 70% of the overall 1 billion pounds expended on paper related costs.

Source: SITPRO - The Cost of Paper in the Supply Chain - “Project Hermes” Perishable Foods Sector Research Report.

Aligning Operations Strategy with the Industry Ecosystem

In a dynamic and unpredictable competitive environment many organizations are not able to match their manufacturing capabilities to competitive strategy that is needed to sustain competitive advantage. The industry ecosystem framework, which highlights the important role played by the interaction between industry life cycle and rate of technological change, is particularly useful in providing a basis to integrate corporate strategy issues with operations strategy.

Source: Lei and Slocum (2005)

Quadrant 1 of the industry ecosystem framework, titled steady evolution, is characterized by mature industry growth and a low rate of technological change. Firms occupying this quadrant play the role of “consolidators” by using different competitive priorities. Low cost, driven by economies of scale, is critically important. Firms must also be able to cater to varying demand levels and the need for product variations, necessitating the need for volume and mix flexibility. Mix flexibility enables a firm to offer a variety of products from standard platforms, thereby allowing consolidation of its competitive position in the marketplace as we have seen used by Dell.  Standardized platforms allow for product variety through choice of components, allowing for a variety of quality dimensions, such as performance quality, conformance quality, reliability, durability, serviceability and perceived quality, playing important roles. Delivery dependability ensures customer satisfaction. Firms operating in the steady evolution quadrant use flexible process technology in their manufacturing processes and use information exchange and planning technologies for coordination and control purposes. Adequate capacity is required to cater to volume and sourcing fluctuations resulting from market and supply chain discontinuities. The infrastructure links suppliers and customers to the firm and must support continuous improvement practices. Lightweight product development teams are formed to handle minor modifications needed for incremental product improvement.

Quadrant 3, the fast growth industry ecosystem, focuses on industries that are in the “ramp-up” phase of their lifecycle and are operating in situations characterized by a relatively low rate of technological change. Quadrant 3 firms must be concept drivers to operate in such high growth ecosystems. In these situations, they must plan for continued growth, focus on the development of core products, and maintain the differentiation of their products. Developing customer support for their product concept is critical and requires unique value propositions and scalable business models to cater to market growth (Lei and Slocum, 2005). Innovations that target emergent market requirements provide an important competitive priority in developing modular as well as architectural innovation. Further, rapid growth necessitates quick responses to market change. Rapid change requires a flexibility competitive priority, ranging from supplier flexibility on the input side; to labor flexibility, equipment flexibility, material handling flexibility, expansion and routing flexibility on the process side; and to volume flexibility, mix flexibility, new product/modification flexibility and delivery flexibility on the output side. Firms in quadrant 3 thrive on their flexibility-based competences. Finally, product differentiation is achieved through product performance, product features and aesthetics dimensions of quality.

On the structural front, concept drivers use design technology to aid new product development efforts. Quadrant 3 firms incorporate practices such as design for manufacturability, concurrent engineering and quality function deployment to align the product development efforts with appropriate manufacturing processes.  Flexible capacity, process technologies and sourcing arrangements across the supplier network ensure that quadrant 3 firms can adapt to the rapid growth requirements. Appropriate organizational practices require cross-functional new product development teams led by a strong project manager who have resource authority to make major expansion decisions.

The wild, wild west industry ecosystem in quadrant 4 is characterized by high rate of technological change, uncertain market boundaries, multiple competing technologies and standards, and numerous entrants from a wide number of industries. In quadrant 4, technological changes can occur at any time to confound existing business models and strategies, thereby creating a chaotic business environment.  Management must determine the specific issues that need to be addressed, and develop business and operations strategies to meet rapidly changing business conditions. If a firm is too early or too late in switching from old to new technologies, the organization suffers either a lag in market demand or an absence of competitive offerings.  New technological can challenge firms financially until revenues from the new offerings exceed the high costs of development and new market entry.  Firms in this quadrant must be pioneers who compete with new products that can be developed within the scope of new technologies. Rapid growth in the market makes it difficult to have a clear understanding of evolving market requirements. Adaptation requires constant innovation for long-term success.

On the other hand, the creative destruction industry ecosystem in quadrant 2 is characterized by new technologies or disruptive innovations that reshape underlying value propositions. New entrants from other industries change the competitive dynamics. The concept learners occupying this quadrant operate in a mature industry necessitating focus on current market innovation.

Industry ecosystems characterized by high rates of technological change must focus on the competitive priority of high levels of innovation. Both pioneers and concept learners engage in basic and fundamental research and develop patents to sustain their position in their technology intensive ecosystems. The continuous change in technology requires constant product modification flexibility to sustain competitive leadership. Product performance is an important criterion in the development of modular and architectural innovations. Mix flexibility helps to serve several market segments and explore potential niches. The innovation competitive priority needs to be supported by structural choices, including proprietary technologies, flexible production systems and sourcing arrangement with leading suppliers; and infrastructural choices, specifically creation of small-sized independent teams. These operations strategy elements form the initial basis for competing in situations characterized by high rate of technological change. Over the course of time, firms move through a stage-based progression in strategy development in which once the technology starts getting stabilized other competitive priorities become important during the latter stages.

Source: Nair, A. and Boulton, W. R. 2008. Innovation Oriented Operations Strategy Typology and Stage-based Model.  International Journal of Operations & Production Management, Vol. 28, Iss. 8, 748-771. 

Reference: 
Lei, D. and Slocum, J. W. (2005), Strategic and organizational requirements for competitive advantage. Academy of Management Executive, 19(1): 31-45.

Post launch investments in continuous quality improvement

Product innovation is increasingly becoming the core strategy of leading firms in many industries.  Innovation strategy can be examined in the context of new product development by focusing on pre-launch product design and development activities carried out by firms. The critical link between innovation investments and product quality is well-established fact. There are persuasive reasons for firms to consider the evolution of quality in their product-process innovation decisions since profitability of firms depends on the development and successful launch of new products that have superior quality than the competitors' products. Boeing, BMW, and Mercedes-Benz, are examples of firms that use product quality as their key metric for success in new product development projects. Where competition is primarily based on quality, it is important to consider aspects of product innovation as an integral part of product management. Thus, firms must make strategic investments in innovation to remain competitive.

While quality of a new product is critical for competitive success, competition in today's market is not only influenced by investments in product design before launch but also by continuous product improvements carried out by the firm post launch. Investments in continuous quality improvement practices and programs aimed at improving such discernible aspects of product quality as feature, fit and finish; improving conformance quality, reliability; and in developing a "quality culture" in the organization to attain superior customer satisfaction, all contribute to sustaining competitive advantage throughout the product life-cycle. The elements of basic concurrent engineering, enhanced quality function deployment and quality engineering using robust design help firms to practice more effective information processing that provides strong responsiveness to the voice of the customer and helps ensure the viability of the core concepts, the robustness of functional quality, the precision of production, the success of integration, and effective reusability.  Managerial programs and practices underlying continuous quality improvement, such as product-process innovation, total quality management, six sigma etc., are some of the most significant managerial innovations of the last 20 years.

Competing on quality requires a clear understanding of how to manage investments in continuous quality improvements in the long-run. An examination of investments that firms make in continuous quality improvement practices and programs post product launch is essential for effective product management that extends throughout the product life cycle. In general, post launch competing firms can influence quality of their new products by investing in the following:

(i) product-process innovation and quality management initiatives such as people management (work attitudes, training and employee relations)
(ii) process management (use of statistical process control, control charts and standardization of process instructions given to personnel)
(iii) product design and management (emphasis on shop floor experience and marketing experience for the design team, use of design and error-proofing techniques, use of quality function deployment (QFD) techniques and interdisciplinary approach to product design)
(iv) quality data analysis (analysis, evaluation and reporting of quality data)
(v) supplier quality management (quality management as well as other relational practices associated with the suppliers)
(vi) customer focus (by emphasizing on customer commitment).

The results of an analytical study that I am current working on provide the following guidelines for post launch investment planning:

(1) A firm must invest aggressively during the introduction stage of the product life cycle and then gradually decrease the investments over time as the product passes through growth and maturity stages. Once the product is introduced into the market, the product's successful diffusion is critical. The results of the study suggest that aggressive investment in continuous quality improvement of the product must be pursued during the introduction stage of a product's life cycle. Firms must allocate adequate funds for improving product quality post launch. Refinements in product design and processes reinforce increasesin scale economies by enlarging the amount of product variety that a given technology can support.  Continuous quality improvement requires stability of product design and sources of materials that support directed technological progress, engineering improvements, market refinements and continuing process development.  It is important to establish a system that enables volume production and scale economies, which lowers costs and improves products.  Moreover, the investments in products and processes must be made taking into account the potential interactions between products and processes.

The investments are aimed at improving product quality. While the rate of product quality improvements decrease over time, by ensuring that the product quality is higher relative to the competitor'sproduct, the sales rate increases over time. Thus the difference between a firm's sales vis-a-vis the competitor's sales keeps increasing. Managers must take into account the long-run implication of this sales differential. A myopic view of the firm's profits relative to that of the competitor might suggest that a firm must contain its costs by reducing investments. However, such a strategy will miss the potential rise in instantaneous profits during the later stages of product life cycle.

(2) Firms must strive to achieve comparative advantage over their competitors in terms of resource productivity and/or capital investments in technology. The results of the study suggests that having an advantage in terms of resource productivity or capital investment can be translated into higher product quality, sales and profits. Thus, the real competition between firms is in attaining relative advantage in resource productivity and/or in having higher capital investment in technology.

Resource productivity can be enhanced by means of improvement of processes. Techniques and practices such as employee training, six sigma, concurrent engineering etc. enable translation of investmentsin continuous quality improvement into improved product quality, higher sales and higher profits. Improving product quality by means of continuous quality improvement invariably involves new skills.  Therefore, it is essential to develop greater depth of job knowledge and greater breadth of task expertise.  Continuous learning environment must be created so that employees are able to work in a team, are well-equipped to handle new technologies, and if required are cross-trained to handle responsibilities of other team members. Mechanisms for skill variety, task identity, task significance, autonomy, and feedback, should be developed to boost employee motivation.

The coordination and streamlining effects of process management techniques enhance resource productivity and affect a firm's ability to innovate beyond a set technology trajectory. This is accomplished by undertaking improvements by means of controlled experiments that involve repetition ofpractices and measurement prior to making small testable changes. These initial small testable changes over time become standardized best practices that augment resource productivity.  

Capital investment in technology also enable competitive success. Technologies such as product lifecycle management (PLM) and web-based communication technologies help users to share information ina secure, real-time environment to increase collaboration among all participants involved in a product's design, manufacture, use and support. Technologies that help to organize product data, generate product metrics, and establish a shared bill of material as a central framework for coordinated communicationand design activities, enable to extract full potential of investment in continuous quality improvement ofthe product. Investment in technologies that allow non-technical personnel to configure, design, documentand cost complex products without technical assistance also enhance the comparative advantage of competing firms.  A coordinated development of resource productivity and capital investment with higher emphasis on creation of inimitable capabilities is advisable for long-term sustained competitive advantage.

(3) When a firm has an inherent competitive advantage (based on some inimitable resource productivityor based on technology investments), it cannot merely match the investment intensity of its competitor. It must aggressively exploit that competence and turn it into a strategic capability by out-investing its competitor.  Resource advantage can potentially create complacency among organizations. An organization that possesses the advantage in terms of resource productivity of its assets or in terms of availability of technology, might expect these resources to deliver benefits on their own. Several examples of firms investing in technologies and then leaving it unutilized exist. The results of the study suggest that a constancy of purpose is needed such that availability of high resource productivity and technology should be complemented with investments in continuous quality improvement initiatives.

Early proponents of the resource-based view of the firm have argued that firms tend to grow in ways that allow them to exploit organizational resources that have not been fully utilized.  A key insight from this study is that innovation, seemingly an outcome of exploration, could actually be an outcome of a firm’s exploitation of existing knowledge base. An innovation consists of certain know-how - partly codified and partly tacit - which generates profits when complementary assets are utilized appropriately.  This way, prior task experience, organizational routines, best practices and technology investments could generate future innovation that improve the quality of a product post launch. Even if a firm lacks prior task experience in a specific area, it may exploit an existing knowledge base of the corporation through inter-corporate knowledge transfer.  

The results of the study highlight that firms must convert core competence into core capabilities by aggressively investing in continuous quality improvement. It is important to recognize that the asymmetries in firm resources can be very short lived. Thus, when a firm possesses an advantage in terms of these resources,the resources need to be fully utilized and converted into core capabilities. Sustainable competitive advantage is attained when a firm implements a distinct and aggressive strategy and when owing to resource differentials, other firms are unable to duplicate the benefits of this strategy.Thus, a firm aiming for sustained competitive advantage views not only its current competition to devise a strategic intent, but also potential competitors poised to enter at a later time period. An aggressive pursuit of utilizing the current resource advantage and converting them into core capability, core product and high quality end product are the means to attain sustainable competitive advantage over an extended time frame.

*Working paper