You Have Too Much Inventory, But Do You Know What Causes That?
Of all the things purchasing professionals can do to help manage their company's inventory, the biggest thing is this: Analyze what causes inventory, not the inventory itself.
So says Roger Ellis, a Lean-manufacturing consultant, who spent 30 years in manufacturing at General Motors, much of that time dealing with materials-management issues. Like a headache, he says, inventory is a symptom of something else. "You have to figure out what's driving it, and it starts with design and lead times."
Managers get too focused on controlling inventory by edict, Ellis says. His advice: Think about how the overall business operates. And think beyond just cost reduction.
For example, he has one client, a furniture manufacturer, which sourced foam parts from China because they were cheap. "But, it took five months to get the shipments, which meant the company needed five months' worth of inventory in the pipeline," he recalls. "Meanwhile, there was a supplier practically across the street for the same parts."
Source: Purchasing, http://www.purchasing.com

British Government E-Procurement Saves Billions in Public Spending
New types of electronic procurement and increased use of project management tools are helping to drive down the cost of government procurement in Britain.
The public sector spends £125bn ($245bn) per year on goods and services, from pens and paper to major construction and IT projects. And according to a report from the Treasury, a number of electronic tools are helping to cut the cost.
Successes of the Office of Government Commerce (OGC) include running 63 e-auctions to a value of nearly £1bn, and e-tenders to a value of £2bn with 14,500 suppliers and 1,100 buyers.
The report said these e-auctions - which allow suppliers to bid online for business - are resulting in savings of around 20 to 25 per cent of the project value through "transparent negotiation" and simpler processes.
OGC sponsored IT e-auctions have saved nearly £16m on an expenditure of £54m, involving more than 300 organizations.
Source: Business Week, http://www.businessweek.com

Big Technology Companies Join Together to Promote RFID Use
Eight technology trade groups that count heavyweights such as Microsoft Corp., Verizon Communications Inc. and Motorola Inc. among its members have formed an ad hoc council to promote the use of radio frequency identification technologies.
RFID tags embedded in office supplies, cargo containers or even weapons can help agencies and companies keep better track of their inventory, proponents say. However, the technology is still too expensive for widespread use, and international interoperability standards have yet to be developed.
Privacy groups have raised concerns about the potential use of RFID chips in driver's licenses and other identification documents. The RFID Technology Council will support the U.S. Senate RFID Caucus, which was formed last summer to better understand RFID technology and its potential benefits.
Source: CRM Daily, http://www.crm-daily.com

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Cost of labor Puts U.S. Automakers at Disadvantage Compared to Japanese
U.S. automakers are losing billions, and one reason is the cost of labor, which costs Detroit more per vehicle than it does the Japanese. Here's one example of how knotty Detroit's labor problem can be: If an assembly plant with 3,000 workers has no dealer orders, it has two options. One is to close the plant for a week and not build any cars. Then the company still has to give the idled workers 95 percent of their take-home pay plus all benefits for not working. So a one-week shutdown costs $7.7m or $1,545 for each vehicle it didn't make.
If the company decides to go ahead and run the plant for a week without any dealer orders, it will have distressed merchandise on its hands. Then it has to sell the vehicles to daily rental companies like Hertz or Avis at discounts of $3,000 to $5,000 per vehicle, which creates a flood of used cars in three to six months and damages resale value. Or it can put the vehicles into storage and pay dealers up to $1,250 apiece to take them off its hands.
Chrysler experienced the vicissitudes of over-production last year when it built cars without dealer orders and was forced to store them in open-air lots all around Detroit while it frantically sought buyers. It damaged relations with its dealers and was eventually forced to cut production anyway.
Source: Fortune, http://money.cnn.com

Proponents Say BI Is Valuable, But Acknowledge It's Often Difficult to Prove That
Though business intelligence has become a lifeblood application in many companies, IT executives say they must continue to prove its worth to top management.
For example, Lowe's Companies Inc. CIO Steve Stone noted that the retailer has been using BI tools for years to identify fraudulent returns, manage its supply chain and monitor corporate performance. Yet Stone said he is still asked by top executives for a specific return on his BI investment.
At the same time, BI has become so critical to Lowe's that the home improvement retailer is building a new data center in San Antonio, in large part to back up its data warehouse and BI applications.
"In the end, you're likely to be faced with some form of 'proof' question," Stone says. And, he notes, "definitive proof is hard to come by."
For example, several years ago, Lowe's used its data warehouse and BI tools to help solve a problem with collecting fees for delivering products to customers. Payments for deliveries increased by $30m in the year after the company first started using the tools to find out which stores weren't collecting the fees, Stone says. "This is an example of what BI is adding to the bottom line," he said. Still, the CEO at the time asked Stone whether he could definitively link the bump in collections to the use of BI. "There is no silver bullet, [but] if you continue to deliver value, the funding always seems to inch its way back to your budget," Stone says.
Source: Computerworld, http://computerworld.com

If Six Sigma Is So Great, Why Is My Company Stock Heading South?
Just unveiling a Six Sigma program can bring an uptick in stock prices. But over the long term, the benefits are questionable.
In fact, a recent study suggests that Six Sigma does not pan out for most companies. Through a search of publicly available information, QualPro, a consulting firm based in Knoxville, Tenn., identified 58 companies that announced broad Six Sigma programs. QualPro then compared stock performance for each of these companies since their announced launch date to the S&P 500 stock index. Early adopters, such as Motorola and GE, were analyzed for their performance over the last five years.
QualPro found that 91 percent of these companies had stock performances below the S&P 500 index since announcing a Six Sigma program. Only five of the 58 companies exceeded the index. The remaining 53 companies underperformed the index. The bottom line? The majority of Six Sigma programs do not benefit a company's stock performance.
Source: Chief Executive, http://chiefexecutive.net

Cost Concerns Abate Somewhat for Manufacturers as They Re-Focus on What Drives Growth
One big shift for manufacturers as we move into 2007 is their attitude toward cost reduction. Long at the top of manufacturers' agendas, and particularly in force in the last few years during and after the recession, cost reduction has lessened in intensity as a business priority. Although still very important as a continuous business discipline for manufacturers, cost reduction appears to have given way to a renewed focus on factors that drive growth -- including getting into new geographic and industry markets and ratcheting up the pace of new product introductions.
Source: Managing Automation, http://www.managingautomation.com

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BI Vendors See There's Money to Be Made in Offering More Collaboration Features
Traditionally, the business-intelligence industry has offered little to directly address the collaboration environment. Most business-intelligence applications focus on delivering targeted reports, analytics, dashboards and other key data to users, who are expected to rely on their own social intelligence, and on third-party collaboration tools, to decide when and how to share this information with colleagues.
In recent months, though, business-intelligence vendors have begun rolling out more collaboration features or begun talking about features to expect in the coming year. Not all of them have boarded the collaboration train, but those that have will certainly spur others to follow.
Instant messaging is central to the business-intelligence industry's collaboration road map. For example, one vendor has announced a product that will embed IM into an always-on desktop business-intelligence interface, enabling more direct communications among decision makers in response to real-time feeds of key performance indicators.
Source: CIO Today, http://www.cio-today.com

Scorecards Aren't Just Another Management Tool. They Can Provide Strategic Advantage.
Scorecard systems that help track performance have been around for years. So why do companies still use them incorrectly?
A new survey sponsored by a group of 10 organizations and associations confirms what might seem intuitive: scorecards are not static instruments. It all comes down to whether or not they are linked to strategy, says Raef Lawson, co-author of the survey and director of research at the Institute of Management Accountants. "Scorecards are meant to track the progress of a company trying to meet a goal. Companies that link their cards to budgeting, compensation, and feedback are more successful," he says.
Source: CFO, http://www.cfo.com

You Know About Toyota Production System. Ever Heard of Its Product Development System?
Manufacturers sometimes assume Toyota's success begins and ends with the Toyota Production System. In truth, though, implementing the TPS is just the first step toward optimizing all the functional processes of an enterprise. The next competitive step: the Toyota Product Development System.
Source: Industry Week, http://industryweek.com

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Yesterday's Supply Chain Risks Aren't Necessarily Today's Supply Chain Risks
Global growth is fueling capitalism which is fueling demand. But these demand shocks are dampening political changes and their effects. Thus changes in government structures, civil unrest, and natural disasters are not having the normal impact and are creating unusual market behavior. Countries and companies have greater interdependencies economically and environmentally than we have ever seen before. And some 1.5 billion people have been added recently as consumers in global markets, which is creating rampant capitalism along with the formation of anti-capitalist islands with strong nationalism. The result: an economic climate that includes a new type of risk and impending uncertainty.
This paradox will only widen, putting more pressure on business. To illustrate, look at this simple equation: take any number, no matter how small, and multiple it by 2.3 billion (the population of China and India) and you have a very large number.
China is not only the most populous, but also the fastest-growing country in the world, with growth of 9.5 percent for 30 years. So while not a new phenomenon, we are at a tipping point in which economic and environmental issues overpower the normal models.
As a result, supply chain professionals can no longer depend solely on political infrastructure as the primary framework for global trade. The shift in power is forcing business to shoulder more burden for economic and environmental issues as they enter global markets.
Source: AMR Research, http://amrresearch.com

Is Adaptive Manufacturing--Reacting Immediately to Chaotic Change--the Next Big Thing?
Several factors are driving interest in adaptive manufacturing--the ability of manufacturing to morph on the fly as companies respond to chaotic economic changes--and the rising importance of information management in manufacturing, as outlined by Eric Beinhocker in his recent book, The Origin of Wealth. One is an ongoing, if quiet, revolution in the way economists think about markets and economies. For most of the past century, markets were viewed as quasi-mechanical processes that ground their way to equilibrium, defined as the point at which supply and demand balance. Today, an increasing number of economists see markets as essentially chaotic: complex, nonlinear and as unpredictable as the weather.
Under the old theory, the job of managers was to tune the mission of the company to the equilibrium points. That was called defining a sustainable competitive advantage. The new theory abolishes that responsibility, since it is the essence of a chaotic economy that competitive advantages can vanish almost overnight.
The new idea: As a tool in business, managers should use natural selection--a law of nature that enables species to grow and progress in a landscape as chaotic as any economy. That means defining a portfolio of experiments appropriate to the available competencies of the organization, running these against the market, shifting resources according to outcomes, then exposing a new set of experiments to the market and so on.Natural selection is not new to capitalism: Channeling investment into successful ventures is evolution at work. Many companies put out products and services with slight variations, like different flavors or colors, and shift resources to the variations that sell better. But adaptivity is much harder to achieve in industries that move physical goods. By their nature, such companies are wedded to long production runs and long-term design commitments (for example, Detroit's bet on the SUV). They tend to have highly centralized, bureaucratic, risk-aversive managements.
To do adaptive manufacturing, a company has to be able to crank out a mix of products that is in constant flux.
Source: CIO, http://cio.com

Japanese Government, Private Companies Feature Cosmetics in RFID Field Trial
Mitsukoshi Ltd., Shiseido Company Ltd. and Fujitsu Limited are participating in a "futuristic department store" radio frequency identification project sponsored by the Ministry of Economy, Trade and Industry of Japan. Through Feb. 12, the three will jointly implement a field trial in to test the expanded use of RFID tags in department stores.
For the first time in Japan, RFID tags will be used in a field trial for cosmetics.
Source: MoreRFID, http://www.morerfid.com


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