Stalk

INTEGRATIVE THINKING AND INTEGRATIVE THINKING AND TIME BASED COMPETITIONTIME BASED COMPETITION

byby

George StalkGeorge Stalk

Rotman SchoolRotman SchoolOctober 10, 2001October 10, 2001

-2-Rothman Pres-10Oct01-GS-rm.ppt

THE IMPLICIT PROCESS OF MAKING A THE IMPLICIT PROCESS OF MAKING A DECISIONDECISION

Salience Salience

CausalityCausality

SequencingSequencing

ResolutionResolution


MasteryMasteryInnovationInnovation

WHAT IS THE WAY OUT?WHAT IS THE WAY OUT?

PassionPassion

Requirements for Integrative Thinking*

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


OUR AGENDA TODAYOUR AGENDA TODAY

What is Time Based Competition?

The History of the Development of Time Based Competition

Time Based Competition now and in the future


TIME-BASED COMPETITORS PERFORM TIME-BASED COMPETITORS PERFORM ABOVEABOVE

THE AVERAGE OF THEIR INDUSTRIESTHE AVERAGE OF THEIR INDUSTRIES

Wal-Mart

Century Door

Wilsonart

Thomasville

Sun Microsystems

USAA

Discount stores

Industrial doors

Decorative laminates

Furniture

Engineeringwork stations

Insurance

80%

66%

75%

70%

33%

Very high

36 vs. 12%

15 vs. 5%

9 vs. 3%

12 vs. 3%

79 vs. 16%

21 vs. 6%

CompanyProfit

DifferenceGrowth

Difference

Delivery Time

AdvantageBusiness

19 vs. 9% ROCE

10 vs. 2% ROS

40 vs. 10% RONA

21 vs. 11% ROA

28 vs. 6% RONA

21 vs. 12% ROE


THE EMERGENCE OF TIME-BASED THE EMERGENCE OF TIME-BASED COMPETITIONCOMPETITION

Flexible value delivery

Flexible operations

Flexible new product/service development

Time-based competitors


Lot size

Factory Layout

Scheduling

Productivity

Throughput Time

Large batches

Technology centers

Central

100

100

Traditional

Small batches

Cells

Local

200-300

10

Time Based

PRINCIPLES OF FAST, FLEXIBLE MANUFACTURINGPRINCIPLES OF FAST, FLEXIBLE MANUFACTURING


THE IMPACT OF FLEXIBILITY ON THE COST OF THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETYVARIETY

Cost

Volume

Scale Related


Cost

Volume

Scale Related


Complexity Related

Complexity



New Complexity Related

New Cost CurveCost

Volume

Scale Related

Complexity Related

Complexity


COMPRESSING TIME IN THE MAKE AND COMPRESSING TIME IN THE MAKE AND SELLSELL

VALUE DELIVERY SYSTEMVALUE DELIVERY SYSTEM

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

Sales OrderEntry

OrderCoding Engineering Order

CodingSched-uling

DeliveryandPrep

Premanufacturingand Manufacturing

Days


Customer

Change to Original Quote

SalesSales

EngineeringSales

SalesAdminis-

tration

Phase1

Phase2

Phase3

Phase4

SalesEngineering

PlantPlanning

SalesEngineering

EngineeringDesign

SalesEngineering

CostingSales

Engineering

Pricingand

Contract

SalesEngineering

Customer SalesSales

Adminis-tration

SalesSales

Adminis-tration

ProductCoding

SalesAdminis-

tration

ProductCoding

1Quote

PlantPlanning

Material

EngineeringDesign

PlantCoding

PlantPlanning

1 2 x4

PlantProcessing

Line Set

1 2 3

Sales

SalesEngineering

SalesAdminis-

tration

PlantPlanning


Customer


SalesSales

EngineeringSales

SalesAdminis-

tration

SalesEngineering

PlantPlanning

SalesEngineering

EngineeringDesign

SalesEngineering

CostingSales

Engineering

Pricingand

Contract

SalesEngineering

Customer SalesSales

Adminis-tration

SalesSales

Adminis-tration

ProductCoding

SalesAdminis-

tration

ProductCoding

1Quote

PlantPlanning

Material

EngineeringDesign

PlantCoding

PlantPlanning

1 2 x4

PlantProcessing

Line Set

1 2 3

Sales

SalesEngineering

SalesAdminis-

tration

PlantPlanning

One day or less

1-3 days

3-10 days

10-15 days

Potential for more than1 5 days if loop effect

Phase1

Phase2

Phase3

Phase4


Customer


SalesSales

EngineeringSales

SalesAdminis-

tration

Phase1

Phase2

Phase3

Phase4

SalesEngineering

PlantPlanning

SalesEngineering

EngineeringDesign

SalesEngineering

CostingSales

Engineering

Pricingand

Contract

SalesEngineering

Customer SalesSales

Adminis-tration

SalesSales

Adminis-tration

ProductCoding

SalesAdminis-

tration

ProductCoding

1Quote

PlantPlanning

Material

EngineeringDesign

PlantCoding

PlantPlanning

1 2 x4

PlantProcessing

Line Set

1 2 3

Sales

SalesEngineering

SalesAdminis-

tration

PlantPlanning

Field (North America)

State 1 CST

State 2 EST

State 3/Canada EST

State 4 CST


Customer


SalesSales

EngineeringSales

SalesAdminis-

tration

SalesEngineering

PlantPlanning

SalesEngineering

EngineeringDesign

SalesEngineering

CostingSales

Engineering

Pricingand

Contract

SalesEngineering

Customer SalesSales

Adminis-tration

SalesSales

Adminis-tration

ProductCoding

SalesAdminis-

tration

ProductCoding

1Quote

PlantPlanning

Material

EngineeringDesign

PlantCoding

PlantPlanning

1 2 x4

PlantProcessing

Line Set

1 2 3

Sales

SalesEngineering

SalesAdminis-

tration

PlantPlanning

Phase1

Phase2

Phase3

Phase4


NEW PRODUCT NEW PRODUCT DEVELOPMENTDEVELOPMENT

Marine GearsMarine Gears

Develop design conceptDevelop design concept

Complete layout and Complete layout and designdesign

Design reviewDesign review

Detail designDetail design

Manufacture prototypesManufacture prototypes

Pilot test and power testPilot test and power test

Field testField test

Manufacture first productManufacture first product

00 44 88 1212 1616 2020 2424 2828 3232 3636 4040

Months to CompleteMonths to Complete

Western CompanyWestern Company Japanese CompanyJapanese Company


MANUFACTURING VS. NEW PRODUCT MANUFACTURING VS. NEW PRODUCT DEVELOPMENTDEVELOPMENT

Plan for small improvements but more of them

Put relevant development resources together

Scheduled within the group

200

50

Market experimentation that, if successful, results in a full rollout

FlexibleFactory

Dimension

Significant improvements planned but fewer projects

Move through functional center

Centrally scheduled

100

100

Extensive market research, testing and deliberation

Traditional

Lot size

Flow pattern

Scheduling

Productivity

Throughput times

Other


NEW PRODUCT REALIZATION NEW PRODUCT REALIZATION CYCLECYCLE

CAN BE ACCELERATEDCAN BE ACCELERATEDConsumer Electronics CompanyConsumer Electronics Company

Time to Market

Product Introductions/Year

Growth Relative to Market

Cost Position

Price Premium

Return on Sales

30 Months

6

<1x

20% High

15%

Breakeven

5 Years Ago

8 Months

26

2.5x

Near Parity

15%

10%

Today


NEW PRODUCT REALIZATION NEW PRODUCT REALIZATION LEADSLEADS

TO NEW STRATEGIESTO NEW STRATEGIES

Consumer ElectronicsConsumer Electronics

Slow to Fast FollowerSlow to Fast Follower

North AmericaNorth America

BeforeBefore AfterAfter

Consumer CommunicationsConsumer Communications

Technology LeaderTechnology Leader

GlobalGlobal


Cost-based Competition:Cost-based Competition:The Direct CostsThe Direct Costs

Past and CurrentPast and CurrentStrategiesStrategies

Time-based Competition:Time-based Competition:The InterfacesThe Interfaces

Future StrategiesFuture Strategies

LEADING EDGE OF COMPETITIVE LEADING EDGE OF COMPETITIVE ADVANTAGEADVANTAGE

IN BUSINESS STRATEGY IS NOW IN BUSINESS STRATEGY IS NOW TIME-BASED MANAGEMENTTIME-BASED MANAGEMENT

Increased Increased VarietyVariety

Flexible Flexible Value Value

DeliveryDelivery

Focused Focused ProductionProduction

Scale Scale FacilitiesFacilities

Lower Lower WageWageRatesRates

Faster Faster Response Response

TimeTime

Increased Increased InnovationInnovation


AS TIME IS AS TIME IS COMPRESSEDCOMPRESSED

Productivity and quality increaseProductivity and quality increase

Risks are reducedRisks are reduced

Prices can be increasedPrices can be increased

Share increasesShare increases


The History of the Development of The History of the Development of Time Based CompetitionTime Based Competition

THE HISTORY OF THE DEVELOPMENT OF THE HISTORY OF THE DEVELOPMENT OF TIME BASED COMPETITIONTIME BASED COMPETITION

1980 Japan – BDH – Ford Europe

1982 ROK paper on automotive industry

1983 Formed a manufacturing interest group

1983-1985 Honda Yamaha war

1984 Leave of Absence

1985 Synthetic conceptual development

1986 Albany International and ATT CPD

1987-88 M9 – Training tapes – Training sessions in Munich and Chicago

1987-89 Go for “share of mind”

1987-90 First personal failure

1988-1992 Spread to other industries: Health Care, Financial Services,

Universities

1989 Capabilities

1989-90 NPIC

1987-96 TBC and Re-engineering

1997-2001 TBC revival with e-commerce1987 Focused group formed

1981 Deere case – Komatsu – Yanmar Diesel

Backup


BREAKING THE VARIETY BARRIER: AUTOMOBILE BREAKING THE VARIETY BARRIER: AUTOMOBILE SUSPENSION COMPONENTSUSPENSION COMPONENT

Annual unit volume

Finished part numbers

Units per employee

Employees• Direct• Indirect

Total

Unit cost per comparable part

U.S. Competitor

10M

11

43,100

100135242

$100

Japanese Competitor

3.5M

38

61,400

507

57

$49

Back


ESTIMATED LABOR PRODUCTIVITY IMPROVEMENTS ESTIMATED LABOR PRODUCTIVITY IMPROVEMENTS FOR A FACTORY WITH JITFOR A FACTORY WITH JIT

Direct labor

Direct Overhead and Production Control

Inventory Management and Material Handling

General Overhead at 17 percent Loading

Total

“Old” Factory (Man hours per ton machined)

12.3

2.6

4.2

3.3

22.4

“New” Factory with JIT (Man hours per ton

machined)

5.2

1.1

0.8

1.2

8.3

Multiples of Productivity Improvement

2.4

2.4

5.3

2.8

2.7

10.1 3.1 3.3

Back


THE EFFECT OF DELAYS ON A BUSINESS THE EFFECT OF DELAYS ON A BUSINESS SYSTEMSYSTEM

A Schematic of the SystemA Schematic of the System

61 1

2

120.5

0.5

113

Factory Factorywarehouse

Distributors’warehouse

Retailers’inventories

Orders fromcustomers

Deliveries tocustomers


RESPONSE OF A PRODUCTION-DISTRIBUTION RESPONSE OF A PRODUCTION-DISTRIBUTION SYSTEMSYSTEM

TO A SUDDEN INCREASE IN SALESTO A SUDDEN INCREASE IN SALES

Order/productionrate (units/week)

1,500

1,000

500

Retail orders

10 20 30 40 50 60

+40%Factoryoutput

Week

+10%


EFFECTS OF RANDOM DEVIATIONS INEFFECTS OF RANDOM DEVIATIONS INRETAIL SALES ON FACTORY RETAIL SALES ON FACTORY

PRODUCTION (I)PRODUCTION (I)

Year I Year II Year III Year IV

Retail production rate (units/week)

1,500

1,000

500


EFFECTS OF RANDOM DEVIATIONS INEFFECTS OF RANDOM DEVIATIONS INRETAIL SALES ON FACTORY RETAIL SALES ON FACTORY

PRODUCTION (II)PRODUCTION (II)

End-to-end elapsed time reduced by half



1,500

1,000

500



1,500

1,000

500

Original situation

Back


THE FIRST VARIETY THE FIRST VARIETY WARWAR

“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 KawashimaJanuary 1982

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


THE VARIETY THE VARIETY WARSWARS

Japanese MotorcyclesJapanese MotorcyclesNumber of Changes

Year

70 72 74 76 78 80 82 840

10

20

30

40

50

60

53

16

21

60

Honda

Yamaha


YAMAHA'S YAMAHA'S SURRENDERSURRENDER

“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


FOUR KEY “LAWS” AT WORKFOUR KEY “LAWS” AT WORK

0

20

40

60

80

100

0 1 2 3 4 5 6 7 8 9 10 n

Value increases as the square of connections

Value

Cost

0 2v 6v 12v 20v 30v 42v 56v 72v 90v n(n-1)v

F+0 F+ 2c F+ 3c F+ 4c F+ 5c F+ 6c F+ 7c F+ 8c F+ 9c F+ 10c F+ nc

Value, cost

Connections

Cost increases linearly with connections

Metcalf’s Law: The Value of Networks120

100

80

40

60

20

01770 17801775

IndexWorkers per bushel of manufactured cottonEngland 1770-83

Price of the Model T touring car1908-20

1910 1915 19201985 1990 1995

Price of CPUcomputing power$/MIPS 1982-95

Moore’s Law: Cheap Processing

Transactioncost

Time

Coase’s Law: Enabling Virtual CompaniesGilder’s Law: Cheap Bandwidth

Fiber capacity

Time

105

0104103

102

Cost exceedsvalue

Value exceeds cost


AS TIME IS AS TIME IS COMPRESSEDCOMPRESSED

Productivity and quality increaseProductivity and quality increase

Risks are reducedRisks are reduced

Prices can be increasedPrices can be increased

Share increasesShare increases


TBCTBC

Pull vs. push processPull vs. push process

Physically integrated supply chainPhysically integrated supply chain

Low-cost varietyLow-cost variety

More varietyMore variety

Variety defined by products and Variety defined by products and servicesservices

High quality requiredHigh quality required

Process reengineeringProcess reengineering

E-TBCE-TBC

Pull vs. push environmentPull vs. push environment

Networked supply chainNetworked supply chain

Even lower-cost varietyEven lower-cost variety

Virtually limitless varietyVirtually limitless variety

Variety defined by customers and Variety defined by customers and consumersconsumers

Perfect quality requiredPerfect quality required

Business reengineeringBusiness reengineering

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