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Innovation continuous Improvement in Supply Chain a Profit Tool
For assignment help please contact
at [email protected] or [email protected]
This research was carried out with a large secondary research for
studying and understanding the continuous improvement practices and
innovation processes adopted by the various firms and how it has
impacted the costs related to the SCM. While most of the companies are
involved today in SCM practices, some have very drastically improved
their SCM practices by introducing many innovative methods &
continuous improvement practices such as KANABAN tools etc, internet
based SCM, innovative suppliers, new cost reduction tools, collaborative
measures between suppliers and manufacturers. This provides a new
frontier for future SCM practices which will involve the collaborative
innovation, next step of continuous improvement. While cost advantage
has been a major outcome of these practices, it has also helped develop
coordination among the various functioning areas across organisations
such as marketing, operations, R&D etc. This research paper focuses on
the study of major innovative and continuous improvement techniques
adopted by the firms to generate a cost advantage.
Introduction
1.1 Background
Organisations can build competitive advantage through superior
manufacturing or service delivery, but sustaining the competitive
advantage over time requires comparable skills in developing a continual
stream of new products and services. The increasing pace of
technological change and the accelerating globalisation of business have
meant that competitive advantage for many corporations now lies in their
ability to effectively implement on-going product, service, and process
innovations. As product innovation cycles become shorter and more
frequent, and innovation becomes a dominant strategic weapon,
companies will be forced to exploit synergies between products, services
and processes. As
product innovation is a knowledge-based process, this requires mastering
the overall process of knowledge creation, dissemination and application.
This progressive accumulation and sharing of knowledge fosters the
process of organisational learning that is the essential engine for the
continuous improvement process. Hence, long term competitiveness is
increasingly dependent on how well a company can continuously improve
its product development capabilities by fostering organisational learning
and utilising individual and group knowledge within the company.
1.2. The continuous improvement concept
The continuous improvement concept is driven by the Deming Cycle
(Evans and Lindsay, 1999) and the Kaizen concept (Imai, 1986). This is a
methodology for continuous improvement, composed of four stages: Plan,
Do, Check, and Act. The Plan stage consists of studying the current
situation, gathering data and planning for improvement. In the Do stage,
the plan is implemented on a trial basis. The Check stage is designed to
determine
if the trial plan is working correctly and if any further problems or
opportunities are found (Imai, 1986). The last stage, Act, is the
implementation of the final plan to ensure that the improvements will be
standardised and practiced continuously. This leads back to the Plan
stage for further diagnosis and improvement. Imai's best selling book,
Kaizen: The Key to Japan's Competitive Success (Imai, 1986) shows how
the original Western concepts have been adapted to the Japanese culture
to provide the key to Japan's post war success.
As a direct consequence of the Total Quality Control (TQC) philosophy
(Feigenbaum, 1983), Kaizen (continuous improvement) strategy has a
large-scale participatory dimension by all employees in an organisation.
This participatory dimension is not entirely new (Merli,
1990). Western authors such as Likert (1967) had already formulated
participatory management before it developed in Japan. However,
Likert's participatory management theory is one example. Kaizen is more
strongly oriented towards continuous improvement than towards
management. Imai (1986) broadly described the Kaizen strategy to
include concepts, systems, and tools within the bigger picture of
leadership involvement and
People culture - all driven by the customer. Imai (1986, p. 3) defined
Kaizen as follows:
The essence of Kaizen is simple and straightforward: Kaizen means
improvement. Moreover, Kaizen means ongoing improvement involving
everyone, including both managers and workers.
The outcome of the Kaizen Strategy is improvement in Quality, Cost, and
Delivery. The underlying principle of the Kaizen strategy is the
recognition that management must seek to satisfy the customer and
serve customer needs if it is to stay in business and make a profit.
Improvements in such areas as quality, cost, and scheduling (meeting
volume and delivery requirements) are essential. Kaizen is a customer-
driven strategy for continuous improvement. Therefore, it is assumed
that all Kaizen activities should eventually lead to increased customer
satisfaction.
1.3 Implementing Kaizen
The underpinning principle of Kaizen is the use of various problem-
solving tools for the identification and solution of work-based problems.
The aim is for improvement to reach new "benchmarks" with every
problem that is solved. To consolidate the new benchmark, the
improvement must be standardised. In many Australian firms this
standardisation has been attempted via the ISO 9000 quality systems
certification. Kaizen generates process-oriented thinking (P criteria)since
processes must be improved before improved results (R criteria) can be
obtained. Improvement can be broken down between continuous
improvement and innovation. Kaizen signifies small improvements made
in the status quo as a result of ongoing efforts. On the other hand
innovation involves a step-change improvement in the status quo as a
result of a large investment in new technology and/or equipment. There
is one significant difference between Kaizen and Innovation. Kaizen does
not necessarily call for a large investment in capital to implement the
strategy. However, the Kaizen strategy does call for continuous effort
and commitment from all levels of management. Thus Kaizen calls for a
substantial management commitment of time and effort. Investing in
Kaizen means investing in people. According to Imai (1986, p. 217) the
Kaizen initiatives that have been implemented in Japan have had one key
practice in common. That is, overcoming employees' resistance to
change. This was achieved by addressing the following critical issues:
1. Constant effort to improve industrial relations.
2. Emphasis on training and education of employees.
3. Developing informal leaders among the workers.
4. Formation of small-group activities such as QC circles and
improvement teams.
5. Support and recognition for workers' Kaizen efforts (P criteria).
6. Efforts for making the workplace a place where employees can pursue
goals.
7. Bringing social life into the workplace as much as practical.
8. Training supervisors so that they can communicate better with
workers and can create a more positive involvement with workers.
According to Imai (1986, p. 204). "Unless top management is determined
to introduce Kaizen as a top priority, any effort to introduce Kaizen into
the company will be short-lived." This paper investigates the adoption of
Continuous Improvement (CI) strategies and their impact in
manufacturing firms. For reference data has been taken online for a
similar study carried out for Australian firms. Data was collected by
means of a postal questionnaire survey that was mailed to 1200
manufacturing firms. This survey is part of a global study that has
examined CI strategies in over ten countries. The Australian survey
resulted in 385 responses. My analysis focuses on the following six
aspects of CI in Australian manufacturing firms:
1. The development of a set of measures to gauge the effect of CI.
2. Determining the success of CI by identified the structural variables
pertaining to the organisation.
3. Examining how the integration of CI influences the performance of the
organisation.
4. Identifying the motivations for implementing a CI program.
5. Examining the impact of various approaches to CI.
6. Identifying the tools utilised in the CI process and the relationship
between these tools and organisational performance.
Analysis
2.1 Measuring the success of CI Process
Two scales were developed to gauge the success of CI processes. The
first scale related to the overall performance of each organisation.
Specifically, respondents rated the extent to which productivity,
manufacturing quality, delivery performance, lead-time, and product cost
had changed during the past two years. The average of these five ratings
was utilised to measure organisational performance. Cronbach's alpha
was 0.80 (n=184), reflecting an encouraging level of internal
consistency.The second scale corresponded to previous experiences with
CI. Respondents rated past experiences with CI efforts on four aspects:
initiating concrete changes, maintaining activities in on-going efforts,
spreading change efforts to other departments and units, and managing
several projects simultaneously. Each
aspect was rated on a five-point scale, where 1 represented very negative
experiences and 5 represented very positive experiences. The average of
these four items was used to measure past experience. Cronbach's alpha
was 0.76 (n=385), demonstrating an adequate level of internal
consistency.
2.2 The influence of organisational structure on CI success
The extent to which the measures of CI success (organisational
performance and past experiences) are influenced by organisational
structure were examined using the following five structural variables:
1. Annual turnover of the business unit
2. Number of production workers in the business unit
3. Number of non-production workers in the business unit
4. Percentage of products that are entirely unique, that is, designed and
manufactured to customer order.
5. Percentage of products that are modulised, with moderate
customisation to order.
Table 1 displays the Pearson product-moment correlation between each
of these structural variables and the two measure of CI success. This
table reveals that organisational performance positively correlated with
the percentage of unique products. In other words, organisations that
frequently design and manufacture products to satisfy specific orders
tended to perform more effectively. However, none of the other
correlations departed significantly from zero. That is, the impact of CI
was independent of annual sales or number of employees.
Table 1
Organisational Performance
Past Experiences
Annual Turnover
Number of production workers
-0.09
0.05
Number of non-production workers
-0.03
0.03
Percentage of unique products
0.17
-0.06
Percentage of modularised product
-0.04
0.01
2.3 Extent of integration of CI
This section examines the extent to which CI has been integrated within
the organisation. That is, the degree to which employees and
management were involved in the CI process. The extent to which
integration influences the impact of CI is also discussed. Eight aspects of
integration were utilised. Table 2 provides the mean and standard
deviation for seven of these aspects. This table provides some
illuminating results. First, the average level of maturity approximated
3.5. According to the scale provided to respondents, this level
corresponds to the learning stage. Second, the percentage of operators
and non-operators actively involved in CI also provided some invaluable
information. To investigate this issue, both of these variables were
subjected to an arcsine transformation (Cohen, 1983). A related t-test
then compared these transformed variables. This procedure revealed
that non- operators are more likely to be involved in the CI process,
t(239)=2.15, P,0.05, albeit to a trivial extent. Finally, only about half of
the registered ideas and suggestions had been implemented by the
respondents' organisations. The final aspect of integration concerned the
breadth of CI. This aspect distinguishes between those organisations in
which CI is used in all areas and those organisations in which CI is used
in a restricted number of areas. Fig. 1 displays a frequency distribution
associated with the responses to this issue. Almost 50% of the
organisations have applied CI to the entire business.
Table 2
Mean
Standard Deviation
Length of time CI has been utilised (years)
5.04
8.82
Level of maturity (out of 10)
3.53
1.86
Percentage of operators actively involved in CI
31.57
28.62
Percentage of non-operators actively involved in CI
33.67
27.64
Percentage of employees trained in problem solving
27.11
26.82
Number of ideas registered in the past two years
131
343
Number of ideas implemented in two years
73
240
2.4 Motivation for Implementing CI
This section explores the motives underlying the adoption of CI.
Respondents were presented with a list of 13 possible motives for CI.
Each motive was rated on a 5-point scale, where 1 represented no
importance and 5 represented critical importance.
These possible motives were -
Because our customers ask for CI (2.33),
Increase production volume (3.23)
Increase manufacturing productivity (4.06),
Improve quality conformance (4.19)
Reduce production lead times (3.40),
Improve delivery reliability (3.83)
Improve safety and physical environment (3.35),
Cost reduction (3.97)
Improve administration routines (2.67),
Increase employee attitude towards change (3.61)
Improve organisation, cooperation and communication (3.70)
Increase employee skills (3.30),
Because CI is a management directive (1.96)
The mean pertaining to each value is given in the bracket towards end of
the motive. The trend specifically showed that the most important factors
which lead to the implementation of CI in the organization were -
Increase manufacturing productivity (4.06), Improve quality conformance
(4.19),
Cost reduction (3.97), improved delivery reliability (3.83)
This trend shows that the continuous improvement techniques are a
complete win-win situation for any organization, be it from the
customer's perspective or be it from employees perspective or be it from
organization perspective.
2.5 Tools for Implementing CI
This research section identified the tools that are currently employed to
undertake CI. In addition, the impact of these tools on CI success was
also explored. These tools were subdivided into three classes: general
tools, such as means of promoting changes and support, problem-solving
tools, and incentive tools.
First, respondents were presented with a list of 16 general tools. Each
tool was rated on a five-point scale, where 1 represented not important to
the CI process and 5 represented critical importance.
These tools were -
Training of personnel in problem solving skills (3.69)
Monitoring the CI-process (4.18)
Support for managerial staff (4.30)
Incentive systems (2.35)
Supportive leadership (4.37)
Work in teams/work groups (3.74)
A suggestion scheme (2.37)
A general problem solving format (2.88)
Promoting on notice boards (2.57)
Promoting through internal media (2.51)
Promoting through competitions and awards (2.09)
Face to face communication (4.03)
Regular shop floor visits by management (3.81)
Use of ISO 9000 (3.51)
Use of Total Productive Maintenance (2.70)
Use of formal policy deployment (2.81)
Supportive leadership, support for managerial staff, monitoring the CI-
process and face-to-face communication were found to be the most
important tools.
The first components relate to working in teams, suggestion schemes,
and promotions via notice boards and internal media. This factor will
hereafter be called "Group communication".
The second component relates to training in problem-solving, monitoring,
support for management, and supportive leadership. This factor will be
referred to as "Coordinating CI".
The final component pertains to use of ISO 9000, Total Productive
Maintenance, and formal policy deployment and will be called "Formal
systems".
A chi square goodness-of-fit test was conducted between these three
systems and whether there is any relationship between these systems is
not was intended to be found out. The correlation between Group
communication and Co-ordinating CI was 0.38. In contrast, the
correlation between Co-ordinating CI and Formal systems was only 0.19
and the correlation between Group communication and Formal systems
was 0.21.
Taken together, these findings suggest that some organisations primarily
utilise formal systems, whereas other organisations are more concerned
with communication or co-ordination. A series of one-way ANOVAs were
conducted to select a subset of problem-solving tools and incentives that
could potentially enhance CI success. Seven tools and
Incentives were found to significantly improve CI performance at the
0.001 level: the seven new quality tools, FMEA, QFD, creativity tools,
standardisation tools, 5S, and CI rewarded through career development.
More Innovation frontiers
Internal Innovation activities
The high proportion of firms that carry out research and development
within the region corresponds to the large proportion of autonomous
decision making competence of the responding firms within the region:
almost 80% of the R&D activities of the firms take place in and around
Barcelona. What is meant by "innovative activities within firms" is the
substantial improvement of an existing product or the manufacture of a
new product for the firm (product innovation) and an essentially
improved or new production process (process innovation) (OECD, 1994,
p.19 ff.).
Depending on which phase in the innovation process is being described,
a distinction is made between input, throughput and output indicators.
Input indicators, such as employees in R&D, the level of expenditure on
R&D and the continuity of R&D activities, permit initial conclusions to be
drawn concerning the innovative potentials. When the proportion of
employees in R&D is compared with the total number of employees, the
R&D intensity is 7%. The chemical and electro technical industries, as
well as mechanical engineering, are marked by strong above average
R&D activities.
It is a fact that R&D quotas referred to the turnover are meaningful only
to a limited extent. In the course of new production concepts the
production depth in firms is reduced, while, in contrast, the proportion of
components produced outside the firm and of services in the turnover
has increased. This raises the turnover without any associated
expenditure on innovations. The indicator expenditure on R&D as
percentage of the gross profit provides a more accurate picture of the
expenditure actually required for product and process innovation.
Table 3:
Innovation activities & their impact, by industries in Barcelona
Total Industry average
Resources Devoted
R&D expenditure for product innovation
142.0
R&D expenditure for process innovation
49
R&D Personnel intensity (% of total employees)
7
Outcome of innovation activities
Patented innovations (per 100 employees)
5.9
New products (per 100 employees)
22.9
Turnover of new products
1447.9
Improved products (per 100 employees)
37.9
Source: Innovation survey 1997
Average of last three years
In contrast to the input indicators, patents are the result of actual
invention achievements. They are at the end of the invention process and
have not yet been translated into marketable products. 23.8% of the
firms have applied for a patent for at least one invention. The average
number of patented inventions is 10.7. The tendency to apply for patents
varies greatly between the different branches of industry. It can clearly
be seen that not all the inventions of the chemical and electrical
industries, or of mechanical engineering, were patented. This was due to
reasons of cost and procedures. When referred to the size of the firm,
small and medium-sized firms are more active than large firms with
regard to patents.
Of the innovative firms in Barcelona 15.4% restrict themselves
exclusively to product innovations, and 14.7% exclusively to process
innovations.
Roughly 70% of the firms change both products and processes, and here
the close interconnection between product changes and the change in
production processes is underlined. Of the firms with product innovations
58% have undertaken product differentiation, while the remaining 42%
have introduced completely new developments. The
responding firms stated that the essential precondition for the realisation
of product innovations is experience gained from their own production of
similar products or from previous products. 80% considered this
precondition to be very important. Their own R&D (77%) followed in
second place, so that existing know-how together with their own
research and development work represent the most important bases for
product development. Other important preconditions are market analysis
(65.2%), the training of employees (45%) and parallel process
innovations (47%). Acquisition of licenses (6.1%) and cooperation with
other firms and/or research institutions (24%) only play a subordinate
role. Process innovations are furthered by the firms' own research or
development work (71%), by training employees
(53.5%), acquisition of licences and technological manufacturing
components (41%).
Changing the internal work organisation as well as cooperation with
other firms are relatively unimportant (30% each). Above all, the
customers (85%), information from attending trade fairs and exhibitions
(69%), and direct competitors are important sources of information
concerning product innovations. In contrast, the importance of suppliers
in process innovations is clear. 62% of the firms with process innovation
obtain their information direct from suppliers. Information from visits to
trade fairs and exhibitions is also very important (58%).
Table 4:
Sources of external information for product and process innovation
Source
Product Innovation (%)
Process Innovation (%)
Customers
84.5
28.2
Suppliers/sub contractors
53.5
62.4
Competitors
54.4
25.9
Universities/Research Institutes
20.0
21.2
Producers services
27.0
42.4
Fairs/Exhibitions
69.1
58.3
Scientific Publication
38.6
39.6
Media
18.6
15.3
Internet
9.1
4.7
Source: Innovation Survey (1996-97), percentage of all firms with
product/process innovation
External Innovation Relationships
With the increasing concentration of firms on core competences, the
cooperation between different actors becomes increasingly important in
the realisation of innovation projects.
First of all, it must be stated that more firms which regularly carry out
R&D with other partners (customers, suppliers, producer services,
competitors and research institutions) work together beyond normal
business relations than is the case with firms that seldom or never carry
out R&D.
Where cooperation takes place, it is predominantly with customers (69%
of all firms mentioned cooperation of this kind) and with producer
services (69%), followed by cooperation with suppliers (59%), research
institutions (25%) and competitors (24%). The regional distribution of the
cooperation partners as well as the intensity of the cooperation between
innovative firms permit initial conclusions to be drawn concerning the
range of
cooperation relations and the spatial search range.
In order to get a more detailed insight into the innovative cooperation
relationships the firms were asked in which phase of the innovation
process and with which intensity they collaborate with customers,
suppliers, producer services, competitors and research institutions. In
general, the cooperation is stronger in the early stages of the innovation
process, but significant differences are distinguishable between the
cooperation partners.
The most balanced cooperative relationships occur with customers.
Besides intensive cooperation in early stages like the general exchange
of information, the generation of new ideas and conception/front-end
development, the responding firms collaborate intensively in prototype
development, pilot application and market introduction with their
customers. The regional scope of these relationships is more diverse than
with other innovation partners.
The motives for entering into innovation co-operations vary depending on
the actor. While in the case of cooperation with research institutions it
was, above all, the opportunity to enter new technological fields (68% of
the firms questioned that cooperate with research institutions) and the
know-how takeover (48%) that were most important, in the case of
cooperation with competitors it was risk reduction that was given as the
most important motive. As far as cooperation with producer services is
concerned, it is not possible to detect any clear picture. While risk
reduction, entering new technological fields, financial resources and
acquisition of funds are of relatively equal importance.
When they are questioned about the problems of innovation cooperation,
the firms give different answers depending on the cooperation partner.
While coordination difficulties in cooperation with research institutions
(48% of the firms mentioned problems with research institutions) are
seen as the most important problem, with the producer services it is the
budgeted cost overrun (48%). The lack of schedule effectiveness is seen
as the greatest problem in cooperation with other industrial firms.
Profiting from Innovation & CI
Background
PFI endeavours to explicate how managerial choices, the nature of
knowledge, intellectual property protection, and the asset structure of
the firm impact the business enterprise's ability to capture value from
innovation. It is both a predictive and a normative theory of strategy,
with testable hypotheses. It not only provides a contingency theory with
respect to a key element of strategy - such as whether to license or not to
license - but it also predicts how the profits from innovation are likely to
be distributed as between customer, innovator,
Imitator, suppliers and the owner's of complementary assets. It might be
thought of as a nascent neo Schumpeterian theory of the firm. The
success of the article is in part due to the fact that it was built upon and
around what are now recognized as important conceptual
Building blocks in our understanding of innovation processes and
competitive strategy. I briefly identify these below.
Perhaps the most important contribution of PFI is that it defined and
developed a taxonomy around complementary assets and technologies:
specialized, co-specialized, and generic. The extant literature in
economics and strategy at the time made no mention of complementary
assets. Economic historians had recognized the importance of
complementarities, but their analysis was rather loose. As discussed
earlier, Schumpeter (1950) had a visceral sense that there was
something about the large enterprise that helped it appropriate returns
from innovation, but his explanation was limited to market level
monopoly power issues. The PFI framework zeroed in on the asset
structure of the firm itself, and specialized complementary assets in
particular. Market "power" analysis was done at the asset rather than the
market level, and centered on availability of alternatives and/or ease of
replicability. This in turn is likely to depend on whether the "asset" is
generic (in which it is likely to be available in competitive supply) or
specialized. Clearly, control of an asset does not imply control of a
market, unless the asset somehow defines a "relevant market".8 If the
asset is specialized, it is more likely to be difficult to replicate. This will
affect the distribution of returns from innovation. The services it provides
is likely to face competition, which will hold down the economic returns
on the assets. Owners of such assets cannot expect any special benefit
from innovation, even when innovation increases demand for the services
of the complementary assets. This more granular supply side approach to
assessing competition is what sets the PFI framework apart from the
Schumpeterian framework. Clearly, incumbency is viewed in a
dramatically different manner in PFI than in Schumpeter, and in the
economics literature more generally. The complementary assets notion
has also found applicability in applied frameworks (Sullivan, 2000;
Harrison and Sullivan, 2006)
Capabilities
Part of the simplicity and possibly the elegance of PFI is that it does not
confront the organizational, bureaucratic, or human side of business
decision-making. Its written in the rational choice mode. In this sense,
the paper is not pretending to be descriptive with respect
to decision-making processes in organizations. There is a large literature
on over-optimism in project evaluation. The PFI framework does not
endeavor to prescribe rules, protocols, or procedures to neutralize such
errors. For instance, imposing an "outside view" is likely to
Assist in generating less biased decisions.
Supply chain issues
PFI had a very simple decision rule: if in doubt, outsource. favour
outsourcing and collaboration, unless there were a compelling reasons to
internalize. Such reasons could be grounded in one of two major
circumstances: (a) co-specialization, which would lead to transaction
costs if heavy reliance was made externally; (b) shoring up the
appropriability situation by building or buying complementary assets
which the innovation would likely drive up in value, or that were
otherwise important to getting the job done. Here the decision rules rest
on both (i) capability considerations and (ii) availability considerations,
and (iii) change in asset price considerations. In essence, (iii) reflects real
options type reasoning.
From innovation to PFI
Profiting from innovation has lead to -
Reduced inventories
Reduced wastes
Improved customer relations
Improved work environment
Improved export performances
Speeding up of the innovation process which in turn leads to profits
Higher innovative products, low costs
More advanced methods of Supply Chain like Internet based supply
Chain, Integrated Supply Chain, Market responsive Supply Chain has
lead to gain a niche in the market area.