Operations Management and the Supply Chain - Time-Based Competition

 

Executive Summary

One important aspect of current business world is globalization.  Companies who engaged in global scale business arena have to source globally and has established factories world-wide. Hence, the time based completion becomes an extremely difficult objective to achieve. In order to manage this objective, companies have to manage its core competencies and supply chain integration possibilities in an effective manner (Demeter, 2012).

Japanese companies are masters in managing time. They have not only able to reduce cost, but also to offer wide range of product lines and to cover more market segments concepts such as computer-integrated manufacturing, quality function deployment, just-in-time, and the total quality management philosophy have evolved to tackle the problem of timely completion of products (Sim et al, 1996).

This literature will critically evaluate the concept of time based competition, how it had enable supply chains to ensure on time delivery and cost effectiveness and current application of the concept in difference industries.

Contents

1. What is Time based competition and how it helped for a faster supply chain process 3

2. Time based competition 4

2.1 Total quality management 5

2.2 JIT Production 5

2.3 Vendor management – Vendor consolidation 5

2.4 Cross docking 6

2.5 Push and pull strategies 6

2.6 Multi-channel sourcing 7

3 Application of time based competition to real world 8

3.1 United Parcel Service (UPS) 8

3.2 Honda Motorcycle 8

3.3 Toyota Motor Corporation 8

3.4 Apple JIT manufacturing process 9

4 Conclusion 9

5 Reference 11

1. What is Time based competition and how it helped for a faster supply chain process

The concept of time based competition first used in 1990. The main reason to challenge with time is that companies required to provide goods and services on time by limiting costs. Hence, those saved time can use to research and development purposes (G. Stalk Jr, 1992). The main purpose of time based competition is the strategy of coordinating and managing production and transportation of the supply chain (Entrup, et al. 2005). 

Proper time based competition strategy could help a company to improve its inventory management, on time delivery, supply chain management, production and distribution planning, process integration, new product development and quality management to increase competitive advantage in a company (Beliën and Forcé, 2012). Currently, time based competition has been used a marketing tool in practice. Some retailers use freshness of fruits and vegetables as a competitive advantage (Entrup, et al.  2005). whereas some courier services use next day delivery as a competitive advantage (So, 2000).  By offering a competitive advantage to customers will not only increase customer satisfaction but also company’s profitability as this concept deals with time and its respective profit. Time based competition has become a strategy for improved productivity, quality and innovation (Jun Ma, 2019). Total reduction in timeline of a production process will eventually enable a company to save time in the process and utilize such time in identifying customer needs and wants for the future. Therefore companies can better serve their customer needs. This will also develop better partnerships between company’s suppliers and customers to become more collaborated in the line. Eventually firms can develop better strategies to cope up with future customer requirements (Tammela, 2012).  

However, Stalk and Webber (1993) stated that many firms have commented that heavy investments in human and financial capital in obtaining the competitive advantage over time based competition merely won’t achieve higher profits. The main reason to this was that these investment appraisals have not counted for customer preference, competitor capability and customer segments by their sensitivity to time. Moreover, Fine C.H (1998) discovered that all the industries are not developing at the same speed and the speed which time based competition discussed about is temporary. The speed of development of process should not be same as all the process in a firm. Faster operations are only guarantee results only up to the point which marginal time decrease equals to the additional cost incurred for additional speed. Which is the point where marginal cost equals to the marginal revenue. If this point exceed, the returns will James be loss making (Speyer, 2012). Moreover, supply chain structure will become more complex with the incorporation of suppliers and business partners on board which will question whether the time reduces will actually benefit the company (Jun Ma, 2019).

2. Time based competition

In the arena of reducing production time and provide responses for customers in a lesser time is the subject of this literature review. In the context of operational management and logistics, reducing time means the reduction of lead time. As explained by Chen H (1999) reducing lead time in designing process will help company to gain a competitive advantage over speed introduction to the market. Similarly, reducing lead time to delivery will gain a competitive advantage of fast response to customer requests. It further stated that the time carries two dimensions namely: succession and intention. However, issues in lead time management are only looked through succession aspect. However, it is equally important to ensure that intentional aspect issues are also addressed in the context. Tersine (1994) pointed out that lead time consists of five aspects: order preparation, order transit, supplier lead time, delivery time and setup time. In any competition, the balance between succession and intention is a must. Although there are numerus types of tools which can manage to gain competitive advantage, the most important asset is going to be the people of a company. It is the people who takes care of all other tools of a company. The workforce of a company is the absolute driving force of its objectives (Chung, 1999). 

Accordingly, it should be noted that the lead time is a controllable variable. Lead time can help an organization to reduce excess inventory levels and improve response time to customer needs and market changes (Yina Li et al., 2011). 

In the present competitive market, reduction of lead time had become a popular topic as it enables supply chains to response quickly and also have become one of the most important source of competitive advantage (Tersine and Hummingbird, 1995). Christensen et al., (2007) stated that lead time will not only improve production efficiency in the operation but also has a correlation between financial performance indicators such as ROI and average profit which again signifies the importance of managing lead time. However, there are drawbacks in lead time analysis literature. Most of analysis have mentioned that lead time is an independent variable whereas it is not. Lead time has a leaner relationship between the nature of the business and size (Glock, 2011).Time based competition is mainly empowered by reduction of lead time. However, there are few more industry practices initiated with the concept which are dealing with lead time reduction methods.

1. Total quality management

Total quality management is a philosophy which stresses out continuous improvement in the production line which will ultimately result in process improvement in the long run. This concept will more focus on eliminating non value adding activities, improving quality and people skill. However, this is a long lasting process as TQM depends on small improvements which will ensure a reduced cost in the long run. Hence, companies cannot just implement TQM philosophy and expects to have short term returns (Jayaram and Vickery, 1998).

TQM is a well-known concept which is used by Toyota in its production line. They gained a competitive advantage in the long run by consoling TQM with JIT methodology which was widely discussed (www. global.toyota).

2. JIT Production

Just in time production methodology aims to overcome non value adding costs such as excess inventory, long setup time, bottlenecks, downtime and long cycle time. It is also expected that continuous and consistent application of JIT methodology will enable an organization to gather small gains the by achieving production efficiency over the period (Jayaram and Vickery, 1998). Moreover there is a modern amendment to this JIT method too. Suppliers have now decided to have a separate representative at purchasing firm so that this person knows material requirement well ahead. While the design of the product started the representative will request goods from its supplier firm without any interaction with buying company. As the 80% of the mareail requirement of a product is determined by the designing stage, most of the extra inventory costs can reduce by informing suppliers efficiently (Claudia H. 1996).

3. Vendor management – Vendor consolidation

Vendor management always refers to areas in supply chin where companies can reduce cost as well as time for non-value addition activates. One major function of vendor management is to reduce supplier delay times and reduce unnecessary costs for productions. Hence, supply chain managers are responsible for critical evaluation of vendor performance and analysis supplier contract terms. Further, vendor consolidation plays a major part in this function. Companies often selects purchasing contracts only by referring to purchase prices. However, the same contract may specify additional freight charges and late fees. By consoling vendors with other freight companies and ultimately having a few supplier base, firms can save up additional fees on freight and stock holding. Companies may also gain a competitive advantage over economies of scale to negotiate lower prices, but also to reduce overall freight costs (Sandipan Chakraborty, 2015)  

4. Cross docking

Cross docking is also a world famous strategy used by worldwide markets in order to gain competitive advantage. This strategy reduce two expensive functions in supply chain namely, order picking and storage. In a cross docking environment, inbound vehicles arrives at the cross docking platform and then the trucks are immediately unloaded, sorted, unloaded and reload to outbound trucks. This process requires high efficient communication between inbound and outbound supply chain operations in order to run the crossdocking platform cost efficiently (Yan Ye, et al 2017).

5. Push and pull strategies

It is quite a challenging task to manage supply chain environment in a market where customer demand are so unpredictable and variable customer and supplier lead times. In such environment, multi-channel supply chains carries its inherent limitations such as excess inventory and poor customer service. The push, pull and push-pull strategies may help companies to manage non value adding activities and costs in order to reduce lead time of the production lines (Karmarkar 1990). In push policies, company does its production purely based on it forecasted demand whereas in pull policies companies produce products based on customer requirements once received. However, in a hybrid environment, the production done by decoupling upstream process are managed by push policies and downstream process are managed by pull policies (Pyke and Cohen 1990). 

(Santosh Mahapatra. 2012) mentioned that hybrid policies performs better than the other policies due to the reason that in this policy, upstream materials are released based on push policy on forecasted demand. Hence, the disadvantage of underperformance of inventory based on demand can improve by periodical flushes and halting of production in upstream level. Accordingly, the chain reaction of production halting will flow to the downstream production and ultimately the company may not produce till they get order confirmations in the due course (Santosh Mahapatra. 2012).

In conventional push method of manufacturing carries non value adding activities and also inventory costs. Hence, the pull method introduced where the production is mainly based upon customer requirements. Pull method always eliminate safety stock which has a cost, however, this method always carries a semi-finished good stock so that in case of an un expected increase in demand will better met. And also as the goods are in the process, the consumption will charge at the time it consumes. Pull method always need supplier relationship at its best. Having a lesser suppliers is important. Having high deliveries can be seen in this method as it does not carry a safety stock (Sim et al, 1996).

6. Multi-channel sourcing

Supply chain can expose to various kinds of risks. One major risk will be disruption to inbound logistics stream from suppliers. In order to mitigate the risk associated with supply chain disruption, it is important to establish an effective communication between upstream and downstream members in the supply chain network. This will ensure the continuity of the material flow (Tang, 2006). A continuous flow will be depending on the quality of the supply chain structure (Glock, 2011). In fact, Sculli and Wu (1981) introduced a dual sourcing method where same order is split between two suppliers which will reduce the stock out risk between two suppliers. Kelle and Miller (2001) also proved that splitting the same order between two suppliers in an optimal order split, the risk of stock out will be lesser even if the send supplier shows an inferior delivery performance. Kelle and Miller (2001) further commented that, however, the optimal order split has to consider characteristics of each supplier in to account rather than splitting on 50:50 basis. 

Although it has been the time which discussed most in achieving time based competition, there are counter arguments as well when measuring lead time alone when strategizing time based competition capabilities. Chung (1999) argued that the succession of TBC cannot alone determined by reducing the lead time. Rather, a better measurement would be how much advantageous the change would be. Chung further argued that the meaning of time is change, hence, change is ideally become the competition. Accordingly, the ultimate desire to change will become the motivation behind competition.

3. Application of time based competition to real world

1. TQM 

Tesco is one of the UK's most successful supermarket chains. This is due to the quality of its services and products. Tesco started as a retail company in the 1920s and has since grown and grown into the world's largest company in the retail industry. On a revenue basis, it is the second largest behind Wal-Mart, a US-based company. Since its launch, Tesco has been introducing new products and services to meet customer needs. Currently, it mainly deals with the production and sale of groceries, groceries, fabrics and electronics. In addition, the company also sells home sales, Internet services, financial and insurance services (Ciaran & Wall, 2011).

The company has maintained its position as a leading UK supermarket using quality control concepts and philosophy. The main focus of the company's quality assurance is to provide customers with tailored products and services, and to provide accident, waste and defect-free products and services (Ciaran & Wall, 2011).

Quality performance goals have the highest priority over all other business strategic goals. The company uses various strategies to achieve this quality goal. The company employs highly skilled personnel to maintain and improve the quality of service provided to customers. Every day, the company's management staff must attend a meeting whose main agenda is comprehensive quality control. Staff explain how to integrate or coordinate all business functions to meet quality. The company has a quality improvement team that is responsible for maintaining the quality of all products sold in stores and ensuring the services it provides to loyal customers. In addition, the quality improvement team is responsible for identifying ways to improve customer service quality daily. The team meets weekly to lead and monitor the quality assurance process (Ciaran & Wall, 2011).

2. JIT Manufacturing

This system has been developed by Toyota many years ago and still it does improvements. The main objective of this system is to facilitate orders by customers in the most efficient and the fastest way which does not compromises its production quality. This system ensures that as when there is a problem occurs, the system stops there to prevent that error won’t carry forward. Moreover, this ensures that each process communicates with each other and produces only parts are needed for next step. If excess inventory available, the system won’t produce it anymore. In order to adhere to customer request, Toyota follows the following steps. When an order received, production must start as soon as possible, then the assembly lines must be stocked in the way which it won’t run out of stock on half way though the production and the production lines must be maintained on regular basis. This will ensure that Toyota will fulfill customer requirements in the most efficient way which Toyota could (www. global.toyota).

A world famous television company once wanted to open up a JIT plant in Mexico. However, after its inception, its designers went to overlook the process to ensure nothing is wrong so far. The entire plant was a mess. The main reason to this was that the culture in Mexico was not aware of a process call JIT and they were just working on their shifts. And there were lot of off days for the factory and there were no production at all.  However, at the end of five years the company turned that facility in to a batch production plant. The major reason to this failure was that the employees were not informed about the process and not trained. JIT is a system as a whole. Hence all the employees need to work around the clock (Matt Wrye, 2013).

4. Conclusion

Many supply chain management systems suffer from common issues such as delays in deliveries, non-value adding costs such excessive inventory and inventory waste and cost of inventory management.

Throughout the literature, the importance of evaluation of time based competition and the way it helped current supply chain management systems to develop have discussed. Time based competition had initially introduced as way of gaining competitive advantage by handling customer requirements within a shorter period. In the game of time management, the frontline runner is lead time. With the inception of time based competition, a number of other supply chain management strategies have also discovered namely: Just-In-Time manufacturing, multi-channel sourcing, total quality management and computer integrated manufacturing and data analytic tools. 

There were arguments for reducing lead time. The arguments were for when reducing the lead time, marginal costs vs its marginal revenue shall be first determined. If the marginal revenue exceeds its marginal costs, reducing lead time will be feasible for the company. Accordingly, the benefits of the change shall be evaluated critically before reducing the lead time. Similarly, heavy investments made with the intention to structural changes production process will merely not brig its desired returns. The major reason is that when evaluating cost vs volume analysis, companies does not account for customer expectations and competitor capabilities.

In the context of time, it is important to manage both succession and intention aspects as both weights for an equal size. Further, it was observed that managing people is the key of wining time based competition. People are the key asset who drives all the other factors of time based competition such as quality and design. Moreover, one critical aspect of a successful supply chain management process is effective communication established through integrated information systems. Effective partnership with upstream and downstream members in the supply chain will ensure on time order placement and on time delivery.

However, time based competition have brought the supply chain management in to a different aspect from what it was. Company have now started investing in research and development as to identify how to reduce lead time in all aspects as much as possible and to introduce innovative products and services in a fast manner. Moreover, companies started investing in system integration and analytical models to identify where companies can provide fast responses to changing customer needs.

The need of research and literature in time based management in increasingly becoming a hot topic worth discussing as the customer expectations are becoming more complex and more demanding. Some customers want products with a lesser lead time and are willing to pay more to gain that advantage. However, there can be customers who still want the goods within a limited time but not willing to pay more. This sophisticated thought process can be identified in advance and companies can be ready if the continuum of research on TBC carried forward.

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