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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
-3-Rothman Pres-10Oct01-GS-rm.ppt
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
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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
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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
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THE EMERGENCE OF TIME-BASED THE EMERGENCE OF TIME-BASED COMPETITIONCOMPETITION
Flexible value delivery
Flexible operations
Flexible new product/service development
Time-based competitors
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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
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THE IMPACT OF FLEXIBILITY ON THE COST OF THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETYVARIETY
Cost
Volume
Scale Related
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Cost
Volume
Scale Related
THE IMPACT OF FLEXIBILITY ON THE COST OF THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETYVARIETY
Complexity Related
Complexity
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THE IMPACT OF FLEXIBILITY ON THE COST OF THE IMPACT OF FLEXIBILITY ON THE COST OF VARIETYVARIETY
New Complexity Related
New Cost CurveCost
Volume
Scale Related
Complexity Related
Complexity
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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
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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
-13-Rothman Pres-10Oct01-GS-rm.ppt
Customer
Change to Original Quote
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
-14-Rothman Pres-10Oct01-GS-rm.ppt
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
Field (North America)
State 1 CST
State 2 EST
State 3/Canada EST
State 4 CST
-15-Rothman Pres-10Oct01-GS-rm.ppt
Customer
Change to Original Quote
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
-16-Rothman Pres-10Oct01-GS-rm.ppt
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
-17-Rothman Pres-10Oct01-GS-rm.ppt
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
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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
-26-Rothman Pres-10Oct01-GS-rm.ppt
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
-27-Rothman Pres-10Oct01-GS-rm.ppt
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
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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
-29-Rothman Pres-10Oct01-GS-rm.ppt
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
-31-Rothman Pres-10Oct01-GS-rm.ppt
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
-32-Rothman Pres-10Oct01-GS-rm.ppt
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
-33-Rothman Pres-10Oct01-GS-rm.ppt
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
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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%
-35-Rothman Pres-10Oct01-GS-rm.ppt
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
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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
Year I Year II Year III Year IV
Retail production rate (units/week)
1,500
1,000
500
Year I Year II Year III Year IV
Retail production rate (units/week)
1,500
1,000
500
Original situation
Back
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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
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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
-39-Rothman Pres-10Oct01-GS-rm.ppt
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
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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
-42-Rothman Pres-10Oct01-GS-rm.ppt
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
-43-Rothman Pres-10Oct01-GS-rm.ppt
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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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