trikuti

2006-04-26T14:33:00.000+05:30

I got this article as a forwarded one. usually I avoid reading such messages, but this one was different and so different that I thought, "This surely deserves a place on net." So here it's:

I think we should have job reservations in all the fields. I completely support the PM and all the politicians for promoting this. Let's start the reservation with our cricket team. We should have 10 percent reservation for Muslims. 30 percent for OBC, SC/ST like that. Cricket rules should be modified accordingly. The boundary circle should be reduced for an SC/ST player. The four hit by an OBC player should be considered as a six and a six hit by a OBC player should be counted as 8 runs. An OBC player scoring 60 runs should be declared as a century. We should influence ICC and make rules so that the pace bowlers like Shoaib akhtar should not bowl fast balls to our OBC player. Bowlers should bowl maximum speed of 80 kilometer per hour to an OBC player. Any delivery above this speed should be made illegal. Also we should have reservation in Olympics. In the 100 meters race, an OBC player should be given a gold medal if he runs 80 meters.
There can be reservation in Government jobs also. Let's recruit SC/ST and OBC pilots for aircrafts which are carrying the ministers and politicians (that can really help the country.. ) Ensure that only SC/ST and OBC doctors do the operations for the ministers and other politicians. (Another way of saving the country..) Let's be creative and think of ways and means to guide INDIA forward...Let's show the world that INDIA is a GREAT country.
Let's be proud of being an INDIAN..
May the good breed of politicans like ARJUN SINGH long live...

Reservations Unlimited

2006-03-28T17:30:00.000+05:30

Our great erudite representaives have yet again come up with an ingenious idea of harnessing the already much exploited strata of society. This time they are holding "reservations in private sector" as their carrot. Devil only knows what next are these great people going to offer them when next elections will be due.
The whole purpose of making certain "reservations" for a segment of society has been defeated countless times. And it's not the defeat, per se, it has also been the shameless manner in which it has been done that aggravates me et. al. Every Indian knows why reservations were made and why caste system was adopted. It was only lack of proper infrastructure to correctly assess a person's wealth (read resources) and possible misuse by wealthier upper caste people, our forefathers thought that categorization on basis of caste will be better.
As of now the system (in whatever state it may be) tries to support people of certain castes. The get free education (during my IIT days, whole of tution fee was refunded to these "deprived" guys and it was very appropriately blown off into dope, alcohol and lukhagiri); they get entered into tough institutes easily and then they enter into Government jobs easily. And now, lo & behold, they'll be in private sector also. Why? Are they mentally handicapped; an analogous form of physically handicapped quota people? No! They are not the reserved caste; they are the protected class, just like "protected industries". Just like our great leaders continue to give protection to some silly and useless industries, they continue to give protection regime to these people.
Three cheers for our Oxford and Harvard educated leaders. If this is the best thing they can think of for our country, then I really cast doubts on their ignited minds. Wonder whether Harvards and Oxfords also protects their students by extending quota system??

Drugs

2005-12-07T12:18:00.000+05:30

Man’s desire to experiment new modes of pleasures can be traced back to the time when Adam took the forbidden fruit in the Garden of Eden. History says that, every culture, in various parts of the world, has used several methods to derive pleasure. However, drugs that alter mood, thought and feeling have been sought the most.
Any substance or product that is used, or intended to be used to modify or explore physiological systems or pathological states for the benefit of the recipient, is termed as a drug according to the WHO. An ideal drug is one, which has maximum efficacy with least or no toxicity and a large therapeutic index. No drug known today can be proved absolutely safe, because in practice, no drug produces only a single effect but has a spectrum of effects.
Of all the drugs used to derive pleasure, opium and its derivatives, and related synthetic compounds enjoy a unique place and have to their credit a very long history. Reference to opium dates back to 3rd century B.C. and it is believed that the Arabic physicians used it widely and introduced it to the Orientals. The Orientals used it to treat several ailments. Many others found it efficacious to relieve suffering. However, the drug fell into disrepute for a short while due to its toxic effects and inappropriate use.
Inappropriate use of a drug can be inadvertent or intentional. Though inadvertent in the beginning, it can become intentional very quickly, when the experience is pleasurable. Unrestricted availability (until early 20th Century), curiosity and influx of opium smoking immigrants from the Orient, caused accentuation of opium abuse in USA. The situation worsened with the invention of the hypodermic leading to parenteral morphine use, thereby causing a severe variety of compulsive drug use.

How people get hooked to this thing in under-privileged societies?
".....As he puffs deeply on his opium pipe in the evening gloom of histhatched-roof hut, Kya Teh is wreathed in clouds of sweet, heavy smoke.And slowly his pain disappears. The 56-year-old farmer started taking it as a form of medicine. Like most of the impoverished villagers in this remote drug-producing land in northern Myanmar, opium is the only medicine he can afford."

"....His addiction grew. Soon he was smoking three or four pipes of opium every morning, another three or fourpipes in the afternoon, and 10 or more every night. But a few years ago, Kya Teh felt a severe new sickness, a sharp pain in his lungs, and he began coughing up blood. Now his only happiness is the opium pipe. "If I don't smoke it, I feel the pain more and more," he said. "It's easier to sleep when I smoke. But then later I worry about tomorrow. I worry how I will get the opium tomorrow."

What happens when one decides to quit this thing?
".....At 28, Joe has become something of an expert at heroin detox - he's tried it nine times. Between programs, he's attempted to quit on his own. Once, when the cravings got the best of him, he tried to knock himself out by hitting his head against a brick wall. So late last year, when Joe checked himself into a New York outpost of Phoenix House, the country's largest residential rehab program, he knew exactly what to expect: the plastic cups of methadone to wear down his dependence, the sedated days and sleepless nights, the chill of the toilet seat, the sickening sight of food."

What is Methadone?
It's amber syrup that offers similar relief from opiate cravings but is highly habit-forming. First synthesized in the 1940s by German scientists and scooped up after the war by pharmaceutical giant Eli Lilly, methadone attracted attention in the addiction community in the 1960s. That's when a husband and wife team, doctors Marie Nyswander and Vincent Dole of Rockefeller University, found that with a daily dose of methadone and some counseling, opiate addicts had a much better chance of staying clean.

By law, methadone must be dispensed at special clinics and, for most patients, only in single daily doses. Widely prescribed beginning in the 1970s, methadone was medical science's first real attack on addiction, and study after study showed it prevented relapses and deaths by overdose. But public opinion swelled against it. Neighborhood groups battled methadone clinics, where patients congregate daily for their medicines. Politicians charged that junkies were merely swapping one habit for another. Methadone has been controversial among addicts, too. Some rejected it for producing a powerful sedative effect that makes it difficult for a recovering addict to perform job duties. Others took methadone illegally as a cheap tranquilizer.

The discussion
After reading all this I started asking myself, why do we blame people for getting addicted? What can Governments do to stop their citizens getting hooked to this thing? Many Governments still cannot provide basic amenities like water, electricity, and food to their citizens; then how can I believe that they provide medicines to them. And is the situation really different in developed countries? I say, No. Causes of getting addicted may be different but state of addiction is same. And the irony of situation is that policy makers and thinkers keep on discussing on putting end to "causes" while very little attention is given to end the "effect" also. We, the people, believe that due to tremendous growth in research in medicine, these old sufferings must have a medicinal solution. The truth is far from our imagination. People who want to get out of this killing habit have few options of treatment. Another angle is our viewpoint about addicts as weak people. We easily say, how difficult for anyone is to leave a habit if he exercises his willpower? Tell me, how many days one can survive without having water? Can one exercise his willpower and not sleep for 90 hours? One can exercise will-power to avoid things that one does with his will. For addicts it's the case of physiological dependence. Their bodies ache, they feel nausea, they vomit, they struggle to breathe, they bleed. And yes they do become "weak". Their sufferings are limitless.

Cult Brands - Zippo

2005-12-06T13:51:00.000+05:30

I was introduced to Zippo lighters by one of my friends during my MBA days. Though I was smoking for quite a time, somehow I remained ignorant about this thing. I'd seen this lighter many a times on screen, but never known the histroy it carried. There's nothing much about the Zippo, still there's something in it. And to limit its mystic to its "click" and "thunk" would be like saying Harley Davidson's magic is only due to its patented audio rumble. Below is a compilation of some information on Zippo, that I collected from various sources. Enjoy it and become one of the Zippo Collectors.

A Zippo Lighter is a refillable, metal lighter manufactured by Zippo Manufacturing Company. They are highly collectible and hundreds of different styles and designs have been made in the seven decades since their introduction.
Zippos gained popularity as “windproof” lighters—able to stay lit in harsh weather. They became popular in the United States military, especially during World War II when all Zippo lighters produced went to the Allied war effort. Additionally, Zippos are known for the lifetime guarantee they carry: if a Zippo breaks, no matter how old, the company will replace or fix the lighter for free.
George G. Blaisdell founded Zippo Manufacturing Company (located in Bradford, Pennsylvania) in 1932 and produced the first Zippo in early 1933. It got its name because Blaisdell liked the sound of the word "zipper" (according to John Ratzenberger's television show "Made in America" and Zippo Manufacturing Company's website).
Since 1933, over 400,000,000 Zippos have been produced. After World War II the Zippo became increasingly used in advertising by companies large and small through the 1960's. Many of the early advertising Zippos are works of art painted by hand, and as technology has evolved, so has the design and finish of the Zippo. The basic mechanism of the Zippo has basically remained unchanged.
In 1986, Zippo began including a lot code on all lighters showing the month and year of production. On the left of the underside was stamped a letter A-L, denoting the month. On the right was a Roman Numeral which denoted the year, beginning with II in 1986. Thus a Zippo stamped H XI was made in August, 1995. However in 2000, Zippo altered this system, changing the Roman Numerals to more conventional Arabic Numerals. Thus a Zippo made in August 04 will be stamped H 04.

Trivia on Zippo
The highest amount paid for a Zippo lighter was $18,000. The 1933 model was purchased at the 2002 Tokyo Swap meet.
An average of 800 Zippo lighters are auctioned online every day.
There are over 4 million Zippo lighter collectors from all over the world
Original price of a Zippo lighter was $ 1.95
Basic concept of Zippo windproof lighter has remain unchanged for over 70 years
Zippo ran its first national advertisement in Esquire magazine in 1937
In late 1950s a Zippo was removed from the belly of a fish. The Zippo lit the first time.

Company Names - Part II

2005-12-06T10:48:00.000+05:30

Daewoo - the company founder Kim Woo Chong called it Daewoo which means "Great Universe" in Korean.

Danone (Dannon in USA) - Isaac Clarassó in Barcelona made his first yoghourts with the nickname of his son Daniel

DHL - the company was founded by Adrian Dalsey, Larry Hillblom, and Robert Lynn, whose last initials form the company's moniker.

eBay - Pierre Omidyar, who had created the Auction Web trading website, had formed a web consulting concern called Echo Bay Technology Group. "Echo Bay" didn't refer to the town in Nevada, the nature area close to Lake Mead, or any real place. "It just sounded cool," Omidyar reportedly said. When he tried to register EchoBay.com, though, he found that Echo Bay Mines, a gold mining company, had gotten it first. So, Omidyar registered what (at the time) he thought was the second best name: eBay.com.

EMC2 Corporation - The Company was founded by Richard (E)gan and Roger (M)arino the E and M in EMC. There has long been a rumor that there was originally another partner (C) which provided for the third letter. Other reports indicate the C is just there to stand for Company (ie. E + M + Company = EMC). Since the company was to operate in the technology sector they adopted the EMC2 notation to refer to the famous Einstein Equation

Epson - Epson Seiko Corporation, the Japanese printer and peripheral manufacturer, was named from "Son of Electronic Printer"

Exxon - a name contrived by Esso (Standard Oil of New Jersey) in the early 70s to create a neutral but distinctive label for the company. Within days of announcement of the name, Exxon was being called the "double cross company " but this eventually subsided.

Fanta - was originally invented by Max Keith in Germany in 1940 when World War II made it difficult to get the Coca-Cola syrup to Nazi Germany. Fanta was originally made from byproducts of cheese and jam production. The name comes from the German word for imagination (Fantasie or Phantasie), because the inventors thought that imagination was needed to taste oranges from the strange mix.

Fiat - acronym of Fabbrica Italiana Automobili Torino (Italian Factory of Cars of Turin)

Fuji - from the highest Japanese mountain Mount Fuji

GlaxoSmithKline - 2000 merger of Glaxo Wellcome and SmithKline Beecham

Google - the name is a misspelling of the word googol, reflecting the company's mission to organize the immense amount of information available online.

Häagen-Dazs - Contrary to common belief, the name is not European; it is simply two made-up words meant to look European to American eyes.

HP - Bill Hewlett and Dave Packard tossed a coin to decide whether the company they founded would be called Hewlett-Packard or Packard-Hewlett.

Hitachi - old place name, literally "sunrise"

Hoechst - from the name of a district in Frankfurt

Honda - from the name of its founder, Soichiro Honda

Hotmail - Founder Jack Smith got the idea of accessing e-mail via the web from a computer anywhere in the world. When Sabeer Bhatia came up with the business plan for the mail service, he tried all kinds of names ending in 'mail' and finally settled for Hotmail as it included the letters "HTML" - the markup language used to write web pages. It was initially referred to as HoTMaiL with selective upper casing. (If you click on Hotmail's 'mail' tab, you will still find "HoTMaiL" in the URL.)

Hyundai - connotes the sense of "the present age" or "modernity" in Korean.

Daily Quote

2005-12-01T15:45:00.000+05:30

Successful people are very lucky. Just ask any failure.

Trivia - Comany Names (Part I)

2005-12-01T10:28:00.000+05:30

ABN AMRO - In the 1960s, the Nederlandse Handelmaatschappij (Dutch Trading Society; 1824) and the Twentsche Bank merged to form the Algemene Bank Nederland (ABN; General Bank of the Netherlands). In 1966, the Amsterdamsche Bank and the Rotterdamsche Bank merged to form the Amro Bank. In 1991, ABN and Amro Bank merged to form ABN AMRO.

Accenture - Accent on the Future. Greater-than 'accent' over the logo's t points forward towards the future. The name Accenture was proposed by a company employee in Norway as part of a internal name finding process

Adidas - from the name of the founder Adolf (Adi) Dassler.

Adobe - came from name of the river Adobe Creek that ran behind the houses of founders John Warnock and Chuck Geschke.

Aston Martin - from the "Aston Hill" races (near Aston Clinton) where the company was founded, and the surname of Lionel Martin, the company's founder.

Audi - Latin translation of the German name 'Horch'. The founder August Horch left the company after 5 years, but still wanted to manufacture cars. Since the original 'Horch' company was still there, he called his new company Audi, the Latin form of his last name. In English it is: "listen!".

BASF - Initials of Badische Anilin und Soda Fabriken. Anilin and Soda were their first products. Badisch refers to the location in the state of Baden, Germany (Black forest region).

BenQ - Bringing ENjoyment and Quality to life

BMW - abbreviation of Bayerische Motoren Werke (Bavarian Motor Factories)

BP - formerly British Petroleum, now "BP" (The slogan "Beyond Petroleum" has incorrectly been taken to refer to the company's new name following its rebranding effort in 2000).

Cadillac - Cadillac was named after the 18th century French explorer Antoine Laumet de La Mothe, sieur de Cadillac, founder of Detroit, Michigan. Cadillac is a small town in the South of France.

Canon - Originally (1933) Precision Optical Instruments Laboratory the new name (1935) derived from the name of the companies first camera, the Kwannon, in turn named after the Japanese name of the Buddhist bodhisattva of mercy.

Cisco - short for San Francisco. It has also been suggested that it was "CIS-co" -- Computer Information Services was the department at Stanford University that the founders worked in.

Coca-Cola - Coca-Cola's name is derived from the coca leaves and kola nuts used as flavoring. Coca-Cola creator John S. Pemberton changed the 'K' of kola to 'C' for the name to look better.

Colgate-Palmolive - formed from a merger of soap manufacturers Colgate & Company and Palmolive-Peet. Peet was dropped in 1953. Colgate was named after William Colgate, an English immigrant, who set up a starch, soap and candle business in New York City in 1806. Palmolive was named for the two oils (Palm and Olive) used in its manufacture.

Bad Predictions in Business History

2005-12-01T09:45:00.000+05:30

"I think there is a world market for maybe five computers." --Thomas Watson, Chairman of IBM, 1943

"I have travelled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won't last out the year." --The editor in charge of business books for Prentice Hall, 1957

"This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us." --Western Union internal memo, 1876.

"The concept is interesting and well-formed, but in order to earn better than a 'C,' the idea must be feasible." --A Yale University management professor in response to Fred Smith's paper proposing reliable overnight delivery service. (Smith went on to found Federal Express Corp.)

"Who the hell wants to hear actors talk?" --H.M. Warner, Warner Brothers, 1927

"We don't like their sound, and guitar music is on the way out." --Decca Recording Co. rejecting the Beatles, 1962.

"Heavier-than-air flying machines are impossible." --Lord Kelvin, president, Royal Society, 1895

"Airplanes are interesting toys but of no military value." --Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre.

"Everything that can be invented has been invented." --Charles H. Duell, Commissioner, U.S. Office of Patents, 1899

"Louis Pasteur's theory of germs is ridiculous fiction". --Pierre Pachet, Professor of Physiology at Toulouse, 1872.

"The abdomen, the chest, and the brain will forever be shut from the intrusion of the wise and humane surgeon". --Sir John Eric Ericksen, British surgeon, appointed Surgeon- Extraordinary to Queen Victoria 1873.

"640K ought to be enough for anybody." -- Bill Gates, 1981

Daily Quote

2005-11-30T11:07:00.000+05:30

"Man Is An End In Himself, And Not A Slave To The Ends of Society."

Consultants - An Old Story

2005-11-30T10:50:00.000+05:30

A shepherd was herding his flock in a remote pasture when suddenly a brand-new BMW ad vanced out of a dust cloud towards him. The driver, a young man in a Armani suit, Gucci shoes, Ray Ban sunglasses and YSL tie, leans out the window and asks the shepherd, "If I tell you exactly how many sheep you have in your flock, will you give me one?"

The shepherd looks at the man, obviously a yuppie, then looks at his peacefully grazing flock and calmly answers, "Sure. Why not?"

The yuppie parks his car, whips out his Dell notebook computer, connects it to his AT&T cell phone, surfs to a NASA page on the Internet, where he calls up a GPS satellite navigation system to get an exact fix on his location which he then feeds to another NASA satellite that scans the area in an ultra-high-resolution photo. Then young man opens the digital photo in Adobe Photoshop and exports it to an image processing facility in Hamburg, Germany. Within seconds, he receives an email on his Palm Pilot that the image has been processed and the data stored. He then accesses a MS-SQL database through an ODBC connected Excel spreadsheet with hundreds of complex formulas. He uploads all of this data via an email on his Blackberry and, after a few minutes, receives a response. Finally, he prints out a full-colour, 150-page report on his hi-tech, miniaturized HP LaserJet printer and finally turns to the shepherd and says, "You have exactly 1586 sheep."

"That's right. Well, I guess you can take one of my sheep," says the shepherd.

He watches the young man select one of the animals and looks on amused as the young man stuffs it into the trunk of his car.

Then the shepherd says to the young man, "Hey, if I can tell you exactly what your business is, will you give me back my sheep?"

The young man thinks about it for a second and then says, "Okay, why not?"
"You're a consultant," says the shepherd.
"Wow! That's correct," says the yuppie, "but how did you guess that?"
"No guessing required," answered the shepherd. "You showed up here even though nobody called you; you want to get paid for an answer I already knew; to a question I never asked; and you don't know crap about my business...

Value Chain Analysis

2005-09-28T10:14:00.000+05:30

For a company to survive in today’s highly flooded markets a company must, at least temporarily, achieve a competitive advantage. There are many ways for a firm to achieve this advantage and two generic ones are: price leadership and differentiation. Price leadership is simply when a company keeps prices below those of his competitors. Differentiation occurs when a company creates a distinctive position in the market through product functionality, service, or quality.
If either of these two management strategies are chosen to be implemented by a company, value chain analysis can help the firm focus its plan and thus achieve a competitive advantage. There are two components of value chain analysis: the industry value chain and the company’s internal value chain. The industry value chain includes all of the value-creating activities within the whole industry, beginning with the basic raw material and finishing with the delivery of the product. The internal value chain of a company includes all the value creating activities within that specific firm.

The Company’s Internal Value Chain
A firm’s internal value chain includes all the physical and technological activities within the company that add value to the product. The key to evaluating a company’s internal value chain is to understand the activities that give that company a competitive advantage, and then pin point and exploit those advantages better than other companies in the industry. This evaluation is done in four steps:

1. Identify value chain analysis
Look for discrete activities. These create value in different ways. They will include different costs, different cost drivers, separable assets, and different personnel involved. For example, contrast product design activities with advertising activities.
Identify structural, procedural, and operational activities. Structural activities determine the basic economic nature of the company. Procedural activities include all aspects of the firm's operations and reflect the company's ability to carryout the processes efficiently and effectively.
Focus on structural and procedural activities. Most companies emphasize operational activities, but proponents of value chain analysis say that focus is too narrow and only deals with the short run and will not be able to give the company an overall competitive advantage.
2. Determine which activities are strategic
To determine which activities are strategic a company must identify which product characteristics are valued by existing customers.
A company should then find characteristics that it can exploit, and thereby create value for future customers. Examples of these characteristics are quality, service, or any tangible or intangible product features.
3. Trace costs to activities
The company needs an accounting technique that traces costs to different value chain activities. This is important for a company to focus on these value-added processes, so they will be able to manage them more efficiently.
4. Improve management of value chain activities
To achieve a competitive advantage a company must manage their value chain better than their competitors. This means reducing a company's total cost while enlarging the competitive advantage. This does not however mean that all costs have to be reduced, it means that all costs that do not adversely affect the competitive advantage can and should be reduced.

The Industry Value Chain
The value chain of an industry starts with the raw material manufacturer and finishes with the delivery of the final product to the customer. The key to analyzing the industry value chain is to comprehend and use the advantage of a company’s comparative strength within the industry.
All industries begin with a raw material and end with a sale to a customer. There are many links within this process. There are upstream links and downstream links. Each separate link stands for an independent, economically viable segment of the industry. To establish which links in the industry value chain are separate, assess these two questions:
1. Is there a market for the output of this link in the industry value chain, or can a market price be determined objectively?
2. Are there any companies that produce and sell only within this link of the chain?

If the answer is “yes” to either of these questions, then the industry under consideration may be a separate link in the industry value chain. Then, after the industry value chain is determined, a company should examine the relative strength of its position, in any separate link, in the industry value chain. A company’s position within the industry link can be found by using a myriad of measurements, including industry margins, return on assets, benchmarking, and capital budgeting. When a company then finds where it has deficiencies in relative industry strength, it can go back to the internal value chain activities to improve its standing with its competitors and then gain a competitive advantage.

Conclusion
Value chain analysis comes with a few challenges. First, accounting systems are not designed to assign costs to value-added activities, but when ABC is implemented that problem can be solved. Second, it can be difficult to find accurate return on sales and return on asset data to determine the value chain. But, rough estimates still can be used to give some insight into the value chain. Lastly, not only do estimates make the value chain difficult to determine, but many industries have very complex value chains. Even though there are some challenges to a value chain approach it can be a very effective strategic management tool. When competition is fierce, firms must very precisely manage their activities and costs to continue their competitive advantage.

Reconfiguring the Value Chain - Summary (Authors:Carr, L.P. and Lawler. W.C.)

2005-09-28T09:58:00.000+05:30

This article provides an illustration of how strategic cost management can make financial analysis a more powerful decision making tool. This idea is illustrated through the examination of the Levi Strauss Company’s past initiative to “lean thinking.”
The lean initiative was part of an overall strategy of sustaining a competitive advantage. Beginning in the mid-1980s, starting with the automobile industry, companies have studied techniques on how to achieve sustained competitive advantage. Companies strove to create substantial increases in wealth by challenging the ways they implemented their strategies. One such process called value-chain-based analysis was achieved by performing these five steps:
Value: The value chain must be identified from the customer viewpoint at a disaggregated level - a specific product must be developed from the perspective of a specific target customer, at a specific price, at a specific place and time.
Value stream: Three elements of the value chain must be mapped - the physical stream originating with the first entity that supplies any raw input to the system, and ending with a specified customer (regardless of legal boundaries); the information stream that enables the physical stream; and the problem-solving/decision making stream that develops the logic of the physical stream.
Continuous flow: The focus must be on ensuring continuous flow and minimizing disruptions, such as those in a typical push-based batch-and-wait system.
Pull: To ensure continuous flow and to minimize disruptions, companies must create pull where the customer initiates the value stream.
Perfection: Finally, companies must strive for perfection by creating the virtuous circle, in which transparency in the system enables all members of the value chain to continually improve the system.
The remainder of the article examines the success Levi’s Strauss has had by implementing value-chain-based analysis and focuses of their “Levi’s Personal Pair” program which was the product of their analysis.
Levi’s Strauss was the market leader for women’s jeans in 1995. However its position as leader was coming under heavy attack. Focusing on size combination (which they offer 51), Levi’s was losing ground as more styles, more colors, and better fit became more important to its customers. Market research showed that only 24% of women were completely satisfied with their jeans purchase, at $50 a pair they were becoming a tough sell. Levi’s responded by recognizing a need to be in closer touch with their customers. They began to open stores to sell directly to their customers (rather then trough another retailer). They also implemented new technology such as EDI to help their supply chain. Unfortunately the lag time for their products was still 8 months.
Levi’s was a company that needed a way to strengthen their business. Using the value chain analysis Levi’s was a prime textbook case of a company that needed to improve its value chain in order to sustain a competitive advantage. The results of their value chain analysis are as follows:
1. Value: only 24% satisfaction rate.
2. Value stream: ROE average more then 38% lead to little improvement in their cumbersome value chain.
3. Continuous flow: 8 month lag time.
4. Pull: The customer initiated nothing, activity was driven by sales forecasts.
5. Perfection: A good ROE led management to miss opportunities in improvement.

In addition, use a pull driven distribution strategy Levi’s lost big profits when retailers had to markdown their products in order to make them more appealing. Levi’s often made good on these markdowns to their retailers. Although the opening of Original Levi’s stores helped eliminate some of these losses, it was clear Levi’s need a “better fit” with their customer.
In 1994 they were approached by Custom Clothing Technology Corp. (CCTC) with a business proposal. Specializing in client/server applications linking point-of-sale, customer-fitting programs directly with single-ply cutting programs in apparel factories, CCTC suggested a joint venture to introduce woman’s “Personal Pair” kiosks in the Original Levi’s stores. These kiosks, using a customer pull ideal, would begin the process of ordering a custom fit pair of jeans in an eight step process:

1. The Personal Pair kiosk would be a separate booth in the retail store, staffed by trained sales clerks equipped with touch-screen PCs.
2. A sales clerk would take three measurements from each customer (i.e., waist, hips and rise) and record them on the touch screen. Working from these three measurements, 4,224 combinations would be possible.
3. The computer would then flash a code corresponding to one of 400 prototype pairs that are stocked at the kiosk, and the sales clerk would retrieve the prototype pair for the customer to try on.
4. With one or two tries, the customer would be wearing the best available prototype. Then the sales clerk would take the final exact measurements for the customer (out of the 4,224 possible combinations) and note the length required (i.e., inseam).
5. The sales clerk would enter four final measurements on the touch screen and record the order. Initially, the system would be available for only the Levi’s 512 style; however, five color choices would be offered in both tapered and boot-cut legs.
6. The customer would pay for the jeans and choose either Federal Express delivery (addition $5 charge) or store pickup. A maximum three week delivery would be promised.
7. Each customer order would be transmitted by modem from the kiosk to CCTC, where it would be logged in and transmitted daily to Tennessee (Where each pair is cut, hand sewn, inspected, and packed for shipment.) Each pair would include a sewn-in bar code unique to the customer for easy reordering at the kiosk-store that stored the bar code.
8. A money-back, full-satisfaction guarantee would be provide with every order.
Levi’s cautiously accepted CCTC’s proposal, choosing to enter a test phase before proceeding with a full scale project. This was a radical new way to retail apparel and given that this model did not have an established record in retail merchandising Levi’s was cautious. Levi’s initially price each Personal Pair at a rate of $15 more than an off-the-shelf product. The program was still popular almost immediately despite the increased price. As a result of the Personal Pair concept implementation Levi’s experiences the following positive effects:

· For the styles affected unit sales were up 49%.
· Distribution costs and distribution investment per pair were virtually eliminated.
· Nonmaterial manufacturing and distribution costs were cut by 47%.
· The price increase of the Personal Pair coupled with the cost reduction resulted in a 467% increase in pretax profit (i.e., from $6 to $34 per pair).
· Asset investment was remarkably reduced: inventory of $12 per pair of woman’s jeans sold (reflected an 8-month pipeline) was reduced to $1 reflecting only raw materials requirements.
· Accounts receivable were negative since all pairs were prepaid.
· The kiosk yielded a greater than tenfold increase in profitability.
· By 1997 the program was responsible for 25% of the sales of the 30 U.S. company-owned stores.

Levi’s Strauss can attribute all of these gains to CCTC’s approach to improving their value chain. The fundamental ideal in this approach is customer satisfaction. By creating a system driven by customer demand and specific to the exact needs of their customers CCTC sold Levi’s a way of doing business that ultimately made their business leaner and more focused on fulfilling their customer’s needs. Without the help of and outside value-chain-analysis and improvement like CCTC (which was eventually acquired by Levi’s in 1995) Levi’s could have never grasped the scope of the opportunities they were missing.

Everyone Plays, Nobody Wins - HBR: 65-74

2005-09-27T16:33:00.000+05:30

"The Earnings Game" refers to the desire companies have and the actions they take to meet their quarterly earnings predictions. The author uses the terms "earnings management" and "creative accounting" in describing how companies play the game. The players in the game include companies, their accountants, analysts, and Wall Street.
The idea of the game is for the companies to meet the analysts’ earnings per share predictions. Even a penny more or a penny less can lead to disaster. The reason this goal is referred to as a "game" is because it is not always attained in a manner as straightforward as one might think.
There is no actual beginning or end to the game. It is more of a continuous circle. One part in the circle is the analysts predictions of earnings for the next quarter. These predictions can be easily influenced. Companies can influence analysts by keeping them supplied with company data, to ensure that the analysts’ main source of information comes from the company itself. A second way to influence the analysts is for an executive to speak with them in an indirect manner. The regulations prevent analysts from specifically speaking of a forecast, but nothing stops them from giving hints. An executive could ask what kind of forecasts the analyst’s rivals are making. The analyst’s reply might be that he’s seen forecasts as high as 27 cents a share. Then the executive could say that 27 cents seems high and the analyst might ask if 24 cents seems like a better number. These numbers can go back and forth until it’s clear that 25 cents is the number the company expects.
The next part of the game is related to what number the company actually earns as apposed to the number the company reports. Most companies want to earn exactly what the analysts predicted. In order to attain the exact prediction, regulations are sometimes stretched and actual numbers are distorted. Large public accounting firms will sometimes stretch the regulations to keep a good relationship with a client.
One way to distort current earnings is referred to as "channel stuffing" - to borrow from future sales to increase current results. Sunbeam, referred to in the article as the champion of channel stuffing, sold millions of grills (to customers like Sears and Wal-Mart), stored the grills in warehouses, and deferred payments until spring. This was done to boost sales in the winter months. One problem with this, from the earnings management perspective, is that sales must improve in later months to cover loans. Sunbeam’s sales never grew enough to cover their loans and they eventually had to restate several quarter’s of revenue and earnings. The CEO, "Chainsaw Dunlap", lost his job and reputation in the process.
A second way to pad current earnings is premature revenue recognition. This, as it states in the article, "involves recording a highly contingent transaction as a firm sale". An example given was when MicroStrategy recorded not only the actual sale of software, but also future revenue that it "expected" to collect from software upgrades. MicroStrategy was eventually forced to admit it had overstated sales.
A third way to enhance current earnings at the expense of future earnings involves creating innovative organization structures. Boston Chicken's exotic structure is used as an example. Boston Chicken's hundreds of restaurants were owned by independent (in name only) regional franchisees who borrowed the funds needed to start the businesses from Boston Chicken. The company recovered most of these funds in fees, royalties an interest that created a very favorable profit trend for Boston Chicken as more stores were opened. Eventually the system collapsed, the company filed for bankruptcy protection and McDonald's purchased it "on the cheap" according to the author.
Another part of the "game" is the reaction on Wall Street. If a company reports a penny less or a penny more than predicted, there could be a large market reaction. The reason for this is because Wall Street understands what goes on in the "earnings game." As one stockbroker quoted in the article stated, "Things must be pretty bad if Cisco can’t manage to come up with one lousy penny". The attitude by companies is that, "if they’re going to miss by an inch, they might as well miss by a mile". If a company realizes that it is going to miss the prediction, it may use it as an opportunity to write off bad debts or to sell unwanted assets for a loss. This gives the company a reason for missing the prediction. It also makes it easier for the company to look good in following quarters.
Investors are a very important part of the game and an industry has developed to provide the so-called consensus earnings per share estimate. One website provides a whisper number developed from searching electronic chat rooms and message boards.
Overall, the earnings game does more harm than good (e.g., distorts decisions, causes a guessing contest, compromises the integrity of corporate audits and undermines the capital market). The problem is that the quarterly earnings report is of no actual use in predicting the future cash flow and performance of a company and these two items determine the basis for the value the company's stock. With the penny pinching and regulation stretching that goes on, the actual numbers become even more useless. If nothing changes, investors may eventually lose faith in all the numbers affected by the quarterly earnings reports, including stock prices. If this occurs, the capital markets will not be able to survive.
Unfortunately, the only way to completely end the game is for companies themselves to abandon it. Until then, the "Earnings Game" will continue to be a part of our live

Benchmarking

2005-09-27T16:27:00.000+05:30

Benchmarking is a tool used by companies to identify areas of an operation which may need attention or correction. Benchmarking is done by comparing a companies own financial and operational information against that of a similar company or comparing internal operations of different departments within their own company. The idea is, if the numbers are off between the comparisons, then the company will be able to compare the differences in an effort to identify those factors that contribute to the discrepancies.
There are about four steps involved in benchmarking. First is to analyze your own company and gather the information you hope to benchmark. Second is the selection of the benchmark or benchmarks that you will be comparing your company or department against. Selection of the correct benchmarks is crucial due to the idea that an incorrect selection can result in inappropriate procedures or unrealistic comparisons. Step three is the collection of information on the benchmark that you decided on. The final step is the analysis of the data collected for both your own company or department and the data collected on the benchmark. This is where you will set your goals and determine policies and procedures which you hope to implement. It is important here that you do not set goals that are too high or too many goals so that they are unmanageable.
Where to Compare
When determining your benchmark, you can choose to go either internal or external in your search for comparison. Internal comparisons are often the easiest way to benchmark. You will need to decide which departments are performing the best, analyze their strategies, and then implement suggestions that you think would best assist the other units in the company in meeting those benchmarks. Internal comparison does lead to drawbacks. Complacency is a large drawback, where you are working toward benchmarks that may be far less than others in the industry because even your best departments are performing below industry standards.
The other source for benchmarking is external companies. Often external benchmarking is against the top competitors in the industry. This choice has major complications however. The most difficult of which is the collection of information on the benchmark or benchmarks.
Another form of benchmarking is to compare your company against the best in class. These are the top performing companies that share comparable functions or philosophies. A benefit of this approach is that it can often lead to policies and procedures that had not previously been seen in your own industry. This can often be a drawback as well though. Careful consideration must be given, due to the fact that practices that are successful in one industry do not always carry over to new industries with the same level of success.
Where to Get the Information
When gathering data for comparison on your chosen benchmark, it is often difficult to find reliable and complete information for external companies. You may start at University libraries to see if the information you need is currently available. Also look for information clearing houses, companies that are in the business of collecting and selling information such as that needed for benchmarking. Other sources listed included consulting firms, industry or professional organizations, state or national government agencies, or industry specific publications.
Using the Benchmark Information
There are usually three phases to optimize benchmark results. The first phase is the identification of the issues. This is where you identify and summarize the issues that you hope to correct from you benchmark results. The second phase is the strategic planning phase. Here you should summarize your goals and objectives that you deem necessary to place you company in the competitive position you are working towards. This is also the phase where service companies should work to write their mission statement. The final phase is the tactical planning phase. This is where you break down the strategic planning into manageable pieces for follow up actions and delegate the responsibility to key individuals. Throughout the complete analysis you should continue to compare your results and practices to those of your benchmark.

A Fresh Look on Corporate Planning

2005-09-27T10:52:00.000+05:30

“One size does not fit all.” This describes the limitations of external benchmarking. The article, Tailored, Not Benchmarked: A Fresh Look at Corporate Planning, describes the potential results of benchmarking and three companies’ corporate planning strategies. Generalized planning and standard benchmarking commonly employed by many corporations typically fail to add the desired value to a firm. Andrew Campbell noted that benchmarking would most likely negatively impact a company by mismatching it’s own internal environment to another company’s incompatible planning methods. Consequently, companies should look internally to understand what value they wish to add and whether their current planning processes are designed to achieve their goals.

Campbell described the corporate planning process as a series of interactions between the business units and the corporate center where planning originates at the corporate center and comes to fruition by corporate working closely with the business units. A good planning process would carefully tailor processes to the needs of the business and skills, insights and experiences of corporate management. In essence, only unique planning processes can create success for the company.

One South African conglomerate, mentioned in the article, experienced poor results due to benchmarking. The company subsequently replaced management, decentralized operations and abandoned benchmarking processes altogether. They had attempted to model themselves after the “best-in-class” models, only to find that the model did not correspond to the company’s goals.

Campbell mentioned that Granada, Dow Chemicals and Emerson Electric each use distinctly different methods of corporate planning and find success for their individualized goals. They focus on internal strengths and exploit them for corporate benefits rather than gathering information from the external environment through benchmarking.

Granada, a hotel and entertainment conglomerate, strives to increase profits. The CEO, Charles Allen, constantly pushes his employees to achieve better than average returns. Consequently, performance is measured by profits. Allen encourages people through a laid-back sell approach and setting “unreasonable” goals.

Dow Chemicals, a plastics and chemicals company, strives to reduce costs within the operational units. The main performance measure is economic profit, which incorporates the cost of capital. The main planning technique is bottom-of-the-cycle planning, which exploits the cyclical nature of the chemicals industry. Managers must understand that the decisions for building new capacity, entering new markets and reacting to price changes may adversely affect the company in a downturn in the cycle. Therefore, managers are encouraged to improve processing costs, i.e. maintenance, to meet return-on-assets targets during the bottom of the volatile chemical industry cycle.

Emerson Electric focuses on incremental profit improvements. The CEO, Chuck Knight, has a hard-edged approach to motivate managers. He becomes somewhat confrontational, playing the devil’s advocate, during planning sessions. His managers generally develop a plan based on the confrontations with Knight. However, Knight generally develops the main thrust of the plans. As Campbell noted in the article, “Knight’s ability to argue with his subordinates without undermining their authority is key to getting them to change their plans.” Knight provides a somewhat unorthodox, yet effective method to corporate planning.

Granada, Dow and Emerson all use uniquely tailored methods to corporate planning. Consequently, these companies have experienced operational success and increased firm value. However, the planning process also needs to be evaluated for its effectiveness during planning review. The plan should have a clearly defined purpose. It should also be evaluated by how it effects managerial decisions. The main goal of corporate planning is to add value. Since value is specific to each company, external benchmarking may prove ineffective or even disastrous. Campbell noted that companies should “focus on the bird in hand rather than the birds in the bush.”

What is Constrained Optimization?

2005-08-22T09:36:00.000+05:30

Constrained optimization models are based on a set of underlying assumptions. The main assumption is that most, if not all, of the various constraints in the model are static. The general idea is to find the optimum solution given a set of static constraints. Most of the models in accounting, finance, management, economics and quantitative methods fall into this category and can be criticized from the continuous improvement perspective (e.g., Deming's theory, JIT, TOC, ABM, etc.). Some of these models include the following:

1. The theoretical microeconomic non-linear cost-volume-profit model. This is perhaps one of the earliest constrained optimization models. In this model the capacity of the firm and resulting fixed costs are constant or static, but unit sales prices and unit variable costs are allowed to vary. Sales prices reflect the law of demand, i.e., consumers are willing and able to buy more at lower prices than higher prices. Unit variable costs change as a result of chances in productivity, i.e., output per input. The optimum profit is obtained where production and sales are where marginal revenue is equal to marginal cost. This produces the greatest difference between total revenue and total costs. The theoretical model is illustrated on the left-hand side of Exhibit 1.

2. The conventional linear cost-volume-profit model (derived from the microeconomic model) provides another example. In this model, the sales price and unit variable costs are assumed to be constant or static. The constant sales price reflects a horizontal demand curve, while the constant unit variable cost reflects an underlying assumption of constant productivity and input prices, e.g. materials, labour and indirect inputs. Optimum profit is obtained where the company produces at capacity. The simplified linear model is illustrated on the right-hand side of Exhibit 1.

3. The standard cost variance analysis model provides another example, although this model is merely an extension or variation of the linear cost-volume-profit model. Standard input prices and quantities allowed per output are set to reflect some acceptable level of performance. This level could be the optimum level, but the standards are more meaningful if they are set at the mean of the possible outcomes when the system is stable. This model falls into the constrained optimization category because it assumes a static system with a static set of constraints. Standard sales prices, standard variable costs per unit, (i.e., standard input prices of direct materials, direct labour, indirect resources and productivity), budgeted fixed costs and sales mix are all assumed to be constant as far as the standards are concerned. Some of the problems with this model are illustrated in Exhibit 2, which focuses on factory overhead. Overhead variance analysis does not even isolate the price and quantity variances for indirect resources. In addition, the model ignores many of the cost drivers of indirect resource costs and ignores the concept of system variability identified as randomness in Exhibit 2. Therefore the standard cost model is of little help in identifying potential improvements.

4. The economic order quantity and economic batch size models provide other examples of constrained optimization techniques. For example in the economic order quantity (EOQ) model carrying costs are equated with ordering costs to find the optimum order quantity as illustrated in Exhibit 3. Carrying costs increase for larger order quantities because of increases in the costs of materials storage, handling, obsolescence, insurance and other cost related to carrying a larger inventory. Ordering costs decrease because there are fewer orders. Supposedly, the two cost functions intersect which produces a U-shaped total cost curve as illustrated in Exhibit 3. Of course the intersection of the two curves identifies the EOQ as indicated above. However, the main problem with the EOQ model is that it conflicts with the idea of continuously finding ways to reduce inventory to a minimum. In other words, do not accept the constraints and attempt to optimize. Instead find ways to continuously reduce or remove the constraints. For example, using JIT purchasing concepts, ordering costs are reduced by allowing the vendor to have access to the buyer’s production schedule. This means that the vendor performs part of the purchasing function for the buyer.

5. The quality cost conformance model provides another example of a constrained optimization approach. In this model the economic conformance level (ECL) is obtained where prevention and appraisal costs are equal to external and internal failure costs. Prevention and appraisal costs increase as the level of conformance quality increases. Conformance quality refers to conformance to specifications as opposed to design quality. Failure costs are expected to decrease as the level of conformance quality increases. Therefore, the total costs associated with conformance quality will be U-shaped as indicated in Exhibit 4. The optimization concept and related calculations are essentially the same as in the EOQ model. Prevention costs include quality engineering, training and related supervision costs. Appraisal costs include inspection, testing and supervision related to these activities. Internal failure costs include spoilage, scrap, rework and the associated downtime costs, while external failure costs include warranty costs and the costs of lost customers.
The ECL model is associated with Juran. Deming and others, such as Crosby view the calculation of the ECL as a waste of time. From this perspective, the main problem with the ECL methodology is that the model is likely to be mis-specified by underestimating or ignoring the costs associated with lost customers. A revised model with the "quality is free" perspective is provided in Exhibit 5. This is a long run view where the lost sales dollars resulting from past failures are included in external failure costs. Of course, lost sales dollars are unknown amounts, but there is adequate reason in most industries to believe that they represent substantial amounts, perhaps so large that the two curves never intersect.

Quality Models Compared
Two quality models have appeared in the accounting literature in recent years. Juran's quality cost conformance model is associated with the zero defect philosophy shown on the left side in the illustration below. Juran's model includes a target value and tolerance, or specification limits, for the variation that occurs in a parameter or characteristic (X). In Juran's model, no loss occurs if the value of X is within the specification limits, i.e., it is considered acceptable. If the value is outside the limits it is considered unacceptable or a defect and becomes either scrap, spoilage or rework.
Deming, on the other hand, was associated with the robust quality philosophy based on Taguchi's loss function shown in the center of the illustration and combined with a distribution of X on the right hand side. Taguchi and Deming believed that some loss occurs for the manufacturer, the customer, or society when the value of X is not on target. In the graphic illustration above, the distribution of X is drawn so that it appears that the mean of X is on the target value, but of course this is not usually the case. The idea in the robust quality philosophy is to continuously improve the process by moving the mean value of the parameter closer to the target value and by reducing the amount of variation in the parameter.

6. Relevant cost (incremental, differential or cost-benefit) models such as special order pricing decisions, product mix decisions, make or buy (out-sourcing) decisions, to process joint products further decisions and similar short term decisions all fall into the constrained optimization category because a static environment is typically assumed. Some relevant cost problems, such as the product mix decision model, use techniques such as linear programming because there are a large number of constraints that must be considered simultaneously.

7. The conventional capital budgeting investment decision model. This model is essentially a long run relevant cost model that emphasizes the discounted cash flow methodology, i.e., net present value and internal rate of return approaches. It falls into the constrained optimization category because a static environment is typically assumed. The investment management concept adds the moving baseline approach to the model to make it more dynamic.

8. The statistical process control (SPC) model might also be included in the constrained optimization category from the perspective that it measures the variability within a stable or static system. However, sample means that fall outside the control limits indicate that the system is no longer stable. Changes in the system that cause changes in the mean or changes in the range are also reflected on the control charts. This adds a dynamic element to the SPC methodology that makes it useful as a tool for measuring improvements in the system. A system improvement represents a change that either improves the mean outcome or reduces the variability within the system. For the illustration in Exhibit 7, a change in the production process that reduced the mean drilling time or reduced the variability in drilling time would represent a system improvement.

9. Converting static models into dynamic models. In defense of the constrained optimization techniques, one can argue that all of the methods discussed above can be converted into dynamic, rather than static models by adding sensitivity analysis to the model. Sensitivity analysis involves testing how sensitive the solution is to changes in the constraints associated with the model. For example, sensitivity analysis is frequently used in product mix decisions based on linear programming. One can also argue that ignoring potential improvements in the system when using a model does not represent a flaw in the model, but instead indicates a myopic misuse of the model. A rebuttal is that most users may ignore the sensitivity issue because it is not a formal part of the model.

The Goal - Summary

2005-08-18T16:06:00.000+05:30

The first two chapters get the reader acquainted with Mr. Alex Rogo and his problems with his production plant and family life. His boss Mr. Peach, the Division Vice President has given him three months to show an improvement or the plant will be shut down!
At his family front, things are not any better. Since moving back to his hometown six months ago, it seems adjustment isn’t going well for his family. It’s great for Alex, but it’s a big change from the city life that his wife is used to.

In a meeting of plant managers, Mr. Peach finds out how bad things are and are given goals to achieve for the next quarter. Through the grapevine Mr. Rogo finds out that the Division has one year to improve or it’s going to be sold, along with Mr. Peach.

While at this meeting, Alex starts pondering about his accidental meeting with an old physics professor, Jonah, at the airport. Jonah has no knowledge of where Alex is employed. But still, Johan predicts the problems of high inventories and not meeting shipping dates. He also states that there is only one goal for all companies, and anything that brings you closer to achieving it is productive and all other things are not productive.

Alex decides to leave the meeting at the break. He feels that he needs to understand what the "goal" is. After a pizza and a six pack of beer it hits him, money. The "goal" is to make money and anything that brings us closer to it is productive and anything that doesn’t isn’t.

Mr. Rogo sits down with one of his accountants and together they define what is needed in terms of achieving the goal. Net profit needs to increase along with simultaneously increasing return on investment and cash flow. Now all that is needed is to put his specific operations in those terms.
Alex makes the decision to stay with the company for the last three months and try to make a change. Then he decides he needs to find Jonah.

Alex finally manages to speak to Jonah. He is given three terms that will help him run his plant, throughput, inventory, and operational expense. Jonah states that everything in the plant can be classified under these three terms. "Throughput is the rate at which the system generates money through sales." "Inventory is all the money that the system has invested in purchasing things which it intends to sell." "Operational expense is all the money the system spends in order to turn inventory into throughput."

After explaining everything, Alex and his staff (Bob from production, Lou from accounting and Stacey from inventory control) hammered out the meaning of throughput, inventory and operational expense until satisfied. Lou, states the relationships as follows. "Throughput is money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen." Bob is skeptical that everything can be accounted for with three measurements. Lou explains that tooling, machines, the building, the whole plant are all inventory. The whole plant is an investment that can be sold. Stacey says, "So investment is the same thing as inventory."
Then they decide that something drastic is needed to be done with the machines. But how can they do that without lowering efficiencies? Another call to Jonah is placed and Alex is off to New York that night.

The meeting with Jonah is brief. Alex tells Jonah of the problems at the plant and the three months in which to fix them. Jonah says they can be fixed in that time and then they go over the problems the plant has. First, Jonah tells Alex to forget about the robots. He also tells Alex that "A plant in which everyone is working all the time is very inefficient." Jonah suggest that Alex question how he is managing the capacity in the plant and consider the concept of a balanced plant. According to Jonah, this "is a plant where the capacity of each and every resource is balanced exactly with demand from the market." Alex thinks a balanced plant is a good idea. Jonah says no, "the closer you come to a balanced plant, the closer you are to bankruptcy." Then Jonah leaves Alex with another riddle, what does the combination of "dependent events" and "statistical fluctuations" have to do with your plant? Both of those seem harmless and should work themselves out down the production line.

Stuck for the weekend as troop master for his son's friends, Alex discovers the importance of "dependent events" in relation to "statistical fluctuations". Through the analogy between a single file hike through the wilderness and a manufacturing plant, Alex sees that there are normally limits to making up the downside of the fluctuations with the following "dependent events". Even if there were no limits, the last event must make up for all the others for all of them to average out.

Finally, through the match bowl game, or experiment, it becomes clear that with a balanced plant and because of "statistical fluctuations" and "dependent events" throughput goes down and inventory along with operating expenses goes up. A balanced plant is not the answer.

Fully understanding the "dependent events", Alex puts the slowest kid in the front of the hike and he relieves him of extra weight he has been carrying in his backpack. This balances the fluctuations and increases the kid’s productivity, which increased the throughput of the team.

Now Jonah introduces Alex to the concept of bottlenecks and non-bottlenecks. Jonah defines these terms as follows. "A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it. "A non-bottleneck is any resource whose capacity is greater than the demand placed on it." Jonah explains that Alex should not try to balance capacity with demand, but instead balance the flow of product through the plant.
Later, Alex and his team recognize the bottlenecks, the areas where capacity doesn’t equal demand, like the slow kid Herbie on the hike. With this discovery goes the ideas related to reorganizing the plant like Alex did with the hike. Production is a process and it cannot be moved around so easily. Many processes rely on the previous one to be able to complete the next. Alex would need more machines, which takes more capital, and division is not going to go for that.

Well, Jonah makes a visit to the plant. Jonah tells Alex that a plant without bottlenecks would have enormous excess capacity. Every plant should have bottlenecks. Alex is confused. What is needed is to increase the capacity of the plant? The answer is more capacity at the bottlenecks. Some ways to increase capacity at the bottlenecks are not to have any down time within the bottlenecks, make sure they are only working on quality products so not to waste time, and relieve the workload by farming some work out to vendors. Jonah wants to know how much it cost when the bottlenecks (X and heat treat) machines are down. Lou says $32 per hour for the X machine and $21 per hour for heat treat. How much when the whole plant is down? Around $1.6 million. How many hours are available per month? About 585. After a calculation, Jonah explains that when the bottlenecks are down for an hour, the true cost is around $2,735, the cost of the entire system. Every minute of downtime at a bottleneck translates into thousands of dollars of loss throughput, because without the parts from the bottleneck, you can’t sell the product. Therefore, you cannot generate throughput.

Alex organizes the bottlenecks to work on only overdue orders from the most overdue to the least. The crew works out some of the details for keeping the bottlenecks constantly busy. In the process they find that they need another system to inform the workers what materials have priority at non-bottlenecks. Red and green tags are the answer. Red for bottleneck parts to be worked on first as to not hold up the bottleneck machine, and green for the non-bottleneck parts. That concludes another week. The true test will be next week.

Great, twelve orders were shipped. Alex is pleased, but he definitely needs more. He puts his production manager on it. His production manager rounds up some old machines to complement what one of the bottlenecks does. Things are looking up.

They are becoming more and more efficient, but lag time arouse with the two bottlenecks because of workers being loaned out to other areas and not being at the bottlenecks when needed to process another order. It seems there was nothing to do while waiting for the bottleneck machine to finish the batch. Therefore, in keeping with the notion that everybody needs to stay busy, workers were at other areas between batches. Alex decides to dedicate a foreman at each location all the time. Then one of those dedicated foreman, the night foreman, discovers a way to process more parts by mixing and matching orders by priority, increasing efficiency by ten percent. Finally, one process being sent through a bottleneck could be accomplished through another older way and therefore free up time on the bottleneck.

Now that the new priority system is in place for all parts going through the bottlenecks, inventory is decreasing. That’s a good thing right? But lower inventory revealed more bottlenecks. This intrigues Jonah so he comes to take a look.

"There aren’t any new bottlenecks", says Jonah. What actually has happened is a result of some old thinking. Working non-bottlenecks to maximum capacity on bottleneck parts has caused the problem. All parts are stacked up in front of the bottlenecks and others are awaiting non-bottleneck parts for final assembly. There needs to be balance. The red and green tags need to be modified. It seems as if the bottlenecks will again control the flow, by only sending them exactly what they need and when they need it.
Jonah says with the same data out of the bottlenecks to final assembly, you should be able to predict non-bottleneck parts as well. This will make some time, but there are enough parts in front of the bottlenecks to stay busy for a month.

There is another corporate meeting. Mr. Peach doesn’t praise Alex like Alex thinks he should. Alex decides to talk with him in private. Mr. Peach agrees to keep the plant open if Alex gives him a fifteen percent improvement next month. That will be hard because that relies heavily on demand from the marketplace.

Fifteen Percent!! Fifteen Percent!! Just then Jonah called to let Alex know that he will not be available to speak with in the next few weeks. Alex informs him of the new problem of more inventories and less throughput. Jonah suggests reducing batch sizes by half. Of course, this will take some doing with vendors, but if it can be done, nearly all costs are cut in half. Also, they get quicker response times and less lead times for orders. Sounds good.

Alex is propositioned with a test. They can greatly increase sales, current and future, if they can ship a thousand products in two weeks. Impossible without committing the plant to nothing but the new order? Wrong! How about smaller batch sizes. Cut them in half again. Then promise to ship 250 each week for four weeks starting in two weeks. The customer loved it.

Seventeen percent!! That’s great, but it’s not derived from the old cost accounting model. The auditors sent down to the plant from Division find just 12.8% improvement. Most of it accounts from the new order. Which by the way, the owner of the company that placed the order came down personally to shake everybody’s hand in the plant and to give a contract to them for not a thousand parts but ten thousand. Anyway, tomorrow is the day of reckoning at division.

Well the meeting at Division started out rough. Alex thought he would be meeting with Mr. Peach and other top executives. Instead, he met with their underlings. He decides to try and convince them it doesn’t work. Just before leaving he decides to see Mr. Peach. It’s a good thing he did, because he just got promoted to Mr. Peach’s position. Now Alex has to manage three plants as the whole division. He calls Jonah desperately and asks for help. Jonah declines until he has specific questions.

Now is the time to assemble Alex’s team for Division. Surprisingly the accountant with two years to retirement is on board, but the production manager isn’t. He wants to be plant manager to continue their efforts. Everything is totally into place at the plant but more is needed for division.

Alex is firmly engrossed with the problems of taking over the division. With advice from his wife he decides to enlist the help of his team at the plant. Every afternoon they will meet to solve the problem. After the first day it is obvious , they will need them all.
The second day they are led in a discussion about the periodic table of elements, and how the scientists actually got a table of any sort. Maybe that is how they will solve the massive problems of division, by understanding how the scientists started with nothing and achieved order. A way to define them by their intensive order is needed.
The team finally comes up with the process: Step one – identify the system’s bottlenecks; Step two- decide how to exploit those bottlenecks; Step three- subordinate everything else to step two decisions; Step four- evaluate the systems bottlenecks; Step five- if, in a previous step, a bottleneck has been broken, go to step one. It seems so simple, just different.

The team decides to revise the steps: Step one – identify the systems constraints; Step two – decide how to exploit the systems constraints; Step three – subordinate everything else to step two decisions; Step four – evaluate the systems constraints; Step five- warning!!! If in the previous steps a constraint has been broken, go back to step one, but don’t allow inertia to cause a system constraint.
It also has been discovered that they have been using the bottlenecks to produce fictitious orders in an effort to keep the bottlenecks busy. That will free up twenty percent capacity, which translates in to market share.

Talking with the head of sales. Alex finds out that there is a market order to fill the capacity. It’s in Europe, so selling for less there will not affect domestic clients. If it can be done, will open a whole new market. Then Alex ponders Jonah’s question, to determine what management techniques should be utilized. Alex determines how a physicist approaches a problem. Maybe this will lead to an answer.

Alex experiences a problem at the plant. It seems all the new orders have created new bottlenecks. After analyzing the problem, they agreed to increase inventory in front of the bottlenecks and tell sales to not promise new order deliveries for four weeks, twice as much as before. This will hurt the new relationship between sales and production, but it is needed. Production is an ongoing process of improvement, and when new problems arise they need to be dealt with accordingly.

Finally, struggling with the answer to Jonah’s question, Alex comes up with some questions on his own: What to change? What to change to? How to cause the change? Answering these questions are the keys to management, and the skills needed to answer them are the keys to a good manager and ultimately the answer to Jonah’s question.

Benchmarking and Biased Data

2005-08-09T16:15:00.000+05:30

After reading several books and articles on successful leaders and entrepreneurs, it seems that the world agrees that all great leaders and entrepreneurs inevitably have two characteristics common in them: perseverance and ability to persuade others. Great leaders continue to persist despite initial failures and during testing times, they have the ability to persuade others in believing that what they are doing is right. So the implicit (and sometimes explicit) conclusion is drawn that for anybody do become a successful leader, presence of these two traits is a must. What could make more sense? What could be more dangerous?
If we apply not-so-uncommon common sense, we’ll see that these two selfsame traits are present in all those leaders also who led their men to disastrous ends. One need to have great persistence to follow the same path even after meeting failure after failure and one also need to have great persuasion skills to convince investors to pour their money through drainage.
Such notions of formula-of-success are so prevalent in the corporate world because of mutual dependency of following two statements: One, managers learn by example and two, success feeds itself.
Breeding managers are taught through case studies, putting them into simulated environment. Corporate managers are told to adopt best practices and realign their process to achieve benchmarks of operational efficiency. Throughout his lifetime a manager is supposed to learn from what other are doing. There is always a sword of benchmarking hanging over his/her head. But how many times, a manager is exposed to the flip side of a best practice? How many managers seek to find why a particular company doomed even after adopting CRM, TQM, Six Sigma or any other best-of-the-world concepts?
The second statement merely postulates a fact that over a period of time, only successful companies remain in the game and failures are erased. Erased not only from the game, but from the minds of the people also, unless they have created havoc by their failure like Enron. So in a mature industry like steel or cement, when a manager looks out of his window he sees only successful companies. And he is made to believe that these companies are present here because what they did was a best practice. He simply doesn’t have the data to see and check whether a failed company also adopted a particular best practice or course of action. He is actually seeing what statisticians call “a biased sample”. In contrast, a newly born industry (internet based business model) is plentiful of failures. Every day smaller companies are either being engulfed by big sharks or being deserted by investors. Here the data is actually available to test the hypothesis of adopting a best practice. Here the sample will more accurately reflect the population.
The word of caution for anyone who wants to adopt a particular business model, best practice or management concept is that don’t fall into the trap of biased or skewed data. Always look for the other side also. Try to collect as much as data on failures also. Tools are available to correct such anomalies in a given data. In fact two people have won noble prize by working on this. Still who don’t want to pay heed to this may read the anecdote of Abraham Wald.
[During World War II, Royal Air Force was suffering major causalities. Top brass called upon statisticians and engineers to suggest which parts of airplanes should be reinforced so that there are lesser events of crashes. Extensive data was collected from planes returning with a hit. Certain parts/areas were showing more vulnerability than others. People unanimously decided that those area/parts should be reinforced. However Mr. Abraham Wald, the project manager, had a different opinion. He told to reinforce parts showing less vulnerability. And he made a right decision. Can you guess the logic?]

Cost Reduction and the Scapegoat

2005-07-14T12:49:00.000+05:30

Cost reduction. Every accountant's dream, every purchaser's nightmare. I tried to find out the origin of this concept but failed miserably. However for our purposes, the originator is not significant. It's the process through which this concept evoluted is important. Let me tell you a brief story:

During happier days of manufacturing the owners wanted to produce as much as they can as market was not a constraint. The differentiating factor between a good and a poor company was only one factor, Annual Sales. Natural calamities, wars and terorism made sure that there was enough destruction and consequently after a certain period there was enough demand from for industrial goods. The boom in demand of industrial goods led to increased imbalance in the demand supply of consumer goods as well, skewed in favour of demand. But slowly lagging supply chased the leading demand and one day it outpaced the demand as well. Laws of economics came into play and prices started dropping down. Margins were squeezed, profits declined. People soon realized that sales is not equal to profit. Owners and invested started to look at bottomline to measure a firms's ability to survive in the long run. And the message was delivered to management: Increase Bottomline. And the ingenious people of management soon realized that Profit = Sales - Cost. Thus if the marketing people (oops! sales fellows) are unable to screw more and more customers, one can still survive if one can reduce the cost. Focus of the management was shifted to all those demonly things that increase the cost. Despite applying all principles of Taylor, Gilbreth et. al to improve efficiency management was unable to boost the bottomline of the company. Then they looked upon HR guys to reduce cost of employees. HR gave a simple solution with a complex name: Downsize. (But as some big shot HR took the offence when people started calling him Mr. Downsize and questioned his masculanity & virginity of his wife, he coined another term: Rightsize). After getting downsized, still there were no visible impact on the bottomline. After all employee cost for manufacturing firms was just only 5-6%. Then some smartass economics guy came and made management aware of Pareto's principle. In simple words the implication was: catch the big sharks. And bingo! management got what it wanted. The biggest culprit, the inexplicably wretched immoral department who was pissing off the money through pot was: Purchase department. The verdict was announced, reduce the cost of purchasing or perish. And thus from that day onwards, the most culpable department was purchase. If quality is poor, blame purchasing; if customers are not happy, blame purchasing; if shipment is getting delayed, blame purchasing; if company is going into red, blame purchasing.

This story tells just how cost reduction and purchasing became synonymous to each other. And in pursuit of reducing cost, purchase borne some illegimate children like SCM, SRM, Inventory Management, Strategic Sourcing and so on. Each one of these is amazingly shrewd technique to befool your management. How? I'll explain in next post.