etm 5111 introduction to strategy, technology and integration
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ETM 5111 Introduction to Strategy, Technology and Integration. Instructor: Gregory H. Watson Session 4 – Part 1. Session 4: Managing Projects for Rapid Time-to-Market. Instructor: Gregory H. Watson Introduction to Strategy, Technology and Integration ETM 5111 – Summer 2003. - PowerPoint PPT PresentationTRANSCRIPT
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Oklahoma State University© Copyright 2003 by Gregory H. Watson. All rights reserved.
ETM 5111
Introduction to
Strategy, Technology and Integration
Instructor: Gregory H. WatsonSession 4 – Part 1
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Oklahoma State University© Copyright 2003 by Gregory H. Watson. All rights reserved.
Session 4:Managing Projects for Rapid Time-to-Market
Instructor: Gregory H. WatsonIntroduction to Strategy, Technology and IntegrationETM 5111 – Summer 2003
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Oklahoma State University© Copyright 2003 by Gregory H. Watson. All rights reserved.
Today’s topics:• Part 1:
– Managing Projects for Rapid Time-to-Market– Design for Excellence (DFX) Principles– Global Manufacturing & Supply Chain Integration
• Part 2: – Best Practice Engineering Management Methods– Core Competence, Process Capability & Staffing
• Part 3:– Course Summary– Extra Credit Project– Final Examination Instructions
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Managing Projects for Rapid Time-to-Market
Does it really make a difference?
Instructor: Gregory H. WatsonIntroduction to Strategy, Technology and IntegrationETM 5111 – Summer 2003Session 4 – Part 1
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Product success factors - It takes all three!
As Perceived by the Customer:
1) Unique and superior product– Superior quality with respect to competitors – Good value for the money with respect to customer price tolerance– Superior price/performance with respect to alternate choices – Fills customer needs, wants and preferences– Provides a useful benefit – highly visible to economic buyer– Unique features and attributes not available from competitors
2) Superior marketing and customer service – aligned to requirements
3) Correctly introduced to the market– Time-to-Market: How long it takes to develop the product.– Timing-to-Market: When the product is introduced.
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Leading the market or lagging the market?
Being first in a new market has definite [obvious] advantages, but there may be legitimate reasons not to lead into a new market:
– Technology uncertainty drives significant business risk– Market requirements or potential acceptance is uncertain– Initial market size not sufficient to support a new product– Pricing of new technology is not yet commercially viable– Company established in older technology and wants to milk the
cash cow – waiting to launch the new product when competition determines the market timing
1993 Printer War: Compaq verses Hewlett-Packard
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“Time-to-Enter” vs. “Time-to-Market”
• When to enter markets is a strategic planning decision. (There are good reasons to support either a Leading or a Lagging new product introduction strategy)
• “Time-to-Market” is an implementation result, with reference to the planned schedule for launch date and it has penalties for being late.
• Commercial success requires both time and timing = RHYTHM
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What does a “market window” look like?
The majority of sales are in the mature product life cycle phase.Opportunity is not uniformly distributed throughout product life.
Not This!Opportunity is not uniformly distributed!
OPPORTUNITY
TIME
OPPORTUNITY
MoreLikeThis!
TIME
Market diffusion Product rollover
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What drives business success?
In a McKinsey study that was reported in Fortune Magazine (February 1989), the loss to total lifetime profitability from three different R&D problems: time to market slippage of 6 months, overrun of cost of production by 9% and 50% overrun of the product development budget.
Although this study uses very aggressive business assumptions, the relative impact of time-to-market is clear.
Product development teams must focus on the time-to-market as a critical dimension of new product development success!
33%Loss
22%Loss
3.5%Loss
Study assumes:• 20% market growth• 12% annual price erosion• 5 year product life• Dynamic high-tech market
% L
os
s i
n A
fte
r T
ax
Pro
fit
Six monthslate to themarket
Productioncost is 9%too high
R&D costover budgetby 50%
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Speed means Faster response – fewer surprises!Two important relationships to remember:
Time-to-market
% A
ccu
rac
y o
f m
arke
t an
alys
is
Time-to-market
Pro
jec
t C
os
t
Accuracy Curve
Accuracy for normal TTM
Accuracy forreduced TTM
Shorter development time leads to:• Increased product life-cycle revenue and market penetration• Success in time-sensitive markets due to improved predictability of release• More successful products at lower engineering costs• Less development waste and better resource use
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Missing time-to-market – project slip rate:
• Slip rate is a measure of the project team’s ability to maintain it’s forecast project schedule.
• Slip rate can be calculated for the project as a whole or for the components of its design (thus indicating where the slippage is occurring) all the way down to the individual task measure.
• The improvement of project-level slip rate is a measure that can be used to track improvement in project development from one new product development to the next.
• The calculation of slip rate is easy:
• Slip rate must be re-estimated at regularly in order to determine if a project is in serious difficulty or risk to slip introduction date.
Planned Duration (months) = X 100%
Actual Duration (months)Slip Rate
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Managing project deliverables using slip rate:
Reality Line
ScheduledProductLaunchDate
Date of Prediction
Pre
dict
ed
Com
ple
tion
Dat
e
T0 T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12
T12
T11
T10
T9
T8
T7
T6
T5
T4
T3
T2
T1
T0
One way to manage a project using slip rate is to graphically plot the slip rate for each item in the development, so that their intersection with market launch can be observed. As the new product development progresses, the convergence with a ‘reality line’ can be observed for those elements that are on schedule. Development items that are not on schedule will not be converging with the reality line prior to the schedule product launch date.
Managing using slip rate allows project managers to reallocate their resources to the project deliverables that are on the critical path for making the scheduled market release date.
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Slip impact on revenue loss (no competition):
TimeLate
Pro
du
ct
Re
ven
ue
($
)
Market Peak
TIME
Lost Revenue
This is a “best case” scenario!
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The business impact of product launch timing:
Quarter Volume Unit Price Company1 Company 2 Company3
MS GP MS GP MS GP
123456789
101112
$375$350$325$300$285$271$257$244$232$221$220$185
5,00030,00065,00073,00074,00073,50073,00068,00060,00050,00035,00010,000
30%3835353332313130281918
0%3035404242414140404039
0%3032333332313130281918
0%0
15151616181820202022
0%0
22282726262626251716
100%7050454242414140404039
Illustration:
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1050
$400
$300
$200
Quarter
Pric
e
Price erosion as product approaches maturity:
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Market volume profile of product sales:
1050
80000
70000
60000
50000
40000
30000
20000
10000
0
Quarter
Vol
ume
1050
100
50
0
Quarter
Cum
%Enter Company #2
Enter Company #3
Total Market Sales (# units) Product S-Curve (% total unit volume)
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Market revenue across the product life cycle:
1050
$20,000,000
$10,000,000
0
Quarter
Mar
ket
Rev
enu
e
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Gross profit from product life cycle revenue:
1050
$7,500,000
$5,000,000
$2,500,000
0
Quarter
Mar
ket
Pro
fit
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Total units sold – broken down by competitor:
273,010
242,610
100,880
0
50,000
100,000
150,000
200,000
250,000
300,000
Competitor 1 Competitor 2 Competitor 3
First place = 13% more units sold
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Total revenue broken down by competitor:
$26,180,696
$64,533,777
$74,872,527
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
Company 1 Company 2 Company 3
First place = 16% more revenue
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Oklahoma State University© Copyright 2003 by Gregory H. Watson. All rights reserved.
Total gross profit broken down by competitor:
$6,714,453
$19,690,821
$24,165,846
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
Competitor 1 Competitor 2 Competitor 3
First place = 23% more gross profit
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Summary – competitive impact of late-to-market:• There will be a smaller total market opportunity.• There will also be a smaller market share available to capture.• It will be extremely difficult to displace the incumbent:
– Increased displacement cost• Price to buy-in (reduces revenue and profit)• Increased marketing effort• Business concessions
• Impact of being second-to-market:– Must overcome incumbent’s customer loyalty and ease customer’s
pain to change or switch buying to your product.• Being first in a NEW market may or may not be a good strategy – it all
depends on the customer’s time-to-acceptance of the technology.• Time-to-market can be a major factor in the economic success or
failure of a product – especially in short life-cycle products.• Time-to-market is more important to product success than R&D cost.• Being “late-to-plan” almost always leads to difficult market problems
that are seldom overcome.
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Personal reflection:
Think about your company’s latest experience in introducing a new
product. How would you describe that product – a variant of prior
products or a departure into totally new design? How fast was that
product brought into the market? Was it first or second into the
field or was it a late arriver into the market? What was your
company’s strategy for launching and introducing the product? Did
it compete on price or did it compete on the feature performance?
If you were to describe your company’s time-to-market
performance would you classify it as competitive? If not, what
should be changed to make it more competitive?
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Design for Excellence (DFX) Principles
Instructor: Gregory H. WatsonIntroduction to Strategy, Technology and IntegrationETM 5111 – Summer 2003
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What is Design for Excellence (DFX)?
• DFX is a planned approach to more rapid new product development.• A knowledge-based approach to design to maximize all the desirable
characteristics of the ‘extended product’ while concurrently minimizing total lifetime cost of the product. The DFX emphasis is on both the elements of product design and ‘downstream’ activities such as cost-effective distribution, installation, operation and service. Other DFX objectives include: reliability, safety, conformance to environmental regulations and product liability prevention.
• Without DFX many of the ‘ilities’ would be developed in a haphazard manner and would not be implemented in a consistent style across the product lines.
• NOTE: Some classifications would replace DFX by Design for Manufacturability (DFM) – as the definition for all of the ‘ilities’ related to designing a product appropriately for its intended market. This definition does disservice to both the content of DFM and the importance of all other ‘ilities’ which have their own engineering support communities.
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What are the attributes of good design?• Functions – what the product does• Performance – how well it does it• Features – how the product is presented• Appearance – how well a product appears aesthetically • Safety – how the product prevents harm to people• + “the X-ilities” of DFX – in addition to profitability:
– Quality, reliability, availability and durability– Serviceability, maintainability and repair-ability– Manufacturability, testability and ship-ability– Install-ability, upgrade-ability, and customize-ability– Sustainability, portability and recycle-ability– Usability and access-ability
• Cost – lowest total or ‘lifetime’ cost – acquisition, operation as well as the cost of obsolescence.
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What should be the DFX design objectives?
• Lowest total cost – viewed as a cost to “society” after the style of Genichi Taguchi’s quality loss function:– Quality loss function – poor quality cost includes the cost borne
external to the organization (beyond scrap or defect repair) and must comprehend the cost to the customer as well as the loss in productivity by the society as it performs corrective action, expediting to adjust for the impact of the failure as well as the cost of rework on the entire ‘chain’ of productivity that will reach the ultimate customer.
• Align to external product requirements – the best way to reduce the cost to society is to understand its requirements and mistake-proof those potential failures that drive the elements of total cost.
• Right the first time – preventive action prior to release of the design to full scale production is the most cost-effective design approach. This means that the Test-Analyze-Fix sequence used in design must effectively and efficiently find product defects.
Fastest time-to-market plus:
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Quality, reliability, availability, & durability:
• Quality: the performance of the product as delivered which includes delivery, installation, initial use, as well as appropriateness of the application.
• Reliability: the useful product life once installed and operating correctly.
• Availability: the ability to use the product as desired by the customer (eliminates downtime due to either scheduled or unscheduled maintenance).
• Durability: ruggedness of design – ability to withstand punishment during use.
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Serviceability, maintainability & repair-ability
• Serviceability: the ease of conducting service on the product – one way to mitigate reliability issues is to anticipate failure and provide proactive service prior to the expected service problem.
• Maintainability: the ability to maintain a product which includes its documentation, preventive maintenance schedule as well as spare parts usage prediction and stocking process.
• Repair-ability: the ease of diagnosis and repair once a failure has been observed.
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Manufacturability, testability, & ship-ability:
• Manufacturability: the ease of final assembly and the manufacture of parts by their basic production method (e.g., machining, casting, stamping, forming, etc.).
• Testability: the ability to test the critical performance parameters of the product which includes built-in-test capability, data capture and recording, and closed-loop engineering process control.
• Ship-ability: the ability to securely ship and distribute products to the ultimate customer from the production point – includes packaging design, material handling, container reuse, labeling, and recycling elements.
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Install-ability, upgrade-ability, & customize-ability:
• Install-ability: the ease of installation of the product at its point of ultimate use – including instructions for installation, initial training of operators, tutorials in the use of key functions, and accompanying equipment.
• Upgrade-ability: the ability to enhance the feature set of a product through a system of accessories or additional features that increase performance.
• Customize-ability: the ability to make the product perform as desired by each individual customer – this capability may be delivered using customer-modified menu selections or factory-installed options.
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Sustainability, portability & recycle-ability:
• Sustainability: the friendliness to the environment of the product and its production processes (this need is typically met by an ISO14000 management system).
• Portability: the ability to move the product from one site to another or from one workstation to another – it includes the ability to change system components independently of the performance of sub-systems (e.g., changing a CPU without changing printers, etc.).
• Recycle-ability: the ability to recycle the product or its parts at the time of its obsolescence.
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Usability & access-ability:
• Usability: the attention to safety, ergonomics and the support functions (i.e., help functions, user tutorials, and problem diagnostics) required in a product to make it as friendly as possible for operator use.
• Access-ability: the ability of disabled people to use the equipment (e.g., support for hearing disabled or blind people).
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DFX and the pressure of time-to-market:
• Without a structured approach to DFX, many product compromises are likely to be made in the rush to get the product into the market – and the product may not fulfill a ‘competitive’ design intent.
• Without a coordinated effort like DFX, many of the design support services that have ‘special interests’ in one or more of the DFX elements may not be as ‘supportive’ of the sense of urgency to get the product to the market due to concern that their perspective will not be adequately addressed in the design process – this creates a resistance to rapid development.
• Without a comprehensive communication as occurs in DFX, effort to achieve many of the DFX sub-objectives of the product design could prove counter-productive as each element sub-optimizes the total time-to-market initiative in order to achieve its component of a rapid development process.
People make it work!
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Personal reflection:
Think about the last new product that your company brought into
the market. What was the management approach used relative to
the DFX disciplines? How does your organization manage the DFX
disciplines to assure that your product maximizes its limited window
of revenue opportunity?
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Global Manufacturing & Supply Chain Integration
Instructor: Gregory H. WatsonIntroduction to Strategy, Technology and IntegrationETM 5111 – Summer 2003
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What has influenced the plant location decision?
• Past influences included:– Union and labor support– Transportation and proximity to markets– Location of key suppliers or technologies– Community (education, quality of life, etc.)– Taxes (state and local) and incentives– Communities of technology excellence (e.g., steel
in Pittsburgh, automobiles in Detroit, tires in Akron and semiconductors in Santa Clara).
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Plant expansion under the traditional model:
Original Location
Expansion Plant 1
Expansion Plant 3
Expansion Plant 2
All functions are duplicated at each facility – each operates independently.
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Why the interest in global manufacturing?
• Why move production overseas? – A big reason is the potential for increased profit:
• Operating costs are lower• Taxation is more beneficial
– A second big reason is the ease of doing business:• Product legal issues are less complex• Less regulation and government interference
• BUT, what is the impact on product development?
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Today’s influencing factors on plant location: LABOR COST & AVAILABILITY LOWEST AVAILABLE
TAXES & DUTIES GLOBAL
INTERNATIONAL AGREEMENTS GATT, NAFTA, E.C.
GOVERNMENT ASSISTANCE GRANTS, LOANS
GOVERNMENT TYPE & STABILITY
GOVERNMENT REGULATIONS/LAWS ENVIRONMENTALSAFETY
BENEFITSTORT SYSTEM
COMMUNICATION FACILITIES GLOBAL CONNECTIVITY
LOCATION TRANSPORTATIONPROXIMITY TO
MARKETS & SUPPLIERS
TECHNICAL SUPPORT RESOURCES LOCAL EDUCATION SYSTEM
FINANCIAL & MONETARY SYSTEMS LOCAL CAPITAL FUNDS
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How does location impact product development?
Materials – potential decrease in parts cost Product Development – potential coordination difficulty Sales – potential decrease in product availability Administration – potential increase in admin costs Transportation – potential increase in transportation Labor & Overhead – potential decrease in labor cost Taxes – potential decrease in tax expense exposure Tariffs – potential decrease in cost of trade tariffs
Most of the benefits relate to cost while most of the disadvantages relate to coordination.
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$20.90
$5.21
$3.26
$0.23
$11.51
$2.75
$1.55
$13.75
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
LABOR & OH TARIFFS TAXES PROFIT AFTR TAX & TARIFFS
U.S. FAR EAST
Profitability comparison – USA vs. Far East:
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$0.23
$3.26
$5.21
$20.90
$6.27$6.79
$4.55
$11.51
$13.75
$1.55
$2.75
$11.51
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
LABOR & OH TARIFFS TAXES PROFIT AFTR TAX & TARIFFS
US US LABOR & OH=FE FAR EAST
Labor neutral comparison of tax and tariff impact:
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Disadvantages of USA industrial policy:• Taxes:
– Flat tax system won’t help.– Sales tax as revenue source would level the playing field if:
• Domestic and imported products both taxed same in U.S.• U.S. exports should not be taxed by U.S.
• Regulation:– OSHA (safety & health)– EPA (environment)– ERISA (retirement)– American Disabilities Act– Striker replacement– Family medical leave
• Legal system:– Product liability costs over $80 Billion/year – more than all
manufacturing capital investment! This is a tort lawyer’s idea of heaven!
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Off-shore manufacturing first steps:
PM
ENGINEERING
QUALITYMARKETING
MANUFACTURING
Focus areas
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Typical first step in a global expansion strategy:
Only manufacturing and quality functions are duplicated at each facility.Initial production is typically final assembly using pre-shipped “kitted” parts.
Original Location
Global Plant 1
Global Plant 3
Global Plant 2
Off-Shore
Develop remote production capability:
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Match global production output to local demand:
Local investment driven by ‘local content’ requirements and individualmarket demand for the region served. Flexibility is created to serve all regions from any production facility.
Develop remote production maturity:
Sales, Admin, R&Dand Corporate Office
Global Plant 2
Global Plant 1
Global Plant 3
Off-Shore
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The complexity of today’s global production:
Singapore
Malaysia
Thailand
Component AComponent B
Sub-assembly
Final assembly shipped
Production of parts is done in different locations than where sub-assemblies are completed which is also different from the point where final assembly is conducted. All tasks are divided into distinct ‘focused factories’ that accomplish part of the work at the lowest total cost.
Cost is the decision driver!
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The dominant strategic concept:
DISTANCE
“VIRTUAL CO-LOCATION”
The emerging global manufacturing strategy –
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Communication is THE critical success factor!
• All information must be available in your information system – in real time – as if the sites were all local!
• All sites must appear to an outsider as if they were one!• Rules for communication system design:
– Information must be available instantly – 24 X 7!– All information systems must be networked.– All locations should have the same capability.– All locations should use the same software.– All communication systems must be seamless and
available in an interactive mode to facilitate dialog:• Voice, video and data• Wired, wireless and satellite
Good communication turns ‘virtual’ location into a ‘reality’ show!
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Remote design centers with remote production:
Global Plant 2
Global Plant 1
Global Plant 3
Production ScheduleProcess InstructionsTest InstructionsAssembly Drawings
Tool Drawings
Design Center 3
Design Center 2
Design Center 1
Designs are developed through virtual coordination and transferred using information technology to distributed, remote production sites.
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Remote manufacturing requires standardization:
The following systems must be the same between all design centers and remote factories:
• CAD/CAM drawing systems • Parts numbering• Release and change control procedures • Process & test instruction formats• Supplier approval procedures• Product testing systems• Problem solving processes & failure reporting• Factory data collection and report outputs • etc., etc., ....etc.
How can you compare if you don’t know what you are measuring?
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The engineering challenges of a remote factory:
• Synchronizing design transition to multiple locations
• Transition from design to factory across an ocean
• Supporting product launch at the remote factory
• Global supply planning and inventory management
• Correlation of measurement systems and testing
• Trans-lingual / multi-cultural interpretation
• Product configuration control
• Process standardization
• Remote problem solving
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Global manufacturing summary:
• Global manufacturing represents a significant challenge to manage all corporate functions of a Corporation – especially the technical management capability and coordination of the product configuration at multiple global locations.
• Global manufacturing requires corporate-level planning and the standardization of production processes, documentation and assembly procedures.
• Global manufacturing is not an easy task, but it is essential to do it correctly in order to survive in world markets.
Warning: Both pay-backs and penalties are BIG!
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Personal reflection:
Think about how your organization is organized in its
manufacturing operations. What is your organization’s global
strategy? What will it need to become in the future? What natural
expansions can you foresee that could build on strategic alliances
or strategic supplier relationships to expand overseas?
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ETM – 5111:
BREAK
Instructor: Gregory H. WatsonSummer 2003Session 4 – End of Part 1