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Enterprise Profitability
Part 3 of 8

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Lean Manufacturing, Basics, Principles, Techniques

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Measurement Systems
Jack Welch, the CEO of General Electric, stated that businesses tend to go wrong because they focus on predictability of operations, rather than flexibility to respond to events in the marketplace. One of biggest obstacles to flexibility is the predictability of behavior that is strongly reinforced by current accounting systems. For example, departments and departmental managers are measured to performance against bud­get; unfortunately, budgets are created a year at a time, with the bud­geting process starting three to six months before the year in question actually starts. Thus, at the end of a budget year, the budget and stan­dard costs are 15 to 18 months old. These practices inherently discour­age continuous improvement.
We propose instead a new measurement system that recognizes that everything is temporary—products, customers, workers, and processes. It should base its approach on the assumption that all products have life cycles, and should have three key metrics: profitability, time, and quality. It should also require continuous improvement.
Supply Chain Management Integration
Full supply chain management integration means partnering with cus­tomers and suppliers with the intent to eliminate paperwork, waste, cost, and lead times throughout the supply chain, while maximizing responsiveness and flexibility. In its ultimate form, it requires a com­pany to source each group of raw materials with only one supplier, and to be the sole source for a group of products for its customers. This is the only way to hold the supplier completely accountable and to elimi­nate all interim paperwork and administration. To accomplish this, TEI/ ERP must be designed with supply chain as its center.
The concept of customer relationship management assumes and re­quires integrating all functions that affect the customer. Areas of cus­tomer-focused information that are integrated with the rest of a TEI system include the following.
Full Sales Support
Sales functions can be divided into the following categories:

• assisted selling—the interaction between salespeople and consum­ers, and can occur:
- outside the company (using salespeople in the field)
- inside the company (using telesales or customer service repre­sentatives)
• unassisted selling—includes sales via Web sites and kiosks at cus­tomer sites.

Most MRP II systems were extremely weak in supporting sales­people in the field. However, virtually all of the capabilities needed by field salespeople are also required by inside salespeople. A fully-inte­grated TEI/ERP system needs to provide full access to all TEI/ERP functionality for a salesperson with a computer, no matter where he or she happens to be. Sales force automation software should primarily assist the salesperson in the field and in the office.
Forecasting Integration
Forecasts drive capital decisions, material volume (and even supplier choice) decisions, staffing decisions, and financial plans. In spite of its importance, forecasting is still more of an art than a science, because it needs to blend intelligence from the field with past actual sales to cre­ate the most accurate forecast available. Once a forecast has been ac­cepted, companies frequently have great difficulty in communicating the impact of forecast adjustments on each affected area unless the forecasts are part of a fully integrated ERP or TEI system.
Reducing forecast errors involves three approaches, the last two of which rely heavily on TEI/ERP system support:
1. decreasing response lead times sufficiently that a company can ef­ficiently and effectively supply what the customer wants within the customer's lead time. Repetitive techniques can be very effective in this effort.
2. increasing visibility with the customer, which, as far as the manu­facturer is concerned, effectively increases customer lead times.
3. monitoring forecast errors and taking corrective action when an error exceeds a predetermined threshold.

To Be Continued


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