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Taking the guesswork out of productionALFRED SLOAN, who took over as president of General Motors in 1923, did for management what Henry Ford did for labour, turning it into an efficient machine-like process, divided into demarcated functions such as marketing, production and human resources. His purpose was to build a self-reliant organisation capable of sustaining itself with as little recourse to outside suppliers as possible. Along with this came a hierarchical structure where the top managers made the long-term decisions, junior managers dealt with day-to-day problems, and decision-making was interminably slow. Sloanism is credited with increasing GM's share of the US automobile market from 18% in the 1920s to 45% in the 1970s, but his management theories died when Japan entered the US car market with cheap, reliable cars based on a different production method woven around teamwork. These teams breached the departmental silos Sloan had built and typically comprised production and financial experts, marketers and buyers, among others. Supply chain management, or SCM, takes this a step further, smashing the notion of corporate self-sufficiency. Japanese car makers are now essentially assemblers of other people's products. In some cases, the entire supply chain is outsourced. Hyundai's new vehicle assembly plant in Botswana is surrounded by the factories of its suppliers and the practice is slowly taking hold among its South African rivals. The ultimate objective of such practice is to make cars to order rather than to stock. As an order comes in, it triggers a corresponding order for car seats, windscreens, wheel rims and tyres at supplier factories. For this to work, the assembler's computer system must link up both with its suppliers and its retailers. In re-engineering a factory for SCM, the suppliers must submit to a similar re-engineering exercise. Around the world retail chain stores are moving rapidly towards SCM, sharing sales and stock information with suppliers. The concept has been slow in taking off in South Africa, largely due to a reluctance among some of the major chains to pass on such information to suppliers. But competition will eventually force change on them, according to Alfons Meyer, executive director of Coopers & Lybrand Management Consulting Services, one of the leaders in SCM consulting in South Africa. "SCM is becoming essential in the perishables business because of the limited shelf life and fast stock turnover times," he says. "The more information you are able to feed back from the retailer to the distribution warehouses and supplier factories, the more efficient and cost-effective the operation becomes. The objective, from a financial point of view, is to reduce working capital to as close to zero as possible. We have found that in many companies it is possible to reduce inventory by 50%. If inventory costs R100-million, that's a saving of R50-million." Traditionally, because suppliers were not privy to the production schedules or forecasts of client factories, they had to rely on previous ordering patterns, or even guesswork. The result would be a build-up of costly stock, waiting for an order to arrive. The same was true of client factories, who were not privy to information on retail sales. SCM is designed to overcome this blind spot and so take the guesswork out of production scheduling. One form of SCM is that used by water-management company Nalco-Chemserve. Its Port-a-Feed stainless steel containers are installed on client premises and signal when chemicals drop below a certain level, eliminating problems associated with chemical handling, storage and reordering. Spar revolutionised the system of retail distribution by having its suppliers deliver to central warehouses rather than to each of its shops. One truck supplies one store with all its grocery requirements, eliminating the back-up of trucks at the off-loading bay. The Witchdoctors by John Micklethwait and Adrian Wooldridge of The Economist, even the notion of competition has changed. Xerox, for example, has some 300 alliances with other corporations, 50 of them with competitor IBM. There are some 400 airline alliances globally, many of them designed to get around national boundaries. "Around the world companies are reducing the numbers of suppliers and forging closer relations with those who survive, showing them sensitive information, helping them improve their procedures, and including them in company bonus schemes," say the authors.
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