Part II: Organizational Prerequisites for Smart Materials, Automatic Identification, and Quality
Chapter 11: Practical Implementations of the DCS Solution
11.3 How DCS Has Helped in Efficient Product Line Management
A general principle that exists with most professions is known intimately by some and ultimately by others. This is the law of inverse cost-effectiveness. This simply says that "what an information system loses in performance and efficiency, it gains in uncertainty, poor service, and added, unnecessary costs." I learned this principle 35 years ago at British Aircraft Corporation, the co-designer of Concorde.
Information systems can be designed in many ways, each with its own advantages and limitations.
Several prerequisites must be met to make it effective for the end user. One is ensuring that transition to the new system does not bring disruptions and upheavals, while access to the database is seamless.
Exhibit 11.6 illustrates the three components that come together in ensuring seamless database access by end users:
1. A streamlined information system that is architectured, integrated, competitive, and replaces old legacy software
2. A classification/identification solution, such as DCS, able to act as a pivot point of the new information technology
3. A distributed intelligent database networked any-to-any and available online at any time, in any place
Exhibit 11.6: Seamless Database Access by Management Lies at the Intersection of Three Spheres of Interest
The systems requirements outlined by these three components correlate and therefore, can be well- served through a common methodology. In several applications, DCS has proved to be of invaluable assistance in effective database design. The three domains shown in Exhibit 11.6 have common parts.
Indeed, the intersection of these three major areas of interest provides the basis for database access by management in a user-friendly interactive manner. Seamless access to the database is effectively supported by DCS because the identification of information elements being sought is unique.
There are algorithmic and heuristic approaches at the intersection of the new information system design and the exploitation of database resources. Some 80 percent of the difficulty in using mathematics in management comes from the lack of data, and only 20 percent comes from challenges in modeling. As systems become more sophisticated, their ability to capture, store, process, and distribute data has been significantly extended. This ability, however, is often conditioned by the efficiency of the process by which databases communicate with one another and with end users.
The significance of effective interprocess communications is even greater when one realizes the contrast in requirements between the old and new approaches to computing — the newest ones being mobile. No company can afford to start its database business from scratch to satisfy mobile computing.
The ongoing solution must be kept steadily updated and able to produce results until the new structure is ready to take over and replace the old — or at least until the current solution reinvents itself in the current environment.
The design of a new classification/identification system is not the only challenge associated with a thorough renovation of a company's information technology and the way it is used to help in managing the product line in an efficient manner. Just as important is how to introduce the new system into mainstream operations without any disruptions in the supply chain. "It is," said one executive, "like changing the tires of a car while it is still running."
True to the goal that a change in product identification should not upset day-to-day operations, Osram GmbH chose a step-by-step procedure, which is outlined in Exhibit 11.7. DCS was first applied within the old information system, starting with the commercial operations — while legacy software was temporarily kept in place. Then, based on the new code system, the company's information technology processes were streamlined, new applications were added, and many of the old data processing routines were substituted. All of them capitalized on the thorough reorganization of the database, based on DCS. Eventually, the use of more sophisticated database solutions was developed to keep ahead of the curve with technology.
Exhibit 11.7: Phase-by-Phase Conversion from Fractioned Account-Based Files to a Client Database
Today, what I am describing finds its parallel in the implementation of advanced versions of ERP and CRM software. Increasingly, the value differentiation of ERP and CRM is in analytics. A rational classification and identification can be instrumental in building analytical applications that:
Define a common business model for these applications
Provide common naming, data definitions, and taxonomical rules
Design and implement means that enforce the common business model
My suggestion is to pay particular attention to the dimensions used in CRM and ERP applications, defining attributes of analytical interest (including identification attributes) and providing a rigorous methodology for assessing data quality; also, when necessary, proceeding with reengineering (see Chapter 2).
Several lessons can be learned from the implementation of DCS to which this example makes reference. When it was fully integrated into the engineering and marketing operations, a new field of applications was undertaken, that of integrating purchasing, accounts payable, and inventories. This work was fundamental to streamlining ongoing procedures and what it involved in analysis and design can easily be seen as a forerunner of requirements posed by present-day supply chain solutions.
This was a real-life case study, and the benefits obtained from streamlining operations were not limited to what has been explained thus far. Prior to the establishment of a single frame of reference for classification and identification, which documented each product in a dependable manner, senior management had a rather hazy idea of how many distinct items constituted the company's product line.
Marketing was selling some 15,000 products, but many sales people periodically expressed doubt that all these products were truly different from one another. Others doubted not only that a great many products were not truly distinct in terms of technical specifications or in regard to sales appeal, but also questioned their profitability.
The introduction of DCS and its implementation have allowed streamlining of the product line because it made feasible a unique and unambiguous product-by-product identification, and therefore a
comparison. This was greeted as a major achievement by senior management. After the marketing people applied DCS with the help of the systems specialists, an analytical study established that the number of truly different products the company was selling was not 15,000 — but 7400.
This difference between the 15,000 products that management thought was in the company's business line and the 7400 that really were there is huge. The reason for this discrepancy was that the old patchwork of product identification systems had plenty of duplicates and triplicates:
One product that was technically the same had up to 35 different identification codes.
Conversely, up to five technically different products were found to be under the same code.
The fact that up to 35 different numbers were used to identify (and sell) the same product seems unbelievable but, in my experience, it is not unusual. Although 35 is an exception, I have often found in my practice that seven or eight different dubious IDs have been used for the same product because of plain errors, overlaps, and the fact that minor details are often supposed to constitute altogether different products.
This is a major handicap to good management of the product line. It is making business statistics plainly unreliable and leads to many product returns, which are costly and poison customer relationships. Even worse, in terms of management control, is to have five diverse products coded with the same
identification number. The result is that returns are booming, adding to customer dissatisfaction, and substantially increasing handling expenditures.
The introduction of DCS corrected this awkward situation. It also helped to clarify a key subject that for years had eluded the company's accountants: how much profit or loss each product brought to the firm.
Only when a unique and reliable identification system was implemented was it possible to answer this question in a factual and documented way. It was then found that, of the actual 7400 distinct products:
2500, mainly mass-produced items, plus a few specials made money to cover the losses of the others and leave a profit
850 were manufactured on-demand and therefore followed a different procedure in P&L calculation
370 broke even but had a good development perspective with the proper sales promotion
1040 broke even or lost some money but were needed to present a complete product line to the market
2640 lost money (some heavily); these were unnecessary to retail but had escaped attention because of misidentification
A decision was made to eliminate the 2640 products that lost money not only from the sales list (and manufacturing schedules), but also from stock. Special discounts were offered for items that could sell at a lower price, while the remainder (and a good number, for that matter) of the condemned products were literally destroyed. An analytical study established that the carrying cost of an item on the racks over a year varied between DM 1 (U.S. $0.50) and DM 5 (U.S. $2.50), depending on the item.