John G. Wacker

Component part standardization: An analysis of commonality sources and indices

Abstract The importance of higher component part standardization has been recognized as an important area of empirical investigation since it has been hypothesized to reduce inventory levels by reducing safety requirements, to reduce planned load through larger lot sizes, and to reduce planning complexity through reducing number of items to be planned. Therefore, component part standardization offers considerable promise for managers wishing to improve their production capabilities. In order to achieve higher standardization, measures indicating the degree of standardization are necessary. The most traditional measure of component part standardization is the degree of commonality index (DCI), which indicates the average number of uses per component parts. Unfortunately, this measure has many theoretical limitations. First, it is a cardinal measure and, therefore, cannot measure the degree of uncommon part numbers that frequently cause production planning problems. Additionally, as a cardinal measure, it cannot be used to compare planning across organizations and is not useful for making summary comparisons of planning complexities across organizations. This study develops a relative index that has boundaries of standardization between 0 and 1 corresponding to the lay language usage-each item being unique (no standardization) and one item used everywhere (complete standardization). A second major weakness of the DCI is that it does not recognize sources of standardization for decision making. There are at least three principal decisions on which component part standardization indices can provide information: 1) within-product decisions, 2) between-product decisions, and 3) make-buy decisions. The within-product decision refers to using each component as frequently as possible within each end item. This increased usage means fewer unique items within each end item and is expected to reduce that items planning complexity. The between-product index is used to examine the design of new end items. Its purpose is to give indications of additional planning complexity by the increased number of new component parts. Hence, between-product indices give information for reducing planning complexity with the introduction of new products. This article develops these two types of indices to indicate the relative proliferation of new component parts. The make-buy decision involves indices that adequately describe manufactured versus made components. For the manufactured components, the level index computes the commonality by each product level of the bill of material. This index gives information for the design of a new, more automated manufacturing system by analyzing each levels standardization for possible inclusion into a more automated system (group technology, cell manufacturing, flexible manufacturing system, or automated factory). For the buy decision, the indices developed here can be utilized for reduction of the number of vendors due to “uncommon” components. Both level and buy indices can be used for analyzing and reducing the planning complexity of the production system. A third fundamental problem with DCI is its lack of realistic dimensions of end-item volume, quantity per assembly, and cost. The DCI weights each end item precisely equally regardless of its volume. Therefore, an item produced once every two years would be weighted exactly the same as the best selling item. Similarly, the DCI does not consider the quantity per assembly (Q/A) of each component. Consequently, an item that had very small (Q/A) inside of an item has exactly the same weight as a high (Q/A) inside an item. Last, the DCI ignored the price of the component, which further limits its usefulness by causing the DCI not to have cost dimensions. This study developed relative within-product, between-product, and total commonality indices that include end-item volumes, quantities per assembly, and component price. These indices can provide valuable insights for reducing relative planning complexities that improve system performance through analyzing relative costs of component parts usages.

Forecasting accuracy: comparing the relative effectiveness of practices between seven developed countries

Abstract This study investigates the effect of forecast practices on forecast error for seven developed countries. The questions it addresses are: What are the differences and similarities between countries in how the forecast is developed and how accurate it is? Does the purpose of the forecast affect its accuracy? Does the use of quantitative techniques improve forecast error? How does the forecasters use of subjective factors affect forecast accuracy? And are there significant differences in the underlying countrys cultural traits that affect these practices? Most forecast empirical studies investigate the degree of accuracy and the quantitative methods used to estimate forecast accuracy ( Mentzler and Cox, 1984 ). However, to date, no study has investigated the cultural variables underlying the forecast variables. These variables are well-known in the international behavioral literature ( Hofstede, 1980 , Hofstede, 1983 , Hofstede, 1994 ; Ronen and Shenkar, 1985 ). This study investigates forecasting practices in Germany, Japan, Mexico, New Zealand, Spain, Sweden and the United States to determine the differences among managerial behaviors that affect forecast accuracy. According to Hofstede (1994), there are distinct cultural differences between countries in terms of power–distance, uncertainty avoidance, individualism/collectivism, and masculinity/femininity. These cultural differences provide reasons for believing there exists between country differences in: forecast development, how the forecast is used, the degree of use of models, and subjective factors used. This studys results suggest that each country has a different perspective on the basic forecasting development, methods subjective factors considered in the forecast. These differences partially can be explained by Hofstedes four cultural values dimensions: power–distance, uncertainty avoidance, individualism/collectivism, and masculinity/femininity indices. The statistical analysis suggests that power–distance tends to increase computer use along with statistical methods and decrease the use of internal subjective information. Uncertainty avoidance does not significantly affect forecast procedures. Firms in countries with high individualism tend to rely more heavily on subjective information. Firms in countries that have high masculinity tend to use subjective information to gain an advantage over their competitors. Therefore, the general conclusions are that between country differences in decision-making practices can be partially explained by cultural factors.

A theory of material requirements planning (MRP): an empirical methodology to reduce uncertainty in MRP systems

Abstract This paper presents a theoretical MRP‡ model which includes both demand and supply uncertainties from quantity and timing variations. The model suggests empirical methodologies to estimate the variances of final outputs and components for estimates of safety stock requirements to reduce uncertainty. The paper suggests methodology for safety stock estimates to alleviate demand uncertainty for trade-to-stock organizations and made-to-order organizations. The paper also suggests methodologies to estimate safety stock for the production systems to alleviate supply uncertainty.

Macroeconomic analyses of inventories: learning from practice

Abstract The S,s and production smoothing models prevalent in macroeconomic research on inventories are examined from the perspective of the behavior of firms with respect to inventory management and control. It is suggested that unit of analysis — the individual inventory item — is inappropriate since the inventory stream is composed of at least five categories with different functions. Evidence is offered that, at the firm level, inventory levels are not changed because of short term interest rate changes. It is recommended that future research be focused on the five categories of inventory, with appropriate assumptions for each.

A transaction cost economics model for estimating performance effectiveness of relational and contractual governance: Theory and statistical results

As outsourcing continues to grow, supplier management becomes critical to the success of manufacturing firms. Transaction cost economics (TCE) suggests that firms should choose supplier governance mechanisms to ensure fulfillment of contractual obligations and safeguard against opportunism for their outsourcing activities. Accordingly, the purpose of this paper is to examine how buying organizations govern supplier contracts to improve manufacturing competitiveness and financial performance. The relative effectiveness of two primary governance mechanisms, contractual governance (CG), and relational governance, are examined.,Expanding upon previous studies, this study delineates three relational governance mechanisms (negotiation efficiency (NE), problem solving relations, and information sharing (IS)) that are conceptually, statistically and pragmatically different. Based on the TCE literature, a conceptual model is developed to decipher the relationships between pre-contract conditions (supplier asset specificity and environmental uncertainty (EU)), governance mechanisms, performance ambiguity (PA), and performance. Using the data collected from 987 firms, the statistical results present several important findings that would advance current theory and practice in outsourcing.,The authors find empirical support for the effects of contractual and relational governance in improving manufacturing and financial performance. The governance of supplier contracts clearly facilitates manufacturers’ ability to leverage their resources to improve performance. The relative effectiveness of these two governance mechanisms is related to the levels of EU and supplier asset specificity. Relational governance displays greater influence on performance than CG does. However, CG appears to be complementary to relational governance.,The interplays between supplier asset specificity and EU should be examined in the future. The relationships among NE, IS, and problem solving should also be examined to facilitate the development of relational governance.,Managers should be aware of the situational performance of governance mechanisms. Moreover, it is important to realize how differently each of the three relational governance mechanisms and CG contribute to performance.,This study extends the academic discussion of supplier governance by investigating the alignment of governance mechanisms (relational governance and CG) with pre-contract conditions to reduce PA and, thereby, enhance manufacturing performance. Under the theoretical framework of TCE, the direct and indirect effects of pre-contract conditions and governance variables are fully examined and discussed. Moreover, relational governance involves multiple mechanisms that are conceptually and pragmatically different, and future studies should not treat it as one single construct.

Customer‐aligned inventory strategies: agility maxims

Traditionally, aggregate inventory realignment has tended to be a reactive response to crisis signals revealed by financial performance measurements. Symptoms and problems are usually confounded, while corrective actions are localized with less than adequate customer connectivity. This article links inventory requirements to customer requirements for response, quality, and their benefit‐to‐cost ratio by focusing on reduction of valueless time, valueless activity, and valueless variance in business processes. Interestingly, what satisfies customers can also efficiently align inventory. Several maxims are introduced throughout the paper to align the purpose and significance of inventory to a customer context.

The impact of institutional factors on forecast accuracy: manufacturing executives perspective

SUMMARY Forecast accuracy is a major challenge for manufacturing organizations. Forecast error can be a direct cause of stockouts, inventory growth and/or costly changes in the mast schedule. Despite the considerable time and effort expended on forecasting, forecasts are still very inaccurate. In summation, forecast inaccuracy is expensive and the confusion and frustration resulting from it is extensive. This confusion has led some advisers to recommend the elimination of forecasting altogether (Goddard 1989). Others, however, emphasize the need for forecast accuracy in order to permit an appropriate and effective response by the manufacturing organization. The importance of a relatively accurate forecast to manufacturing performance calls for understanding of the factors which affect forecast accuracy. Many researchers have analysed how the use of various techniques affects forecast accuracy. These studies focus on understanding of the technical accuracy of various methods: they do not suggest how manufa...

The Stages of Quality Management Evolution in the Pacific Rim

The most important issue facing manufacturers is maintaining the improving product quality, since quality is related to long‐term competitiveness as measured by market share and profitability. Firms are implementing many different quality programmes to improve quality. Many times these programmes are not focused on what can be accomplished, since each company is at different stages in its quality development. Examines these development stages of quality management, so that manufacturers can estimate the quality development stage. After evaluating their quality stage manufacturing firms can improve quality systematically, by concentrating on those programmes that best suit their development.

The sources, measurements, and managerial implications of process commonality

Abstract This article explores the issue of commonality of processes. While the benefits of high process commonality (similarity of processes) are generally recognized, this research represents the first clear identification of the sources, development of measurements, and discussion of the managerial implications of process commonality. The first section of the article identifies and categorizes the sources of process commonality. These categories are: low set-up times, flexibility to change from one operation to another, and flexibility in making expedite decisions- Indices are developed in the second section for each of these three categories at the work center level. These indices are examined using sensitivity analysis and are found to respond appropriately to changes in parameters. Formulation of a composite index is also discussed. The final section discusses the managerial implications of process commonality at the strategic, tactical, and operational levels. The impact of improved process commonality covers a wide range of decisions, including product/process selection, production/inventory control system selection, and definition of group technology cells, among others.

An examination of strategic goals and management practices of Russian enterprises

Since glasnost and perestroika, the Russian industrial complex has looked to the west for both financial and managerial guidance. The free market context has apparently suggested to Russian managers that contemporary management practices be considered for competitive success. This study examines how well a sample of Russian managers has perceived the need for such practices and how well they perceive these practices to be related to their competitiveness.