Sunday, April 12, 2009

Business Competitiveness and Industrial Engineering

Industrial Engineering (IE) discipline has played an admirable role in enhancing productivity and efficiency at shop floor level for the last several decades. With the rapid changes in market dynamics and enhancements in competitive pressures, emphasis has shifted to more comprehensive and sustainable models of continuous business improvement. If the 1970s constituted the decade of industrial engineering, 1980s the decade of corporate planning and 1990s the decade of globalization, 2000s started off as a decade of investment-led growth. However, the global meltdown that started in 2008 brought business competitiveness as an essential strategy to cope with recession. In this context, industrial engineering can re-discover its niche in a corporate perspective as a tool for total business improvement.

A contemporary business model

In today’s context, a company is an amalgam of several core and supportive functions. While product development, manufacturing and marketing remain the core functions in an organization, an increasing number of domains such as information technology, human resources, quality assurance, environment, safety & health and intellectual property management are playing an important role in enhancing the specifications and quality of a product or service.

Today’s business faces heightened competitive pressures which are peculiar to each industry and which are related to suppliers, markets, technologies and other factor inputs. Traditional industrial engineering techniques have focused on optimization of individual activities in functional domains while today’s challenge is more pervasive in terms of an overall corporate value chain.

Viewed in a macro perspective, a company is no longer a stand-alone entity in the supply side or market side. A company has to view itself as part of a larger supply chain spanning the basic material to end product user stages. This has resulted in concepts of supply chain management (SCM) or customer relationship management (CRM) as two key drivers of competitive advantage. At an elevated level, one company’s SCM could be its vendor’s CRM. The inter-linkages between markets, manufacturers and vendors are as varied and complex as they are obvious.

Over the years, operationally as well, there has been a significant change of the context in which industrial engineering finds applications. A typical factory or office system has moved from being a predominantly man-dominated machine system in the 1960s or 1970s to a machine-dominated human system from the 1990s. The rate of technological change itself has moved from a stable, steady-state situation to a state of rapid change. Consequently, product life cycles which used to be predictable with extended spans of 10 years or more have become volatile, with compressed spans of 3 years or less. As a result, the competitive scenario has become intensely market-driven in addition to being supply driven, with heightened rivalry among firms.

Given the above changing dynamics, while individual and isolated efficiency improvements in discrete operations or functions continue to be important, it becomes necessary to bring a wider business perspective for industrial engineering to contribute effectively to corporate development.

An IE model for total business improvement

Given the fact that business development and corporate management have become extremely challenging with multi-domain, multi-entity and multi-location interactions, the need for overall system efficiency in an end-to-end connected value chain becomes obvious. In order to address this imperative industrial engineering needs to evolve itself into a new corporate level paradigm.

The proposed business driven model for industrial engineering views the entire spectrum of corporate actions as a total value chain where every entity and every domain has a specific role to play in improving a business in totality. Maximization of efficiency within and across each and every stage of the value chain becomes important as a potential strategy to optimize the overall system efficiency. At the same time, given the complexity of task, a conceptually elegant model is required to manage the complexity in an easily comprehensible fashion.

The proposed IE model for total business improvement has four essential components; two of which are internally focused and two externally oriented. Together, the four components can be synergised to deliver a powerful, positive impact on a company’s operations and overall business.

The proposed model is simple in that its rests on two fundamental concepts of ‘optimizing’ and ‘connecting’ which are applied on two relevant dimensions of ‘internal business processes’ on one hand and ‘external corporate transactions’ on the other. The business driven IE model is thus a 2x2 concept-application matrix which can be deployed in totality to the contemporary business configuration discussed earlier. This model will be relevant regardless of the number of internal or external domains or entities involved in a company’s value chain. The combinations are as follows:

Optimization of Internal processes : Value engineering
Optimization of External transactions : Supply chain management
Connectivity of Internal processes : Value chain management
Connectivity of External transactions: Collaborative networking

The model integrates four levers for industrial engineering to play a major role.

1. Value engineering

Value engineering has been by far the longest existing branch of industrial engineering that re-engineers products, services and operations to eliminate waste and enhance efficiency. Whether it is simplified components, optimized materials or minimalist manufacture, value engineering plays a vital role in re-engineering not only product, process and production systems but also any operational activity to enhance productivity and efficiency.

In today’s context, value engineering takes newer dimensions with application of computer aided design and manufacture which help designers and production engineers achieve unparalleled results in design and manufacturing simplification. Similarly, at operational level, information technology helps optimise man-machine interface through simulation of data and enhanced quantitative techniques in a manner that was not within the analytical reach of an industrial engineer in earlier years.

Modular design platforms and common internal components can help product designers achieve higher variety of end products with minimal proliferation of components and aggregates. Similarly flexible manufacturing systems and versatile dies, moulds and tool settings which can handle diverse component sizes and different production batch sizes can redefine manufacturing efficiencies. Value engineering has the capability to move from a focus of component and operational level improvement to a broader perspective of an overall engineering philosophy that simplifies design and manufacture at product family level. Value engineering then becomes a powerful tool for enhancing competitive advantage in the business as a whole.

2. Value chain management

If value engineering optimizes design, manufacture and operations, value chain management interconnects each functional domain of an organization to ensure overall delivery of a product or service in the most efficient manner. For any business to be competitive, it is not only essential to do each functional activity right but also integrate all the functional activities smartly with the right connectivities.

In today’s business environment wherein information is a widely accessible asset it is the execution that marks the difference between successful and not so successful firms. It is no longer sufficient to aspire for a product portfolio or market turnover. It is, on other hand, incumbent to plan out the entire value chain of activities starting from product conceptualization and ending with market launch, in terms of clear activities and resource deployment. Structured and end-to-end connected execution enables a company generate maximum value due to timely and precise deployment of resources across the organization for high quality results. Time tested project management techniques of PERT / CPM which are now further enhanced by the customized computer programmes should be deployed for various long term, multi-functional or multi-centric projects to ensure effective execution with the least resources or time slack. As an approach, concurrent design and manufacture, whereby all functions connected with product development, manufacture and market launch collaborate from the very beginning, is an ideal approach to institutionalize value chain management in a company.

3. Supply chain management

Business efficiency today verily rests on the manner in which a provider of a product or service manages its inventory not only within the company system but also covering the entire supply and distribution chain comprising multi-level vendors on the supply side to multi-tier distributors, retailers and customers on the market side. From an initial enthusiasm of minimal inventories within the company, the accent now is on optimizing inventories across the value chain. Various quantitative and simulation methodologies which the industrial engineers have in their tool kits are helpful in smoothening the inventories across the supply chain.

More fundamentally, the critical approaches of the industrial engineer in defining and streamlining work flows and eliminating redundancies as well as idle times are extremely relevant in developing a supply chain structure that supports efficiency. Disintermediation or elimination of superfluous layers leads to significant procurement and distribution economies. Modular packaging and foolproof, secure packaging could help movement of SKUs across the chain without the hassles of unpacking and repacking across the tiers.

Industrial engineers need to also integrate technology in a significant manner for optimal supply chain management. Contemporary telecommunication technologies and global positioning systems enable tracking of unit products or cartons anywhere in the world. Radio Frequency Identification (RFID) and related software solutions need to be deployed by industrial engineers to achieve technology-led efficiencies in supply chain management.

4. Collaborative networking

Even the best of supply chain management would perform below potential, if true partnership and collaboration are not integrated into the relationships. Quite apart from tools and techniques, industrial engineers would need to also focus on behavioral dynamics that result in adversarial or play-safe practices among various entities in a supply chain. For example, as long as the goals (at a strategic level) and the forecasting processes (at an operational level) of a manufacturer and its vendor are not truly aligned in a collaborative fashion, any degree of supply chain optimization, whether through quantitative analysis or technological development, would not be effective.

At the core of collaborative networking lies the premise that any two entities engaged in a relationship will derive greater value by having common objectives of business development. Toyota for example, is continuing to make strides over and above its famed Toyota Production System by adopting collaborative networking. Toyota’s CCC21 (Construction of Cost Competitiveness for the 21st century) initiative has helped Toyota double its annual consolidated cost savings from 100 billion yen (which itself is a formidable figure) to 200 billion yen. Collaboration helps Toyota and its suppliers find ingenious ways of feeding cost improvements back into products to raise their value.

Collaborative forecasting of demand and supply profiles has helped retail giants like Proctor & Gamble and Henkel achieve improved shelf presence of their products and enhanced customer satisfaction while ensuring dramatic reductions in inventory and other costs of retailing.

In order to succeed in collaborative networking, industrial engineers would need to develop a total business perspective of the industry structure, supply chain dynamics (both vendor side and customer side) and process linkages between entities. Key drivers of business optimization need to be identified and skills of collaborative networking and management mastered. More than anything else, industrial engineers would need to be members of cross-entity and cross-functional teams that facilitate collaborative management.


The business challenges that a firm faces in today’s recession environment are a complex combination of strategic and operational issues, with every industry becoming intensely volatile and competitive. As Indian industry globalizes, business opportunities as well as competitive pressures enhance.

Industrial engineers can make a useful contribution to India’s global business development by creating a new skill-set for total business improvement. The 2x2 model discussed in this paper of focuses on ‘optimizing’ and ‘connecting’ as the thematic tools to be deployed across ‘internal business processes’ and ‘external corporate relationships’. The proposed business improvement model provides to industrial engineering a relevant and highly productive play in a wider business canvas.

Posted by Dr CB Rao on April 12, 2009