General Electric TSBO Purchasing and Just-in-time

1. Jamie Claar Nyron Gopeesingh Antonio Roig Sandra Wenning Amy Wong Jonathan Wong Robert Wort General Electric TSBO Purchasing and Just-in-time

2. Objectives • Definition of technology “Technology refers to the work processes, techniques, machines and actions used to transform organisational inputs (materials, information, ideas) into outputs (products and services).” (R J Schonberger “World Class Manufacturing in the Next Decade,“ 1996.) • How changes in purchasing technologies affect structure and culture? • How JIT affects the relationships with Suppliers and Customers? • Benefits and drawbacks of JIT • Recommendations and Implementation • What structural and cultural changes are needed?

3. Overview of TSBO • General Electric TSBO produces railway locomotives and electric drive motors, rail transit vehicles, and oil and other drilling equipments. • TSBO experienced a severe decline in locomotive market from 1970 through 1976: • In 1976 no order were placed for locomotives. • Low quality supplies. • GE agreed to invest US$300m to TSBO in a expansion program in 1977. • In 1979, TSBO implemented an MRP program. • Resulted in the first-ever Materials Operating plan. • Consolidation of purchasing in one unit.. • Created PACE, SOS and DSS programs. • In 1981, TSBO analysed the alternative of implementing JIT • To further improve quality and, • Further reduce costs… • But the currently DSS program conflicts with JIT doctrine.

4. Small batch-unit production Purchasing: Mechanistic structure Sequential purchasing interdependence Adversarial with suppliers Individualism Short-term contract focused Current situation vs. Introduction of new technology Structure   “Just In Time”  Culture Technology First-ever Materials Operating plan MRP system operating by Dec 1979 Moving to FMS (Grove City) “New era for Purchasing at TSBO” : PACE, SOS, DSS Relationship with many suppliers

5. JIT concept: Classic diagram • JIT Definition includes: • Recognised as a technique / philosophy / way of working. • Items are purchased and only move through the production line as and when they are needed. • Associated with the Toyota motor company, JIT was initially introduced as part of the "Toyota Production System." • Now recognised as a key part of “Lean Manufacturing.” Company Sea of inventory Rocks - the problems by the sea of inventory If we reduce the inventory level then the rocks become exposed, as below. Company Now the company can see the rocks (problems) and hopefully avoids (solves) them before it runs aground! Source: J. E. Beasley (Faculty member of Imperial College)

6. Cultural implications of JIT at TSBO - Suppliers • TSBO must change the way it views suppliers: • Increasing openness – information flows • A spirit of partnership – mutual benefits • The increasing importance of trust • Vendor “co-destiny”

7. Cultural Implications within TSBO plant • Participative management, task ownership • Commitment to organisational goals • A team-oriented approach • McGregor’s Theory X and Theory Y • Increased responsibility for shop-floor workers • Initiative fatigue

8. Structural Implications within Material Management • A significant change in job content • From tactical to strategic • Reduction in headcount • Importance of boundary-spanning

9. Structural Implications for TSBO plant • Optimal fit between structure and workflow technology • Current organisation design fits nature of production flow • Relationships between elements of organisation must be examined

10. high analyzability low variety high low A Framework of Department Technology Mostly Organic Structure 1. Moderate formalization 2. Moderate centralization 3. Work experience 4. Moderate to wide span 5. Horizontal, verbal communications CRAFT Organic Structure 1. Low formalization 2. Low centralization 3. Training plus experience 4. Moderate to narrow span 5. Horizontal communications meetings NONROUTINE Mechanistic Structure 1. High formalization 2. High centralization 3. Little training or experience 4. Wide span 5. Vertical, written communications ROUTINE Mostly Mechanistic Structure 1. Moderate formalization 2. Moderate centralization 3. Formal training 4. Moderate span 5. Written and verbal communications ENGINEERING Source: Daft. Organization Theory and Design, 8th Edition. P.263.

11. Mechanistic and Organic Structures

12. high analyzability low variety high low A Framework of Department Technology MostlyOrganicStructure 1. Moderate formalization 2. Moderate centralization 3. Work experience 4. Moderate to wide span 5. Horizontal, verbal communications CRAFT Organic Structure 1. Low formalization 2. Low centralization 3. Training plus experience 4. Moderate to narrow span 5. Horizontal communications meetings NONROUTINE Mechanistic Structure 1. High formalization 2. High centralization 3. Little training or experience 4. Wide span 5. Vertical, written communications ROUTINE Mostly Mechanistic Structure 1. Moderate formalization 2. Moderate centralization 3. Formal training 4. Moderate span 5. Written and verbal communications ENGINEERING Source: Daft. Organization Theory and Design, 8th Edition. P.263.

13. INTERDEPENDENCE COORDINATION High Reciprocal Horizontal structure, cross-functional teams Face-to-face communication, Unscheduled meetings, Full-time integrators Scheduled meetings, task forces Vertical communication Plans Rules Mutual Adjustment Sequential Sequential (product manufacture) Planning Pooled Pooled (product delivery) Standardization Low Task Interdependence and Coordination Means Source: Adapted from Andrew H. Van de Ven, Andre Delbecq, and Richard Koenig, “Determinants of Communication Modes Within Organizations,” American Sociological Review 41 (1976): 330.

14. Significant cultural differences must be taken into account… • In 1981, William Ouchi, author of Theory Z: How American Management Can Meet the Japanese Challenge, formed Theory Z • Combining American and Japanese managing practices in organizations • Many differences in style of management between the two countries • Japanese believe in lifetime employment • Secure in their positions • Japanese believe in trust • You should always be loyal to everyone in your company • Including the people who supply your company with supplies

15. How will the JIT system affect relationships with suppliers? • Long-term, contractual relationships, emphasising trust, partnership, openness, co-operation • From multiple suppliers assuring security of supply to few suppliers, or single-source • Reduction in paper work, as fewer purchase orders and invoices are raised • Longer-term commitment gives security to suppliers • Increase demands on suppliers – quality and on-time delivery are essential

16. How will the JIT system affect relationships with customers? • Customer demand will be the main driver of the manufacturing plan. • The JIT approach may be extended – anticipate future customer demand to assist production planning • Improved product quality to increase customer retention. • Savings from the JIT cost reduction may allow TSBO to pass cost savings on to customer

17. Benefits of Just In Time • Reduce costs through lower inventory and storage space • Reduction in manufacturing cycle times • Reduce material handling • Improve product quality • High productivity through worker involvement and higher work skills • Stable and reliable supplier relationships with information sharing

18. Risks and drawbacks of JIT at TSBO • Work stoppage due to possible material shortage or poor quality. • Cultural differences between American and Japanese supplier relationships. • High cost of frequent supplier distribution. • Contradicts with current purchasing practice (DSS program) and competitive bidding process. • Possible ethical and legal problems arising from too much familiarity with vendors. (e.g. Price Fixing) • Lack of support from employees.

19. Partnership with suppliers Just in Time Team orientation Intranet and Extranet JIT education program Inventory Tracking system Recommendation and Implementation Purchasing: Mostly “Organic” structure Horizontal communication & Employee Involvement Implement JIT at Grove City Plant Reciprocal purchasing interdependence Create Product teams and reduce Material Management Managers Decentralised decision making Structure    Technology Culture

20. Recommended Structure: Material Management Organisation Manager Materials Material & Inventory Control Advance Material Inventory Program Purchasing Production Control Locomotive Team Diesel Team Propulsion Team Source: Adapted from David Nadler and Michael Tushman, Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.

21. Questions & Answers