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The economics of manufacturing is changing as new trends emerge. Energy costs are changing and also declining in the United States which is great for manufacturers. The labor cost gap between developing nations and undeveloped nations is shrinking. New technologies including advanced robots and 3D printing is effecting the landscape for global manufacturing companies. This can be challenging because many questions arise on how to remain competitive and how to provide the most value from a firms supply chain.
Many companies are asking if they should re-shore because of the changing costs in labor and energy. Only a very small part of the new challenges to manufacturing is driven by labor costs and energy costs. Companies need to start thing about what will be driving business decisions in the near future. For companies to remain competitive in 2 year and even up to 10 years, they need to beginning managing for the next economic landscape.
Manufacturing strategies will need to become focused on adopting flexible supply chains. Learning what product segments need to be manufactured near demand will be critical as emerging markets overtake demand in developed nations. The supply chain ecosystem is a bit confusing for many businesses as investments need to planned and focused around demand. Proximity to demand and establishing the necessary training through community colleges to build the needed work force and the necessary partnerships will become the most fundamental driver of value creation.
Recently a manufacturing facility was moved from Mexico to the United States in order to take advantage of these trends in the value chain. This facility needed to be not only close to demand but needed to be able to access new technologies for better operations. Collaboration with customers are critical as markets in the united states seek more variety and specialized goods. This changes manufacturers to focus on process innovation and to seek out the new technologies all over the globe to incorporate them into their value chain.
The impact of demand variability has large implications on how to properly manage operations. Significant profit increases can be achieved by preparing for variability. Supply chain managers have listed demand variability as the top challenge to efficiently and effectively managing supply chains and there are mathematical ways to create the most value.
balancing performance with cost reduction
Health care organizations are struggling with changes in demand and are realizing that reducing costs by up to 40% while maintaining performance must be done sooner rather than later.
Changing payment models have been the norm for solving economic issues in health care organizations. HMO’s, accountable care organizations, and fee for service have driven providers and patients alike away from profitable services. so how do boards make decisions for the future?
The financial difficulties of changing payment plans is widespread and is forcing health care organizations to seek alternative means of growth. Traditional growth options are no longer feasible but taking a page from asset optimization business strategies, health care organizations can accomplish their goals .
What most health care organizations have is a reactive process to financial distress. They patch up problems as they arise but fail to operate a financially sustainable model. Often root cause analysis reveals issues at the institutional level. Financial distress is often a symptom of an overall strategy failure and boards have yet to adopt new policies to prevent re-occurrence.
Asset Optimization will be a core competency for successful boards. This systematic approach proactively plans for the practical use of assets as it relates to demand. Often Capacity is not an issue but the utilization of assets as it relates to changes in the market allowing for better planning and quantifying of the real value of assets. This process includes identifying an organizations most critical assets and creating an actionable plan to ensure financial success.
Technology is supporting health care processes in numerous ways to improve the quality of care, safety and efficiency. Using technology to support new processes in health care can be expensive, complex and time consuming however the benefits can be seen in the long term and currently we can observe this change. One of the major trends in health care is installing electronic record systems. These systems, large or small, are changing the processes to deliver health care more productively. They are highly complex but the bottom line is that work flow is vastly improving.
Typically, the health care systems have not used information technology to a large extent as compared to other industries. IT systems have many barriers in health care including the lack of focus on process improvement. Hospitals typically focused on the quality of care to increase revenue. Revenue generation came from new services, not processes so a significant amount of education would be needed to convince health care providers of its value. New services and specialization lead to fragmentation of health care delivery so smaller IT systems couldn’t capture significant value until recently
The electronic record systems have captured enough of the fragmentation in the health care industry to have created a positive Net Present Value investment. This will allow doctors to quickly gather historical information on their patients from multiple sources in real time. This can be especially useful in emergency rooms where decisions can mean the life or death of a patient. Lab tests and specialized diagnostics reports can now be completed faster and better. Wait times across the entire delivery system can be reduced and thus will require new ways to improve
The company Nuance, has created a way to improve work flows and reporting systems. In the article “20 of the Top 25 Connected Healthcare Facilities Partner with Nuance for Speech-enabled Radiology Reporting and Workflow Solutions” an IT system called PowerScribe 360 was been incorporated to improve the quality and speed of Radiology reports. The article also references The Ohio State University Medical Center improving the quality and speed of reports significantly improving more than expected. Clinicians have been able to more effectively use these reports to improve the quality of care. Costs have also been reduced by reducing the need for medical transportation. The effects of using IT to improve one aspect of this hospital seem to have a ripple effect of improvements.
Shouldice Hospital provides a surgical service to repair external (and not internal) hernia injuries. The hospital provided a hernia repair technique developed by Dr. Shouldice and developed “The Shouldice Method.” The service included a 4 day in patient surgery and recovery period where patients were often encouraged to exercise for better recovery.
Dr. Shouldice created a new hernia procedure that used several layers of sutures to create a stronger abdominal repair. The Method used took 45mins for first time hernia repairs and 90mins for patients whom had at least one surgery before. The market for this surgery developed by word of mouth and patients would directly contact the hospital for surgery. Many PCP did not recommend this surgery because of its simplicity and “bread and butter” type operation. Out of town patients were given a diagnostic questionnaire to determine if they should seek treatment or further diagnostics.
The Target market for this hospital is first and foremost only external hernia injuries requiring surgical procedure plus patients looking for an alternative to recommendation from their PCP. Also Shouldice hospital created a sense of community and belonging by creating an environment that encouraged interaction. Not only did the hospital itself have this environment, but reunions were held once a year with about 1,000 alumni. These operations were most common among males but Shouldice did not focus their marketing efforts towards just this group. Other groups included children, women, and the elderly however a specific strategies for these groups are not extensive. They did however allow parents of child patients to stay for free. Shouldice provided a quality service at reasonable rates. Charges were typically $320 a day and a $450 surgical charge (or on average $1,730) as compared to an average charge of $5240 by competitors. This value attracted most of the patients to the hospital, Hence a strategy of low cost operations to attract their target market.
Many patients in the market for hernia surgery are not worried about a low cost alternative; since they have quality health insurance coverage, price is not an issue and patients will prefer a geographically convenient hospital or a doctor they prefer.
The unique features of Shouldice Hospital include the patient experience. carpeted floors and unique layouts to encourage mild exercise. The hospital has created a highly sociable atmosphere to encourage community and comfort. Patients do not have a television or phone in their room and are required to walk to a sociable area to gain access, helping encourage exercise and recovery.
Shouldice’s competitive advantage truly relies on a quality service at a lower price. The combination allows for significant demand from the market and is a winning firm strategy. Its operations are systematic and efficient. There is a clear schedule for patients and set procedures that ensure a quality service is delivered. For example a patient is first processed by a 20 min examination before entering the system. If a patient has no hernia or if a patient did not correct their weight problem, they were typically sent home. About an hour after arrival, patients would be directed to a room that was assigned to them and found one a wristband. Each room was semi private and had two beds. A nurse would conduct an orientation session for multiple patients to educate them on daily routines after the surgery.
Variability in demand is well controlled with batching patients into the system by creating group orientations. An ER would service people based on arrival and severity of the emergency however this hospital plans and schedules groups well in advance. They are always screened before entering the system for reasons to abate surgery, which result in a more efficient patient flow. The specialization of the hospital allows for quality control through service processes.
The Order of Magnitude of costs for the customer will be, 1, lost time at work, 2, dollars paid 3, pleasantness of the experience. This assumes that most patients are working and have a limited budget. It is possible that some people value the pleasantness of the experience more than the cost of the surgery but it is difficult to determine without more information. To Estimate the value added from the service provided, we need to know the actual costs to each customer and if not the averages. However since this is a medical procedure, There is an unlimited value added. I reference the book “your money or you life” to show that when faced with medical needs, life is always chosen over money.
Northwest Airlines and the Detroit Snowstorm What Went Wrong?
Hindsight is 20/20, and this certainly is the case when considering the multitude of factors that went wrong for Northwest Airlines during the Detroit Snowstorm. First and foremost, Detroit was too late on canceling inbound flights because of the snowstorm, and therefore although the flights landing in Detroit landed safely, they were unable to access the gates at the terminal to unload passengers. One of the prevailing factors in this situation was the lack of communication on account of all parties. Air traffic controllers failed to close the airport to in-bound flights and re-route other flights. Pilots were left in the dark as to why they were unable to access the terminals, and their suggestions fell on deaf ears even as the situation worsened on the planes. During this time passengers were becoming extremely impatient. Furthermore, many assumptions were made by both the ground and flight crews without having all of the necessary information. For instance, it was assumed when the flight took off from Florida that the Detroit airport was open and accepting flights. However, the worst part for passengers was waiting on the plane in Detroit for hours without adequate food, water, and lavatory systems which quickly lead to dire situations in which tempers flared – and for good reason. Passengers felt as if they had been taken hostage, and some had even attempted to jump off the plane. Passengers could see empty gates at the terminal, and did not understand why they could not access them, or even the Northwest Airlines hangar just a short distance away.
Another major problem was the staffing at the Detroit Airport itself. According to the Detroit airport, there were not enough personnel on hand to sufficiently plow the way for airplanes to get to the gates because of the severe weather. If Detroit new this information before the planes landed, they should have been obligated to re-route planes already in flight to land at safer airports which could accommodate them.
Therefore, it appears that the biggest factors in this case were the lack of communication and information flow between the parties. Unfortunately, this was a very difficult situation for all parties, and one that could have easily been avoided.
How the Situation Could Have Been Avoided
This situation could have been avoided by improving communications and planning. Specifically they could have canceled the in-bound flights to Detroit earlier, either based on the weather forecast or information on weather patterns from surrounding airports to the West. Other airlines did not encounter the same issues as Northwest because of their early planning and subsequent flight cancellations. The pilots should have been alerted that no traffic would be allowed at Detroit, and any planes already en-route should have been re-directed to other airports. Furthermore, for planes that had already landed, the first priority should have been to get passengers off the flights. Empty planes should have been moved to the hangar or out of the way so that passengers could exit the plane, instead of being forced to wait in worsening conditions in which there was no food, water, or even clean lavatories. Even in the worst case, passengers should have been able to get off the plane via stairs, and bussed to the terminal. There is no reason passengers should have had to stay on the plane for such a long duration of time, no matter how many personnel were on hand or not. The ground crews and crews in the airport should have listened to the pilot’s suggestions for getting passengers off the planes. How Northwest Airlines Should Respond
Northwest Airlines should respond by apologizing to the customers, refunding their flights, and giving them free tickets for another round-trip flight. In the end they should expect a lawsuit and plan accordingly. They should also try to limit the exposure of this situation so future sales are not affected and require passengers to sign an agreement not to sue in return for free tickets and benefits. This would be in the fine print and would abate a class action lawsuit by limiting the total compensation that could be awarded. They could also calculate the exact number of people they would need to opt out of a lawsuit and give just enough incentives for that amount of people to accept the offer. All in all, Northwest needs to limit risk of a lawsuit and limit effects of negative publicity.
In the global business marketplace, managing a supply chain is a much more complex encounter because of the constantly changing demands of industry consolidation, shorter product life cycles, and the need to adopt new technologies. Only 12 percent of businesses executives think they are effectively managing their global supply chains resulting in unnecessary spending and missed sales. Supply Chain Management Consultants can help organizations achieve their goals by bring expertise and experience to the conversation of proper supply chain management. At Operation Consulting Group, our supply chain management consultants will use advanced analytical models to match your supply chain to your business strategy.
Operation Consulting Group’s Mission: helping our clients achieve exceptional, long term, and notable performance improvements. Our insights and those of experts in various fields aim to provide guidance for business managers and leaders.