1. Introduction
The net result is that many companies aim to reduce R&D cycles in an effort to remain competitive, but instead find themselves mired in a bog of endless design revisions and production rework. With small profit margins on electronic products, it often takes the sale of several product generations to offset the cost of the initial product and begin turning a profit. At this rate, catching up is far too expensive and difficult to justify. A smarter approach is needed.
The manufacturing approach for a new product is often a trial-and-error process. Production tools are made or modified, and the product is produced. When the tools don’t work as expected, or the product has unanticipated failure modes, the tools are modified again and the product reprocessed. This cycle can repeat many times before the problems are identified and corrected. In some cases, the product is declared end-of-life before the cost of tooling is ever recovered.
The electronics world is changing faster than ever. Shorter product development cycles demand efficient manufacturing practices. These practices, in turn, demand an intelligent approach to the manufacturing lifecycle.
2. Understanding Amazon’s Manufacturing Process
By identifying the constraint, Amazon now has to brainstorm ways that it can move towards the Edges of Current Reality to alleviate the constraints. During this step, it is important that company decisions are made so they do not harm the company in the long run and that there is constant monitoring and quick correction to avoid reverting back to the old ways.
To identify constraints in the whole process, Amazon must find out which process has the constraint that hurts system throughput and/or yields excess inventory. Find the constraints step is quite simple as it is looking for where the switch to higher production of the specific backpack has to be done. The manufacturing process constraint is found at the outsourcing of the backpacks manufacture. This meets the constraints requirements which are a bottleneck should have constraint of less capacity, and win for a time-horizon to alleviate the constraint, it is taking over the manufacture of the backpack for lower cost.
The same theory of constraints can be applied to Amazon’s backpack manufacturing process. In order to find out how to alleviate the constraint of producing more flagship backpacks, Amazon must first identify the constraints on this system. These are currently a lack of design as previously it had only copied designs from its other top-selling backpacks, and the outsourcing of manufacturing the backpacks to an outside supplier as it has realized this will greatly increase manufacturing costs.
In constraint identification, two questions are asked, ‘what must be true for us to produce more X’ and ‘what prevents us from increasing X’. The major goal would be to get about 130,000 vehicles per year at Luton. This would increase the car models availability. The constraints at this stage are the main large funding and the lack of expertise at manufacturing cars. Can actually realize its own assembly plant in Britain and avoid the outsourcing which would increase production cost. With these constraints, it is easy to see the need for changing the system.
The Saturn Corporation was given this exact challenge; to figure out how to manufacture their cars so that the make-to-order and make-to-stock strategies could be used with other cars, and that this could be accomplished in their original idea of a flexible manufacturing line. The make-to-order vehicle is the first constraint in the system at Spring Hill. Cost there is almost two billion dollars to figure out how to manufacture the cars so that the make-to-order and make-to-stock strategies could be used with other cars, and that this could be accomplished in their original idea of a flexible manufacturing line. This is where the largest threats to the manufacturing process are Britain’s ability to produce its own cars and the outsourcing of large costly parts to outside suppliers.
Theory of Constraints provides an insightful decision-making model for the manager concerned with achieving manufacturing improvement by using the right kind of changes. This theory calls for managers to identify the constraints of their systems and then find ways to alleviate the effects of the constraints.
3. Benefits of Streamlining Amazon Product Manufacturing
This improved supply chain flexibility also helps to protect against offshore outsourcing. Many products are offshore outsourced to save costs. However, high shipping and inventory carrying costs paired with long and inflexible lead times are usually more expensive for the manufacturer and result in less product availability and responsiveness. By streamlining your manufacturing processes while still maintaining competitive costs and high quality, you can ensure the continued manufacturing of your products domestically or within a higher-cost country, ultimately allowing for higher sales volume and product availability.
The ability to optimize your supply chain is also a very important benefit of streamlining your manufacturing processes. Companies are under tremendous pressure to be more responsive and flexible while providing high-quality products at the lowest possible price. Meeting these objectives is difficult, especially when you consider the short product life cycles and long supply chains that most high-technology products have. Manufacturers must have the ability to make changes to their production schedules if they are going to respond to the frequent changes in demand that are commonplace with products that have short lifecycles. The ability to delay production and quickly make changes to manufacturing schedules requires a high degree of manufacturing flexibility. The increasing demands from retailers for vendor-managed inventory (VMI) put even more stress on the manufacturer to build flexibility and responsiveness into their supply chains. VMI is a cross-company coordination that improves supply chain efficiency by having the vendor’s system automatically re-supply the product at the retailer’s storage (Wikipedia). This requires very reliable forecasts and near 100% in-stock availability of the product. High costs or failure to meet either the high availability or low-cost objectives may result in the loss of the manufacturer’s product placement or possibly the entire account. By improving your manufacturing processes, you improve your ability to meet these changes in demand and product placements, ultimately resulting in higher sales and more satisfied retailers.
Streamlining the manufacturing of Amazon products benefits manufacturers in a number of ways. There is the obvious advantage of lowered costs. Streamlined processes result in less time wasted and less money spent. The use of the web and EDI further reduces costs by eliminating communication costs. Automation eliminates the need for manually entering data and creating reports. Less time and money spent on these processes translates to higher efficiency and lower costs for manufacturers. Finally, smaller lead times allow for just-in-time production where manufacturers do not have to carry inventory for long periods of time, tying up more of their money.
4. Strategies for Efficient Manufacturing
The manufacturing of a product is a somewhat broad methodology consisting of various aspects. The most effective method to manufacture a product will be the method consisting of the least amount of resources whilst still producing the best outcome, whether it’s price, quality, or speed. When considering methods for manufacturing, it is hard to disregard what Lean Manufacturing can bring to the execution of the product. Lean Manufacturing is a method of looking at the things which do not add value to a product and simply eliminating them. The less value that can be added to a product, generally the better the outcome as the quality will be higher. Lean Manufacturing is frequently considered the best approach to begin manufacturing a product, and it certainly has its uses. Taking a trip to the manufacturing plant for the PS2 Slim would clearly identify how much value there still is in this method. However, we’re here to discuss how much we can simplify things and still get a great outcome.
5. Leveraging Technology for Streamlining
A methodical and “backwards” approach such as this one for a new flip flop product has led to redesigning the flip flop to remove costly and manual operations in sewing fabric to foam. The idea here is to qualify a factory capable of making the specified product while minimizing the factory’s capital investment and driving supplier’s process development to align with future company goals for said product. An increased use of internet-based tools is proving to be of great aid in achieving these manufacturing goals. This week, a production tracking system will be implemented in the form of a web blog which will display the progression of this specific product through the manufacturing process. Heuristic models and simulation tools have also been used to determine capacity needs and cause analysis in existing projects. Amazon now employs a small group of engineers under ITS (Industrial Technical Support) involved in projects spanning mentoring of junior engineers to developing technical solutions for operations.
The initial emphasis of Amazon’s manufacturing operations was to experiment with different products and methods. The strategy entailed testing models in products that proved to be unviable, such as its electronics manufacturing. The company shifted from making products to creating manufacturing solutions for other companies. Amazon’s vertically integrated operations meant developing more unique and proprietary manufacturing processes. Today, those efforts are in the form of process (method or technology) development, product development (hardware), and business opportunity identification. Amazon has discovered the key to great manufacturing execution is having the product designed to match your process capabilities. In the past, they have been stuck with process changes in order to massage a product through manufacturing and have learned that the increased cost and cycle time usually lessen the opportunity.
6. Ensuring Quality Control in Manufacturing
First and foremost, a company must first identify exactly what the specific quality standards are for the product they wish to produce. Without a clear definition of what the quality standard is, it is impossible to produce a product that meets it. Once the standards have been established, the next step is to build quality into the product. This important step is what allows for the prevention of defects, as it is always more efficient and cost-effective to build a quality product from the beginning, rather than to try and find and fix defects after the fact. Building quality can take on many forms, from using higher-grade raw materials and components to additional testing and inspection steps during the manufacturing process.
Quality control has always been a determining factor in all types of manufacturing, and the situation is no different when manufacturing products to be sold on Amazon. Because Amazon itself is so focused on quality and customer service, it is important to not only produce a quality product, but to also prove to Amazon through their extensive application and testing process that your product is of a high enough quality to be listed on their site.
7. Maximizing Supply Chain Efficiency
Supply chains for manufacturing are rarely fast and never perfect. They all have segments that are slow and outmoded or are hampered by too much or too little inventory. Over the past six years, Amazon has been developing a supply chain team whose focus is on making Amazon’s supply chain the most efficient in the world. By making their processes faster and leaner, the supply chain team can take costs out of the supply chain. But simply taking cost out of the supply chain is not always best for the business. Unconstrained cost reduction can lead to reduced service levels and can actually increase supply chain costs. This is an important point: Amazon does not aim to simply reduce supply chain costs. The team’s goal is to take costs out of the supply chain and then redeploy those freed resources in areas that grow the business. An efficient supply chain can give a company a competitive edge, and they may decide to use the resultant cost savings to lower prices or enter new markets. Amazon’s supply chain team will aim to stochastically model the impact of cost reduction supply chain programs versus effort to grow the business and make decisions on how to deploy resources based on their understanding of the impact on the bottom line.
8. Collaborating with Suppliers for Better Results
Step-by-step supply management was examined by Toyota technical director Dr. K Hiranabe. He detailed practices to ensure a smooth transfer of component technology from supplier to manufacturer, giving examples of technology transfer from Japan to overseas plants. This involved developing detailed process plans to assess the feasibility of overseas production and to investigate potential problem areas. Steps were taken to ensure that suppliers understood the technology that was being transferred before the final decision was taken. In Toyota’s case, many technology transfers are undertaken at joint ventures or established supplier plants. This makes technology comprehension and potential problem escalation easier to manage due to the supplier’s proximity to Toyota, who can in such cases still offer guidance.
An increasing trend in the industry is for buyers and suppliers to form strategic alliances in which both work together to achieve target cost reductions and technology innovation. Two such examples for the automotive industry are the relationship between Rover and Mayflower and that of Ford and Dana Corporation. These alliances often involve long-term agreements for product development and procurement during which teams of both suppliers and manufacturers work together in design and process development.
One well-established way to do this is to hold a supplier conference in which the manufacturer explains to suppliers its organizational changes and the new market demands. The manufacturer can then use follow-up working groups and supplier conventions to set out performance targets. Target setting can allow suppliers to have a clear understanding of what is expected of them and can act as a good performance measurement tool.
Many successful firms give their suppliers more responsibility. Nissan, for example, expects suppliers to be responsible for the entire production of the components that they produce. Suppliers are in charge of their own product design, testing, process design, tooling, and equipment investment. Many other manufacturers expect suppliers to deliver design innovation and cost improvements. Ford, Visteon, Johnson Controls, and others have worked with suppliers in joint design ventures to develop new products.
9. Implementing Lean Manufacturing Principles
Involving the workers in the production process is an effective way to ensure that the products will be built with the utmost quality. It gives the workers a sense of responsibility as well as ownership of the product. They will feel proud to be producing something that they know the customer will truly value. With workers always striving for a sense of improvement, the production and quality of the products are sure to continuously get better.
Another method of cost savings is being able to produce the customer’s orders exactly when we have the need for it. By stocking up inventory of products and producing a product before the customer actually wants it is quite similar to tying up money in a savings account. Getting the money back may take a while and in the end, the product may not even be what the customer wants because customer needs and wants are always changing. By only producing what the customer wants when the customer wants it, it will be a more cost-effective method of production. We will always have a high demand for this specific product because it is what the customer wants at the time.
Each and every step in the manufacturing process needs to be evaluated with the “what value does this add for the customer” mentality. Any steps that don’t add value for the customer are then considered to be non-value adding steps and therefore considered waste. By eliminating these non-value adding steps, the process becomes more efficient and therefore a more cost-effective method of production. To create a smooth flowing production process, all steps need to be sequenced such that the product can flow to the next step immediately after the previous step is completed with no wait time in between. This will also create a more cost-effective process. By first eliminating non-value adding steps, as well as organizing steps into a more efficient sequence, we will already begin to see cost savings.
Lean manufacturing principles are a practice that all members of the firm should be involved with to achieve the continuous improvement of the company. It consists of eliminating waste, creating a smooth flowing production process, making only what the customer needs when the customer is in need of it, involving the workers in the production process, and continuously striving for improvement. In implementing these principles, as well as striving for continuous improvement, Amazon Manufacturing will be achieving its goal.
10. Optimizing Production Planning and Scheduling
The Dynamic Programming Algorithm is something that Amazon could recommend to the more complex clients, those who have a large product mix. With that, their plant loading factors are very low. This is due to general network flow formulations and linear ordering formulations being infeasible when the amount of subcontracting and the possibility of producing the same product at different plants are taken into consideration. The DP algorithm is able to generate a sequence of production so as to maximize the throughput of the chain of production. This provides a more efficient way of production as the current schedule may be doing a lot of backtracking and changes to resource requirements and dates. This algorithm has proved to be successful in the past for a similar case company.
Amazon has designed a specific tool to help manufacturing managers in companies who use Microsoft Dynamics Great Plains as their ERP II MRP program. It is known as the ‘MPS/MRP view’. This tool provides an advanced but simple way to generate a feasible production schedule. First off, the user will be required to select the site and the resource they want to create a schedule for. They will then be able to generate a single product or product family finite schedule that takes into account current inventory, lead times, and requirements from and producing higher-level resources. With the schedule, the user is able to drag and move operations to quickly react to any demand or capacity changes. They will also be able to interact directly with and make changes to production orders. By having a tool specific to what Amazon’s clientele use, it will definitely make the production planning process easier, and it is something for other manufacturing managers to look forward to in the future.
Considering the complexity and multitude of production stages entailed in manufacturing a product, the production plan might extend for several weeks. The complex production process for most companies involves a wide range of resource types, long processing times, complex routing, and scheduling constraints. Thus, production planning and scheduling become a difficult and time-consuming task for the manufacturing manager.
11. Enhancing Product Packaging and Labeling
– Be frustration-free: Amazon has created a program that checks if a package is considered “frustration-free.” Frustration-free packaging is recyclable and easy to open. This is Amazon’s long-term goal because it makes more economic and environmental sense; items that are prep-intensive and are not considered frustration-free are charged a minimal $1.00 per unit. This charge is meant to encourage the supplier to take advantage of a prep service or do the work themselves to bring the package to frustration-free standards. Any item that is considered unacceptable at the fulfillment center is subject to a $1.99 charge back to the supplier. Items that are eligible for frustration-free packaging are marked as such with “Ships in Amazon Certified Frustration-Free Packaging” above the add to cart button on the product detail page.
– Prevent the product from degradation: Products with an expiration date must have at least 90 days before the date of expiration when they arrive at the fulfillment center.
– Protect the product: All units must be boxed, or as Amazon puts it, “Units must be contained to present a professional, organized appearance to our fulfillment center associates and to prevent any damage to the product or other products during storage or shipping.”
Amazon’s basic requirements in packaging, such as barcoding, package dimensions and weight, and comprehensive shipping procedures, are all included in the Packaging and Prep Requirements document. Amazon’s packaging is required to:
12. Improving Inventory Management
Finally, and most importantly, there is a lack of effective communication of inventory policies and system logic to the many people and systems involved in moving the inventory. Oftentimes, the result is the right inventory in the wrong place at the wrong time. A new systems approach is being developed to provide a “control tower” type interface which will give clear directives and a visual representation of the state of the inventory and the best places to store and move it in order to meet overall supply chain objectives.
During the busy season, inventory levels increase significantly, resulting in even more crowded conditions and reduced space availability for new product lines. Through the use of simulation, Amazon will develop dynamic storage policies which dictate when to re-allocate and/or build additional inventory storage space. The models will be used to assess the impact of having more storage space in order to justify the associated increase in inventory carrying costs.
The managing of storage space according to the usage of tools and equipment is very difficult. However, in the manufacturing world, it is absolutely critical that inventory be stored in a manner which facilitates product flow and maximizes space utilization. Currently, Amazon has running inventory locations in the hundreds. It plans to combine some of these locations during the slow season to free up space for production without actually increasing square footage. Simulation models will be used to determine the fewest number of locations that can house all required inventory to maintain current order fill rates.
13. Reducing Waste and Environmental Impact
A major concept for reducing production waste and cost is to increase efficiency, without increasing headcount. Efficiency increase results in waste reduction, providing existing workers a chance to escape the struggle and tedium of their everyday jobs. If a company considers that a significant increase in headcount ties up prior manager-worker productivity gains, it is concluded that the increase in net profits is marginal. Fortunately, the measure of automation and mechanization technology for efficiency increase is high, and most often the incurred cost will pay for itself. The results will also provide a safer and easier work environment. An important consideration is for the future state of an ideal mix of both production volume and efficiency. This sustainability is measured as productivity rate in man-hours and can continuously demand improvement in efficiency so long as increased headcount is avoided. A company with a productivity rate short of the value of high-volume production is said to be overproducing. This leads to excess inventory often hiding production problems and higher cost per unit. High-volume production must happen at only the right times, requiring a production leveling method to avoid fluctuations in volume and efficiency.
The Mahajan improvement strategy suggests that a company should attempt to cut costs down to one percent of sales. Measure the total reduction in waste and its related costs. This can be done with much less effort than it would take to increase sales or production. A company will probably discover that every dollar spent on reducing waste and related costs is four to ten times more cost-effective than capacity-increasing measures. To increase results, identify potential solutions using work at many levels depicting waste/cost reductions. An effective approach is to select only those prospects that will require little or no investment. This is not to discourage more expensive waste/cost reduction measures but is intended to accelerate the implementation of immediate solutions. Considering the cost effects, low-investment measures usually have the greatest benefit. Widespread concern and improvement in manufacturing efficiency will limit the amount of waste that occurs in the first place. This prevention incurs less cost than other ways to eliminate waste and results in few conveniences. Step by step, the original state of no waste or convenience is reached by making the value-added work and workflow more obvious. Regular efforts will reduce the level of the present waste. This waste reduction cleansing can be done without major reorganization and is the most effective way to increase profitability.
14. Monitoring and Analyzing Key Performance Indicators
Amazon.com’s short-term financial and customer satisfaction goals are easily measurable. Revenue growth and customer retention rates will effectively show if the company is meeting its targets. Rapid new customer acquisition is another current goal, which can be measured by comparing new and total customer rates with Amazon.com’s established customer acquisition rates. Amazon.com is most vulnerable in its internal business processes as “[it performs] the vast majority of its own functions, excluding payment and transportation” (Amazon.com, 2009). Internal business functions must measurably provide cost and efficiency gains to avoid wasted expenditure that can change projected outcomes. Finally, learning and growth indicators are used to measure the construction of a solid foundation on which future Amazon activities can succeed. The mission statement “to build a place where people can come to find and discover anything they might want to buy online” upholds a high customer market knowledge and a platform to turn great new ideas into action. Success would lead to continued expansion into new and existing markets, measured through new site and service implementation success rates and an increase in sales from these functions.
Businesses primarily use key performance indicators to evaluate their financial performance, but they must be sure to measure other areas affecting overall success. A balanced scorecard is “a set of measures that are directly linked to a company’s strategy” (NetMBA, 2002). The balanced scorecard differs from a key performance indicator as it links current actions with targets and goals set by the company. Key performance indicators cover four main areas: financial indicators, customer satisfaction, internal business processes, and innovation and learning business activities. Amazon.com is a youthful company still focusing on expansion. Despite this, its large market share and customer base, the short-term focus should be on financial returns. Long-term success will rely on continual customer satisfaction and harnessing innovation and new market opportunities. As these are vastly different goals, both long-term and short-term key performance indicators need to continually change in accordance with their relevance to the designated goals.
15. Training and Empowering Manufacturing Workforce
The hallmark of any world-class manufacturing system is a highly trained, engaged workforce that is able to consistently identify ways to improve the manufacturing process. This is achieved through empowered employees who can actively engage in kaizen, a never-ending series of improvements that seek to eliminate waste in all forms. Amazon Retail encourages this development by providing training to all levels of the workforce. Front line associates participate in a comprehensive training program before they begin active manufacturing, learning the vision for the site and important technical skills. AmR provides a career choice program that encourages progression to technician level roles where the most highly skilled and experienced manufacturing associates identify and lead process improvement projects. An internal job posting system ensures that all associates have a clear career progression plan. Amazon has been able to successfully leverage this system to prepare the workforce for site growth and success. To date, 95% of AmR’s L4-L6 maintenance technicians have been promoted from within. Technicians and other process leaders are sent to offsite training that includes a series of Amazon-developed leadership programs designed to build effective managers and establish cultural expectations for leadership and change. This training has been a key factor in enabling process change by effectively establishing a leadership culture in a technician population that historically promoted based on technical skill, not leadership capability.
16. Conclusion
Lastly, the biggest issue with making changes at Amazon is that the company is very large and very resistant to change. This means that any large-scale initiatives are met with very high skepticism and/or resistance. If the management teams can become convinced of the positive impact that the changes could have and we persuade them to create teams to push these initiatives, I think that they could make great strides.
Two of the largest impact ideas (Inventory Placement Program and Centralize Inventory Management) are meant primarily to improve the flow of inventory throughout Amazon’s network. I think it would be very feasible to test these pilots on a small scale across several product categories. They could select one or two FCs per region and one or two product categories and only move forward with the plan if significant improvements are seen. What’s so great about these programs is that they are commoditized, meaning each iteration should become less costly. This would also mean that in the case of any failures, it would be very easy to revert back to the old system.
Amazon is already doing a few things to improve on their supply chain, such as the forecasting system and working toward Vendor Flex. There are many other tools and techniques they could be using, sometimes with the systems they already have in place. Even simple changes, such as keeping more organized records and consolidating shipments, could greatly improve the lead time on receiving inventory and decrease the amount of inventory the company needs to keep on hand.
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