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(This section can also be subtitled: The Case of Central and Eastern Europe) THE ESSENCE OF THE PHENOMENON OF BEST PRACTICES IN BUSINESS All talk about logistics and supply chain management practices - the best, the good, the bad, and the worst - seems to pervade logistics and supply chain managers (at least temporarily) on both sides of the Atlantic. The visibility of the widely publicized successes of companies such as Toyota, Wal-Mart, Dell, Apple, IBM, P&G or IKEA has encouraged supply chain managers from many other industries to benchmark against their practices and to try to apply some of the practices in their own organizations. In management, are there practices which can contribute to the achievement of established business goals in the best possible way? The answer to this question has probably always been on the minds of management theoreticians and practitioners. The very notion of best business practices also seems to be nothing new. The best practice phenomenon has been widely regarded as a 'corporate miracle' and became popular among practitioners of various disciplines in the 1980s and 90s. In the current global economy of the 21st century, where companies more than ever are being forced to optimize their operations as a matter of survival, the term (or buzzword) 'best practice' gains more relevance for, and more interest from, key management personnel every year. Everyone wants to know how their operations compare with those of their competitors, and best practice metrics is seen as one way of doing this. More and more companies see value in copying such practices if they are shown to be more efficient or more effective than current methods. The ability to translate the successful experience of one organization for the benefit of another represents a core element of the operating philosophies of many leading companies from all continents, which integrate best practices into their operating philosophies. The term 'best practice' is widely, albeit unreflectively, used within any type of business, including logistics and supply chain management. Best practices come in many shapes and sizes. There are best practices around policy, concept, model, process, activity, initiative, information, organization, people and technology. Taken together, best practices provide a comprehensive framework for designing, implementing and operating at the optimal level of performance. There is a plethora of 'best practice examples' everywhere, especially if they concern the presentation of a company, its business offer, its successes and its achievements. A closer analysis of these practices indicates, however, that the term is rarely precisely defined and in most cases it is not uniformly understood, while the cited examples rarely reflect those business achievements which deserve publicity and the notion of 'the best'. Looking at the posts and comments on websites, it appears that the term is either 'overused' or misunderstood. Unfortunately, companies often confuse the latest or trendiest with the best, and the best practices of one era are soon superseded by the ever more ludicrous fads of the next. Best practices might be concepts, processes, activities or procedures with demonstrated ability to achieve superior results, which have been shown in practice to be the most effective and are considered leading edge, or exceptional models for others to follow. The best practice cannot be an acceptance of mediocrity; it must be supported by an achievement of unique success, ensuring the company's competitive advantage and its ability to achieve better results than the competition. Only then can such practices become the basis for achieving success, the consequence of which is a practice worthy of imitation by others. Using proven patterns as a base saves us from running into problems that others have already experienced, and also prevents us from reinventing the wheel and wasting effort. It pays to work smart by leveraging and building on existing information or proven patterns to fit our need. So irrespective of the name we'd like to give them, we do need 'things' of the nature of best practices and patterns to help us do our job better. To some extent it doesn't matter if the 'best practices' are really best or not. 'Best practices' is only the name we choose to call them. Maybe it's a bad name but the important thing is that they teach us something, even if we don't agree with them. Unfortunately, this entire discussion is based on a misunderstanding of the word 'best' in the context of the phrase 'best practice'. It does not mean 'better than all other practices in all contexts'. TRANSFERRING BEST PRACTICES -- ONE SOLUTION FITS ALL? Can best practices be moved across sectors? Is it possible to transfer successful solutions from a small company to a large organization and vice versa? Are there any generic solutions that can be used regardless of the context in which they are applied? What are the problems facing companies when they transfer practices and learn from each other? The mythology about best practices is that they universally improve every organization. The truth is more likely that firms are so idiosyncratic that any practice born elsewhere probably needs tailoring before it can be imported. 7 Some of the best practices are universal by nature and may be applied in all organizations and regions of the world (therefore are easily transfer able); some, however, are specific to given sectors, regions or firms, which may significantly differ from each other and which may require a completely different approach to achieve success. The Six Sigma concept could be applied to control of the manufacturing process in practically all areas of business, whereas the Quick Response concept in its original form was restricted to the textile industry. The concept of distribution structures based on fully automated distribution centers works well in countries and regions characterized by high land and labor costs but fails to do so where the cost of these resources is low. According to C. Ashton, 'best' is always contextual, or situation specific. No practice is good or bad in itself. A 'best practice' is best only in the precise, specific context in which it exists. Even if moved from one situation to another very similar one, the chances of the transfer being made with practice intact might be nil. A specific development history, evolution path, competition strategy, key competences, size, accessible resources, organizational structure, products, management style, company culture, condition of the market, competition, regulatory environment, governmental assistance / impediments, executive leadership, state of international trade, acts of God, technology life cycle, partnerships / alliances, trendiness / hipness, inertia, effects of corruption or even luck may be decisive in ensuring that transferring best practices between firms as well as business lines and countries is not a simple task. One can learn from the practices of others, but copying them by rote without analyzing the conditions within which they were developed and implemented and then comparing them to one's own particular situation and making requisite adjustments would lead to mistakes being made. The best practices should therefore be perceived more as models to be imitated than ready models to be copied by other companies. One size doesn't fit all! The Supply Chain 2020 research project provides an excellent example of this type of approach to best practices. -------------- MIT Supply Chain 2020 What exactly is an excellent supply chain? The Center for Transportation & logistics at the Massachusetts Institute of Technology (MIT) is striving to answer that question. In 2005, the Center undertook a long-term research effort, called supply chain 2020 (SC2020), with the aim of finding out what the characteristics of so-called perfect supply chains should be in future. It will also map out the process innovations that will underpin successful supply chains as far into the future as 2020. 'Beyond best practices' is one of the unifying themes behind the research to be conducted on identifying supply chain principles. It is predicated on the fact that a practice may be best for the supply chain of a specific company trying to achieve competitive advantage, but it may not be best for another company in another industry, nor even in its own. It is not MIT researchers' intent to dismiss the value of best practice benchmarking in the right context, but it concerns them that managers continue to search fruitlessly for the 'silver bullet' that they expect will transform their organization into the next Toyota or dell. The successes of global business leaders such as Toyota, wall-mart or dell, which have been described in a transparent and convincing way, have inspired theoreticians and the managers of supply chains from many sectors to attempt to compare themselves with these leaders and to transfer the best practices of these businesses to their own organizations. In practice, however, such attempts at transferring outside solutions have rarely succeeded. The best practices of Toyota, dell or wall-mart vary significantly as a result of their completely different approaches to the configuration and management of their supply chains. According to SC2020, the companies with the best supply chains are those with a clear business strategy supported by a supply chain strategy and a complementary operational model, which enables the perfect realization of strategy. Their activities are driven by a limited number of 'tailor-made' supply chain practices. A critical element determining the success of the supply chain is the 'operational goals' of the firm, which define the main aim of their supply chain. This supports the firm's competition strategy and measurement system, which it uses to assess the effects of managing its supply chain. The operational goals can be divided into three groups: customer responsiveness, typical for firms active in those sectors with high profit margins and short product life cycles (e.g. fashion apparel, pharmaceuticals, cosmetics, toys, computers); efficiency, required in companies active in those sectors with low profit margins (e.g. the food and beverage industry, basic-goods retail, industrial supplies); and asset utilization, typical for those branches characterized by high capital intensiveness (e.g. the auto motive and petrochemical industries, semiconductor fabricators). some supply chains, such as those of wall-mart or dell, must be extremely efficient in order to maintain low costs and remain price competitive. Others are designed in such a way as to focus more on reactive capacity, less so on costs. IBM is a good example of a company which has to focus on its ability to react quickly to signals coming from its customers, for only such an approach can guarantee its long-term success in the sale of its high-profit-margin products and services (although certainly at the cost of maintaining greater stocks and higher operational costs). In light of these assumptions, a perfect supply chain is characterized by a focus on a limited number of consistent and cross-optimized business practices, which mutually reinforce each other and are strictly tied to the operational goals of the company. Perfect supply chains avoid, according to SC2020, the trap of trying to do everything well, for as a rule this results in nothing being done properly. In order to be perfect, the supply chain must focus more of its resources on the most important tasks, and less on others which are not as important from the perspective of the company's strategy and operational model. Therefore, according to SC2020, perfect supply chain practices deserve such credit only when the entire package of practices strengthens the realization of the firm's competitive strategy and its operating model. This means that the term 'best' may only apply when the whole system of tailored practices is greater than the sum of the parts. --------------- The best practice of one company will not automatically become best practice in another unless it is adapted, successfully implemented and brings the expected results. Yesterday's core capabilities embedded in best practices could become tomorrow's core rigidities. Institutionalization of 'best practices' by embedding them in information repositories may facilitate efficient handling of routine, 'linear' and predictable situations during stable or incrementally changing environments. However, when change is radical and discontinuous, there is a persistent need for continual renewal of the basic premises underlying best practices. Organizations in such environments need imaginative suggestions and inspiration more than they do best practices. THE BEST PRACTICES -- BETWEEN THE HAMMER OF ECONOMIC DEMANDS AND THE ANVIL OF CORPORATE SOCIAL RESPONSIBILITY In business, the principle of achieving various goals (understood to be economic, most frequently financial) is dominant. This is generally the basic and sometimes only criterion of best practice assessment. Undoubtedly, many such business goals can be found, but the basic role is played by various financial targets (e.g. costs, revenues, profit, profitability). A US research, consulting and publishing firm that is a world leader in the field of best practice benchmarking, Best Practices, LLC, defines them as verified tactics which maximize revenues and profits, increase productivity and optimize costs. When aiming for specific mastery of business activities, can non-business targets be completely overlooked? First of all, this means facing balanced development postulates, which involve not only ensuring the financial success of a business in the long run, but also simultaneous involvement on the part of economic and social development, environmental protection, protection of social stability and assisting clients and suppliers in the fulfillment of the same targets. A balanced development has three, intrinsically linked, dimensions: economic, ecological and social. A given practice may potentially lead to business success, but fail to find success for political, social or ecological reasons. Examples of such unacceptable practices are: building lasting business relationships with raw material suppliers from a country that is politically unstable; enforcing advanced technology in production or distribution that eliminates the need for a larger workforce in countries and regions with a high un employment rate; and building distribution systems based on frequent road transport supplies in regions affected by heavy traffic congestion and / or in ecological danger. For non-business targets one must undoubtedly include various aims, such as meeting the challenges of social responsibility and / or balanced development. Such a perspective refers to the guru of green business, J Elkington, who claimed that the success of a company influences its achievement in three respects: economic, ecological and social. He proposed a simultaneous consideration and balancing of three key dimensions (the Triple Bottom Line) observed from a micro perspective. From the perspective of the organization, sustainable development is not only a question of good corporate citizenship based on collecting bonus points by reducing harmful emissions from its factory or ensuring healthcare for its workers, but becomes a fundamental principle for intelligent management. This concept emphasizes that combining social, ecological and economic activities not only has a positive influence on the natural and social environment, but also has its expression in economic benefits and the building of a competitive edge in the long term. In light of this concept, the exclusive realization of economic (financial) objectives is not the best of practices, but it is difficult to acknowledge that such practices realize ecological and social objectives but without any success in the economic sphere. Undoubtedly, good practices have the object of achieving economic and ecological, or economic and social, objectives, while the best practices focus on realizing economic, ecological and social objectives at the same time. It is believed that orientation towards sustainable development helps today's companies increase their market share, build customer loyalty, positively distinguish their brand, improve employees' morale and loyalty, and increase the effectiveness and productivity of their activities. Attention is also paid to the fact that such an orientation lessens risk by way of avoiding negative social opinions, taking a proactive approach towards new regulation and avoiding future safety threats of the supply chain. The BestLog project, described below, illustrates how logistics and supply chain management might combine economic, ecological and social dimensions in best practice assessment.
-------- BestLog Project The European BestLog research project is an ambitious attempt to undertake ecological and social topics with reference to logistics and supply chain management. a particular aim of the project principal, the directorate-General for energy and Transport (dG TreN), is an elaboration of the concept that will meet the challenge of sustainable land transport. from a long-term perspective, within the scope of the bestlog project is an attempt to overcome many of Europe’s problems in the areas of transport, logistics and supply chain management, such as: a 30 percent increase in transportation volume in the past decade, which has not been accompanied by suitable development of the transport infrastructure; underutilized intermodal transport; road congestion and environmental pollution; shortage of qualified supply chain management personnel; unsatisfactory exchange of supply chain management knowledge and practice; a gap in strategies for harmonizing efficiency and sustainability; and stakeholders' increasing sensitivity with regard to social responsibility. Failure to tackle these problems may mean that economic growth and effective development of the continent are threatened. The project is part of the EU policy context and the dG TreN transport policy context. The first context draws particular attention to: the 'Transport white Paper' subordinating transport to economic interests as well as those of European citizens (transport at the service of European industry and citizens); Lisbon strategy assumptions leading to the creation of jobs by making Europe the most competitive and knowledge-based region of the world; sustainable development goals establishing the harmonization of economic growth and transport (decoupling economic growth and transport growth); and EU enlargement - continual integration of new member states. The dG TreN political transport context aims to pay particular attention to the following: intermodal transport needs 'door-to-door' logistics solutions to be successful and compete in real terms; co-modality, with the assumption improvement of efficiency of all modes separately and together in intermodal chains; and shippers, who should take all modes of transport (not just road transport) into consideration. Although the Bestlog project concentrates on the promotion of 'green' transport solutions in logistics and supply chain management, it is closer in its assumptions to J Ellington’s concept (a parallel consideration of three key microeconomic goals), which is illustrated in FIG. 2.
---------- WHERE DO CENTRAL AND EASTERN EUROPE COUNTRIES COME FROM? FROM THE WORLD OF WORST PRACTICES! Accepting the existence of best practices brings with it the necessity of accepting the thesis that their opposites also exist, namely - worst practices. 'Worst practice' is the synergistic combination of many elements of bad practice. Having just one or two elements of bad practice does not lead to worst practice status, but a range of bad practices that can 'support' and 'multiply' each other does. The economic and business environment of Central and East European countries before 1990 was a breeding ground for the emergence of worst practices in various business activities, including logistics. With the end of the Second World War in 1945, Europe found itself divided into two spheres of power. Decades of separation during the Cold War resulted in different logistics systems and management attitudes in Western and Eastern Europe. There is an obvious danger in generalizing about Central and Eastern Europe (CEE) as if it had been one place. CEE countries were not homogenous either in political or economic dimensions. Typically, however, under the centrally planned system, control over the entire economic system resided with state-owned enterprises (SOEs), which had dominance over raw material supplies, manufacturing, wholesaling and retailing, as well as warehousing. Government control of the economy meant that industry structures and management practices were not focused on efficiency. A persistent imbalance between demand and supply caused constant shortages. Production was based on available raw materials, instead of customer orders. Because of short ages, managers' purchasing behavior was inconsistent with the basic rules of logistics. Customer service was an unknown field. In fact, centrally planned economies did not need logistics. Therefore, logistics as a function was immaterial under the old system because whatever and whenever goods were available, they were sold. Achieving legendary worst practice business and logistics practices in CEE must have exceeded expectation in a number of areas! Logistics, if any, was oriented towards purchasing, not towards selling, and its characteristics were: no or poor customer focus; no or poor sales forecasting / order processing (customers went 'shop ping' in production); lack of information systems; no or poor management of finished goods; no or poor material flow structures (internal and external); no or poor quality focus on warehouses and transportation; no third party available (either own truck fleet, or customers' trucks); very high stocks of raw materials (… if available, buy as much as you can); very high stocks of packaging materials; very long lead times, with loading times up to 12 hours; scarce palletization of products, leading to double and triple handling; people not familiar with Western logistics management tools, but with very good technical preparation. Centrally planned economies generally put little emphasis on the retail sector. The communist government in Poland, for example, worked with an 'economy of shortages', where demand for most goods was greater than supply and there was no incentive to develop an efficient distribution system. Furthermore, physical distribution of goods was primarily the responsibility of a government-run railroad and over-the-road carriers. Where more efficient private enterprises existed, they were very limited in both their operations and their influence on the overall system. Because of the overwhelming role of SOEs, this was a major hindrance not only for domestic firms, but also for most foreign companies wishing to develop business opportunities in Poland. WHERE ARE CEE COUNTRIES GOING? THE CASE OF POLAND The fall of the Berlin Wall in 1989 served as both a literal and a symbolic catalyst for communism's decline in Europe and the emergence of social and economic freedom throughout Eastern bloc countries. The sudden collapse of the centrally planned institutions initiated the transition of Central and Eastern Europe into a market economy. New market forces transformed logistics structures and created a competitive environment for distribution services. Government regulations on developing sales and distribution networks did not exist beyond those needed to establish a business. Poland's new retail sector played a major role in bringing the country through a period of transition and into the subsequent period of growth. During this period the retail sector changed from having no power at all, simply following central government plans, to becoming a major force in the economy with increasing control of supply chains. Though the logistics revolution in Poland began in the retail industry, its relevance to other businesses has become ever more apparent. The appearance in Poland of global businesses with long supply chains has created new logistics challenges. As multinationals started expanding in the region, so did the global logistics firms. They were hoping to pick up business from the grocery, automotive, electronics, pharmaceutical and furniture sectors, now playing an important role in Poland. Global com petition also poses a big challenge to Polish firms. If they are to find a place in the new pan-European supply chains that have begun to straddle Central and Eastern Europe, they will need to bring their logistical organization and technology up to the standards of multinationals. And, more generally, they will only stay competitive if they can keep pace with the state-of-the-art concepts and techniques now revolutionizing logistics and supply chain management in the West. The results of this transformation and privatization in Poland created a rapid expansion of logistics business opportunities. In the 1990s logistics was barely considered in the long-term plans of even major companies: now its strategic role is recognized in almost every organization. In the past decade, logistics in Poland has undergone a Cinderella-like transformation. This is hardly surprising. Recent years have seen a growth in international trade, strategic alliances, e-commerce and increased out sourcing of non-core activities. Add to this the increased emphasis on customer satisfaction, flexible operations, time compression and concern for the environment, and it becomes clear why organizations are concentrating on getting their logistics and supply chain management right. They are fast becoming a real focal point, as companies come to see them as a key battleground for gaining competitive advantage. Meanwhile, logistics and supply chain management have become a fully fledged 'science', complete with their own vocational schools, university departments, research institutes, consulting firms, journals and newspapers. Poland is the largest of the CEE countries. It has the largest landmass, the largest population and the largest economy. Poland's integration with the global economy has been highly dependent on foreign capital. Since the beginning of the 1990s there has been a huge increase in foreign direct investment in Central and Eastern Europe, with Poland topping the list of investment destinations. This should be no surprise bearing in mind Poland's geographical location and the shift of production to this part of the world. According to the latest European Attractiveness Survey pre pared by Ernst & Young, in 2007, Poland ranked as the most attractive destination for new foreign investment in Europe. Direct foreign investment in Poland involved not only the transfer of capital, but also machines, devices and technology, as well as modern systems of management and technological, marketing and organizational knowledge. These spread through the economy and were also incorporated by native companies with Polish capital. This contributed to the increase of competitiveness and innovation of all Polish enterprises, which at the same time improved their organizational culture and business ethics. The worst business practices were replaced by good and acceptable ones. This allowed Polish firms to enter European and global markets. Their practices became not just good, but the best, unique on a global scale, and worthy of being copied abroad. The research projects carried out by the Department of Logistics at Warsaw School of Economics (WSE) have covered many of the latest examples of leading-edge companies and practices. In the authors' view, the content of the cases developed within these projects perfectly reflects the spirit of the smart opinion of D Blanchard on best practices' essence: '"Best practices" don't just happen by throwing a lot of money at your supply chain problems... It takes money, but it also takes time, talent, energy, focus, commitment from senior management, and a lot of guts to pull off a supply chain transformation. Those are the qualities that the best-run companies in the world share, and it's why they're on top.' The knowledge and abilities of huge global corporations, together with entrepreneurship, imagination and an innovative approach to the business practices of corporations on the part of Polish managers and employees, led to an unexpected effect -- the best practices 'Made in Poland'. The benefits that Poland has gained from being a late entrant have enabled it to skip many interim best practices that were implemented by companies before the collapse of communism in the region. This quantum leap has allowed Polish logistics and supply chain managers to develop their own best practices. Moreover, no longer is Poland an importer of best practice. It is now an exporter, with its examples holding their own and available to the rest of the world. The Polish small car producer Fiat Tychy provides an excellent example of how Polish best practices can influence automakers of other countries and continents. ----- Chrysler comes to Poland to learn the secrets of small-car production American car companies never knew how to build a good small car. After a decade in which Detroit automobile companies depended on sales of big sport utility vehicles and pickup trucks for their profits, high gasoline prices are sending consumers flocking to small cars. Therefore, Detroit companies are rushing small cars into development and making deals with foreign companies to supply them. Fiat, one of Europe’s oldest and largest car companies, effectively took over Chrysler in 2009. Instead of buying the equity with cash, it will put up capital to retool part of Chrysler's production capacity to build smaller cars. The deal is the latest maneuver by Fiat’s chief, Sergio Marchionne, who has pulled the Italian company back from the brink of collapse since taking over in 2004. The partnership will provide each company with economies of scale and geographical reach at a time when both are struggling to compete with larger and more global rivals like Toyota motor Corp., Volkswagen AG and the alliance of Renault SA and Nissan motor Co. for many years, carmakers searching for the secret to small-car success would travel to Japan's Toyota City. Today, the destination is Poland's Tychy. ever since the car manufacturer fiat took over, Chrysler engineers from Detroit have been voyaging all the way to this Polish town, up until now more famous for its beer, to discover a car factory employing workers and managing to make a tidy profit! Fiat’s plant in Tychy has hit a new production record. As of the end of October 2009 the facility rolled out 500,000 cars - up from the 492,000 produced in all of 2008. The plant is expected to exceed 600,000 units in 2009. At plants like Tychy, standards have been raised and the art of building smaller, fuel-efficient cars has been mastered. Chrysler has high hopes and believes that fiat can do the same since assuming control. At Tychy, the latest robotic technology is balanced by workers who can quickly shift models to match given demand. Today, the factory is running six full days a week. By contrast, most other car plants in Europe and the United States are running at a fraction of capacity. fiat executives have several goals: to produce subcompact European models at Chrysler's North American plants and to teach Chrysler managers how to introduce smaller cars in the united states that Americans will want to buy, while increasing efficiency the way fiat has done at its Tychy plant. Mr. Zdzislaw Arlet, the Tychy plant director, is always on the lookout for time- and money-saving improvements, adding that he himself looks to Toyota's famous kaizen system for inspiration. For example, instead of filling up cars at different production points with brake fluid, petrol, water and other liquids, one machine on each of Tychy's three lines fills each vehicle. A car comes off the assembly line in less than a minute, half of what it took about 10 years ago. A new focus on quality has also been developed. About three years ago, workers were assigned an individual identification number that is stamped on whatever sections of the car they assemble so any problems at the end of the line can be traced to the source. 'At the moment, Tychy is the best of Fiat as far as quality is concerned', said Giuseppe Volpato, a professor of economics at the university of Venice who has long studied the company. 'I think Poland is becoming the reference point for the whole organization, even in Italy.' Source: Nd Schwartz (2009) To shrink a us car, Chrysler goes to Poland, The New York Times, 14 July; auto profits in Tychy, Warsaw Business Journal, 9 November 2009; small cars, The New York Times, 22 November 2009; fiat: facts, discussion forum, and encyclopedia article. ------------- THE BEST PRACTICES -- THE HOLY GRAIL OF CONTEMPORARY BUSINESS? Does the search for best practices place too much hope on discovering something new, something extraordinary, which does not exist? Many theoreticians and practitioners of management formulated and attempted to implement the 'Zero Inventory' or the 'Zero Defects' theory. From the beginning they were all too aware that they were striving to realize an unachievable goal, but this aim brought them closer to achieving better results than others. They failed to reach the absolute goal, perfection, but did become role models for others. The same goes for best practices. The comparison of the quest for best practices to the quest for the Holy Grail might also be a useful one. Striving to discover best practices is similar to the legendary search for the Holy Grail. To this day, nobody knows what the Holy Grail actually was or whether it actually existed. Despite long-term searches it has never been found. The same goes for the best practices. Nevertheless, in the search for unique company success, business leaders allow themselves to discover all those things that lead to their achievement, which gives the company or institution an edge over the competition and proves its ability to achieve better results. Why, there fore, should one not aim to discover the basis for all these successes and make further attempts to transfer such experiences to the company? Such a shift may bring great benefits. One can imagine a Sir Lancelot of the logistics and supply chain industry seeking the ultimate best practice without knowing what it is and whether it actually exists! top of page Home Similar Articles |
