Global perspective/ ethical dilemma

Review the posting from the guest speaker Thomas Preston, who was a former Imaging Chemicals Global Commodity Manager for Eastman Kodak Company. Pay attention to the details regarding operations management and manufacturing in this real life case study.

Discuss your thoughts on the various experiences Mr. Preston had in conducting business in several different countries. What challenges do you think he faced when dealing with a variety of cultures? How do you think that affected the business transactions?

Can you foresee any ethical dilemmas he may have faced when deciding which country to purchase chemicals from? If you were the purchasing agent, would you have done anything differently? Why?

Guest Speaker Notes:

Factory/ Business Operations Background Chemical Manufacturing Operations There were several manufacturing departments each consisting of 40-100 operators, 3-6 Process Chemists, 2-4 Area Supervisors and an MRP Planner. Quality testing, Maintenance & Engineering, Process Development and Purchasing were centralized. Chemical manufacturing was in an individual batch mode with equipment in a “process layout” fashion where a specific piece of equipment was capable of manufacturing a variety of materials. A make-to-order strategy was used where internal Film Manufacturing departments placed monthly orders on a 6-12 month horizon depending on manufacturing and purchasing lead times. A formal online, corporate MRP (AMAPS) system linked ultimate customer demand vertically down through the internal manufacturing chain to initial raw materials and their purchase lead times. Required labor, equipment scheduling and raw material quantities were defined by this system. Forecasts were updated monthly. Corporate manufacturing strategy was to minimize inventory at each stage of the total manufacturing cycle using JIT scheduling for both internal manufacturing and purchased materials delivery. Some materials were kept in Kodak warehouses on consignment from the vendor where Kodak was not invoiced until the materials were withdrawn from inventory for use. EKC rigorously focused on continuous improvement to reduce manufacturing variability, decrease lead times and insure quality consistency. This reduced waste and significantly lowered overall operations costs. SPC techniques were applied to both production operations and to the design & development of robust manufacturing processes. Parameters such as product purity, critical process conditions (temperatures, times etc.) and yields were control charted in the manufacturing areas. Statistically designed experiments were used by development chemists to identify and optimize critical process parameters. Business Practices/ Ethical Considerations Chemical Purchasing The high cost of final photographic products and their sensitivity to low levels of impurities (ppm levels of both known or unknown contaminants) required rigid purchased materials quality standards. Both a vendor’s product quality as well as specific manufacturing processes would be certified prior to material purchase. Certification could take up to 6 months. To increase flexibility and decrease capital investment Kodak deliberately reduced internal chemical manufacturing capacity by outsourcing many of the complex imaging chemicals previously made internally. Sources included Fine Chemical manufacturers in the US, Western Europe, Japan, India and China. When sourcing on a global basis, cultural differences can be significant and affect a successful outcome. Such differences exist within the US, between the US and Europe and more pronounced between the US & Asia. Differences include: Language: English is today’s international language. The ability to communicate clearly & effectively varied with an individual’s education and exposure. Words may have different meanings in different cultures. In the US ”right” means yes or I agree. In Australia it means I heard what you said but don’t necessarily agree. Business practices: The social dimension of business relationships in the US & Europe can be less formal than those in Asia. In Japan especially, there is a greater effort to build a stronger social bond between individuals upon which a business relationship is then formed. The result is less involved contracts and greater trust between individuals. This can be an issue when one corporate culture is contract based and the other is more relationship driven. Personal performance, promotion and pay practices can vary between cultures. In the US a sales person may be rewarded only on immediate sales volume where as in Japan the development of longer term business partnerships is more important. Manufacturing Capabilities: Developed countries often have more state-of-the-art manufacturing capabilities than developing nations allowing more consistent quality, reduced pollution and greater worker safety but result in higher manufacturing costs. Environmental Regulation: The level of environmental regulation and worker safety seems to parallel a country’s degree of manufacturing modernization. Developing nations have fewer regulations than developed countries. Governments in the US, Europe and Japan have implemented higher levels of pollution control and personnel safety than those in India and China. Consequently products cost less to manufacture in the developing world. Vendor Selection Imaging vendors were approved when consistent product quality meeting analytical specifications using a certified manufacturing process ; their local & national government’s environmental regulations ; Employed appropriate worker safety practices ; Provided competitive cost Issues & Challenges Communicating clearly and effectively was difficult when the other party did not have clear English skills, often the case in China, somewhat less in Japan. We always had local Kodak purchasing employees who understood our needs and were very helpful. Kodak’s purchasing philosophy was “don’t take the pen”. That is, we were not to accept meals or gifts from suppliers. In the US I would split meal costs with suppliers. In Europe & China I usually let them buy. The Japanese tradition was to offer customers gifts as well as treat then socially. To not accept a gift or invitation was an insult. To avoid embarrassment our local people would explain our “philosophy” so the gifts were not elaborate and we accepted them. I did, however, accept some good meals. Environmental & personnel safety concerns were not an issue in the US, Europe or Japan. Established manufacturers all with complied with governmental regulations. In India & China established companies had different pollution and safety standards. We visited specific plant sites and evaluated for ourselves their environmental & safety practices. We would only purchase from firms that had reasonable practices and met their government’s regulations. The same chemical produced in the US, Europe or Japan might cost less when produced in India of China. The cost difference was from lower worker wages and often less stringent regulation. Operations Management & Purchasing Experiences @ Eastman Kodak 1968-2006

1968-1980: Process Development Chemist designing the manufacturing processes to be used in the batch manufacture of imaging chemicals used at Kodak’

1981-1994: Imaging chemical manufacturing supervision managing several manufacturing operations used to produce Kodak’s imaging chemicals.

1995-2006: Imaging chemical purchasing management responsible for the purchasing of imaging chemicals as Kodak decreased vertical integration