Introduction

The pizza shop is as different from the flour mill as a sprinter is from a marathoner. The sprinter waits anxiously for the shot which instantly triggers action directed at an immediate goal. Contrast that with the marathoner who calmly collects the resolve to steadily pace towards a fixed faraway goal. Clearly, two distinct paradigms underlie their disparate behavior. Correspondingly, two distinct paradigms rationalize the pizza shop and the flour mill. Below, are heuristics for determining the appropriateness of a Shop versus a Mill based on using When, Where, How, Who, and Why as guidelines.

When

When should you have a Shop versus a Mill?

SHOPS make sense when:

Outputs are:


• insubstantial (in quantity or batch sale size)
• varied in timeliness and specificity
• marked by relatively volatile demand
• locally consumed or readily distributed

Inputs are:


• insubstantial (in quantity or batch size)
• marked by relatively volatile demand
• locally sourced or readily available
• varied (in material or combinations)
• disbursed geographically

Outputs are:


• valued for physical conformance
• substantial (in quantity or sale price of minimum EOQ)
• marked by steady demand (in the aggregate)
• consumed over wide geographical area
• non-perishable

Inputs are:


• predominately few
• concentrated geographically

Where

Where should you have a Shop versus a Mill?

SHOPS make sense when they are located where they are:

• close to the major market (or distribution hub)
• in a physically safe place
• readily accessible by automobile or pick-up
• near attractive labor and infrastructure

• close to the major inputs
• under a politically reliable government
• accessible by rail and/or boat
• subject to low taxes and to stable and low cost

How

How do the processes of a Shop versus a Mill differ?

SHOPS make sense when how they operate is characterized by:

• as late as possible
  • adding dilutatives (e.g., water) and power
  • adding specificity (e.g., condiments)
  • adding waste (e.g., packaging)
• moving rapidly and in spurts or having consumers assemble
• managing operationally by responsiveness to demand
• managing financially to maximize margin per minute

Who

WHO - Who (i.e., what identity) is suited to being a Shop versus a Mill?

SHOPS make sense when who they are is characterized by:

• small entrepreneurial firms with versatile employees
• readily accessible to local markets (or distribution hub)
• politically savvy to deal with local governments, if necessary
• flexible due to a flat informal management structure

• large stable firms with loyal employees
• capital intensive and enjoy ready access
• powerful enough to influence governments
• staffed by professional managers focused on cost

Why

WHY - Why is there a distinct paradigm for shops versus mills?

SHOPS make sense because they are designed to:

• meet unpredictable demand
• handle high variety and low volume
• deal with the perishable value of output
• be responsive rapidly
• focus on high margins per unit of time

• meet predictable demand
• handle low variety and high volume
• deal with the stable value of output
• be reliable and uniform
• focus on low cost per unit

Application

An interesting example of systemic bias in the choice of Shop vs. Mills appears in the case of Japan vs. the United States. Having just returned from Japan, it is clear that the Japanese are competing using the Shops paradigm sometimes, even on the Mills scale. They have a large number of "captive shops" which they coordinate with Kanban to achieve Just-In-Time. This results in very low inventories and very few instances of distress selling. I believe the cost of Japanese cars are not all that low when you normalize for benefits-adjusted wages. (In contrast to the United States, most of the Japanese auto parts are made by suppliers who have a different wage and benefits scale from the auto companies. These suppliers do not pay nearly the benefits, particularly health and pension, that the Japanese auto manufacturers and their United States counterparts pay.)

By contrast, the U.S. has developed a large industry based on the Mills paradigm which often results in higher inventories and distress selling. In the case of American cars, the U.S. cost (per unit) is actually quite attractive, however, their margin (per unit of time) is quite unattractive. The U.S. Achilles' heel is in making inappropriate quantities of models and low quality derived from lack of attention to learning in their processes.

I do not recommend that Du Pont Nylon Fibers jump on the Shops paradigm Japanese style, but consider further leveraging Mills, concentrate on greige and additives, and design "Xerox-like" spinners for our Fibers Shops (i.e., our customers). This will be the subject of another memo as will be the impact on learning under the two paradigms.