MMRCDISCUSSION PAPER SERIES
No. 453

Flexible Supply Capability Driving Total Inventory Reduction:
An Analysis of Omron Healthcare
Mizuki Kobayashi
Graduate School of Economics, the University of Tokyo
Junjiro Shintaku
Faculty of Economics, Manufacturing Management Research Center,
The University of Tokyo
Daiki Kato
January 2014

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
permission when reproducing or citing any part of this paper. Copyright is held by the author.
http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Flexible Supply Capability Driving Total Inventory Reduction: An Analysis of
Omron Healthcare

Mizuki KOBAYASHI
Junjiro SHINTAKU
Daiki KATO
Abstract
This study analyzes the total inventory from multiple perspectives, meaning from theperspectives of each party involved from upstream to downstream, and investigates how to
reduce the total inventory based on a case study of Omron Healthcare.

We conduct theanalysis of its supplier, production and sales departments and distributor.
In conclusion, we clarify that companies need successful supply chain integration inorder to achieve reduction of the total inventory. Requisites for such integration include goal
sharing among parties and mix-up of the production systems based on a high level ofproduction capability.

Most importantly, we suggest that the flexibility of the supply

capability of upstream influences the activities (i.e. order policy) in downstream.

Keywords reduction of total inventory, flexibility of the supply capability, supply chain
integration, goal sharing

Flexible Supply Capability Driving Total
Inventory Reduction:
An Analysis of Omron Healthcare

Mizuki KOBAYASHI
Graduate School of Economics, The University of Tokyo
Junjiro SHINTAKU
Faculty of Economics, Manufacturing Management ResearchCenter, The University of Tokyo
Daiki KATO

1

Abstract
This study analyzes the total inventory from multiple perspectives, meaning from theperspectives of each party involved from upstream to downstream, and investigates
how to reduce the total inventory based on a case study of Omron Healthcare.

We

conduct the analysis of its supplier, production and sales departments and distributor.
In conclusion, we clarify that companies need successful supply chain integration inorder to achieve reduction of the total inventory.

Requisites for such integration

include goal sharing among parties and mix-up of the production systems based on ahigh level of production capability.

Most importantly, we suggest that the flexibilityof the supply capability of upstream influences the activities (i.e. order policy) in
downstream.

Keywords reduction of total inventory, flexibility of the supply capability, supply chain integration, goal
sharing

1. Introduction
Firms are still facing a critical problem in inventory reduction nowadays. They
want to reduce inventory but do not want to lose customers because of inventory shortage.
Previous researches point out that effective supply chain management can alleviate managers
concern.

However, while the final consumer’s demand rate stays steady, the demand orders

become variable as they move to upstream in supply chain, a phenomenon called the Bullwhip
Effect (Lee, Padmanabhan & Whang, 1997).

The main causes of the Bullwhip Effect havebeen identified as demand forecast updating and mistrust among parties (i.e. sales andproduction departments).
The empirical studies in the field have examined information sharing or IT tools
implementation would facilitate the interdepartmental cooperation, and therefore reduce theinventory and contribute to the firm’s performance (Lee & Billington, 1992; Kahn1996; Stank,
Daugherty, & Ellinger, 1999a; Ellinger Daugherty, & Keller, 2000; Frohlich & Westbrook,
2001; Vereecke & Muylle, 2006; Croson & Donouhue, 2006; Akiike & Park, 2013).
However, most studies have not realized the fundamental issues, such as where precisely the2excessive inventory exists and how to reduce the inventory over all?

The excessive

inventory may happen only at distributor (dealer)’s site, but not at production site.

That is tosay, a crucial piece missing from the previous studies is the focus on the reduction of total
inventory, which can be attained via observation from upstream of component suppliers todownstream of retailers.

The purpose of our study is to investigate how to reduce the total

inventory by utilizing multi-stage observation.
In this paper, we first provide the theoretical background and point out the necessityof a case study.

Then, we introduce the research design and the case.

Finally, the last partof this paper is the result and discussion.

2. Research on the Integration of Supply Chain
According to the extant literatures, SCM is defined as 1. the process which manages
a series product information flow from upstream (raw materials purchasing) to downstream(distributor); 2. progress in the integration through information sharing among departments
and organizations; 3. dealing with total cost reduction and meeting high level ofproducts/service requirement at the same time (Simchi-Levi, Kaminsky, & Simchi-Levi, 2000;
Frohlich & Westbrook, 2001; Rosenzweig, Roth, & Dean, 2003).
There is a considerable amount of theoretical and empirical support for the assertion that
effective supply chain is important for inventory reduction, a smooth information flow and afirm’s financial performance.

Many scholars have focused on logistics department’s effort(Morash, Droge, & Vickery, 1996), arguing that informal routes for information sharing
contribute to the performance more than the formal routes (Stank, Daugherty, & Ellinger,
1999a; Ellinger Daugherty, & Keller, 2000).
Moreover, inter-firm activity attracts scholars’ interests.

Frohlich & Westbrook(2001) suggests that suppliers and distributors’ cooperation contributes the most to the firm
performance, and strong business relationship either with the suppliers or the distributors is
not the best policy.

Kim (2006) states that only for large firms do supply chain integration

have effective impact on their competitiveness based on Frohlich & Westbrook (2001)’s
assertion.

Gimenez & Ventura (2005) prove that integration with retailers contributes to thecustomer service enhancement as much as interdepartmental collaboration does.

There areconsiderable studies have focused on automobile industry, which have been more likely
influenced by Toyota’s collaboration with its suppliers (Vereecke & Mulle, 2006).
3

They havecarefully considered the cooperative relationships and emphasized “frequent, closer
communication” and “long-term relationship” with the suppliers for Toyota’s success.
Toyota Production System (TPS) along with the close supplier relationship hassignificant effect on inventory reduction and short lead time.

Holweg & Pil (2004) pointed

out that Make-to-Stock (MTS) manufacturing system has remained in many automobile firms
nowadays.

But compared with other famous automobile firms, Toyota’s pull system bydownstream parties or customer was more effective to meet various customer needs in 21st
century and avoid overproduction.

They stated most researches emphasized TPS’s effectbetween Toyota and the suppliers, not as the whole system across the firm.

According toTomino, Park, Hong & Roh (2009), we have to notice that TPS does not absolutely depend on
the pull system.

Toyota actually mixes the stable Make-to-Stock (MTS) production plan

(push system) and Make-to-Order (MTO) manufacturing (pull system) together to meet
flexible market needs.

Toyota makes annual/monthly/ten-day production plan based on its

own forecasting and sales information from the dealers.

The models sold inside of Japan

allow some minor changes basically in the section of ten-day production plan, such as color
change and minor interior change can be done in a few days.

Based on MTS, Toyota wellintegrates changing demand information to the production plan and cooperates with its
suppliers.

Another point we have to notice is that automobile industry’s distribution channel

is different from those of other industries.

Car dealer is basically the key channel to sell thecars and collect customer information.

In electronics or consumer goods industry, thewholesalers, distributors and retail shops exist between manufacturing firm and customers.
In some ways, automobile firms have an easier access to directly get customer’s information.
Therefore, inventory reduction in other industries may be more complex than in automobile
industry because of information variability.
In summary, previous empirical studies inform us that “information sharing” among
departments and firms has been the center of the discussion.

They examined a wide range offactor signification to firm performance and supply chain integration, such as “information
sharing frequency” or “presence of shared database” or “utilization level of information
sharing network”.
important”.

They do tell us the universal but partial fact: “information sharing is

A big pitfall is that extent researches tend to focus on inventory problem at

production site, such as helping upstream parties better prepare for viabilities in inventory
demand downstream (Croson & Donouhue, 2006).
4

However, they often lack focus on thetotal inventory reduction, that is to say, multi-stage observation for the total inventory
reduction is needed.

A case study here will help us obtain a useful insight into the issue.

3. Omron Healthcare Case Study
3.1

Research Methodology
As a reference from the existing work, we identify two processes by which weobserve cooperation among all parties inside/outside the firm: “Collaboration”, which means
qualitative or substantive activity, and “Interaction”, means quantitative or structural form orsystem (Kahn, 1996; Vereecke & Muylle,2006; Akiike & Park, 2013).

We cite thedefinitions from Kahn (1996) as they are close to our thought.
Collaboration is defined as “an affective, volitional, mutual/shared process where
two or more departments work together, have mutual understanding, have a common vision,
share resources, and achieve collective goals.”Interaction represents the activities formallycoordinated among the parties, including “routine meetings, planned teleconferencing, routine
conference calls, memoranda, and the flow of standard documentation.”

Kahn (1996) drops

a hint that early collaboration (sharing common goal and promoting mutual understanding)contributes more to the effective supply chain integration.

3.2

Why Omron Healthcare?

Omron Healthcare Co., Ltd. is one of the major healthcare equipment and machine firms in
the world.

Corporate/individual customers are familiar with its products, such as bloodpressure monitors, digital thermometers, body composition monitors, pedometers, and electric
toothbrushes.

Omron Healthcare employs 4,492 workers, of which 3,689 are overseas, earns

62.4 billion Yen in revenue (as of 2012), and runs eight domestic offices, twelve overseas
offices, one R&D center in the headquarter, and three production sites in Matsuzaka of Japan,
Dalian of China and Binh Duong of Vietnam.
Omron Healthcare has been working on its own production activities that are basedon the Toyota Production System (TPS) for over twenty years.

Although its effort on

production and collaboration with the suppliers has been achieved the improvements ofproductivity and flexibility and reduced production lead time, it still faced the serious problem
related to inventory shortage and excessive inventory by products.

To solve this problem,

Omron Healthcare made a new attempt which was called Make-to-Availability (MTA) system
5

from 2010.

The cooperation involved all the parties concerned, such as sales departments,

suppliers, and distributors, and enabled Omron Healthcare to have remarkable achievement oninventory management in two years.

The reason we choose Omron Healthcare is that we candeeply observe what it did and how it did to reduce the total inventory before/after the change.

3.3

Research Procedure

This research is mainly based on several fieldworks and interviews with people in charge of
production department, sales department, and the supplier.
are used to the analysis as well.

Secondary data and prior research

Fieldwork detail is described as below.

The first-round interview was in August, 2012.

The authors visited Omron

Healthcare Dalian, China production site and its first-tier supplier A.

We have conductedfive-hour interview with the president, two Japanese employees from the management team,
one local staff from Omron Healthcare, and three consultants from Consulting company B
which helped Omron Healthcare implement MTA and daily operation.

In supplier A, wewere able to interview two Japanese expatriates and four local managers for an hour.
The second-round interview was about three hours in September, 2012.

We went toOmron Healthcare’s Tokyo Office and interviewed two persons in charge of sales department
about cooperation with the production sites and the distributors.
Other than the two interviews above, we also visited a consultant from Consulting
company B, who was previously working in Omron Healthcare for several times.
and informal interviews were total in five hours.

FormalWe also used emails and face-to-facemeeting to ensure the content’s objectivity and appropriateness.

3.4

Omron Healthcare Production History
Omron Healthcare implemented an innovative production system called ONPS

(Omron New Production System) in Matsuzaka factory (Japan) in 1982.
the same production concept as TPS.

ONPS is basicallyKanban system is utilized for implementing the pull-

production. ONPS contributed the drastic reduction of inventory in process and increase of
inventory turnover rate.

Main production site was moved from Japan to China after their

Dalian factory (China) was started in 1993.

The reform of supply chain in Dalian was started

in 2005.
Two phases of reform activities in Dalian are observed.
6

As illustrated in Figure. 1, in thefirst phases for production reform, Omron Healthcare focused on the production capability
building and the cooperation with the supplier.

In the second phase, Omron Healthcare paid

much attention on a wider range of cooperation, which involved more departments and parties
to make information flow traveling through them.

Figure. 1

Omron Healthcare production history(1)Introduction of DNPS from 2005 to 2010
As production activities in Dalian factory were increasingly important to Omron
Healthcare, it brought ONPS to Dalian in 2005 and rename the system DNPS (Dalian New
Production System).

DNPS actually performed remarkably on inventory reduction andproductivity improvement.
2003 to 2000 in 2007.

For example, the pump1 inventory was reduced from 30,000 in

Production planning cycle was shortened from monthly to weekly.

However, sales person of Omron Healthcare were required to forecast the demand 15 weeks
before production week.

They can change their order volume till 5 weeks before productionin the limited range.

Production plan was based on the forecast of sales department.

Flexible production capability was built to respond not to market demand but to sales forecast.
In 2010, the inventory level at the sales warehouse in Japan was still unstable.
inventory temporarily fell down and went up soon without noticed.
1

The

Some products were

One of the parts for blood pressure monitors, which is to feed air into arm band.
7

even short of inventory although the factory worked very hard on manufacturing them.

Oneof the main causes of the problem was that the irregular bulk orders disturbed regular
production plan.
The production site also knew nothing about sales department’s policy and plans,
except basic order information such as order items and their numbers.

Besides, production

site and sales site did not dare to try to share detailed information together.

It means

production site’s effort only contributed the local optimization (good impact only inside of
production site), and went along with sales site’s order information that mix up with regularorder and bulk order. The firm needed all parties involved to work together in order to solve
the companywide inventory problem.

(2)MTA from 2010
To solve the problem, Omron Healthcare started working on a new initiative called
Make to Availability (MTA) in 2010.

MTA is based on Theory of Constraints (TOC)

advocated by Goldratt, which is to focus on removing the bottleneck and improving thecompanywide product information flow in order to link the activities to profit.
explain the detail of MTA at later section of this paper.

We willOn this occasion, eachdepartment/party shall not focus on optimizing its own department/party but instead shallconsider how to generate a smooth flow of information for the entire firm.
In the following, we describe how Omron Healthcare made every department, suppliers anddistributors work together from “collaboration” and “interaction” perspectives (Kahn, 1996).

3.5Interdepartmental Integration

Collaboration within the firm
Omron Healthcare recognized it was important that all involved department
managers understand the system in order to make the new system work.

In March,

six-day workshop was held for sharing the common goal by all members.

2010,

All managers

from production, logistics, product development and sales departments were gathered. They
were required full commitment to the workshop during the six days.

Consulting company B

explained their TOC’s concept and the importance of total optimization instead of sum of local
optimization.

Before this workshop, DNPS was perceived as the system not for total

inventory control but for the inventory control at production site.
8

Sales department did notutilize DNPS for the control of their distribution inventory.
Other than learning the new system, managers also did in-depth discussion on what would
be the problems after system implementation.

Managers shared their own situation andsubjects, and truly deepened mutual understanding for the first time.

At the workshop,

involving the sales team was especially important because all customer information and orderinformation came from the salespersons.

Sales site tended to pass the orders to production

side with more amount than the one of actual demand because it did not want to haveinventory shortage and fail to response to its customer (i.e. distributor). Moreover theirfluctuation of production volume was amplified since sales site has passed the orderinformation that mixed up with regular order and bulk order for special campaign.
fluctuation brought the inventory shortage problem at production side.

That

Therefore, sales site

could not completely trust production site and kept to order more than the actual demand toprevent opportunity loss until this workshop.
Based on this background, the workshop provided each department with an opportunity toclear away each party’s mistrust and misunderstanding and make actual demand information isshared well. If sales manager could not fully understand the whole concept, the way themembers of the firm pass information would not be any different from the past.

At the end of

the workshop, Omron Healthcare decided to give MTA a shot and started the implementation
around August, 2010, a trial on five kinds of products and aimed to integrate management
between production department and sales department.

Now it implements the MTA with 170

items.

Interaction within the firm
According to Omron Healthcare, MTA is a production system that links shipping
inventory at sales site and market demand.

It replenishes sales stock according todownstream demand information (source from the market or distributor or sales site).

MTA

means that they manufacture in order to guarantee availability of their products for distributors.
Basement for production planning was changed from the order from sales department to thesales shipping inventory.

Sales persons basically do not need to order to production

department based on their sales forecast.
We would like to clarify the difference among MTA, MTS, and MTO.

MTO is a

manufacturing system which takes place only after a customer’s order is received.
9

On theother hand, MTS is a manufacturing system based on demand forecast.

Since it will prevent

opportunity loss and minimize excess inventory, the issue is how to forecast demands asaccurately as possible.

In order to have an accurate forecast, it is also important to predict

the future demand based on the demand fluctuation cycle of the past.
MTA is a type of MTS because the system is based on demand forecast.

However, Omron

Healthcare distinguish MTA from MTS. MTA is the system based on the forecast by
customers (distributors) while MTO is the system based on the forecast by their sale persons.
Information from customers transmits directly to the production department through sales
department.

Dynamic Buffer Management (DBM)
DBM is an important inventory management method to support MTA. DBM
visualize which item should be given the priority of production and how volume should bemanufactured.

First, it calculates the maximum amount of inventory for each item as a buffer

to cope with demand fluctuation.

The initial maximum amount of inventory is defined as the

maximum demand during supply lead time. Supply lead time is the sum of order lead time,
production lead time and delivery lead time.

The maximum demand is basically the past

maximum sales at the time when the product was the best seller in the item.
inventory is divided to three zones: green, yellow and red.
dynamically adjusted by an easy rule.

Then, item’s

The supply priority is

Red zone means the inventory is ready to short. Those

products in red zone should be manufactured as first priority. Yellow zone is the ideal level ofinventory and those products should be manufactures as second priority. Green zone meansquite sufficient inventory, and the supply is not in a hurry at that time. Present inventory is thesum of the inventory amount in shipping warehouse in Japan, the amount on transportation,
the amount in warehouse in Dalian and the amount in manufacturing process in Dalian factory.
The amount of supply to be manufactured is subtraction of the present inventory from the
maximum inventory.
Also, the maximum amount of inventory is dynamically changeable to a proper
inventory level according to the recent sales trend of the each item. The maximum amount of
inventory is increased by one-third of the original amount if the items inventory level
stagnated in red zone for a while. This situation occurred when sales of these items wereincreasing.

On the contrary, the maximum amount of inventory is decreased by one-third of10

the original amount if the items inventory level stagnated in green zone for a while. Thissituation means that sales of these items are decreasing or these items are approaching to theend of life.
For the regular order, salesmen do not need to make an order, and people on production side
do not need to work hard on controlling the inventory level anymore.

Information system

help two departments share information of inventory amount, products/parts location andfactories’ circumstances at any time. All actual information is visualized on the information
system and shared between production and sales departments.

Make-to Order (MTO) and Make-to Stock (MTS)
Production site treats the bulk order from sales site as a special order, and makes
another production plans (MTO and MTS) separately from the MTA which deals with theregular order.

People in charge of production attend the formal meeting in sales department

and information sharing becomes denser than before.

Production site wanted the sales site topass the bulk order information as early as possible because it has been hard to response to all
the huge volume order in a short notice.

Sales site wanted to know the accurate delivery timein order to response to the customers as soon as possible.

With close collaboration andinteraction between two departments, production site is able to know information about big
changes in production volume in advance.

Production site adopts MTO to respond to thebulk order. The bulk orders can be operated in MTA if the amount of orders is allowed by
the MTA standard.

Additionally, production site adopts MTS as for the new products. It isnecessary to prepare enough inventories before the introduction of new product to the market.
The amounts of those advance inventories are set according to the sales and promotion plansby sales department.

Production people understand actual sales are often below those plansor forecasts since no one knows whether it is going to be a blockbuster or not.
In 2012 summer, the inventory in the warehouse located in Osaka is reduced about
30% to 40% compared to it before the implementation of MTA.

The inventory in Dalianfactory is reduced about 40%, which is thought as a big figure in Omron Healthcare.

Theinventory problem has not completely disappeared after MTA implementation, yet monthly
meetings and other communications between two departments enable actual demand
information of regular order and sales policy (bulk order for campaign and the new productdebut) to be visible for each department.
11

3.6

Inter-firm Integration

Collaboration with the Supplier
Omron Healthcare held a meeting with people from 140 suppliers when trying to
implement MTA to the first-tier suppliers2. Omron Healthcare earned suppliers’ cooperation byreaching a consensus to build a win-win relationship together, and not to force Omron
Healthcare’s own thought on the suppliers.
For example, plastic parts supplier A in Dalian with 471 employees agreed to
implement MTA in 2011 summer.

Before running the MTA, supplier A’s plastic parts andelectronic parts were facing a serious inventory shortage, in which the shortage ratio was
81.7% in total.

At the kick-off meeting, Omron Healthcare and supplier A exchanged theirown opinions and concerns about the new system and made a common goal to meet market
demand, therefore, the smooth information flow must be carried between two firms as well as
among departments within.

Interaction with the SupplierSupplier A utilizes DBM for the regular order as well and shares the parts inventory
information with Omron Healthcare Dalian factory every day.

The production plan insupplier A puts red-zone parts to top manufacturing priority, which is based on its own
inventory information and Omron Healthcare Dalian’s parts inventory information.

To

ensure that the supplier fully acquires the concept of TOC, Omron Healthcare Dalian factory
send one employee to help.

The supplier also cooperates closely with Omron Healthcare andgives the status report meeting on weekends, which sum up to a total ten days from 2012 May
to August. What is more, the supplier also receives shipping status from Omron Healthcare
warehouse in Japan.
As for the response to bulk order such as campaign or new product debut, Supplier A
agrees to keep certain amount of the inventory, while Omron Healthcare Dalian factory gives
the responsibility to take over those parts inventory.

Nine months after starting MTA,

supplier A successfully reduced its plastic parts inventory to three-day amount, comparably
smaller than the one-week amount at the very beginning.

2

Although not all suppliers agreed to accept the new system.
12Collaboration with the distributor
In Japan, products of Omron Healthcare are first delivered to the distributor, andfrom there the products go to three kinds of retailers.
stores (such as Yodobashi Camera in Japan).
stores.

The first type is the large electronics

Half of the products are sold at this kind of

The second type is the drug stores that constitute 30% of the total.

the products go to the channel called non-store or special channel.

The last 20% of

The customer for this typeof channel is the corporations that do not hold stores such as TV shopping companies andhealth insurance associations.
People in charge of sales in Omron Healthcare attended the meeting in

distributor

Y in June, 2010 to reach a consensus on making the distribution channel simple enoughamong itself, distributor and major drug store X as implementing MTA.

It gave thepresentation about MTA implementation in front of distributor’s top and middle management
teams, explained how much the MTA was effective in order to acquire distributor’s
understanding, and suggested the distributor’s warehouse better be involved as well.
implementation of MTA started from October, 2010 with a few kinds of products.
is that when it comes to Omron Healthcare’s products,
with many drug stores only sells the products to

The

The idea

distributor Y that has transactions
drug store X.

And when Omron

Healthcare wants its products to be sold in drug store X, the products are only delivered to
distributor Y.

Thus, Omron Healthcare, the distributor, and the retailer have one-to-one

relationship.

Generally, the distributor responses to several retailers, and it tends toinevitably make a large amount of inventory in order to constantly meet the demand of theretailer customer (drug stores).
among Omron Healthcare,

So far, this one-to-one relationship is only implemented

distributor Y and drug store X (retailer) on a trial basis, but it

seems to benefit every party.
The point is that the smooth demand information through the simple distribution channel
makes the demand of downstream more visible for Omron Healthcare, and alleviates the
distributor and the retailer’s concern about excessive inventory and inventory shortage.
Omron Healthcare expects to implement the MTA to more products and more distributors than
now because the MTA has made it achieve a significant performance on total inventory
reduction.

Interaction with the distributor
13

The

distributor

took

Omron

Healthcare’s

suggestion

about

the

MTA

implementation, shared information over the IT system and made some basic rules with
Omron Healthcare.

For example, despite being the only distributor, it has the branches allover the country and sometimes receives orders from seven or eight branches in one day.

To

be responsive to massive orders every day, Omron Healthcare does daily delivery basicallyfrom Osaka warehouse after the distributor confirms the orders. Two parties are running theorder-delivery circle every day except for the weekends, when there are no orders.

As aresult, although the distributor has given a try only on some kinds of the products, the averagestock level of those products is already reduced to less than half the previous level, so far.
The distributor said it would be delighted to do the same for other products as much as
possible.

4. Results and Discussion
4.1

Results

Based on the case above, we can draw a few key points about the total inventory reduction
through a multi-stage observation.

Omron Healthcare’s effort required collaboration (goalsharing, mutual understanding) and interaction (IT system implementation, meetings) withdepartments inside and related organizations outside the firm.
First, we found that supply chain integration from upstream to downstream was a criticalpoint.

To achieve a successful integration, goal sharing and mutual understanding/trust was

the primary requisites.

Without actual goal sharing and mutual understanding ahead, thedepartments would only care about their own thoughts and plans, and this would prevent the
total inventory reduction.

The upstream production capability and mix-up of three

production systems were also the basic factors to support the successful integration.
When Omron Healthcare started to work on MTA, all managers from each department weregathered at the very beginning and reached consensus of what they will be doing after
understanding each other’s situation.

For the first time, production, sales, logistics and otherdepartments for operation shared a same goal which is to create a smooth product information
flow, prevent inventory shortage and improve the inventory turnover.

Since involved

departments had a common objective, a series of activities was done smoothly; for example,
new IT systems were implemented into some departments, and people from production siteattended the meetings on sale’s site.

We have to notice that if the production site had not
14

accumulated production capability for the past twenty years, it would have been difficult for
Omron Healthcare to operate the new system.

With production site’s high level ofproduction capability, Omron Healthcare mixes well the MTA (for regular order), the MTS(for new products debut), and the MTO (for bulk order) to deal with the market demand.
With the well-done integration, all departments know where the products are and what productis sold, and so forth what they have to manufacture at prompt.

Production side does not only

have interest on manufacturing but also start to pay attention to the market movement.

Aftersuch changes, the inventory problem has been alleviated at the multi-stage.
With the suppliers and the distributor, Omron Healthcare did the same process it conductedinternally.

Omron Healthcare explained MTA to the suppliers and distributors in order togain their understanding and have goal sharing among them.

Then, Omron Healthcare

implemented the new system among those parties and had meetings with them constantly.
Second, Omron Healthcare had certain steps to integrate all parties.
critical point.

This was another

Regardless of the amount of effort Omron Healthcare put for building asmooth information flow with suppliers or other firms, it would not be effective if the internalside is not well organized. As a result, Omron Healthcare achieved success on inventory
turnover improvement and a big drop in inventory shortage rate in two years.

4.2

Discussion
In contrast to most of the existing studies based on large-scale survey, our research

give the readers a detailed insight of the total inventory reduction from amulti-stage

observation.
First of all, “goal sharing” is one of the main topics in management study (Lawrenceand Lorsch, 1967a; Bourgeois, 1980; Collins and Pollas, 2002), however, it played a lessimportant role in SCM.

Gimenez and Ventura(2003, 2005) set the extent of integration as asingle variable to measure whether the goal is shared between departments or firms.
Kahn(1996) indicates that having collaboration (goal sharing and mutual understanding) done
first will contribute more to the firm’s performance.

It means that goal sharing or vision

sharing or mutual understanding among involved parties is significantly more important than
only having formal interaction such as emails, phone calls, and meetings.

Our finding is

consistent with those researches.

Besides, we use a case study to provide readers with theactivities’ detail for goal sharing.

This research possibly leads to a hypothesis and illustrate15

an effective guide line to practitioners as well.
Second, let us discuss the difference from previous studies about TPS.

We observea wide range of integration beyond keiretsu3 , and suggest trust in upstream affects the activity
at downstream.

In other words, the capability of upstream as flexible supply capability

facilitates the total inventory reduction.

We notice that if Omron Healthcare had neverworked on TPS to improve its production capability, it would not have been able to understandand implement the new system smoothly.

Many literatures specially focus on TPS’s strong

production capability and close relationship with the suppliers.

Omron Healthcare has

accumulated such production capability for years, and when it was time for to implementing
the MTA, it actually took advantage of TPS (named ONPS/DNPS) rather than taking the placeof it.

Sale’s site in Omron Healthcare trusted the production site and knew that it had a highlevel of production capability, which made parties in downstream easier to mix-up different
production systems. TPS studies address that upstream activity depends on demand
information from downstream (Holweg & Pil, 2004; Tomino, Park, Hong & Roh, 2009).

Ourargument is that the capability of upstream to provide a flexible supply influences activities(i.e. inventory management or order policy) in downstream.
Finally, observation of certain processes for integration is important.

Tomino(2012) discusses that TPS has adaptation capability to the market because it follows a stableproduction plan on the one hand, and is able to make minor-change to meet customer needs on
the other hand.

However, our research did not focus on the completed system but rather on asystem that was in the building processes.

Omron Healthcare case is not the only form ofintegration (figure. 2), but nevertheless, the case implies that in order to effectively deal withthe downstream, a firm should first integrate the production and sale sectors within.

Ourcontribution is to expand discussion by focusing on integration processes.

Figure. 2

3Integration process

Keiretsu is a group of companies with close business relationship. It is the key element of
the auto mobile industry in Japan.
16In conclusion, manufacturing firms nowadays respond to diverse and complex customer
needs on the one hand, and need to solve a plenty of problems such as lead-time improvement
and quality improvement on the other hand.

Management team should realize that, without

flexible supply capability, the firm will be exhausted to deal with various issues at hand, eventhough building competency is obviously a much harder task.
For the future research, multiple cases are needed to give a general implication.
Additionally, whether our finding can be applied to other industries is an intriguing topic as
well.

Industry differences might give us a different wisdom.

Acknowledgement
We would like to dedicate our special appreciation to Omron Healthcare for thedetailed interviews and helpful advices.

We also appreciate Consulting company B for

providing us incisive and constructive comments.

Insightful and concrete comments from

Fujimoto,T., Takahashi, N., Kuwashima, K., and Park, Y. W. were very much helpful and weare truly thankful for their support.

In addition, we are very grateful for MMRC’s funding as

well.

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