Daily Archives: January 9, 2011

Always Remember That Only Your Supply Disruptions Will Be Remembered

As proof, consider the top 50 news stories of 2010 (Infographic). While most of the big stories were related to the economy, election, and terror (because the three major news networks that reach over 3/4s of the US population love to promote terror), the 3rd biggest story of 2010 was the BP Oil Spill (that will still be talked about in decades to come just like the Exxon Valdez oil spill is still talked about today) and the 10th biggest story of 2010 was the Toyota (Gas Pedal) Recall that affected most of the Toyota Vehicle Line-Up, including the Avalon, Camry, Corolla, ES 350, Highlander, IS 250, IS 350, Lexus, Matrix, Prius, RAV4, Sequoia, Tacoma, Tundra, and Venza. While the recall may have been limited to components manufactured by one supplier, it had devastating effects across the Toyota line.

In comparison, not one of the top 50 new stories revolved around a supply chain success. In fact, only the continued debate on the economy and the Toyota recall revolved around business. The majority of the top stories revolved around politics (28), and the rest were rather evenly split between bad news (7), natural disasters (6), and culture (7). The media doesn’t care about your success, only your failures. Make this the year your organization gets those risk management systems and processes in place so that it doesn’t end up being the top news story of 2011.

Cheating Metrics Does Not Make For Better Service!

Reading the fall issue of the MITL Quarterly from the McMaster Institute for Transportation & Logistics, I was appalled to hear that only one airline reported a tarmac delay of more than 3 hours was a US airline performance highlight for August 2010 (as opposed to 66 such delays in August 2009). One must remember that the DOT 3-hour rule, which mandates that passengers on domestic flights be allowed to disembark after three hours (provided doing so doesn’t create a safety or security issue or interfere with airport operations), came into effect on April 29, and that the fines for violating the rule can be as high as $27,500 per passenger, which works out to 3 Million or more for a stranded 737.

As a result, airlines now have a huge incentive to insure that a plane doesn’t sit on the tarmac for more than 3 hours — an incentive that is much bigger than the incentive they have to get passengers to their destinations on time. Do the math — at 27,500 a pop, the penalty for sitting on the tarmac can be up to 50 times the reward for getting passengers to their destination (as measured by the ticket price). Thus, airlines are not boarding until the chance of take off within 3 hours is as close to 100% as possible — which means that instead of sitting on the tarmac, passengers are now sitting in the airport instead. Plus, when there is an extended delay, the chance of a delay beyond 3 hours is now much greater because if the delay becomes extended, the airline will just cancel the flight instead of taking a service performance penalty. They change the metrics — and while it makes for “better service” from the Department of Transportation’s perspective, it doesn’t make for better service to the end customer.

After all, the statistics are still bad. If you go to the Research and Innovative Technology Administration Bureau of Transportation Statistics and search the airline statistics for the major airlines, you’ll find that on-time arrivals for the past year are still hovering around the 80% mark on average and, most importantly, that (well) over 5% of regularly scheduled flights are now cancelled by the major airlines. Two Thousand and Four Hundred (2,400) regularly scheduled flights were cancelled in October 2010 alone. I’m not sure what the average delay for each passenger that had to be rescheduled was, but I bet it was a lot more than 3 hours. And if 9.4% of flights were cancelled in October 2010, then, on average, only 70% of regularly scheduled flights are arriving on time. (And in June and July, over 200 routes were chronically delayed, that is, over 50% of flights were late by 30 minutes or more.) That’s very poor performance in my book.

I could continue to drone on about the fact that US airline performance is, despite low violations of the 3-hour rule, quite dismal, but I think this is enough make my point. If your service is bad, and you change the metrics, it’s still bad and you’re not going to fool your customers. While the airlines might be able to get away with it, as most major airlines will have an effective monopoly on a number of routes around their local hubs and you don’t have a lot of choice, you won’t. Unless you’re truly making a one-of-a-kind product that your customer cannot get anywhere else, which is not true for 99%+ of manufacturers, your customers have a choice — and if you give them poor service, when the contract is up, they’ll leave — especially if you try to report stellar performance when the truth is anything but.

Don’t repeat the airlines’ mistake.