Monthly Archives: January 2013

Customer Service That Takes No Action is Not Customer Service

And if you have no customer service, your supply chain performance metric could be significantly lower than you think! It doesn’t matter that the product ships on time, it only matters that the end customer receives it on time and defect-free. And if the product doesn’t reach the customer on-time and defect-free, your supply chain performance is ZERO unless customer service does something to actively resolve the situation.

It seems that Customer Service is Still Going to Hell and Supply Management hasn’t learned anything yet, as per this recent blog post over on the Supply Chain Management Review that points out that A Disgruntled Customer [is] the Last Supply Chain Link. In this post, the author, Rosemary Coates of Blue Silk Consulting describes her recent experience with Target.com’s customer service and their refusal to do anything when the customer not only clearly pointed out the problem but also pointed out the resolution (which is not the customer’s job).

In summary, the author ordered a gift for Christmas from Target.com, well in advance of Christmas, but when the package didn’t arrive in 10 days, she went online to track it. She discovered that it was scanned at the Target.com warehouse, but never recorded in the UPS system. She then confirmed with UPS that they never picked it up. At this time, she contacted Target.com customer support who refused to do anything, stating that she must wait 10 business days just in case, by some miracle, the package left the warehouse, to be delivered long after Christmas. And then they still did nothing. Target.com didn’t even offer a refund until the author complained about the problem on their Facebook site and Tweeted about it. Were they trying to outdo Best Buy in a race for the customer service Razzie?

This story is absolutely ridiculous. The problem could have been solved with a simple UPS lookup, to confirm the author’s complaint, and a simple call to the warehouse to inquire why the package hadn’t been shipped yet. This would have resulted in a “we don’t know, let’s check” followed by a call-back a little later along the lines of “we misplaced it, it will go out in the next pick-up” or “we can’t find it — it’s obviously lost, we can re-package and re-send or you can give the customer a refund”. And within 24 hours customer service could have called the author back on the open trouble ticket with either a “success, it’s going out” or “it’s been lost, would you like a replacement shipment or a refund”. It shouldn’t take multiple complaints for something a simple phone call can fix. That’s not customer service. It’s customer contempt, and it’s contemptuous in a modern supply chain!

Five Common Sense Ways to Power Manufacturing Growth in a Down Economy

Last summer, Industry Week ran a short article on Ways to Power Manufacturing Growth in a Down Economy that you might have overlooked, as it was short and ran during peak vacation season, but it is quite important nonetheless. This article provided some easy ways to squeeze more value out of your operations.

  • Reduce Market Uncertainty
    There are two big uncertainties that most manufacturers have to deal with: customer demand and supply availability. In addition, raw material costs can often be unpredictable. But all of this uncertainty can be greatly reduced with long-term contracts. As the article points out, demand certainty at reduced margins is often better than demand uncertainty, especially since innovation and lean improvements can often reduce costs year-over-year.
  • Put Safety First
    Accidents cause downtime and result in reduced yields, both of which increase operating cost and eat up margins. Keeping lines up and yields constant is the best way to reign in costs and get the most out of every dollar.
  • Near-Source
    Reduce shipping costs and gain more control over manufacturing processes and costs by using suppliers closer to your manufacturing facility. It’s a lot easier to work out a problem with a supplier in your own state than with a supplier in a different country, as you can just jump in the car and visit the supplier’s location when a face-to-face meeting is needed to resolve an escalating situation.
  • Redefine Value-Add using Customer Value
    Find out precisely what customers want and eliminate all unnecessary features and functions that are not desired by the end customer. It’s not value-add unless the customer wants it. If the customer doesn’t want built-in auto-correct software that messes up 20% of the time in their smartphone, don’t waste money delivering it to them!
  • Encourage Innovation
    Empower, motivate, and reward employees who identify product and process improvements throughout the organization that increase quality or product value (to the end customer) while holding steady or decreasing costs.

The point is that, even if demand is down, margin can still be up.

Wanna Get Lean? Get Mean About Wasted Time, Effort, Production, and Transportation!

Apparel Magazine just ran a great article on “developing leaner product development and sourcing operations” for anyone looking for an easy to understand no-nonsense common sense introduction to going lean. Focussed on correcting the six-lean sins of the product development process in an average organization, the article did a great job of pointing out that if you are wasting time, effort, production, or transportation, you are not lean.

More specifically, a lean organization does the following.

  • Optimizes Time Utilization
    A lean organization identifies those parts of the cycle that take the most time or that tend to run out of control and reins them in with proper processes and controls. In supply management, if the longest part of the process is identifying suppliers who can meet certain needs, then, even before a product design is finalized, the process to identify suppliers with the requisite technical capabilities and production processes is begun. Then, when the design is finalized and the components need to be sourced, the organization simply needs to select the most appropriate supplier from a small pool.
  • Optimizes Effort
    As highlighted in the article, a lean process does not include unnecessary milestone meetings, [a] lack of communication between departments that leads to a re-creation of plans, [the] development of too many designs that do not get adopted, or the creation of unneeded samples. The requirements for a project are clearly identified and all efforts are aligned with meeting those requirements.
  • Optimizes Production
    There are three optimizations here. First of all, the organization avoids producing more units than are needed (in a given period of time). If the known demand is 100, 1000 are not produced in the hope that the need will magically appear. Secondly, the organization does not add features or functions that are not required by, or do not add value to, the end customer. Third, the organization avoids the creation of process silos to insure that one individual or group doesn’t over-engineer a part or value-add service that goes (well) beyond need or cost control requirements.
  • Optimizes Transportation
    This applies to all steps in product design, development, and distribution — not just the final distribution process. For example, sending partial products back and forth needlessly in the design and development process due to poor process design is waste. In production, if raw materials are transported from Africa to South America for refinement and then shipped to China for component production and the components are then shipped to the US for final assembly, that’s just inefficient, especially if the final products are then sold in Europe. That’s losing sight of the supply management forest while focussing on the old cost trees.

Lean is not a mystical, magical, chimera. It’s the systematic elimination of waste by taking a holistic view.

The Key to a Successful Supply Management Center of Excellence? No MBAs and No PMPs!

Regular readers will know I’ve been blasting MBAs (Master of Business Administration) for years and feel that the degree on its own is worthless (a belief that has started to be echoed by many progressive US companies who realize that MBAs have too much training on the coastline of business and not enough on the mainland, as pointed out by Robert Kaplan on The Hollow Science). In a nutshell, if all you have is an MBA, then, as far as I’m concerned, you’re just a Master of Business Annihilation!

But what regular readers don’t know is that I hold project / product managers with no education or skill in what they are attempting to manage in the same regard and believe that PMPs (Project Management Professional, as certified by PMI for e.g.) with no other skills are nothing more than certified, legitimized, pimps. (Think about it. All you are to them is a resource with a skill to be sold to the highest bidder. The only difference between them and a street pimp is that, while the street pimp is selling a resource with physical skills to the highest bidder or favoured client, they are selling a resource with mental skills to the highest bidder, or favoured executive.) The reason that I’ve been quiet is, until now, I’ve had no proof. But thanks to a recent Hackett Group study, nicely summarized in this Information Week article on “Project Management Offices: A Waste of Money”, we now know that not only are you not expected to get better business outcomes or project delivery performance if you use a PMO (Project Management Office) staffed with PMPs, but using one might actually decrease outcomes and/or performance. In fact, the study found that an IT organization’s performance actually improved once the PMO was eliminated.

What everyone seems to be forgetting is that, especially today when the level of process and technical sophistication in most fields is higher than its ever been and the pace of advancement is still relentless, you cannot effectively manage what you do not understand. While the basic principles of good business and project management are the same across disciplines at the high-level, 30,000 foot view, the implementations vary, and the knowledge needed to understand if a project is really on schedule or if a disruption is serious or not is different across every industry, organization, and project — especially in software and engineering. Every project comes with its own unique challenges, many of which will be deeply technical or process oriented. And if you don’t even understand the ramifications of the second law of thermodynamics, don’t expect to understand the challenges your design engineer is facing when the system keeps overheating at normal usage levels and how long those challenges might take to resolve.

Now, to be clear, I’m not denying the usefulness of MBA skills or project management skills, as they are useful when layered on top of a deep understanding of the organization’s supply chain or a relevant engineering degree (when one is managing an engineering project) — as they are incredibly useful in these circumstances, just denying that these degrees and/or certifications have any value on their own. In fact, as some recent studies have shown, on their own they can be down-right destructive!

So if you want a successful Supply Management Center of Excellence, forget about the MBAs and the PMPs and look for people with the skills in the disciplines necessary to create and deliver your products and services. If you produce electronics, look for designers, electrical and electronics engineers, risk management experts (to prevent supply disruptions from your dependence on rare earth metals), finance experts (to help manage working capital until the first product is sold), and any other cross-functional expertise necessary for a successful product. If you find the right experts, you can then train them in the project management and business skills that are required. And since these skills require substantially less capability and training than the disciplines the experts have already mastered, your experts will be able to master these skills given sufficient time and proper training. (On the flip-side, the chances that a PMP with only an associate’s degree in psychology is going to gain a sufficient mastery of power electronics to truly understand the project requirements to design a new overload reset switch for a local power grid are slim to none.)

The Essence of Good Working Capital Management

In yesterday’s post we noted that playing games with working capital only costs the organization in the end; specifically, for every 10% of working capital an organization messes with, it loses 1% of total working capital (or 10% of the working capital messed with). Not a good deal, any way one wants to look at it.

Working Capital doesn’t have to be hard to manage. While an expert can get quite sophisticated about it, all one really has to do is:

  1. Get a good grip on receivables
    What is the organization expecting from sales and when; what reimbursements is the organization entitled to and when; what tax rebates is the organization expecting and when.
  2. Get a clear picture on fixed payables
    What is the average monthly payroll, the average monthly overhead (rent, utilities, etc), and regular non-monthly expenses that are projected over the next year.
  3. Get a good estimate of average disruption costs
    When a receivables disruption has occurred — regardless of if it was due to a late payment, lost customer, lost sales from a competitive product, or market delay due to a supply chain disruption — how much has it cost on average and how long has it persisted. This is the contingency fund that is required (and can be amortized monthly over the next twelve months).

Once this is known, the organization knows how much cash it has to work with every month. Only then can it truly begin working capital management and determine when it should pay early to take advantage of an early payment discount, borrow to pay on time to prevent costs from rising (as the supplier’s cost of capital is much higher than the organization’s), pay late and pay the penalty (as the organization’s cost of capital is higher and/or the supplier is able to bear the burden of payment late more than the organization is able to bear the burden of paying on time), or get innovative and work with the supplier to reduce costs across the supply chain. Without a solid understanding of cash flow, working capital management can’t even begin. And good working capital management definitely doesn’t involve booking revenue early, paying suppliers late, or other quarter and year end games to present a rosier picture than reality, because these games always get discovered and the organization always loses, in hard dollars, in the end.