Category Archives: Best Practices

The Impact of Poor Quality on Cost

Every since the Toyota Production System (TPS) made Toyota famous for efficiency, there’s been a lot of talk about six sigma, lean, and TPS for a reason — because efficiency is good, and quality (which can be obtained when the systems are implemented properly, like they are in Asia, and not like Toyota chose to implement them in the US and Europe) is even better. But do you know how much better quality is?

More specifically, when you buy an inferior product, do you know how much this costs your organization? Chances are, poor quality products cost your organization three times as much as you think they do. In other words, for every dollar you spend on a poor quality product, your organization is losing three. An AMR study demonstrated that two thirds of poor supplier quality costs are non-material. For example, if there aren’t enough quality parts to keep the production line moving at 100%, this will incur additional overhead costs and labor costs in addition to return (processing) costs.

So what can you do to increase quality? According to this recent article in Industry Week on how “managing hidden supplier quality challenges can save millions of dollars”, which contained a case study on Graham Packaging, you start with BI. When you can find the quality-related problems with each supplier, determine which ones are a significant cost to the organization, and quickly get to the root of the issues, you can generate quick savings which, in Grahams case, amounted to millions of dollars a year.

And if you already have a modern, powerful, spend analysis system that allows you to build cubes (and reports) on any data set you please, you can crunch all of the performance related data in the corporate ERP system, create roll-up scorecard reports that capture all of the performance metrics, create comparison reports that indicate which performance metrics are below average and unacceptable, drill down to find the reasons, calculate the projected savings by improving the performance metric and, if the savings outweigh the costs associated with implementing any required improvements, take the reports to the supplier and start working on a fix to stop the leaks. It’s that easy.

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To Maximize Your Time, Tweak These Ten Time Management Rules

A recent headline over on the Supply & Demand Executive Site on
“the art (and business) of finding more time: 10 ways to organize your time and resources for maximum ROI” caught my attention because I thought it might have a good tip or two for improving supply chain ROI that I hadn’t covered before. It didn’t, but the 10 tips of time management it offered from it’s review of a chapter from thriving in the workplace all-in-one for dummies are still worth covering, if you give a few of them a little tweak. Here are the tips, and tweaks, that will help you achieve success in your supply chain efforts.

  • Live by the 80/20 ruleGiven that 20% of your tasks produce 80% of the results, spend 80% of your time on the 20% of the tasks that produce results. Furthermore, for the 80% of tasks that don’t produce results, 80% of perfect is more than enough.
  • PrioritizeActions that advance an initiative in-line with the strategy take priority. Unless it’s a true customer emergency, busy work and colorful smoke are low priority.
  • Conquer the In-BoxesVirtual or Physical, there are three types of documents. Those you act on, those you delegate, and those you discard. If it’s a priority and you need to do it, you add it to the work queue according to its priority and deadline. If it’s a priority that can be done by someone else, or not a priority but still needs to get done, you delegate it. Otherwise, you discard it.
  • Clear the ClutterAs the article states, a topsy-turvy desk translates into greater stress and the misleading feeling that you have all the time in the world to complete your projects. Plus, it’s distracting — and with all of the modern forms of communication, you have enough distractions as it is.
  • Ask Specific QuestionsSpecificity cuts out confusion and extraneous detail. Ask for precisely what you need, and you just might escape the data overload you’re hit with on a daily basis.
  • Burn the Time LeechesYou don’t have to close your door, wear headphones, or be arrogant, but when the office Wally stops by, wish him a nice day, thank him for his interest, and escort him to the door or, if you work in a cubicle, the coffee room on your way to a meeting (which might be a meeting with yourself back at your desk, but since a brisk, short, walk every hour or two keeps you alert, the 2 minutes it takes to lead him astray will be more than worth it).
  • Preemptively Appreciation Strike the Busybody ClientsThere’s always that client or contact who needs to be involved with everything or always up to date on what is going on. Make brief update calls to them on a regular basis, preferably when you only have a few minutes before “an important meeting to advance the project or product”, and they’ll be less likely to call you with excessive demands for your time.
  • Give Yourself a Kit-Kat, Give Yourself a Break for a Job Well DoneIf you do a great job, splurge a little on yourself. If you get the bonus you deserve, splurge a little more. (Save some, like a responsible person, but remember that the carrot always works better than the stick.) Sometimes it’s as easy as holding off on the Starbucks until the report is done.
  • Track Your ProgressJust like you can’t measure the effectiveness of your supply chain initiatives without regular measurements and trend tracking, you can’t measure the effectiveness of your performance if you don’t analyze your performance on a regular basis as well. Even if you aren’t required to file a time-log or a weekly report, create a brief report that captures what you did, how long it took, how it compares to your goals for the week and performance over the previous weeks, and what you plan to get done next week. Also include a summary of any problems or distractions that cost you time, breakthroughs or inspirations that saved you time, and anything significant that should be remembered. It should never be more than a page, and often half a page will do.
  • Be BrutalApply the rules consistently and when you need to, be harsh with your desk, your documents, and your doorknob cow-orkers who worship Wally as their leader.

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You Can Have Any Color You Want …

… so long as it is black.

This is one piece of advice from the early 20th century that we should not have forgotten in the early 21st. Maybe if a few more companies remembered this, they would not be in such dire straits. Consider the case of PolyOne Corporation that we discussed in a recent post on coming back from the brink to cash in the bank and how the complexity of too many manufacturing locations producing too many product variants was running them deep into the red.

Now consider the case of Apple — one iPad with 2 network connectivity options and 3 memory options. That’s only 6 variations, with only 2 components different in each variation. They’re “you can have any iPad you want, as long as it’s white” produced the best selling pad/tablet PC this year (with sales in excess of 2 Million units in less than 60 days, before it was available outside of the US), just like their “you can have any iPhone you want as long as it’s black” produced the best selling phone three years ago.

I was reminded of this while reading a recent piece on getting a handle on complexity which offered up a four step approach to reduce complexity, which, while workable, lacks the simplicity of:

You can have any color you want, so long as it is black.

Remember this, and you just might get your complexity, and associated costs, under control.

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Sometimes You Just Have to Shoot the Sacred Cow

With apologies to our Hindu and Zoroastrian friends, sometimes the sacred cow needs to be put down. If it’s old, weak, limping, and in pain, it’s not slaughter, it’s mercy.

So how do you know when it’s time to shoot the sacred cow? How do you know when it’s beyond it’s prime and on a rapid decline? Simple. You monitor it’s health and give every cow an annual checkup. When it’s overall health level starts to drop dramatically, you know it’s time.

This goes for every cow in your organization — the performance cow, the promotion cow, and the payments cow in addition to the marketing, legal, and advisory cows. This is very important because performance that was good enough yesterday might not be good enough today, different skill sets will be needed by the managers of tomorrow, and if it takes 57 days to process a payment, that’s a problem, even if it is within your 60 day limit.

So, just like this recent HBR article on “tackling the obvious” points out, if you want to stay alive, you have to continually ask what is good performance, whom do you promote, and are you focussed on change … because your supply chain can’t stand still and survive.

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George Kimball’s Tips for First-Time Outsourcing Buyers

Over on Horses for Sources, Phil Fersht recently ran a great piece on practical outsourcing tips over a pint which contained advice from George Kimball that is definitely worth your time.

The article contained nine essential tips for first-time buyers which can determine the difference between success and failure, including these too-often overlooked tips:

  • Get good advice.

    Don’t try to do it all in-house, and, definitely, don’t just “turn it over to the experts”. No outside advisor will know your business as well as you do. You need to find an outside advisor you can work with who will work with you to create the best agreement for your specific situation, as there is no one size fits all agreement for outsourcing.

  • Prepare to manage the contract and relationship.

    Weak governance — too few people, without sufficient clout, and accustomed to managing operations, rather than relationships — remain the single, most common, avoidable error among customers. A team needs to be built before the contract is signed and needs to be involved in the deal making process.

  • Tone matters more than people suspect.

    Not only does collaboration require good working relationships built on candor, civility, and trust, but you need to remember that the people you will be working with not only come from a different culture, but, likely, one that is much older than yours. (For example, civilization in China and India goes back thousands of years. They don’t want to deal with “children”.) Furthermore, the world is changing, and in just a few years, the “low cost” countries of today will be the economic powerhouses of tomorrow.

For the other six great tips, check out George’s practical outsourcing tips over a pint and if you really want to dive in, he recently published Outsourcing Agreements: A Practical Guide.

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