Thursday, February 9, 2017

Ask Art: Is “We are customer-driven” a good lean strategy?

by Art Byrne
February 2, 2017

Lean companies, and the people working in them, always focus on the customer. Every person’s daily work seeks to eliminate waste in order to deliver more value to the customer. This is not a cost reduction program, but a value increasing one. As waste is removed, for example, lead times can go from 6 weeks down to 1-2 days, all of which delights your customer. For the traditional batch company however, this approach is simply not possible. Because they know the customer is important, they say “we are customer driven” and train everyone to do whatever the customer says—even when doing so is bad for the customer and terrible for them.

The problems start on the phone when a customer asks: “How many Blue ones do you have?” Customer service rep replies: “We have 800 in stock.”

Ouch, now we are in trouble. Customer says, “Oh, that’s too bad, I need 1,000 Blue ones. So ship me the 800 now and let me know when I can get the rest.” Because we are “customer driven” we ship him the 800, which they can’t possibly use all in one day, and then back order the next 150 customers, who want 5-20 Blue ones as part of much larger orders for other products.

Next, we allow customer service reps to allocate inventory for future orders because we are “customer driven” and must assure the customer that they could get 700 Red ones shipped three weeks from now. The fact that we only had 750 on hand and that we sell on average 100 per day means that we will now back order almost every customer until we get Red ones back in stock even though we have 700 perfectly good Red ones on the shelf. Once they were “allocated” they were removed from inventory. The batch company with its six week lead time will struggle to get these items back in stock while the lean company with a two day lead time will not.

Or what about when the customer orders 300 bases and 800 covers? The “We are customer driven” company will just process the order because the “customer is always right.” Three weeks later the customer will want to return 500 covers and not have to pay the product return fee. The same holds true for large “excess” orders. The sales force is incented to sell big batch orders. When the orders come in, however, they cause massive disruptions in operations that can tie up equipment on long runs forcing back orders on other customers. The fact that we offer volume discounts into stock to get these orders just compounds the problem as these discounts almost always find their way back into the marketplace. This just cheapens the price for your product so it is bad for both you and the customer.

Then, of course, there is the question of who is the customer in the first place.

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