Is my wife fulfilled?

by Nigel Pye

Let me tell you a little about my sainted wife.  In addition to being a domestic goddess, she spends a lot of her time training for triathlons, being walked by the dogs, or generally doing important stuff out and about.  How she used to find the time to hold down a full-time job I’ll never know.   To optimize her time, most of her non-food shopping is done on-line.  She will take care in surveying the purveyors of goods,  She will form her opinion of who she should buy from based on many factors:

  • Price;
  • Delivery costs;
  • Availability;
  • The look and feel of the web site;
  • When the site was last updated;
  • Which credit cards do they take;
  • Can she use PayPal etc.

Having carried out this survey my wife then commits to buy.  At this point the firm operating the web site have been rewarded for all their hard efforts in addressing her list of bullet points. It would be reasonable to assume that this site will be bookmarked and may now be one of her first points of call when she comes to buy a similar item, but not necessarily so!  It is at this point, as the picker is dispatched in the warehouse to find my wife’s item, that the firm jeopardizes their potential for getting return business from the Pye household.

You will not have failed to notice the plethora of courier and delivery vans that ply their trade on our roads these days.  Given the number of times I have been stuck behind such vans, were I to own such a firm, I would consider putting my rival’s logo on the back, hoping to put-off the annoyed queue of drivers behind me from using their services.  But I  digress … Dr Pye next receives an email acknowledging her order and then the firm chooses (or more likely has pre-chosen) a company to fulfil their promise.  A second e-mail, or perhaps text message arrives giving my wife a tracking number.  This is usually linked to the web site of a courier firm and allows her to follow the journey of her much anticipated item(s).  It is at this point that the selling firm’s fate is sealed regarding repeat business.  To save litigation let’s just say that if the selling company has chosen Firm A, they are in with a strong chance of another order.  If they have chosen Firm B there’s a possibility, but if they have chosen Firm C, they need to have exceptionally good deals to have any hope of repeat business.

You see, the link from Firm A provides a one hour slot for delivery and a link to a GPS track and trace that shows where the delivery van is and how many deliveries need to be made before they turn up Chez Pye.  This allows Dr Pye to know if she can fit in a training ride, run, or walk the dogs, or any of the other things that take up her busy day. Visibility makes Dr. Pye happy.  Firm B provides a four hour slot, usually 8AM-12PM or 12PM-4PM.  This too can be deemed acceptable, not as good as Firm A, but acceptable.  Firm C simply say that her item will be delivered between 8AM and 8PM on a given day.  This is unacceptable, to the particular customer we are discussing (and, I would suggest, most other customers), as no external activities can be planned to take place that day, it may be that you can’t even do the gardening for fear of missing the 10 second pause between the driver pressing the door bell and driving away.  The selling firm that choses Firm C will be getting no more business from us.

As has been pointed out on other posts on this Blog, it is the whole supply chain that delivers customer value, and through a particular choice of fulfillment partner, a firm may have saved pennies from their delivery costs, but they have dented their reputation, probably lost repeat business and possibly the business of Dr Pye’s friends, since in addition to sharing information on retailers’ prices and offerings her circle are now sharing which sellers use which fulfillment partners to deliver the goods.  It is unfortunate that some of the big players in the market are not consistent in their choice of delivery partner and so we could play the game of delivery lottery, but given the brief time that it takes to compare prices, the Pye household will pay slightly more for the goods knowing that they will be delivered by Firm A, rather than get a cheaper price that may be fulfilled by Firm C.  After all what is an extra pound compared to the opportunity cost of a whole day spent ‘productively’ at home?

Service Networks and my Mid-Life Crisis…

Let’s get one thing clarified first. My Mid-Life Crisis (I’ll shorten this to MLC) is a thing and not an emotional or psychological condition. As I was turning 40 I decided to do the sensible thing and buy a bright red sports car. This is my MLC. The MLC was ‘pre-loved’ (academics aren’t that well paid) from a premium German manufacturer (I am protecting the names of the other parties here) and as I didn’t want to be landed with some unexpected, massive bill later on, I took out an extended warranty.

Last weekend the MLC began to emit a noise that sounded expensive and then another expensive looking light appeared on the dash as I drove home (they really should be flashing pound signs rather that icons that allegedly look like engines). I phoned the dealer and asked for it to be booked in to be looked at (and hopefully repaired under warranty). They booked me in for the following day but asked me to ring the roadside assistance number that came as part of the warranty as they did not want the car to be driven. That’s one hand off from the dealer to a third party…

I called the assistance number and they offer me a specific technician for the MLC but between 7-9AM the next day as they have no available technicians. I politely declined and decided to take it to the dealer at the allotted time the next day. The assistance company then called me to say they have found a specific technician who turned up at the allotted time (about 2 hours after calling), plugged the MLC into a computer, diagnosed the fault, said it’s safe to drive and that he cannot fix it and I should take it to the dealer. He also kindly notified his organisation that I might need a courtesy car.

I took my MLC to the dealer on the following morning where I was greeted by a happy chap who directed me to take a seat and I then see ‘my’ service advisor (a further hand-over). The advisor was very polite and informed me that it should be covered under the warranty (great!), but I could not have a courtesy car for two weeks as they normally have 15 of them but 5 have been crashed (not so great). He also informed me that if the repair is over £500 then he needed approval from the warranty firm for the repairs (not good, more waiting). The car should be fixed by noon of the following day and after signing a bit of paper and handing over the keys I headed to work.

Some time later, ensconced in the Ivory Towers of WBS, I received a call from the manufacturer’s courtesy vehicles provider to make me aware that I could have a car and to let them know if and when I wanted it (yet another handover). The interesting fact about this is that his call was prompted not by the dealer, but by the repairman logging it on the previous night. I then received a sequence of calls from ‘my’ service advisor keeping me updated (they identified two faults but there was really only one and they had to seek approval from the warranty provider to carry out the repair), and my MLC was now fit to drive again. So, all’s well that ends well right? Not quite…

Let’s consider the number of party’s I interacted with. 1) The nice lady at the dealer, 2) The nice lady at the automotive assistance place, 3) The repairman, 4) My service advisor, 5) The courtesy vehicle provider, and 6) (indirectly) the warranty provider. That’s a whole sequence of potential break points in the service. Also, if I had needed a car (but remember I was told I could not have one for two weeks?) to get around and couldn’t do it that would have seriously affected my view of the premium German brand. So what can we take away from this?

Organisations must consider that services are delivered in networks. Networks have break points and that failure of ANY of these points leads to me – or you, or your customers – having a negative view of said firms products or services. This could lead me to take my business else where. So, how can organisations get round this? First, make sure that using the service appears simple. As a customer I had clear visibility of a major part of the service network. I didn’t need (or want) this and it probably increased my frustration. Second, take ownership of the network. This does not mean in-sourcing it, but it does mean maintaining a consistent experience throughout. After all, if it does go wrong, people can go elsewhere…

 

Why can’t we all just get along? Creating the conditions for (non) collaboration

I went to lunch this week with a former CPO from a large industrial firm and a purchasing director from an automotive firm. Over lunch I was asked the question: “why do we find collaboration so difficult in supply chains?” My response was that there are a number of reasons behind this and nearly all of them can be addressed. I believe the reasons that apply to collaboration between firms also apply to collaboration within the firm, so, in no particular order:

1) Mutuality. Collaboration is mutual and has common goals. I have often heard a firm use the term ‘strategic partner’ then fail to apply strategic thinking (“we’ll put you on the approved supplier list”) or partnership behaviour (“can we see your accounts”). Collaboration has to be about both sides putting something in, to both get something out. It requires common, agreed upon (i.e. mutual) goals. After all, you both have to have skin in the game.

2) Intent. You must have intent to do it. Collaboration is about adaptation between partners, it’s about joint working. While there can be lots of intentions towards doing it, one party has to move first otherwise we end up with this:

Soldiers

3) Social bonds. Good collaboration needs lots of rich information sharing and deep social bonds. This can be achieved by putting people into cross-functional teams, co-locating staff in a supplier or customer, or structuring working spaces to encourage social connections. One European car manufacturer structures its design offices in a ‘hub and spoke’ where the design teams work in the spokes and the hub contained shared services (photocopiers, coffee, water etc.). People mingle in the hub, informal information flows, collaboration occurs and (hopefully) better design occurs. If it’s not possible to create these interactions structurally, for example your customer or supplier is eight time zones away, then social bonds must be created differently. Frequent visits is one way to do this but the relationship needs to be kept ‘live’ in between visits so pick the phone up and ask them how they are, share information and knowledge to demonstrate your goodwill and intent.

4) Incentivisation. In a previous post I discussed the need for metrics and incentives to be aligned to what the organization wished to achieve. Well, the same thing holds here. If collaboration is to be nurtured, then incentive mechanisms need to be established that foster a win-win environment. They need to be jointly agreed and adhered to. It’s no good looking for “price down”, when the resources of your collaborator are complementary and are tricky to substitute. After all. Collaboration is about leveraging synergies between organisations, not maximizing gains within companies.

5) Trustworthiness NOT trust. This old chestnut, but with a twist. Too many times have I heard that ‘trust’ is key, but the reality is, trust is a pretty difficult thing to grab hold off and influence. That’s why I always say that trustworthiness is more critical (so, are you a person of your word?). It’s then up to the other person to determine whether they trust you (and are they therefore trustworthy?). So, in the end, it’s just about doing what you said you would (and having a person that understands that on the other side)…

So, there we have it. Possibly simplistic, possibly naïve, some simple prescriptions for getting along.

 

 

 

 

 

Get your house in order. Why effective Supply Chain Management starts inside…

Good SCM is about effectively configuring and coordinating supply to meet customer demand. Sounds pretty simple, but why do organisations find it so difficult? I believe much of this has to do to with their structures, methods for incentivisation, differing functional goals and radically different views as to who the customer actually is.

Let’s look at the simple example of the procurement and sales functions. Procurement’s goal as a function is typically focussed on negotiating the best price (let’s leave the thorny debate on whether the cost is actually clear to another time) and they might be looking for surety of supply. They will be incentivised to achieve these. Who’s their customer? That’s probably operations who have different goals. If we then turn to the sales function, what’s their goal? Typically to sell ‘stuff’ to the customer. Their customer is the customer. The sales function will be incentivised to sell ‘stuff’ I would suggest that this creates something of a paradox. Procurement focused on cost, Sales on sales and Ops doing their own thing in between. So, what are the chances of matching supply and demand inside a single organization, let alone the numerous organizations that make up today’s supply chains?

Some organisations I have worked with attempt to create a supply chain function. They attempt to address the structural challenges of effective SCM. All of those I have seen forget to include some functions – typically sales (making the SC function wholly upstream focussed), or operations (meaning a critical component of the supply chain is not integrated). So trying to address this through structural means looks difficult. An alternative option is to consider more integrated goals and incentivisation mechanisms that guide functions towards considering that while they all have different internal customers, together they have one end customer. Once this is in place, intra-functional integration becomes easier and working together becomes part of the day-to-day. Only after learning how to do it can organisations begin to drive real value from their supply chains. So, first get your own house in order.

So what’s Operations Management (and why is it important)?

Operations are all around us, everything we consume, by way of product or service, is the result of Operations; without them nothing would get done. The aim of Operations Management is to ensure that what is done, is done to the greatest benefits of the operation’s stakeholders.

Operations Management (OM for short) considers how organisations configure, control and coordinate resources and processes to deliver value through products and services to the network of stakeholders. We recognise that few operations exist in isolation and so some resources and processes that are important to us are not in our control, they exist in the wider network (supply chain) and these can only be co-ordinated, so we extend our concept of Operations Management to be the configuration, control and co-ordination of resources and processes to deliver value to the stakeholder network. Why is this important?

In order to illustrate one facet of why it is important, let’s considering examples such as some recent product recalls (Toyota, horse meat etc.) and disasters (the collapse of Rana Plaza). In cases such as these the whole Operation was configured in such a way that the focal (or OEM) organisation had lost control of key parts of their Operation, thus posing risk – reputational or otherwise – to themselves and other stakeholders. So OM is partly about managing risk, but why else is it important?

I would argue that in addition to risk, good OM drives efficiency and effectiveness, profit (surplus in the public sector) and liquidity – but probably not all at the same time. Much of the focus of OM is about how we do more with less – how we become efficient. Efficiency and profit link back to Porter’s view of Strategy being about Cost Leadership and Differentiation (greater service levels lead to greater profit). So, good – or bad – OM impacts a firm strategically but we still need to discuss how OM can impact liquidity. If a firm can minimise it’s cash-to-cash cycle then it is more liquid. Less reputable organizations might do this by asking for money from customers more quickly (reducing debtor days) and paying suppliers over a greater time period (increasing creditor days). In the words of a colleague, this is “bully boy accountancy”, and can upset customers and lead to an unsustainable supply base as you would be impacting suppliers cash flow. Is it not better to get Operations to free up cash by minimising the need for inventory and reducing the amount of work-in-process? I think so.

So, without OM we wouldn’t produce stuff – products or services – and that ‘stuff’ would be less efficiently produced and so less competitive in the market.

Operations are clearly important. There is still so much more to OM. There is innovation, performance management, agility, supply chain and so on. These will be the subject of future blog posts. Watch this space.