Category Archives: Process Improvement

When Semi- is Better than Fully Automatic

semi-auto
Christopher Hatcher published a great article over at 21st Century Supply Chain about when semi-automatic processes are better than automatic ones. As an example, he talks about the exciting day in army basic training when he switched his gun from semi- to fully automatic. His observation is important: accuracy often goes down dramatically. He says,

“I can’t remember if I actually hit any targets that night, but it was so cool to try the automatic setting.”

Many companies go through a similar exciting phase – especially young companies that are learning how to expand their operations. Instead of taking time and really thinking out each move, we often want to find an automatic process that will “just make everything work and not bother me anymore.” When making investment decisions, it’s tempting to buy the Ferrari solution with all the options when the less glamourous bicycle product might actually work better.

In addition to spending too much on the automatic solution, we often create additional problems or miss valuable opportunities by letting processes run on autopilot. Many opportunities for improvement present themselves through deep understanding of how processes work. That understanding can only happen when we participate in the process.

What processes in your business would benefit from switching to semi-auto for a trial period? Which might benefit from a permanent semi-auto setting? Could less automation make some of your processes more efficient in the long-run?

For example, I often learn more from updating important metrics by hand than metrics that update automatically. That extra attention frequently brings me important insights.

Hatcher’s article includes these wise words:

“Running most operations in automatic mode is likely a wise choice, but it’s important to understand which parts of the process can trigger the responsible party to intervene when necessary. Automatic sometimes just scatters lots of bullets with a great deal of sound and fury, but semi-automatic usually hits the target every time.”

Check out the full article here: Will that be automatic or semi-automatic to manage your supply chain?

[Image Source, modified]

Everything is a Change Management Problem

ChangeManagement

Back to Marketing Class

In a recent marketing class, we discussed a case of a startup company segmenting its customers. The startup had two primary customer types that were beginning to require different solutions. The company had to decide which segment to focus on and which one to let go.

Running through the numbers, we came to a clear conclusion that customer segment A would be more profitable with the largest growth potential. The class wrapped up, and we all felt good about successfully using our marketing tools. Marketing lesson accomplished.

After class, I asked the teacher what actually happened to the company. She replied that even though segment A was more profitable, the company went after segment B. The founders and investors all felt better about Segment B, so they decided to take the riskier option and drop A.

I joked to the professor, “Oh, so it really wasn’t a marketing case – it was an organizational behavior and change management case.”

With a smile, she quickly responded, “Every case is a change management case.”

Everything is a Change Management Problem

My teacher’s response has stuck with me. On one hand, it seems so obvious and something I already knew. On the other, it seems like a deep insight – words a wise, gray-haired sage would whisper from the shadows. Everything we try to do within our own team, across the company, or personally depends on changing current behavior. The hardest goals of all require us to change ourselves so that we can then change others.

Change Management in Supply Chain

When skilled change management leaders enter supply chain and operations, companies tend to do quite well. Toyota, for example, rose to prominence through its culture of embracing constant change toward improvement. The Toyota Production System (TPS) is a systematic way to enact change on a recurring basis. Just as McDonald’s realized in the 1950s that their main product is a franchises rather than food, Toyota realized its product isn’t just cars but an improvement system.

As I’ve tried to make changes, I’ve looked to Toyota as an example. The temptation I’ve faced is to take Toyota’s tools and copy their processes completely. When changes weren’t implemented as quickly as I’d like (or not at all), I would get frustrated and wonder if Toyota’s tools really held the answer.

Eventually, I realized they don’t.

Toyota’s problem-solving tools work at Toyota because of its culture of embracing changes TPS suggests. Those tools are great if you’re in that type of environment, but most companies’ cultures are very different.

In fact, the actual tools, numbers, or improvements often become much less important than how you manage the proposed change.

The best ideas, implemented poorly, will always lose to decent ideas implemented well.

How to Change

So how do you effectively lead change? The right answer varies by situation and personal style. Here’s five suggestions to help you find what works for you.

(1) Remember the Primary Issue is Always Managing Change

No matter what type of problem you think you’re trying to solve, there is always a bigger question of “what will I do to get to enact this idea.” Figuring out the right segment to target is one thing, convincing the company that it’s the right thing to do is the real issue.

(2) Spend a Ton of Time Getting Buy-in

I’m an ‘act now, fix it later’ kind of guy. I’m constantly running experiments to improve processes. When I see an improvement, I jump on it and move forward. Why waste time with a less-efficient process? This is often a common mentality within groups of operationally minded people. It’s a skill that helps reduce costs and improve efficiency. But this can also be a weakness when working with others.

Change management often requires a much different approach. People take a lot of time to prepare of major changes. Communicating all the knowledge you’ve gained to the rest of your organization on why the change needs to happen is very challenging. Resistors, supporters, and bystanders emerge, and it takes a lot of work to convince others to change their behavior.

A common thread throughout change management literature is the time it takes to get buy-in. Getting buy-in from your own team of five may take a five-minute conversation, but an organization of just fifty people can take five months of meetings. Bigger companies can take five years. Investing in buy-in upfront can be a frustratingly slow change of pace, but it’s the best way to enact significant changes in larger organizations.

(3) Give Others Credit

If you really care about the change, don’t care about who gets credit. Make others look good, especially superiors, and you have a better chance of your mission moving forward. Even if you’re name is never mentioned, most people will recognize your role if you repeatedly bring others success.

(4) Show Leadership by Following

My favorite TED talk is only three minutes long, and it’s called How to Start a Movement. It shows how a lone dancer at a concert creates a movement to get everyone at the concert dancing. With that dancing movement happening in the background, Derek Sivers explains the characteristics the video exemplifies of how to make change happen.

It’s a fantastic video – take three minutes watch it here: TED Talk – Derek Sivers, How to Start a Movement

My favorite insight from the video is, “The first follower turns a lone nut into a leader.” There’s lots of people trying to enact changes. By becoming their first follower, you can make those changes happen. You can pick which “lone nut” to follow and pick which change succeeds.

(5) Read Switch

Finally, read my favorite business book:

Switch: How to Change Things When Change Is Hard

This book is simply fantastic in every way. It’s entertaining, easy to read, and the advice applies to changes of all types. Whether you want to change your personal diet, change how we address world hunger, or change your company’s procurement policies, Switch has real-life advice you can use right after you read each chapter. I can’t recommend this book enough.

If you’ve already read Switch, Decisive is an excellent follow-up about how to make better decisions.

 

As you tackle your problems this week, choosing between A and B, remember that the biggest issue is how you manage that change.

‘The Johnny Tightlips’ and Two Other Popular Approaches to Supplier Relations

“Before you send that email, there are a few lines I want to take out. We don’t want to share that information with that supplier.”

“Really? But this supplier has done so much for us – shouldn’t they know what’s going on?”

“Not yet. Maybe later – but we don’t want to put any tension on our relationship right now.”

Three Approaches to Supplier Relations

Most companies have a list of key suppliers that you just couldn’t live without. Your dependence on them reminds you of the support you get from best friends, siblings, or even your spouse. But sharing personal information with family and close friends is often easier than sharing business information with your suppliers. What if they take advantage of you? What if they share that information with your competitors? What if they become your competitor?

Navigating your supplier relationships depends a great deal on your business model and the character of the suppliers you work with. Perhaps you could benefit from increased information sharing. Or – perhaps you should hold back a bit more. Here are three approaches to supplier relationships to consider.

The Johnny Tightlips

Johnny Tightlips

Johnny Tightlips is one of my favorite characters from the Simpsons. His catchphrase, “I ain’t sayin’ nothin’,” characterizes the attitude that a surprisingly large number of businesses take. While this arms-length relationship seems cold, it also has served many companies quite well.

The stories of suppliers moving upstream and becoming a direct competitor with their customers are numerous and instructive. For example, Asus was Dell’s supplier when they announced their own brand of personal computers that would compete directly with Dell.

If you’re a fan of poker-like negotiations, then keeping your cards close is highly advisable. Millions of dollars have been won by letting the other party speak while you sit quietly and listen. In fact, using a “pained pause” may be a great tactic to try next time you’re in negotiations. This tactic is described as, “When your negotiating partner makes a too-low offer, sigh, look him or her in the eye and say nothing.” Your silence puts pressure on them to do better, negotiate with themselves, and make a better offer without a word from you. For more on the Pained Pause, check out this Lifehacker Article.

However, relationships with Johnny Tightlips suppliers are only good as good as the benefits they bring. Unless you have most of the power in a supply chain, it’s unlikely that your suppliers will sacrifice much for you. When hard times come, they’ll more likely to switch to your competitors since there’s no loyalty or relationship in place.

Here’s a couple of my favorite Johnny Tightlips appearances:

The Open Book

The Open BookOn the opposite end of the spectrum is the open book approach. Your suppliers provide valuable services to your company – much like your employees. Treating them the same as employees, especially in regard to information, makes a lot of sense.

Being open has a myriad of benefits. Suppliers are able to collaborate with you on new ideas. Because they’re higher up the chain, they bring valuable insights about what efforts they’ve seen previously work or not. They also may have innovative ideas that they’re more likely to share with you because of your relationship with them.

An open policy also can be lifesaving when the road gets bumpy. Suppliers are much more patient when they know what is going on – why payment is delayed or orders are down. Though the rough spots are often the most difficult times for honest communication, that’s when it’s most impactful. A detailed email explaining the situation openly can open the door for more lenient payment terms and with the relationship intact.

Before your open your books completely, here are some important questions to ask:

  • Has your supplier proved their trustworthiness yet?
  • Is there any specific information that poses an unusually high risk if shared?
  • Have sufficient contracts been signed to prevent unauthorized sharing outside the business?
  • If you are a public company, are SEC guidelines – especially insider trading rules – being followed?
  • Have we sufficiently explained the policy to those who interact with our supplier?
  • Are your instincts prompting you to hold something back? Why?

Despite the risks, opening up communication often yields impactful results.

The Game of Kingdoms

The Game of KingdomsA middle ground is a philosophy I call the game of kingdoms approach. Imagine your company as a kingdom – complete with a castle and city walls. Your suppliers and customers are also kingdoms. Some are bigger than you, and some smaller. Just as a king engages with other kingdoms, you work with other companies.

The much larger kingdoms – the ones you’d like to have on your side if a war starts – merit investment in open communication. You want to build those ties in diplomatic ways by sending emissaries and fortifying trade routes. The smaller kingdoms may require less work. Taking a diplomatic game approach and envisioning various castles often helps me make better decisions on supplier relations.

Besides, “inter-kingdom diplomacy” just sounds more fun than “supplier relationship management.”

What’s Your Weapon of Choice?

Which approach do you currently use with your suppliers? How might you benefit from adjusting your communication style?

Share your thoughts in a comment, and be sure to check out our recent podcast where we talk with the former VP of Operations at Skullcandy about vendor relationships and metrics.

[Image Sources: Johnny Tightlips (modified) | Open Book | Castle]

Build an Awesome Vendor Scorecard Program in 4 Easy Steps

Vendor scorecards measure and track supplier performance on various dimensions that are important to your organization. At first, I was reluctant to start a scorecard program because I thought our company was too small and too busy. However, after eventually beginning our program, I saw powerful results that freed up time and helped the company grow.

Vendor Scorecard Example

Vendor Scorecard Template with ExamplesVendor scorecards strengthen supply chain relationships and help focus your suppliers on what matters most to you. Scorecards set goals for your vendors to reach for so they can become your vendor of choice. You can clearly see where each vendor ranks against each other, which helps you decide which supplier to work with on complex projects. This article outlines the four steps I took in building our company’s vendor scorecard program. I have attached a Excel Vendor Scorecard Template that I put together as a starting place for your own scorecard.

1. Decide What Matters

The first step in creating a vendor scorecard program is to define what your ideal vendor would look like. For me, it would be someone that communicated clearly 100% of the time, shipped quality products for free, and had a lead time of 15 minutes. Although those requests are a bit ridiculous in my industry, it does highlight what matters to me in my vendors: communication, quality, pricing, and lead-time. Together with my team, we took my brainstorm farther and came up with four categories that matter most to us with our vendors:

  • Pricing/costs, including payment terms
  • Production and Supply chain, including communication and lead-time
  • Quality
  • Product Development

Essentially, if our vendors could continually improve on these four points each year, our organization would benefit immensely.

2. Measure the Metrics

Having defined the broad categories, we now have to build the nitty-gritty of the scorecard. You need to build specific, measurable metrics for each category. Specifically, what exactly will you measure, and more importantly, how? For example, a pricing metric could be a comparison of costs between all capable vendors. A quality metric might be the percentage of orders with quality defects.

Good scorecard metrics should clearly define what is good, acceptable, and bad performance in each dimension. Your metrics should be a score for how your vendors are doing in aspects that matter most to you. They should be easy to understand, and if possible, easy to calculate. Unfortunately, building the perfect metrics often takes some deep thought to get them right.

Nailing the Details is Key

Many metrics were much more complicated to fully define than I thought they would be. For example, lead time is an excellent metric that I use. Tracking the time from when you place an order to when it gets delivered is a great way to compare vendors and encourage reductions in lead time. However, measuring this can be tricky when you get into the details. Should you track the time until delivery at to your location or delivery at port? If you ask a vendor to delay a shipment, will their lead-time artificially inflate?

For most quantitative metrics, your accounting system should have the records you need. However, based on the specific things you want to measure  you also might need to start tracking new events or information. For both of the above lead-time questions, I had to change our receipt processes to account for how we wanted to measure that metric. Despite the added work, tracking more data allowed us to trust our metrics and better compare our vendors apples to apples.

A Note on Subjective Scores

When hard data is unavailable or impossible, use a subjective grade. For example, “This Vendor is Flexible in Requests to Alter Production” is a difficult metric to track in our ERP system. Instead, at the end of each quarter, our supply chain team fills out a survey for each vendor that rates them on several dimensions such as flexibility. Rating vendors on a scale is the best way to get a good score from a soft metric. Even better is when the survey has an example for a top, middle, and bottom score for the metric so that scoring is more consistent across teammates. Recording everything in a free Google Form that you send out to your team is even better.

Google Doc Questionnaire 2

Weight What Matters

Once you have the metrics you want to measure (I have 4-6 in each category), it’s time to weight them. Start by rating the overall categories. The pricing category may be 25% of the total score, quality 40%. When your categories equal 100%, weight the individual components of each category. For example, if the quality category is weighted at 20% and has three metrics, then those three metrics could be 5%, 12%, and 3%, which adds up to 20%. The Vendor Scorecard Template shows my weighting.

Example Weighting

Pull Out the Gradebook

Maybe it’s from the report cards I received every semester in public school, but the A through F scale carries a lot of significance to me. That’s why I like to use that scale for each of my metrics. Some can only receive an A or F, or A, C, or F, but they all have the same percentage score. Based on their grade, vendors receive a percentage of that metrics weight as follows:

  • A – 100% A metric with 10% of the total scorecard weight would be 10% with an A
  • B – 75% (7.5% with the same metric)
  • C – 50% (5%)
  • D – 25% (2.5%)
  • F – 0%

Color-coding the scale adds the final touch of understanding so that it translates well and conveys the message clearly.

Example Weighting

Build the Document

Finally, once you’ve figured out your categories, metrics, and weighting, put it all together in a spreadsheet scorecard. You can use my template as a starting point to build your own.

3. Roll Out the Program

Once your scorecard is complete, implementation is your next bull to lasso. You’ll need to devise a plan to clearly communicate what, why, and how you are measuring your vendors. Depending on your suppliers, your experience could be much different, but here’s what I did.Why a Vendor Scroecard?

First, I put together a presentation with one or more slides explaining the following. It was detailed and thorough so that our vendors could clearly understand each score. Specifically, the document had the following:

  • A detailed explanation of each category and metric
    • For complex calculations, I included an example slide
    • Explanation of weights were also included
  • Reasons why we were beginning the vendor scorecard program
  • The implementation schedule (trial and full launch)
  • Our commitment to our vendors

Armed with a document that clearly defined the program, our CEO emailed the presentation and the scorecard spreadsheet to the leadership of our key suppliers. He asked them to review it and then meet with us in a video conference discussing the program. During the meetings with our six key suppliers, the CEO expressed support of the program and our supply chain team explained the details. Most vendors appreciate being measured on more than just price, and so all of our vendors were excited about the program as a chance to prove their holistic value to our company.

We designated the first month as a trial period where we would track performance, iron out issues, and report scores but not take action based on their results. After meeting at the end of the first month to discuss the trial run, we began the program in earnest.

4. Review and Reward

What will make your vendor scorecard program truly succeed is your diligence after implementation. I strive to send out scorecards on-time at the end of every quarter. My team schedules meetings via Skype or in person to review the scorecard each quarter and discuss ways to improve. The communication is two-way – we want all our vendors to reach perfect scores. That is why we council openly about what each of us can change to improve the metrics.

Another big decision to make is what you’ll do because of the scores. Will vendors with consistently high scores obtain a preferred status? Will quality checks or audits happen less frequently? Will you distance yourself from vendors who are very cheap, but fail in every other category? Will you reward contracts based on scores?

If you find yourself rewarding higher scores with more business, then your weighting is probably correct. However, if more and more business is still going to vendors with lower scores, then consider revising your scorecard to better reflect your company’s true priorities.

A great and relatively inexpensive way to encourage scorecard improvement is a vendor of the year program. This could involve a personal meeting, dinner with the CEO, and a plaque for the winning company. When I watch the “Walmart Vendor of the Year” award go to one of my competitors, I find new motivation to improve. Your suppliers may feel the same.

Bonus Step – Survey Your Vendors for Improvement Tips

If your vendor scorecard program is chugging along, then consider asking your vendors to score you. Sending a quarterly feedback survey to your vendors to discuss at the same time as their scorecard can bring insights into how you can be a better customer. Some questions could be:

  • What good practices do your other customers do that you wish we did?
  • What can we do to help you reduce lead-time?
  • What was an example of a project that went well? What about that experience can we recreate for all future projects?

If you make it clear they won’t be penalized for honesty, then you may be lucky enough to get great feedback on how to truly improve. Becoming a better customer can help your vendors better service you. In addition, you may pick up some best practices from their other customers or resolve root causes of your own deep problems. Address these issues in the scorecard review meetings and make commitments to improve when possible. We received a lot best practice tips from our vendors when we said, “we’re really bad at forecasting, so we’ve brought on staff with forecasting experience and invested in the software we needed.” They detailed how their other customers forecast and recommended we try the same.

Final Thoughts

As I talked about in my article on supply chain gamification, games have a way of bringing out our passion and motivation. A vendor scorecard brings the power of game mentality to supplier relations. “Just keep everything green and keep out reds” becomes the goal of your vendors. “Work with the highest scoring vendors” becomes your vendor selection shortcut. Measuring progress brings improvement that both your vendor and you will enjoy.

From the success I’ve seen from the program, I wish I had started it years ago. This quickly brought to mind the mantra of a friend of mine in process improvement. “There’s two good times to plant a tree: twenty years ago and now.”

If you haven’t started a program yet, begin today. If you have one already, take a look at how you can improve. Either way, share your experience in a comment below.

Update – Learn More about Vendor Scorecards in our Podcast

In our podcast interview with Mark Kosiba (former VP of Operations at Skullcandy), Mark talks about vendor scorecards and their effect on his company. The above model was based on his help, so it definitely applies to anyone wanting to implement a vendor scorecard program similar to the above.

Check out the podcast to learn more: How Skullcandy Rocked S&OP (and Vendor Scorecards)

“I Fight for the Users!” – What Tron Taught Me about Serving Customers

A Review of the Movies

In the Disney movies Tron and Tron: Legacy, the character for whom the movies are named famously declares, “I Fight for the Users!” In the world those movies create, the Tron character is passionately loyal to the humans who designed and use the computer program. It’s been a few years since Tron: Legacy came out, so here’s a short clip to remember the movie:

Tron - UserYouTube – Tron Recognizes a User

Toward the end of the clip, Tron (also known as Rinzler) sees his opponent bleed and realizes that his opponent is a user (human). Because of his loyalty to users, Tron refrains from killing the human. At the end of the movie, Tron sacrifices himself to save the humans from being killed:

Tron - I fight for the UsersYouTube – Tron Realizes He Fights for the Users

The reason I’m fascinated by Tron’s loyalty to the users is that my supply chain should have equal loyalty to the customers. In all our efforts to fight waste and inefficiencies, we should boldly declare, like Tron, “I Fight for the Customers.” For some reason, however, I often ignore or stop paying attention to the voice of the customer and find myself fighting against, instead of for, the customer.

Voice of the Customer and Putting Away Christmas Decorations

A poignant example of ignoring the voice of the customer happened recently while I was putting away my home’s Christmas decorations. The Christmas lights are especially time-consuming to neatly organize, so I instead gathered everything into a giant ball and stuffed it into a plastic bin. I just wanted to get done as quickly as possible, so I told myself,” I’ll deal with untangling this mess next year.”

However, this is exactly what a good supply chain shouldn’t do. I’m creating a local optimum (putting away my decorations as quickly as possible) that will cause pain to my customer (in this case, me in 11 months). Since I am my own customer, I know the voice of the customer quite well. I remember untangling the lights just weeks before, and I know exactly what I should do to please the customer. I don’t though. Since it’s a hard task and it pays off now to just throw everything into a box, I do the minimum to get the job done when I could increase customer satisfaction.

“I Fight for the Customer”

This same type of local optimization occurs every day along the supply chain. As we get busy or deadlines get scrunched, we naturally reduce the effort we put into pleasing our customers. Whether it’s our internal customers or the end consumer, it’s easy to forget that how we stack a pallet or design a product can negatively affect our customer down the line.

Each day, I need to repeat “I Fight for the Customer” throughout process improvement and Kaizen efforts. As you and I battle inefficiencies and reduce waste, we should have the same natural instinct to stop what we’re doing when it threatens customer satisfaction. For example, I can reduce airspace in packaging boxes, but as soon as my product’s quality is compromised from being too tightly packaged, that’s the blood that should force me to rethink my initiative.

The Empty Chair at Amazon.com

In the early days of Amanzon.com, Jeff Bezos, CEO and customer service champion, reserved an empty chair at all important meetings. He told his team that the chair was reserved for the most important person in the company – the customer. He asked everyone to imagine the customer was sitting there and to keep her in mind in throughout all their decisions. Later, Bezos hired someone to sit in the chair and passionately represent the voice of the customer. This practice helped to guard Amazon against any initiatives that didn’t help its users, and kept everyone’s thoughts centered on who kept them in business.

How Can I Better Fight for the Customer?

What ways can you better proclaim “I Fight for the Customer” in your supply chain? Here are some questions to consider:

  • Do I have adequate channels that bring the voice of the customer to me?
  • Do I frequently review how process changes affect the customer?
  • Do I address both the external and internal customer experience in all major meetings?
  • How can everyone in my organization feel closer to our customers?
  • How can I prioritize initiatives more closely to fit customer needs?
  • How can I better share my voice, as well as my customers’ voices, with my vendors?

By bringing the customer back into focus with your daily efforts, your organization can better solve the needs of those that keep you in business. Building the resolve to fight for the users of your product and services will result in a more loyal and pleased customer base.