Lean Leader: Sensei, please help me! We have followed your wisdom, but things continue to get worse! We reduced changeover time by 89%, inventory by 93%, lead time by 97%, and defects are at a record low 1.021 PPM. Yet we are still losing money!
Sensei: I see. Did you go to gemba?
Lean Leader: Every day, Sensei! Why just last week we had 27 kaizens on the factory floor. But no matter what we do, lumpy demand is killing our profitability. We never know what we are going to have to produce until after the orders come in.
Sensei: Sigh. Wrong gemba, knucklehead. You must go home and sit on sofa. Even Toyota runs commercials.
Those damn customers and their never-ending demands. They act as if Christmas only comes once a year, you can’t ski in July, and it’s a major faux pas to wear white after Labor Day. It’s as if they have no interest whatsoever in our lean program! Well guess what? They don’t. Customers want what they want, whenever they want it. We can complain all day about it, or we can actually do something different.
Step 1: Get Lean. Most of you are familiar with the basics of Lean and the benefits building responsive, pull-driven operations so I won’t repeat them. Just don’t be lean sheep; make sure you prioritize and implement the thinking, tools, and techniques that are most important to your specific situation and problems.
Step 2: S&OP (Sales & Operations Planning). I am very surprised that this topic doesn’t come up much in lean circles. S&OP is a formalized cadence of Sales, Marketing, and Operations looking ahead at demand together so Operations can better plan resources. Some changes in buying patterns are cyclical (like ice cream, weight-loss, and swimwear seasonality) while others follow different known patterns like home building and car sales correlating with interest rates. These demand patterns shouldn’t be a surprise, but how often do your Operations people know the gory details and ramifications of every contract proposal or new service introduction?
One healthcare insurance case management firm now tracks sales activity (stage in the sales process, likelihood of the customer ultimately signing, demand impact if business is won) within their operations department so they can better plan the specialized resources (registered nurses) they will need to hire and train for each new contract. This resulted in eliminating several months of under-capacitized operations chaos every time they won a major new contract without adding too much staff to cover “what if’s?” They also now look forward to new business.
Step 3: Get over your profit margin and ROI hurdles. Sometimes we put hurdles in place to make sure our organization doesn’t waste resources on bad projects or money-losing sales, but other times those shortcuts cause us to pass up some good opportunities. The financial goal of most for-profit companies is to make the most total profit, not achieve just one sale at a maximum margin. One specialty agricultural equipment maker offers variable discounts in the off-harvest season to keep their factory running even and full. Their per-unit average margin may be decreased, but their total revenue and profit (not to mention ease of running the place) is greatly improved. What are you doing with your underutilized capacity?
Step 4: Even Toyota runs commercials… and offers rebates and finance deals, and develops new products (or even brands), and enters new markets, and… SHAPES DEMAND! Pricing and discounts, promotion, packaging and merchandizing, sizes / quantities / bundling, new markets / channels / outlets, and new features or models all impact customer demand (up or down depending on the need) and can therefore be used to your advantage if you are scientific enough in their usage.
Think about how carefully Apple controls their new model introductions (including timing, features, pricing, old model inventory, and how much secret information slips out to the media) to make more money while making their customers happier about their latest shiny acquisition. A different PC maker carefully monitors component inventory and costs, and then prices / promotes specific configurations (every day) to increase total profitability. Their customers like this process because they feel like they are getting more value and “a deal.” One problem that a lot of less-sophisticated companies get into, however, is when this demand-shaping sales and marketing activity is disconnected from operations planning. Then salespeople get their fat commissions and bonus trips to Hawaii for the “big sale,” while operations folks run overtime, struggle with quality, expedite shipping, and blow their budgets. Never let internal incentives drive sub-optimal business-wide behavior.
I think we’ve only tackled half our business problem with Lean. We’ve gotten really good at responding to customer pull, but we’ve ignored the fact that we can have a lot of influence over what our customers demand and when they demand it. The level of sophistication and usage of the Scientific Method in the sales and marketing world is often quite impressive (when was the last time you used an MRI machine to measure brain activity during a kaizen?), not to mention powerful. Isn’t it time that we also leverage sales and marketing as an operational advantage?
The bottom line (not to mention your customer) is waiting.