Building a Chain of Customers - Hardcover

Schonberger, Richard J.

Hardcover

ISBN 10: 0029279917 ISBN 13: 9780029279915

Publisher: Free Press, 1990

Synopsis

Richard Schonberger, in his fourth and most important book yet, introduces a powerful new concept: that the many links between and within the four main business functions -- design, operations, accounting, and marketing -- form a continuous "chain of customers" that extends to those who buy the product or service. Everyone has a customer -- the next department, office, shop, or person -- at the hundreds of pioneering companies Schonberger has studied throughout the world. Schonberger demonstrates the universality of customer wants: Both the next and final customers want ever better quality, quicker response, greater flexibility, and lower cost. This condition provides a common strategy and calls for common methods to be used across the organization. Every employee is a data gatherer and analyst, unearthing more and better ways to provide for these customers' wants -- before the competition does so. As the new thinking and methods permeate every comer of the firm, they topple departmental walls and adjust gang-like mind-sets and "them-versus-us" attitudes. Performance is no longer measured by internal costs but by improvement as seen by the next customer; direct control of causes generally replaces after-the-fact control of costs. Design is brought out of isolation. Finally, with the rest of the firm reoriented toward customer service, marketing escapes from a "negative" mode -- covering up for failures -- to a positive one -- crowing about the firm's competence and ability to improve. With the close attention to detail for which he has become famous, Schonberger constructs a blueprint for unifying corporate functions, brilliantly describing the new microcosms that will make up the company of the 1990s -- focused teams of multi-skilled, involved employees arranged according to the way the work flows or the service is provided -- that compose the chain of customers. Aetna, for example, is organizing customer-focused teams that cut across underwriting and the administrative functions. At Hewlett-Packard, teams of marketing, manufacturing, and R&D people have already gone through several iterations of "activity-based costing", which provides product designers with previously unavailable data for shaving costs throughout product life cycles. And at Du Pont, even production people on the factory floor are involved in assessing competitors' product quality and probable costs and methods. Through these and hundreds of other real company examples, Schonberger shows how the customer-driven chain of action leads directly to the kinds of bottom-line performance that have been so elusive to executives who manage at a distance "by the numbers" -- namely, higher profits, greater security, and gains in market share at the expense

About this title

About the Author

Richard J. Schonberger, author of the bestselling Japanese Manufacturing Techniques, World Class Manufacturing, and World Class Manufacturing Casebook (also from The Free Press), is a world-renowned authority on production and manufacturing. President of the consulting firm Schonberger & Associates, Inc., in Seattle, Washington, he was formerly George Cook Professor of Management at the University of Nebraska.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1

The Great Awakening: Earthquakes in the Business Functions

We have learned more about the right way to run a business in the 1980s than in the preceding half century. In a nutshell, we've learned this: that world-class performance is dedicated to serving the customer.

By that I don't mean tender loving care, service with a smile, all returns accepted -- no questions asked, ten-year warranties, consumer telephone hotlines, and customer satisfaction polls. While all those are good practices, they generally apply to just the final customer.

How much good can it do to try to make it right for the final customer when much of the organization that provides the goods or services is delay- and error-prone and self-serving? That is the sad truth about business and industry. It has taken a series of earthquakes, tremors, and aftershocks to wake us up. The wide awake now see the final customer as just the end point in a chain of customers. Everybody has a customer -- at the next process (where your work goes next). Making the connections along the chain is our common task.

I'll not dwell on the consequences of staying asleep. That is, we won't go into the recent history of lost jobs, pay cuts, shut-down plants, bankruptcies, and whole industries migrating across oceans. Those might sound like quakes and tremors, but let's not repeat well-known tales of woe.

Instead, it is time to look at the bright side. I'll label as earthquakes momentous new ideas that are reshaping the way we think about and run business enterprise. The quakes and tremors are toppling and rending asunder old concepts and practices that resulted in poor performance and failure.

Figure 1-1 indicates the major and secondary shocks and, roughly, when they occurred. I'm not including quakes that affected just a single country (such as Japan's head start in quality) or a single company (such as the ability of McDonald's to provide a uniform product in spick-and-span restaurants all over the world). Rather, Figure 1-1 suggests when the shocks woke up whole industries around the world.

QUALITY: FIRST AND GREATEST QUAKE

In the late 1970s a few Western companies that were suddenly faced with withering competition from the Far East saw through the fog. They cleared away the excuses (unlevel playing fields and so forth) and looked at clear measurable evidence: both the defects and yields in Western semiconductor products were far below world standards. It was the same for cars and power tools, air conditioners and steel, TV's and dozens of other electronic products.

Most of the great Western manufacturers eventually got around to estimating their costs of bad quality. Even in proud companies like IBM, Kodak, Philips, and Rolls Royce, bad quality was costing over 10 percent of sales. Defect rates themselves weren't that high, but the costs of rework, returns, warranties, lost customers, rescheduling, and so on, were.

Briefly, what happened was that hundreds -- no, thousands -- of companies were frightened enough to take the quality pledge. Literally, CEOs and presidents issued quality declarations and put them into corporate mission statements. Top executives who earn in excess of a million dollars a year sat through courses in statistical process control. A few followed the Texas Instruments model: Top exec trains next-level execs, who train their subordinate managers, who train theirs -- and so on down to machine operator, assembler, office clerk, and stockkeeper.

What superlative shall I use in describing the outcome? Awesome comes to mind. I certainly am awed. Who could have believed that, for many items, defect and nonconformity rates could fall from percentages to negligible in companies all over the globe. Yet they did in just a few years. Here are just four examples:

* At Kodak's copier division the defect rate had averaged around 50,000 parts per million (PPM) in 1985. That means 50,000 bad ones (bad components, bad welds, bad-fitting assemblies) out of each million. Less than a year later, detects were down near the world benchmark of 950 PPM. At the same time the number of internal quality inspectors dropped from twenty-five to zero, because the assemblers, well-schooled in statistical process control (SPC), had assumed responsibility for quality.
* TRW's steering and suspension system division has been reorganizing its four factories into work cells and teams that take over the job of quality. In 1987 one work cell shipped 500,000 pieces with only two rejected by the customer. Larry Kipp, plant manager, says it hurt the technicians' pride that those two got out of the plant. Kipp observes that "This is the most exciting thing I've done in my twenty years" in manufacturing.
* The U.S. Internal Revenue Service trained 10,000 managers in quality management (Juran approach). Organization of quality teams throughout the agency followed. One result: In 1986, out of 1.2 million tax accounts received, weekly processing errors averaged 30,000 to 40,000. In 1987 the error rate was down to 3,000 to 4,000, while volume increased to 1.5 million per week.
* Last rites had been said for Big Steel in the United States, the causes of its impending death being high costs and bad quality. For example, in 1983 the Ford Motor Company was rejecting as much as 8 percent of steel from domestic plants. By 1988 the reject rate was down to 0.7 percent, on a par with the Japanese.

Those examples come from a bulging file folder of similar ones from other companies and industries. The dramatic quality improvement stories do not come from just the wealthy industrialized nations. Managers and operators know about and use SPC in good companies in Mexico, Thailand, Brazil, and the countries that surround them. And why not? It's easy to learn, training materials are available in every language, and educated managers all over the globe are looking for low-cost solutions that work.

The quality turn-arounds are no longer limited to the major companies that have training budgets. Big industry has been inviting people from key supplier companies to training courses in quality concepts. Now, with public and private training in SPC widely available, that is becoming unnecessary.

QUAKES AND TREMORS THROUGHOUT MANUFACTURING

The quality earthquake softened everything up for tremors to come in all else. The second big quake, which began in manufacturing, was called just-in-time (JIT) production. Some saw it as inventory reduction (many still do). Those in the know see it as quick response to the customer, plus another jolt for quality improvement.

Quick Response in the Chain of Customers

The payoff for the JIT leaders has been much like the quality payoff': five-, ten-, and twentyfold reductions in waste -- in JIT's case, waste of time waiting for work to start at each step in the chain.

Long queues all over the world signify why-improvements of that magnitude should be possible. Human waiting-line problems are obvious. Delays in offices are much worse, except that what waits is a document buried in an in-basket, not a impatient person standing in line. In manufacturing, piles of parts sit idle between every stage of production; often the quantities are so large that they serve their sentence in plant stockrooms. They are waiting to be summoned into action on a work bench or a machine. Sometimes they wait for months.

Documents and parts forced to wait can't, in a huff, take their business elsewhere. The final customer can! Thus, quick response and the JIT techniques are keys to competitive gain in any business.

For example, supermarkets in some highly competitive cities have turned to promoting shortest checkout lines, not just lowest prices or freshest produce. Quick response has spawned several whole new industries, such as overnight mail and facsimile copying. Some say that the rapid spread of one-hour photo film processors is the cause of the plunge in sales of instant cameras.

Some of the best examples of achieving quick response are in manufacturing, where just-in-time concepts have penetrated deepest. Consider, for example, CalComp, Inc. (a self-contained subsidiary of the Lockheed Corporation), which produces graphics peripherals for the computer industry. In 1982 a rival, Hewlett-Packard, came out with a cheaper and faster model of plotter. That sent CalComp reeling. Profits nose-dived, and unsold machines piled up.

Today CalComp has fully recovered -- a fast-reacting, tough competitor. For example, throughput time to build an average plotter was cut from a high of nine weeks to about five working days -- through all stages of manufacture. Prices on its 5800 series electrostatic plotter were slashed 38 percent, which doubled sales volume within six months. Market share climbed as well.

A tenfold reduction in flow time sounds like a classic JIT story. At CalComp basic quality improvement plays an equal role. All operators use quality techniques collectively known as statistical process control. SPC requires them to record all process problems on visual control charts and tally boards.

Operations Support

Tightly tied to the slashing of delays and defects in operations are sharp reductions in operations support: scheduling, material handling, stockkeeping, counting, checking, inspecting, accounting, troubleshooting, expediting, entering data, and setting up for new models. These types of support, once thought to be necessary aids and controls, are now seen as non-value-adding waste. So find a way to get rid of them. They are costly, they are havens of delay, and their existence blocks operations from taking full responsibility for results.

When work zips through ali the processes lickety-split, the apparatus for tracking the work flow and accounting for it falls by the wayside. In CalComp's case, computer use tor monitoring production was cut by 76 percent. When operations takes over responsibility for quality, the number of inspectors plunges. Sometimes, as was cited earlier for Kodak copiers, the number of inspectors goes to zero.

The list goes on. But one of the conditions for making these deep cuts in operations support is employee involvement, which has had its own earthquake.

EMPLOYEE INVOLVEMENT AND PROCESS OWNERSHIP

The term employee involvement (EI) doesn't tell us much. Employee involvement in what? The El earthquake could not occur until we had an answer. And the answer is: involvement in everything that is important to the customer -- the one at the neat progress as well as the final one. Tops on the customer's list are low costs, high quality, and flexible, quick response -- without fail!

It is an ambitious list -- in fact an impossible one without El. You can hire large numbers of inspectors to assure quality, but what do you get? You get high costs -- for inspection and for redoing or throwing out the rejects. You get delay, which might include waiting for inspectors to arrive and then inspect, waiting for rejects to be fixed, waiting for transportation, and waiting for a suitable lot size from which to take a sample. What you probably will not get is world-class quality, because inspection itself admits errors and often is intermittent, not continuous control.

Ownership

Employee involvement can offer (1) continuous control of factors shown to cause bad quality and (2) continual improvement in correcting the causes. The foundation of El is for all employees to record everything that goes wrong, to join others in finding ways to fix chronic problems, and to continuously monitor and control what is not yet fixed.

Stress and Frustration

Some say that the demanding environment of employee involvement is stressful to the employee. Maybe so. On the other hand, the opportunity to finally see something done about chronic frustrations in the workplace -- and to be involved in the changes -- surely relieves a good deal of stress.

In machine-intensive operations, the equipment itself contains many of the problems: the bad quality, the delays, and the failures. El offers a potent solution: Machine operators take over preventive maintenance, simple repairs, area housekeeping, machine setup, control charting, machine history, process instructions, and sometimes control of spare parts, tools, and manuals. They also participate in machine selection and installation, machine modifications, and area layout (floor plans).

The descriptive term is ownership: In the world-class company employees assume ownership of the processes. Operating-level people come to feel they own the machines, tools, area, instructions, quality, controls, and all else in their sphere: no longer are supervisors, professionals, technicians, engineers, advisers, and others from staff support departments the owners by default.

Of course, so profound a change does not happen overnight. It takes years and is in small steps. In the process, the former owners become teachers, helpers, team partners on improvement projects, and monitors of the overall effort.

Suggestions: World-Class Numbers

What kinds of results may we expect when all employees become involved owners? Since Japanese companies are the leaders in employee involvement, we must look to the world-class companies in Japan for an answer. The numbers are mind-boggling. According to one report, the number of suggestions per employee per year in selected firms are as follows: Nissan, 19; Canon, 50; Hitachi, 81; Citizen Watch, Tanashi, 201. There are reports of numbers much higher even than that.

Those are in contrast to the number zero for most employees in most companies throughout the world. Formal suggestion programs usually have brought in only a trickle of suggestions made by only a small percentage of the work force.

Measuring EI based on a suggestion count can, of course, become a numbers game. A company with excellent EI could have a low count simply because the counting is not formalized, or because only suggestions of a certain significance are counted. Still, it is clear that world-class standards of employee involvement are exceedingly high.

Focused Teams, Cells, and Flow Lines

Individual employee ownership of a process is a good start. Team ownership of a segment of the chain of customers is even better. When there is team ownership, team problem-solving and team suggestions should follow. A correctly organized team, which owns a segment in the chain of customers, is called a cell or a flow line: people and their equipment arranged by the way the product flows or the service is provided.

In common usage, the word team can refer to about any collection of people. For our customer-serving purposes, team refers to a group of people connected by work flow, because, by definition, that comprises a chain of customers.

Consider the way people and their facilities are usually grouped: by common function. In offices, we may find order-entry people and terminals in the far corner, purchasing in the next ...

Edition details

• Publisher: Free Press
• Publication date: 1990
• ISBN 10: 0029279917
• ISBN 13: 9780029279915
• Binding: Hardcover
• Language: English
• Number of pages: 349