It’s not just manufacturing that could do with slimming down

Toyota has revolutionised its production lines using ‘lean’ business principles. But all aspects of a business could benefit from a lesson in how to be lean

Cadillac was proud of this. The extra cost demonstrated its commitment to quality, it said.

Later, in 1990, Womack teamed up with Dan Jones to write a prophetically titled book, The Machine That Changed The World, a study of Toyota’s lean business system that’s bringing US car-making giants GM and Ford to their knees.

value versus waste Looking at operations through lean customer value eyes can help you discover invisible costs. Traditional batch production methods focus on what it takes to maximise asset utilisation and minimise unit costs, for example. But they also create hidden costs in the form of warehouses to store all the stuff made in batches, and promotions needed to shift the stock that ends up not being sold. Being lean means eliminating both, if you can.

Another waste-avoiding principle is “right first time”. Getting things wrong incurs quadruple costs: time, money and effort wasted doing the wrong thing in the first place; customer time, money and effort spent trying to get it fixed; time, money and effort spent fixing it; and lost customer satisfaction leading to lower sales. A key difference between Toyota and Cadillac was that Toyota had discovered that Cadillac’s precious rework department was a complete waste of time and money. Real quality is free.

Another way of avoiding waste is working with suppliers to reduce interface costs. It’s amazing how much duplicated and misdirected effort can be avoided if the two sides simply communicate better, and share ideas and plans to realign processes. Without close cooperation, things such as “just in time” are impossible.

Now Womack and Jones are asking a new question: what would happen if the same principles were applied in services as well as manufacturing, in customer relationships as well as supplier relationships? Take just in time. How would the economics of the fashion industry change if retailers created supply networks that instantly replenished each item as it was sold? The current system loses buckets of money twice over. First, not being able to sell popular lines that go out of stock. Second, marking down unpopular lines. It also frustrates customers. In other words, it’s both wasteful practice and a bad customer experience.

Yet in their quest to reduce unit costs, fashion companies seem to be compounding the problem by shifting production to low-wage countries abroad, thereby embedding unresponsive batch-and-queue methods even deeper into their operations. If Jones and Womack are right, these companies are travelling in exactly the wrong direction. Or take call centres. Managers obsess about productivity and service as measured by metrics such as calls dealt with per hour, or calls answered after so many rings. Yet how many bother to ask what’s causing the calls in the first place? Following the principles of “right first time”, many organisations are discovering that 50 per cent or more of incoming calls are triggered by the company doing something wrong or not doing something it should. The customer is effectively forced to invest time and effort making the call. Once again, wasteful practices and bad customer experiences march hand in hand. That’s leading consultancies such as Budd to argue that often “the best service is no service”. In other words, just get it right first time!

Now what about interface costs? To identify real interface costs you need to look at what both sides need to do when they deal with each other. Recently, Grupo Fernando Simão (GFS), a Portuguese auto dealer, did just that. It mapped everything the customer had to do (from searching for a car repairer, through booking an appointment, to driving to the repair station, to paying, to taking the car home) against everything it did to service the car. Overall, the consumer side took two hours of customer time. GFS took three-and-a-half hours at its end. Terrifyingly, less than an hour of this was actually spent adding value from the customer point of view. For example, technicians wasted more than half of their time waiting or searching for parts, querying and queuing.

GFS re-engineered both sides’ processes so that, for instance, customers talked to a qualified technician when they phoned to book a repair, which helped the technicians plan the work and order parts. Customers were asked to bring in their cars at different times of the day, which helped avoid early queues. The net effect was to nearly halve the time spent by customers, while also doubling technicians’ productivity. Better business results and a better customer experience.

revolutionising value Lean consumption turns this on its head. As well as asking “how can we add value by improving our product?”, it asks, “how can we add value by improving our customers’ processes?”. And, as with “no service is the best service”, it discovers that done the right way, it’s possible to improve customer and providers’ processes simultaneously.

Lean – and lessons such as “quality is free” – started a manufacturing revolution. Now it’s spreading to services. “I’m beginning to wonder,” says Jones, with a twinkle in his eye, “whether convenience isn’t free too”. Think about it. v

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