When we subordinate to the constraint, we often need to rethink the way we think about value
Recently, our team was working at client site where we’d determined that the constraint was the relationships with key stakeholders: suppliers, customers, and prospects. The management of these relationships was the single biggest problem standing in the way of greater profit.
We looked at many different ways to tackle the problem. Responding quickly to customer requests was a key part of it. Customers or prospective customers would request a sample of the finished goods in order to assess quality and finish.
These short sample runs were time-consuming and costly to produce.They required a large amount of changeover time. Each changeover also resulted in a certain amount of waste materials during the changeover process. In addition, the production team was measured on its productivity and these short runs destroyed the team’s productivity performance, undermining its status with management.
The general consensus, therefore, was that these short sample runs were a waste of time and resources, which could be better employed elsewhere. Revenue was a major issue for this client. There was no value to the business in these short sample runs, so the argument went. After all, these short sample runs weren’t chargeable. So it made complete sense to ensure that revenue-generating jobs were prioritised.
Our response: not so much.
We’d already identified customer relationships as the constraint. We needed to improve credibility with the customers and responding quickly to customer requests – whether chargeable or not – was certainly one way to achieve this.
We didn’t meet much resistance from site staff to the idea that responding quickly would make customers feel more positive. Resistance about the cost of these short runs and the loss of time and materials during the changeover was harder to overcome. Honestly, how did giving their customers the warm fuzzies translate into profit?
To understand the financial implications of the existing strategy, we had to understand what was happening when sample runs were not provided quickly when they were requested. These short sample runs were continually being pushed to the back of the production schedule and often took weeks or months to fulfil.
In that time, of course, the customer or prospective customer had already received samples back from the client’s competitors and, more often than not, gone on to place an order with one of those competitors. So, for a business where customer relationships were already affecting profitability, we were losing potential sales. Potential sales where the customer was interested enough to request a sample run.
Did these sample runs really have no value?