Evolving Excellence

The Postal Service Forgets the Customer

By Kevin Meyer

A recent CNN article pretty much describes the problem at the US Postal Service, although that wasn't really its intent.  You see, there's this new startup called Outbox that is working to digitize traditional paper mail, and our beloved USPS is having a bit of a conniption about it.

I think this is a terrific idea as I've been trying to make more and more of my life electronic - and thereby location independent.  A few years ago I subscribed to a voicemail service that emails me the voicemail so I don't have to be near a phone.  Last year that service even began transcribing those voicemails (with remarkable accuracy by the way) so I don't even have to listen to the audio file - I can just rapidly scan the "voice"mail.  For the last year I've also been able to take a photo of checks with my phone and deposit them to my business or personal bank accounts.  Another app on my phone lets me photograph documents, sign, convert to PDF, and email or fax them to a recipient.  No more going to banks, fax machines, or sometimes even a computer.  I can work just as efficiently from home, the car, or Tahiti. In your face Marissa Mayer! 

Almost.  The missing piece has been incoming paper mail.  But with Outbox and a couple of other competing services, that may soon be resolved.  Unless the USPS gets in the way.

A driver of a white Prius with a giant, red plastic flag affixed to its side is rolling through the hilly streets of San Francisco, undelivering mail from mailboxes.  The driver is not a thief. He and the car are part of a startup called Outbox that is attempting to pick up where the embattled United States Postal Service leaves off -- by digitizing physical mail.

He collects the letters, bills, magazines and advertisements that were deposited there by official postal workers and delivers them to a warehouse. There they are opened and photographed, and the resulting digital files are sent electronically to the recipient through the Outbox website or iPad or iPhone apps.

The company already has more than 600 customers in Austin, Texas, and starting Tuesday it's rolling out in its second city, San Francisco.

And it all costs $4.99 per month.  Even with the USPS standing in its way.

Creating a shadow, reverse postal service may not be the most efficient way to improve the struggling mail system, but Outbox is unable to intercept clients' mail any sooner in the process. The company has met resistance from the United States Postal Service, which has refused to collaborate with Outbox or let its workers pick up mail directly from local post offices.

Why does the USPS have a problem?

"The Postal Service is focused on providing an essential service in our mission to serve the American public and does not view Outbox as supporting that mission," the USPS said in a statement. "We do have concerns regarding the destruction of mail -- even if authorized by the receiver -- and will continue to monitor market activities to ensure protection of our brand and the value and security of the mail."

And that statement describes why the USPS is a sinking ship.  "Protection of our brand and the value and security of the mail."  But what about the customer?  I mean the home customer, not the providers of bulk junk that is increasingly the primary revenue source of the USPS.

Imagine a different path.  A postal service that is focused on increasing value to its customers rather than protecting its "brand."  Instead of fighting startups like Outbox they'd be creating that innovation themselves, converting paper mail to electronic digital formats for folks like me that immediately scan and shred anything we have to keep anyway.  Or maybe they go even further an enable the sending of original mail electronically, instead of trying to entice companies to remain paperbound to create "demand."

But no.  That would mean thinking of value from the perspective of the customer.  And that's apparently not as important as the brand - whatever value that has anymore.

Contextual Comparison

By Kevin Meyer

I love reading The Wall Street Journal on the iPad.  More than any other newspaper or magazine, the WSJ got it right in terms of functionality and readability.  And the format sometimes leads to the ability to derive comparisons between articles that add context - or at least ridicule.

Or in the case of this morning's edition, ridicule a deux.

Now if I did this right, you'll be able to see the full view of this particular WSJ iPad screen by clicking on the image.  Two sets of stories I'd like you to see:

1) "Big Gains in November Auto Sales"... and further down there's "GM Moves to Reduce Inventory."  Yep, we've told you about this many times.  GM counts a "sale" as when a vehicle leaves the factory and is "sold" to a dealer... not necessarily when it is sold to an end customer.  Hence the initial apparent conundrum of gains in sales with gains in unsold vehicles.  Hmmm...

2) "Singapore Airlines' Troubled Investment" which discusses the problems with the 49% stake in Virgin Atlantic it bought a while back... and right beneath it "Virgin Atlantic Would Fill a Hole for Delta" describing Delta thinking about buying a 49% stake in... Virgin Atlantic.  Perhaps Delta should talk to Singapore Airlines?  Hmmm...

Obviously there's more to all four stories, and it's not as simple as just the headline.

Or is it?

It Still Comes Down to Value - and Character

By Kevin Meyer

In his piece yesterday on A New Ball Game, Bill actually beat me to the punch a bit on the sordid story of American Apparel.  I've been planning an update to my oversight of that company I once lauded, and he's right - it's not exactly a good story anymore.  That change is both a result of happenings at American Apparel and an evolution of how I look at organizations - and especially their leaders.

The operational metrics aren't exactly stellar.  Yes, as I had mentioned years ago, American Apparel does some great things.  Everything is manufactured out of their facility in Los Angeles, where they happen to pay well above minimum wage and provide good medical and other benefits.  Their supply chain is fast in that they can design a new garment and get it to market within a couple days without having to wait on a boat to cross the ocean.

As Bill mentions, their inventory turns are a ridiculous 1.4 times a year.  Not to make excuses, but there is one underlying reason that accounts for part - a small part - of that number.  Whereas many apparel manufacturers will cut clothing out of large swatches and then throw the excess away, American Apparel keeps the scraps and eventually turns it into drawstrings and other accessories.  Throwing away excess inventory can make your turns look better, but there is the offsetting cost.  It's a balance.

But not a balance to the tune of 1.4 turns.  Most of that is because they are simply making clothing that isn't selling so the inventory is sitting at distribution centers and stores.  A "fast" supply chain - or perhaps better termed a development chain - that can get a new style into stores fast isn't necessarily a good thing if that new style doesn't sell.

That's value, from the perspective of the customer.  If you don't create value, your business suffers - regardless of how fast you move.

However a far bigger problem, and a major contributor to the losses and low turns, is management.  A historical look at turns shows that in the past it was far higher, far faster, and then the bottom fell out.  The reason?  The production workforce dropped by nearly 25% in one year, not because of sales, but because of a poor decision to hire illegal immigrants - even if they then paid them very well.  Long term contracts for raw materials then dumped raw inventory into a precarious production system that was already beginning to produce products that didn't sell well.  I say precarious because their production operations were very good, and very lean in many respects, but they didn't understand why it worked.  That's dangerous.  And like a house of cards it started to fall apart.

The clothing company makes roughly $500 million in annual revenue. It's a rare occurrence to see a growing textile company these days in the U.S., a country that once dominated the garment business. But Charney thinks those days are coming back.

"Labor costs in China, for example, are skyrocketing," he said. "Transportation costs are skyrocketing, and it's only going to get worse. ... So the people that have the most efficient manufacturing are going to win, so that's what we are practicing."

But American Apparel has been losing money for three years, in part, because of production problems that arose after almost 2,000 workers had to be let go after a government investigation in 2009 found they were in the country illegally. Charney said things will turn around for his company by 2015.

Good luck with that - I don't have high confidence it will happen.  Because there's yet another factor involved, and one that over the years I've learned is an even more powerful contributor to long-term success: the ethics and character of leadership.

In my posts on the American Apparel from five or so years ago, I glossed over or was even somewhat amused at CEO Dov Charney's propensity to portray himself as a bit of a porn star, at least in his own mind.  He had affairs, wild parties, used underaged girls in provocative advertising, and was and is part of several sexual harassment lawsuits.  He flirted with the law, both in that regard and with the hiring of illegal immigrants.

Maybe I'm just getting old - more of a fuddy duddy or perhaps just more mature - but character means something.  Many try to divorce the personal activities of a leader from their professional accomplishments - see how many excused the proclivities of President Bill Clinton, Representative Andrew Weiner, and even the unbelievable excesses of Tyco's ex-CEO Dennis Kozlowski.  I'm probably showing my age with that last one.

But when you reach leadership positions, and I'd even argue that it's part and parcel of every individual regardless of leadership position, personal and professional character does matter - and they are intertwined.  I wrote about this in The Character of a Weiner right after Representative Weiner resigned.  He both exposed himself and then lied about it.  Many argued it shouldn't matter, I strongly believe it does, regardless of party affiliation.

Dov Charney is the perfect example of why.  His personal character shaped how he ran his organization.  Slowly and perhaps innocently at first, then to a greater extent, and finally it severely damaged American Apparel.  Shareholders can bail on the company, and they have.  Aside from voting or creating such an uproar that they resign, citizens have a much harder time bailing on political leaders.

The ethics and character of the leader influences the ethics and character of employees which drives how the organization operates.  Whether it's Dov Charney or Dennis Kozlowski or Bill Clinton.

Character matters.  Value from the perspective of the customer matters.  And they are related.

The Opportunity of the Gemba

By Kevin Meyer

An article on CNN this morning gave me some pause: Fareed Zakaria wondering whether Russia should move its capital from Moscow to Vladivostok - 4,000 miles east.  There are several reasons, here are a couple:

Well, the person who proposed the idea, Sergei Karaganov of Moscow's Higher School of Economics, wrote in a state-run newspaper that a capital in the far east would make Russia part of what he calls "the rising world" — closer to dynamic Asian economies and further away from an aging Europe.

Moscow has 78 billionaires — more than any other city in the world. Those billionaires, along with others in the rest of the country, account for 20% of Russia's GDP. Far higher than any country.  That doesn't leave much of Russia's economy for businesses and the other 141 million people in the country.

In typical Zakaria style over 90% of the article has nothing to do with the premise suggested by the title, but those two tidbits are worthy of some thought.  Fundamentally to shift the perspective of the country, to level certain key demographics, and to develop new opportunities.

It's not the first time something like this has been tried.  Turkey moved the capital from Istanbul to Ankara, India's capital moved from Calcutta to Delhi, and Brazil created the inland city of Brasilia - specifically to focus on the untapped opportunity of the area.  Most seem to have had some success, although Brasilia is an interesting case.  Our friend Tyler Cowen over at Marginal Revolution wrote about it a year ago.  From an opportunity standpoint it was a positive, from a physical layout and architectual standpoint it left some things to be desired.

Corporations do the same - Halliburton moving from Houston to Dubai and Boeing moving from Seattle to Chicago, for example.  Every now and then there are rumors of Microsoft moving from Seattle to Vancouver, Canada to free itself from tax, visa, and judicial issues in the U.S.  In the article linked above, Phil Condit believes the Boeing move was a success in both expected and unexpected ways.  One interesting tidbit, albeit a little outside what I'm discussing, is this:

One of the big surprises from the move, he said, was the cohesiveness of the Chicago business community, where Condit encountered CEOs frequently gathering to nail down civic goals ranging from landing new companies to building world-class parks.

“I was surprised by how much that happened,” Condit said. “For whatever reason, Seattle does that way, way less. A meeting in which Starbucks, Microsoft, Costco, Boeing and Weyerhaeuser and a bunch of small businesses are all in the same place — rarely happens in Seattle,” he added. “It happened all the time in Chicago.”

Lean folks understand the concept of the gemba - where value is created.  Generally that means the factory floor, and we encourage spending as much time as possible at the gemba to truly understand - and improve - the value creating process.  We decry executives that never visit a factory and never dive into learning the root cause of problems - let alone lead by example to teach others how to correctly go about seeing and improving value at the gemba.

At the medical device company I run we leverage the quick daily stand up meeting to accomplish some aspects of this.  Shop floor and department level daily meetings roll up to an 8:20 standup by our executive staff, which is videoconferenced to include staff members at our other major facilities in southern California and northern Michigan.  We have a set agenda of WOW moments, safety, visitors, key metrics, key projects, monitoring leader standard work, and issues that rolled in from other stand up meetings that day.  Yes we do it in under ten minutes, and the level of communication, understanding, and sharing between facilities has improved dramatically.

But where should executive staff - or the heads of governments for that matter - be located?  The traditional gemba where value is being created every day?  A potential new gemba where opportunity for new value exists but isn't being exploited or managed properly such as moving from Moscow to Vladivostok?  Close to the customer?  A central location to all facilities and customers as Boeing did?

We wrestled with that issue in a much smaller way when we built our new northern California facility.  Should the executive staff and value stream managers be spread out in each of their operations to provide immediate feedback, teaching, and understanding?  Or should they be co-located - upstairs from the actual manufacturing floors due to the nature of the footprint we had - to improve communication to create a common long-term strategy?

We actually agonized over it.  I had visions of my president's office being a podium on wheels on the manufacturing floor.  Remember this example of a cosmetics company from my lean tour of Japan a few years ago?  The leaders were literally in the middle of the mayhem, completely connected to the value-creation process.

But our organization had a couple other issues. Our value stream managers and executive staff were strong, and by being embedded with their operations they naturally made a lot of decisions.  The leadership growth of next level supervisors and team leaders was being stunted by this.  In addition, the executive staff was often sucked into a short-term mindset by focusing so much on the issues of the factory floors, and intra-executive communication was too infrequent and ineffective.

During the building construction we were forced to move several people into a triple-wide trailer.  We decided that should be our executive staff and value stream managers.  Now co-located, still close to their operations, but far enough away that continual contact wasn't possible.  At the same time our staff went through the exercises proposed by Patrick Lencioni's The Five Dysfunctions of a Team.  Phenomenal book and if you take a year or so to take a team through each dysfunction - and really work on it - you'll be amazed at the results.

By the end of the two or so years of construction we had a very cohesive executive team that worked better together and focused more on the long term, and a stronger leadership bench of team leaders, supervisors, and managers.  So we decided to co-locate the executive team upstairs and not right on the shop floor, with the understanding and commitment that we would go to the gemba, and folks from the gemba would not have to come up to see us.  We have been in the new building just a few weeks and so far it's working.  And we're happy to be out of a no-frills triple-wide.

So whether you decide to locate an executive team on the existing gemba, into a new potential opportunity gemba, or close to customers it really comes down to leadership.  All sources of value, potential value, suppliers, or customers are important.  All have innovation, customer, human, and operational processes that can be developed or improved. 

You just have to figure out what the problems and opportunities are, go directly to where those situations are and really dig into what is happening, and develop and execute a plan to create as much value, from the perspective of the customer, in the most efficient way possible.

Some Stuff is Going On

By Kevin Meyer

I've been collecting a variety of articles I found interesting with the intention to bloviate about them.  Unfortunately time has flown by and I haven't gotten around to it yet.  So to clear things out, here are a few quick words on all of them.

First off, a couple days ago SpaceX launched the first private rocket intended to do something really useful like resupply the space station.  Really an incredible achievement.  But what made me think a bit was when I realized it has barely been 100 years since the Wright brothers achieved the first sustained heavier than air human flight.  Now for those of us turning a bit grey, 100 years no longer seems like that long ago.  In fact, I have memories from over 40 years ago... almost halfway.  And that includes a memory of a commercial jet plane.

Think about how long the interval was between a flight of a couple hundred yards to planes all over the place... just a couple decades to WWI.  Then to jet power in the late 1940s to routine commercial aviation in the 1960s.  The pace of technological development, aided by computers that can design things a bit faster than slide rules, continues to accelerate.

The first private rocket achieved space travel this week.  Does Virgin Galactic or the private mining of asteroids really seem that far-fetched anymore?

Secondly, and not really based on an article, we had Facebook's disastrous IPO.  What a cluster that has turned out to be, for many more reasons than just valuation insanity.  Bill wrote about it - actually predicted it - last week, and I completely agree.  I was dismayed when many of my friends were excited about the IPO and bought shares.  Now since they were individuals, they probably got in right after the mad rush when the price briefly hit 40 or so.  Well there went 25% of that investment really fast, just a couple days later.  Crazy I tell you.  And any of us that lived through the first dot-com bomb of 2000 should have known better.  Back then everyone was saying "it's a different business model - no longer based on real cash created by real profit."  Funny - they are now saying the same about companies like Instagram.  $1 billion dollars.  No profit.  Yep, that's going to end well.  Not.  History my friend.  And basic business economics - not even the GAAP distorted view.

There were some good stories, like 3M tackling its crazy supply chain.  Would you believe that to make those great Command stick-on/removable wall hangers the process went through four different plants with over 1,300 miles of transportation?  For about four pieces of the same color plastic, some foam, and a strip of double sided tape.  Oh and a standard package.  Now they are consolidating it into one factory.  Oh the brilliance!  Now to tackle 3M's 65,000 other products...  But hats off to them for at least realizing that lengthy convoluted supply chains add to the total cost of the product - something a bunch of companies with factories in China still haven't figured out.

But some have figured it out... including a Chinese company who is now outsourcing to the U.S.  Yes, you read that right.  A Chinese television manufacturer has set up a factory in Michigan to assemble TVs and sell them in the U.S.  Labor is still a bit more costly - though less than you'd think - but there are supply chain and especially distribution advantages.  So those of you still crazy enough to be traveling across the Pacific to set up factories in China to supply the U.S. market should wave at the Chinese coming over here to set up factories in the U.S. to supply the U.S. market.  Uh oh... same market, about 10,000 fewer miles in the distribution chain... I wonder who will win.

Ford is another good story.  No bailout, no takeover of the company leading to plants being closed and jobs shed... oh wait, for a minute I thought we were talking about Bain.  Nope, that's the federal government... and isn't the (ahem!) head of that organization now critizing a former Bain exec for taking over companies and closing plants and laying off people?  Nevermind, my head is spinning with the hypocrisy.  Anyway, our friends at Ford got their debt upgraded to investment grade this week, which meant they no longer have to secure the debt with things like their oval logo asset.  Good job Ford!

Regular readers know I'm particularly hung up on the value of humans - especially when compared to non-idea-generating robots and crazy complex software systems like ERP.  Humans have the ability to understand context and nuance - and create ideas from disparate sets of data.  Perhaps someday computers will be able to, but apparently not yet in the financial arena.  One Wall Street guy, previously a "quant" or someone who promoted the ability of computers to crank out the quantitative analysis to execute stock trades, has decided that the human factor needs to be added back in.  Now it's a little crazy how he's doing it - teams of people in India pouring over the data and adding their analysis to the computer models - but at least someone is recognizing the value of brains.  Fleshy brains, not silicon.

And finally, we'll touch on one of our favorite subjects: innovation.  Or the lack thereof.  Which is why this article discusses how the term has become so watered down that it is basically meaningless.  As Scott Berkun says in the article, "what most people call innovation is really just a very good product."  Exactomundo.  Real innovation is something different, and it's rare.  But you wouldn't guess that by how many times the term was used in annual reports filed with the SEC: over 33,000 times last year alone, a 64% increase over just a few years prior.

Maybe Facebook should try some real innovation, rather than being a scoop gathering up personal info to sell to their customer: advertisers.  And you thought you were Facebook's customer?  Silly you.

Blaming Deming, Lean, and Six Sigma and the Importance of "Why?"

By Kevin Meyer

There have been a couple articles in noteworthy rags over the last couple days that have raised my ire a bit - even if I eventually agreed with one of them.  The first was by Adam Hartung in Forbes, describing the demise of Sony but in the process placing considerable blame on none other than Deming.  After describing the woes of Sony, he begins his analysis:

So what went wrong for Sony?

Firstly was the national obsession with industrial economics.  W. Edward Deming in 1950s Japan institutionalized manufacturing quality and optimization.  Using a combination of process improvements and arithmetic, Deming convinced Japanese leaders to focus, focus, focus on making things better, faster and cheaper.  Taking advantage of Japanese post war dependence on foreign capital, and foreign markets, this U.S. citizen directed Japanese industry into an obsession with industrialization as practiced in the 1940s — and was credited for creating the rapid massive military equipment build-up that allowed the U.S. to defeat Japan.

Unfortunately, this narrow obsession left Japanese business leaders, by and large, with little skill set for developing and implementing R&D, or innovation, in any other area.

You could say that is giving Deming far too much credit.  The vast majority of companies used Deming's methods to improve quality - and not just in manufacturing - not as a complete corporate strategy.  As one friend of mine said when I discussed this article with him, "Edward would chuckle if he heard that he actually reduced innovation."

Of course some readers then jumped back to when in 2001 Drucker called Deming "obsolete."  Which is again a complete misinterpreation and misunderstanding of Deming.

Mr. Hartung goes on to describe the impact on Sony itself.

But after Mr. Morita Sony’s other leaders were trained, like American-minted MBAs, to implement Industrial strategies.  Their minds put products, and new markets, second.  First was a commitment to volume and production – regardless of the products or the technology.  The fundamental belief was that if Sony had enough volume, and cut costs low enough, Sony would eventually succeed.  Without any innovation.

[snip]

Mr. Stringer’s Industrial strategy was to be obsessive about costs. Where Mr. Morita’s meetings were 85% about innovation and market application, Mr. Stringer brought a “modern” MBA approach to the Sony business, where numbers – especially financial projections – came first.  The leadership, and management, at Sony became a model of MBA training post-1960.  Focus on a narrow product set to increase volume, eschew costly development of new technologies in favor of seeking high-volume manufacturing of someone else’s technology, reduce product introductions in order to extend product life, tooling amortization and run lengths, and constantly look for new ways to cut costs.  Be zealous about cost cutting, and reward it in meetings and with bonuses.

This is a failure of Sony, not a failure of Deming.  Sony's leadership decided to listen to narrow-minded MBAs and focus purely on volume and cost.  Hundreds of companies have successfully used Deming's methods to improve quality, cost, and value while also implementing successful innovation programs.

Yesterday Ron Ashkenas published a piece in Harvard Business Review suggesting we need to "rethink continuous improvement."  In light of having just recently read Hartung's piece on Deming, my hackles were raised anticipating another crazy demonizing of proven methods.  Fortunately my initial instinct was wrong - well sort of.

Six Sigma, Kaizen, Lean, and other variations on continuous improvement can be hazardous to your organization's health. While it may be heresy to say this, recent evidence from Japan and elsewhere suggests that it's time to question these methods.

He does continue to teeter on and even cross the line of calling those programs nefarious, but this is presumably to add credence to his valid point:

So should we abandon continuous improvement? Absolutely not! It has created tremendous value and still drives competitive advantage in many companies and industries. But perhaps it's time to nuance our approach in the following ways:

- Customize how and where continuous improvement is applied. [snip]
- Question whether processes should be improved, eliminated, or disrupted. [snip]
- Assess the impact on company culture. [snip]

And that's where he's right - the need to ask "why?" before blindly implementing "continuous improvement." But, as other bloggers have mentioned, similar to Hartung's claim on Deming's methods Ashkenas is wrong in his claim that continuous improvement hinders innovation.  Jon Miller points this out:

I fail to see the "evidence" that continuous improvement has caused Japanese firms to fall behind or fail. The failure to launch game-changing innovative products was certainly a factor for the decline of Sony, for example, but if you talk to Sony people they will tell you not about a stifling culture of continuous improvement but the culture where senior engineers decisions were not be be questioned. Don't ask for evidence of why their brilliant idea will be a winner, in other words. This seems to be an instance of exactly a place where management by fact could have helped.

Ashkenas names a few American companies who practiced six sigma and failed to be innovative, implying but once again without providing a causal link.

But back to the somewhat different point I want to make - the need to customize continuous improvement and really look deep.  He gives an example that speaks to a particular lean vs. six sigma hotpoint of mine:

For example, a six sigma team in one global consumer products firm spent a great deal of time streamlining information flows between headquarters and the field sales force, but didn't question how the information was ultimately used. Once they did, they were able to eliminate much of the data and free up thousands of hours that were redeployed to customer-facing activities.

Six sigma is a fantastic set of improvement and optimization tools.  Lean is both a philosophy and also includes a fantastic set of tools to improve value by eliminating waste and increasing the application of human potential.  I personally believe that in most organizations lean needs to be established first in order to not have the problems mentioned above.  And as regular readers know I'm also convinced that the "respect for people" human side of lean is more powerful than the rote tool side - and not understanding that is the reason most lean transformations fail.  And to add some fuel to that fire, I also believe that the concoction known as "lean six sigma" is nonsense and even dangerous.

However both lean and six sigma are phenomenally powerful - if used properly.  And at the core of using them properly is to first ask "why?"  What is the problem or opportunity, why is it important, what is the desired future state, and what is the most appropriate tool to leverage?  I see many organizations just diving into the tools without asking why.  I see many, admittedly including mine years ago before we woke up, having crazy programs like "we will implement two tools per year."  Why?  Just diving into the tools will create short term gains, but will almost always create long-term failure.

Not asking that simple question is the difference between companies that successfully leverage Deming's methods, lean, and six sigma... and perhaps companies like Sony.

The Value of a Zipper

By Kevin Meyer

Great article in Slate of all places on YKK - you know, that zipper company you've never heard of.  Maybe some of you have seen the initials on your zipper but I bet most haven't.  I'll tell you why I was especially impressed, then we'll go through a bit more of the article.

A typical 14-inch “invisible” YKK nylon zipper (the kind that disappears behind fabric when you zip up the back of a dress) costs about 32 cents. For an apparel maker designing a garment that will cost $40-$65 to manufacture, and will retail for three times that much or more, it’s simply not worth it to skimp. “The last thing we want to do is go with a competitor to save eight or nine cents per zipper and then have those zippers pop,” says Steve Clima, Turk’s senior production manager. “The cost difference just isn’t enough given the overall margins.”

Now that's a zipper on some clothing, where a failure is a "wardrobe malfunction."  I run a company that makes components for medical devices - long term implantable devices no less.  Our $20 part must meet exacting standards otherwise a $30,000 device requiring a $100,000 surgery fails.  Failure can cause death.  So what is the value of that $20 part?  And why do some of our customers spend a lot of [wasted] effort each year to try to get us to cough up a 5% price decrease?  Should that be their focus?

End of minor diatribe - it's been something that has always bothered me.  It's also been interesting how different customers in the exact same market treat value radically differently.  Some do everything they can to support us and consider us a partner, some try to gouge us and treat us as a "costly" component supplier.  Guess which gets the best support and effort from us.  Well, actually both types do.  Sorta.  Maybe our sales folks needs to start carrying a YKK zipper, and tell the story.

So here's some more of the YKK story.  First, there's a believe in the importance of just doing the right thing, for humanity and otherwise.

Yoshida also preached a management principle he termed “The Cycle of Goodness.” It holds that “no one prospers unless he renders benefit to others.” In practice, this boiled down to Yoshida striving to produce ever-higher quality with ever-lower costs. It seems intuitive, but it’s far from easy to do.

That focus on doing good and always improving creates value.

And in the end, the secret to YKK’s success is equally uncomplicated but equally impressive: YKK makes incredibly dependable zippers, ships them on time without fail, offers a wide range of colors, materials, and styles, and never gets badly undercut on price. The feeling in the apparel industry is that you can’t go wrong with YKK.

Dependability sometimes means retaining complete vertical control.

One by one, Yoshida brought basically every stage of the zipper making process in house: A 1998 Los Angeles Times story reported that YKK “smelts its own brass, concocts its own polyester, spins and twists its own thread, weaves and color-dyes cloth for its zipper tapes, forges and molds its scooped zipper teeth …” and on and on. YKK even makes the boxes it ships its zippers in. And of course it still manufactures its own zipper-manufacturing machines—which it carefully hides from the eyes of competitors. With every tiny detail handled under YKK’s roof, outside variables get eliminated and the company can assure consistent quality and speed of production.

Which of course has another benefit...

When the Japanese earthquake hit last year many supply chains were shredded, but YKK kept rolling along.

Lessons from the lowly... but valuable... zipper.

Silly CEO, Pricing is for Customers

By Kevin Meyer

Probably the biggest hurdle for ops guys when they transition into general management roles is learning about sales, marketing, and especially pricing.  At first glance it doesn't appear to be scientific and it is filled with extraneous inputs - like emotion.  Yuck.

I know as a young engineer I used to roll my eyes at my friends in sales who traveled around to great places, entertained constantly, and were rewarded with lavish meetings in Hawaii.  Actually "roll my eyes" was being polite.  How hard of a job is that?  One of my roommates back then was a marketing guy fresh out of MBA school whose job it was to scout out the location for the next annual sales meeting for our 500 sales reps.  He spent the entire year traveling around being wined and dined and drooled over by the best resorts in Hawaii, Mexico, and the Carribbean.  Yes, that's supposedly a "job."

A decade later I started my own contract manufacturing company with a great operations infrastructure designed from the ground up with lean in mind.  Incredibly simplified processes, people-oriented, agile beyond all get out.  We could do anything, cheaper, faster, better.  And we sat and waited for the sales.  And waited, and waited.  I guess "build it and they will come" isn't exactly a sales and marketing strategy.  So my partners and I went out and began banging on the doors of potential customers.  And banged and banged.  Long story short, it took a long time before we learned the hard way about the science of marketing and the effort in sales.  And, looking back on my early career, I decided those sales guys can have their expense accounts and lavish tropical meetings - the work really was hard.

Between that experience and running my current medical device company I learned a lot, and especially learned how lean can factor into various functions.  And one thing I learned was that price is a reflection of value, and value is determined by the customer.  As much as we'd like to price products at "cost plus" it will simply fall prey to market dynamics, which are driven by customer perceptions of value.

Apparently I, as well as pretty much every other lean leader, knows more than Proctor and Gamble CEO Robert McDonald understands.  Yes, that preeminent marketing powerhouse of P&G no less.  See he somehow thinks he can control prices in a competitive market.  Really.  In an investor conference call discussing P&G results, where did he place the blame for his company's poor relative performance?

P&G blamed weak developed markets and competitors' failure to follow its lead on price hikes.

Seriously.  He expected to be able to raise prices and have his competitors simply follow suit.  What happened?  His competitors didn't raise prices, and they ate P&G's lunch.

P&G's sales rose 3%, which looked skimpy against an 8.5% rise for rival Unilever PLC and a 6.5% increase for Colgate-Palmolive Co.

Of course the analysts were none too happy, and if you've ever sat in on an investor conference call you'll know that serious analyst critique is a rarity on such calls.  Not this time.

"Good quarter, guys" wasn't the message Procter & Gamble Co. Chief Executive Robert McDonald got when he dialed in to his company's earnings conference call Friday. Instead, he confronted an unusually angry barrage from Wall Street analysts over the latest in a string of weak results from the world's largest consumer products company. The analysts showed little restraint in venting their frustration after P&G lowered its profit outlook and said it would roll back recent attempts to raise prices in key markets.

Sure those analysts usually have a ridiculous short-term perspective, but in this case they were properly venting about a lack of basic competence.

But there's more! And like a set of ginsu knives, it gets worse.  Apparently Robert McDonald's P&G doesn't understand how pricing is both a reflection of customer value - but also influences the perception of value by the customer.

The consumer products giant cut prices aggressively in recent years in a world-wide battle for market share. More recently, it has tried to roll back some of those cuts as input prices have risen. Those moves cut into P&G's market share, which fell in 55% of the categories and countries where it competes.

Most of us have learned that the hard way.  Apparently it has taken Mr. McDonald just a little longer than the rest of us.

Prices are a reflection of value from the perspective of the customer.  But if you cut prices beneath that value point, it also changes the perception of value.  Two related things happen: the actual perceived value of your product goes down and/or the price associated with that value gets adjusted.  Either way you lose.  It becomes virtually impossible to later raise prices in the face of that changed perception of value. 

Companies fall into that trap all the time when they chase market share and the siren song of increased cash through volume instead of simply focusing on delivering increased value.  Just ask GM.  Winemakers have known that for generations - a lower price leads to a lowered perception of value which leads to a lower price.

A huge company built on marketing is learning a lesson on value.  A lesson many of us learned long ago.

The Shame of "Great" CEOs

By Kevin Meyer

What a couple weeks here at Evolving Excellence.  Discovering that Amazon's worker abuse is on par with Apple's, and even Bill's recent post on how we (mis)treated workers from the Barbados when they did the hard work of building the Panama Canal - but really paid them more than Apple pays the Chinese.  I'm somewhat surprised that the AFL-CIO hasn't contacted us about being an official spokesman for labor.  Perhaps they should.  Companies that treat people that poorly deserve unions - and all the other consequences of unions that destroy productivity and agility.

So here I am trying to work today when someone (cough, Bill George, cough) tweets an article from Forbes titled "Jeff Bezos' Top 10 Leadership Lessons."  Really - Jeff Bezos of Amazon?  Normally I like Bill George, and his concept of "true north" is very much aligned with lean.  This time he's off base.  Leadership lessons?  So like a kid going to see The Texas Chainsaw Massacre for the first time, I had to look.  And it was filled with the usual stuff... obsess over customers, embrace change, be willing to fail... yadda yadda yadda.  Anything about employees?  Not really, unless you somehow read that into #6, "Our culture is intense."

Yep, no kidding.  "Intense" is one word for the worker abuse going on at Amazon's Campbellsville distribution center.  I tweeted back to Mr. George that Bezos must have forgotten to include lesson #11: always keep ambulances outside of overheated distribution centers in case employees collapse.  Otherwise you might need hearses.

But it gets worse.  As I'm reading that, I discover that Forbes had another recent article on Bezos, once again by George Anders.  And this one had a premise that nearly made me toss my cookies.

He’s [Bezos] the number one CEO in America. The passing of Steve Jobs has left him, without question, as the corporate chief that others most want to meet, emulate and deify.

Geesh.  So first we have Steve Jobs who presided over blantant worker abuse at Chinese factories that made his products.  Yes I grant he was a genius in many ways.  But also a guy lauded, indirectly via channeling Tim Cook perhaps, as having created the best supply chain in the world.  Really?  No - just a brilliantly executed traditional supply chain.  The "best" would have figured out how to make products closer to customers without abusing people.  A few bucks from the $100 billion Apple has stashed away could have done that.

And now Jobs is supposedly replaced with Bezos?  A guy who has employees, in the U.S. no less, that are saying "this is a brutal place to work."

I'm guessing Jack Welch (the turkey) was also in this chain of "great CEOs."  Someone who advocated whacking the bottom 5+% of the staff each year, among other brutality.

So they are the corporate chiefs that "others most want to meet, emulate and deify."  How pathetic.  No wonder corporate America has been getting a black eye lately.  With those kinds of "leaders" and people that worship them, a black eye should be the least of our worries.

Where are the folks that truly understand what that oft-forgotten pillar of lean, respect for people, is all about?  Where the leaders that truly believe that people are the greatest asset, and even though they may be represented as a "cost" on a P&L, there really is a huge offsetting value from their brains, ideas, creativity, and experience?

They are out there, and I can name a few of them.  But they are humble and focus on putting their people first to create great companies that deliver real value to customers.  Which is perhaps why they won't get into Forbes.  But unlike Welch and Jobs and Bezos they will get my respect.

More Worker Abuse - Guess Where...

By Kevin Meyer

Take a look at the following quotes from an article on worker abuse.  I've purposely redacted the company and location identifying information.

"As long as my body holds up, I will keep working. But the way it feels, I don't know how long that will be."

... a warehouse safety worker... instructed him to tell emergency workers that his hip injury was not work-related, even though he says it was.

... an investigation of... warehouse operations last year... also found indoor temperatures soared so high that... had ambulances parked outside to take workers to the hospital. [Sorry - I just have to add "ARE YOU FRIGGIN' KIDDING ME??" to this one.]

... pressure to manage injuries so they would not have to be reported, such as attributing workplace injuries to pre-existing conditions or treating wounds in a way that did not trigger reports.

A former warehouse safety official said in-house medical staff were asked to treat wounds, when possible, with bandages rather than refer workers to a doctor for stitches that could trigger reports. And warehouse officials tried to advise doctors on how to treat injured workers.

"This was just a brutal place to work."

"They would have meetings on how we could get rid of people who were hurt. It was horrible."

I could add several more, but I'll stop there.  I'm betting most of you think I'm quoting from yet another report on Apple's Foxconn supplier in China, right?  Or at least some other sweatshop operation deep in Asia or Latin America?

Nope.  It's Amazon, in Campbellsville, Kentucky.  Last time I checked that's in the USA.

How can we rant and rave against working conditions overseas when we allow the same here?  Sure, there aren't suicide nets around the top of worker dormitories and 100 hour weeks probably don't happen.  Still, the similarities are eerie, including that it's another high profile tech company.

It's unacceptable.  And we wonder why unions still exist - once again it's because of pathetic management that gives the rest of us a really bad name.  The rest of us that understand that there's a valuable brain attached to the supposedly costly pair of hands, and that it makes great business sense to take very good care of that brain.

One last quote from the article on the vicious cycle that begins once you start circling the drain of worker abuse:

But over time, said former workers at Campbellsville, production pressure from headquarters intensified amid constant turnover. "There would be phone conferences [with Seattle], and all this screaming, about production numbers. That was always the problem; the production numbers weren't high enough," said a former safety manager with oversight of the warehouse who spoke on condition of anonymity.

If you treat your "most valuable asset" (how much you want to bet that Amazon has that buried in a mission or vision statement somewhere...) like crap, they eventually leave, and you have to figure out how to make up the difference.  Either by working the remaining poor souls harder or by finding even poorer souls willing to work in such a hell.

Of course Evolving Excellence readers know a better way.  Leverage the power of their brains to improve processes which will improve quality and efficiency - value.  And take care of those valuable brains.