As we emerge from the recession and look ahead old ways of thinking and action will
not be enough to meet two big challenges ahead. The first challenge is the growing
impact of the web in opening up the possibility of turning customers from strangers to
partners. The more customers know about what they could have and the way
products and services are produced and delivered the more demanding they are
becoming. They recognise they have an increasingly powerful voice! And they expect
providers to be able to deliver exactly what they want, when, where and how they
want it and to significantly improve the experience of using these products and
services while minimising the impact on the environment. In return they may well be
willing to share their plans and to respond to suggestions from providers.
In retailing, the advent of home shopping revealed that at that time supply chains
could only fulfil exact customer orders about 6O% of the time. While suppliers comfort
themselves in thinking their service levels are close to 98% this turns out to be for
orders they accepted, not what the retailers asked for! From the retailers perspective
the suppliers’ ability to supply what the retailer wanted is often closer to 70%. This
hidden gap can only be closed by rapid replenishment supply chains where suppliers
make, ship and sell in line with demand within days and not months. A similar
performance gap exists in every industry, if we look closely enough.
Second, sustainability and environmental issues challenge us to look end-to-end to
find systemic as well as piecemeal solutions. Most supply chains, which are often 200
to 300 days long and involve products travelling thousands of miles before being
used, will have to be redesigned on economic grounds quite apart from the need to
reduce their carbon footprint. But so far progress in doing so has been disappointing,
even though the opportunity for compressing supply chains in almost every sector is
huge.
The root causes of this hidden performance gap and these elongated supply chains go
right to the heart of modern management — the separation of thinking and doing
between experts and workers and the organisation of activities in increasingly strong
functions, departments and business units. We are recognising the potential of
involving every single employee in continuously improving their own work. We are
learning to see all the buffers, inventories, delays and handoffs put in place to insulate
activities from the rest of the organisation but we are still reluctant to accept that
point optimisation and improvement of our own activities is often at the expense of
designing and optimising the end-to-end value creation process. As a result no one
can see let alone cost these end-to-end flows, particularly when they share a common
pipeline with many other products or services.
In short the biggest obstacle to meeting these new challenges is that functions,
departments and business units have become too powerful and act in their own
interests. And the countervailing power to articulate the voice of the customer and the
voice of the organisation as a whole is too weak. Squeezing budgets to remain price
competitive only delivers lasting benefits if we also change the value stream that
delivers these products or services. Asking function heads to simplify their planning systems, simplify their product mix, build smaller simpler plants closer to customers
and get rid of unnecessary warehousing space is like asking turkeys to vote for
Christmas! It just will not happen, even if they are the right things to do for
customers and for the organisation as a whole.
But the way forward is not about reducing the power of functions but about
rebalancing organisations by introducing value stream analysis and management. The
value stream manager and their team are critical to defining the problem or
performance gap to be closed, establishing the evidence base across the value stream
through stability and visual management, developing the ability to respond quickly to
interruptions, gaining agreement from the key players on the right actions to improve
the value stream based on the facts, resolving conflicts between departmental and
value stream objectives and delivering win-win-win-win results for customers,
employees, the organisation and the environment.
Over the last year we have learnt a lot more about the specific ways in which Toyota
uses the scientific method to develop the problem solving skills of its employees. We
will also learn a great deal more in coming years about how leaders at Toyota really
use policy or strategy deployment to prioritize and focus everyone on improving the
vital few, right things. But I think the only way we are going to learn how to make
value stream management work is by conducting many experiments in different
situations. The learning that results will be extremely valuable as we seek to design
the management systems that will be necessary to create and sustain new systemic
solutions to the challenges we face in the coming years.
I hope you have a very good Christmas and a productive New Year.
Yours sincerely
Professor
Daniel T Jones
