Piloting the first module of our upcoming Value Flow Quality course has provoked me to reflect on different ways of putting the external customer at the heart of what we do.
As part of the exercises for the course, I reviewed the GCSS DPL dynamic priority list (the list of requirements which have a priority score but work has not started yet) to see how much focus the external customer gets. Top marks to the GCSS team – all the items in the DPL on the day I checked had a value proposition with benefits to Maersk Line clearly identified! Some of the items in the DPL were error fixes. For most of these, the GCSS team had calculated the time that would be saved by Maersk Line staff if the error was fixed and used this to work out the cost saving to Maersk Line in dollars.
So far so good – this is way,way better than many (or even most) development teams. Yet this way of evaluating errors really underestimates the value created by addressing the error (and hence affects prioritisation). By fixing an error we may also reduce the costs that our customers incur. It costs us money to answer the phone but it costs them money to ring us up. Reducing their costs in ringing us up surely is worth something to us too?
This opens up the whole world of lean consumption i.e. lean applied to customers. The basic principles of lean consumption are (and I quote…):
- Solve the customer’s problem completely, by insuring that everything works the first time.No customer wants to call a help line, so turn your help lines into kaizen opportunities to identify and eliminate the root cause of customer calls.
- Don’t waste the consumer’s time.For example, challenge the need for queues of any sort. You will discover that queues always waste both the customer’s time and the provider’s money.
- Provide exactly what the customer wants.The level of out-of-stocks of the right items and overstocks of the wrong items is remarkably high in almost every aspect of business. These consumer frustrations are almost completely avoidable with lean replenishment systems utilizing pull principles.
- Provide value where the customer wants.Most providers secretly want the customer to come to them. For example, the best pricing is available in a Wal-Mart style big-box retail format that customers must drive miles to access. Yet most customers want just the opposite, with attractively priced goods conveniently available nearby. The application of lean principles can provide most value where it is wanted at lower cost.
- Provide value when the customer wants. Most current-day sales and production systems encourage customers to place orders at the last moment with no warning. This makes level loading of production systems impossible. Yet most of us actually plan ahead, particularly for big-ticket items like computers, cars, and white goods. Some simple lean principles can turn strangers into partners who plan ahead with their providers, dramatically reducing costs for customers and providers.
- Reduce the number of problems customers need to solve. Most of us would like to deal with only a few providers to solve our big problems – computing and communication, mobility, healthcare, financial management, shelter, personal logistics (better known as “shopping”.) Yet with the web we have been going in the opposite direction from industry. Firms following Toyota’s lead are asking a much smaller number of suppliers to solve much larger problems, even as consumers are asking ever larger numbers of strangers to solve tiny problems on a one-off basis, wasting time and creating frustration. Lean principles show a way to do much better.
Sounds great, doesn’t it? It would be interesting to start applying these principles. When you zoom out, the customer is operating a supply chain and he/she ultimately doesn’t mind where a cost reduction happens – either in the part of the process which he/she operates or the part he/she has outsourced to Maersk Line.
So back to my example with the error fixing. If making a change (in this case an error fix) reduces our operating costs by $1 per year then its clear that what it is worth to Maersk Line is simply $1 per year since this goes direct to our bottom line. If instead, making a change reduces our customer’s operating costs by $1 per year then what is this worth to Maersk Line?
A tricky question! Clearly for large changes like Daily Maersk etc. which affect our customer’s operating cost, we can afford do market research into this to come up with a number. Maybe the change will increase our market share, allow us to charge higher prices or increase loyalty (or at least prevent a decline in any/all of these). We can talk to customers and make some assumptions and get a number. But for tiny error fixes? I don’t think so. We need a rule of thumb. What should it be? Of the $1 value that is created by reducing the customer’s operating cost, it’s unlikely that Maersk Line will capture it all (i.e. $1). It’s also unlikely that Maersk Line will capture none of the value ($0). So we need a number between $0 and $1.
If we were to standardise on an approach like this, we would be able to effectively evaluate and prioritise small initiatives that improve our customer’s operations. We would also be more careful about pushing cost from our process into the customer’s process. We would not just have the four benefit types (increase/protect revenue, decrease/avoid costs) but we would have an additional one “improve customer’s business.” Something to think about?
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