Opening Story: Speed Can Make Money
As David settled in for the long flight home, he pulled out his laptop. It had been three weeks since Diane had tasked him with reviewing and reimagining DWC’s customer fulfillment capabilities. She had emailed him the previous day, asking him to put together a quick update by the end of the week. David sighed deeply—his “day” job didn’t leave much time for setting up and running a new task force. He began to review the steps he had undertaken so far. His notes were organized using three questions to guide the reimagination efforts: Where are we?
Documented current performance vis-à-vis standards. DWC was hitting its targets.
Benchmarked current performance against rivals. DWC was doing well. He had not been guilty of false
advertising when he told Diane that DWC was an industry leader.
Where do we want to be?
Identified order fulfillment benchmarks:
1. The Supply Chain Council’s SCOR model documented the standard order cycle.
2. Anecdotal cases showed how other companies had addressed fulfillment crises.
Put together a list of key customers to meet with. He wanted to know what they expected from DWC, how they perceived DWC’s current performance, and how they measured DWC.
How are we going to get there?
Put together a four-person team to work on the task force. The team included Paul Osterhaus from IT; Trina Cody, a direct report to Doug Hassle and lead for the account management team responsible for the Monster relationship; and Lisé Johnson, a financial analyst who had worked on a variety of supply chain projects in the past.
As tired as he was, David’s gaze settled on the anecdotes. One in particular caught his attention: Sony de Mexico. On his third call to investigate order cycle best practices, a colleague had joked, “Just be grateful you’re not Sony de Mexico. Poor order fulfillment raised their costs and just about shut them down. Only SCM2 saved them.” That statement had caught his attention. David had never heard the term SCM2 before. He had asked his friend to tell him more. David reviewed his notes from the discussion:
Sony’s corporate headquarters had decided to shift capacity to Asia where labor costs were a fraction of those in Mexico. Low labor rates, minimal tariffs, and geographic proximity had not been strong enough reasons to justify Sony de Mexico’s continued existence. (Note to self: What do we do at DWC to justify our existence?)
While others scoffed at the idea that Sony de Mexico could survive, Rey, Sony de Mexico’s CEO, had made a final attempt to save the operation. Out of desperation, Rey and his team had adopted the Six Sigma mantra of, “Forget what you think you know and let the data prove it to you.” He reasoned that a blank-slate approach was the only way to change the destiny of Sony de Mexico.
The breakthrough insight came from the voice of the customer. What could Sony de Mexico offer that Sony in Asia couldn’t? When asked, customers repeated two facts:
Based on existing performance levels—not much! Despite the close location—just across the U.S./Mexico border—Sony de Mexico’s order fulfillment cycle was eight weeks. Asian operations could meet or beat that Dealers were clearly baffled and frustrated.
Dealer costs were high! Because they couldn’t anticipate consumer demand across Sony’s broad product line, dealers carried huge, expensive inventories.
(Note to self: Talk to DWC’s customers. Find out what they value. What are their pain points?)
As Rey had processed the customer complaints, he had realized that his team also griped frequently about poor dealer forecasts. (Note to self: We do the same thing.) As a result, Sony de Mexico carried a lot of inventory—60 days of sales. The common denominator driving frustration for both Sony and its customers was long order delivery cycles. Rey had adopted the mantra: “Instead of complaining about forecast accuracy, let’s build a supply chain robust enough to meet customer needs despite poor forecasts.” (Note to self: That’s our challenge.) Rey’s team had to find out why lead times were eight weeks.
Ultimately, Sony de Mexico had reduced lead times to two weeks—a 75 percent improvement. Both dealers and Sony de Mexico were able to slash inventories. Most important, Asian operations couldn’t match the shorter lead times that enabled vastly improved customer performance. This fact—thatSpeed Could Make Money (SCM2)—had saved Sony de Mexico.
Almost imperceptibly, David realized that the insight he was looking for was contained in that acronym: SCM2.
He now knew the next step and quickly typed, “Map out our actual order cycle. What drives our lead time?
What drives the variability that causes us to drop the ball?” With that epiphany, David tucked away his laptop and leaned his seat back. He wouldn’t arrive home until almost 10:30 p.m. A short nap wouldn’t hurt.
Answer the following questions:
(each answer should not be less than one page which means 3 questions and their answers i.e. atleast 3 pages)
1. What do you think of David’s approach of evaluating the “as-is” and “to-be” states of DWC’s order cycle?
What performance should a well-designed order cycle deliver?
2. What are the key activities/steps that must be managed to achieve world-class order fulfillment? What causes order cycles (and other processes) to become inefficient or unreliable?
3. What are the tradeoffs David and his team can expect as they reimagine DWC’s order fulfillment capabilities?