process-improvement-solutions.com Blog

In today’s WSJ there is an article on Indiana’s problems with its Social Services. The claims process was outsourced to IBM and its subcontractor, Affiliated Computer Services. This is an excellent example of how automating a process without first understanding all the underlying process issues does not really fix anything. In fact it makes the problem worse as discussed in my Amazon.com review of the book published by the founder of Infosys.

Most IT projects fail because the process issues are not addressed first. It is a common fallacy to assume that simply installing technology systems and automating a process will resolve all issues. The problem in this case does not appear to be outsourcing the claims process, but rather, lack of effort upfront designing the right process to fix the issues. The constituents using the system are the customers here and really the entire process needs to be revamped from outside in – customers’ point of view.

Shaker Cherukuri
Managing Principal
Process Improvement Solutions, Inc.
Greenwood, IN
317-258-3552

Starbucks has a dilemma – How to grow the top line? Lean is an effort to do that. How is it so? Isn’t lean supposed to reduce costs? Yes. However, in this case it is more about the top line. Piqued? Read on….

Since his return, Mr. Shultz, the founder, has focused on making Starbucks well more focused – return to the core competencies in consulting speak. He reduce products offered (like sanwitches etc) and now lean (8/4 WSJ Article) to speed up the cycle times and reduce throughput aimed at adding capacity to handle the peak demand without adding resources (labor or capital).

At a fundamental product strategy level, if the objective is to offer the consumer quick turn around, then the neighbourhood gas outlet or McDonald strategy would be more appropriate. If the objective is to offer the coffee experience and high quality coffee, then the Starbucks model would be great.

It now appears, that Starbucks is trying to be more like McDonald by being faster and leaner with less products and McDonald is trying to be Starbucks by offering premium coffee!!

In the fast food world, handling peak demand is what differentiates the best of the breed and McDonald is the leader in this aspect discussed in one of my earlier blogs – MickeyDs Got It Right!

McDonald is able to pull this off because of stadardization of all processes including store layouts etc. Pulling this off in the fresh premium coffee house that focuses on the consumer experience and store ambience would be very challenging and most likely not as effective. Leaving it to the individual stores to come up with their own unique process is almost certain to ensure that the effort will cause more damage to the brand (the consumer experience) than any gains from efficiencies (ask Home Depot). There is probably a happy medium here some where and perhaps that is what Starbucks is trying to achieve.

McDonald will most likely abandon premium coffee and Starbucks will have a short term bounce from reduced costs (already has). Over the long term, the premium consumer that desires the coffee experience might be lured away by a yet another niche player unless Starbucks figures out what it wants to be.

The problem is that to grow (the top line), it (Starbucks) needs to go after those lost sales during peak demand at the expense of consumer experience which is its core.

Therein lies the dilemma…..

Shaker Cherukuri
Managing Principal
Process Improvement Solutions

“Quality is a marathon, not a sprint” – That is the key statement made in yesterday’s WSJ article about GMs Chevy Malibu by the Toyota spokesman. What does he/she mean by it? Read on….

Sustainable quality is possible only by inculcating a culture that enables the creation and propagation of quality. All the processes of the “system” need to be self regulating and self correcting (the famous TPS principles). In the short term, it is possible to produce a quality product via extensive inspections and “sorting”. This increases the production costs by generating lots of scrap due to low yields.

The initial quality here is a reference to the infant mortality part of the bath tub curve. If you just cherry pick the good parts, you can reduce the infant mortality (i.e improve initial quality). The failure rate of the population during the useful life is a function of good design margins and tolerance limits. This can only be improved by better designs and manufacturing processes. The trick is to design the product right to meet (exceed) the consumer’s demands (VOC) and then create a manufacturing process that is capable of manufacturing all components, subsystems and systems consistently well within the tolerance limits so you do not have to have a quality inspection at all!! The durability is whole different issue. This is where things like galvanized steel used to make the BMW chasis (discussed in a earlier blog) help make the system more durable.

This sort of eco-system takes years to create since you have to partner with your suppliers and enable them to produce like you do. The Malibu is definitely a very good product. With a lot riding on it, GM put lot of effort into it. The question is, did it pay off? Is it profitable? Is the quality the result of an excellent design and manufacturing process or is it due to extensive inspections and sorting? Is this sustainable?

The bigger issue at GM is that there are too many products. If I want to buy a minivan from Honda or Toyota, there is only one option. Why does GM have so many variations of the same product?

Now is a great time for GM to differentiate and reposition itself by offering products and services that offer a unique value to its customers. The legacy fixed costs are being reduced due to external forces (which was not possible before). GM needs to capitalize on this gift and focus on creating the capability to run a marathon and not just a sprint.

Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
3209 W. Smith Valley Road, Suite 224
Greenwood, IN 46142
317-258-3552

My musings from 3/10 WSJ article on reasons for MickeyD’s turnaround since 2003:
- Process rigor for making the food which ensures consistency in their products (less variation thus resulting in consistent experience for the consumers – you know what you will get)
- Even flow that minimizes bottlenecks and allows for capacity to match demand at peak times (less wait for consumers and less lost opportunity for MCD)
- Resulting in Operating Margin expansion even when gross margin does not
- Scale economies on the supply side for Gross margin management
- Constant repositioning based on market dynamics via new offerings (premium salads before and lower cost options now)
- Excellent marketing campaign
- Sound business strategy that emphasized same store sales growth rather than new stores
- Franchise model that takes the most of the real estate off the books (great in this environment)
- Variable pricing based on demand (this one will be hard to sustain in this business, works well for the airlines)
- So in short, they got everything right – Strategy, Finance, Segmentation, Positioning, Targeting, Operations, Delivery.
Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
3209 W. Smith Valley Road, Suite 224
Greenwood, IN 46142
317-258-3552

As per front page article in today’s WSJ, it is back to basics at Toyota (parts of this blog are from the comments I posted on WSJ for the aforementioned article). Incoming president, Akio Toyoda, is “going to focus on abandoning kakushin or “revolutionary change”. He thinks his predecessors strayed away from “core ideas of thrift and efficiency”. So there will not be any more fancy features in their cars (solar powered cooling systems) or the famous Toyota manufacturing process (shabu shabu for painting – a lean manufacturing process) which has caused the cost of the cars to increase and as such are not value priced anymore ($28,000 for a 2010 Prius?) He goes on to say that capacity expansion and product proliferation at Toyota was a mistake and makes the analogy with Tiger missing a shot (meaning Toyota, the Tiger Woods of auto industry, missed by making these mistakes).

So in short, Toyota agrees with the premise of my post yesterday - Use TheProcess, don’t be used by it! Especially in regards to Shabu Shabu which is a process that speeds up the paint process by dipping the component in a pool of paint (adopted by GM and HP as per the article). This is great solution to reduce the bottleneck since painting is usually the bottleneck in auto industry (high volume). However, when your demand falls and you no longer need that solution (meaning your older slower paint process is no longer the bottleneck since you don’t need to make more cars), you are now stuck with the higher cost associated with the new process.

I actually saw this process at the BMW plant in Spartanburg, SC when I was living in that area working for GE Energy. They dip the entire chassis into this pool to create galvanized steel chasis. Of’course for a BMW, the higher cost is passed on to the consumers who are willing to pay $60,000 for the X5 that is made in Spartanburg (and the Z4). For a Toyota (and GM), it will be harder to pass on those costs.
Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
3209 W. Smith Valley Road, Suite 224
Greenwood, IN 46142
317-258-3552

What do I mean by: Use TheProcess, don’t be used by it! It is simple folks – in any endeavour, it is important to keep your end goal in mind and use the right tools at the right time. The whole six sigma initiative – DMAIC, DFSS and of late Lean, has lot of aspects to it. Each of these is really a framed process with a collection of tools that have been around for a long time.

To me, the whole premise of Six Sigma was to bring analytical tools and thinking to the employees – something that used to be the domain of the MBAs, the engineers, the statisticians only. The Japanese have been using most of these tools very effectively since WWII, thanks to Deming. When no one is the US would listen to what Deming had to say, he found a willing audience in the Japanese. Well, as they say, rest is history. Zero defects, here we come – slow and steady wins the race.

For the US auto and industrial manufacturers, it was wake up time!! Yeah, Strategy, Corporate Finance, expansion, acquisitions is important; however, if it is not backed by sound products or services, it creates a gaping need in the market place for such a product or service. So when the market provides an opportunity and a willing proponent enters the market to fill the need, woala, we have a new winner! Kind of what happened with the oil crisis in the 70s and the Corolla went from lemon of the year to king of the road due to high quality and mileage.

So what went wrong at Motorola, the creator of Six Sigma? Well, it did not help that when the entire market was at the cusp of a tectonic shift towards digital phones, Motorola came out with a very high quality, zero defect, $1000, compact, Startack Analog cell phone! It was an excellent product, just the wrong one. Nokia filled the gaping whole in the market place with its digital cell phones and transformed itself from a conglomerate that made things like tires to focus on digital cell phones – there was the key to systematic demolition of Motorola by Nokia. Right product, at the right time, with high quality enabled by laser like focus on one thing – make the best digital cell phone they could. Did they call it “Six Sigma” and have big bang Six Sigma initiative? No, they just used the right tools.

So, folks, that is what I mean by use TheProcess, don’t be used by it! More to come on this. Keep tuned.

Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
317-258-3552
http://process-improvement-solutions.com/