Making Business Improvement Happen: How 40 Dollars Saved 400,000 Dollars
A company came to me with a problem. They were incurring massive penalties and waste when servicing two major markets and wanted to know why. Each month they were shipping 10% to 15% more product than had ever been necessary to meet demand, and they were incurring heavy penalties for late shipments. I was asked to look at the problem and find a solution.
Diagnosing the Problem
This company produced a product that had a "shelf life" of ten days. Customers expected at least seven days of shelf life when the product arrived, which meant that the product must arrive within three days of production to last for seven days on the shelf. Among its distribution points, the company served two large civic centers (City A and City B), which required 60 and 64 hours lead-time respectively.
These cities required frequent replenishment. Four days a week, a "double trailer" was sent to each city to satisfy demand. Once a week, when demand dropped, the company sent only one double trailer to service both locations. The driver would drop the rear trailer in City A, and then continue on to City B. This split trailer strategy worked well, as long as the "split load" consistently took place on a given day. For months after its creation, the system worked, demand was steady and the loads were split on schedule.
Unfortunately, the strategy didn't account for success. As market demand increased the system began to break down. Split loads became sporadic. Loads that were scheduled to split at City A would mistakenly continue on with both trailers going to City B, where product would spoil unwanted. Drivers even began splitting loads that were not to be split.
Customers that were not receiving their orders would then fine the company; and to compensate, they placed larger than normal re-orders to build up stock levels - further throwing off the producer's production forecasts and outstripping production capacity.
Running out of excuses, the company began shipping free product via airfreight, just to keep customers from leaving. The cumulative result was not only an exponential increase in shipping costs, but unsatisfied customers and strained production lines. Stressed-out managers scrambled to fight the fires this problem constantly created.
All told, this problem represented a direct cost of over $28,000 dollars every time it occurred; which historically happened an average of 14 times a year. That is almost $400,000 annually!
By trusting in a system that had worked in the past, the company had accepted avoidable loss as a cost of doing business for almost 3 years. Worse, my calculation can't even begin to account for all the indirect (soft) costs associated with the loss of goodwill, added production complexity, lost floor space, lost opportunities, etc.
The root cause was so uncomplicated it was routinely overlooked. Drivers were not being consistently informed when they were required to stop in City A for a split load, and could not identify when it was necessary.
The simplicity of the solution might surprise you. There was no need to rework shipping schedules, to redesign existing documentation, or to re-train staff. The drivers simply needed to be made aware that they were carrying a split load.
To distinguish a split load from a regular load, a stamp was purchased which printed, "SPLIT" boldly on the manifest. With this label, drivers knew immediately what was intended without having to be told directly, and without having to rely on what happened "last time". The incidence of missed split loads was completely eradicated with the introduction of a $40 self-inking stamp.
Too Good to Be True?
Management was shocked. "That was too easy," they said, "anyone could have figured that out!" They were confused that the problem had existed so long and had cost so much, while the solution was so obvious and inexpensive. It wasn't the grand explanation they had expected.
I explained that the reason they failed to see the problem was because they had been too busy fighting the fires that the problem created. Further, they had not engaged their employees, their transport company or their customers in finding the source of the problem. Finally, they had trusted a system that was designed to cope in a static environment, where split loads occurred at very regular intervals. They were used to pouring money into a bad system to make it work. I provided a fresh perspective.
Once in place, the company was ecstatic with the result - who wouldn't be happy with a 10,000% return on investment? The $40 stamp paid for itself within the first hour it was used. Big savings don't always require big investments.
Tim Sweet is the principal improvement strategist with Revolve Business Consulting Ltd. Revolve employs unparalleled creativity to help retail, energy, transport, manufacturing and foodservice companies across North America improve performance, quality and customer service. Tim's written work is currently required reading in business schools across Canada. To find out what Tim and Revolve Business Consulting Ltd. can do for you visit www.revolveconsulting.com
Article Source: http://EzineArticles.com
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