The Mystery of the hidden factory!!! -Part III

This is a five-part mystery:

1. The mystery
2. The call
3. The investigation
4. The solution
5. The Happy Ending

Part 3 – The Investigation

   During the phone conversation, Si told Mr. Under that he would love to work with him.  But Si had a few conditions that Mr. Under had to consider before he would agree to a contract.

   First, Mr. Under had to agree nobody would be punished as problems were uncovered.  The only expectation was effort given to improve the problem.

   Second, Mr. Under must commit to a long-term change.  Si had been helping companies for many years.  All of them had invisible problems that nobody knew were there.  Uncovering these problems and changing their causes would involve everyone in the company.  Changing behaviors and practices would take time and was not for the faint-hearted.

   Finally, Si told Mr. Under that if his company followed Si’s guidance, Si guaranteed real profitability gains of two times or more versus today’s performance. 

   If Mr. Under agreed to Si’s conditions he was to call Si back on Friday.  Following this call, Si would pay a personal visit to Mr. Under’s company.

   On Friday, Mr. Under called Si to agree to his terms.  They scheduled their first meeting for the following Wednesday at 8am in Mr. Under’s office.

   Mr. Under was waiting for Si when he arrived at 8am sharp that Wednesday morning.  After getting coffee and sharing a few pleasantries, they got down to business.  Si asked Mr. Under to describe his business. 

   Mr. Under spent about an hour talking about the company. 

• The company sold a variety of different consumer products with revenues of $XXB.
• The company’s stock performed ok but was not a leader.
• Each product was treated like a mini company under the umbrella of the corporation. Businesses and functional groups ranged in size from less than 100 to more than 1000 people.
• The company’s products were produced globally to serve customers worldwide.
• The company’s supply chains were long and complicated. Some products were made with supplies that were procured domestically.  Other products used supplies that were a combination of low-cost country sources and domestic. 
• The company’s products and services were competitive. They were ranked no lower than 3d in markets where those statistics were kept.
• However, profitability was in the 2-3% range year after year with no real signs that it was going to improve any time soon. This lagged behind the best performers in their industry.

   When Si asked Mr. Under what the company’s biggest problems were, Mr. Under gave him a short list:

• The company plans for terrific profit performance each year but spending ALWAYS ends up being more than anticipated.
• Warranty costs are always higher than expected.
• The company spends a lot of money on new products and services, but they rarely perform as expected at launch. The learning curve is expensive.
• Under was not convinced the company’s sourcing strategy is as effective or as efficient as it should be.

   Si thanked Mr. Under and suggested that they take a walk.

   Their first stop was across the street in the finance department.  They were greeted by the head of the department.  Si asked to see somebody who worked in billing.  The department head led them to a conference room and went off to find a few people who worked in billing. 

   The department head returned with a billing clerk, the billing supervisor and the head of accounting.  After introductions and a brief description of what the CEO was planning for the company, Si asked how well the billing process worked. 

   They all turned to the billing clerk.  The head of accounting encouraged the clerk to tell the real story.  The clerk started by saying that generally, the billing process worked pretty well.  Most of the company’s bills to customers were accurate and were paid on time.  However, once or twice a day there was a problem that had to be fixed.  This would require some phone calls, sometimes meetings, usually a re-billing. 

   There was some more discussion as each person talked about their experience with the billing process.  There was general agreement that the billing process work well but wasn’t perfect.   

   Next, Mr. Under and Si took a trip across town to one of the company’s plants.  They called the plant manager to say they were on the way to take a walk around.

   They were greeted by the plant manager who brought along two sets of safety equipment.  After brief introductions and a description of what they were going to do the three of them walked out into the plant.

   The plant appeared to be well run.  It was clean, the plant staff moved about with purpose, and the steady hum of production was all around them.  It was obvious that the plant had installed a production system.  Each station had a board for recording data, there were work instructions at each operation, and inventory was kept to a minimum.

  Si stopped the procession at one station that seemed to be on break.  Si asked the operator to tell him about the job.  The operator was obviously proud of what he did and described it is some detail.  Basically, this operator was responsible for breaking down misconfigured product that had been sent to the customer.  After it was broken down, the operator would take the pieces back to inventory control and return them to inventory.  The operator was very proud of how much money this job saved the company.  In fact, for the last three weeks the operator had been working on two trailer loads of misconfigured product.  The operator went on to say that the plant had built the individual products correctly.  Something had gone haywire with the ordering process.  This meant that the plant built the wrong thing right.

  Si asked the operator how often this happened.  The operator replied simply that this was his full-time job and added that sometimes it required two shifts.

   The last visit of the day was to the IT building.  As with the plant, the head of the department greeted them on their arrival.  They made introductions and Si explained what they were doing and asked to see one of the programmers.  The department head explained that all programming was outsourced in keeping with a general strategy of not trying to keep up with technology as it changed and that many of the outsourcing company’s programmers were onsite with the company in this very building.  The department head explained that this kept the programmers closer to their customers.

   After settling into a conference room, they were introduced to a programmer.  Si asked the programmer about the work.  The programmer told Si that the outsourcing company was an industry leader and that all the programmers took great pride in the quality of their work.  The programmer went on to explain that the work was not started until the programmer understood in great detail what the customer wanted.  Following this data gathering, the programmer would put together a product that exactly matched what the customer asked for.  If there were problems, the programmer would address them one at a time based on a priority pick list.  This process would be repeated until the product worked the way the customer wanted.  Si asked how the company was charged for the programmer’s work.  The programmer replied that they were paid by the hour.  The programmer ensured Si that the outsourcing company did everything in their power to minimize the number of hours used on each project.

   Mr. Under and Si returned to the CEO’s office.  They got a couple of waters out of the CEO’s refrigerator and sat in silence for what seemed the longest time.

   Finally, Si asked, “So, what did you see?”

   Mr. Under looking dejected said, “No wonder we don’t make a profit!  We are just throwing money away doing stupid things!” 

   Si saw that Mr. Under was becoming angry and to calm troubled waters said to Mr. Under, “Remember you committed that nobody would be punished as problems were uncovered.  If you get angry you can become irrational, and when people are irrational usually unintended actions are the result.”

   Si went on, “I didn’t see anything I didn’t expect.  I have seen it so many times.  Well intentioned, committed people doing work that is wasting company resources and limiting profitability.  But they can’t see it that way.  What they see is that they are doing their jobs the best they know how.  However, what they are really doing is operating hidden factories that are destructive of company capital and aren’t contributing to delivering the highest quality products and services to customers at the lowest competitive prices.  The solution to poor profit performance is the elimination of the hidden factories.  This is what I intend to teach your company to do.  This is why I needed your commitment to a long-term solution.  It will not be easy, and it will take time.”

   Mr. Under listened to all Si said as he thought about what he had seen.  If these random visits so close to his office had yielded this kind of result, he could only imagine how much was out there in the rest of the company.  He said to Si, “I am committed!  But, can we hurry anyway?”

   Si told Mr. Under that the next step was education.  He wanted to start on Monday.  Mr. Under agreed.

Stay tuned for Part IV – The solution