It is a mistake to look too far ahead. Only one link in the chain of destiny can be handled at a time.
—Winston Churchill
I
t’s a day like any other day at the Soft-Drink Company, where Dana works as a customer service representative (CSR). Dana’s primary re- sponsibility at Soft-Drink is to take orders and represent the company to the purchasing agents of its customers. These people call Dana and tell her what products they want. She checks the inventory, and if her tallies tell her that Soft-Drink has enough of the requested product in stock, she places the order, and the goods are delivered.Sounds easy, right? It should be easy. It’s an everyday occurrence and one of the most basic processes for thousands of businesses globally. Yet, in reality Dana’s job—and that of hundreds of thousands of similar work- ers—is a complete juggling act, and one that inevitably leaves some cus- tomers disappointed and angry.
One customer calls Dana to order 75 cases of lemonade. However, the inventory information tells her that there are only 50 cases in the ware- house. She doesn’t want to lose this sale, so she puts her customer on hold and calls her friend Casper in the shipping department. He’s got 25 cases of lemonade in the queue that are scheduled to be shipped to Wal-Mart, but for his friend Dana he’s happy to redirect those cases to her customer. Now Dana’s customer is happy. But what about Wal-Mart?
Dana’s next customer wants to order 50 cases of orange soda. The in- ventory tallies indicate that there are exactly 50 cases of orange soda in the warehouse. That ought to be good news, but Dana knows that she’ll
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need to verify the inventory count. It’s Friday afternoon, and the count often gets overlooked with everyone trying to leave for the weekend.
Dana calls the warehouse and asks her friend Marty to do a quick count. She discovers that in fact there are only 25 cases. More phone calls reveal that Dana can get another 15 cases from the local distribution cen- ter, and Margaret, the CSR in the next cubicle, is willing to short Mon- day’s standing order to Safeway by 10 cases so that Dana can fill her order. Again, Dana’s customer is happy. But what about Safeway?
Dana’s next caller says he’s having a special tropical theme promo- tion and needs 500 cases of fruit punch next week. Dana f inds that there are only 25 cases of fruit punch in the warehouse. She has been told that, rather than lose the sale, the company would make adjust- ments based on her commitments. So she puts the customer on hold and calls her old friend Joan who works in the bottling plant. Joan’s happy to help. There’s not enough time to go through the regular production planning process with this order for tropical punch, so Joan says she’ll set up a special production run for Dana’s order, and delay the bottling run that had been scheduled. Another of Dana’s customers is satisfied. But what about the customers that were to be served by that next bottling run?
You begin to get a sense of what Dana’s job is like—and what it will be like Monday when Safeway and Wal-Mart and the other customers call to angrily report their short or missing shipments. Whose orders will be raided then?
Although this story of Dana and her can-do attitude might seem exag- gerated, anyone who has worked with a CSR in a manufacturing company will recognize the situation. This kind of juggling of inventory shipments and production runs goes on far more often than anyone admits.
Given this improvisational method of conducting business, it’s easy to see why inventory is difficult to track at the Soft-Drink Company. In- vestments in automated production planning and vendor replenishment inventory software will be a waste of time until the company can fix this problem. Until companies can reach agreement and develop accurate in- formation about basic processes like inventory and product f low, every- thing else is extraneous.
Dana, in her zeal to serve the customer and satisfy her management, is operating outside the processes of her company. This is not because Dana is malicious or purposely trying to harm the company; she simply has no confidence in the information provided by the systems that Soft- Drink has spent millions of dollars implementing and has instead come to
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Step One Fast Facts
What’s in It for My Company?
Inventory is reduced by between 1 and 3 percent.
Transportation costs decrease because there are fewer less -than-
full truckloads.
Companies improve basic business processes and build relation-
ships with key trading partners.
A single view of inventory, orders, forecasts, and plans is obtained
across participating companies.
New talent and leaders emerge from inside the company.
The company is easier for partners to do business with.
What Work Is Involved?
Selecting a team and product line with which to work.
Establishing regular phone calls to discuss inventory and order
commitments.
Posting information such as inventory counts, manufacturing
plans, production schedules, order schedules, distribution plans, and forecasts on a portal for participants to view and update.
Obtaining continual management sponsorship and involvement in
the Step One process.
What Technology Is Required?
A phone system capable of conference calls.
A simple browser or portal, or even a spreadsheet and e-mail
program.
How Long Will It Take?
Self -directed teams that are used to working together can move
through Step One in three weeks. Other teams can take up to six months.
It’s important to take the time to complete this step because there’s
no point going any further until the teams can complete this process correctly.
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rely on her informal network of contacts to fulf ill the needs of her im- mediate customers.
There are employees like Dana in every kind of company, whether manufacturing, retail, or services. Their situations are similar. These em- ployees try to manage a queue of services or inventory, juggling available labor, reallocating supplies at the last minute, overbooking their service, or shorting a standing order to meet the needs of a new customer. The question is whether the company rewards people for avoiding problems in the first place, or for being a hero after the problems occur.
If a company has inaccurate information regarding inventory alloca- tion and fails to adhere to its manufacturing or distribution plan, then the company’s CSRs won’t know what the truth is. Once the CSRs lose confidence in their information, informal work-around processes will be established and, once that happens, chaos rules.
Some potential root causes of this phenomenon could be poorly de- signed or executed processes for inventory management, sales planning and forecasting, prof itability planning, and managing production to plan. It could even be as fundamental as a set of misaligned incentives and objectives.
Step One
The first step in forming an adaptive business network directly addresses the problems faced by employees like Dana, and helps break the patterns that make it difficult to accurately monitor inventory and fulfill orders the way customers expect. Step One improves a company’s relationship with customers—and enhances the lives of the frontline employees whose jobs are to make customers happy by ordering supplies and selling products.
The goal of Step One is for companies to begin working as partners with their suppliers and customers. All companies involved will move from the traditional buyer-seller relationship in which the only informa- tion shared is the amount of orders placed, into a collaborative partner- ship in which a great deal of information is shared for the purpose of aligning inventory levels, distribution plans, and forecasts to the benefit of all. Step One should include a focused set of products, brands, and sales channels. Companies should not attempt to move all of their products through Step One at the same time.
The real purpose of Step One is to reorganize the company around new teams capable of performing multiple functions. These teams will
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focus on a new business discipline. Initially, this is a labor-intensive pro- cess. Moving toward an adaptive business network requires slowing com- pany business processes at f irst, so that employees understand the significance of each process, where the processes fall short, and why they are important to the business as a whole.
Companies that undertake Step One begin to share basic informa- tion about supply and demand and post this information on a common portal, so that participants can begin to plan more effectively. Complet- ing the step requires little investment, and commonly enables participants to reduce their inventory by 1 to 3 percent.
Step One forces participating companies to agree, on a weekly basis, to some basic facts: How much inventory is there? Where is it? How much is available to sell? How much has been ordered? What kind of products and how many of these products will key customers need in the coming week?
These questions aren’t exactly the stuff of revolutions. Almost all com- panies have these processes operating informally. Yet, providing accurate and timely answers to these queries is surprisingly difficult for most com- panies. Until your company can generate this information internally with speed and precision, no amount of software is going to expedite the pro- cess of balancing supply and demand with multiple trading partners.
Step One enables companies—working together as a supply chain— to develop more accurate information about physical inventory, order po- sitions, and production and distribution plans, schedules, and forecasts. By the time participants move on to Step Two, their data should be 80 to 90 percent accurate, and their inventory counts accurate to one day,
Why Not Skip This Step?
Step One may seem elementary. Confirming order position and in- ventory quantity, type, and location by phone between trading part- ners seems like a basic exercise. However, even if you are convinced that the people in your company could perform these functions in their sleep, you must validate that inventory counts are accurate and communication is effective. You may be surprised at the procedural gaps that Step One exposes. In addition, the camaraderie that builds among team members and between companies in Step One is an es- sential building block of the adaptive business network.
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meaning that the inventory throughout the system will be accurate if up- dated and reconciled daily. These seemingly simple steps provide the 1 to 3 percent inventory reduction typical of Step One.
The beauty of this step is that it combines, at the beginning of the process, the demand for higher quality, more timely data, and the mo- mentum for organizational change. Participating companies will need to engage employees strategically to achieve the cultural and behavioral shift required to make the project a success. By completing Step One, com- panies will gain more “visibility” into their procurement and sales activ- ities by moving toward more accurate order, production, and inventory figures. In addition, they will begin to reduce transportation costs and production waste through better planning.
What’s Involved
Step One is the simplest, most basic step in the adaptive business network, yet it sets the stage for all that follows. In this step, a team of employees from different companies tackles the fundamental processes that under- lie the adaptive business network, and in so doing sets in motion organi- zational change that will ripple across the entire supply chain.
Companies set on buying software as the first step toward revolution- izing their internal structures and external relationships will be disap- pointed. Step One begins with people at the most basic and fundamental levels of a company—the people who work in customer service, warehous- ing, purchasing, distribution, and transport. It involves changing the processes by which a company works with its suppliers and customers. The change must begin here because it’s at this basic level that the most fun- damental process and communication problems occur.
The key to Step One is simplicity. In this step, workers in essential jobs learn to perform their tasks on a manual level. Phone calls and human communication take the place of electronic forms and e-mail until each member of the group understands the value of accurate data. In fact, the only technology involved is a portal Web site, on which data of common interest to the company, its suppliers, and customers is posted.
Although working manually may at first seem onerous and a waste of time, it’s not long before everyone involved discovers that accurate in- formation and clear communication make their jobs easier. In subse- quent steps, when the technological infrastructure is added back in, these
TEAM
FLY
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workers carry forward a set of work patterns that promote business pro- cess excellence.
Although the people involved in Step One will be working manually, data will continue to f low as it always has in support of the other func- tional areas of the business, such as finance and accounting. The goal is not to shut down systems of the company, but to work around them man- ually in order to improve basic processes.
Getting Started
Companies should start slowly with Step One, and should not try to take all of their products or partners through the step at once. It’s best to start with one product or brand, within one sales channel, using one set of sup- pliers and customers in that group, while establishing measurements of success. The participants should tackle a small piece of the problem first, and then expand as success is achieved.
To begin Step One, the company will need to contact and work closely with a partner company, usually a supplier or a customer. Both companies must identify the key employees who will lead the charge within their or- ganization. In both cases, it’s important to choose the team carefully.
Selecting a Team
The initial working group is the basic unit of Step One, the kernel from which the network will grow. The roles that comprise this group form the essential unit of commercial activity between two companies—a CSR from one company and a corresponding purchasing agent from another. These employees represent the basic buying and selling relationship.
In addition, the team will need a manager from the company’s ware- house, plus a corresponding distribution agent from the partner com- pany. These two represent the process of moving the actual products between the two companies. The team should also include the senior ex- ecutive who initiated the project, a sponsoring senior manager from each company to provide oversight, and a consultant to focus activities.
The people chosen for this group should not be the usual over- achievers or workers who blindly follow the rules and appear unmotivated to challenge existing processes. In fact, it’s important to find employees with significant experience at their jobs who in the past have made no
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secret of their frustration with the inadequate or wrong-headed processes that currently dominate their workplace. It’s important to select employ- ees who are viewed as leaders by their peers, who are valued and trusted, and without whom daily business activities would be painful.
For example, the CSR on the team may well be a senior account per- son who, like Dana, has learned ways of getting around obstacles to get the job done. She may be a person who freely expresses her frustration to management about how trying and fragmented her job is. Similarly, the warehouse manager may be a seasoned employee who doesn’t hesitate to let management know how frustrating his job is when orders change or are raided at the last minute.
The common characteristics of this group would be a combination of frustration with the existing situation, the ability to get the job done in spite of the limitations, and an expressed desire to remedy the situation— not just complain. These are employees who think creatively to serve the customer. What they have in common is the spirit and a desire—some- times expressed as frustration—to have jobs that make sense so they can work effectively. Such employees also represent a valuable repository of in- stitutional knowledge.
It is important to select employees whose involvement will lend cred- ibility to the effort, and whose advocacy will win over the fence-sitters. Without their participation, a company may find it difficult to get the rest of the group on board.
Selecting the right senior manager also involves a couple of consid- erations. First, the company should choose a manager who is open to ideas, someone who has taken chances and lumps in equal measure, and is not intimidated by challenging employees. Second, the company should start with a manager who is responsible for managing a secondary prod- uct, not its major product or brand.
Choosing a Product Line
At the same time the initial working group is formed, the company also needs to select a product line on which to focus. An organization should never choose its primary product for the initial stages. In isolating a prod- uct or set of related supply functions, the company should focus on a sec- ondary product in good standing—not one that’s responsible for the company’s economic viability—until it figures out the process.
For instance, the Soft-Drink Company would never initially choose the company’s brand-leading cola beverage. Instead, it would choose
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its sparkling water or iced tea products. Once the company establishes a pattern of success with these secondary products, it can later look to apply the principles of the adaptive business network to its primary business.
Enlisting Partners