We come across obvious examples of losses as a result of irregularity in both life and business.
E.g. retail, especially in a 24/7 format. Enormous waiting lines at rush hour and almost no customers in idle periods. In the former case, the business loses customers, who prefer to buy somewhere else without losing nerves and time waiting in lines (even if they’d pay more — that’s why mini-shops and kiosks are so viable), in the latter — it loses by maintaining personnel that have nothing to do.
The solution seems to be obvious — even things out, try to move the inflow of customers from rush hour to idle periods by segmenting the clientele and then offering special conditions to each stratum.
Occasionally, something is done in that area (happy hours, etc.), but the level of creativity of our Russian grocery retailers in the environment, where competition is almost nonexistent, has already been discussed.
Sometimes, the bull-in-a-china-shop approach seems to create lines 24/7 out of nothing. At the same time only half of checkout points is in operation at any given moment. Well, then one thousand dollars worth of cashiers" wages are "saved".
In fact, every organization faces losses as a result of irregularities. However, not everybody can see these losses (or consider those irregularities to be losses).
Say taking a cash loan approval in a bank. If for some queer reason there’s an unexpected influx of customers, and people are waiting for their approval for a week, instead of the stated 24 hours, then from the bank’s point of view it would seem that no losses occur — customers are the ones losing their time.
However, since the retail credit market is still competitive, a customer would most likely prefer to borrow from a bank next door — maybe the interest rate will be a percentage point higher, but the long-awaited prize would be available right away.
Meanwhile, the personnel of the first bank is running ragged (although, the labor efficiency is ridiculous — 90% of operations are Muda, i.e. work with zero value, but it’s a topic for a separate case), people are waiting and cursing both in lines and on Internet forums and in social networks.
The bank’s image is deteriorating, the management takes notice and makes a landmark decision to expand the business — i.e. to hire additional staff and open additional offices.
Naturally, when all freshmen are hired and trained and offices are opened, the market and economic situation will have changed several times, and the accumulated negative impression will have a cumulative effect. At the same time competitor banks won’t be so eager to share their clientele.
In the end, the personnel of Bank One (the one that didn’t consider waste of customers" time to be the waste of their own) will play Wordgame and Minesweeper, the rent for new empty offices will be paid in vain, and the profitability of the business will be dropping.
In pursuit to bring in more customers, the bank management will explicitly or inexplicitly lower interest rates (or advertise more, or promise giveaways — simply said, spend more), which, in competitive market conditions , against the background of a possible growth of turnover, will once again lead to diminishing profits.
For never was a story of more woe
?than this of Mura and my profits, oh?.
How should it have been done?
Constant monitoring the level of the service and clients" satisfaction, non-stop optimization of business processes in the PDCA cycle, increasing labour productivity and alike managing routine would have been the right things to do. These things are described in all basic business books. Once it had been done the clients would be pleased, the sales would boom and the profit would multiply.
?We’re absolutely sure, that our readers can give multiple examples from their own company’s experience.
So, what’s the drift off all this?
The drift is that Mura may arise in any business process, which might have nothing to do with outside customer service.
E.g. in Ulmart, due to a rapid turnover increase, a similar situation had come about in getting supplies.
Sales were growing, purchasing was growing likewise; however, neither the technology, nor the rhythm of getting supplies changed.
It’s clear that if the weekly turnover of an item increased, let’s say, three times, then its weekly purchasing amount had to be exactly three times higher. However, the warehouse space and quantity of employees — in other words, the warehouse capacity — remained about the same.
As a result, they were in that very state of "feast today and fast tomorrow". One week the warehouse was buried under a wave of shipments, suppliers" trucks waited for half a day or more to be unloaded, products stayed at in-checker’s for several days before becoming available for sale (and that’s direct losses — the suppliers" credit term starts with the delivery date), warehouse personnel worked 14 hours a day — their overtime being paid accordingly. There were gaps in stock – in-checkers were up to their ears in work, but from the buyers" point of view the products were in stock, they only needed to be placed in property and put on sale.
?However, they couldn’t be sold. Gaps in stock meant a huge shortage of sales (absence of a 100-dollar processor — a 1000-dollar computer couldn’t be sold). An unsteady rhythm of deliveries led to payments peaking on certain dates. Against the background of similar average daily sales, this resulted in cash gaps that were covered by raising costly external resources.
Overall, this meant chaos and lost profits.
Or even direct losses.
The solution was obvious — to even out supplies.
But how? Timeconsuming convincing of buyers to buy less and more frequently, to coordinate the deliveries schedule with the warehouse, to arrange with suppliers that trucks be sent by the hour, turned out to be completely useless. Their consciousness lasted for about a couple of days, and then it all started all over again. And really, what did they care?
Their business was buying the right quantity at the right price. The more you bought at once, the simpler it was — fewer delivery notes to be entered and less paperwork to be done. And it was easier to get a discount with a large quantity bought at once. In short, "dats none of our business". Unloading and accepting — that’s the warehouse work, let them deal with that.
So, it didn’t work.
Then they had to apply a high efficiency "understand-maker".
A warehouse capacity schedule was implemented in the dia$par. A maximum volume of products, that the warehouse guaranteed would be processed in the standard operating mode, was specified for every day. The volume was set in three dimensions: the volume proper in cubic meters, the total cost of goods, and the integral labor intensity ratio (every stock item was given a corresponding labor intensity coefficient).
A buyer was no longer able to create a receipts note for a scheduled delivery (receipts notes are entered into the dia$par.Matrix when the order is being approved and not when the goods are delivered to the warehouse — that’s important), if it resulted in exceeding the daily limit of the warehouse capacity in at least one of the dimensions.
The warehouse, in turn, turned away trucks of those suppliers, whose products didn’t have receipts notes on that day.
It took no more than a week to overcome whining and wailing, usual in such cases, and to adjust coefficients and planned values.
And as usual — additional bonuses.
E.g. when creating the warehouse capacity schedule, we had to relate the company’s sales plans and tasks for hiring and training of personnel with plans to increase the warehouse space demand. The so called pro active actions.
Compare with re active actions of the bank from the example in the beginning.
Well, remember any Mura from your own practice?