Tuesday, February 23, 2010

“Been There Done That”: How a Trite Phrase Can Screw Up Your Supply Chain and Your Thinking

It is critical to look at the past with an eye toward understanding why things were done and the applicability of new and old ideas for the future. “Been there done that” turns off your mind to understanding the nuances of history and says “shut up” to those who want to learn. The market out there is complex. We can leverage understanding why Toyota, Ford, Deere, and GM did certain things over the past 30 years to help us see the complexity of today’s parts market...and to dream of ways to change.

“Been there done that!”
is a phrase that should be abolished from spoken language. I cringe when I hear it. Literally translated it means that once you’ve experienced something, you’ve learned all you need to know and there is no reason to look back. In fact, you don’t even have to listen anymore. Been there done that is the equivalent of saying, “shut up, don’t want to talk about that.”

But, if we are to change and improve, it is important for us to look back. We can look back for answers about why certain things were done, why they did not work then (but might now), and to help us un-learn some “stuff we know, but just ain’t so.”

Let’s go back 30 years. I started working with several Toyota independent distributors in the early 80’s. The old guards at Toyota Motor Sales parts division were ex-Marines, some of whom proudly hung their swords on the walls behind their desks. They changed the industry. Over beers at night I kept hammering them about why they steadfastly held onto an unprecedented 95% facing fill metric. The best I could reason from a virtual goulash of responses was that, hey, how could the military competently go to war without having most of the materials available for the soldiers? Why were they so efficient? They were proud entrepreneurs working for the emerging darling of the industry - Toyota. This preceded the brilliance of the Toyota Production System. Where else could a good Marine go and beat the pants off Detroit’s arrogant, elite, and best & brightest? There wasn’t a lot of money to be spent on warehouse workers, so they had to work smartly. On the West Coast a new order arose that was closing the gap with Motown. They crunched labor costs, order cycle times, stock order frequency, T&C entitlements, and delivered 95% facing fill to dealers. It is important to understand that all this was more about leveraging military readiness benchmarks than about emerging customer requirements. Customer requirements had not yet emerged.

In reality Toyota was way out in front of their dealer customers with a level of parts fulfillment service that the market had not really asked for. After awhile dealers simply took this for granted as an entitlement … “a customer requirement.” Toyota arose out of the mist and was recognized as the industry benchmark. Other OEMs looked and responded. Distribution networks were re-jiggered based on these new customer requirements and TPS inside the parts warehouse (that grew out of the entrepreneurial need to be cheap, efficient, and lean). We did not think much about this; we did not look back. Hey, been there done that.

Besides Toyota, if we were students of supply chain history, we’d study three brilliant companies: John Deere, General Motors, and Ford. Why is each particularly brilliant?

In the very early 1980’s Deere rolled out their parts distribution system that responded to how dealers/distributors stocked and ordered parts … based on 20th century customer requirements, logistics, and terms and conditions. Dealers placed large stock orders to replenish their inventories. However, the breadth of Deere’s parts population meant that dealers could not possibly stock all the parts they needed. Dealers needed to have very quick access to these “emergency parts.” Deere listened and designed a parts network that hyper-efficiently shipped stock orders from a single location, and provided emergency parts from regional locations that were close to their dealers. They achieved industry-leading system fill and with a very high level of efficiency due to rigid adherence to work standards. It is now the 21st century and Deere is retooling its supply chain to be responsive to 21st century customer requirements, T&Cs, and logistics.

GM’s history parallels Deere’s. Up through the late 1980’s (and early 1990’s) they, too, shipped fast moving parts (filters, brakes, etc.) through highly centralized specialty facilities. Dealer stock order discounts were for much larger order batches than we see today; a size that could be most efficiently sourced from centralized specialty warehouses. If you look at GM’s 1980’s distribution network complexity and broad array of T&C derivations, you see a company that believed in market segmentation. The traps that GM fell into were threefold: (1) run-away UAW labor costs that colored everything purple, (2) too much complexity that required geniuses to understand and orchestrate, and (3) Toyota’s market expectation shift that was harshly corrosive to all that complexity.

Ford’s Daily Parts Advantage (DPA) brought service parts logistics into the 21st century. The genius of this was in segmentation & integration – Ford devised four different kinds of parts segments: (1) bulky parts that had unique customer requirements and materials handling needs, (2) fast moving parts that needed to fulfill 24-hour order response times (ORTs), (3) small slower moving parts that could benefit from small parcel shipping, and (4) slow moving parts that benefited from centralization. Ford then massively re-wired its distribution network to optimize the supply chains for each of these segments. Finally, Ford integrated massive changes into its terms and conditions to modify dealer behavior and influence them to travel down a different path towards increased customer satisfaction.

Been there, done that. The Sirens of supply chain history are singing to us. To avoid crashing into the rocks we need to understand not what was done in the past, but why it was done. In each case of brilliance the thinking was that supply chains should be designed on current, now, customer requirements. Toyota was a thunderclap that started an avalanche of change. They muddied the water and delivered a level of service that transcended then-current customer requirements. Toyota did not do this by using a Michael Porter competitive model to change the rules and move the market. It was those wonderful Marines and associated “mercenaries” they hired who didn’t know any better way of doing things other than near-perfection. After birthing Toyota’s parts personality, they grazed in Southern California and moved on to Isuzu, Mitsubishi, Hyundai, and Kia.

Maybe it is time to re-think our 21st century customer requirements and assess how well the status quo fits the bill. The above chart is an attempt at doing this. I’ve come up with at least eight unique market segments that represent a blend of competitive, size, age, and just plain old common sense characteristics. The shadings in the column of “supply chain implications” range from green to red. I used green for segments that benefit from specialized internal OEM control. Red was used for segments that could be outsourced or significantly re-wired in terms of roles, strategy, and who does what. Yellow shading is used to identify opportunities for more collaborative supply chain operations – dealer/distributor collaboration or manufacturer collaboration.

Maybe the Deere, Ford, GM, and Toyota supply chain approaches each embedded some deep wisdom and designs. Maybe if you’ve been there and done that, when things change, you need to go there and do it again; if you have not already closed your mind to this possibility. Maybe there are aspects of each that could help form our current and future supply chains. Maybe Ford was right when they started to break down our business into more homogeneous, somewhat independent, segments … and integrated T&Cs. Maybe customer requirements evolve and can be redefined by a single market maker. Maybe it might make sense to take a re-look at our supply chains from the eyes of sales and marketing, not just logistics. Maybe we need to be less asset intensive so we can be more flexible. We will push this further in the next few weeks.

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Many of you might have heard that Mopar’s Jim Belleau passed away on Sunday. I started working with Jim around 1990. He was a man of incredible presence – stories were told that he was an ex-boxer. Jim looked like an intimidating lean, nice, fighting machine. Jim was one of the most admirable executives I have ever worked with. Some lessons from Jim were in the things he was not. Jim did not have a tiny bit of arrogance. None. Other lessons were in the things he had in abundance: trust, grace, humor, kindness, and compassion. Jim was a very good man. We will all miss him.

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