Business Best Practices

–My Kindle: Lost in Chicago & Found in Ashville, North Carolina

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For service businesses, quality is all about customer service. When there is a customer service issue, companies that rise to the challenge create a bond between the firm and its customers. As such, customer service is the new marketing. This I learned from an experience that I had this summer.

Since we are passionate about tennis, in August we took a trip to Cincinnati where we saw an ATP tournament. We booked our round-trip flight from Chicago with United Airlines.

When we got home and unpacked, I realized that my Kindle was missing. I last recalled having it in my possession on the return flight, when I had put it into the seat-back pocket in front of me. I immediately got on the Internet, and attempted to look up United’s customer service phone number.

I found an 800 number, but became increasingly frustrated as I navigated countless phone trees, unable to successfully make contact with a human being. My frustration turned to anger when I learned that to communicate with United’s Customer Service department about a past incident, I either had to email customer relations or post a written letter.

The next day, I played golf and recounted my story. I ranted about the quality of customer service in the U.S. One of my fellow golfers mentioned that he knew someone who worked in a management position at United. He offered to intervene on my behalf. I accepted his kind gesture.

The next day, I got an email from a senior customer service representative at United. She did everything within her power to locate my Kindle. I got the sense that if my e-reader had found its way to Brazil, she would have tracked it down.  I learned that there were dozens of Kindles in the lost-and-found at United’s Chicago O’Hare terminal. In addition, I discovered that many travelers leave iPads and other electronic gadgets on airplanes.

Despite United’s valiant efforts to track down my errant, electronic device, the company was unable to find it. However, three months later—during the Christmas holidays—I got an email from Amazon, indicating someone had found my e-reader. Amazon gave me the individual’s phone number, and informed me that we would have to work out the terms of its return. I contacted the individual. He told me that he bought my Kindle at a flea market in Ashville, NC. He had paid $25 for it. He said that he tried to download a book from Amazon, but was advised that his newly purchased device had been stolen. Thus, he was unable to use it to buy books.

I agreed to pay the cost of shipping, if he would return it to me. He consented to this offer. I asked him how I would know where to send the check. He told me to  “look at the return address.” Within a week, I got a package containing my Kindle. The return address stated:

Santa Claus

Ashville, NC

My customer service contact at United was delighted and amazed at the story of how I got my Kindle back. She said that she would pass it along to those who needed to know. Two weeks later, I got a $100 voucher from United applicable to any flight that I book.

There are several lessons that I learned from this experience:

• E-mail is an impersonal, frustrating medium for expressing customer service issues
• In the final analysis, customer service is about customer satisfaction—on this count, United Air Lines won me over.
• Most—but not all—people are honest
• NEVER place anything of value within the seat-back pockets of airplanes.

What is your experience with the state of customer service in America?

Interview with James L Waite who set-up factories and grew American businesses in China

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Interview by TIM MOJONNIER

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You lived in China for 13 years. When did you live there?  I arrived in January 1997 and returned to the U.S. in November 2010, with occasional trips back to the U.S.  During my time in China, I spent 8 years in the Shanghai area, and the balance in the south, Guangdong area.

What was it like living in China for all those years? What were the biggest challenges in adapting to the local culture?  Initially, my wife and I felt uncomfortable going into the streets, and shopping by ourselves. Because we were foreigners, the prices were higher and the Chinese way is to negotiate for everything. We also had to acclimatize ourselves to being long term expatriates (expats). Most expats typically live in a country for 2-3 year assignments. Since we lived in China for over a decade, we always had to make new friends. In addition, dealing with a translator was a challenge, because the translator would just translate the words, but not the meaning.  Furthermore, the Chinese do not always speak their mind, and they do not speak directly.  After being there several years we were able to understand the meaning of Chinese conversations. We also learned how to communicate basic things and feel comfortable shopping in local open air markets and moving with the flow in the crowded streets. In conclusion, once we got over the initial shock of living in a different culture, we realized that the Chinese are a warm people, who enjoyed being around Americans, in part because it provides them with an opportunity to practice their English. Chinese business people are all educated and very smart. It was a pleasure working with them, and we have developed many friends who visit us when they pass through Chicago.

What did you do before you lived in China?  After graduating from the university, I worked in the Chicago area for 7 years in construction and design engineering. Later, I held manufacturing management positions such as V.P. Manufacturing and General Manager. I was employed in industries that produced air pollution control equipment, pumps, industrial testing equipment, laboratory testing equipment, etc.

What did you do during your stay there? I had three primary engagements. First, I managed a joint venture between an American ball valve manufacturer and a Chinese company. The assignment entailed overseeing the relationship between the two organizations as well as running the business. Second, for Sloan Valve Co., a global manufacturer and distributor of flush valves and faucets for high end commercial buildings, I developed a business plan that described a strategy to enter the Chinese market selling American products in the China market. The plan was funded, and I started up the operation in China, where I worked for 6 years. Third, I worked for Weber-Stephens, establishing a supply chain management company. The focus was on finding suppliers, qualifying suppliers, and monitoring their performance. I traveled to many places in China for all 3 companies, and gained an understanding of what products are made in various locations and the Chinese customs to do business.

Given ever increasing levels of inflation and local labor rates as well as the appreciation of the Renminbi, is China still an attractive country to outsource production to? If so, why?  $1.90 per hour is the highest Provence minimum wage (Guangdong Providence), which includes all of the employer costs to put an employee on board. However, the City of Shenzhen recently announced increases for the minimum wage effective starting Feb. 2012 = $2.17/hour including burden. Skilled Chinese workers can command more. Still, outsourcing work to China provides a manufacturer with significant labor savings, but you need to have the correct strategy for why you are doing business in China. Companies trying to penetrate the local market have the best opportunity. The Chinese like western products; they desire the things and life style we have. Look at Apple’s phones; they had a sale on their latest model and the demand was so great that they cancelled the sale, and shut shops down. Demand for these types of products is unbelievable. But outsourcing labor-intensive work to China—while developing channels to enter the local Chinese market—is not an easy thing to do. However, the return can be great. Finally, if you are only focused on reducing labor costs, then outsourcing work to places like Viet Nam may be a better option. However, this strategy involves chasing a few cents savings and moving to new factories or new vendors every few years.

What are the main challenges associated with running a business in China? That’s a big question. It depends on whether you are just sourcing components from China or making product for the local Chinese market.  If you are only manufacturing and exporting, then quality is especially important. Also, retaining good employees is always a challenge, especially given wage inflation. Pirating good employees is an issue. You need to have cultural sensitivity, understanding what people expect from an employer. Having a first-rate Human Resources policy and activity is important in order to retain good employees. Also, it is very difficult for small manufacturers. The Chinese think that bigger is better. They believe that it is better to work for a big company, which is especially an issue when dealing with the government. The bigger the company, the greater the likelihood that officials will work with you. If you are a small guy, it is difficult to attract their attention.

What are the main opportunities associated with running a business in China? For the years 2007, 2008, and 2009, the American Chamber of Commerce in Shanghai and Booz & Co. conducted a survey of about 1,000 manufacturers to understand why they came to China. The following is a list of the major reasons, ranked from most important to least important:

1. 83%:  Access to the local Chinese market
2. 66%:  Labor cost savings
3. 51%:  Access to the broader Asian market—having a business in China provides you with
   the ability to export to other Asian countries without import duties
4. 44%: Material savings
5. 41%: Strategic move against key global competitors

In November 2011, you returned to China for a month. How have things changed since you were last there? Previously, China put a lot of effort in infrastructure projects, but at the time I left, there was a downturn in this activity. I was surprised to see a great amount of construction still going on. Housing prices are finally coming down, enabling the middle class to buy their own apartments.  Business in general is just booming; people are busy, hustling, you can just feel the energy in the streets. You don’t feel that here [in the U.S.] at all.  Nevertheless, the Chinese business people are concerned. Previously, the economy was growing at a 10 % clip, but it has slowed to 7% projected GDP growth in 2012. However, the government is committed and will make the 7% growth happen. Inflation has increased, and there is concern about an anticipated leadership change in the highest levels of government.

What does your firm do?

Ops-Asia helps businesses to be successful in Asia and/or the U.S. We focus on small to mid-sized companies that don’t have the resources to do this type of activity. The primary market segments served are industrial products, building materials, household appliances & automotive components. We assist firms in 4 areas: business development, operations competitiveness, project management, and supply chain management.♦

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James L. Waite is President of Ops-Asia, which has offices in Shanghai, China and Northbrook, IL

The effects from last week’s earthquake and  tsunami and the ongoing nuclear crisis in Japan are beginning to disrupt global supply chains. Yesterday, it was reported that GM had to halt production of vehicles at several plants, due to parts shortages from Japanese suppliers. Toyota has suspended production of parts in the mother country that were intended to be shipped overseas. Finally, most Japanese automotive assembly plants remain closed (source: HIS Automotive)

The automotive supply chain is as complex as it gets. There are approximately 20,000 parts in a car, and if only one of those parts is unavailable, then the finished product cannot be shipped. At the top of the pyramid are Tier 1 suppliers that furnish major components, such as engines, that go into a vehicle platform. The Tier 2 suppliers furnish the parts that the Tier 1 suppliers require, such as the piston rod assembly that is part of the engine. As shown in the following schematic, there are typically 3-5 levels in the automotive supply chain, which is comprised by 1,000s of suppliers:

THE AUTOMOTIVE SUPPLY CHAIN

Japanese companies produce many of the components that all OEMs require. For example, the transmissions for the new Chevrolet Volt plug-in-hybrid are sourced from the Land of the Rising Sun. In addition, Japan is a major source of electronic components, furnishing many of the over 30 microprocessors that are found in a typical car. The art and science of managing such a complex global network, spread out over dozens of countries, is challenging even under the best of circumstances. But the Tsunami’s external shocks to the global supply chain are testing the mettle of even the strongest producers. For example, supply chain management at Honda is being stress tested, given that at least 113 of its suppliers are located in the affected areas. As of Tuesday, it had been unable to establish contact with more than 40 of them (Source: Automotive News).

Furthermore, many Japanese components are transported by container ships, which take 30 days to reach U.S. and European docks. So, it is likely that many problems will show up a month in the future when automakers run into parts bottlenecks.

But more than meets the eye is at work here. As reported in Industry Week magazine, the dominant operations strategy of US manufacturers has been Just-in-time (JIT) inventory control or lean operations.  Although producers have benefited greatly from these approaches, this latest disaster sheds light on JIT’s inherent risks.

For example, well-functioning JIT systems operate with less inventory, because inventory—in excess of what is needed—is wasteful. Another implication of JIT is reducing the number of suppliers for each component, which results in significant economies of scale. Some firms have reduced the number of suppliers to sole-sources of components. For instance, Somic, a Japanese firm, made all of Toyota’s steering linkages.

But when a critical supplier is unable to produce material, the entire system breaks down.  For example, several years ago a fire broke out in Aisin Seiki, a supplier that produced more than 99% of Toyota’s brake valves. Most of the 506 machines used to produce the valve were inoperable. Toyota maintained only a 4-hour supply of the valve, so,  the world’s #1 car maker’s production lines quickly shut down. This resulted in Toyota losing production of 70,000 cars. But Saturday after the fire, Toyota and Asin officials summoned many of Toyota’s other suppliers, gave them blue prints, and assigned them the task of making the critical valves. Toyota was able to survive.

But the current calamity has affected not just one sole-supplier of a relatively mundane component designed for a single automotive OEM. Rather, the fate of dozens of factories in northern Japan is unknown. And these firms furnish 100s of different components for many OEMS. In effect, the scale of this current disaster is far more massive than what Toyota encountered with its brake valve.

Clearly, automotive OEMs must rethink risk mitigation strategies to deal with large scale disruptions of their supply chains. There are number of avenues open to them, including:

1. Challenging suppliers to develop disaster plans so that they can make provisions to move to alternate sites for production, in the event that  they are unable to produce product at their main plant.
2. Eliminating sole-source suppliers, and developing the capabilities of additional companies. Having one supplier is probably too few, but having five suppliers is too many in terms of achieving economies of scale. One strategy would be to give 80% of the work to the primary supplier, and 20% to a secondary vendor that is located in another country. Part of contingency planning should include provisions for ramping up production of the second supplier, in the event of a calamity.
3. Analyzing where suppliers are located, and limiting the number of critical component suppliers that are geographically situated in a risky area. For example, an analysis of Volvo’s supply chain indicated “10% of their parts came from 33 Japanese suppliers, 7 of which were located in the catastrophe area,” according to the New York Times.
4. Review insurance policies and consider taking-out contingent business interruption insurance that protects against losses relating to the inability of suppliers to deliver. Although some of the OEM’s had this coverage, the WSJ suggested that there were so many limitations and exclusions attached to their policies that claims will probably be insignificant.

In light of Japan’s deepening nuclear crisis, it is time that global manufacturers reassess the design of their networks to mitigate against risks associated with large scale disasters.  Those suppliers that do reassess their supply chains, can only benefit by reducing their exposure to the next calamity that will surely occur.

What other actions could be taken to reduce risks in the operation of a global supply network?

Many companies in the service industry are implementing Total Quality Management (TQM). Last week, I saw the evidence at a busy restaurant where I had lunch.  As I left the men’s room, I noticed a clipboard—attached to the back of the door—that contained a check sheet, which is defined as any type of form used for recording data. It is employed by the Chicago eatery to assure that employees clean the restroom at least once every hour.

Given the pervasiveness of food borne illnesses, maintaining hygienic restroom facilities is of paramount importance. Clean surfaces retard the growth of bacteria thereby reducing the likelihood that food preparers contaminate the cuisine. Also, in terms of customer satisfaction, a sparkling restroom gives customers a positive impression, namely, that management values quality.

One of the 7 tools of TQM

Originally developed for just-in-time manufacturing environments, the check sheet is one of the 7 quality assurance tools standardized on by the Japanese Scientists and Engineers (Juice) in 1977. It enables management to collect data, which is a key requirement of  six sigma quality management, a current incarnation of TQM.

As shown in the picture on the right, the check sheet’s headings are written in Spanish. Presumably, the employees who clean the lavatory are predominately Hispanic. Any documentation pertaining to a procedure should be tailored to the individuals who are performing the work. Thus, having the instructions in Spanish helps to assure that the cleaning processes are both understood and followed. It is amazing how this simple quality assurance tool has migrated from the manufacturing to the service industry.

What tools, procedures and forms do you use in your business to assure that your firm satisfies the needs of its customers?

The U.S. coffin manufacturing industry, like so many other domestic goods producing industries, has undergone hard times.  First of all, people are living a lot longer. Thus, demand for caskets has declined. Second, more people are choosing cremation rather than opting for the traditional—and more expensive—burial. Finally, customers are buying less expensive coffins from China.  All of these factors combined have dampened demand. U.S. casket sales peeked by volume in 2000 at 1.9 million. Since then, they have declined by 11%, to 1.69 million in 2009.  (Wall Street Journal).

Despite these trends, the Batesville Casket Company has been able to survive, even prosper.

Symbol of the Company That Pioneered the Toyota Production System (TPS)

And they have done so, in part, because in 1995 they adopted the Toyota Way—known also by such names as the Toyota Production System (TPS), just-in-time (JIT), lean operations.

The Toyota Way—as originally conceived by Toyota Motor Corporation—is focused on the elimination of all waste from the automobile manufacturing process. Here are the 7 typical wastes, or inefficiencies, which are part of any manufacturing or service process:

1. Overproduction
2. Waiting time
3. Unnecessary transport or conveyance
4. Overprocessing or incorrect processing
5. Excess inventory
6. Unnecessary movement
7. Defects

This lean philosophy has been used to reconfigure the assembly line at the Batesville plant in Manchester, Tennessee. Using touch screen computers and bar codes, the workers on the line assemble 1,000 custom caskets per day, choosing from 22 possible colors along with thousands of personalization options.  The assembly line has been reconfigured into a pull system, where material is ordered only when it is needed by the customer. 98% of the 224 parts that go into assembling a coffin are produced on site.

Reduction of  waste and defects can be accomplished by simplifying processes. The Manchester plant employs visual signals that facilitate ordering the correct materials. In an article in the Atlantic Monthly, Mary Jo Cartwright, the plant’s director of operations, described how a new worker to the interiors line asked about how she was suppose to do her job of resupplying the seamstresses. “Visual displays were everywhere; sheer material for mattresses and canopies hung from color-coded racks that simply needed to be matched with corresponding colors.  ‘This is kindergarten,’  the worker said.”

Improving the efficiency of a process can also be achieved by substituting technology for labor. Previously, a worker lifted the 65 lb lid of each casket over 500 times a day. Batesville improved worker safety—while simultaneously increasing productivity—by replacing several people with two giant robotic arms.

As a result of the adoption of lean operations, the Manchester plant has reduced manufacturing costs by 25% over the past 15 years. At the same time, the labor hours required to build a coffin have been reduced by 40 percent. (Industry Week)

The practice of continuous improvement (kaizen in Japanese) is another element of just-in-time.  It is the belief that “there is no best, only better.” The Manchester, Tennessee factory’s 370 associates—the term that the company uses to describe its factory workers—are empowered to improve their work on a daily basis. In 2008, two busloads of Batesville Casket Company employees traveled to Georgetown, Kentucky to study how the line workers participate in continuous improvement.

Rather than trying to hit the big home run, the workers at the Batesville Casket Co. attempt to hit many singles:  they are empowered to focus on improving their work, day-in and day-out.  In terms of output quality, the continuous improvement philosophy has paid off in spades.  In 1999, 20% of the caskets produced had a defect; today, the numbers of defects coming off the line are less than 1%.

Waste elimination and continuous improvement are two of the pillars of the Toyota Way. But the final, foundation-piece required is Respect for People.  The employees are the ones who have the best ideas for improving their job processes; yet, if, as a result of a suggestion, an employee is “laid off,” what motivation would anyone have for making recommendations for process improvement?  The workers at the Manchester, Tennessee factory are represented the United Steelworkers union. At this site, management agreed that no factory associate would lose their job as a result of a kaizen event, which is a workshop that challenges a cross functional team to design or improve a designated process.  This promise—coupled with the reality that the home office is closing plants that are inefficient—-has resulted in the realization that success requires that everyone must work together.

Toyota Motor Corporation stumbled in 2010, losing its way by recalling over 10 million vehicles. Despite this reality, the business philosophy that Toyota developed—today known as lean operations—is still valid. The top management team in Toyota City, Japan have simply taken their eye off the ball.

In addition to becoming the dominant operations strategy of US manufacturers, lean operations is rapidly being adopted by the service industry as well.  Batesville Casket Co., the worlds’ #1 casket manufacturing company, is a good example of the success of this strategy. Last year’s sales and profits were $749 million, and $111 million, respectively.  For a dying industry, lean is the precise remedy that any good doctor would order.