The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
When I graduated from University, I joined the Management Development program with a major North American retailer. Most of my colleagues had run off to join the Public Service somewhere, and are likely luxuriating in the South Pacific six months a year as a result! But I digress...
The management development program really was an excellent one, where future managers learned the business "from the ground up". We had the opportunity to run our own business, managing everything from gross profit to payroll, inventory to customer service, promotions to write-offs. It helped me, in retrospect, to understand how parts of the retail business fit together, or at least should fit together, and how the whole can become greater than the sum of the parts.
My first big assignment was to manage the Electronics Department: TV's, stereo systems, portable radios, records and tapes (before CD's and DVD's!). My first day on the job was spent with my predecessor: a nice guy named Jim. Jim had a single focus: gross profit. GP was King, Queen, Duke, and Duchess of the business. I walked into my new office, and it was a mass of hundreds of returned clock radios and portable radios. I could not find the desk. I asked Jim what was up.
It seemed that our company had a rebate program for defective goods: when a customer returned a clock radio or similar small electronic device, we could return it to our warehouse for refurbishment. This return program came at a cost, however. We could only recoup 50% of the cost that we had originally paid. This, of course would cause quite a problem for our gross profit, especially if the volumes were high. The volumes were high, and Jim being focused on GP, avoided returning anything like the plague. Writing goods off was an even worse option. The result was an appalling accumulation of useless inventory.
It took me six months to dig our way out of the mess. Did my gross profit suffer? Absolutelty. I had to hire someone for a minimum of 12 hours per week for that six months to process the returns. In the end, our inventory was clean, and our GP began to grow nicely.
What does all this have to do with Deming's Point #2?
Dr. Deming advocated that we embrace Quality as the new religion in business, and in particular manufacturing. We cannot, he argued, afford to live with poor workmanship, delays, bad materials, uninformed workers, and executive job-hopping. (see Mary Walton's "The Deming Management Method", Chapter 6). Deming tells the story of the myopic beer producer who happily returned defective cans, without realizing that the can manufacturer was simply building the cost of the return program into the cost of goods! Does this sound familiar?
Dr. Deming points out again that American-manufactured goods dominated the marketplace in the post WW2 era. Americans could not lose. They could continually produce products of questionable quality with no complaint from consumers. They could, that is, until competition arrived from the East.
"Competition introduced a squeeze," Dr Deming said. "Management [American] offered all kinds of excuses. There was every kind of thing in this world except the awful truth that the Americans were beaten. Where they have been beaten is in the management."
Is the recent experience with the American (and Canadian) auto industry not further proof of Deming's position? Perhaps, with this solid and dramatic kick in the pants, the Big Three might finally see the light.
My experience managing the Electronics Department taught me that poor Quality carries big cost, that cannot be ignored over time. Management might try to cover up this fact, but there will be a Day of Reckoning.
Dr. Deming said, "We will have to undergo total dmolition of the American style of management..." I am confident that since he spoke those words, many Western companies have embraced Total Quality Management, Lean, JIT, or other programs focused on continuous improvement. Sadly, remnants of the old style still remain to a problematic degree.
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.