Chapter 2 The challenge of change Flashcards
What is needed for successful change?
- Culture.
- Direction.
- Evolution.
- Fun.
- Guidance.
Why is change difficult?
- People lack the awareness of their potential.
- People lack the motivation to change.
How can change management facilitate change-oriented culture?
People will only become aware of their potential and develop motivation to change when they experience their own need for it and the personal benefit that they will get from achieving it. Managers must communicate the message of necessary change strongly and consistently. People will often show resistance and have many reasons why the change cannot happen and see threats rather than opportunities. People need time to adjust and accept the idea and usually after a while they get accustomed to new ideas when it starts growing on them. Managers should continue to communicate the message and explain its benefits. Preferably, managers should start with the people who are more susceptible to it. Commence with a small team and a limited scope to get people involved. After the manager has proven that it works and people see what’s in it for them, it is time to get more people involved.
How can the warehouse strategy provide direction for the company?
The strategy of the DC should support the company strategy. The manager of the DC should assess the company strategy and determine how the DC can best contribute to the success of the company. A Balanced Scorecard is a good approach for translating strategy into operational terms. The idea of a Balanced Scorecard is that performance should not be measured in financial terms only but along multiple perspectives. The model distinguishes Four Perspectives:
o Financial Perspective
o Customer Perspective
o Operational Perspective
o Learning and Growth Perspective
What is the financial perspective objective?
From a financial perspective the overall objective is to realize the lowest warehousing costs relative to throughput value. Throughput value is the value of the goods that pass through the distribution center. The objective can be formulated as follows:
The DC can influence this objective by attempting to lower warehousing costs. The DC can also try to raise its throughput capacity, enabling the company to increase throughput value and thereby lowering overall cost.
Two ways to cut warehousing costs:
- Increase the productivity of the warehousing operation.
- Improve the cost structure of the warehousing operation.
Two ways the DC can Raise Throughput Value:
- Increase the throughput capacity of the distribution center.
- Increase the value of the goods by providing value-added services.
What is the customer perspective and how does it help the warehouse strategy?
The customer perspective defines the customer value proposition for targeted customer segments. The customer value proposition is the essence of the chosen strategy explaining how the company wants to be successful with targeted customers and drive financial performance. The warehouse strategy should be aligned with the customer value proposition.
Explain the nine elements of the customer value proposition.
- Price – the sale price is made up of the base price plus the price for support services provided to the customer. The activities of the DC are part of the support services. The DC should charge fees reflecting the actual costs in an objective manner.
- Quality – The DC should try giving customers a zero-defect experience with the ideal customer experience being a product that meets customer specifications. Includes correct delivery - the right product, in the right amount and condition with proper documentation.
- Assortment – some companies specialize in narrow assortment of fast movers, while others sell a broad range with many product variants. Some have frequent new product introduction, others have a steady assortment. Companies should develop strategies for phasing in new products and phasing out redundant products. Also, the product lifecycle should be tracked. Products in the decline stage should be phased out.
- Availability – this relates to the customer order decoupling point. A company does not necessarily supply its entire product range from stock. It can decide some products should be bought from vendors after customer orders arrive. Also, one can choose to hold semi-finished goods or raw materials in stock and then assemble them into finished goods when customer orders arrive. The DC should have enough storage space to hold the stock items. Furthermore, the distribution of non-stock items through the distribution center should be organized via a process such as cross-docking.
- Responsiveness – refers to the speedy and timely delivery. Responsiveness has several aspects including response time, frequency, time frame, fill rate,
- Product functionality – Customers buy products to satisfy their needs. The distribution center may enhance the function of a product through value added logistic (VAL) services. These services customize the product to the needs of (individual) customers (e.g., configuring computer hardware or assembling kits of different products such as red, yellow, green pepper in one package).
- Customer relationship – Small customers may be served through standard procedures but for large customers it may be beneficial to build a relationship. Large customers are important to most companies because they are responsible for a big portion of the volume going through the DC. The DC might be able to serve them better by providing forecasts or announcing large orders in advance. The company can reserve separate inventories for these customers.
- Service – It is highly efficient when a DC can provide standard services. Processes and IT systems can be designed to facilitate the standard procedures. If customers want different response times, documents, irregular product quantities or less strict return policies, it creates extra effort for the warehouse operators. It can also be that the WMS does not support the procedures. Therefore, the DC should identify to what extent they will accommodate special services. Since special requests disturb the regular processes, the DC should aim to have excellent standard services for all customers. They should also carefully consider if they want to grant specific customer privileges. A company with customer intimacy strategy will usually provide more special services than one with an operational excellence strategy.
- Image – The DC is an internal (private warehouse) or external service provider (third party warehouse). The DC provides its services to other departments like sales, production or purchasing. The decisions made in these departments have a strong impact on the work in the DC. Examples are unexpected fluctuations in order volumes or large amounts of dead stock. It is therefore important that everyone understand the role of the warehouse operation within the company. This applies to people in the DC and other departments. The distribution can be made more visible by creating an image.
Explain the aspects of responsiveness.
- Response time – how soon after placing an order will the customer receive the goods, within 24 hours or 48 hours?
- Frequency – how often can a customer receive goods, each weekday or only on a Tuesday and Friday.
- Time frame – what is the length of the time for delivery, in a specific week or on a set date between 8 am and 10 am.
- Fill rate – what percentage of orders are delivered on time, 95 percent, or 98 percent of order lines.
How does the customer perspective align with the company strategy?
The company strategy has three value disciplines, operational excellence, product leadership, customer intimacy.
1. For an Operations Excellence strategy – it is important to provide low-cost service with a standard quality. The other elements must be adequate but not necessarily outstanding. For example, the assortment could be restricted to fast movers, the response time could be standardized, and special services may be limited.
2. For a Customer Intimacy strategy – the emphasis is on providing excellent services to customers. For example, the DC supplies a broad assortment, with customer-specific response times, a high availability, and various value-added services.
3. The Product Leadership strategy – requires high quality services, a unique assortment, and a high availability. In particular, the DC should be able to ramp up its capacity to ensure availability of new product introductions.
What does the learning and growth perspective entail?
Learning and Growth Perspective – We can identify the competencies, technologies and organizational climate that are essential for managing operations.
1. Competencies – Employee competencies are key to improving operations. Skill sets and skill levels needed by operator should be identified. (Do we need operators who can do heavy physical labor or ones that are accurate and can handle delicate materials). Also consider how broad the skill sets of operators have to be. Should the order-picker be able to handle the receipt of incoming goods? Which training courses should be available for them? What leadership and project skills would be useful?
2. Technology – This plays a critical role in the DC. WMS, RF terminals, pick-to-light installations and automated material handling systems contribute to lower cost, more consistent quality, and more rapid processing times. It also plays a role in continuous improvement. Quick feedback is needed by operators on their performance including detailed unbiased measurements on the output they produce. Technology also allows for efficient and comprehensive interaction with other members of the supply chain.
3. Culture – People within the DC must have an intense focus on continuous process improvement and consistent service delivery to customers. The DC should grow a culture where people are open to change. The culture should encourage people to generate new ideas for process improvement. Innovations and best practices should be well documents and disseminated to all operators.
How does the action plan lead to organizational change?
An action plan is made that defines timelines with milestones and concrete targets. A goal only becomes challenging and motivating when it has a timeframe and a deadline.
The action plan should have a three-year horizon. This is a time period for which one can realistically plan, any longer and it becomes too uncertain. It is necessary to know what we want in three years since it may be necessary to already start certain changes now if we want them implemented in three years’ time. Typical examples are large-scale change programs or IT implementations.
A Three-Year Plan Is Recommended For Improving The DC.
- First, the current state is evaluated using the warehouse maturity scan to estimate the maturity of the DC.
- Next, improvement actions are listed which we aim to roll out for each of the next three years.
- Finally, we fill out the warehouse maturity scan for each of the next three years under the assumption that the projected actions were completed.
