I once heard a Parker Hannifin controller describe engineers as people who are good with numbers but lacking the personality and social skills it takes to be accountants. While that is a pretty funny wisecrack and I have gotten a fair bit of mileage from plagiarizing it, I think the truth is that accountants are folks who are good with numbers but lacking in the ability to think in terms of complex systems. They are at their best when they can put things into neat little buckets, then look at each bucket – one at a time – figuring out all the minute details of the activities within the buckets.
How else can we explain two groups looking at exactly the same situation and drawing diametrically opposing conclusions.
On the one hand we have Mike Devine, CFO at Coach; Dennis Secor, CFO at Guess;Jim Kenney, JC Penney's Senior VP of Corporate Strategy; and Michael Nicholson, AnnTaylor CFO all looking out over the gloom and doom of the rapidly rising costs of stuff coming out of China and mulling the relative costs of doing business in places like Vietnam and India instead. They are peering deep into that cost bucket and agonizing over the 22% of cost they believe labor represents and the 60% materials and logistics make up. Lots and lots of alternatives in that bucket and they are all neck deep in trying to figure out the best cost.
Then we have Niki Tait from the UK – looking at the same overall situation – but seeing the situation holistically, rather than in neat little buckets. She is worrying about profits, contemplating the entire forest, while her financial counterparts previously mentioned have their nose pressed so tightly against the bark they can't even see the whole tree.
According to Ms Tate, "the removal of a week or two in manufacture and the same in shipping are drops in the ocean when it comes to the real meaning of 'Lean Manufacturing". And that real meaning of Lean Manufacturing? Shortening the overall business cycle time. She writes …
'Lean manufacturing' means taking all the waste, or 'fat' out of the entire supply chain. It is claimed, for example, that Zara – which launches around 10,000 new designs each year – needs just two weeks to develop a new product and get it to store, compared with a several-month industry average.
The retailer is therefore highly competitive. If a design doesn't sell well within a week, it is apparently withdrawn from shops, further orders are cancelled, and a new design is pursued. No design stays on the shop floor for more than four weeks, which encourages Zara shoppers to make repeat visits.
An average high-street store in Spain expects customers to visit three times a year. That goes up to 17 times for Zara. Customers know that if they want a particular garment, they have to buy it when they see it, not wait for price reductions and sales.
For other companies to remain, or become competitive, they too must reduce their time to market by concentrating on the activities which add value to a product, and eliminate those the customer is unwilling to pay for or not add value.
The cost savings from Vietnam the boys from JC Penney and Guess are rooting out are gobbled up by the "price reductions and sales" they have to offer in order to move all of the excess inventory that inevitably results from their focus on cost, rather than cycle times. And by gaining their economies of scale cost structures, they are dooming the stores to three inventory turns a year – which means the customers don't have to come back too often in order to see everything new that comes along. A lean focused supply chain, however, is turning the store over 17 times a year, according to Niki. That means more customer visits – and more sales – and more customer satisfaction as customers greatly increase the chances of finding something they like … all of that in a addition to avoiding the 20-30-40-50% off sales you can count on at the big boys who buy in staggering quantities in order to get cheap prices.
You will never see that no matter how hard you stare into the cost bucket, however. The financial guys mentioned previously have those things in different buckets. Only after they have concluded their analysis of the cost bucket and blessed the plant in India or Vietnam do they go over and look into the selling bucket. In that bucket they contemplate prices and discounts and how many millions they have to waste on advertising to increase the annual store visits from 3.0 to 3.5. … compared to the 17 visits the lean retailers get.
Working capital and inventory turns are in an entirely different bucket from costs or sales. They analysis of that bucket will likely result in advising the CEO to set 'stretch goals to improve inventory turns by 20% – from 3 to 3.6.
Now how is it that Niki can look at the apparel business so broadly, while the boys in the green eye shades and blue suits have to chunk it into little pieces? Maybe because she is female and they aren't, or maybe because she has a degree in fashion that predates her immersion into factories and industrial engineering. I think it is the engineering that is the key to her success, and the way engineers have to understand the inner working of complex systems. At least I hope it is her engineering orientation that makes her so smart. If it is a function of either of the other two – gender or her sense of fashion – I am in a world of trouble.
I found the comment humorous, but the most powerful thing we can do is not put anyone into buckets. One those goggles are on, we have defeated our own thinking. The “problem” now becomes the problem. We have defeated ourselves.
A different way to see it that a person’s unique ability to parse information off into buckets is a strength. It’s their desire to judge or “force” another to see it their way that is the issue.
It is incredible to watch an ecosystem in nature work. It performs masterfully – all kinds of communication, production, logistics, etc. works at efficiencies we can only dream of. The “problem” in business is that we seek certainties, authority and control in a construct that is theoretical. These constructs are fine, but we think they are more than theoretical. If we would focus on the systems and underlying relationships, rather than control and authority, voila, all would be well. In other words, we don’t get profits from focusing on controlling profits, or trust from an authoritarian management system, but from a beautiful ecosystem of human in the organization under it. But then again, he that is good with a hammer, thinks everything is a nail…let’s just make sure that the guy with the hammer is busy on those nails, not running it any more.
Bill Waddell says
You sound eerily like Dr Tom Johnson whose “current research focuses on the intersection of systems thinking, modern physics, and sustainable operations management.
Jim Fernandez says
I’m not convinced it’s a Fashion degree, engineering degree or gender issue. I think it’s a simple Lean manufacturing approach issue. Design the process to meet the customer demand.
If your selling clothes to 20 and 30 year olds or if your selling tractors to farmers it’s the same formula. The first order of business is to go find out what they want and when they want it. And even when you become a big, famous and wealthy company you have to keep going back to the first order of business. And that is always hard for the big companies to do.
Another factor in Zara’s success may lie in the fact that they control some 50% of the production of their high turn fashion items, manufactured in Spain where over 500 of there stores are located. An additional 25% of the production is done in Europe and “longer” shelf life items, like T-shirts, are done in Asia. They have definitely taken an “engineer” centric approach to how they design, produce and source their product – all with an eye on shelf life, turns and meeting customer needs. Smart.
Search Wikipedia for ZARA for more info.
I don’t think the Zara fashion approach is infinitely scalable. First off, it only applies to people who are constantly buying new clothes (like my wife used to– when she was single and had the time).
This approach also assumes people are always willing to pay list prices for the latest fashions. I’m doubtful how big that market is; for example, my wife & her friends were definitely on-sale buyers; if there weren’t any clothes on sale at reasonable prices, I think they would’ve bought nothing, rather than pay too much (that’s definitely true now).
Finally, it can lead to annoyed customers; all the good stuff disappears (I’ve become frustrated by many stores, not just clothes, where I can’t find the same good products I bought several years ago). The “buy it now or you’ll never see it again” approach doesn’t work for me (it’s also one of my big complaints about Costco).
If Zara’s approach is like Bryan describes it sounds like an intelligent approach with a mix of expensive high fashion made in Europe and lower cost “staples” made in Asia, but I think it would not scale to all retailers.
Based on Coach, Guess, and Ann Taylor prices, I’d say that that materials, logistics, and direct labor are a minor contributor to the list price; advertising is probably a much bigger expense.
Bill Waddell says
I don’t see anything in the Tara equation that would dictate that a retailer has to switch the product line frequently. The power of it is that the retailer can turn off the spigot for items that don’t sell very well and avoid having a lot of dead inventory that has to be sold at discount prices; and he can turn up the spigot for items that are selling well with a much quicker response. The author was particularly focused on the benefits of time to market for new fashions, but the same benefits accrue to existing products.
Concerning pricing, I tend to agree that the cost of the product in most conventioanl retailers has a huge advertising element that is largely unnecessary. I don’t see that the costs or the prices at Tara’s have to be greater than those selling long lead time imports.
book publishers says
If we would focus on the systems and underlying relationships, rather than control and authority, voila, all would be well. In other words, we don’t get profits from focusing on controlling profits, or trust from an authoritarian management system, but from a beautiful ecosystem of human in the organization under it.