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issue: December 2004 APPLIANCE Magazine

The Open Door
The Three-Day Washer


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by Gregg Macaluso, vice president, UPS Consulting

While the fast-paced appliance industry is ever-evolving, some long-extinct “old truths” continue to go unchallenged. And some processes—such as the division-of-church-and-state between design and manufacturing and sales—remain road blocks to success.

Gregg Macaluso is vice president at UPS Consulting (Boulder, CO, U.S.) who specializes in supply chain management. He also teaches supply chain strategy at the University of Colorado in Boulder, CO, U.S.

To wit, I suggest three new “truths”—two aimed at manufacturers, and one directly to the appliance customer who is “kicking the tires,” peering into the clear-glass lid, and tapping the touchpad controls: Assets are evil. Inventory is not your friend. And, hey, bet I can sell you your ideal washing machine—if you can wait just three days.

Actually, in the realm of manufacturing, the first two have always been true—and not just because we’ve all worked hard to keep them low for return-on-investment (ROI) purposes. But, rather, because assets fundamentally make us do the wrong things.

Today’s infrastructures are all built around having assets in the pipeline and then trying to best match those assets to customer requirements. In that way, assets are the chits we play in a very expensive game of roulette—one that nobody wins. One might call it the “guess, make, store, and sell at a discount” model. But now we have the opportunity to change the premise. To take advantage of how smart we now are, in ways not yet imagined. To finish the idea behind the three-day washing machine, the five-day car, or the 10-day wafer.

What’s needed is a reversal of the classic form. Re-evaluating how to best integrate engineering, product design, procurement, production, fulfillment, and distribution; it’s time to transform the supply chain from “forecast and push” to one that features modularity and customer pull. In short, create a palette of options to any single appliance in a cost-efficient modular fashion, produced in small lots. Then give that menu list to the sales force and create a supply chain that can respond as quickly as the customer really requires.

The key to changing the premise is the concept of Demand Centricity. That is, what must we do to respond directly to a customer’s configured or specific order, in a timeframe they find reasonable, and at a price that provides value and profit?

There is a frozen-in-mind perception that customers always need everything “Now!” That addresses the third axiom—that customers will wait for what they want, especially when they perceive value in doing so. When someone orders a book from Amazon.com, it is clear that customer is willing to wait at least one day (if not more) for a book. Amazon’s success underlines that eight times out of 10, you don’t need a book “Now!” And how many car buyers are willing to wait for a car that is precisely what they want?

The same is true for washing machines or any other major appliance. Take the customer who goes to The Large Appliance Store and says, “I’m interested in this washer/dryer set.” Maybe she’s preparing to move to a new house, or her 20-year-old washer is lacking some desired bells and whistles. So let’s change the paradigm from, “I can ship that out to you in 24 hours,” to “If I got it exactly the way you want it, to your house, set up and installed in 3 days—or 4 or 6 days, you tell me—and possibly at a lower cost, would that be acceptable?”

Part art, but mostly science, customer-expected lead time (CELT) can be put into a formula: CELT = (customer order time) + (raw material pull order and receipt time) + (value-added manufacturing time) + (appropriately speedy outbound logistics). So, if the actual customer expected lead time to receipt is “X,” and CELT is less-than-or-equal-to “X,” then we have a ready-made case for responding to that demand.
But will the current supply chain model support the Three-Day Washer? No. The major functions that constitute a company’s value chain—design, procurement, production, and fulfillment—have been sourced to the four corners of the world. It is a classic case of “penny wise, pound foolish” in many instances. Sending these key organizational functions all over the world in order to save money individually on those functions costs more in the end.

The better way? The global-focused factory. One that is truly integrated: designed locally, with cooperation of regionally located production, supported by co-developed suppliers in a tiering base, advanced by a nimble logistics provider. Put this “hub of expertise” in the region of the world where a specific product is most sold.

Bottom-line, look at the effect—both on the balance sheet and the P&L—in the five areas where supply chain improvements affect a company’s value. They all get shorter and simpler. They cost less and, from a sales standpoint, you’ve now made a very tailored, very functional product that is configured to a specific order.

The customer benefits dramatically. And the retailer appreciates it because they get out of the business of holding stock. It’s not a trade off. It’s a double benefit. Sales go up, while cost of business goes down.

Yes, once we begin basing supply chains on definite customer requirements, not market perception, then we could actually improve ROI. The difference is between customer “need” and “want.” Even 24 hours could make a huge difference in reducing the amount of inventory and assets required to benefit both the manufacturer and the customer from a price-margin perspective.

 

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