I couldn’t resist making a few comments about the new show on NBC, “Outsourced” which aired last week. For those of you who haven’t heard of it or seen it, the show is about a call center in the U.S. being outsourced to India. If you think about it, do you know of any Americans who are neutral about jobs being outsourced? Do you know of anyone who is not emotional about the subject?  Outsourcing of American jobs is a sore point. And many of us have had first-hand experience calling customer service and realizing that the rep at the other end was on the other side of the globe. The thought enrages many people, who have been known to get so angry about an outsourced call center that someone wrote an article, “I made an Indian girl cry, and you can do it too.” It provides instructions on how to be so rude to call center employees that they quit. The idea is that if enough of them quit, the jobs will come back to the U.S.

So when I saw that there’s an actual show on NBC about an outsourced call center, I wondered whether it will be a hit or cause anger, outrage, and be quickly canceled.  (The show’s staying power remains to be seen).  The premise is that a manager comes back from management training to find his office empty and workers gone. He is told that the call center had been outsourced to India and that if he wants to keep his own job, he’ll have to move to India to train the new call center manager over there. If outsourcing had a bad name to most Americans before, this show won’t help its image, even with its many funny moments and disturbingly realistic details which are more “funny peculiar” than “funny ha-ha”.

While I was driving I heard the NPR show “Here and Now” where journalist Emily Yellin, author of the book, “Your Call Is (Not That) Important to Us: Customer Service and What It Reveals About Our World and Our Lives” was being interviewed.

According to Yellin, we make 43 billion customer service calls a year. Despite outsourcing and a prolonged a lapse where we seem to have been from taken from “the customer is always right” mantra back to the era of Lily Tomlin as belligerent customer service rep, customer service is a growing industry in the U.S. Businesses are realizing again, that companies need to get customer service right. In addition to rising labor costs in India and other low-cost countries which have made them less advantageous financially, companies are finding that good customer service is a competitive weapon. Poorly considered and poorly done outsourcing to save on labor costs in the end may not save, besides enraging and alienating customers. Apparently some customers have been angry enough to produce videos against the offending company, like the 5 Stages of Comcast , a public relations nightmare. And there are websites for many major companies that have the company’s name followed by “sucks”, which provide outlets for angry customers.

So while outsourcing is done to save labor costs – and not just in the area of call centers – it needs be carefully considered and well-executed. Or it will produce short-term cost savings and longer term loss of business through the exodus of valuable customers.

-Sherry R. Gordon

Recently on the blog, The Conversation, there was a fabulous post and short video by Harvard Business School Professor Youngme Moon, “The Anti-Creativity Checklist“. Professor Moon’s premise in her video, which presents 14 ways that companies stifle creativity (see below), is that companies are programmed to prevent change and new ideas from taking hold. This video will resonate with anyone who works in corporate America. And it reminds me of why I became an entrepreneur. Even an entrepreneurial company, however, can easily lapse into the standard idea-crushing ways of operating and subvert its own future. The behaviors on the list are cultural norms in American business that some may argue keep firms from getting into trouble – legal, financial or otherwise. The list strikes me as the outgrowth of a male-dominated business culture where being tough, commanding, decisive and in control at all times is believed to be the best way to get results. The idea of keeping meetings on course without deviation and without bringing up new and disruptive ideas is also part of this culture. Some may say that this is the older generation in action and that perhaps they need to make way for newer and more productive ways of behaving. But I have seen these attitudes in full action with Millennials or GenXs, whatever you want to call them, who seem to be absorbing the culture and carrying on the traditions.

A book that came out over 10 years ago and still selling fairly well on Amazon today, Orbiting the Giant Hairball: A Corporate Fool’s Guide to Surviving with Grace by Gordon MacKenzie, describes Hallmark and its creative folks who design cards. It describes what MacKenzie calls the “creative paradox”.  The creative people didn’t fit into a company whose livelihood depends upon that very creativity. So, they withdrew to a physically separate creative ghetto, so to speak, in order to continue to be creative.  MacKenzie, a former Hallmark employee describes the “giant hairball”–a tangled, impenetrable mass of rules, traditions, and systems, all based on what worked in the past. This is a good read for those who feel entangled in giant hairballs, corporate or otherwise.

Here’s a link is a summary of the checklist:

1. Play it safe
2. Know your limitations
3. Remind yourself – it’s just a job
4. Be skeptical – show you’re the smartest person in the room
5. Demand to see the data
6. Respect history – always give the past the benefit of the doubt
7. Stop the madness before it gets started – crush early stage ideas with your business savvy
8. Use experience as a weapon – “been there, done that”
9. Keep your eyes closed (and mind too)
10. Assume there is no problem
11. Underestimate your customers
12. Be a mentor – give sound advice to people who work for you
13. Be suspicious of the “creatives” in your organization
14. When all else fails, act like a grown-up

-Sherry R. Gordon

An article in today’s WSJ, “Companies More Prone to Go Vertical,” discussed the current trend for some companies such as Oracle, Pepsi, IBM, General Motors, Boeing and Apple, to cite a few,  to return to the practice of vertical integration. Vertical integration can be defined as the degree to which a company owns its upstream suppliers and downstream customers and distribution channels. Some of the main reasons why companies may want to become vertically integrated are to mitigate supplier risk, control distribution channels, increase barriers to entry from competitors.  Boeing, for example, acquired Vought’s Dreamliner operations out of necessity to gain control over troubled suppliers and parts that were having an adverse impact on its Dreamliner program.

While companies don’t seem to returning to the old Henry Ford style of vertical integration, they seem be trying to use it as a method of controlling assets and exerting more control over critical parts of the supply chain. Vertical integration seems to wax and wane over time. Perhaps the global economy with its growing supply risks and increased competition is spawning this new wave.

There are, however, many drawbacks to vertical integration. One is decreased flexibility and potentially higher costs. Once a supplier is captive, there may be more control.  However, there is a cost to increased control, including reduced supplier competition and opportunities to engage with potentially more capable suppliers in the future.  And as business needs evolve, some of the integrated businesses may not evolve, may no longer fit or even be a drag on the bottom line. Vertically integrated companies may find themselves with less attractive overhead and cost structures. And they may be entering industries either upstream or downstream that they have less knowledge of and that may not really mesh with or add value to their real core competencies.

The regulatory environment may determine how far firms are able to go this time with vertical integration. And the competitive environment will ultimately help shape and influence the success of this approach.

-Sherry R. Gordon

It was only a matter of time before the ever-popular Six Sigma would reach the college classroom. I was reading an article about how York College in Southeastern Pennsylvania has begun to offer a course in Six Sigma in its MBA program. This is one of many MBA programs now offering Six Sigma courses. The York College program is designed to give students an understanding of Six Sigma, but not get them certified. The college plans to add several more classes to create a Six Sigma concentration so that students will be able to sit for the certification exam. Whether or not the students do become certified, I do think it’s a good idea to teach the Six Sigma tools. However, I sure hope that the MBA program will place sufficient emphasis on the strategic end of Six Sigma, not just the tools. As business schools hopefully teach about business strategy and policy, Six Sigma will be taught as a methodology linked to strategy and not just as another haven for tool heads, a subject about which I ranted on Spend Matters last August. Hopefully the head of the business school, who referred to Six Sigma as “lean operations practices” sits in on a few of the classes himself to gain a better understanding of what Six Sigma actually is.

While York College and others may thinks they are in the forefront of teaching continuous improvement practices and tools to students, there’s a high school in Massachusetts that in the 1990’s adopted TQM both as an internal process and as part of the high school curriculum – Minuteman Tech in Lexington, MA. The superintendent was ahead of his time with this approach. I have two sons who graduated from this school. What was good about teaching TQM and its problem solving techniques was that the students not only learned about the principles and practices in the classroom, but they saw the school implementing what it was teaching them. Minuteman was ahead of its time. And sadly, with the retirement of that superintendent, the school no longer espouses continuous improvement as part of its curriculum or operations.

In the case of York College, it appears that Six Sigma will simply be part of the curriculum, but not be adopted outside of the classroom to improve the performance of the whole college. While the students will have the knowledge gained in the classroom, they will not get the opportunity to experience Six Sigma in action in the college, which would give them far more understanding than just pursuing it as a course of study.

-Sherry Gordon

Attending the annual AME Lean Conference was energizing and inspiring. The conference delegates are a different crowd. They are practitioners of the lean enterprise. This is apparent if you spend any time with these folks.

You know you’re at a lean conference when delegates:

• Complain that the buffet layout is not lean and discuss ways to improve the flow
• Admonish a colleague who is eating lunch quickly that he should switch from batch processing of their food to one-piece flow
• Brainstorm ways to turn dinner dishes cleanup at home into one-piece flow without alienating their families
• Buy a book to give to their dentist to make his/her office more lean (and by the way, the book is Follow the Leader by Sami Bahri)
• Discuss how to break it to their internist that the medical practice needs a major lean transformation so that it focuses on the patient, not the doctor
• Go on plant tours and give the plant a list of continuous improvement suggestions
• Discuss how a lean manufacturing sector will rescue the economy
• Brainstorm ways to make their suppliers lean
• Eat lots of conference food that is certain to make everyone fat, not lean — and joke about how un-lean the food is
• Discuss plans to make a shadow board (usually done for tools) for their kitchen utensils when they get home

The above bullets are representative of some of the conversations and activity taking place among the attendees, and I’m sure there is much that I missed. Lean is about elimination of waste and improving the flow of the business and making more money while respecting and empowering people. People become passionate about lean and its power and potential to transform and improve businesses and, in some cases, their homes.

The combined brainpower, energy, and lean thinking of the AME International Lean Conference was incredible. And they are correct that a robust manufacturing sector is not only an engine for growing the economy, but a clear path to help the U.S. can maintain and improve its standard of living in the future. As one presenter said: Do the math. Service jobs that pay less than half of what manufacturing jobs pay can’t improve our spending power or standard of living.

Meanwhile, I’m wondering how the newly energized attendees will re-integrate into their family lives and not alienate them with lean transformation projects at home.

-Sherry Gordon

Davis Ballistracchi recently penned an insightful piece for Quality Digest, Why Did Total Quality Management Fail? One of the key reasons is management. They talk the talk, but don’t walk the walk. They sit on the sidelines, cheering employees on, but nothing changes because management doesn’t change. Management blocks the change rather than enabling it.

This piece took me back to my days as the Director of TQM for an office products distributor that was acquired by Staples. The president and owner of the company had read a lot about TQM and decided that TQM was going to be the path to delighting customers and making more money. I was hired to make the transformation. My first challenge was that very few of the employees had ever worked on a team before and had no team skills or meeting skills. So we had to start at square one in teaching basic skills before we could ever get to problem solving and continuous improvement. Employees became energized and the company was buzzing with excitement as employee-initiated change began to occur. We accomplished many good, even innovative things.

However, we hit the wall. Why? Because the president would not change his behavior. He would put on his green cardigan sweater (always a sign of trouble) and head out to the warehouse with a clipboard. There he would find problems, take notes, and order the associates around like small children. He would undo the accomplishments of the associates and “critique” them in a belittling way. He called it giving them feedback.

There was an “emperor’s new clothes” mentality at the company in relation to the president. No one dared to be honest with him, as the consequences would be ugly.  The Deming principle, “Drive out fear” was definitely absent, as the atmosphere of fear around the president was palpable.  To the horror of my fellow management team members, I would tell the emperor about the lack of clothing and the about the need for management to model and lead the change.

In all of his readings about TQM success stories, the president never noticed that change meant everyone, including him. And this man did not wish to change.

The end of my tenure at the company came in an interesting, but predictable way. The exasperated president told me that he was upset because I was not doing my job. The problem? I was foisting the responsibility for quality onto all the employees instead of implementing it myself. While he thought he was informing about my dereliction of duty, in fact, he was paying me the highest possible compliment. I had managed to make quality everyone’s, not the quality function’s job. Sadly, everyone’s job but his.

I left the company shortly after that conversation, to, believe it or not, tearful goodbyes from employees. Employees knew that it was the end of empowerment and change. Back to familiar same old, same old command and control management.

I learned several things: the importance of change starting at the top and also the difficulty of bringing about change from within. A leader who gives lip service to change but doesn’t truly embrace change ensures that change does not occur. An internal change agent rapidly loses his or her outsider status. I became an insider and was less able to bring about the change. I had been shoveling sand against the tide and experienced my own “lessons learned”.

-Sherry R. Gordon

Supply managers and buyers have always had the challenge not just of finding suppliers but finding suppliers who are both high-performing and “best value”. Numerous supplier evaluation and supplier performance management software solutions are now available, where ten years ago very few options existed. Most options that I’m aware of are either SaaS (software as a service) or licensed software solutions that are typically targeted at medium to large-size companies. The choices for software solutions for evaluating suppliers have certainly increased since the days when I was in the supplier evaluation software business. In fact, the whole supplier information and supplier performance management solutions market has heated up as companies are becoming more concerned about the impact of supply risk and supplier performance issues.  For a further description of this market, you can read an analysis that appeared on the Spend Matters blog.

However, some challenges still remain: finding good offshore suppliers and providing small to medium-size businesses with affordable, yet effective supplier evaluation options.  While there are options for finding offshore suppliers or suppliers from developing countries, there are none that I’m aware of that give buyers a good, cost-effective way to know how good these sources really are. 

I thought I would alert readers to a new site for finding and evaluating suppliers – SupplierEvaluations.com. It is based upon a social networking, B2B approach where a community of buyers and supply managers, using an evaluation template and process provided by the site, evaluates suppliers and shares the evaluations with other members of the community. Supplierevaluations.com expects to be operational by mid-September. Users can sign up now to participate when the site goes live.

In an April post on Spend Matters, Spend Visibility — Use RFPs with Home Maintenance Contractors, Jason Busch advocated using an RFP to make sure that contractors are bidding the same job and to help make it easier to compare bids. I wish it were that easy. We’re grappling with a trade that seems to think it’s exempt from that approach – masons. Even with a written RFP, every mason who comes to our house sees the job differently from us, and from other masons. All we thought we needed was to have the bricks on our 3 chimneys pointed and then coated with waterproofing. How hard is that? In fact my husband, who is not a mason, used to do this himself, but now would rather not be climbing on the roof.  We have had 4 masons/contractors come out to see the job, and their descriptions of the work has varied widely as has the price. Interestingly, the highest bid is FOUR TIMES the price of the lowest bid. And the scope of the second highest bid contains the least amount of work. Each mason has a different view of what he thinks needs to be done compared to our RFP (and compared to all the other masons).

We started with accepting and signing the lowest bid from a mason whose firm has good references and has been in business for three generations. Great. However, not only did he never show up, but he no longer returns phone calls or emails. The mason with the third highest bid wanted to do the least amount of work for the money. And the highest bidder actually is doing the most work, as he showed us that there is, in fact, a lot of brick work to do. He actually brought binoculars to look at the chimneys, while the others took a quick stroll around the house before bidding. The second lowest bidder (who is 2.5 times the price of the lowest bidder) is a chimney sweep who had a completely different scope from our RFP and from the other bids, including a quote to install a state-of-the-art brass cap on a chimney that other masons felt needed just a screen to keep out animals. Interestingly, no one would discuss the scope and negotiate with me. Their bids were immutable and they become incommunicado if questioned about their bids.

In something of a desperate move, we chose the highest bidder who spent the most time scoping the job and was doing the most work, and we felt that his bid was based on something factual. Also we chose him partly because he used to coach my younger son in soccer, we know that he is an honest and hard worker and he has good recommendations. However, he has yet to show up to do the job.

I’ve reached a few conclusions. First, contractors will give you a price based upon where you live and how eager you seem to do the work. If you live in a higher calorie town, so to speak, the price shoots up. Masons in our area must be plenty busy, even in a recession, as none seem very eager to do the work. And there are absolutely no standards of professionalism among the masons we contacted, despite many years in business and good customer recommendations. No one follows the RFP, no one wants their bid questioned, and no one wants to show up even if you do accept their bid as is.

Despite what Jason said about taking charge of home maintenance contractors and treating the process professionally as you would in any procurement process, I’m finding, unfortunately, that masons are not on the same supplier management planet.

Companies have typically viewed suppliers as a source of cost that needs to be reduced, as supplier costs directly impact the bottom line. And it’s a given that procurement is always under pressure to fulfill the cost reduction mission. But in the process of viewing suppliers as big dollar signs that need to be squeezed, firms neglect some significant opportunities to derive value from suppliers in addition to reducing costs. Here are 6 ways that suppliers can add value.

• Contribute to product and process innovation. Using suppliers as a source of new technology in areas that complement a customer firm’s own competencies is a way derive value from suppliers. Working jointly with suppliers to develop new technologies expands the capabilities of internal new product development functions. Because IP is at stake, this type of collaboration is based on a good customer-supplier relationship and requires both trust and legal agreements. At Boeing, for example, working with product development suppliers is considered critical to its future.

• Help customer firms enter new markets. Because of their location or type of product or service, suppliers can help provide an entrée to new markets and new customers for a customer firm.

• Provide incremental revenue and profits. Suppliers can help their customers enhance products and product features that will generate additional revenue.

• Help improve end-customer satisfaction. As suppliers’ order-to-delivery velocity increases, their customer will benefit in several ways. Since purchasing lead time depends on supplier cycle time, improved velocity at suppliers provides competitive advantage in a customer firm’s own market responsiveness.

• Free up inventory dollars and improve cash flow. Improving supplier cycle time velocity exposes many other issues such as excess inventory and quality problems. As purchased part lead times and quality problems decrease, the customer firm will need to keep less inventory as safety stock. Cycle time reduction may require supplier development projects with key suppliers. At first the supplier may reap more benefits, but ultimately the customer will benefit from improved supplier performance and faster supplier cycle times and responsiveness.

• Contribute to business process and practice innovations. Jointly solve problems with suppliers and share ideas and best practices. Suppliers may provide solutions to problems that a customer firm has no capability to solve alone. Some customer firms are so entrenched in the mindset of managing suppliers as a one-way flow of information and expertise that they forget that suppliers may have valuable practices or processes worth adopting.

When trying to prove to senior management that supplier relationship management is more than just goodness or the right thing to do, companies should play the value card. The opportunities for making money through additional supplier value can be greater than focusing only on cost reduction. Saving money is essential. But as the saying goes, you can’t save your way to success.