The rules of response
To my eternal shame I only came across George Stalk at the Boston Consulting Group today for the first time after reading Dan Gilmore’s blog at Supply Chain Digest. Clearly this man has been around for some time and I have had my head buried in a tree somewhere. Of course I had come across his concept of time based competition, but I had never paid more attention to his wider concepts. I came across a very interesting article titled “Rules of response” , which is at the heart of the concept of time base competition, while browsing the web for more information about George Stalk. Even though the article dates from 1987, my gut tells me that the principles behind the rules are still very relevant, even if the core numbers have changed somewhat because of the adoption of Lean and other efficiency concepts.
The rules, with direct quotes from the article, are as follows:
- The .05 to 5 Rule
Most products and many services are actually receiving value for only 0.05 to 5 percent of the time they are in the value-delivery of their companies
- The 3/3 Rule
The waiting time has 3 components, which are the time lost while waiting for:
- Completion of the batch a particular product or service is part of
- Completion of the batch ahead of the batch a particular product or service is part of
- Management to get around to making and executing the decision to send the batch on to the next step of the value added process
- The ¼-2-20 Rule
For every quartering of the time interval required to provide a service or product, the productivity of labour and of working capital can often double, resulting is as much as a 20% reduction in costs.
- The 3 x 2 Rule
Companies that cut the time consumption of their value-delivery systems experience growth rates of 3 times the industry average and 2 times the profit margins
It was really the .05 to 5 rule that caught my attention because it is the driver behind the rest of the rules. In his description of the rule, Stalk states that “… a manufacturer of heavy vehicles takes 45 days to prepare and order for assembly, but only 16 hours to assemble each vehicle. The vehicle is being worked on for less than 1% of the time it spends in the system.”
Ok, so maybe Lean has improved the time it takes to take orders in the time since the article was written, but Lean has also reduced the time it takes to manufacture the product, so the ratio has likely remained the same. What I find interesting in this split is that much of the non-productive time is spent working out when the order can ship, what components are required, if the capacity is available, … And then there are all the changes that need to be accommodated, starting from order delivery date and quantities, perhaps even configuration/design changes, through to component delivery schedules. Outsourcing and off-shoring have only made this situation worse by increasing the number of people/organizations required to participate in the process and extending the delivery time.
Spreadsheets emailed around the world or EDI transactions aren’t going to make a dent in this ratio. I think Hau Lee has it right. As I commented recently on a presentation Hau gave, this can only be achieved by “extreme information exchange”. As importantly though, is “extreme analysis”, or the ability to consume and evaluate lots of data in a short period of time. Machines can churn through vast quantities of information in a short period of time, humans cannot. At the same time nearly all supply chain decisions need to be made in an environment of ever changing and ill-defined rules, constraints, and objectives. Humans can deal with this uncertainty, machines cannot. What is required is a unique combination of human intelligence and judgement coupled with the processing power of machines to turn what Hau calls “extreme information exchange” into “extreme decision making”.
Change is the only constant. Dealing with the constant change is where the competitive edge lies today. As always, let me know what you think.Google+