The rules of response

Published December 16th, 2009 by Trevor Miles @milesahead 4 Comments

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.

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4 Responses to “The rules of response”

  1. Ron Freiberg

    Wow, talk about a blast from the past, yes I remember reading articles authored by Mr. Stalk in the distant past and your right his rules seam to have withstood the test of time much like some of the rules, platitudes and teachings of such notables as Deming and Druker. As I see it, yes over the years most companies have embraced lean concepts, implemented robotics, put into play any combination of ERP and logic based information systems, and companies still struggle with the same old problems of wrong resources in the wrong place at the wrong time, flexibility, adaptability and certainly never fast enough to market to match competition.

    I would suggest that it boils down to normal human nature, organizational theory and leadership theory. The human nature side suggests that humans in general, instinctively resist change or adjustment to current information. People are comfortable where they are and don’t want to be driven out of that comfort zone. I see this every day of my professional career. No matter how much number crunched information is thrown in front of a management team most of the leaders in that team resist the change that may be indicated, there for time to reaction or adaptability stretches out until we finally realize that the competition has beat us to the punch. Organizationally speaking, it takes just one very strong leadership personality working as a change agent to drive the organization into a reaction or adoptability mode but that person must exist in every organization. Lets face it, you don’t have to be light years ahead of the competition, just a conservative 5% ahead to keep your business healthy but it may eventually mean the difference between survival of the species or extinction.

  2. Trevor Miles

    Ron

    I gather from your statement about the “rules, platitudes and teachings” of some “experts” in supply chain and operations, that there is a degree of scepticism on your part. As with most generalizations, there is a degree of truth and some gross over-simplification. The question is to what degree there is insight in the generalization that assists people to understand the specifics of their situation.

    As you correctly state, leadership is paramount to bringing about change, and all too often the leadership does not exist and the board forces change only when it is too late. I don’t see how this reduces the insight provided by some of the “rules, platitudes and teachings”. Afterall a leader without a vision and action plan is not really a leader. The insights are there to assist a leader in developing a vision and action plan. If you gave me a choice I would rather be lead by a “bureacrat” with a vision and action plan, that a strong “leader” without a vision and action plan.

    Regards
    Trevor
    Kinaxis

  3. Ron Freiberg

    I would not necessarily say I am skeptical of the rules but rather the fact that there is no way to get around many of the rules. They are fairly omnipresent all the time; there is no way to get better in relation to market or business expectations. If company “A” is far and away the leader in implementing lean, speed to market practices; within a year the rest of that company’s competition has caught up, customer, investor and general society expectations are now set to a considerably higher bar; i.e. the ratio of improvement to expectation never changes, the faster you improve, the higher the expectations. What I have seen in my career is that company leadership spends the resources to implement the extreme information crunching, lean, speed to market practices then expects those practices to carry them forward without the need for human judgment and continuous change. I think I am really more skeptical of general leadership’s capability to recognize the need for continuous change and keep ahead than I am skeptical of the rules themselves.

  4. Trevor Miles

    Amen to that!! Yes, I have often heard the analogy of peeling an onion to describe this phenomenon. In addition, it sure makes your eye water doing it, but not doing it means the company will just “wither on the wine”. (I had to continue with the vegetable/fruit analogy.)

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