In 1982, AFG Industries entered the highly competitive flat glass product market. Flat glass in the United States at that time was dominated by conglomerates. AFG owned three float glass production lines that had to be running 24/7, 365 days a year. These lines could not be shut down outright because doing so would entail very costly restarts of the furnaces.
AFG therefore had to make sure it sold all of the output the float lines were producing. The company also had to increase its market share to keep its lines running and make a profit somehow.
AFG observed that customers constantly complained that it would take up to one month for any glass firm to deliver orders. Customers also had to order at minimum quantities which often exceeded their needs.
The firm saw this as an opportunity and created a production scheduling system which would cut lead time from one month to as short as one day. The company also reduced the minimum order size to as much as a tenth of what the competition was asking.
Despite the price premium AFG tacked on for this “express” scheduling system, sales grew exponentially despite an economic recession at the time. Sales ate up all of AFG’s production capacity so that by 1983, AFG opened a fourth line on the US West Coast.
The case of AFG demonstrates that improving customer service is an opportunity for competitive advantage. As firms often focus a great deal on differentiating their products for eager customers, they sometimes neglect the service that customers basically look for. Lead time plays a major part in customer service and thus offers firms opportunities in this regard.
Lead time is generally defined as the delay between the initiation and execution of a process. In simpler terms, it is the time required to perform an activity. Lead time can be the time it takes to withdraw from a bank account or to build a factory. Lead time becomes especially important when it impacts a customer’s buying experience. People, after all, don’t want to wait too long.
Reducing lead time is not a new idea. For decades, operations professionals have worked to reduce lead time in factories and warehouses.
The opportunity lies in the whole product/service delivery process. For example, the actual time to make a bank withdrawal may be only one minute but the time to wait for a teller could last up to 20 minutes. At a fastfood chain, filling a soda would take not more than 30 seconds, but waiting in line for one’s order can last far longer.
The following are some suggested approaches to lead time reduction:
Make lead time reduction a company strategy. Reducing lead time should focus not only on the order-to-delivery execution but also on all functions, from capturing the customer’s needs to satisfaction thereof. AFG’s production scheduling system included the setup of a call center with which customers not only could call in their orders but find out the status or make changes as well.
Identify and improve the biggest opportunity area. AFG found that reducing the changeover time at the glass cutting process on the production line was essential to ensuring faster delivery to customers. Managers can pinpoint improvements for lead time reduction via operational assessments assisted by some common-sense tools. End-to-end mapping of manufacturing operations, for instance, would increase management awareness of lead times per process.
Plan-Do-Check-Act. This concept, derived from total quality management, has been useful in solving problems or finding improvements. AFG managers invested much time in planning their express delivery systems. And when they executed their plan, they closely assessed delivery performance and made adjustments on a daily basis.
Lead time reduction as a company strategy not only improves the customer’s service experience but contributes to lowering costs. As other activities or processes are eliminated to reduce lead time, the cost of doing these activities is eliminated as well.
AFG eventually automated its glass cutting processes to reduce changeover time further and optimize capacity utilization of its production lines. The company posted higher profits year after year even as competition struggled through a sluggish construction market.
To quote Charles Darwin: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change."
Jovy Jader is a consultant and regional speaker on supply chain management. He has directed and implemented supply chain management projects both local and international, which have resulted in company-wide improvements in inventory, total cost, response time, quality and on-time delivery. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers. For questions or comments, e-mail firstname.lastname@example.org.
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