Trust or Consequences
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12 August 2013 - 23:15, by , in Performance Management, No comments

Why do people back away from change?

In John Maxwell’s new best seller “FAILING FORWARD“, he lists six traps that cause people to pause instead of pursue change:

  • The Embarrassment Trap… they are afraid of looking bad.
  • The Rationalization Trap… they figure that if they spend sufficient time confirming the need, they can procrastinate and hope the need disappears.
  • The Unrealistic Expectation Trap…they quickly give up when they realize that achievement will take some effort on their part.
  • The Fairness Trap…when asked to participate in an improvement project they say, “Why me? I shouldn’t have to be the one to do this.”
  • The Timing Trap…they wait until the perfect time for change, which never comes.
  • The Inspiration Trap…they wait for inspiration before starting. They don’t realize that you have
  • to act your way into feeling instead of feeling your way into acting.

Based on my recent experience working on the supply chain cost reduction workgroups of the food industry (ECR) and healthcare industry (EHCR), I would add a seventh trap:

  • The Trust Trap…supply chain partners who refuse to share their Activity Based Management
  • information because they don’t trust their customers and suppliers.

Trust is defined as “confidence or reliance on the truthfulness of something or someone.” Based on favorable results, thousands of organizations worldwide are now confident that ABM and ABC are best practice costing methods. The automotive, personal computer, semiconductor, food and healthcare industries, to name just a few, have entrusted ABM to be their standard costing method. But too few of the organizations in these industries are sharing ABM information to achieve supply chain cost reduction.

In “WHEN LEAN ENTERPRISES COLLIDE”, Robin Cooper writes, “The pressure to become more efficient has caused many firms to increase the efficiency of supplier firms through interorganizational cost management systems. These systems have emerged because it is no longer sufficient to be the most efficient firm; it is necessary to be part of the most efficient supplier chain.” A 1997 study of the healthcare industry supply chain of manufacturers, distributors and providers identified 48% waste. While an individual hospital might contain only 25% non-value added cost, unnecessary duplication of activities between supply chain partners doubles the waste to almost 50%.

If industries need to reduce costs and the members of the industry agree that ABM/ABC is a best practice method, then what can be done to foster trust and achieve mutually beneficial results? I have seen success with the following three steps:

STEP 1:
Begin building trust and supply chain improvement by simply sharing the names of activities with your customers and suppliers. I am a huge Diana Krall fan. On one of her CD’s she sings “I know a little bit about a lot of things, but I don’t know enough about you.” If you’ve implemented ABM, you now know a lot about your organization. To build trust and improve processes, ask your suppliers and customers to implement ABM. Ask them to compare order fulfillment activity lists with you. Determine if you are duplicating any activities or performing unnecessary non-value added activities. Determine if they share your feelings as to which activities add value in the supply chain. Sharing activity lists lays a foundation of trust.

STEP 2: 
As trust builds, begin to share the workload quantities of the supply chain activities, e.g. “Number of Receipts”, “Number of Inspections”, etc. For example, if you perform the activity “Receive Order”, determine how many of the receipts were performed for a specific supplier. Ask that supplier if this number synchronizes with their activity workloads. Mutually determine if unnecessary output of value activities is being performed. Share improvement ideas. One ICMS customer, for example, showed their key customers that the workload of the activity “Issue Invoice” was numbering in the hundreds each month because an invoice was issued for each shipment. The customer agreed that this practice increased their activity workloads, e.g. “Process Accounts Payable”, etc. As a result of sharing activity output quantities, they mutually agreed to change the billing process from invoices to monthly statements.

STEP 3:
When trust is achieved between supply chain partners, then you can begin to benchmark the cost per output of specific activities. Sharing financial information requires trust. Sharing activity cost also requires mutual benefit. Identify activity and process cost best practices with suppliers and customers. Exchange improvement methods. Compare and share the ABC transaction cost of dealing with your Top 10 supply chain partners. Define mutually beneficial cost improvement goals and celebrate achievements.

In their book “THE SIGNIFICANCE PRINCIPLE”, Les Carter and Jim Underwood state that “honesty and trustworthiness are bedrock qualities of any successful relationship.” Organizations and business partners which rely on trust as their principle means of control are more effective, more creative, have more fun and cheaper to operate. Trust is learned and earned. I “learned to trust” certain people, organizations and methods through a process of reliance, reward and repetition. If you don’t develop trust in ABM as a tool to identify and eliminate non-value added supply chain costs with your business partners, the consequences may be chaos. In other words, trust or suffer the consequences.

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Tom Pryor
TomPryor@ICMS.net
(817) 475-2945

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