Cheap and Fast, It Won’t Be Good.
There is an old adage about service, and it goes something like this:
We offer three types of service, cheap, fast and good. Pick any two:
- Cheap and Fast, it won’t be Good
- Fast and Good, sure ain’t Cheap
- Cheap and Good, isn’t Fast
It is a nice little adage, and we all believe it. It is just common sense.
But you can have your cake and eat it. You can be cheap, fast, and good; you can carry out a bit of alchemy and turn lead into gold.
To understand how alchemy works, we need to start thinking about how managers usually do things. Normally we focus on one thing — I should say obsess about one thing — cost.
The Problem with Focusing on Cost
I was cycling through deepest Norfolk with my daughter. It was raining, hard. My daughter had started complaining, moaning in my ear the way only a daughter can. A tea shop loomed into sight; it was dry and warm and served tea and cake. It was the answer to my prayers.
Twenty-five minutes later, happy and content, I went to pay the bill. They told me that they didn’t take credit cards. Like the Queen, I don’t carry cash, and I stopped bringing my chequebook in 1992. The “hostess” sneered at me that the Post Office might still be open. So I left my daughter (which made me feel good about myself) and found the post office. It was closed. I went back and offered an IOU, but the owner didn’t think that was a winning option. Next, she pointed me to the corner store, which gave me cashback if I spent more than £10. 2 packets of overpriced coffee later, I paid my bill in cash and left under the owner’s disapproving eye.
She undoubtedly saved herself 50p by applying this payment rule, but am I ever likely to go back? And more to the point, how many of my friends will I tell?
I can recommend Swallows Restaurant and Guest House, Walsingham, Norfolk, particularly if you want to feel like a criminal.
I know that was petty. But if a guest house offers a penny-pinching service that doesn’t accept plastic, they should put a sign on the door.
It is easy to take costs out of an operation. The problem is, if you aren’t clever about it, you will just upset your customers.
The Cost of Poor Service
People can see the cost. They see it leaking away out of their budgets and bank accounts. They can’t see the upside, how much they could be making. If you do a little maths, the numbers start to add up. Let’s take my example:
How much am I worth as a customer?
Two cups of tea and two cakes, £10.98 at a variable margin of 66%, call it £7
How many times would I visit?
I don’t go that way often, so say twice a year, but maybe once a month for locals.
How many of my friends would I tell?
I was sad enough to post it on the internet, but let’s say 5.
How many customers feel the same as me?
I feel generous; they only upset one customer per day, 200 days per year, so 200 of them.
Total missed opportunity per year?
- £7 margin
- 12 visits p.a.
- Five friends
- 200 unhappy customers p.a
I make that £84,000 (and we can argue about the logic). That seems like a lot of money to me, but it is OK because they saved £0.50p on my transaction. I would have gladly paid a 50p surcharge if they had asked.
You don’t save yourself rich
anon
Focusing on service Isn’t Much Better
Focusing on service also plays to my “two out of three” adage. What does good, quick and expensive service look like?
My wife has bought a new car, a BMW. “The ultimate driving machine”. I have to admit it is lovely. She took it in for its first service the other day. A smartly dressed gentleman met her at the door with a “Good morning, Mrs Lawther”. Presumably, he had a list of registration numbers to look out for, a nice touch. Unfortunately, there was a queue at the service desk, so he poured her a cup of tea whilst she waited.
After booking her car in, my wife wanted to catch the free shuttle bus back into the city to work. There had been a bit of a mix-up, and there wasn’t a place for her on it. Quick as a flash, a fully paid-for taxi materialised that took her straight to her office. When she went to pick the car up, they hadn’t finished the service; a part was missing. The garage apologised and offered to finish the job tomorrow. They also offered to give her car an “executive valet” to make amends.
The garage takes customer service seriously. Given the cost of a luxury German motor car, rightly so, but ask yourself, was that good service? All my wife wanted was a mechanic to check over her car.
Focusing on service isn’t much better than focusing on cost.
Where Is the Alchemy?
People believe that “You get what you pay for”. This may be true for a consumer but not a supplier. For a supplier, the lowest cost position is when the customer gets exactly the service they expect — nothing more and nothing less.
There is a “sweet spot”, where it costs you the least, and the customer gets what they expect. The café I visited was sitting firmly on the left; I never went back. The dealership was over on the right. It is nice to have taxis and valets, but unnecessary.
How to Find the Sweet Spot
It sounds complicated and theoretical, but it is easy. All you have to do is point out the stupid stuff you do. Then you stop doing it.
The manufacturing guys have a neat trick. It is an “Ohno circle”. They paint circles on the floor at different points in factories. Then the team leader stands in the circle with a clipboard for 30 minutes. He writes down everything that he can see that doesn’t work. Finally, he spends the last 30 minutes fixing one of the things he has seen. It is an excellent exercise for three reasons:
- It forces the managers onto the shop floor.
- The managers think about the process and its failures.
- Something gets fixed.
You could do the same thing, but it would be even easier as you probably work in an office. You could sit down whilst you were doing it.
The alchemy of stopping stupid things (or waste) is excellent. It works, and you will improve the quality of the service you deliver whilst at the same time reducing cost. There is a downside. Like all good things in life, it takes some thinking about. You have to work at it. But it is better than the alternative.
The Chrysler Syndrome
In 2009 the US government bailed out the Chrysler Motor Corporation to the tune of $7 billion. To repay the loan, it took some drastic actions. Initiatives included:
- Taking all the clocks off the walls in their headquarters in Auburn Hills. This saved $20,000 per year in batteries and the time spent changing them.
- Not snow ploughing the top floors of five multi-story garages and five parking areas. This saved $350,000 each winter.
- Reducing the central heating from 22 to 20 degrees centigrade saved $70,000 per year.
- Taking out half of the 80,000 light bulbs in the headquarters building. $400,000 per year.
- They cut Christmas decoration spending by about $11,000 to just $1,000.
- They sold 32 pieces of artwork valued in 2007 at $2.3 million.
Either they were squeezing every last penny of efficiency out of their supply chain and leaving no stone unturned. Or this was desperation taking hold. Driving efficiency into an operation isn’t a quick fix; it takes time and perseverance. Waiting for a budget crisis is leaving it a little too late.
Perhaps now is the time to start.
Homework
The task for this week is to create your own “Ohno Circle”. Prove to yourself that cost and service are not opposed:
- Pick an area of your organisation where you have cost challenges.
- Book a 30-minute slot with a staff member to work alongside them and understand what they do.
- Explain to the staff member that you are here to investigate the system, not spy on them.
- As they conduct their work, check how well they complete each task.
- Ask yourself if the task could have been done better. If the answer was “yes”, write down how. Compare performance against an “ideal world”; otherwise, you won’t be fessing up.
- Think about defects in the system or process and not the staff member.
- Share your findings with the member of staff. Get their feedback on the underlying reasons for performance.
How many opportunities for improvement did you find? Could you fix anything? Start now! Don’t fall for the Chrysler syndrome.
In the next lesson, we will explore the concept of waste and show you how it is in everything you do.
Thank you for reading.
There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.
Henry Ford
Related posts:
- What can a lilo teach you about cost control?: A simple analogy to show how cost flows through your organisation.
- How to calculate the cost of poor quality: A self-explanatory title.
- The productivity equation: The two ways to improve productivity.
Across the web:
- The cost of poor quality: ASQ video on youtube.
- Learn about the cost of quality: An overview of the different costs of poor quality.
Further reading:
James Harrington wrote this book in the 1980s, and it was the first (and maybe only) book to discuss the cost of poor quality. According to the blurb, it is “An easy-to-read and highly informative book on an extremely important subject”. It may be a little dry for some.
Post Script
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