It wasn't just the 22,000-plus SKUs that Amway Corp. offers to its customers through direct sales. The real problem was the huge number of revisions that the company was making to those items.
A leading maker of products for nutrition, wellness, beauty and the home, Amway operates in more than 80 countries around the world. Revenues are around $8bn, generated by a home sales force of more than 3 million owners.
Like any consumer products seller, Amway has to keep its line fresh. At the same time, it suspected that not all of the SKU changes it was making were justified. An investigation uncovered substantial waste in the process, according to senior supply chain analyst Jerry M. Bronkema. He and his team found that Amway was processing an average of 23 SKU revisions per day, covering changes in raw ingredients, label, color and packaging. Each one took at least five hours to set up, including entry into the system, exchanging of e-mails, and re-pricing where necessary. What's more, thanks to the speed of change in product characteristics, fully one-quarter of those revisions never even made it to market.
Naturally, many of those involved in the process defended it as "the way we have always done it," recalls Bronkema. But Amway wasn't about to settle for the status quo. "Culture change," he says, "had to happen." The company launched a kaizen event - a limited-scale effort to address a specific business problem - with an eye toward gaining control of SKU revisions.
Teams were formed and invited to toss around ideas for improvement. The goal was to develop clear decision-making criteria for any SKU revision. Some were the result of a lack of understanding by the individual making the request. Others were virtually automatic responses to uncertainty. Few ever stopped to ask whether a new SKU was even necessary. The unwritten mantra: "When in doubt, rev."
The kaizen event spanned five days and involved individuals from manufacturing, supply-chain planning, information technology, warehousing, packaging research and development, product formulation, item data management, quality assurance, procurement and global trade. Overseeing the effort was a functional leader from supply-chain planning and representatives of TBM Consulting, an outside expert in Lean and Six Sigma quality training. Together they scrutinized the entire SKU revision process, nailing down all areas of waste and devising a document for the new process.
Participants mapped the old method by covering one entire wall of the conference room with colored pieces of paper, defining the source and nature of each revision. They discovered 218 distinct steps, only seven of which were "value-added." In addition, there were 33 separate decision points, 21 hand-offs and 27 points of delay with two "loop backs." It became evident that each department was operating with little awareness of what the others were doing.
The answer lay in creation of a revision review board that could provide the missing element of governance. The board would be responsible for evaluating all revision requests, based on a specific set of criteria. In addition, it would develop systems for notifying manufacturing of specification changes, and tracking them through existing lot-coding procedures.
There was one more singular aspect to the new board, according to project manager Ruth M. Kaminksi: it was mortal. The group would disband when review procedures were so well integrated into the organization that it was no longer needed.
Opponents of the idea argued that it would lead to even greater bureaucracy and cost. Even Kaminksi acknowledges the apparent paradox of simplifying a process by adding a level of approval. Others charged that the board's secret agenda was to eliminate all SKU revisions.
Experience was to prove them wrong. Knowing that it had to provide a quick turnaround on revisions in order to be credible, the board began meeting twice a week to review requests. Stressing cross-functional decision-making, it streamlined the process through use of a corporate Microsoft SharePoint site.
Change management is always tough. Amway approached the thorny issue through use of the ADKAR methodology. The acronym stands for the five building blocks of successful change: awareness, desire, knowledge, ability and reinforcement. On top of that, to spice things up, the team created a promotional campaign with tie-dye T-shirts and posters bearing the word "Revolution" in '60s-style psychedelic graphics. To address concerns that the board was really out to kill all SKU revisions, the team came up with buttons and posters that read "Rev Smart" and "Limit not Eliminate." On a more serious note, the message was communicated through a series of training meetings that hammered hard on the time and money that was being wasted under the old system.
Results were quick to materialize. Within six months, the team had achieved $1m in savings. It used that early win to underscore the amount of waste that had been built into the old way of doing things. At the same time, the portion of SKU revisions that never saw the light of day shrank from 25 percent to 8 percent. The number of daily revisions went from 23 to between three and five. Savings increased to more than $1.7m in just over a year, says Kaminski. And it was all done with virtually no operating budget, other than a couple hundred dollars for T-shirts.
There were bumps in the road. Compliance was an issue from the beginning; he board realized early on that it wasn't seeing all revisions being generated by various departments. It began working closely with Amway's Artwork and Documents group to determine whether any changes were being made without its knowledge. And it started generating audit reports to track revisions that had been undertaken without board approval.
The board continues to meet twice a week, in expectation of its eventual demise. Team-developed decision trees will allow users to make their own determinations about the appropriateness of a revision. Amway understands that lasting results won't come from having a "cop" peering over the shoulders of its employees. "You cannot inspect quality into a process," says Bronkema. "You have to build quality into a process."
TBM Consulting Group, www.tbmcg.com
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