Two years ago, we wrote an article that pointed to maximizing customer value as the most important goal of any lean initiative. We decried the proliferation of “lean goals” espoused by many practitioners and advocated for attending to just one: improving the value delivered to the customer.
In a recent conversation, though, we discussed whether or not manufacturers can provide too much value to customers. We’re not the first to consider this issue, of course. The concept of “gold-plating,” the addition of work or features that the client didn’t request, has been familiar to project managers for a long time.
Some gold-plating is intentional when features are added to products in the design stage. I’ve been driving for nearly sixty years, and I’ve never had a problem keeping my car in the correct lane. My wife’s car, however, warns me when I’m crossing into another lane and another car is approaching. We turned the feature off when it continually provided such warnings (the steering wheel shakes and the car starts to brake) on two-lane roads when everyone was in their proper lane.
“Designed-in” gold-plating can get to be a habit to the point at which customers resent having to pay for features that don’t add value. At that point, a company can open itself up to competitors who provide a different value proposition: give the customers what they want and no more. Then pass the savings along. That’s exactly Southwest Airline’s strategy. TWA, Pan Am and Eastern Airlines probably wish that they had done a better job of offering customers features that they could use.
A larger problem for manufacturers might be gold-plating that sneaks into operations. Several decades ago, I worked for a large integrated steel company in Cleveland. I learned that it was common practice to mill the flat rolled steel to a thickness that was greater than that which the customer requested. In other words, we gave the customer more steel than they were paying for. This wasn’t based on a desire to “please and excite” the customer for extra value received. The practice was in place because we couldn’t hold close tolerances on thickness so we made sure we erred on the side of “too thick” because we knew the customer wouldn’t reject it.
We’re all aware that overproduction is one of the most significant wastes that manufacturers create for themselves. There can be many reasons for overproduction, of course, but a common one is the need to keep large inventories to keep customer service high in spite of operations problems. As such, overproduction is a form of “gold-plating.” High levels of overtime as a means of mitigating the effects of poor process control is another form of gold-plating. In both cases, the manufacturer is doing more work than is required in order to deliver the value that was requested. The buyer is getting something they aren’t paying for (nor should they).
A common circumstance for many of the manufacturers Ron and I have worked with is expedited shipping as a result of late production. The customer didn’t ask for expedited shipping, but they got it anyway because of process failures at the manufacturer.
Manufacturers that have well-controlled and agile processes aren’t letting these forms of gold-plating sneak up on them. Process variability has direct costs in terms of higher scrap and more unplanned equipment downtime (among many other consequences). It also has indirect costs in the need to “make up for” quality problems and delays. Lean cuts costs because it prevents unnecessary gold-plating.
Another form of gold-plating is being too responsive to some customers. One of Rick’s clients found that a segment of their customers was low-margin because they regularly made unusual requests and demands even as their order volumes were low. That client got rid of those customers and overall margins increased. Dropping these “high-maintenance customers” meant that my former client was able to be more responsive to the remaining customers.
Another client dropped a large retail company as a customer, even though it represented 40% of the client’s orders. Meeting the retailers demands made the client less able to meet the needs of legacy customers.
Increasing operational agility can enable a company to be more responsive, of course, but being too responsive can increase operational complexity needlessly. Another of Rick’s past clients developed a habit of saying “yes” to customers who called on Monday, demanding the product be shipped to them on Tuesday. To fulfill their promises to these overly demanding customers, sales would move finished goods from one order to another, thereby assuring a late delivery to the customer who had been waiting for their product and throwing the production schedule into chaos. There was no possible way that the manufacturing operations could get “lean” enough or “agile” enough to meet such demands. This went on until the CEO of the company put a stop to sales making promises that everyone knew couldn’t be met. This sort of gold-plating raised costs and led to lots of unhappy customers.
So, yes, providing customer value is and will always be the primary goal for any lean initiative. But gold-plating to cover for poorly controlled processes or that disrupts flow of material isn’t the right response. A better approach is to wring unwanted delays and variances out of all of your processes. Doing so will assure that you can give your customers what they want when they want it without unnecessary costs.
Rick Bohan, principal, Chagrin River Consulting LLC, has more than 25 years of experience in designing and implementing performance improvement initiatives in a variety of industrial and service sectors. He is also co-author of People Make the Difference: Prescriptions and Profiles for High Performance.
Ron Jacques is a 35-year veteran within the lean, manufacturing and consulting arenas. He is a Certified Lean Practitioner who has delivered hundreds of kaizen and transformational solutions to clients and companies within the Pharma, Medical Device, Automotive, Food/Beverage, Electronics, Military Defense, Personal Care, Consumer Durables and Capital Equipment industries.