Chapter 1
Starting the Journey
Energy filled the room, and excitement reigned. The global team was gathered for this February meeting. It was the beginning of a new year. Many of its members had worked together for years, but never met face to face. They were excited to connect. It was cold outside; but inside the room, the conversation was warm and quickly flowing, as people who previously only knew each other from e-mails shook hands and introduced themselves.
Centered in the front of the room was a flip chart. Placed on the board was a large white sheet of paper. In the center, carefully handwritten with a black marker, was a number. As people gathered over coffee they glanced at the board, and in casual conversation tried to guess what the number 77 might mean.
Joe, a leader in a major global multinational company, was hosting his annual kickoff meeting. It was the launch of his “big, hairy, and audacious goal (BHAG)” for the New Year. He rubbed his hands together as he began his talk. As he unveiled his vision, he was passionate in his argument. He believed in his mission. His speech started with great energy, but then stalled. The group was not buying his message.
The BHAG was an inventory goal. Joe wanted to finish the year with a 25 percent reduction in inventory. This translated to a target goal of 77 days of inventory. His desire was to reduce inventory and return cash to the corporation. The company was in a growth mode, and Joe wanted to deliver on the corporate strategy. As he spoke, the team in the room felt challenged, and a little resentful. Recently the company had experienced layoffs, and today they faced rising costs, increasing demand and supply volatility, and what they felt were ever-changing business priorities. It was hard for them to focus.
As I looked around the room, the group seemed detached and dispassionate. They stared blankly forward into space, occasionally looking at their cellphones. It was as though they had been here before. It was a new inventory goal in the list of many management programs that were being developed without asking anybody about the feasibility of meeting the targets.
I was the guest speaker. As I got up to present, the atmosphere was icy, and the team seemed broken. The mood was despondent. I ruefully went through my presentation, sharing stories and what I thought was my best research. It was difficult. As I made eye contact, I got a few laughs, but the mood was definitely down. As I finished I thought, What do I do now? Joe is one of my favorite clients. I have known him for years, and he is a great leader. How do I help him?
As we took a break, I drew Joe aside, put a hand on his shoulder and carefully started a dialogue. I looked him in the eye and said, “How do you know that 77 fewer days is the right inventory target? I know that this is an important meeting for you, but why is this substantial inventory reduction so important for the business? Do you know that the group is struggling with this as a goal?”
Joe returned my gaze and shrugged his shoulders as he said, “It just feels right. I want the team to have a stretch goal. Nothing is ever easy these days. As you know, the company is focused on growth right now. The reduction of inventory would give us dollars to reinvest in research and development (R&D). New products are essential to meeting our growth plan. R&D budgets are being slashed and it now costs us four times more to bring a new product to market than it did five years ago. No one has asked me to do this, but I think that it would help the company. I want to help.”
“I know that actualizing the growth agenda is important to you, and no doubt about it, you are a good corporate citizen,” I said empathically. “But let's step back. Where are you now? How do you know what is possible? I am just worried about the reaction that I see from your team. They have not bought into the goal.”
Joe's mind was cranking on overdrive as he responded, “We have been reducing inventory over the past couple of years, but have had a tough time sustaining it.” He then shook his head side to side as he said, “I know that this is a significant cut; however, when I set a stretch goal, I have such a good team that they are able to deliver. I believe in them, and they make things happen. But, to answer your question directly, no, we have not tested to see if this goal is feasible. My thought is that by setting a stretch goal, then the team can achieve it.”
“Even so, Joe, I'm worried. How do you know if you can achieve this goal and maintain balance with your other metrics? You know that metrics are tightly interwoven as a complex system. Don't you think that there is a reason you haven't been able to sustain inventory levels before?” I asked quietly.
“I know that we do not have a lot of time now, but I would like to know what you mean by balance. Your concept of a complex system intrigues me. Can we talk later? I would love to know more,” Joe said with great intensity.
“Yes, we can talk later. But for now, let me give you a few thoughts. As you and I have discussed many times, the metrics in a company are tightly interrelated,” I continued. “There is an intrinsic relationship between cost, service, and inventory. Each organization has its own potential. I think that it makes sense to look at the metrics together as a system to see what this cut of inventory would impact. What do you think?”
“These are all good points. We cut inventories drastically at the end of the recession and it severely impacted customer service. How do I better understand what is possible? What do we want to do today with the group? It appears that we are stuck.” he continued.
“I am not sure,” I said. “Metrics systems need to be aligned. As a business leader, you are managing a complex system with increasing process complexity. There are finite trade-offs between metrics. Inventory is only one of the metrics in that complex system. I am worried about a goal to attack inventory in isolation. Your company is driving a growth strategy and 37 percent of your products are on product allocation. Demand ...
