Today’s post comes from Alice Rose. Alice is a freelance copywriter working for QMS International plc, a business certification company specializing in ISO 9001 http://www.qmsuk.com/iso-9001.php.
As the recession hit many businesses began to think of the best ways to cope and short-term solutions such as cutting staffing levels and reducing marketing costs were some of the most popular. But, as time has progressed and consumers are still being very cautious with their spending, I want to touch on some other ways that you can try and beat the big squeeze.
What is a quality management system?
A Quality Management system is the processes, procedures, organizational structure and resources that come together to ensure that a business provides a consistent and reliable service. It emphasizes different principles within a business such as leadership, continual improvement, staff involvement and different approaches to decision making.
It’s all about the consumer
The first thing to remember is that if you provide a great product or a brilliant service to the consumer then they are going to keep coming back. One way to check that your company is running a high quality business is to put a quality management system into place. Quality management systems often incorporate a ‘customer service’ element to them, ensuring that there are procedures in place so customers can record a complaint which means that issues can be addressed and reduced in the future.
If you are manufacturing a product there are certain steps that you can take to ensure that the final product will arrive with the consumer in a high quality state. This can start at the beginning of the production chain, in the factory for example. Simple tasks such as ensuring your workplace is clean will lead to the creation of a better final product. As the product progresses along the chain if simple manufacturing tasks are conducted in a more streamlined fashion the consumer is more likely to receive a high quality product – which will also lead to less waste on your part, reducing costs.
The services industry is not immune to the economic downturn and there are simple changes that your company can take to ensure that the customers are still happy. One of the simplest ways to find out if you are providing a good service is by encouraging customer feedback – if you know where you are falling down it’s easier to pick yourself back up.
Setting an example
It is important that quality management systems are considered as a priority by business management who have the facility and knowledge to implement these systems and who, leading by example, will encourage greater productivity and performance across the board as well as locating new areas of the business for growth.
After reading this piece and this response, I have spent a lot of time thinking about the Lean definition of value. (For those who didn’t click the links, the first is an article from a NPR intern who claims to only have paid for something like 1% of her music library and the second is a response from someone who teaches about the music business discussing the damage of those choices.)
As a quick reminder, the “Lean” definition says that in order for a step to be value added the thing has to be done right the first time, physically change the thing, and be something the customer is willing to pay for. It’s that last piece that has me hung up lately. I have zero insight on the recording or distribution of music to understand how much the recording process qualifies for the first two. I’m also not specifically speaking to music, although it makes a great basis because almost everybody has an opinion on music.
My line of thought overall goes something like this: Doesn’t the consumer bear some responsibility for paying a fair amount for something that they value? How much responsibility does a consumer have? And who defines what a “fair” amount is?
Almost anybody who has ever been involved in business can point to something they were involved in that was done well, but died because nobody was willing to actually pay enough money or buy enough of them to keep it alive. In the case of music, does this mean that not paying for (or sharing or stealing, however you want to phrase it) has become so institutionalized in culture that we risk its survival? Or does this mean that those who make the music are being treated like temp labor with the knowledge that if they won’t make it for a low price, someone else will? Maybe it’s just an offshoot of the rest of a capitalistic society where only the best of the best do well enough to make a career out of it and the rest move on.
In the US where the popular notion is that we care about things like locally grown food, fair trade coffee, and what happens to the people that make our iPhones at Foxconn, I don’t think there is a lot of real thought about what is truly value added and how our behavior as consumers fits in. I’m not saying that I do (or should) care whether or not everyone who built my truck, for example, is a self-actualized human being who is prospering in an encouraging and happy auto assembly plant. Even I’m not as big of a dreamer as to think that could or should be a likely scenario. Heck, I’m barely convinced that most of the people that I give my money to for their music even really enjoy what they are doing and are fulfilled by it. I do believe that we, as “Lean” thinkers, can use our ability to focus on the definition of value a little better as both producers and consumers. Maybe these are the kinds of discussions we can have with family and friends to help shape the way they look at their consumption. I think our observations have to go beyond just pointing out waste and go towards quality feedback we could provide to the people we give our money to, giving them a better understanding of how to make their business work.
In the lean community, many times we talk about how the consumer drives the price of a product or service. The price is not driven by some sense of entitlement we have to a certain profit margin.
Traditionally, the thought was:
Price = Cost + Profit
We find out what our cost is and add our profit to it and that will be the selling price. Things have not sold because companies price things higher than what the consumer is willing to pay for it.
The lean mindset is:
Profit = Price – Cost
Over the last couple of weeks, I have worked with a large group of people on their innovation process. How new ideas are presented to leadership and the decision making process on whether to proceed with the idea or not.
What I was pleased to hear was all the division agreeing that the consumer sets the price of the product. Not what profit we want to make. Finance to Supply Chain to the Creative directors and staff all agreed on this. Yet, there were times when the decisions being made on a product were only pursued if the price could change or the cost cut more. I understand wanting to hit a pre-determined profit margin but raising the price when the consumer is not willing to pay for it is just a waste of time. It generates zero revenue if not sold no matter what the cost is.
All the divisions agreed with this but knew they needed to put it into practice.
There was an example that was tricky that came up. In our business, we make consumer goods and then sell them through mass channels (CVS, Walgreens, Walmart, etc….). Our research says the consumer is willing to pay price X for a product, so we design and innovate around that knowledge. Then we show a retail partner, like Walmart, and the say they like the product but their customers will only pay Y which can be 50% less then what consumers told us directly.
So now what? Sometimes that makes the product unfeasible to produce without losing the integrity of what the consumer insights have told us it is they love about the potential new product. It can put us in a predicament because we can sell the product without Walmart but we feel we are losing revenue if we go by their insights.
All the divisions agree that we don’t get to set the price, but who does? The consumer (person buying the product off the shelf)? Or the customer (Walmart, CVS, Walgreens, etc…)?
What do you think?