Managing Operations Across the Supply Chain 1st Edition by Morgan Swink,Steven Melnyk,Bixby Cooper, Janet Hartley

Exercise 2

Western Telephone Manufacturers
It was a tough year for Western Telephone Manufacturers (WTM)of Canton, Michigan.Until this year, WTM had been the darling of Wall Street.Beginning in 1990, this company was one of the first to wholly embrace the concept of Six Sigma and total quality management.Every employee had been trained in the tools and application of Six Sigma.An internal consulting group was established to support the Six Sigma efforts and to help personnel with quality problems.Furthermore, management complemented its Six Sigma efforts with the implementation of lean systems principles and practices.
Over a 18-year period, WTM had transformed itself completely.Prior to making the Six Sigma and lean-based improvements, quality was poor (field reports indicated that between 10 to 12 percent of all telephones produced failed in the field on initial usage by the customer, as compared to 2 to 4 percent failure rates for competitors); lead times were longer (about 20 percent longer than thecompetition); and costs were high (a WTM telephone cost about 12 percent more than one provided by the competition).By 2008, WTM was the leader in cost control, quality (with failure rates running less than 1 percent per million), and lead time.
Much of WTM's success could be attributed to the enthusiastic support of Ted Hendrix, the CEO of WTM.He placed posters throughout each of WTM's manufacturing locations that encouraged employees to adopt the following principles:
• Without standardization, there is no opportunity for improvement.
• First time, every time, right-that is the goal.
• You are at the heart of Quality.
• Our customers want products that work; not products that fail.
• Attack slack.
• Attack waste in every form that it appears in.
• Perfect Quality-not simply a goal but what the customer expects.
Consistent with this emphasis on quality and cost, Ted also instituted a program that measured cost savings closely and regularly.To be promoted at WTM, it was widely recognized that workers had to identify and implement projects that generated verifiable and significant cost savings ($25,000 a year or over for Green Belts and $100,000 a year for Black Belts).All management candidates had to generate at least 10 quarters of above average performance to be considered for promotion.For example, costs of their operating units had to be lower than standard costs by a minimum of 10 percent for 10 quarters.
Hendrix was known for the quirky things he did to ensure that everyone in the organization knew the importance of Six Sigma and lean.It was not unusual for Ted to show up at a plant to recognize an employee for efforts above and beyond the call of duty.He called such employees "Six Sigma Samurai." Any employee so recognized could expect to receive a free one-week family vacation anywhere in the United States, a check for $1,000, and a replica of a Japanese samurai sword (a Katana).Hendrix also posted their pictures in the Six Sigma Hall of Fame at corporate headquarters and placed them on the fast track for promotion.
Until 2008, this approach appeared to be working: WTM stock prices were moving above the industry average, many business magazines had printed feature articles about WTM, and cases on WTM and its journey with Six Sigma/lean had been written and published by such high profile business schools as Harvard and the Darden School, University of Virginia (both major publishers of business cases).
In 2008, WTM began to see significantly diminishing returns from various Six Sigma projects.In addition, technological innovation had begun to both increase the complexity of a telephone's features and change the methods used to produce it.After reading a report on the future of the telephone generated by a major consulting company, Ted Hendrix decided that WTM needed to change in order to survive into the next 20 years.Their emphasis on quality had to be replaced with an emphasis on product and technological innovation.Quality could not be forgotten but everyone had to recognize that the new source of growth was a passion for innovation.Innovation, Hendrix had decided, was the new mantra for WTM.
Consistent with this decision, Hendrix visited the various plants to discuss the need for innovation, and why it was so important.He also held more than 10 webinars that were open to all WTM employees.Each 60-minute webinar was followed by a 30-minute question and answer session.With the support of his top management team, he made a number of changes at WTM:
• Extensive training in product innovation was carried out.
• Employees were exposed to presentations from such well-known innovation companies as GE Transport, Procter Gamble, 3M, Apple, and Netflix.
• A new program of grants aimed at encouraging investment in innovation (and known as the WTM Innovation Grant or WIG)was introduced.
• A new Research and Development Center was established at Michigan State University.This center was to work with select faculty in North America, Europe, and Japan with the goal of identifying and introducing truly new and radical innovations in telephone technology.
• Changes were made in the performance measurement scheme.Specifically, a new metric, percentage of revenue generated from products less than 3 years old, was introduced.
Hendrix tried to ensure that everyone understood that the important mantra at WTM was no longer "Lean and Mean," but rather "Fast and New." After employing numerous consultants to review the changes made, Hendrix felt that WTM was poised to become a leading innovator in the telephone receiver industry.
Reality, however, has not fulfilled Hendrix's expectations.Personnel who felt comfortable with Six Sigma and lean were distressed by the new emphasis on innovation.Many of their new products had unacceptable in-field failure rates.Quality-based delays caused WTM to frequently be late to market with new products.Consequently, WTM had to accept lower prices, even though their development costs were just as high as those of their competitors.Employees felt comfortable with the predictability of lean and Six Sigma; they were frustrated by the lack of predictability of innovation.Telephones that everyone at WTM thought were going to be winners often turned out to be losers.Finished goods inventory was going up.Costs were beginning to creep up.When a winning product did occur, WTM often found itself unable to respond fast enough to the increase in demand.In frustration, workers at one plant led a strike against management; their grievance-management was preventing the workers from doing their jobs with this new emphasis on innovation.Corporatewide grumbling with this new shift in strategy was also heard; many argued that there were still numerous opportunities for Six Sigma and lean to do their magic; the emphasis on innovation, consequently, was seen as being premature.
As Ted Hendrix surveyed the state of WTM at the end of 2009, he saw a company that was experiencing real difficulties in bringing new technologies to the market.He was frustrated by the fact that WTM was making great strides in developing just the types of technological changes demanded by the marketplace, only to have the advantages offered by the new technologies disappear once the product was released for production.The company faced serious challenges in being as successful at innovation as it once was with quality and cost control.
What recommendations would you make to Ted Hendrix?