Critical Chain - Eliyahu M. Goldratt [70]
"We don't have to think about it," Mark responds immediately. "In our case the penalty is mammoth."
And he explains to the class his company's situation: a hightech company captured in a frantic race, forced to release a new generation of products every six months or so. A few months' delay in their case means a substantial drop in market share. I interrupt to highlight an important point. "In Mark's case the damage is much more severe than in Brian's case. Mark's company is not going to lose just additional sales, they are also going to lose existing market share."
"It's even worse than that," Mark continues. Since our stock value is based on expectations, a drop in market share means mammoth damage to our shareholders. And therefore to our job security."
"Is everybody involved in developing new products as aware of this as you are?" I ask, surprised.
"I don't think so," Ruth answers. "Few see the full ramifications."
I think Mark disagrees with her when he says, "Every project manager knows that it's important not to be late." But then he continues, "They know it because the pressure to finish on time is immense. But, as a project leader, I can tell you, they don't really know why. Until our executive vice-president explained it to the three of us, we didn't know. Maybe Fred did, but I didn't."
"Me, neither. I was not aware of the impact on the shareholders and the impact on the future of the company," Fred confirms.
"This is generally the situation," I conclude for the class.
"Most people involved in the project, often including the project leaders, are not fully aware of the magnitude of damage associated with a delay. No wonder that when we negotiate with vendors or subcontractors we do not pay enough attention to their lead time."
"You may be right," Roger comments, "but it's too late. We have already conditioned the vendors to compete on price."
At first I'm surprised that Roger is bothering to participate. Then I realize that, at last, we are dealing with his subject.
I think I understand what he meant, nevertheless I check. "What do you mean by ‘conditioned to compete on price'?"
He doesn't bother to explain. He just states, "Competing on lead time! It's beyond them."
Noticing my skepticism, he continues, "I don't believe that it is possible to explain to them that lead time is very important for us. Sometimes more important than price."
"What will happen," I suggest, "if in your request for proposals you write a sentence like ‘above X price don't submit, above Y lead time don't submit a proposal.' Don't you think that will drive the message home?"
"To put a price in my request for a proposal?" He is astonished.
"Not a price. A cap on the price."
He doesn't answer. He thinks. So he is not as thick as I thought.
An attack comes from a direction I least expected. "Still, many vendors are conditioned to compete only on price," Ruth declares.
"Why do you say that?" It's my turn to be astonished.
"You know how many times I've tried to squeeze shorter lead times from a printing house? Every time we run into an emergency with our promotional material. Which means, very frequently. I try to offer more money, I beg, I plead. It doesn't help. They behave as if their lead times are cast in iron."
I struggle with it. It's hard for me to believe that's the case. But Ruth is very reliable. I ask some more questions. Ruth fully cooperates. She will not twist around the facts, but she struggles with me. Others contribute. Ruth is not the only one who has to deal with printers. Finally the picture emerges.
You go to a printer and ask for a quote for a brochure. They tell you four weeks. You come with all the needed final material in your hands, and you are willing to pay more, and they agree to do it in four days. They simply have had very bad experiences with clients wasting so much time making up their minds on all the details.
"So there is a way to trade lead time for money," I conclude. "The key is to understand the true impact