From Chapter 3
Lean Production: Dealing with Customers
Toyota in its initial days only developed a build-to-order system in which the dealer sent orders for presold car to the factory for delivery to specific customers in two to three weeks. The salesmen at the dealer went directly to customers making house calls. When demand began to droop, they worked more house and also they visited households they knew more likely to buy Toyota cars. This door-to-door selling of cars is termed as aggressive selling. Toyota built a massive data base on households and their buying preferences for Toyota products.
The Toyota sales system incorporates the buyer into the product development process. In Japan vehicle inspection take place frequently and buyers change cars after six years. Toyota minimize the chances of losing a Toyota user by using its consumer data base to predict what buyers want next as their incomes, family size, driving patterns and tastes changed. Thus Toyota directly goes to existing customers in planning new products.
Chapter 7 Dealing with Customers
Is there a lean approach to selling and servicing cars, an approach that completes the lean-production system? This is the question raised and answered by Womack et al.
The authors say at least in logic, a number of elements of lean approach to selling and servicing can be seen in Japan (1990).
Toyota calls the customer as the owner and the purpose of the distribution channel is specified as establishing a direct link between the manufacturing system and the customer. The channel personnel are involved in developing new products that are to be sold through the channel.
The sales staff at each sales outlet works as a team. The salesmen are multiskilled persons. Each day, the team begins with a meeting and ends with a meeting. During the bulk of the day, the Toyota sales team members disperse to sell cars door-do-door. Each month, the entire team takes up a day to solve systematically any problems that have cropped up, using the "five whys" and other problem solving techniques. These meetings are the quality circles of the sales team.
Due to door-to-door selling effort, the sales team knows a lot about the customer and his requirements for new products.
Japanese factories deliver a customer-ordered car in under two weeks in Japan.
The dealer will fix problems in the car through the life of the car except for usual wear and tear problem. But due to the high quality of the cars, such servicing is really not needed.
The Lean Dealer: the lean dealer will not keep a big inventory of cars. He keeps only demonstration models. Salesmen receive group commission and do not compete with each other but try to make the sale as a group. The service area in the dealership is to help the customer to complete the inspection of the Ministry of Transport.
Lean Sales and Marketing by Brian Maskell - At BMA Inc. Leaders in Lean Accounting 2010http://www.maskell.com/Lean_Sales&Mktng/Articles/Lean_Sales_and_Marketing_Final.pdf
Concepts Associated with Lean Sales and Marketing
Value-Based Sales and Marketing
Integrating Sales into the Value Stream Organization
Kaizen - Continuous Improvement
(Note: You can see the featues identified by Womack et al. in Maskell's presentation)
Value-Based Sales and Marketing
If we recognize that a correct assessment and outworking of customer value is an important – perhaps the most important – aspect of lean thinking, then our approach to the customer will radically change. They recognize that to win new business and grow the company, it is vital to understand what creates value for our customers and to use this knowledge to develop appropriate products and services that maximize customer value. They also recognize that prices must be based on the value created for the customer.
While many sales and marketing people intuitively address the customers and markets from a value viewpoint, lean organizations have standard and systematic methods of focusing on customer value throughout the entire organization and have methods to calculate the value created for the customer by the company’s products and services. Customer value is widely understood throughout every aspect of the
company’s business is and is the primary driver of decisions and of lean improvement.
Lean thinking and improvement must be driven by a profound understanding of customer need and value; and – in most cases – this starts with the sales people and runs through to every process.
Understanding How We Create Value for the Customer
Understanding the value created for the customer is the starting point of lean thinking; it is the first principle of lean. The starting point for understanding customer value is the customers themselves. Lean organizations and lean sales professionals spend a great deal of time with their customers in order to understand their needs and how these needs can be translated into products and services. There are many ways that value is created for a customer. Here are a few examples:
• A superior product
• A unique product
• Converting commodity products into unique products through customization,
innovation, or additional unique services
• A product that reduces the customer’s costs or increases the customer’s revenue
• A product that reduces cost or increases value for the customer’s customer
• Providing a more complete solution to the customer’s problem or need
• Lowering the life-cycle cost of ownership or use of the product
• Offering services only lean companies can provide; short lead time, reliability,
perfect quality, flexibility, lower inventories, improved cash flow, cooperative
• Creating esteem or prestige for your customer by being associated with your
products and services
• Providing very much superior services to the customer.
Calculating a Value-Based Price
Once we have established the value created for the customers by our products and services, we can them move to calculating the price for the product. Companies that have been using a more-or-less cost-plus approach to pricing often find it difficult to transfer their thinking towards a value-based approach. It takes
some time before they are able to make these adjustments for their existing products, but as new products are introduced into their market places these can be priced based upon value. Gradually, pricing based on customer value will grow.
Advantages of Value-Based Pricing
The primary advantage of value-based pricing, as opposed to cost-plus pricing, is that your company will sell more products and usually at higher prices. Companies using value-based pricing will set their prices
based upon the true value to the customer and the company’s pricing policy. The sales people are able to give their potential customers a logical rationale for the prices based upon the benefit the customer gains from using the product. This leads to higher revenues, higher profitability, a better informed and empowered sales force, and more harmonious customer relationships.
Lean organizations are not looking for one-time sales; they aim to create partnership relationships with their customers that build up and sustain over years.Partnership relies on mutual respect and shared benefit. Relationship marketing can be another name for partnership in marketing.
Sales and marketing people within lean organizations must learn to give up the quick sale and work to create long term relationships.
Integrating Sales into the Value Stream Organization
The sales process is the starting point for an order fulfillment value stream. Organizationally lean companies create value stream teams consisting of all the people, processes, and skills required to fulfill the customer
needs and meet their demand. Whenever possible the sales people should be within these value stream teams, in the same way as production people, purchasing people, quality, materials handling, and so forth.
In many companies, the sales people are often organized differently from the order fulfillment value streams of which they are a part. The ideal is for the sales people to be tightly integrated into the value stream
team, but when this cannot be done directly, there must be methods for bringing the sales people and the order fulfillment value stream team into cooperative relationships.
Here are some of the methods employed:
• Cooperative opportunity assessment. New business opportunities are posted onto a visual board together with the relevant data. Over a period of a few days – using daily short stand-up style meetings – the sales people, purchasing, production, design, and other key people work cooperatively to address the opportunity and make decisions. These approaches have proven to lead to more sales, better pricing, faster response to the customer, and better strategic decisions.
Assign sales people to specific value streams even though they are not organizationally within the value stream team. The sales people work closely with the value stream teams to create cooperation with the sales organization, and to assist the value stream to make improvement, and solve problems.
Toyota has multiple sales channels and thus make their sales people a part of the value stream of that particular class of cars.
Many companies control their sales force – both internal sales people and external “reps” – by individual compensation and commissions. On the other hand, lean organizations are always looking to promote team-work.
These companies may continue to remunerate their sales people based upon the sales they make, but these commissions are not paid based on individual contribution but team contribution. These changes lead immediately to the sales people working together as a team to serve the customers and meet the company’s sales needs.
The sales and marketing teams in lean organizations are very closely involved in the planning process, SOFP. This means the sales and marketing teams are not merely providing forecast information but are an important part of the cross-functional teams that make the short-term and long-term planning decisions.
One important outcome of the SOFP process is a level schedule of production, service provision, product development processes, and demand on suppliers.
Instead of rewarding customers that place large batch orders at the end of the periods to make up budgeted sales, lean organizations apply discounts every day to motivate many smaller orders. It is better for a lean company to receive small orders daily to meet a daily budget than to get a large monthly order to meet monthly budget. The company’s sales and promotional methods change to motivate small, frequent orders. Similarly, some companies provide discounts to the customers that place orders linearly over the year
or quarter. Other companies provide bonuses to sales teams that bring in linear orders from their customers.
The purpose of target costing is to drive the company’s lean change and improvement directly from customer value. We first calculate the price of the product based on customers' expectations and views and then
target cost required to meet the customers’ needs for value while satisfying our own needs for profitability and cash-flow and fulfill the company’s short and long-term goals.
We then split the target cost into sections according to the materials costs and the various major sub-assemblies manufactured during the value streams process. This leads to a process that is fundamentally lean; continuous improvement within the value stream is directly driven from customer value.
There are four major steps in the Target Costing process:
• Understanding customer needs.
• Quantifying customer needs
• Calculating target costs
• Attaining target costs through continuous improvement
Kaizen - Continuous Improvement
Everyone in a lean organization is required to make operational improvement to their processes using a series of lean improvement and problem solving methods. Sales and marketing is not an exception. The sales and marketing people are required to achieve 5S, and to do kaizen events to improvement their own processes.
The sales and marketing people also work with the value stream teams to improve the order fulfillment process and integrate the sales activities more closely.
Torgeir Halvorsen, CEO of Jaeger Toyota, Norway
presents his speech "Does Lean work in Sales and Service?"
at the New Horizons for Lean Thinking - Lean Summit 2010 ran by the Lean Enterprise Academy.
Lean consultant Bill Waddell explains how Lean principles change conventional approaches to sales and marketing. 2011 Video presentation
Boosting sales in financial firms through Lean Selling - McKinsey Article - 2010