SHOW & CHAPTER 6: THE POWER OF LOWEST COST PRODUCER - WILLIAM EASTMAN

In order to be competitive, a company must provide superior value to customers while maintaining healthy margins. This allows businesses greater flexibility to use price as a competitive advantage and self-fund improvements. This requires analyzing and improving internal costs (variable and fixed costs) and external costs.

Show Objective
Given a methodology for mapping processes, how to determine value provided and reduce steps, time, costs to improve quality.

EPISODE 25: Summary
Before we get into the details of achieving status as the Lowest-Cost Producer within your market, let’s tackle the difference between cost and price. LCP status is simply producing a product or delivering a service better and faster than the competition. That means if you don’t change the price you will have better margins than the competition or you can reduce the price and have the same margin as the competitor - both are excellent positions in the market.

You can use the additional margin to increase your marketing spend or price reductions, which will not hurt you, to buy market share from the competition. Usually it will force them to do the same and because of lower margins they are jeopardizing the health of the company.

The easiest method, especially if you are starting from scratch, is to use the value mapping process. 

EPISODE 26: KEY TERMS

• LCP "Lowest Cost Producer"
• “As Is”  - what it actually is – what people are doing
• “To Be” - what is possible – how much of the gap can close between Should Be and As Is
• “Should Be” - what the organization believes – what policy requires & best practices built on a clean slate
• Value Checklist - Customer Value, Technical Requirements, Legal Requirements
• AGILE - project management process that is iterative and collaborative, usies internal and external resources (SME)  to solve problems and build solutions
• SME – Subject Matter Expert, either internal or external
• QSFD – Quality/Service Function Deployment – technical method of integrating end user demands with technical requirements, used for designing processes, products, and services.
• ABC - "Activity Based Costing"

EPSIODE 27: LCP PART 1

1. Select the Target Process: Project Manager selects a target process.
2. ​Assemble Process Teams: Simple Projects – Project Manager creates an Action Team to handle the design, building, testing, and finalizing of the new process. Complex Projects – Executive creates a Design Team for research, design, and project management; and an Action Team for building and testing the new process.
3. Create “As Is” Process: Project Manager or Design Team works with employees in the targeted process to determine what they “actually do” and why those steps/methods were chosen.
4. Conduct Market Research: Based upon the output produced from the targeted process  Project Manager conducts research to establish a Benchmark (Should Be) as a starting point.
5. Compare “As Is” to “Should Be” Process: Project Manager or Design Team compares what should be done against what actually occurs to determine the reasons for the difference. This information is critical for designing the “To Be” process.
6. Perform a Value Check: Check 1 - does this step provide value to the customer is willing to pay for? Check 2 - is the step required for technical or quality demands? Check 3: is the step required for legal or regulatory demands?
7. Complete a QSFD: A structured process for creating design specifications based upon user needs and technological requirements. Should include project manager, functional management, subject matter experts, and front line employees.
8. Create “To Be” Process Map: Starting from the As Is, Design and/or Action Team build a process that establishes the company as the LCP (Lowest Cost Producer) or as close as possible.

EPISODE 28 LCP Part 2

1. Test “To Be” Process: Action Team tests the new process under real conditions to identify cycle time, costs, and defect constraints in achieving LCP.
2. Upgrade “To Be” Process: Action Team incorporates improvements to reduce costs and cycle time, and eliminate defects until performance standards are achieved.
3. Finalize “To Be” Process: Project Manager or Design Team reviews results from the Testing and Upgrade Steps and “freezes” the final design as a new “As Is”. 
4. Integrate Policy & Procedures: Project Manager or Design Team updates Corporate Policies and Procedures to formalize the new process – creates the new standard – the “As Is” process.
5. Create / Update Standard Operating Procedures - creating documentation of new best practices
6. Create / Update Position Descriptions: Ensure new and/or revised tasks are incorporated in Position Descriptions for hiring, management, and compensation.
7. Scheduled Review: Each significant process should undergo periodic review to ensure the organization maintains LCP in their market.

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Next Show/Chapter 10: Supplier Value Added

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