Dates, gates and targets: the zero-defect start-up

There has been a considerable increase in the use of key performance indicators, making the logistics business far more scientific. As a former shipper, Ceva CEO John Pattullo has a particular perspective on the way logistics providers are changing

"If you look at the transformation in manufacturing in the last 25 years, from Total Quality to the Toyota model - I don’t think there has been the same level of progress in the logistics industry, the same application of rigorous methodologies. As a customer of the industry, my perception was that it was operationally not as sophisticated, and a bit fragmented. You could talk to logistics providers and the only thing they were interested in was France, or their patch, rather than be able to speak more generally.

"The opportunity for us with customers is to keep focusing on operational mastery and really working hard at being the best at running supply chains, because that will help customers to appreciate the industry more and bring us more business."

Ceva employs an ex-Toyota executive, who heads up its Lean programme. The Japanese carmaker is famed for its adoption of the Kaizen philosophy of continuous improvement, and Pattullo is an enthusiastic follower.

"We have a Kaizen programme, where we target each of the 4,000 Ceva supervisors to do five Kaizens a year. We are not there yet, but it is starting in terms of training, and I think it is a very important way of improving operational standards.

Smart solutions

"We also have what we call zero-defect start-up (ZDS). I think about 50% of startups fail to meet the customer success criteria. The ZDS has dates, gates and targets, and you don’t move to the next stage unless the customer is happy with the first stage. We are now using that for virtually every start-up, and we are getting 90-95% success rates.

"And we have Ceva smart solutions, where we take our best know-how and turn it into a product.

"We can go to a customer in another part of the world and present it as a solution.

We have now got 12 of these. They allow you to do a great job of designing a solution for a customer without having to recreate the solution every time. It is about replicating best practice in a way that is transferring our skills and knowledge.

"We have made a major play on it as a company. I think it resonates with customers. And I think it is helping us win business and helping us operationally.

"There is a fundamental belief that operations excellence is the way forward."

TNT Logistics was a champion of the Lean philosophy, which partly came as a result of focusing so heavily on automotive logistics.

"I think automotive is still the most sophisticated and demanding set of customers I have come across. I think that is what started the work on Lean. Most of them talk Lean and if you can’t talk the same language, you are disadvantaged straight away. People sometimes ask, ’don’t you wish you were less into auto?’, and it is difficult at the moment. But it is a very challenging logistics space, and if we can do well in auto, we can do well anywhere.

"Customers see that. If you go to a customer in hi-tech or industrial, and if they know you are successfully meeting the needs of automotive players, generally they say these guys must know something about running operations. It is quite an important credential for us. And I think it does help the skills in our company. People learn those skills and re-apply it.

"Certainly inbound logistics is very repeatable. Auto spare parts, industrial spare parts and hi-tech spare parts are very similar. The outbound car transport is a bit more specialist, but that is not a very large part of our activity."

But having a relatively high exposure to the automotive market does give Ceva a certain insight into where business is, in terms of inventory levels. Pattullo is non-committal on reports from other logistics executives that a restocking phase is under way.

"I can give you individual customer stories supporting the view that we are back to the normal pattern of inventory levels, or that they have got too much inventory, but I don’t believe we can discern a pattern.

"We hope that inventories have got back to normal levels and the upturn we have seen since March is real consumption, but I think it is too early to tell. I think by about the end of the next quarter, the patterns will be a bit more obvious.

A complex mix

"Somewhere, someone must have statistical models to work it out, but it is beyond me. I think it is a complex mix at the moment. The same is true with individual industries. Clearly you see big differences between the consumer industries, particularly food, and automotive and industrial, where you see 70-80% drops. The inventory consequences vary by sector as well."

But he is clear that business picked up in March, and so far it has continued.

"March was better than February, and April is more like March than like January and February. But what I am saying within the company is that it is far too early to draw any conclusions. It is encouraging.

It is nice to have something to be mildly positive about, but we shouldn’t overreact until we see a real trend there.

"In broad terms, our markets are down by about 20% and our revenues by about 15%. So we are doing better than our markets, but it is still a challenging situation.

"This [restocking] is more evident in Europe and Asia than North America, and across most sectors, but not so evident in the heavy industrial sector, which is still quite challenged."

He notes that big capital projects don’t easily switch on and off, and that the decisions to cut back or not invest were probably made six or nine months ago, while decisions being made now will probably come through in six to nine months’ time.

No-one knows when we will emerge from recession, he says, but he believes that growth may return almost unnoticed.