According to a McKinsey & Co. survey conducted in June 2005, leading B-to-B companies that conduct collaborative projects with supply chain partners and end customers increase their revenues and profits by more than 20 percent on average. But joint projects are rare in B-to-B because process chain members worry about sharing internal secrets with others, even their partners and customers.
The push for cash flow improvement, increased revenues, competitor-resistant customer relationships and greater marketing accountability is changing this traditional isolation.
Desperate to Work Together
A well-developed understanding of Six Sigma discipline and a desperate need to appear savvier about sales and marketing drove SGL Carbon of Wiesbaden, Germany, to initiate a joint project with a manufacturing partner and an end user. “An extension of Six Sigma offered significant strategy improvement potential,” says Hans Bohnen, a Six Sigma Master Black Belt and quality leader at SGL. “The important thing was to get the customer involved in Six Sigma as well.”
British Energy, SGL’s customer, produces nuclear electric energy for the world. SGL produces the graphite from which nuclear reactor sleeves are made, then sends the graphite from Germany to Westinghouse Springfield Fuels (WSF) in England to have the sleeves assembled for British Energy.
SGL wanted to retain British Energy’s business and keep WSF in the fold too, but its existing process meant excessive, costly graphite supplies — US$1.5 million to $2 million worth — were always on hand at WSF. This allowed the company to begin installing sleeves when SGL called about a new British Energy order. Equally expensive amounts of materials were kept at SGL to prepare it for British Energy’s next order.
“We wanted to enforce our relationship with this key customer,” Bohnen says. Retaining and nurturing the relationship required a solid understanding of the customer’s business and profit potential. SGL knew that if British Energy would agree to a joint Six Sigma project, it would remain loyal to SGL for its graphite sleeves — loyal out of the Six Sigma collaboration experience and the vulnerability inherent in sharing the details of current processes, future business forecasts and pie-in-the-sky, new market penetration plans.
“In the beginning, when you talk to a customer, you try to avoid talking about your problems and they try to avoid talking about theirs. It’s always a perfect world,” he says. “But once you have used one another’s data confidentially, you can move into product and market development, working much more intensely with your customer.”
“What we recommend to our customers when we work on these process issues is that marketing should adopt whatever process discipline is used in the other functions of the company that are mature and experienced with process discipline,” says Naras Eechambadi, founder and CEO of Quaero, a marketing effectiveness consultancy in Charlotte, N.C. Marketing will appear more accountable if it uses a process approved by and acceptable to the rest of the company. “Six Sigma has its own language, and in the marketplace, there are lots of people who understand Six Sigma.”
SGL’s marketers could improve their relationship with British Energy by passing on valuable, reliable concepts for growth and innovation. “We wanted the customer to see the value of the Six Sigma methodology, DMAIC (Define the project, Measure the current situation, Analyze to identify root causes of defects, Improve, Control), and apply it to a new product development project with us,” Bohnen says. “Six Sigma comes from operational excellence, but now we’re trying to apply it to innovation excellence to help our customers find new market opportunities for graphite.”
The materials flow and manufacturing problems were helped with lean Six Sigma elements, such as value stream mapping. All three companies merged their process and needs information onto a single map — then worked together, openly discussing the bottlenecks and frustration each experienced.
The outcome was stronger, more accurate sales forecasting for SGL, as well as leaner raw material production and fewer demands on the machining partner, WSF. British Energy reduced the sales cycle time from 7 1/2 months to three months, and each of the three companies reduced the inventory they had available. British Energy ordered fewer sleeves at a time but ordered them more frequently.
“We now have a close relationship with our customer,” Bohnen says. “Our customer’s so secure with our ability to supply it with product on a timely basis that it signed a long-term contract with us.”
The real benefit for SGL and British Energy was the win-win on cash flow. “We have seen immediate results in cash flow and revenue generation,” Bohnen says. Additionally, both SGL and WSF were able to improve their working capital situation, which helped both make their businesses more profitable. The long-term contract and compressed sales cycle, as well as regularly scheduled British Energy purchases, increased SGL’s and WSF’s revenues considerably.
“Our next opportunity with British Energy would be to work on product development through design for Six Sigma,” Bohnen says. “We want to extend this collaboration year over year. We want to look for growth. If British Energy asks for a product or market change, the likelihood is that we’ll be the first company it asks for help.”