Leaders must Walk the Value Chain

I was reading Mannie Gill 's article the other day, "Why businesses are like empires", and it really resonated with me for leaders to stay grounded to the flow of their business.?This reminded me of a Jeff Bezos insight that came from working a fulfilment shift, that sparked a massive 亚马逊 initiative to understand the hidden costs in the value chain.?

You should read Mannie's brief article.?I really liked the point of:

"A great CEO is capable of doing a shift on the shop floor" ... "To be a leader, you need a tonne of curiosity to constantly question the status quo; and to connect with the people and ecosystems which will help you understand the way the world is changing around you."

So back in December 2000, Jeff Bezos was working holiday shift in an Amazon fulfilment center (as most of us at Amazon HQ were doing over the holiday peaks).?He and Jeff Wilke (SVP WW Operations at that time) were working the Non-Conveyable items shipping area (large, bulky, or awkwardly shaped items that were too big for the normal conveyors) and found they were spending 20 minutes to manually build each shippable cardboard container around a bunch of cheap tubular folding camping chairs, and these chairs were hot sellers.?The alternate was to put this 1 meter tube?bag into a giant oversized box that increases the cube and air being shipped in the trucks and planes, also not good.

This revealed the hidden expenses in the labor flow, that made these seemingly profitable chairs suddenly very unprofitable.??So Jeff B told the merchandising team to turn off the availability of the chairs to stop losing money on them.?Shortly after the vendor frantically rings up the Amazon merchandiser.??

Vendor:?Why have the sales stopped?!? Amazon is our?biggest retailer for these chairs!?

Amazon:?The hidden labor expenses to manually build the boxes make them negative profit, so we won't sell them anymore

Vendor:?We can put them into a shippable carton!? We do this for other retailers. It will only cost Amazon $0.25 more for each unit.??

Amazon:?( ... long pause ... )

Vendor:?Okay, no charge for the boxes

Problem solved.?This 'ah ha' moment and similar other findings of hidden expenses drove a whole initiative across Amazon to 'Get the CRAP Out' of inventory, which stands for "Can't Realize Any Profit".??Joining and attributing up a wide variety of customer complaints, fulfilment defects, returns, chargebacks, etc back to individual ASINs (global product SKU IDs) allowed Amazon to estimate the profitability of an individual ASIN based on fully loaded costs.?And finally know which ASINs were worth holding in inventory, and which ASINs were really money losers to be delisted.?This ASIN-level data has so many other benefits, including when I was running A/B optimization tests on Amazon, I could measure and optimise not just revenue per shopping session, but even contribution profit per shopping session.?And the trigger was our leadership feeling first hand the ups and downs in our value chain.

I learned so much during my first stint in an Amazon fulfilment center in December 1999, when I spent 5 weeks in Fernley, Nevada, managing the holiday peak of the graveyard shift for gift wrapping.??As a product manager at the time in the Amazon Books team, I thought we made money when consumers clicked the Buy Button on Amazon's website (I know, naive).?But the time in the FC taught me that the actual moment of revenue only comes when the right book is picked, put into the right package, and rolls across a conveyor to apply the shipping label, and gets on the right truck towards the customer.??

Early on Amazon had always been very focused on connecting leaders to the actual operations of the business, by requiring leaders to spend time in Customer Service and in Fulfilment Centers, starting in their first week at Amazon.?Working actual shifts, not just a tourist.?And when I was at 特易购公司 , they also were quite effective with their Feet on the Floor to put colleagues into shops for December holiday peaks, which brought to life the real experience of customers and colleagues using the tools and processes we built.?

My role at the time running Product for all Tesco Grocery Home Shopping (world's largest grocery ecomm business at the time) allowed me even more options to get closer to the operations and closer to customers:?riding along with drivers to make grocery deliveries to customers' homes in our 9 countries around the world.?There are very few businesses where customers invite you into their homes, and Tesco delivery drivers are so privileged (pre-covid).?

So for a product/tech guy like me, this is an amazing gift of contextual inquiry for how our shoppers live.?For that grandmother in Budapest, we carry the groceries up 4 flights of stairs, and put the 5kg bag of rice on her shelf because she cannot lift it herself.?Suddenly you have strong empathy for that customer's situation and a deeper understanding of our true proposition.?And it helped bring to life all of the unit economics operational assumptions of the business, such as item picks per hour and driver time at door.??It is so easy from the office to tweak the business model assumptions on productivity, but when you are in the field you suddenly have real context for what that means in reality, and whether it is or is not feasible.

Nothing important happens in the office. Get out and talk to customers, colleagues, suppliers.?As the Toyota quality system teaches us, there is no substitute for direct observation.?Leaders need to walk the value chain flow to understand the real cost to serve.?And create the process and permission for their teams to do the same.

How are you connecting yourself and your teams to the real value chain of your business??How are you building a deep understanding and empathy to your customer's Jobs To Be Done??Do you have an established process for leaders to spend time within the operations and interacting with customers??Please comment below on interesting examples and experiences you have had.

Onwards,?

Sean