Business System Failure - How a Poor System Caused a Performance Failure - A Case Study By Leon Noone

History

I used to work in a company where stationery was distributed from a central store each week on Wednesday afternoons. If you needed stationery urgently you could receive it almost immediately by making a phone call. But proper approval procedures were always followed. Then management decided that the stationery inventory should be reduced. Our informal but effective system had to be "improved".

The New System

The efficiency experts descended on the company. They decided that the central stationery store couldn't possibly be open every Wednesday afternoon to serve the clients - us. They decreed that stationery should be supplied on order not demand.

Of course, it immediately increased the time involved. You had to prepare and submit a formal requisition as you would for a purchase from an external supplier. Administration guaranteed to supply the stationery "within 14 days".

Impediments

To make sure that we clients co-operated, the experts demanded that all administrative requirements be fulfilled perfectly. For instance, a requisition would be returned - and delayed - if it was undated. It became difficult to get stationery when you needed it. The new system also demanded two weeks' notice for large or special orders. This enabled a keen purchasing clerk to go out and search competitive pricing - a euphemism for "cheapest."

That all sounds pretty good. In reality it was a disaster.

Consequences

The supply of stationery wasn't prompt or complete. The "within 14 days" was ignored. I once had to go out to buy a box of pencils because "the order was late". Special orders were supplied on price alone, with no regard for quality or service.

Bit by bit, other departments found the answer. They started building up their own stationery supplies.

The total company inventory for stationery tripled in 6 months. Under the new system every department, every section, and in some cases, even individual managers over-ordered and kept their own stationery supplies.

The system stopped people from doing the very thing it was initiated to encourage them to do: co-operate with administration to reduce inventory.

Conclusion

In this example the new system was harder to follow than the one it replaced. And it failed to provide the same service level. The consequences were that costs tripled and everyone played "beat the system". Sound familiar?