Date: Thu, 30 Jan 1997

From: Joseph N. Pangilinan

To: Tu Dinh Nguyen

Dear Mr. Nguyen,

I listed below some of our "UDE's", mostly related to inconsistent product quality and reliability (of schedules) which cause low over-all reliability. This really started out as a backyard hobby, but has now grown into more serious business. For the effort, financial rewards are embarassing, but I see immense potential, if we simplify and do things correctly. Sorry to have to unload these to you like this. If you want me to work on them further, let me know.

INTRODUCTION:

As you know, we manufacture very special hand-wrought iron and hand-wooven wicker furniture and furnishings. We produced-in various quantities- roughly 50,000 pieces of about 100 different designs last year. I would imagine that I would have a different CONSTRAINT (bottleneck) for every design ordered. Some designs skip processes such as weaving, for example. Our factory works on JOB ORDER (F.O.B.-Manila) basis. Orders, which consist of varying quantities of an average of 4-6 different designs, are closed at trade shows or by fax/ mail (in the case of existing customers) and are only released to the production floor as soon as these are covered by a letter of credit OR telegraphic transfer. Most details of designs are agreed upon based on prototypes sent (and corrections made) before the order is actually closed. Usually, the L/C is released 15 to 30 days after the orders are placed by customers. The L/C is an assurance that goods are paid immediately upon proof of departure from the port. It has happened a few times in the past when we would start producing orders that are NOT covered by L/C only to be left with unpaid goods that need to be re-sold locally or elsewhere. This whole cycle from the written order (or signed Pro-Forma offers) to delivery takes anywhere from 60 to 75 days, but we work on several orders of varying magnitudes at the same time (maybe 10-15). Collections are received in our bank a week after the shipment.

Generally, we follow the same basic processes even if the designs are different and these are usually in the following sequential order:

Factory Workers are paid either on a daily rate OR as regular piece-workers (so throughput is Selling Price less Material Cost and Piece-Rate). Although we have a lot of problems internally, I can say we have established an excellent reputation and goodwill with foreign and domestic buyers of our special kind of "hand-made" furniture, as a reliable, quality supplier. Most of our problems, I would say stems from a lack of a focused product-market strategy coupled with our deep-rooted marriage with the "Cost World".

What we SAY we believe in is often what we THINK we believe in, but could actually be different from what we practice. Deliberately or not, people only put time and effort in doing what they TRULY believe in or value. So although we claim to strive to exceed customer expectations in terms of quality, and in fact are by far one of the best quality suppliers of our type of furniture and furnishings, we STILL have a host of quality problems that result in voluminous rework and rejects. Naturally, this affects throughput, increases inventory and operating expense. Inspection efforts, a necessary evil, is never enough.

UDEs

Common Attitude.

• "Do as I say, not as I do." Common Attitude of management
• "It is their weakness (not mine) that is causing our misery, so they must change (not me)."
• We tend to blame eachother, but we fail to check our own individual responsibility within our own circles of influence.