Background Note

In the 1970s, Xerox focused on introducing new and more efficient models to retain its share of the reprographic market and cope with competition from the US and Japanese companies. While the company's revenues increased from $698 million in 1966 to $4.4 billion in 1976, profits increased five-fold from $83 million in 1966 to $407 million in 1977. As Xerox grew rapidly, a variety of controls and procedures were instituted and the number of management layers was increased during the 1970s. This, however, slowed down decision-making and resulted in major delays in product development.

In the early 1980s, Xerox found itself increasingly vulnerable to intense competition from both the US and Japanese competitors. According to analysts, Xerox's management failed to give the company strategic direction. It ignored new entrants (Ricoh, Canon, and Sevin) which were consolidating their positions in the lower-end market and in niche segments. The company's operating cost (and therefore, the prices of its products) was high and its products were of relatively inferior quality in comparison to its competitors. Xerox also suffered from its highly centralised decision-making processes. As a result of this, return on assets fell to less than 8% and market share in copiers came down sharply from 86% in 1974 to just 17% in 1984. Between 1980 and 1984, Xerox's profits decreased from $1.15 billion to $290 million. In 1982, David T. Kearns took over as the CEO. He discovered that the average manufacturing cost of copiers in Japanese companies was 40-50% of that of Xerox. As a result, Japanese companies were able to undercut Xerox's prices effortlessly. Kearns quickly began emphasising reduction of manufacturing costs and gave new thrust to quality control by launching a programme that was popularly referred to as 'Leadership Through Quality.' As part of this quality programme, Xerox implemented the benchmarking programme. These initiatives played a major role in pulling Xerox out of trouble in the years to come. The company even went on to become one of the best examples of the successful implementation of benchmarking.

Benchmarking at Xerox

The 'Leadership through Quality' programme introduced by Kearns revitalised the company. The programme encouraged Xerox to find ways to reduce its manufacturing costs. Benchmarking against Japanese competitors, Xerox found out that it took twice as long as its Japanese competitors to bring a product to market, five times the number of engineers, four times the number of design changes, and three times the design costs.

The company also found that the Japanese could produce, ship, and sell units for about the same amount that it cost Xerox just to manufacture them. In addition, Xerox's products had over 30,000 defective parts per million - about 30 times more than its competitors. Benchmarking also revealed that Xerox needs 18% annual productivity growth rate for five consecutive years to catch up with the Japanese. After an initial period of denial, Xerox managers accepted the reality.

Xerox collected data on key processes of best practice companies. These critical processes were then analysed to identify and define improvement opportunities. For instance, Xerox identified ten key factors that were related to marketing. These were customer marketing, customer engagement, order fulfilment, product maintenance, billing and collection, financial management, asset management, business management, human resource management and information technology.

Supplier Management System

Xerox found that all the Japanese copier companies put together had only 1,000 suppliers, while Xerox alone had 5,000. To keep the number of suppliers' low, Japanese companies standardised many parts. Often, half the components of similar machines were identical. To ensure part standardisation, Japanese companies worked closely with their suppliers. They frequently trained vendor's employees in quality control, manufacturing automation and other key areas. Cooperation between the company and the vendor extended to just-in-time production scheduling, i.e. delivery in small quantities, as per the customer's production schedule. In line with the best practices, Xerox reduced the number of vendors for the copier business from 5,000 to just 400. Xerox also created a vendor certification process in which suppliers were either offered training or explicitly told where they needed to improve in order to continue as a Xerox vendor. Vendors were consulted for ideas on better designs and improved customer service also.

Inventory Management

Xerox's efforts to improve inventory management practices drew inspiration from the innovative spare parts management practices of its European operations. Traditionally, technical representatives decided the level of spare parts inventory to be carried; little information was available on the actual usage pattern of the spare parts. Xerox's European operations developed a sophisticated information system to get around this problem. Actual usage, rather than mere withdrawal from the stocking point, was used to determine inventory levels. In the late 1980s, Xerox replicated the system in the US and saved tens of millions of dollars in the process.

The stocking policy followed by Xerox branch managers was to hold fully finished, fully configured products near to the customer. Because of this policy, they carried vast amounts of inventory, some of which was not even sold during a given period. The company changed the above setup by asking branch managers to match the stocking policy to the customer's installation orders, which considerably reduced the inventory holding time. As a result, working capital cycle time was cut by 70% leading to savings of about $200 million.

Marketing Xerox introduced a Customer Satisfaction Measurement System that integrated customer research and benchmarking activities. The company sent out over 55,000 questionnaires monthly to its customers to measure customer satisfaction and record competitors' performance. It then benchmarked against those competitors that had scored high marks on specific measures of customer satisfaction. Xerox also used the vast amount of information gathered by the system to develop business plans for improving quality and meeting customer needs.

Quality

As a part of its Leadership Through Quality programme, Xerox reformulated its quality policy. The new policy supplemented the company's benchmarking efforts. Xerox's new quality policy stated, "Xerox is a quality company. Quality is the basic principle for Xerox. Quality means providing our external and internal customers with the innovative products and services that duly satisfy their requirements. Quality improvement is the job of every Xerox employee". Following this, the company embarked on a complete organisational restructuring exercise that focused on research and development, employee involvement and customer orientation.

Xerox also formed a transition team consisting of 24 senior managers and consultants from McKinsey & Co to help make total quality management (TQM) a part of its organisational culture. The transition team took action at two levels. Firstly, it conveyed the message clearly to the world that Xerox was pursuing more widespread use of TQM, and secondly, it identified and addressed the obstacles that were likely to slow down the spread of TQM. These ranged from the corporation's function-dominated matrix structure to the need for new training programmes. Consequently, the transition team also replaced the existing complex matrix with three strategic business units (SBUs) - Enterprise Service Business, Office Copiers and Home Copiers. Each of these SBUs was given considerable autonomy in engineering, marketing and pricing.

Reaping the Benefits

The first major payoff of Xerox's focus on benchmarking and customer satisfaction was the increase in the number of satisfied customers. Highly satisfied customers for its copier/ duplicator and printing systems increased by 38% and 39% respectively. Customer complaints to the president's office declined by more than 60%. Customer satisfaction with Xerox's sales processes improved by 40%, service processes by 18% and administrative processes by 21%. The financial performance of the company also improved considerably through the mid and late 1980s.

Overall customer satisfaction was rated at more than 90% in 1991. Some of the other benefits Xerox derived were: Number of defects reduced by 78 per 100 machines Service response time reduced by 27% Inspection of incoming components reduced to below 5% Defects in incoming parts reduced to 150ppm Inventory costs reduced by two-thirds Marketing productivity increased by one-third Distribution productivity increased by 8-10% Increased product reliability on account of 40% reduction in unscheduled maintenance Notable decrease in labour costs Errors in billing reduced from 8.3% to 3.5% percent Became the leader in the high-volume copier-duplicator market segment Country units improved sales from 152% to 328%.

Adapted from:

Xerox. (2006). "Xerox - The Benchmarking Story". Available from: ;. [Accessed on 31 August 2021].

Question text

"Rather than limiting the focus of attention to reducing greenhouse gas emissions, it is important to recognise the effect of economic activity on the use of scarce resources across the value chain as a whole. Decisions that are taken at every stage in a company's value chain can have significant implications for resource requirements and for the wider environment." (Christopher, 2016, p.275)

Source: Christopher, M. (2016). Logistics and Supply Chain Management. 5^th ed. Harlow: Pearson.

Carefully read the Xerox case study and answer the question below.

Xerox has contacted you to assist it with minimising its carbon footprint. Its products (high volume duplicators/ copiers and printers) are generally large, heavy and have many components supplied by a wide range of suppliers.

Proposal explaining the sustainability implications of supply chain decisions on the five key business processes and make recommendations for reducing Xerox's reliance on scarce resources and mitigating impact on the environment. (5 marks per business process