Tag Archives: improvement

Plugging the Supply Chain “Leaky Pipe”

manufacturing material supply chain

I had the good fortune of being able to help the CEO of a manufacturing firm a few years back to address the firm’s “Supply Chain Financial Performance”. The scope of the supply chain, in this situation, was the end-to-end process from product design through placing the product “in service” at the customer’s location.

Working Hypotheses

Before launching into the actual work, the CEO and I had to achieve an agreement with the senior staff that a financial problem with the supply chain existed. We were able to do this not by stating the problem in a conclusive manner, but by stating hypotheses – conjectures that would need to be validated or refuted. Typically, one cannot dismiss an hypothesis without documented facts and data.

The CEO and I came up with these two hypotheses.

  • Improvements to our firm’s supply chain can drop significant financial benefits (revenue and cost) to the bottom-line.
  • With a laser-focus on the supply chain’s financial metrics, specific improvement initiatives can be launched and executed to realize those benefits.

Being hypotheses, the senior staff could object and push back. But in order to prove or refute these hypotheses, facts were required. The staff could do nothing else, but accept the hypotheses as statements to validate or refute.

The Leaky Pipe

As an aid during the work, we used the metaphor of the supply chain being a pipeline through which material flowed. Opportunity for improvement exists if there are leaks in the pipe. This “leaky pipe” formed a great tool for the senior staff to visualize the opportunity.

ImageA Supply Chain’s Key Financial Metrics

Below is a set of financial metrics for a supply chain ranging from the cost to produce a product by design to the cost of substandard quality to logistical cost, both inbound and outbound. What executives need to keep in mind is ineffective supply chains impact both cost and revenue.

From this set of metrics, the senior staff selected the key ones on which to focus during our efforts to improve financial performance. This selection was done with input from employees working throughout the supply chain including managers and front-line team members.

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Improvement Approach

Here is the approach we used for identifying and fixing supply chain issues from a financial metrics point-of-view. Three major stages were analysis, targeting, and execution.

Analysis began with selecting key financial metrics which, when improved, would drive the most significant improvements to the firm’s bottom-line and hence, to shareholder value. Analysis proceeded by determining the As-Is values of the metrics and then identifying issues along the entire supply chain that impact those financial metrics.

Targeting was straightforward. Probably the most important step in this stage was the final one: assigning accountabilities for hitting the financial targets. Specific financial metrics were assigned to a single executive. And we formulated a shared goal. Individual and shared goals were linked to individual performance evaluations.

Execution is where the rubber meets the road. We found cross-functional teams using a structured 7-step problem solving process worked best. It was important that each team member was effectively trained in the problem solving approach so a common framework and a common language exist. A cross-functional team was established for each targeted financial metric.

A program management structure was overlaid for coordination, integration, and synchronization of the teams throughout problem solving and implementation. In this case, a Program Management Office (PMO) was established with additional accountabilities for training, communications, opportunity logging, business case development, financial calculation support, and benefits tracking.

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So How Did We Do?

The leaky pipe and the two hypotheses proved to be useful aids in aligning the senior staff to the need to address the financial implications of an inefficient supply chain. Leveraging input from employees, the staff selected “Cost of Quality” and “Cost of Inventory” as two broad categories to address.

Assigning accountabilities for achieving targeted improvements had a unique twist. Cost of Quality was assigned to the head of Sales; Cost of Inventory was assigned to the Chief Financial Officer. These assignments emphasized the requirement for a cross-functional approach.

Cross-functional teams were formed. A PMO was established. And significant reductions in inventory and root causes of quality issues were realized over an eight-month period.

The Minimum Takeaways

  • Start by aligning senior staff to the idea that opportunities exist to capture financial benefits (cost and revenue) through addressing supply chain issues
  • Select the financial metrics that will have the greatest impact to improving shareholder value
  • Form cross-functional teams, one for each financial metric being targeted for improvement
  • Establish mechanisms and processes, such as a program management structure, to integrate output from all the teams and track benefits
  • Communicate and celebrate wins throughout the organization

Manufacturing: Worst Offenders

A colleague recently asked me what I would look for if I were to evaluate a manufacturing plant (unspecified industry). My immediate response was to initially look for what I call the “Worst Offenders”. Here they are along with the rationale for why to correct them:

  • No safety program: Do not blow up anybody or anything!
  • No connection with customers: Everyone, including manufacturing personnel, should know what value the firm delivers to customers.
  • Equipment out of calibration: Get what you expect out of your machinery and tools. This includes production, QC, test, and facilities equipment.
  • No preventive maintenance program: “If it ain’t broke, fix it anyway.”
  • No standard operating procedures: Eliminate the human and machine variations from the manufacturing process.
  • Non-integrated planning: Synchronize demand-supply, production schedules, machine usage, workforce schedules, maintenance, logistics, and other plans in order to minimize planned and unplanned downtime.
  • Lack of employee training and development: Get the most out of people.
  • Poor labor management relations: Avoid strikes, showdowns, slowdowns, and other impacts to output. And employee satisfaction is a key driver of quality and productivity.
  • No quarantine for discrepant material: Don’t mix the bad with the good.
  • Inefficient layout: Avoid suboptimal flow of material and wasted time.
  • Sloppy and slow changeovers: Prevent material contamination and achieve speed.
  • No performance measures and targets: Need to evaluate performance and know what “good” is.
  • Costs required for financial reporting do not reflect the true costs to manufacture: Need to know costs to understand product profitability for effective product portfolio management. Historical costs are also required for more accurate projections during product development.
  • No continuous improvement program: Always strive to do better for competitive advantage.

There are obviously more problems that can be present in a manufacturing operation. But these are what I consider the worst offenders and what I would use as an initial set of diagnostic tests for a manufacturing operation.

The Collaborative Improvement Environment

The responsibility of every employee, from the front-line to the executive suite, is business performance improvement. But barriers exist to realizing positive bottom-line impact, operational efficiency, organizational effectiveness, and a continual flow of improvements built on the knowledge of a firm’s employees.

According to a McKinsey & Company study, amazingly 70% to 75% of companies do not have an improvement process defined and implemented on a broad basis. Senior executives seeking performance improvement face formidable tasks such as:

  • Rallying and enabling all employees to seek improvements everyday
  • Defining and implementing a truly sustainable improvement process, sustainable for 10 years or more
  • Shifting an organization’s culture to one of collaboration and improvement
  • Leading the 4 generations which comprise the typical workforce within an enterprise, each with its own preferred style of communication and comfort with current technologies
  • Leveraging constant improvements to gain defensible competitive advantage for a firm.

Improvement Trends

Over the past several decades, stretching back to the mid-20th century, several trends exist in how businesses improve.

  • Many improvement methods have been attempted through the years with varying results
  • Each improvement method has a finite lifecycle of impact to an organization’s performance gains (see my previous blog on “Patterns of Improvement”
  • Sustainable, continuous improvement has been a promise that is seldom realized
  • True sustainability has been hampered by numerous root causes.

Root Causes of Decaying Impact

Root causes of impact decay I have observed over the years include:

  • Improvement is a special program within a firm and is not treated as part of employees’ day-to-day jobs
  • No structural incentives exist to motivate improvement behaviors
  • Outside experts, such as academics, gurus, and consultants, drive improvement programs creating the risk of high levels of organizational resistance
  • At most, only 1% to 2% of an organization’s workforce is asked by senior leadership to participate in improvement efforts, e.g. 300 to 600 people in a 30,000 person company
  • Distribution of deep improvement know-how and tools is limited to a central team or a select few specialized resources, e.g., Six Sigma Black Belts, the Quality Department, or the Office of Reengineering
  • Organizations run out of energy and endurance beyond a 3 to 5 year period
  • Special improvement programs lose focused, visible leadership from senior executives after 12 to 18 months or leadership of the firm changes and along with that comes a new executive agenda
  • New improvement methods hit the market every 4 to 6 years creating systemic discontinuities caused by implementation ramp-up times of 6 months to 2 years.

The Collaborative Improvement Opportunity

To manage through the long trough of the global recession and the protracted recovery, senior executives must improve how their business improves. Root causes of the decaying impact of improvement processes must be attacked through a focused effort to create a high performance collaboration environment.

I believe a window of opportunity exists for an enterprise to leap forward beyond its competitors by requiring and enabling employees to adopt improvement behaviors executed on a routine basis. Also, a window of opportunity exists for an enterprise’s senior leadership team to create a lasting improvement legacy for the organization.

What’s Next?

A thriving enterprise requires continual performance improvement in order to thrive. Truly sustainable improvement methods have been elusive over the past several decades. The impact of improvement programs decays as a result of a myriad of root causes, which must be addressed with a hybrid of traditional and modern techniques. Senior executives must role model improvement behaviors to drive a cultural shift in their organizations towards collaboration and the search for business improvement everyday and in every way.

Patterns of Improvement

Introduction

Here is a quick survey to gain an understanding of your experiences and points of view on the topic of improvement methodologies over the past few decades. There are nine questions. All readers will benefit from your knowledge if you post your answers and remarks as a comment to this blog. Thank you ahead of time for your contribution to the knowledge base.

Context

I have worked on dozens of business performance improvement efforts with the management of some of the world’s leading firms. During that work I helped implement several improvement methods including quality circles, total quality management, natural work teams, work elimination, business reengineering, business transformation, six sigma, lean, and lean six sigma. Needless to say, there was a wide range of results.

This brief survey draws out your own experiences and learning from improvement initiatives with the intent of developing ways to improve improvement methods themselves. And responding to the survey helps build the collective knowledge of like-minded people.

Please take the time to participate and help other improvement practitioners.

Patterns of Improvement

Below you will see four patterns (plus a blank) which depict profiles of the effectiveness of improvement methods plotted against what I call the “intervention lifecycle”. Each pattern reflects a firm’s experience with any improvement method. Note that a maximum efficacy is reached in each pattern of improvement with varying speeds. The difference among the patterns is what happens after the maximum is reached.

  • Pattern A represents a true continuous and sustainable improvement method.
  • Pattern B shows a big bang upfront followed by a rapid falling off of results.
  • Pattern C depicts a slow decline of efficacy after reaching the maximum.
  • Pattern D waxes and wanes in a sawtooth profile after reaching maximum efficacy.
  • Pattern E is any other pattern you have experienced.

Questions

  1. Which patterns most closely resemble your experiences at companies with which you have worked either within the companies or as a consultant?
  2. What were those companies?
  3. Is there another pattern you have experienced that is not depicted?
  4. Why did you select the particular patterns you picked?
  5. What caused those patterns to emerge?
  6. What worked well?
  7. What do you think might have been done to improve the improvement methods being implemented at the time?
  8. What, if anything, had been done to ensure true sustainability (as in pattern A)?
  9. Any other comments you would like to add?

Thank you again for your participation.

An Improvement Story: When “RIF” Does Not Mean “Reduction in Force”

DuPont NylonOur small, twin-engine turbo-prop had flown over Lookout Mountain just prior to descending into the Tennessee River Valley. As we landed at Chattanooga Municipal Airport, it rained a summer rain which tries but fails to provide relief to the heat and humidity of the Deep South. I collected my luggage, descended the 20 steps onto the tarmac, and thought about this new assignment.

In the early 1990s, we were asked by Ed Woolard, then CEO of DuPont de Nemours, to undertake a massive improvement program aimed at transforming the 190-year old chemical giant into a progressive, modern enterprise as measured by (1) nimbleness in the competitive marketplace, (2) responsiveness to customer needs, (3) agility in manufacturing operations, (4) advancement of its people, (5) profitable, global growth, and (6) attractive financial returns to shareholders.

The business unit of this assignment was the DuPont Nylon division. A DuPont scientist had invented nylon in 1935. Initial products such as nylon-bristled toothbrushes and nylon stockings drove the first wave of growth for the business. The Second World War drove the next wave with high demand for nylon to be used in vehicle tires, flak jackets, and parachutes. The third wave of growth emerged post-WWII with the booming U.S. population and domestic economy.

This third wave of growth spurred DuPont executives to decide to build a chemical plant in Chattanooga and begin nylon manufacturing operations in July of 1948. Exactly 44 years later, our team stepped onto the 500-acre site to launch the transformation of the facility. The still air sweltered and the smell of burnt plastic stung our nostrils.

The reception was mixed. Some people truly welcomed outside help, others accepted us as it was the politically correct thing to do, and a fairly large contingent viewed us as doing “the devil’s work”. Those that truly welcomed outside help formed the nucleus of what was to become an ever-growing portion of the workforce focused on making improvements around the plant.

As we uncovered opportunities for improvement, we discovered there was an enormous amount of pent up demand among the employees for positively changing the business. The employees, however, needed ways to channel their energy to make change happen. They lacked the necessary tools to start initiatives and then, see their ideas through implementation. Our main thrust in the early stages of the transformation was to provide the tools and the training required to ultimately realize results.

At the time, improvement tools included team building, problem solving, statistical analyses, root-cause diagrams, work elimination, and many other traditional methods. But we were surprised to learn not all employees had one critical and fundamental tool. And that fundamental tool was the ability to read and write!

Approximately 10% of the 2,000 employees were functionally illiterate. Each person functioned in his job, understood his responsibilities, and knew how to operate his machine as this knowledge was passed to him on the job “by the last guy”. Even more startling was that nearly 30% of those who volunteered to participate early in the transformation program fell into the functionally illiterate group. This would not work for the transformation.

We quickly teamed with plant management to launch an adult literacy program to improve the reading and writing skills of those employees in need. This served not only as a critical step towards engaging employees in the transformation effort, but also as an opportunity to fill a gap in people’s life skills. The benefits included increasing management’s ability to engage a higher portion of the workforce in the transformation program, an enhanced stature for DuPont in the community, and the new readers were enabled to further grow and develop individually.

As a result of the transformation efforts, the Chattanooga facility realized significant improvements. Machine uptime increased total effective capacity as a result of improved preventive maintenance, accelerated product changeovers, and synchronized material moves. Fixed costs decreased from interventions targeted at eliminating unnecessary spending. Manufacturing material costs stepped down through reductions in scrap, rework, and other sources of waste. Cash flow from operations increased enough to mostly self-fund a $250 million plant renovation project completed in 1997.

RIF does not mean “reduction in force”. RIF means “reading is fundamental”.

Are you experiencing pent up demand and energy among your employees to make improvements to your business? Are you leading major change in your enterprise today as Ed Woolard was at DuPont in the 1990s?

Do your people have the fundamental and necessary improvement tools given the global nature and complexity of the today’s business environment? What modern improvement methods are you implementing which give your organization a sustainable competitive advantage? What are your competitors implementing?

The 6th Dimension of Competitive Advantage

high jump photoThe previous blog entry is incomplete.

There is a sixth dimension for ever-increasing competitive advantage. This sixth dimension is a firm’s capabilities to improve. Along this dimension, there is an infinite supply of possibilities, thus firms do not compete in a state of scarcity. However, a firm must provide the environment and the tools conducive to sustainable improvement.

A firm’s culture (accepted behavioral norms) must support all employees in their pursuit of the implementation of improvement ideas. And improvement methods must be ingrained in daily habits at all levels of the firm from the frontline to the executive suite. All employees should be “on alert” to continually seek out, find, and implement improvements with positive financial benefits. A firm has the accountability to establish channels for the thousands of improvement ideas to be vetted, integrated, and executed with a high degree of coordination.

The truly advantaged firm develops or adopts innovative ways to improve at least one step ahead of its competitors. The concept of first to market applies here. The first among industry competitors to successfully implement an effective improvement method will gain significant advantage. The first to find the holy grail, a truly sustainable improvement method, will achieve long term sustainable advantage.

So, 6 dimensions exist for ever improving competitive advantage not just 5. The sixth being the capability to improve in advance of all others.

Ever-Improving Competitive Advantage: Hitting the 5 Dimensions

Mario Andretti Watkins Glen 1974A firm exists in competitive environments along several key dimensions. Each dimension (or metaphorically, a competitive marketplace) has its own set of competitors acting in their own self-interests. In each dimension, the players compete for scarce resources (customers, marketshare, industry profit share, people, investments, etc.). A firm improves by increasing its competitive advantage along each dimension. These 5 key dimensions are:

  1. Customers
  2. Financial capital
  3. Talent
  4. Extended value chain or value network
  5. Community

A modern approach to improvement:

  • Covers all dimensions simultaneously.
  • Is integrated, holistic, sustainable, high impact, and a whole slurry of other buzzwords
  • Allows improvement ideas from everyone within a firm to fit somewhere, which draws in full participation (“Full Force Improvement”)
  • Has a goal to enable a firm to constantly ever increase its competitive advantage (as in any Olympic athlete who continually strives for better performance)

To gain ever-increasing advantages, a firm must be, or must be perceived to be, more attractive than the competition.

  • Customers
    • This is what people usually think of when they hear competitive market.
    • A firm competes with other firms in the same industries.
    • More attractive offerings (products, services, innovation)
    • More attractive value proposition (benefits versus cost)
    • More attractive long term relationship
  • Financial capital
    • Here the firm competes for limited investment dollars from investors and creditors
    • Competitors include those seeking any number of investment alternatives for investors: stocks, bonds, commercial paper, cash, etc.
    • Gain advantage by providing more attractive financial returns than alternative investment vehicles available
    • Being more attractive in the stock market drives up stock price
    • Being more attractive in the credit market increases access to capital and lowers the cost of capital
  • Talent
    • The competitors are other employers that require the same skills, experience, and knowledge that a firm requires.
    • The other employers can be from similar, adjacent, or different industries.
    • Competitive advantage includes providing a more attractive work environment, richer total compensation (salary, benefits, wealth creation), and other elements that make a firm a “great place to work”
    • For example, firms like NetApp (Fortune’s 2009 “Best Place to Work”) have an advantage in attracting the best talent.
  • Extended value chain or value network
    • The extended value network includes business partners on both the supply side and the demand side: suppliers, service providers, channel partners, and so on.
    • Good partners are in short supply and a firm gains advantage by being a more attractive partner than other players in the market.
    • Example, Dell is one of the leading channel partners for hard disk drives. Drive manufacturers constantly compete to have their drives picked for the next PC that Dell assembles.
  • Community
    • A firm can gain competitive advantage over others by demonstrating stellar corporate social responsibility.
    • Communities desire firms with a strong sense of CSR.
    • Firms can realize significant tax benefits from state and local governments.
    • CSR also impacts other dimensions such as talent (the feel good factor).

An effective and sustainable improvement approach must be directed towards continually gaining competitive advantage along the 5 key dimensions. A firm can never rest nor ignore others in its ecosystem. The firm must marshall its employees and those in its extended value network to execute strategies for Full Force Improvement.