Saturday, August 28, 2010

Focus and Leverage Part 8

In Part 7, I introduced my visual representation of the Ultimate Improvement Cycle (UIC) and told you that we would now go through each step and explain how you can use it to enhance Throughput (TP), while simultaneously reducing Operating Expense (OE) and Inventory (I). I will be referring to this graphic throughout the next several postings, so you may want to print it out to facilitate your understanding of it.

Step 1 can best be characterized in one word…Identify. As I state in my book, all of Step 1 is a series of activities aimed at identifying rather than taking action on. What we are attempting to do in this first step is collecting information that will become the basis for our well conceived action plan for improvement. So as you go through Step 1, I know there will be an irresistible urge to make changes, but don’t do it. The success of the UIC is dependent upon the development of a coherent plan and avoiding the “fire, ready, aim” scenario that has become one of the primary causes of failure of many improvement initiatives. Resist this urge…..

In Step 1, I have combined identification of the value stream from the Lean cycle, identification of performance metrics from Six Sigma and identification of the current and next constraint from the Theory of Constraints. The primary tool you will be using is the Value Stream Map (VSM). The flow and inventory analysis is completed by simply reviewing the completed current state VSM for location and volume of inventory within the system. The performance metrics analysis is done by meeting with all departments and leaders to determine what metrics are tracked at all levels of the organization. If your company is like many others, you will be surprised by the number of performance metrics tracked. I also recommend that you determine how the metrics are communicated throughput the organization.

Identifying the current and next constraint is the most important activity in Step 1 simply because the constraint will become the focal point for most of your improvement activities. One of the easiest ways to locate the constraint is by walking the process with your team during the development of the current state VSM. As you walk this process, you will be identifying both the location and volume of raw material, work-in-process (WIP) and finished goods inventory. Typically the location that has the highest level of inventory will be the current constraint and the step with the next highest level will be the next constraint, but not always. Look also for policies and procedures that have been implemented that might be policy constraints. Take your time and do it right because it will be worth it in the end. Remember the operative word here is to simply identify and not take action yet.

I want to finish this posting with a discussion on Performance Metrics simply because of the importance of metrics. Performance metrics are intended to serve three very important functions or roles as follows:

1. First and foremost, performance metrics should stimulate the right behaviors.

2. Performance metrics should reinforce and support the overall goals and objectives of the company.

3. The measures should be able to asses, evaluate and provide feedback as to the status of people departments, products, and the total company.

The right behaviors of people and departments are critical to the achievement of the overall goal of the company, but many times the metrics chosen encourage and stimulate the opposite behaviors. In order to be effective, performance metrics must demonstrate the following criteria:

1. The metric must be objective, precisely defined and quantifiable.

2. The metric must be well within the control of the people or departments being measured.

3. The metric must be translatable to everyone within the organization. That is, each operator, supervisor, manager and engineer must understand how his or her actions impact the metric.

4. The metric must exist as a hierarchy so that every level of the organization knows precisely how their work is tied to the goals of the company. For example, if one of the high level metrics is on-time delivery, then the lower level metric might be cycle time or schedule compliance at individual work stations. Or if the higher level metric is PPM, then the lower level metric might be the defect rate at an individual work station.

5. The metric should be challenging, yet attainable.

6. The metric should lend themselves to trend and statistical analysis and, as such, should not be “yes or no” in terms of compliance.

This blog entry was all about Step 1a of the UIC. In my next blog we’ll move to Step 1b and then continue on until we’ve achieve one complete revolution of the UIC. I encourage questions about each blog entry, so if you have any, please submit them for everyone to see. See you next time!

Bob Sproull B/S


Sindy Chu said...

"...stimulate the right behaviors... " Sounds simple enough, right? The usual measurement of efficiency in each department could stimulate the wrong behavior of producing more WIP/inventory than the constraint operation can process.

What is the best practice to align measurement metrics to organizational objective? Would Intermediate Objective Map work? Love to hear your thoughts. Thanks for having this blog for us.

Bob Sproull said...

Hi always, great questions!!! You are very right about measuring efficiency in non-constraints. Measuring operator efficiency or utilization in the constraint is actually a good metric, but not in the non-constraints for exactly the reason you listed. It will only serve to increase WIP which in turn lengthens cycle times which then decreases throughput!

My opinion on the best tool to align organizations metrics is indeed the IO Map. The IO Map is probably the least used of the TOC tools, but in my opinion is one of the best tools ever for developing organizational stategies and performance metrics. Great question Sindy!!!!