Sunday, August 28, 2011

Focus and Leverage Part 51

In the last decade or two, there has been a lot of focus on two major improvement initiatives, namely Lean and Six Sigma. Each movement, on its own, has promised to deliver better processes with less waste and variation and each, to some degree, has delivered their promises to the world. Processes do have less waste and variation which should translate into better profit margins. Some have and some have not or at least not enough to justify the large sums of money spent on the lengthy training required. What we did create was an impressive army of Lean Senseis and Six Sigma Black belts.

Somewhere along the way, someone had an idea that if we combined these two methodologies, that the hybrid, Lean-Six Sigma, would be even better. The purists of each individual movement resisted this integration, but at the end of the day, the masses saw the benefit of this natural evolution and accepted it as a “better way.” And so it goes, someone events something and someone else sees a way to make it better. If this natural evolution didn’t happen, we’d probably all still be riding around in a horse and buggy. The fact is it’s a natural tendency for human beings to improve things……to take an idea someone else has and expand it to suit their needs.

In the mid-80’s, Dr. Eliyahu Goldratt came up with an idea of how to accelerate the improvement of processes with his now famous Theory of Constraints (TOC) methodology and presented his five focusing steps:

1. Identify the system constraint.

2. Decide how to exploit the system constraint.

3. Subordinate everything else to the constraint.

4. If necessary, elevate the constraint.

5. Return to Step 1, but don’t let inertia create a new constraint.

Goldratt’s contention was that improvement in anything other than the constraint was a mirage. In other words, if you wanted to maximize the throughput of your process or system, focus your efforts on the constraint in order to leverage the improvements. And so another improvement movement was birthed that spawned another idea. Someone else decided that since we already had Lean Six Sigma methodology, why not combine this movement with TOC? The concept was to use TOC to identify the constraint and then focus your improvement efforts there and only there. And so this new movement, known as TLS began in earnest. Once again, an idea evolved into something new and perhaps better. And again, predictably, the Lean Six Sigma purists pushed back against this change, but the movement continued.

And so it goes, it starts with a brilliant idea from someone and then someone interjects a new way of looking at that same idea and change happens. This change or evolution is not confined to systems. In fact, it happens at the “tool” level as well. For you old timers like me, remember how SPC started out? It was simple to learn and apply, but somewhere along the way, new ideas were interjected and the new tool became even better than the original one….it evolved into something better.

In the TOC world, there is a branch known as the Thinking Processes (TP). Goldratt developed a series of logical tools which included the Current Reality Tree (CRT); the Conflict Diagram (CD); the Future Reality Tree (FRT); the Prerequisite Tree (PRT) and the Transition Tree (TT). The CRT, FRT and TT are considered sufficiency trees and use the simple if-then form. In order to use these trees, we ask simply, is this enough to cause that? The CD and the PRT are necessity based trees and are read, In order to have…..we must have……because. The TOC purists teach us that there is a natural order in which to use these tools and without doing so, your analysis might well be flawed. It is also true that these tools can be used as stand-alone tools when trying to solve a problem or resolve a conflict.

In 2007, Bill Dettmer1 introduced us to a new TP tool named the Intermediate Objectives Map (IO Map). The IO Map, as explained by Dettmer, is a tool used to identify a Goal, plus Critical Success Factors (CSF’s) and Necessary Conditions (NC’s) or high-level requirements that must be satisfied if the goal is to be achieved. These three entities (i.e. the Goal, CSF’s and NC’s) are arranged in a hierarchy with the goal at the top, the CSF’s directly underneath the goal and the NC’s directly beneath the CSF’s. The IO Map is another necessity based tree that shows us the necessary linkage between the three entities. The goal can’t be realized or achieved without all of the CSF’s realized and each individual CSF can’t be achieved without the NC’s in place. All three of the entity types are presented as terminal outcomes as though they were already in place. In effect, these three entities could be considered destination finders and the roadmaps to get us there.

So why I am reintroducing the IO Map? You will recall I had Bruce Nelson write several blog postings in the past. Bruce and I are about to have a new book published at the end of this year and in it, we have introduced a new way of looking at the Thinking Processes. Specifically, we are recommending a new way of using the IO Map in conjunction with another tool. We believe it’s another natural evolution. We’ve had so many people tell us that the TP tools are difficult to use, so Bruce has come up with what is perhaps a revolutionary way to simplify the TP tools. We know that there will be the familiar pushback from the TOC purists, but we feel this evolution is too important not to step outside the TOC comfort zone not to do it.

Bruce is writing a white paper on this subject now and when it’s complete we’ll either post it here or post it on my website, so stay tuned. Both Bruce and I want your comments (good or bad) after you read his paper. Bruce and I have both used this new toolset and based upon the comments we’ve received, everyone loves it and says it is so much easier than before. Time will tell….

Bob Sproull

Thursday, August 25, 2011

Focus and Leverage Part 50

Recently I’ve been getting lots of requests on how I am able to motivate a work force to actively participate in improvement initiatives. I do understand why people have asked me this question, but to me, it’s really a simple thing to do. It is my belief that most workers come to work wanting to do a good job. In most cases, people come to work wanting to share their ideas on how to do their jobs better so as to produce a better product or deliver a better service. So if this is true, what prevents their ideas from being implemented?

Part of the problem is the “division of labor” that exists within many companies. Now what on earth do I mean by this? In many companies that I have visited, there are slogans posted that proclaim total employee involvement, but when I dig deeper and talk to the employees, I find that these slogans are hollow rhetoric. Yes there are group photos posted everywhere depicting the teams that are in place, but are they really “teams”? My idea of a team is that everyone is free to contribute equally. Yet, when I talk to the actual team members in the photos, they tell me that their opinions on what to do….their ideas…..are often shrugged off or discarded. I’m told that there is a clear distinction between “management” and “hourly” workers. This apparent division of labor is one of the key reasons why so many teams simply never move off the dime so to speak.

So what’s the solution here? We spend lots of time building teams that don’t produce results and then we repeat the cycle, somehow believing that this new team will be better, but most of the time they aren’t. To me, it all boils down to who really knows how to improve the process. If we’re in a manufacturing facility, the true subject matter experts are typically not the leadership. Most leaders haven’t ever run a machine or even tested a product, but somehow we think we know more than the people that do so every day. The true subject matter experts are the people building the product or delivering the service, not the people managing them.

To me, the solution to the motivation problem is freeing the workforce from their management shackles and listening to their ideas and how to implement them. My teams are always populated by at least seventy percent hourly employees. Why? Because these people know how to do things better than I ever will. I simply define the end state that I’m looking for and then turn them loose to define the template. And believe it or not, they very seldom, if ever, fail to deliver a better process. They know where the waste is and they know where the variation is and they have great ideas on how to reduce. The end result is a much improved process and a highly motivated workforce.

I know this approach might sound overly simplistic, but there are conditions that go with this approach that must be followed. First and foremost, whatever the team comes up with, you must be willing to use. Of course, if there are things that can’t be done, things that violate run conditions or specifications, the team needs to be made aware of them so their solution takes them into account. If the team develops the solution, I promise you it will work. Their personal credibility is on the line here, so losing is not an option. The second thing that needs to happen is this team needs to be the ones that present their solution to the rest of the work force. They need to be the trainers and question-answerers for everyone. The pride that is demonstrated becomes contagious and others will want to be a part of their own team. Some members of the leadership team won’t be able to let go of the division of labor that I spoke of earlier, but at the end of the day…..they must. Try it….you won’t be disappointed.

Bob Sproull

Thursday, August 18, 2011

Focus and Leverage Part 49

In Chapter 14 of my last book, The Ultimate Improvement Cycle – Maximizing Profits Through the Integration of Lean, Six Sigma and the Theory of Constraints, I outline ten prerequisite beliefs that organizations must embrace if they are to be successful. In my last posting I presented the first belief and told you that if your entire operation is able to accept the existence of a constraint, focus on it, then you have taken the first step. When I said the entire operation, I truly meant everyone! All of the individual departments, functional groups, and employees in your organization must become focused on leveraging power of the constraining operation. If you aren’t willing to do this, then there simply is no need to continue. Accounting, Purchasing, Engineering, Sales and Marketing, Production, Production Control, Quality, Maintenance, etc. all must be aligned and in total agreement. So assuming that your company does buy into the concept of focus and leverage and that it does recognize the existence of this leverage point… that enough? The answer is no, but it’s an important first step and belief.

The second belief that must be accepted by your entire organization is the concept of subordination. Subordination simply means that every decision made and every action taken by the entire organization must be done so based on its impact on the constraining resource. And when I say the entire organization, once again, I mean everyone! Accounting must provide real time decision-making information to the organization and not hold onto financial measures that are based on what happened last month. Accounting must also eliminate outdated performance metrics like utilization and efficiency in non-constraint operations because they mean absolutely nothing. All these two metrics really do is create an environment that fosters and promotes over-production, resulting in higher inventory levels and their associated carrying costs. But the real negative effect is the extended lead times that come from excess inventory.

Purchasing must order parts and materials based upon the rate of consumption at the constraint and stop ordering in large quantities or only on the basis of lowest cost to satisfy another outdated performance metric, purchase price variance. Sales and Marketing must understand that unless and until the current constraint is broken, they must not make hollow promises on delivery dates in order to obtain more orders to supplement their sales commissions. Engineering must respond quickly to the needs of production to assure timely delivery and updates to specifications. Maintenance must always prioritize their work based upon the needs of the constraining operation including preventive and reactive maintenance activities. If there is an inspection station that impacts the constraint throughput, then inspectors (if they exist) must always provide timely and accurate inspections so as to never cause delays that negatively impact the flow of materials into and out of the constraint. Finally, Production Control must stop scheduling the plant on forecasts that we know are wrong using the outdated algorithms contained within the MRP system.

If your entire organization believes in and is ready to subordinate to the constraint, then you have taken the second important step. If your organization is like so many others where individual departments exist as silos, then letting go of the apparent control that they now have will be a difficult pill to swallow, but one that is absolutely necessary. If you’re not ready to subordinate, then don’t proceed any further!

The third belief that must be accepted by the entire organization is that improvement is never-ending. The Ultimate Improvement Cycle (UIC) is predicated on the fact that once a constraint is broken, a new one will appear immediately, so all organizational improvement resources must be prepared to shift to it and subordinate actions and decisions toward the cycle of breaking the new constraint. This cyclical process has no end, so be prepared to accept the idea of always getting better.

The fourth belief that the organization must accept is one of involvement of the entire workforce. If you are like many other companies, then you’ve probably been taught that improving profits means reducing expenses. And reducing expenses, for many companies, has typically involved reducing the size of the labor force. This is exactly the opposite behavior that is needed to successfully navigate through the UIC. Why would anyone be willing to participate in improving the operation to the point that they lose their job? So if, in the past, you are a company that uses layoffs as a way of reducing or controlling expenses, then you are doomed to failure! You must accept the fact that the key to making money now is increasing throughput and without everyone’s involvement, it simply won’t happen. So if you can’t accept this belief, then stop here.

As you identify the constraint and subordinate the rest of the organization to the constraint, there will be idle time at the non-constraints. If you are like many organizations that use total system efficiency and utilization as key performance metrics, then you will see both of them predictably decline, at least in the beginning of your improvement journey. You are normally trying to drive efficiencies and utilizations higher and higher at each of the individual operations under the mistaken assumption that the total efficiency of the system is sum of the individual efficiencies. In a TOC environment the only efficiencies or utilizations that really matter are those measured in the constraint operation. You may even be using work piece incentives in an effort to get your operators to produce more and I’m sure many of you are using variances as a key performance metric. Efficiencies, utilizations, incentives and variances are all counterproductive! So the fifth belief in preparing for the implementation of the UIC that must be accepted is abandoning outdated performance metrics, incentives and variances. If you are unwilling to do this, then don’t attempt to use the UIC!

The sixth and seventh beliefs that must be accepted involve waste and variation reduction. You must accept the premise that every process contains both excessive amounts of waste and variation that are waiting to be identified, removed, and reduced. No matter how perfect you might believe your process is, believe me it has variation and it is full of wasteful activities. Your job will be to locate, reduce and hopefully eliminate the major sources of both. Variation corrupts a process, rendering it inconsistent and unpredictable. Without consistency and control you will not be able to plan and deliver products to your customers in the time frame you have promised. You can’t eliminate variation, so you must reduce it and then manage what’s left over. Waste drives up both operating expense and inventory, so improvements in both of these go directly to the bottom line as you improve the throughput of your process and more specifically your constraining operation. Yes, you will observe waste in your non-constraint operations, but for now focus your resources only on the constraint!

The eighth belief that your organization must embrace is that problems must be addressed instead of being swept under the carpet. You can no longer accept temporary fixes to your problems and believe me, problems will be uncovered as you progress through the UIC. If you’re like many companies, there are problems that have been hidden with excessive amounts of inventory used to guard against their negative effects. This way of thinking can no longer be accepted. Your organization must be committed to determining the root cause of problems and implementing effective and sustainable solutions or the UIC won’t work for you.

The ninth belief that your organization must accept, if you are to be successful, involves recognizing the type and location of the constraint. Constraints can be either internal or external to your organization and they can be either physical or policy related. If they are external, then this typically means that you have more capacity than you do orders. If this is the case, then you must use your improved process to leverage this constraint. That is, your improved process will result in less lead time which your sales team can use to leverage more sales. If you have excess capacity, then your sales team can even quote a lower sales cost to leverage additional sales. Think about it, as long as your expenses or truly variable costs are less than the sales price, you are adding more money directly to your bottom line. Yes the margins will be lower than normal, but it all flows to your company’s bottom line. If your constraint is found to be a policy constraint, then you know it involves a conflict that must be resolved. You now have the tools to resolve conflict, so you must be ready to use them. All of what’s involved in the Ultimate Improvement Cycle requires out-of-the-box thinking for your organization.

The tenth and final belief is the understanding that the organization is a chain of dependent functions that requires systems thinking rather than individual thinking. There are interdependencies that exist within the organization with all functions playing a role in the final outcome. Unless and until individual functions cease from protecting their own turf and begin collaborating as a team, real and sustainable progress will not be achieved.

As always, feel free to contact me with any questions or comments.

Bob Sproull

Saturday, August 13, 2011

Focus and Leverage Part 48

I started my blog posting a year ago by saying that the basic goal of all “for profit” organizations is to make money now and in the future. If you’re already making money, perhaps your goal might be better stated as to make more money now and more money in the future. If this is your goal, then the question I would ask myself is, “What is preventing me from making more money now and more money in the future?” Our experience tells us that there are a host of things that are preventing companies from making more money.

In its most basic form, making money involves generating revenue that is greater than what it costs to generate it. So obviously if operating expenses are too high and you aren’t generating enough revenue, then you won’t make money. So the question is just how do you generate more revenue? Assume for a moment that you have more orders than you have capacity to fill them. Since you are unable to satisfy market demand, doesn’t it follow that your throughput is too low. Remember, throughput is not building products to store in racks waiting for orders. Throughput involves money exchanging hands through sales of your products (or services). If your throughput is too low, it also means that your cycle times are too long. So then the key to generating more revenue must be reducing cycle times. So how do we reduce cycle times?

We know that cycle time is equal to the sum of all processing times for each process step. We also know that contained within each processing step, within each of the processing times, there is value-added time (VA), non-value-added time (NVA) and non-value-added, but necessary times (NVABN). We can’t do much about the NVABN times, so if we want to decrease our processing times and ultimately our cycle time, then we are left with basically three choices:

1. We can reduce value-added time

2. Reduce non-value-added time

3. Do some of both.

One thing we know to be true is that non-value-added time by far and away accounts for the largest percentage of total cycle time in all processes. This would imply that if we significantly reduce non-value-added time in our process, then we could significantly reduce cycle time which would, in turn, significantly improve our throughput and revenue. So what are these non-value-added times that I’m referring to?  Just think about which activities add value versus those that do not. Let’s make a list.

1. Transport time – moving product from point A to point B.

2. Set-up time – converting a process from one configuration to another.

3. Queue time – time spent waiting to be processed

4. Process batch time – time waiting within a batch

5. Move batch time – time waiting to move a batch to the next operation which could also include time in storage

6. Wait-to-match time – time waiting for another component to be ready for assembly

7. Drying time – time waiting for things like adhesives to become ready to be assembled

8. Inspection time – time waiting for products to be inspected

There might be others we could add to our list, but for now assume this is our list. Which of these items add value? Clearly none of them do, so they would all be classified as non-value-added. There obviously are things we could do to reduce each one of these. For example, process batch time is driven by the process batch size, so we could do two things that would reduce this time. We could optimize the batch size that we produce and in conjunction with this we could reduce the time required for set-up. In doing these two things we would probably also reduce the move batch time and maybe even the wait-to-match time. Clearly these actions would reduce the overall cycle time.

But even if we were successful in reducing cycle time, we would not realize a single piece more of throughput unless we reduced the processing time and non-value-added time of the operation that is constraining the throughput, the constraint. Any attempts to reduce processing times in operations that are not constraining throughput are, in my opinion, wasted effort.

The key to making more money now and in the future is, in reality, tied to two single beliefs, focus and leverage. In TOC terminology these two beliefs of leverage and focus are fundamental to the idea of exploiting the constraint. If you want to increase your throughput, then there is only one effective way to accomplish it. You must focus on and leverage the operation that is limiting your throughput, your constraint operation! And how do you leverage your constraining operation? You do so by focusing your available improvement resources only there and seek to reduce both the non-value-added and value-added times within the current processing time. It’s really that simple!

I know there will be push-back from many Lean and/or Six Sigma zealots whose comfort zones are seated in the belief that the sum total of all local improvements will roll up to improve the total system, but from a throughput perspective, this is simply not the case. Attempting to solve world hunger by focusing improvements everywhere is not the most effective path to success. In fact, it is the main reason why we see so many Lean Six and Sigma efforts are failing. By attempting to improve everything, the bottom line is not impacted nearly to the extent that focusing your improvement efforts on the constraint will deliver.

If your entire operation is able to accept the prerequisite beliefs of constraint leverage and focus, then you have taken the first step. When I say the entire operation, I am referring to everyone! All of the individual departments, functional groups, and employees in your organization must become focused on the leveraging power of the constraining operation if significant and lasting improvement is to be achieved. Unless and until all functional groups within your organization are singing from the same sheet of music, you simply will not make the rapid gains in bottom line improvement that your organization is capable of achieving.

In my next posting, I will expand on this notion of focus and leverage and how the entire organization must work if profit maximization is to be achieved. Please feel free to contact me directly if you have questions.

Bob Sproull