Monday, December 12, 2011

Focus and Leverage Part 64

In this posting, Joe describes to the Finance Director an early career experience he had with a plant turn-around that changed his whole outlook on manufacturing and continuous improvement and then explains a very new type of Accounting.
Bob and Bruce

CHAPTER 1 Part 4 for Epiphanized©
A book by Bob Sproull and Bruce Nelson
For the next hour Joe and Paul talked about the role of Finance on the team, and everything was going well until Joe told Paul that, in his opinion, the method they were using to capture cost saving was flawed.  Paul was clearly taken back by this statement, reacting as though it were a personal attack on him.  Joe explained that when he first started his career, he was taught the same cost-accounting methods that Barton was using, but that about twenty years ago, Joe had had a personal epiphany of sorts.  Joe explained that he had been hired as general manager of a company that was being considered for closure, and Joe’s job was either to turn the company around or oversee its closing.  Joe’s background had been all quality and engineering, so he was surprised that he was selected to lead this effort.

Since Joe had no real experience in operations management, he knew he had to rely on his two operations managers, whom he hadn’t met yet.  When he did meet them, he soon realized that they had no idea of how to effectuate a business turnaround.  Joe remembered going to a library (there was no internet back then) to read about operations management, and he stumbled upon a book called The Goal by Dr. Eliyahu Goldratt.  Joe took it home and stayed up all night reading it.  He explained to Paul that this book changed his entire approach to manufacturing.  Joe bought extra copies and had his entire staff read the book. His team had daily discussions about the content, and to make a long story short, by applying the lessons in the book, they not only saved the plant from shutting down, their plant became the model for the rest of the company.

Joe explained to Paul how within every organization, constraints existed, and that unless and until a constraint was exploited and the rest of the organization was subordinated to it, no real improvement would take place.  Joe opened his briefcase and handed Paul his very own tattered and worn copy of The Goal, and made Paul promise that he would read it.  Joe continued their discussion about how he thought Barton was misreporting cost savings.  He asked Paul why he thought it was OK to report localized labor-hour reductions as a cost savings, since they did not remove the labor from the company. 

Paul’s response floored Joe: ”Because the customers accept it as a reduction.” 

“But do you, Paul?” asked Joe. “Do you believe in your heart that these things you’re reporting are actually cost savings?” Joe asked.  “What if later on the customers come back to us and tell us that we must reduce our prices based upon the reported cost savings?” Joe added.  “What will we tell them Paul?” asked Joe. 

Their conversation continued on, and Joe explained the concepts associated with the Theory of Constraints and Throughput Accounting (TA) and how TA is much better for daily decision-making than traditional cost accounting.  When Joe left Paul’s office, he reminded him to read The Goal, and Paul promised Joe that he would, but he also made Joe promise to tell him more about how he had led the turnaround of the manufacturing facility he had described to him earlier in their conversation.

Joe left Paul’s office and headed back to his own office.  Joe knew that if Barton was going to be successful at improving on-time deliveries, there had to be a radical shift in organizational thinking on how to approach this effort.  Joe also knew that he could not do this by himself; he needed to develop his team and teach them a better way.  When Joe arrived at his office, he could see that his team was still struggling to come up with cost savings for the past quarter.  Joe asked them to come into his office so they could talk.  One by one, they came in and took a seat.  Joe’s first question to them centered around how they selected their improvement projects.  

“We generally are told by the quality director what our projects will be,” Bill explained. 

“And how does he select them? Has he ever explained that to you?” Joe asked.

“N-n-n-no . . . h-h-e-e just tells us that the VP of Operations w-wants us t-to w-work on th-th-this or th-that,” explained Manuel. 

Joe turned to Judy to ask her to contact the VP of Ops, but she was one step ahead of him.  “Can you meet him for lunch, boss?” says Judy. 

In our next posting, Joe meets one of the central characters in our book……a bartender who is so much more than your typical bartender. 
Bob and Bruce

No comments: