In my last posting I gave you an example of how a very profitable solution to an existing problem was overruled by cost accounting’s belief that the key to profitability was through saving money. As I’ve written about many times on this blog, the Theory of Constraints version of accounting, referred to as Throughput Accounting, demonstrates quite nicely that the key to profitability is through making money. The difference between these two approaches toward profitability is radically different. In this posting I want to demonstrate this difference through another mini case study from the same parent company as before, but a completely different environment. You will recall that the initial case study was from an organization responsible for making sure that jet engines were maintained, repaired and overhauled. This case study involves the maintenance, repair and overhaul of helicopters.
When I arrived at this site I found quite a chaotic environment. The client had to supply “x” number of helicopters every day or they would receive a substantial $ penalty for each aircraft that fell below “x.” Because they were significantly below “x” the financial penalties were substantial. Additionally, they were on mandatory overtime to the tune of 12 hours per day which was further eroding their profit margins. Because of the sustained mandatory overtime, the workforce was exhausted and the morale was absolutely terrible. Furthermore, because they were not synchronizing the flow of aircraft into and out of the maintenance hangars, there were significant numbers of aircraft tied up in WIP. The airfield site leader and maintenance manager had just been changed out by their corporate headquarters and the new team was desperately looking for help.
I met with the site leader and his team to better understand how serious their problems were and as the meeting progressed, it was clear that action had to be taken sooner rather than later. I also met with the shop floor people and it became clear that they were not engaged at all. They were tired of working overtime every day and felt that they were not appreciated or respected. They were happy to see a change in leadership because the previous leaders were very much into command and control management. It was so bad that the workers were out looking for lower paying jobs just to get away from this site.
My first action was to explain to the leadership team that if they wanted to turn this site around and make it profitable, then they had to significantly improve the throughput of helicopters through their scheduled and unscheduled maintenance processes. I explained that in order to do that successfully, they had to engage their total workforce. I then told them that the only way to engage their workforce was through something I refer to as Active Listening. Active listening is achieved by forming a core team of a cross-section of the hourly workforce, soliciting ideas and solutions from them and then implementing the solutions exactly as presented as long as no company or contractual rules were violated. Because the team had no other recourse, they agreed to do this.
The team was formed and our first order of business was to map the process. When this was completed I gave the core team some training on the Theory of Constraints and Goldratt’s 5 Focusing steps. For those of you new to this blog, the steps are:
1. Identify the System Constraint.
2. Decide how to exploit the system constraint.
3. Subordinate everything else to the system constraint.
4. If necessary, elevate the system constraint.
5. Return to step 1, but don’t let inertia create a new system constraint.
We then created a higher level process map and determined that the constraint was getting all of the necessary approvals, parts, tools, etc. in place before any maintenance work could begin on the helicopters. The team had many ideas on how to reduce the cycle time on this constraint and the leadership team readily implemented all of them as fast as they could. There were many other ideas for improvement on other parts of the process, but because the core team believed that they should focus their efforts only on the constraint, they were not implemented.
The improvement to throughput was immediate and swift and within two weeks three significant changes had occurred:
1. The number of daily available aircraft increased above “x” so that penalties were almost completely avoided. So much so that they actually had spare aircraft available and $ penalties dropped to nearly zero!
2. All mandatory overtime was stopped with the reduction in overtime $’s dropping to levels not seen in previous years.
3. The morale of the workforce jettisoned upward to levels not seen in years, if ever.
While this case study had a happy ending, the real difference between this one and the one I covered in posting 143 was that the focus was not on cost reduction, it was on throughput improvement. And the results clearly demonstrate why I always focus on increasing throughput and not on cost reduction. Which method appeals more to you?