Tuesday, November 11, 2014

Focus and Leverage Part 392

In my previous posting I laid out the first five of what I referred to as the Prerequisite Beliefs that I believe must be in place before undertaking any organizational improvement initiative which should result in enhanced profitability.  In this posting I will lay out the remaining beliefs (i.e. 6-10).

The sixth and seventh beliefs that must be accepted involve waste and variation.  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.  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 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.

Let’s review the ten prerequisite beliefs that your organization must be prepared to accept if you are to successfully implement and navigate through the Ultimate Improvement Cycle:

  1. Believing that leveraging the constraint and focusing your resources on the constraint is the key to improved profitability
  2. Believing that it is imperative to subordinate all non-constraints to the constraint
  3. Believing that improving your process is a never-ending cycle
  4. Believing that involving your total workforce is critical to success
  5. Believing that abandoning outdated performance metrics like efficiency and utilization, reward or incentive programs, and variances is essential to moving forward
  6. Believing that excessive waste is in your process and that it must be removed
  7. Believing that excessive variation is in your process and that it must be reduced
  8. Believing that problems and conflicts must be addressed and solved
  9. Believing that constraints can be internal, external, physical or policy or any combination of the four
  10. Believing that the organization is a chain of dependent functions and that systems thinking must replace individual thinking.

If your organization has truly accepted these ten prerequisite beliefs and all that goes with them, then you are ready to begin this exiting journey that has no destination.  But simply saying you believe something can be hollow and empty.  It is your day-to-day actions that matter most.  Review these ten prerequisite beliefs as a group on a regular basis and hold people and yourself accountable to them.  Post them for everyone to see.  Utilizing the Ultimate Improvement Cycle and true acceptance of and employment of these ten beliefs will set the stage for levels of success you never believed were possible!
Bob Sproull


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