The Goal Tree Part 9

The Goal Tree Part 9

Review

In my last post the leadership team was able to convert all of the “red” entities into either green or yellow ones by simply implementing their new scheduling method, Drum Buffer Rope.  As a refresher, the figure below is this team’s final product. 

In today’s post, we will demonstrate how we are able to, using the Goal Tree/IO Map, develop performance metrics to track the organization’s status and progress.

Performance Metrics

Before we develop our performance metrics, let’s first discuss the purposes of an organization’s performance metrics.  In general, we need some type of feedback mechanism that tells us how we’re doing, a way to be able to know that the direction we’re traveling is on course in the event that we need to make any midcourse corrections. These performance metrics should be system related in that they tell us how the system is doing versus how an individual process is functioning. Remember, our focus is on system performance and not individual performance. So what should our performance metrics be? Before we answer that question, let’s talk about their purpose.

Performance measures are intended to serve six important functions or roles:

 

1. First, and foremost, the measures should stimulate the right behaviors.

2. The performance measures should reinforce and support the overall goals and objectives of the company.

 

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

 

4. The performance measure must be translatable to everyone within the organization. That is, each operator, manager, engineer, etc. must understand how their actions impact the metric. Performance metrics are intended to inform everyone, not just the managers!

 

5. The performance metrics chosen should also lend themselves to trend and statistical analysis and, as such, they shouldn’t be “yes or no” in terms of compliance.

 

6. The metric should also be challenging, but at the same time be attainable. There should be a stretch involved. If it’s too easy to reach the target, then you probably won’t gain much in the way of profitability. If it’s too difficult, then people will be frustrated and disenchanted.

So with these functions in mind, let’s now look at how we can use our Goal Tree/IO Map to create our series of performance metrics.

Creating Performance Metrics

If we use the Goal Tree/IO Map as our guide, we should start with our goal, Maximize Profitability Now and In the Future, and create our first tracking metric.  Some posts back I introduced you to Throughput Accounting which defined Net Profit as Throughput minus Operating Expense or NP = T – OE.  The metric of choice for this Goal Tree/IO Map then is NP which we insert into our “goal box.”  In addition, I prefer to give most of the metrics a target to attempt to achieve which in this metric we will include, NP >15% (i.e. Net Profit greater than 15%).  We then look at each CSF and NC and select appropriate performance metric targets for as many as might be appropriate.

Because the operational status of companies varies from company to company, there is no standard set of metrics and targets to recommend, but for the company in this series of posts, the following set of metrics and targets have been inserted.  Your company’s leadership team should be charged with establishing both the performance metrics and targets.

Next Time

This completes our series of posts on the Goal Tree/IO Map.  In my next posting we will begin a new discussion on a different subject.  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull

References:

[1] Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007

 

The Goal Tree Part 8

Review 

In my last post the new CEO and his staff completed the color-coding of their company’s Goal Tree/IO Map.  I explained that we can use three colors, green, yellow and red, to assess the current state of the system we are trying to improve.  I also explained that the color green signifies that no changes need be made; yellow tells us that we do have something in place, but it needs to be improved; and red means that we either have nothing in place or we do, but it isn’t working at all.  As a refresher, here is the final product of their session on color-coding. 

As I explained in my last post, when developing your improvement plan, we always start with the NC’s color-coded as red first and then yellow.  We also focus our improvement efforts on the lowest level NC’s simply because if we make improvements at low levels, the improvement should flow to the next highest NC and continue moving upward until the impact finally impacts the goal.  We will now continue the dialogue between the CEO and his team.

The Case Study Continued

Bright and early the next morning the team met again to discuss their next steps.  Everyone seemed enthusiastic about what they would be doing going forward.  When everyone was seated, the CEO turned to the group and asked, “So how does everyone feel about this process so far?”  The Plant Manager was the first to respond, “I can’t speak for anyone else, but the development of the Goal Tree/IO Map was a real eye-opener for me.  I never imagined that we could have analyzed our organization so thoroughly in such a short amount of time.  I mean think about it, when you add up the total amount of time we’ve spent so far, it’s not even been a full day’s work!”  As he spoke, everyone was nodding their heads in agreement.

The CFO was next to speak and said, “I can absolutely see the benefit from using this tool and one of the things that impressed me the most is that everyone contributed. But what really captivated me is that for the first time since I started working here, we actually are looking at the system rather than isolated parts of it.  One of the things that I will take away from this is that the total sum of the localized improvements does not necessarily result in an improvement to the system.

“OK, let’s get started,” said the CEO.  “Today we’re going to plan on how turn our problem areas, those we defined in red, into hopefully strengths,” he said.  “Does anyone have any ideas on how we can take our bottom three reds into either yellows or greens?”  “In other words what can we do that might positively impact delivery rates, customer service and synchronize production to the constraint and demand?”

The Plant Manager was the first to speak and said, “If we were to come up with a way to schedule our production based upon the needs of the constraint, it seems to me that we could really have a positive result for on-time delivery rates and at the same time it would reduce our WIP and FG levels?” he said more in the form of a question.  The CFO then said, “Since we started this, I’ve been reading more about the Theory of Constraints and it seems that there is a scheduling method called Drum, Buffer Rope (DBR) that is supposed to do exactly what you spoke about,” he said directly to the Plant Manager.

The CEO responded by saying, “He’s right, DBR limits the rate of new product starts because nothing enters the process until something exits the constraint.”  “So let’s look at what happens to the reds and yellows if we were to implement DBR,” he added and flashed the Goal Tree/IO Map up on the screen.  “The way I see it is, if we implement DBR, we will minimize WIP.  If we minimize WIP, we automatically minimize FG’s which minimizes our investment dollars which positively impacts our profitability,” he explained enthusiastically.  “We should also see our on-time delivery rates jump up which should result in much higher levels of customer satisfaction,” he added.  “This should also allow us to be more competitive in our pricing and stimulate more demand and with our ability to increase throughput, we will positive impact profitability,” he explained. 

The Quality Director spoke up and said, “I’m thinking that if we effectively slow down in our non-constraints, we should see our scrap and rework levels improve significantly because our operators will have more time to make their products.  This improvement will reduce both our operating expenses and TVC.  The combination of these improvements will both contribute to our profitability.” 

 

“One other thing is that we should see our overtime levels drop which will also improve profitability,” said the CFO.  “I am just amazed that by making this one change, we could see a dramatic financial improvement,” he added.  

The stage was set for major financial gains by first, developing their cause and effect relationships and by looking at their organization as a system and that’s an important message for everyone to glean from this series of postings.  Not all improvement will happen rapidly like they did in this case study, but it is possible to make major improvements to your organization by looking at it from a holistic point of view.  The fact is, isolated and localized improvements will not typically results in improvement to the system.

Next Time

In my next posting we will take one last look at our Goal Tree/IO Map and demonstrate how to develop performance metrics that support the improvement plan.  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull

References:

[1] Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007

The Goal Tree Part 7

 Review

In my last post the new CEO and his staff completed the construction of their company’s first ever Goal Tree/IO Map.  When we left off, the team thought they were finished with this logic tree, but the CEO informed them that they were not.  In this post I will demonstrate how to take the Goal Tree/IO Map and turn it into an improvement plan for your company.  As a refresher, here is the final product of their session. 

As I have stated in previous posts, I like to learn a new tool and make it my own and the Goal Tree/IO Map fits into this model.  Bill Dettmer never intended to use this tool the way I will be presenting it to you, but this method has absolutely worked for organizations  in which I have used it in this way.  We will now continue the dialogue between the CEO and his team.

The Case Study Continued

Bright and early the next morning, the team began filing into their conference room, full of anticipation on just what they would do with their completed Goal Tree/IO Map.  The CEO hadn’t given them any instructions on how to prepare for today’s work, so they were all eager to have the events of the day unfold.  When everyone was seated, the CEO welcomed them and offered his congratulations again on the great job they had done the day before.  “Good morning everyone,” he said as everyone responded with a “good morning” back to him.  As he scanned the room, he noticed that there was one person missing, the Junior Accountant.  When he asked the CFO where she was, he explained that she was working on the monthly report and wouldn’t be joining them today.  The CEO looked the CFO square in his eyes and told him that nothing was more important than what they were going to do today.  “Go get her!” he stated emphatically.  The CFO left and returned minutes later with the Junior Accountant and the CEO welcomed her.  He then said, “We created this as a complete team and we’re going to finish it as a complete team.”

The CEO explained, “When the Goal Tree/IO Map was originally created by Bill Dettmer [1], it was to be used as a precursor to the creation of a Current Reality Tree (CRT).  That is, he used it as the first logic tree in TOC’s Thinking Processes to help create the CRT.”  He continued, “And although I fully support this approach, I have found a way to use it to accelerate the development of an improvement plan.”  The CEO passed out copies of the completed Goal Tree/IO Map and began.

“I want everyone to study our logic tree, focusing on the lower level NC’s first,” he explained.  “As we look at these NC’s, I want everyone to think about how we are doing with each of these,” he continued.  “We’re going to use a color-code scheme to actually evaluate where we stand on each one,” he said.  “If you believe that what we have in place is good and that it doesn’t need to be improved, I want you to color it green.  Likewise, if we have something in place, but it needs to be improved, color it yellow.  And finally, if each NC is either not in place or is not “working” in its current configuration, color it red,” he explained.  “Does everyone understand?” he asked and everyone nodded in agreement.

The CFO raised his hand and asked, “How will we use our color-coded tree?”  “Good question.  Once we have reviewed our Goal, CSF’s and NC’s we will start with the red entities first and develop plans to turn them into either yellows or greens.  Likewise, we’ll then look at the yellows and develop plans to turn them into green ones,” he explained.  As he was explaining his method the CEO could see heads nodding in the affirmative meaning that everyone understood his instructions.  With that, the CEO passed out green, yellow and red pencils.  “I want everyone to do this individually first and then we’ll discuss each one openly until we arrive at a consensus,” he explained.  “While you’re considering the state of each entity, I also want everyone to also think about a way we can measure many of these in the future,” he said.  “I’ll be back in an hour, so please feel free to discuss your color selections as a group,” he added. With the instructions complete, the team began reviewing their Goal Tree/IO Map and applying the appropriate colors to each entity.

After an hour, the CEO returned and asked how the session was coming.  The Plant Manager spoke first, “I was amazed at how much disagreement we had initially, but after we discussed each item, we eventually came to an agreement on how we believe we’re doing.  Would you like to see our final product?” he asked.

“Did you also discuss what kind of metrics we might use to measure how we’re doing?” asked the CEO.  “Yes we did,” said the CFO.  “And?” the CEO asked.  “We need to do more work on that,” he answered.  “So what’s next?” asked the CFO.  “Let’s take a break and come back in an hour and I’ll explain how we can use this tree to develop our final improvement plan,” said the CEO. 

Next Time

In my next posting we will take the completed, color-coded Goal Tree/IO Map and show you how to turn it into an improvement plan. We will also demonstrate how to develop performance metrics that support the improvement plan.  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull

References:

[1] Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007