Maximizing Profitability Part 7

In the last post, I layed out the basic structure of what I have named the Ultimate Improvement Cycle (UIC) as well as the basic tools and actions needed to implement the UIC. In this post I will now lay out the expected deliverables associated with this integrated methodology and then begin to discuss, in more depth, each step required to achieve these five primary objective.


In the figure below, I have laid out the deliverables you should expect when the UIC is implemented.  It's important to understand that there could be other tools you can use, but for simplicity purposes, these are the expected things you should expect to deliver after implementing the UIC.

In Part 6 and 7, I introduced my visual representation of the Ultimate Improvement Cycle (UIC) and told you that we would now go through each step and explain how you can use it to enhance Throughput (TP), while simultaneously reducing Operating Expense (OE) and Inventory (I). In addition, I listed recommended tools and actions and the expected deliverables you should achieve.  As a point of reference, I am reporting the first graphic in this series on the UIC.

Step 1 can best be characterized in one word…Identify. As I state in my book, all of Step 1 is a series of activities aimed at identifying rather than taking action on. What we are attempting to do in this first step is collecting information that will become the basis for our well conceived action plan for improvement. So as you go through Step 1, I know there will be an irresistible urge to make changes, but don’t do it. The success of the UIC is dependent upon the development of a coherent plan and avoiding the “fire, ready, aim” scenario that has become one of the primary causes of failure of many improvement initiatives. Resist this urge…..

In Step 1, I have combined identification of the value stream from the Lean cycle, identification of performance metrics from Six Sigma and identification of the current and next constraint from the Theory of Constraints. The primary tool you will be using is the Value Stream Map (VSM). The flow and inventory analysis is completed by simply reviewing the completed current state VSM for location and volume of inventory within the system. The performance metrics analysis is done by meeting with all departments and leaders to determine what metrics are tracked at all levels of the organization. If your company is like many others, you will be surprised by the number of performance metrics tracked. I also recommend that you determine how the metrics are communicated throughput the organization.

• First and foremost, performance metrics should stimulate the right behaviors.
• Performance metrics should reinforce and support the overall goals and objectives of the company.
• The measures should be able to asses, evaluate and provide feedback as to the status of people departments, products, and the total company.
• The metric must be objective, precisely defined and quantifiable.
• The metric must be well within the control of the people or departments being measured.
• The metric must be translatable to everyone within the organization. That is, each operator, supervisor, manager and engineer must understand how his or her actions impact the metric.
• The metric must exist as a hierarchy so that every level of the organization knows precisely how their work is tied to the goals of the company. For example, if one of the high level metrics is on-time delivery, then the lower level metric might be cycle time or schedule compliance at individual work stations. Or if the higher level metric is PPM, then the lower level metric might be the defect rate at an individual work station.
• The metric should be challenging, yet attainable.
• The metric should lend themselves to trend and statistical analysis and, as such, should not be “yes or no” in terms of compliance.

This blog entry was all about Step 1a of the UIC. In my next blog post we’ll move to Step 1b and then continue on until we’ve achieve one complete revolution of the UIC. 

Identifying the current and next constraint is the most important activity in Step 1 simply because the constraint will become the focal point for most of your improvement activities. One of the easiest ways to locate the constraint is by walking the process with your team during the development of the current state VSM. As you walk this process, you will be identifying both the location and volume of raw material, work-in-process (WIP) and finished goods inventory. Typically the location that has the highest level of inventory will be the current constraint and the step with the next highest level will be the next constraint, but not always. Look also for policies and procedures that have been implemented that might be policy constraints. Take your time and do it right because it will be worth it in the end. Remember the operative word here is to simply identify and not take action yet.

I want to finish this posting with a discussion on Performance Metrics simply because of the importance of metrics. Performance metrics are intended to serve three very important functions or roles as follows:

The right behaviors of people and departments are critical to the achievement of the overall goal of the company, but many times the metrics chosen encourage and stimulate the opposite behaviors. In order to be effective, performance metrics must demonstrate the following criteria: