Friday, May 22, 2009

Monitoring Business Performance Leads to Improving Business Performance

In a recent article, I focused on the issue that the operation of any organization has plenty to offer in terms of letting management know what is working and what needs to be addressed. Once there is agreement on this, the next questions usually relate to what to do and how to do it. The key to success here is to get executive visibility into the operation so that focus can be put on issues that 1) matter and 2) can be controlled and affected. Monitoring current and future performance factors will be much more effective than monitoring performance for decisions made in the past. For instance, controlling the purchasing process to buy only what is needed when it is needed will affect the bottom line much more that paying attention to the utilization rate of a fixed asset which was bought and paid for some time ago. Three steps can be utilized to facilitate this process of monitoring key issues for performance improvement:
  • Measure Critical Few Performance Criteria
  • Analyze Results and Recommend Actions
  • Implement Focused Improvement Activities

Measurement activities need to target the life line issues that must be satisfied in order for the organization to survive. They also need to be factual, without emotional influence, so that owners of the process can objectively evaluate their performance and identify issues. Selecting a few key measures that tie directly to success will focus attention on the factors that affect success and will allow people to get a quick, substantive picture of current performance. Using drill down type metrics to provide more detailed information regarding the specific performance is fine, but it is most important that the appropriate message is received by the appropriate people via the top level measure. Areas to focus on include:

Customer Value: This is the most important area for any organization. What the customer considers as value is the only thing that is of importance to the organization. Having everyone understand how their actions relate to what the customer wants will allow them to re-evaluate what they do so that they can focus on eliminating wasteful non-value added activities. One way to think of value added activities is to consider if an item could be listed on the invoice for the activity in question. If not, then its value should be questioned. Suggestions for measures here include on-time delivery, total order lead time, quality per complaints/returns, and repeat business or lost customers. These metrics need to be at the customer level and not departmental level since the customer sees one organization, not a group of departments, some that perform well and some that don’t.

Operational Performance: Operational flexibility will allow the organization to adjust with the changes in demand without having to make major sacrifices in order to do so. By making a connection between what the operation does (actual supply) and what it needs to do (actual demand), those involved can begin to understand which of their activities are wasteful and which are value added. Suggestions for measures in this area include total operational throughput (as defined by deliveries to customers, not additions to inventory), processing lead time (quote to cash), non-capital investment (inventory, supplies, etc, not fixed assets), and ability to make changes to the schedule.

Financial: Cash. Let people know what is happening to the money in the organization on a regular basis (weekly or daily) and let them know how they affect this cash flow. Once workers understand this and see their impact, they will probably focus more on making good decisions. Obviously, this information must be presented in accordance with corporate information sharing policy, but the more people can relate their actions to the money being spent, the more they can affect the outcome. Some suggestions include cash flow - inflows and outflows, spending trends as a function of shipments, and comparisons to plan that are adjusted for volume differences. Simply showing the bottom line is ineffective because people typically cannot relate their actions to this measure.

All too often metrics are created, detailed and publicized that have little effect on improving performance. In order to be effective, it is important to improve the executive visibility to operational drivers, replace “gut-feel” decisions with “fact-based” decisions and educate everyone in the organization about the operational life-line drivers of performance. By making a direct connect between the metrics of performance and the actions of people, positive results from improvements are possible.

Are you Best-in-Class?

Friday, May 15, 2009

Hello?! The Operation is Talking to You!

In these economically challenging times, organizations of all industries are finding that they need to control critical issues in order to survive, much less remain competitive in the marketplace. Issues such as cost control, capacity and resource utilization and reacting to demand changes become areas of concern that get executives’ attention as areas that must be mastered. An all-to-often approach to getting at these issues is for the strategists of the organization to meet, develop priorities for improvement and then mandate the “Must Do” statements to everyone in the organization that include carte blanche directives for efficiency improvements, spending reductions, and labor reductions. However, by tuning in to the operation itself, issues that can have an impact can be identified and corrected, usually in a short time and with a quick return. Activities that can have an impact in this regard include:
  • Get real-time (or at least very timely) feedback from the operation as to progress of work being performed.
  • Implement scheduling and control techniques the provide directions as to what to work on next on a daily or hourly basis.
  • Utilize alerts, visual and/or computer, to quickly identify real time issues that need to be fixed before further work is performed.
  • Concentrate on customer facing issues throughout the operation, such as lead time reduction, on-time delivery, and end-item quality.
  • Reduce the inventory investment by concentrating on the reasons for having the inventory. Like lowering the level of water in the stream, more rocks will appear.
  • Create improvement teams consisting of those most directly involved with the operation to identify and implement quick hitting improvements.

In order to make these tactical practices effective and pervasive throughout the organization, management needs to adopt strategies that support this collaborative and synchronized approach. By having executives focus on the operation and looking beyond simple efficiencies in the work place, organizations can improve their overall performance. Aberdeen Research has identified several actions that organizations can implement to achieve Best-in-Class performance which include:

  • Improve collaboration across all functional boundaries, such as Engineering, Operations, Customer Service, and Purchasing.
  • Create visibility across of the operation throughout the entire enterprise, including the executive level.
  • Synchronize the output of operations to match the changes in demand.
  • Dynamically update business practices as best practices are developed.
  • Create a scorecard that normalizes performance across all areas of the organization.
  • Engage the system integrators at the executive level.
  • Automate the work flow to manage non-conformance events across the enterprise.

By achieving Best-in-Class performance, Aberdeen has identified results that will improve customer performance, improve capacity utilization and translate directly to the bottom line:

  • 97% On-time and Complete Delivery to the Customer
  • 92% Overall Equipment Effectiveness (OEE) accounting for variability, performance and quality
  • 99% Operation Compliance as measured by in-compliance output vs. total output

It should also be noted that when these operational issues are managed effectively, an improvement in cash flow and profitability can be expected.

Are you Best-in-Class?

Friday, May 1, 2009

A Roadmap to Lean: Measure Continuous Improvement

Part 10 of a 10 part series
In order for an organization to transform from its current state of operation to one of a Lean Enterprise Organization, a two phase approach – Planning and Implementation - can be utilized. The fifth step in the Implementation phase is to Measure Continuous Improvement throughout the organization. In this step, we want to:
  • Implement Measurements for Key Success Factors and for Each Improvement Event
  • Develop Business Performance Metrics that relate to Customer Value
  • Develop Metrics to Monitor Lean Learning for Everyone in the Organization
  • Establish Baseline Measurements Prior to Improvements
  • Communicate Progress and Results to the Entire Organization on Daily Basis
  • Initiate a Formal Review Process for Key Functional Leaders

In a traditional business model, cost plus profit was used to determine the price. In the Lean model, price minus cost determines the profit, so the focus needs to be on the elimination of waste. True, the price may be affected by the concentration on customer value because the customer is willing to pay more for what you deliver, but price is not under the organization’s control as much as cost is due to market and competition issues, especially in the world market we exist in today. Measures that focus on the Lean process, the elimination of waste and customer value are those that will drive continuous improvement once the initial Lean effort is complete. Key deliverables of this phase include:

  • Business Performance Metrics (a critical few) that are Simple and Straightforward
  • Operational Metrics that Relate to Takt Time and Waste Elimination
  • Public Scoreboards to Communicate Event Related and Business Performance Metrics
  • Lean Learning Metrics that Promote Cross Training, Improvement Activity Involvement, Problem Solving, Team Building , Empowerment, Commitment and Cooperation
  • Dynamic Communication to Everyone Regarding All Lean Initiatives
  • Rewards that are Aligned with Lean Goals
  • Frequent Celebrations of the Successes

This tenth and final step in the Roadmap to Lean is not really a single step – it is an ongoing and ever evolving process: hence the term Continuous Improvement. Those who treat Lean as a project that comes to completion are missing to whole point of taking the trip. The real benefit is the transformation within the organization that allows everyone to contribute to the elimination of waste and the concentration on what brings value to the customer. It is the culture change that occurs that brings the biggest benefit of the Lean journey. Lean performance is focused on the efforts of people to accomplish change and is never complete. Instead, it is an ongoing process that will lift the organization to previously unattainable results. By following these ten steps of this Roadmap to Lean, an organization should be able to change its focus from “Doing Lean” to “Being Lean”. Are you Best-in-Class?