Small Companies Can Benefit from Strategic Planning

The online dictionary Wikipedia defines strategic planning as “an organization's process of defining its direction and making decisions on allocating its resources, including its capital and people. It is often times viewed as a process for determining where an organization is going over the next 3 to 5 years or more”. Strategic planning enables an organization to answer the following questions:

• Who are we?
• What can we do?
• What are our strengths and weaknesses?
• Which critical issues must we respond to?
• What should our priorities be?
• Where should we allocate our resources?
• How do we want to grow?
• Where do we want to be in the future?

Most large organizations have a significant process of strategic planning where overall directions are given to the organization. They need to do this since there are large amounts of resources at stake and many people and departments involved to manage these resources. However, few small organizations do strategic planning even though relative to their size, they too have large amounts of resources at stake and people involved to manage these resources. The reason for this absence of a strategic plan is usually due to the fact that top management of the organization is very tactically oriented and involved with the day-to-day operations. Just getting through the near term is the only thing on their collective mind. The problem with this is that within the organization, there is no overall plan that gives people direction as they make decisions which means that different parts of the organization can be going in different directions at the same time. In small volumes, this is not such a problem, but as the company grows, it can become very chaotic, frustrating and problematic and can lead to failure due to the conflicting priorities that will exist.

A strategic planning process does not have to be long, time consuming and drawn out, but it should involve the key personnel of the organization. With guidance from a facilitator familiar with the process, implementing a planning process can be fairly quick and simple and can be done without being a major intrusion to the operation. Benefits that can be realized include:

• Clearly defined business strategies and supporting objectives for growth
• Identification of business strengths and weaknesses
• Quantified resource requirements and financial projections
• Integrated operational plans for each area of the business
• Clearly defined business performance measures
• A focus on achieving and building advantages

Strategic plans are very different from operational plans. Operational plans are tactical and are concerned with “today”. Strategic plans are concerned with “tomorrow” and are effective in coordinating the tactical activities so that the future growth of the organization is effective and under control. Without some aspect of a strategic plan that is known to all, activities of the organization will be disjointed and counterproductive, even though everyone is doing what they think is best. Frustration will exist within the ranks and growth will be difficult which can lead to the overall failure of the organization. With a well conceived and communicated strategic plan, an owner or management team will likely get what they want in terms of organizational performance, but without one, they will most likely not and everyone in the organization will suffer to some extent.

What do you find as pros and cons of Strategic Planning? Do you have examples where it helped or hurt?

Effective Inventory Management Leads to Business Success

Aberdeen Research benchmarked the people, processes, technologies and metrics associated with inventory management and determined that Best-In-Class companies are able to continuously manage their inventory throughout their supply chain to improve customer service levels, forecast accuracies and perfect order metrics. They defined Best-In-Class as companies that had:

• 97% Average Customer Service
• 15 days Average Cash Conversion Cycle
• 95% Perfect Order Performance
• 87% Average Forecast Accuracy at the Product Family Level

These companies are able to continuously manage their inventory throughout their supply chain to improve what they deliver to the customer, which encompasses more than the specific product or service that they deliver. Other aspects of what is delivered that don’t show as specific items on the invoice, but are improved with effective inventory management, include total order lead time, product quality, ease of doing business and the ability to deliver changes to the product or service without having to go through major business changes.

Regarding inventory management, successful companies follow the principles of Closed Loop Inventory Management which include the ability to:

• Determine safety stock targets for inventory at critical nodes in the supply chain.
• Replenish inventory into distribution buffers based on customer demand.
• View end-to-end inventory while providing available to promise inventory.
• Respond quickly to market events while executing the inventory requirements.
• Segment inventory based on customer service requirements.

Although most involved with business management will admit that the above impacts on delivering to the customer are reason enough to make inventory management improvements a priority, there are also internal benefits to the organization from becoming Best-in-Class that should be mentioned:

• Best-in–class companies are 10 times more likely to have reduced their inventory carrying costs year after year.
• Best-in–class companies are 7 times more likely to have reduced their warehouse labor costs year after year.
• Best-in–class companies are 63% more likely to practice centralized transportation planning.

Whether it is via the successful pursuit of Lean Enterprise Performance or effective implementation of ERP or Supply Chain principles, improving the performance of inventory management will improve the organization’s total customer delivery performance.

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?

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?

A Roadmap to Lean: Integrate the Supply Chain

Part 9 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 fourth step in the Implementation phase is to Integrate the Supply Chain into the lean ways of the organization. In this step, we want to:

• Evaluate Each Supplier and Customer as to Applicability of Lean Concepts
• Define “Quality at the Source” and “Pull” Demand Concepts
• Select a Few Key Partners for a Pilot Progra
• Build Mutually Beneficial Relationships with Supply Chain Partners
• Share Information and Synchronize Planning
• Develop and implement an Education Program for your Supply Chain Partners

To be most successful, organizations need to extend the lean thinking concepts from the shop floor to the entire supply chain including, the front office, customers and suppliers. Transferring the benefits of Lean to your suppliers and customers can greatly enhance the benefits of your own Lean efforts. By using your results and facilitator skills to motivate them, these supply chain partners will be able to improve their operations so that they can coordinate their activities with yours and accurately deliver what you need to improve your success. Key deliverables of this phase include:

• Definition of Mutual Benefits
• Lean Education Materials Adjusted to Each Supply Chain Partner
• Lean Education and Training for Facilitators of Partner Organizations
• A Roll-out Plan for Targeted Supply Chain Partners
• Key Metrics of Success Related to Quality, Cost and Delivery Performance
• Implementation of Lean Concepts and Techniques across the Entire Value Chain

To be honest, working with suppliers will be easier than working with customers because with suppliers, you are the customer and they may be more willing to listen. However, don’t let customers slip by the wayside. One of the key concepts of Lean is that of “Pull Demand”, and who better to include in this effort than the customer who pulls from you. Success in having your supply chain partners effectively implement Lean means that your organization can eliminate the wasteful buffers that exist between your organization and theirs. The next and last stop in this roadmap is to Measure Continuous Improvement.

Are you Best-in-Class?

A Roadmap to Lean: Transform the Information System

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 third step in the Implementation phase is to transform the information system within the organization. In this step, we want to:

• Define What Implications the Lean Objectives Have on the Information Systems
• Document As/Is – To/Be Information Flows
• Identify Visual Methods that can be Used in Lieu of the Information System
• Determine Which Systems Need to Change to Support Non-Visual Requirements
• Create a Plan for Making the Changes Necessary to the Information System
• Monitor Cut-over and Provide Support

Sometimes, when an organization is implementing changes to their information system, such as implementing an ERP system, Lean principles can be applied. Sometimes, when implementing Lean, limitations are reached since the information system needs to be changed. Either way, addressing the needs of the information system early in the process will reduce the roadblocks that arise during the effort. With the main premise behind Lean being to eliminate waste and support value added activities, the information system needs to be revised so that it is not causing wasteful activities in and of itself. When evaluating the information that is being collected within the system, it is important to ask “How am I actually going to use this information and what value does it provide?” If good answers do not come of this evaluation, it is likely that there is no need to have it in the system so revisions should be made to eliminate it. In this step of transforming the information system, key deliverables are:

• Definition of “Must-Have” vs. “Nice-to-Have” Information
• A Plan of Action to Eliminate/Replace Non-Essential Information
• Written Procedures and User Training Documentation
• Training of Users for Visual and Non-visual Techniques
• Specification, Coding and Testing of Software Changes
• Tracking of Open Issues for both System and Procedural Issues
• Updated Performance Measurements

There are some who think that if Lean is implemented, there is no need for an information system to be used, however, most experts who understand the whole business process will agree that the two go together to support the whole business and must be integrated in order for the organization to be successful in its Lean efforts. However, this step of transforming the information system will often times include the need to change how one thinks of the business process requirements altogether, but then that is the whole purpose behind the effort of Going Lean. The next stop in this roadmap is Integrating the Supply Chain.

Are you Best-In-Class?

A Roadmap to Lean: Manage the Culture Change

Part 7 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 second step in the Implementation phase is to manage the culture change that comes with going Lean. In this step, we want to:

• Identify the cultural impediments that must be overcome
• Impart the vision of Lean to the entire organization
• Make sure that “Continuous Improvement” and Quality are part of the culture
• Get middle management on board
• Identify and win over the “Grumblers”

Attaining the paradigm shift that is required throughout the entire organization is the biggest challenge to succeeding at Going Lean. Along with developing the idea of Continuous Improvement, Employee Empowerment is one of the most critical issues for success. It has been stated “…. the major inhibitor to get a lean environment is the inability to trust the workforce and really give up a certain level of control in order to give people the power to implement their own ideas and be respected as experts in their area….”. Although this is a statement regarding the managerial side of the issue, it must be noted that it is as difficult of a change for the regular workers as it is for the managers. You can’t just give empowerment to people, they have to take it, and many do not know how to be empowered.

Management needs to monitor the impact of Lean on the organization and make Continuous Improvement, Quality and Empowerment part of the culture. Points to remember in this process are:

• Resistance to change IS THE NORM, not the exception
• People must be informed, empowered, willing and able in order for changes to be made effectively
• Personal and organizational values affect how people react to change
• People go through the change process in stages and go through these stages as individuals

Managing the culture change is vital to success in Being Lean. The consequences of not doing so include having managers who don’t supply resources or those who filter important information, employees become distracted and loose interest, valued employees leave the organization, or unforeseen obstacles arise. By succeeding in this aspect alone will mean that all of the unknowns and obstacles can be overcome as they arise. Transforming the information system is the next stop on our roadmap.

Are you Best-in-Class?

A Roadmap to Lean: Implement Rapid Change

Part 6 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 first step in the Implementation phase is to implement a process of rapid change by following the overall plan developed so far. In this step, we want to:

• Form the Kaizen event for a specific improvement
• Train work teams on new methods
• Observe the process being addressed
• Develop the Takt Time
• Develop improvement ideas and a detailed action plan
• Cut-over and monitor results

A Kaizen event is a team activity aimed at rapid use of lean methods and tools to eliminate waste in particular areas of business processes. The purpose of the Kaizen team is to investigate, analyze, and evaluate each process and every operation in order to add value and eliminate waste. This is usually done by a small group of people directly involved with the process being analyzed, however, it is also a good idea to include someone unrelated to the process in order to provide an un-biased opinion. Deliverables from this task can include:

• Value stream mapping of the specific process
• Work flow re-design and re-positioning of equipment
• 5s - organizing the work place and standardizing processes
• Standardized work for tasks being performed
• Setup Reduction and shortened change over times
• Visual “pull” for materials
• Error proofing techniques for tasks
• One piece flow (or at least significantly reduced batch sizes)
• Cellular manufacturing / processing

The Kaizen event itself typically takes three to four days where the team develops solution ideas and a plan of action which is typically implemented within a month or two after the event is complete. In this way, results are quick and noticeable throughout the organization and the benefits from the Lean process are realized quickly so that the improvements directly affect the bottom line of the organization. Because of this quick return aspect of Lean Implementation, this process is a great way to make improvements during tough economic times and when the times improve, the results are that much more magnified. In addition to addressing the mechanics of going Lean, Managing the Culture Change is the next step in our roadmap.

Are you Best-in-Class?

A Roadmap to Lean: Analyze the Opportunities

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 fourth step in the Planning phase is to analyze opportunities for Lean in the organization. In this step, we want to:

• Create Current and Future State Diagrams of the Business Processes
• Identify Non-Value Added Activities
• Identify Potential Process Redesign Opportunities
• Define and Document Expected Improvements
• Review with Management for Approval

Using a value stream approach to looking at the current state of the processes used in the organization, non-value added activities can be identified and targeted for elimination. With this map of the current state and the knowledge gained by the team though the strategy development activities and the education to date, a future state of the organization can be developed. Deliverables from this task will include:

• Current and Future Process Flow and/or Value Stream Mapping Documents
• New Process Layouts and Material Flow Diagrams
• New Organization Diagrams and Work Team Assignments
• Ranked List of Potential Lean Opportunities

By developing a future state map of the organization and identifying where the various Lean concepts can be applied, waste eliminating opportunities will be identified. The specific opportunities that come from this analysis will lead to Kaizen events in the implementation phase and will form the basis of the plan to be developed. The ranking decisions will incorporate the magnitude of the change, the impact on the organization, the potential cost, the potential benefit, and the ease of implementation. This information will become inputs to the next and final step of the planning phase, Creating an Implementation Plan.

Are you Best-in-Class?

A Roadmap to Lean: Develop a Lean Strategy

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 second step in the Planning phase is to develop a market driven strategic plan for implementing lean in the entire organization. In this step, we want to:

• Educate Senior Management on the Fundamentals
• Identify Market Drivers for Lean
• Define a Lean Vision
• Develop Leadership Commitment
• Update the Strategic Business Plan to Include Lean objective

By using the Lean assessment and the resulting findings and recommendations from the first step, the biggest opportunities and overall directions for the organization will start to become clear. The deliverables from this task will include:

• A Lean Management Education Course
• An Organizational Profile with a Lean Vision
• Documentation of the Critical Success Factors
• A Written Lean Mission Statement
• A Proposed Implementation Time Frame

Including Lean in this level of strategic planning for the organization will assure that the lean concepts, practices and activities are in sync with the overall direction desired for the organization. Without this activity, it is highly possible for an organization to embark on the Lean journey, only to find that it keeps running into the “same ol’ way of doing things” and that the attempts at Lean are counter to the overall direction the organization wants to go. This will lead to ineffective implementation at best with downside results that include the creation of even more waste, poor morale on the part of those involved, and a loss of momentum for making improvements in the future. People are very tuned into performing per the direction from above, so if the top leadership of the organization has not taken the steps to be sure all is in order at the top, it will be very difficult to get the ship to turn around. Once the Lean strategy is developed, the next step of planning, Analyzing Opportunities, can proceed.

Are you Best-in-Class?

ERP Helps Enable a Successful Business

Rising costs and a troubled economy have caused cost reduction to be the top business driver behind most technology initiatives today. In their report “2008 ERP in Manufacturing”, Aberdeen Research found that the pressure to reduce costs has surpassed both growth and customer service as the main business driver of ERP strategies. Not only are production costs rising, but the cost of quality, the cost of transportation and the cost of energy are becoming more and more challenging to the bottom line.

An ERP system that is properly matched to the needs of the company and utilized as an overall part of the business processes is able to serve as a business enabler to provide the visibility needed to control costs and enhance customer service. It does so by providing a framework for standardized business processes utilizing best practice concepts and allows coordination between different business functions. Some of the key benefits of a successfully utilized ERP system include:

• Better visibility to business processes across multiple functions and departments
• Improved customer responsiveness
• Reduction of inventory and improved inventory accuracy
• Reductions of administrative and manufacturing operational costs
• Improved manufacturing schedule compliance and complete on-time delivery
• Reduced customer lead time and improved quality performance.

Metrics to be used to measure success in an ERP environment include:

• Inventory Days Supply – number of days inventory based on projected usage.
• Manufacturing Schedule Compliance – percentage of work that is completed on time per the manufacturing schedule
• Complete and On-time Shipments – orders shipped complete and on-time per the customer’s requested date
• Order Cycle Times – various cycle times can be measured, but the customer order date to the delivery date cycle measures the time from a customer point of view
• The Bottom Line – The most important measure! As cost performance improves, so will the bottom line.

Are you Best-in-Class?