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Here are some keys to achieve operations excellence

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Operations Excellence by Sepp Gmeiner
Sepp Gmeiner is a partner with Lignum Consulting. For feedback, questions and/or suggestions please email s.gmeiner@lignum-consulting.com



What do we mean when we talk about operations excellence? It means the company must 
be good or better overall to become excellent.
First, I would like to set the stage and place operation excellence in the bigger picture. Operations do not stand alone. They are part of the overall company performance. Operations excellence is a part of corporate excellence.
The corporation’s performance becomes excellent when all the elements are performing well and in alignment.
In this article I will focus on operations however, for completeness and context, we will touch on the other elements as well.

Sales, marketing and distribution
This includes product development, branding, corporate ID, market intelligence, sales organization, distribution and marketing.

Finance
This includes, in addition to the classic elements, product costing, and pricing. Financial planning and financial controls will interact with all areas of the company. Whole libraries are filled with books on this very subject. It is outside of my wheelhouse, but I know how important it is.

Human resources
A lot of companies claim their people are the most important resource. For many this is just lip service. If you mean it, you need a focused approach on this subject. HR is much more than just managing payroll and administering employees.
 
Operations
When focusing on operations excellence, it divides into sub-categories. Again, in each of them, you need to be good and you need to be aligned.

Manufacturing model
How is your production organized, scheduled, and controlled? Are you producing into FG-stock according to a forecast, or do you produce individual customer orders separately? Are you managing the shopfloor with KANBANs, distinct orders manufactured beginning to end, or have an established WIP inventory?
Selecting the right/wrong model for you impacts your:
Capital requirement
Manufacturing lead-time
Space requirement
Inventory (WIP, FG, RM)
Productivity
Flexibility

Value stream
Value stream is the material and information flow from the first to the last customer contact. All steps that are of value to the customer are accumulated. It includes the factory layout with the alignment of machines, the material handling and the material buffers within the flow.
Optimizing the value stream will impact:
Material flow/handling
Space utilization
Manufacturing lead-time
Machine utilization
Manpower productivity (direct, indirect)
Inventory levels

Product/product engineering
The ability to provide the design flexibility as required by sales & marketing, and optimizing the manufacturability in the existing or the near future plant. Standardization of components, design details and material type will simplify the operation. Optimizing the product impacts:
Set-up time reduction/elimination
Capital requirements
Raw material variety
Inventory reduction
Productivity increase
Data complexity decrease
Process time reduction

Technology
This includes all equipment and processes required for operating the production. This major section is the core of manufacturing. It includes all the machines and tooling, but also includes jigs, fixtures and devices. We need to drive for balance within technology. For example, if you have leading-edge technology in the parts machining, but all your assembly is manual, your next investments should focus in the assembly area. It does not mean that you need to have the best of the best all the time. Being good starts when you are balanced.
The selection impacts:
Capital requirement
Labour productivity
Quality
Flexibility
Capacity
Complexity

Process support systems
This includes the various software programs required to operate the company. This is your enterprise resource planning (ERP) system, your material requirement planning, material management tools and your manufacturing execution program (MES). It is not only the program you buy, it is also the other systems that you implement - quality assurance programs, Lean manufacturing and continuous improvement programs and equipment maintenance. Your 
key performance indicators (KPI) are also a part of the support system.
The optimization impacts:
Lead-time
Ease of doing business
Indirect labor cost
Flexibility
Inventory levels
Speed to market

Human capital
The organization, development and management
of the operational workforce are tied to the corporate plan, but are also an important operational factor. Operator training and employee motivation are more relevant than ever before.
The optimization of this element impacts:
Productivity
Labour cost
Workforce retention/
turnover cost
Acceptance of change
Speed of change
Equipment utilization
Cost of quality

Alignment is the keyword
All the above elements have an impact on the overall performance. The overall performance depends on how good we are in the individual elements, however most importantly, how well the performance is aligned and coordinated with all the others.
It is safe to say that the result is not the sum of all the efforts. The result will be according to the lowest performing element. What is the weakest link?
I must admit that an excellent element may compensate for a lower performing element. For example, a company can still do well with a low performing operation, but have top performing sales and marketing and/or procurement.
I believe we all know companies, which are good in so many sectors, but the lack of the “good” on one particular element reduces the overall performance to that level.
A factory, for example, equipped with state-of-the-art equipment will not run smoothly if other elements such as human capital and/or product are not in line. If the company is relatively good in the individual disciplines, but all elements are out of alignment, the problem can be fatal to the corporation. If a factory is trimmed for a narrow, highly standardized product line, but sales and marketing is pushing highly customized products, the impact is obvious. Most of the misalignment may not be that drastic. However, each incremental misalignment is a disadvantage compared to a competitor who got it right.
It is one of the important requirements of management to understand the interdependencies of the different functions. Being good in one discipline is not good enough! You need to be aligned!

Next step
As operations people, we too often tend to scrutinize the details. We dissect them into its individual and minute components. This is still the correct approach, however, we also need to be conscious of the fact that not all details need to be optimized, and it is the overall optimization that matters. To compare it with sports: Yes, you need good players, but it is the team that needs to win.
Identifying your misalignment is the first step. To take the example from above: it is relatively easy to find out when sales and operations are not aligned. What now? Something needs to give. Do we refocus sales and marketing, or do we retool the factory? Again, you do not pick the easy solution; you pick what fits in the overall strategy of your company.
This is why strategy is so important. A good solution or an improvement is only good when it is aligned with the overall strategy. And only then will it lead to operational excellence.

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