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Operational excellence starts with a plan

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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

MANAGING AN ORGANIZATION SUCCESSFULLY IS MULTIFACETED AND COMPLEX. IT IS ALL A MATTER OF PLANNING, EXECUTING AND MAINTAINING.

Every company has different needs and objectives and they change as the company grows. A company just starting up requires a different approach than one that is already well established.

A company preparing for an ownership change also has different needs. It is important for the companies to understand where they are and were they want to be in the future. These plans need to include short, medium, and long- term goals. Most owners and managers think about their future plans, but when they are asked to show the plan, they don’t actually have one. You can build a successful company without a written plan, just like you can build a house without a drawing. You know what you want and you design as you go. Some feel that planning is not value added. In the example of building a house, you would have a tough time getting anyone to help you strategically, because the plans only exist in your head, and the bank might not give you a mortgage. In addition, the bigger the undertaking the more difficult it is to keep track of critical items.

My point is: Set your objectives and write them down.

A company is usually organized along basic functions and procedures. The major groups are sales and marketing, finance, operations, procurement, and human resources. For the purpose of this article we will limit our discussion to these five.

Each of these groups must be well organized and use all available tools to perform at its best. Most importantly, they need to be aligned. We have all seen what the misalignment of initiatives can do to a company. Operations, for example, can build the most productive kitchen cabinet factory. They are able to produce high volume, cost effective, standard kitchens. But what if sales and marketing is developing an extensive dealer network promoting custom kitchens with high profit margins.

The example simplifies the problem, but if you look at your organization you might find misalignments of plans and efforts on different scales. As in team sports, it is not enough to get the strongest, fastest and highest skilled players together. Their game needs to be aligned to the master game plan. Each of the major groups can perform perfectly, but ultimately the performance of the company depends on the alignment of all groups. Excellent players can produce mediocre results, but aligning their game and help them feed off of each others’ strengths can win them the trophy.

All groups are important, as are all links in a chain. You cannot buy operations excellence, or simply decide to have it. Operations excellence is the result of a number of elements being done correctly.

The major elements are the manufacturing model, value stream, product, technology, process support system and human capital. Again, the same principal applies; the different subgroups need to be aligned in order to achieve operations excellence.

 

Manufacturing model

The manufacturing model defines how the production is organized, scheduled, and controlled. The model defines whether your factory produces to stock, produces to order, or any variation thereof. It has a direct impact on the capital requirement, the manufacturing lead times, space requirement for WIP (work in progress) and finished goods inventory, it’s related working capital and the flexibility in your manufacturing.

 

Value Stream

Traditionally, we look to optimize the material flow shop floor. The equipment layout reflects the sequence of operations and allows the required flexibility. We need to analyze the entire process from initial contact until all invoices are paid or beyond. For example, a kitchen cabinet may require 2-3 labour hours for manufacturing, but it has a lead-time of 2-3 weeks. What happens to the 78-117 hours? Using the tool of value stream mapping, we can look at and analyze what happens during the total time. Optimizing the value stream has an impact on machine utilization, material flow/handling, space utilization, manufacturing lead-time and overall lead-time, as well as raw materials, WIP and finished goods inventory levels. An optimized material flow therefore also optimizes the utilization of labour.

 

Product

The focus here is on the product engineering. It needs to be coordinated with the product design team, which by practical definition is a part of marketing. Standardization in design details and processes impacts the company’s performance. Standardization can reduce or even eliminate set-up times. Reductions in raw material variety will reduce inventory levels and will reduce procurement costs. Optimizing the product for operational purposes will increase the productivity, reduce the space requirements and reduce the process times normally required. A further benefit is reducing the complexity of data to be managed.

 

Technology & Process Support Systems

This is the sweet spot of the majority of improvement initiatives. Technology is machines, equipment and tooling. Process support systems are the organizational processes and the supporting software. In order to strive towards excellence, the equipment needs to be selected with the appropriate technology and aligned with the strategy and the manufacturing model. Costly mistakes or unnecessary purchases can be avoided, if the challenges are understood and all details worked out ahead of time.

Optimizing the technology and the process support systems has an immediate impact on productivity, quality, production flexibility and manufacturing speed. Equipment se- lection and software selection dictate the skills and training required for your staff. Finding the right balance between simplification and complexity will determine the overall production cost.

 

Human capital

With all the above accomplished and optimized, it will depend on your employees to execute the plans. It is important that all strategies include a plan for how you will develop your human capital within the overall scheme. Optimizing your human capital has an immediate impact on the productivity, flexibility and your workforce retention. As most plans include ‘change,’ an optimized plan minimizes the human cost of change, improves the acceptance and the speed of change.

The rest is easy… The key to corporate excellence is to have a defined plan, align all activities to the plan, and coordinate the individual efforts in each sector. For all required steps there are tools and proven methodologies available which can be easily learned and applied.

In future articles I will talk about other interesting subjects within the Operational Excellence umbrella and discuss them in more detail.

 

Sepp Gmeiner is partner with Lignum Consulting. For feedback, questions and/or suggestions he can be contacted at s.gmeiner@lignum-consulting.com.

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