Tag: process

Tools for Managing the Tail

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Managers and analysts who develop and improve products, systems and processes increasingly manage activities in the tail of near-perfect delivery expectations and stunning complexity.  In addition to understanding the finance and quality contexts of their functions, they can manage the tail by simplifying processes and problems, reducing goals and options, optimizing within constraints and monitoring non-critical activities.

Simplify Processes and Problems

  1. Modularize components to reduce the number of processes, flows and points of failure.  Reduce the points of contact between modules.
  2. Incorporate self-testing features to make component outputs fail-safe (poke yoke).
  3. Use a greater common denominator approach to combine options and provide just the higher value option.
  4. Separate A, B, C and D volume/variability items into focused factory, modular production, job shop and true custom flows.  Move D volume processes completely out of the system if required.
  5. Side-track complex evaluation steps to allow human expert consideration.
  6. Require incompatible orders or requests to be split and handled separately.
  7. Design processes to allow them to start again or reboot to eliminate truly random circumstances or operator error.

 

Reduce Goals and Options

  1. Set a short-term level of imperceptible defects or same level as the competition.  Use this to guide short-run choices.
  2. Reduce the number of customer goals from a dozen to six or two or one.  As demonstrated in Eli Goldratt’s book “The Goal”, this can simplify and motivate for long-run improvements.
  3. Use marketing research and Pareto analysis to determine the limits of perceptible differences and material goals.
  4. Incentivize customers to accept achievable goals and options by offering discounts, features, benefits and service.
  5. Leverage IT, technical, safety and regulatory limits to reduce options.

 

Optimize Within Constraints

  1. Set a project scope and resource budget.  Rank order initiatives and deliver within the time allowed.
  2. Simulate processes to determine the probability of occurrence and use this to eliminate low-frequency events from analysis.
  3. Apply best diagnosis practices for intermittent failures.  Set time limits.  Escalate to world-class experts. Set time and dollar limits.
  4. Limit the complexity of the system to a one-page flow-chart.

 

Monitor Non-Critical Activities

  1. Document future improvement options in a project parking lot.
  2. Develop reports and processes to monitor known risk and problem areas to identify root causes or increased frequency of occurrence.

 

There are many other approaches used by experienced product developers, project managers and analysts.  The insights of each functional area can often be used in other functions.

Creating Infinite Customer Value

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Process engineers create structures and use them to create infinite value. Most subscribe to the balanced scorecard view of commercial firms as four linked levels: 1) assets/resources used to create 2) operations excellence which 3) satisfies customers, allowing firms to 4) maximize financial returns. Many use some variation of Richard Schonberger’s six universal customer needs (QSFVIP) to structure strategies for satisfying customers. They have found that there is no practical limit to increasing the value delivered to customers.

In the world of quality, we have seen ISO 9000 type quality management systems become standard and Six Sigma quality levels approached. Informal quality assurance has been supplanted by a variety of formal measurement, feedback and improvement systems. Product defect levels have fallen from 5% to 2% to 1% to 0.1% to even smaller fractions. The improvements show no signs of stopping and customers appear to value each new level. The accident rate in commercial aviation provides a powerful case study. The basic quality feedback loop combined with statistical tools and employee engagement have made this possible.

 Speed, measured as product delivery cycle time, continues to improve. Manufacturing processes are designed in cells, using “unit of one” batches and just-in-time supplies to reduce production from weeks to days to hours. Supply chain coordination reduces production lead times from months to weeks to days. In distribution, lead times have dropped from weeks to days to latest cutoff hours for air, parcel, LTL and truck load service. Customers continue to ask for more, even beyond 2pm cutoffs for 10am next day delivery.

 Flexibility to accept orders of any size or kind at any time continues to improve. Customers no longer order ahead of peak seasons to assure supply. They order when then need goods. Customers share sales forecasts, but have no qualms about ordering 3-6-12 months of supply in a single shot and expect normal delivery. Firms have learned to add low-cost equipment and labor capacity, hold semi-finished goods and outsource peak needs to partners. This pressure has moved up the whole supply chain. Lean manufacturing techniques and integrated supply chain management have facilitated this change.

Value, as measured by unit cost, continues to improve. Labor and total factor productivity increase by 2-4% annually for decades at a time. Quality, supply chain, IT, communications, institutional, engineering and basic science advances drive these benefits.

Value, as measured by combinations of features and benefits that meet individual needs, grows each year. Micro marketing, partnerships and customer intimacy strategies ensure that goods and services better meet expressed customer needs. Data analysis, individual promotions and sales tracking allow firms to anticipate the needs of smaller and smaller groups of customers.

 Information or transaction costs continue to fall. EDI and simple electronic markets reduce transaction costs at every stage. Supplier websites, catalogs, pricing, ratings and portals reduce the costs of transactions. Formalized information sharing, vendor managed inventory and evaluated receipt settlements further reduce costs. Standard project and document collaboration systems reduce the cost of product development. Formalized risk management and emergency preparedness resources and plans reduce potential liabilities for all.

 Personal attention grows, in spite of the increased complexity of systems and use of high-technology. Firms know more about each other through partnerships, joint suppliers, product development projects and customized offerings. Firms which have adopted customer intimacy as their primary strategy have organized to become customer centric, employing customer relationship management systems (CRM) to shape their data. As routine transactions are automated, sales, customer and technical service staff focus their time on personal attention.

 Customers will be fully satisfied when there are no product defects and no risk of product defects, when goods and services are delivered at the second they perceive a need, when no purchase is delayed as being too large or unusual, when products are free or customers are paid to take them, when products are uniquely created for their needs, when transaction costs are zero and when they feel like they are the only customer in the world. Tremendous progress has been made towards those goals in the last 30-50 years, often beyond what was imaginable even 20 years ago. The rate of progress towards those ultimate goals has not yet slowed.

Building an Integrated Planning and Control System

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In the process revolution since WWII, we have seen every business function discover that input-process-output descriptions of activities followed by a “say what you do, do what you say, be able to tell the difference” feedback structure are the key to long-run success.  Firms need to evaluate and consolidate these planning and control systems into a single fully integrated system, since they are all attempting to reach the same goals using the same tools.  There are at least five different sets of systems independently active in most firms today.

Strategic planning systems operate at the highest organizational level, attempting to evaluate the situation, set direction, identify critical success factors, define strategies and key performance indicators, and approve major investments and projects.  More evolved frameworks, like the balanced scorecard, attempt to link strategic goals to operational performance.  Many firms have learned to link strategy to measures and projects.

Modern financial planning and control systems have evolved for more than 100 years.  Strategic plans are translated into long-term financial plans to guide borrowing, investment, operations and risk analysis decisions.  The financial plan is translated into a negotiated annual budget.   A financial performance management system evaluates managers against business unit, department, product, customer and project goals.  The key transaction processes are defined and monitored.

Risk management has evolved to become a separate discipline apart from classic P&L management.  Regulatory compliance and external financial reporting have become more technical and legal.  Internal controls have moved to secondary and tertiary levels of safety with an emphasis on “defensible positions”.  Emergency preparedness and disaster recovery have developed into new disciplines.  Risk management tools have evolved from insurance policies to include hedges, contracts and outsourcing.

Human resources systems have grown to become parallel factors.  The regulatory side has greatly increased the emphasis on compliance and risk reduction.  HR performance management systems have become linked to business performance through SMART goals.  HR has been charged with helping managers professionally address frequent change management issues.  HR has also become a senior management partner in attempting to create cultural alignment.

The process or quality systems approach has been the greatest innovator.  At the highest level, a management or total quality management system attempts to incorporate all activities.  The quality approach requires clearly defined customer goals.  All processes must be defined and documented at the staff and system level.  Operations measures are defined to provide simple and direct feedback.  Quality goals are set and quality improvement is defined as a separate goal.  Processes are defined within the generic framework of product, sales and delivery.  IT systems are positioned as facilitators, requiring technical and user documentation.  Individual application systems become more complex, incorporating best practices, but allowing many exceptions.  Change management becomes a sub-discipline, with growing project management expertise.  Process changes are driven by re-engineering, kaizen and continuous process improvement efforts.

Ideally, a firm defines and operates a single planning and control system which integrates the strategic, financial, risk, human resources and quality management dimensions.  Failure to integrate these components leads to added costs, political conflicts, waste and missed opportunities.  A performance management cross-team with representatives from sales, product management, finance, HR and operations is needed to coordinate this effort.

There ARE many components.  We need to overcome the desire to have a fully integrated system that encompasses all possible components as exhibited by the US military in their Afghanistan plans.

http://www.nytimes.com/2010/04/27/world/27powerpoint.html

Reverse Logistics

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Reverse logistics is the orphaned step-child of many businesses.  The liability and recovery potential are often marginal.  Unit volume is too low for heavy automation.  The process is complex and touches many departments, often requiring “stop and go” judgments.  And, the process works backwards from everything else the firm does.  Nonetheless, it is a necessary business function that can be managed using familiar financial and quality guidelines.

  1. Make sure that the returns and testing process captures the essential data for the quality process to reduce the root cause sources of product and fulfillment errors.
  2. Integrate returns processing with supplier management programs, holding suppliers responsible for returns rates above agreed upon levels.
  3. Don’t throw good money after bad.  Implement a “destroy in field” program for those lower unit cost items which don’t warrant evaluation, testing and recovery efforts.
  4. Simplify decisions to the extent possible.  Initial inspections should follow a triage process.  Testing should focus on final “yes/no” parameters.  Repairs should be limited to a few well-defined replacement steps.
  5. Pre-define the allowable recovery steps by product or product family.  If unit cost or dollar returns vary by more than a single order of magnitude, a rough cut categorization scheme can be used to define allowable routings and recovery actions.
  6. Define a simplified linear process flow.  Allowing too many options leads to wasted handling, scheduling and obsolescence.  Cost-effective product batching is usually not justified due to the low volume of returns. 
  7. Treat returns and recovery like any other operations process.  Define objectives and measure results.  Define, follow and improve processes.  Use simple, visual tools to facilitate the flow of product.
  8. Invest in people.  Match the skill and experience level to the potential recovery value.  Provide the training, materials and equipment to do the job well.
  9. Invest in recovery options.  For higher value products, repair, third-party services, return to manufacturer and parts salvage strategies may be cost-justified.
  10. Identify bottlenecks and design the process around them.  Packaging materials, test equipment, limited space, large returns batches, research requests, inventory and parts systems, complex products and resources shared with quality assurance or special projects can all create bottlenecks.  A good process eliminates some and works around the others.

 

The reverse logistics process needs a clean process re-engineering review about every five years and a quick review at least annually.  For businesses with 1-10% net margins, the returns process offers a material opportunity for improvement.

Self-Improving Systems

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General systems theory was outlined in the post-WWII era when innovative thinkers began to consider how and why biological and ecological systems worked — or sometimes didn’t work.  Subsequent applied and theoretical work expanded the use of these insights.  Most importantly, we now understand that successful systems must be self-preserving, self-controlling and potentially self-improving.

A self-controlling system is often described using the thermostat model.  A system has a goal, a measurement device, the ability to compare actual with desired results and some action taken to return the system back within its control limits.  More sophisticated systems have secondary feedback loops to check the measurement, feedback and action steps.  Self-improving systems also have some built-in driver that improves the goal and results through time.

Most development economists have concluded that in the long-run productivity improvements are the key to economic well-being, far surpassing the contributions of simple resource availability.  Productivity improvements are created by individuals’ insights and brilliance, but more often by the cumulative results of self-improving processes.  Hence, our economic future depends upon the broad application of self-improving systems.

The biological model of evolution shows that “survival of the fittest” results in populations that are best ready to thrive in the range of environments encountered historically.  On average, this means that existing species are well positioned for most futures.  It does not rule out decimation due to some new environment, competitor or predator.   Biological pressures through the impact of pollution or global warming could threaten the beneficial effects of the biological model on economic growth.

Biologists and some anthropologists also say that our natural family and other small groups have developed to meet the needs of the species.  In spite of the many changes in culture since the “enlightenment”, these built-in relationships seem solid and provide a self-preserving parenting and small group cycle.

The development of the scientific method and use of peer reviews transformed science from natural philosophy, alchemy and astrology into a cumulative force for progress in scientific understanding.  This force has had a great economic benefit, expanding the use of the scientific method to a broader and broader sphere.  While philosophers and politicians raise valid questions about the ethical use of scientific discoveries, the march of science continues.

Representative democracy with “checks and balances” has also functioned as a self-improving system.  We now understand the need for cultural support for the rule of law.  We know that a variety of representative democratic systems can work well.  We know that there are sometimes populist, military or ruling class pressures that can undermine or destroy a democratic system.  We understand that democracies are often slow, sub-optimal and inconsistent.  Nonetheless, representative democracy has generally been a force for economic progress.  The consensus that western style democracy will be the dominant form of enlightened governance model was much stronger a decade ago, but remains the likely choice for most countries.

Economic systems like capitalism and international trade can also be seen as self-improving systems.  Adam Smith’s “invisible hand” and David Ricardo’s principle of comparative advantage lead competing interests to naturally improve their performance through time.  Modern economists generally agree that capitalism is not automatically “ideal” due to market failures, monopolies, public goods, externalities, unequal distribution of income, deadweight costs of booms, busts and bubbles, and the potential sustained waste of resources due to inadequate demand.  Recommended solutions to these shortcomings that can be implemented through the political process.  As with representative democracy, some form of regulated capitalism is an ongoing positive force for economic growth.

Finally, the systematic adoption of formal quality measurement and improvement systems by most organizations is another form of self-improving system.  By clearly defining goals, measuring progress, adapting and providing support structures that encourage process re-engineering and continuous process improvement, organizations have found that annual productivity improvements are possible in nearly all areas.  The quality revolution continues to expand its reach, moving from operations areas into overhead, service, government and not-for-profit applications.  The set of quality tools and best practices continues to grow.  The pressures of the economic and political marketplaces make sure that this will be a source of progress.

There are areas of modern life where self-improving systems do not provide built-in assurance of progress in the future.  Culture, religion and international relations do not work as self-improving systems today.

Historically, culture continued through inertia or the reinforcing interests of the ruling groups in society.  Without changes in the environment, a self-preserving system was common, even if a self-improving system was not.  Today’s increased level of global communications and cultural awareness provides support to avoid the total disintegration of culture.  The lack of thought leaders or leading cultural influencers today means that subcultures may improve, but the overall culture is not positioned for progress.

Religions were historically integrated with culture and reinforced them.  The “enlightenment” development of secular viewpoints and increased awareness of world religions has greatly complicated attempts by any one religion or ecumenical group to create a self-improving religious system.  Historic attempts to more deeply analyze a religion often resulted in inflexible forms such as scholasticism.  Attempts at reformation with ongoing evolution of doctrine resulted in splinter groups or fatal dilution of core content.  Within the secular humanist tradition, some progress is made through self-help books and applied psychology, but most observers would say that the self-awareness of existential philosophy has been a mixed blessing for people trying to create their own forms of meaning in life.

International relations is also a system without inherent stability.  Contradictory philosophical views dating back to the Greeks have enthusiastic supporters.  The idealistic goals of the United Nations and other world organizations are appealing, but the institutions do not clearly ensure the ongoing improvement of the human condition.  Greater economic and political integration in Europe is offset by the expansion of the number of nation states.  Mutually assured destruction evolved as a self-preserving system at a time of 2 superpowers, but provides no such assurance today.  The rise of Brazil, Russia, India and China to complement the US, Europe and Japan creates a multi-polar world without a clear system for ongoing improvements or avoidance of major conflicts.

The rise of self-improving systems in biology, science, economics, national governance and quality processes provides hope for a future of unlimited possibilities.  The lack of self-improving systems for culture, religion and international relations raises major concerns for the future.

The Quality Paradigm

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The Quality paradigm has emerged as a significant competitor to the Financial paradigm.  The Financial paradigm says that organizational results are best delivered through the sum of individual rational decisions focused on incremental costs and benefits.  The Quality paradigm agrees that costs and benefits matter, but focuses on the underlying process as the primary driver of minimizing inputs (costs) to produce a given output (benefits).  The Quality paradigm has evolved from the “scientific management” studies of “time and motion”.  It has a process engineering focus, aiming to optimize the relationship between inputs and outputs.  Improvements are inherently valuable, without tallying financial valuations.

The Quality paradigm made progress because its effectiveness in Japanese manufacturing became apparent by the 1970’s.  It also gained favor because Western organizations, relying on the financial decision-making tools, were clearly not delivering optimal results. 

The Quality advocates made five major criticisms of the existing practices.   The practices greatly underestimated the total cost of poor quality at 1-2%, while the total costs ranged from 5-10%.  The financial approach often created a cost reduction mindset when greater opportunities existed for improved revenues and margins through quality products and customer service.   The marginal approach overlooked less material cost reduction opportunities that were very significant in the long-run.  It optimized individual functions, while ignoring connection costs.  It underutilized the assets of workers who could make improvements.  While some of criticisms were misplaced or exaggerated, the Quality Paradigm presented a compelling story that lead to changes.  The new, process-based approach was delivering value that the old approach had missed.

The Quality paradigm delivered several insights that could be repeatedly applied to reduce costs, reduce defects, increase volumes, increase timeliness and better meet customer needs.  First, a controlled system inherently reduces errors and risks and leads to improvements.  Second, examining a whole process in terms of well-defined desired outputs focuses staff on the greatest improvement opportunities.  Third, the key to understanding process failures is through understanding the drivers of variability.  Fourth, variability naturally accumulates through a process, leading to greater defects and costs.  Fifth, inventory of time and goods hides current performance and improvement opportunities.  Sixth, there is no practical limit to the improvements possible in reducing variation, reducing defects or improving input/output ratios.  Seventh, a quantum leap process break-through is usually possible.  Eighth, in the long-run quality improvements usually have a net benefit, rather than a net cost.

In the last two decades the Quality paradigm has come to complement the Financial paradigm, leading to a balanced scorecard approach to strategic planning with both financial and operations measures in the performance dashboard.  Finance continues to emphasize costs and benefits while Quality focuses on the underlying processes.  This combination approach is delivering more valuable results for most firms today.