| Part 4: Derailing
Your Continuous Improvement Program |
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Many companies undertake continuous improvement (CI) initiatives to streamline their operations. Yet, the road to Lean and the Six Sigma way is littered with companies that were tripped up in the implementation of these various programs. This series will examine the most common reasons companies fail with their CI initiatives and how you can avoid these mistakes.
Reason: Not Committing Resources
Have you ever experienced this problem? You have a problem that consumes a lot of firefighting from your people. After asking for help, someone is finally assigned to work on identifying the root cause and actually solve the problem. Then, after about a month, that person is pulled off the project so they can help with the firefighting instead.
By pulling resources
off improvement activities to do daily production work or fight fires, they send the message that continuous improvement work is not important. If instead of pulling these resources, managers focus on the long-term benefits, they could eliminate quite a bit of wasted time and resources. This is very hard to do, because of day-to-day pressures; yet, if companies want to succeed long-term they have to make this commitment.
The other related problem companies have with committing resources to continuous improvement efforts is committing the wrong resources. If you are committing those individuals who can be spared, are you really assigning the people who can make the biggest impact? By assigning your high performers and those with authority or influence, your improvement efforts will have a greater effect than just committing resources that can be spared.
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| Operations Strategy
Consulting, LLC |
Megan E. Burns
Managing Director Visit Us Online
Ph: 814-397-3420 |
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Greetings!
It's 30 days into the new year, how are you performing to your plan or is it business as usual? In an effort to help companies thrive in these tough economic times, Operations Strategy is launching the following services:
- Warehousing and Inventory Control
- ISO Preparation and Audits (June)
- Detailed Site Assessments - One Week Peek
- Lean Master Training and Certification (August)
In this issue of The Manufacturer's Edge, we will discuss how to handle deflationary pressures and cover how to clarify and assess your current situation while building an action plan. Finally, we will continue our series on why continuous improvement programs fail.
Here's to your competitive edge!
Megan E. Burns
Operations Strategy Consulting
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Why Care About Deflation?
When most people think about deflation, they think of it as a good thing. Prices are going down, so I can buy an item for less than I could before. How could this be bad? Yet, as manufacturers, you realize deflation can have a disastrous effect on your business. From growing inventories, lower prices, and increased carrying costs, deflation can practically wipe-out a company's profitability. How can you position yourself to withstand this onslaught?
Anyone who has been in business knows that revenue minus expenses equals profit. So if revenue is falling due to deflationary pressures, the only way to maintaining profitability is to reduce costs. What many companies are doing right now is cutting people costs. (We could debate the effectiveness of labor reductions versus pay cuts or reduced hours, but if you're a publicly-held company Wall Street doesn't value those alternatives, so we'll save that discussion for another day.) However, for the average manufacturing company people costs represent only about 10% of the company's costs. If you want to improve your profitability, you must look at the other 90%.
Depending on the type of product you produce, material costs can make up about 40% of your costs. How effective were your purchasing negotiations in the past few months? Are you evaluating your purchases on total cost of ownership? If you did not lock into purchasing agreements, start negotiating with your suppliers now and stave off rising raw material costs.
That leaves production costs as the other major percentage of your costs. Industry studies show that 95% of processes are non value-added activities - meaning wasted time and resources. Although most companies in a deflationary environment hold off on investments, investments in eliminating these processing wastes in your company have a direct impact on your profitability. That is why world-class organizations take advantage of these opportunities to optimize their processes. If you don't take action now, will your company survive to see the recovery 18 or so months from now?
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Are You Working In Reality?
Most organizations have a positive image of themselves. But in reality, they are blinded to the shortcomings and weaknesses of their company. They don't see it because they are so used to working in those same conditions year after year. Do you know where the waste is hidden in your processes, where you are losing money and time? Or are you just trying to make it through the day and get your products made and shipped? Maybe you have been looking at your company the way you want to see it versus the way it is truly performing. As Jack Welch, former CEO of GE, often said, you need to see reality as it is, not as you want it to be.
Let's face it, these are tough economic times and it has been a long time since we have had to operate in such a difficult environment. If you want to survive or knock off some of your competitors, you must know exactly what your strengths are and where you are wasting time and money. To do this, you need to look at and analyze your business processes. Complete a thorough assessment of how information and materials flow through those processes. Having an outside organization guide your team through the assessment can help your team stay focused and be objective.
After all the data have been gathered, it is time to analyze the results, identify how you can improve, and prioritize those improvements. This becomes your action plan. To be effective though, it must be linked to your overall business strategy.
If you are rigorous and objective in your assessment and follow through on executing your plan, you will put yourself and your company ahead of those still living in a fantasy. |
Monthly Tool Tip -
Scatter Plots
When using a scatter plot, remember your underlying assumption is that a change in your X (cause), will change your Y (effect). The chart should only be used to show the strength of the relationship of the two variables - it does not show causation. | |
We would like to welcome Ed Burns as head of our Warehousing and Inventory Control practice. You can read the press release and Ed's bio on our website.
Go Steelers!
Sincerely,
Operations Strategy Consulting, LLC |
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