A marketer’s guide to Operational Continuous Improvement measures.

A marketer’s guide to Operational Continuous Improvement measures.

Jun 12, 2025 | Lean, Management, Operations

Many owners of small manufacturing businesses, up to about 30 employees in my experience, have only a vague grasp of the measures and mechanics of continuous improvement. Having a stable process, then experimenting to do the small things better, every time you do them. The impact compounds. Lean Manufacturing and Six Sigma offer practical tools to boost performance, reduce costs, and improve your ability to serve customers.

Below are 9 key measures for continuous improvement. Pick the few that are most relevant to you and focus on them.

Overall Equipment Effectiveness (OEE)

OEE shows how effectively your equipment runs by combining machine availability, performance, and quality into one simple metric.

Inefficient or underperforming machines will quickly create bottlenecks in your operation. The whole chain can only go as fast as the slowest link, so identifying those bottlenecks and earmarking them for attention will improve overall effectiveness.

In these days of cheap digital sensors and data collection tools it is becoming easier and cheaper to instal machine sensors, downtime logs, and quality checks to monitor uptime, output rates, and defects.

Cycle Time

Cycle time measures the time it takes to complete a process, from start to finish. Shorter cycles mean more output without extra costs.

The measure can be applied to an individual part of the chain, or the whole chain, using a tool as simple as a stopwatch, or as complex as a SCADA system.

This measure is not to be confused with Takt time, which is a measure of the rate of demand.

First Pass Yield (FPY)

‘Get it right first time’ is a cliché that refers to first pass yield. It tells you how many products come out within specifications the first time, helping cut down on rework, scrap, and wasted effort. The principle of the measure is simple, but the trap is in making it too easy. A wide spread of acceptable specifications is more easily met than a narrow one, and will distort the measure, possibly giving you a wrong picture of quality performance.

There is a myriad of ways to check quality ‘at source’ i.e.: from random checks to sophisticated visual and digital mechanisms.

Lead Time

Lead time normally measures how fast you fulfill orders. It can also be usefully applied to parts of the supply process, such as the time taken to respond to queries, provide details, quotes, and many other points of customer interaction. Faster lead times mean happier customers, referrals and repeat business, and better cash flow. In a world that is accelerating at unprecedented rates, being quicker to respond is a powerful competitive advantage.

The easiest way to track lead times is to start automatically time-stamping everything, and tracking through spreadsheets, your CRM, or even by hand.

Reversing the focus of lead time, and measuring your suppliers lead times, and DIFOT (explained below) is also a powerful way of managing improvement in your operations, and therefore ability to serve customers.

Inventory Turnover

In simple terms, Inventory Turnover is how many times your inventory is sold and replaced over a specific period. It is calculated using the average inventory value in a period and your Cost of Goods Sold. The simple formula is COGS divided by Average inventory.

Accountants see inventory as an asset, that is how it is treated in the balance sheet. However, as inventory is a measure of how much cash you have tied up, immobile, it is to my mind a liability beyond a delicate balancing point that is necessary to serve customers. Too much inventory ties up cash and risks obsolescence, too little causes delays. Balance is key.

There are many inventory systems, all do the same thing. Monitor stock levels, keep track of the value, and usually flag repurchase time based on usage and nominated procurement lead times when fed sales forecasts.

Inventory turnover is often expressed as ‘Days cover’ in fast moving environments.  The formula is the same, the period is days.

Scrap, Rework and Waste Rates

Waste eats into profit. You expend time and resources to add to the scrap pile. Anything that reduces waste, scrap and rework will boost efficiency and margins.

Scrap is when you simply send a completed or partially completed item to the bin. Rework is when you invest further time and effort to turn a unit that could be scrapped into a saleable unit, and waste is the material left at the bottom of the ingredient bag, the leftover material after the templates have been stamped out. Each is different, each warrants attention.

As with the other measures, there are many ways of tracking these three ‘nasties’. Your accountant should be able to give you the numbers based on what is used to produce the inventory, and the difference is the place to start looking for the scrap and waste. Rework usually requires added time and labour which can be tracked.

Customer Complaints and Returns

Often the best source of problem identification is what your customers are telling you. A returned product can be a source of intelligence that enables you to track and pinpoint problems to be resolved before they escalate.

Keep records of customer feedback, returns, and service calls.

Equally, customer satisfaction is a useful measure, but challenging to build reliable data. Many enterprises use the Net Promoter Score method, alternatively monitoring social media feeds may deliver insight. However, when customers pay you their hard-earned money, they expect to be satisfied, just delivering what is expected is hardly reason for a party

Safety Incident Rate

Ensuring as far as possible the safety of employees is not only a moral responsibility, it is now a legal responsibility that in some jurisdictions has had the onus of proof reversed.

Factories can be dangerous, and removing as many of the sources of danger as is humanly possible is essential. Tracking safety incidents is a measure of how successful that effort has been.

Delivered In Full On Time. (DIFOT)

DIFOT is an overarching measure that pulls all the above together. Failure in your operational processes will make delivering in full on time challenging, if not impossible. It is one operational measure that should be on every KPI menu. As noted above, it is a very useful measure of the performance of your suppliers.

Will AI clear bureaucratic logjams?

Will AI clear bureaucratic logjams?

Apr 11, 2025 | AI, Governance, Management

 

 

Anyone who has engaged with any bureaucracy at multiple levels will tell you that what is said at the top often does not get down to the operational levels.

It seems not to matter whether the bureaucracy is private or public, multiple levels result in an increasingly dense set of rules and regulations that should be followed and are often a default excuse for not thinking.

However, it does seem also that public bureaucracies are less able to accommodate any sort of flexibility in the absence of instructions from on high, and even then, it is difficult.

AI has invaded and won significant ground in private domains and will be rapidly deployed as businesses seek the potential productivity gains as a source of competitive advantage.

What of government?

There is no competition in the public bureaucracies, their political masters come and go, policies change, as do some senior people, but largely, they remain intact. How will they adapt to the new world of AI?

In a word, very slowly indeed.

Regulations, behavioural rules, and protocols set at the top level, are filtered down through organisations. At each level, they are imposed with the addition of seemingly necessary additions in order to stop those who seek to find ways around the rules, and in the eyes of the bureaucrats subvert the intent of the rule.

This imposition of rules compounds to the point at the operational end that navigating the imposed landscape becomes incomprehensible to normal people.

I spent time recently navigating the minefield surrounding the simple transition of my mother from her own home to an aged care facility.

The process required two apparently warring bureaucracies to simply recognise the assets Mum had, combined with the aged pension through Centrelink, and the War widows’ allowances due to Dads military service in New Guinea. My sister who did most of the work required, is an intelligent educated woman, but was driven almost to despair. The nonsensical overlapping and duplicated requirements of both departments, where it seems a comma in a different place in similar lodgements to each department necessitated we start from scratch with both after the applications were deferred or judged void.

The operational individuals were largely helpful but completely restricted by rules to which no variation was allowed. Yet, the policies stated from the top are designed to make the lives of aged Australians, particularly those who have given much to the country as have war widows as comfortable as possible.

What happens in between these levels.

Regulation begets regulation upon regulation as the rules are cascaded down through the organisations. As each level sets about ensuring they are not accountable for any misdirection of funds, and therefore difficult questions, the mess becomes ‘Gordian’.

All this does is catch and frustrate those trying to do the right thing, while the ‘smarties will always find a way through,

Into this maelstrom walks AI.

In theory AI should ease the logjam, making most of the necessary form-filling and translation of details from one point to another automatic and easy.

In practice, the flexibility and agility that AI platforms are capable of will be adopted very slowly by public bureaucracies. They require changes in culture, operating processes, and inter-departmental collaboration in more than just words and press releases.

Those changes seem unlikely despite the urgent need.

 

 

 

Choice outcomes are optimised by ‘impersonal dissent.’

Choice outcomes are optimised by ‘impersonal dissent.’

Feb 10, 2025 | Leadership, Management

 

 

When most people hear the word dissent, they think, troublemaker.

And sure, dissent can ruffle feathers. It challenges the status quo, pokes at comfort zones, and often triggers defensiveness or knee-jerk loyalty to “the way we’ve always done it.”

But here’s the thing: dissent, when done right, is one of the sharpest tools in your decision-making arsenal.

Dissent can expose blind spots, cracks in logic, and perspectives you might otherwise miss. It’s also constructively contagious. When one person feels safe to question the narrative, others find the courage to share their own opinions. That is how real progress gets made.

Too often, dissent is misread as a personal attack. Instead of hearing a critique of an idea, people take it as a critique of themselves. Cue the drama, defensiveness, and derailed conversations.

This is a sensitive balancing act for leaders.

Effective leaders know dissent isn’t just a “nice-to-have,” it’s essential. If you’re surrounding yourself with “yes people,” you’re not leading, you’re herding.

Leadership means being secure enough to invite challenges to your thinking. It says, “I care more about the right outcome than about being right.”

I once worked with a leader who actively encouraged what he called “impersonal dissent.” It was not a free-for-all. It was a structured process where we played devil’s advocate on every significant decision. The thinking was simple: the more diverse the viewpoints expressed, the more we leveraged available relevant data, the better we would understand the problems, explore possible solutions, and therefore optimise the odds of a positive outcome.

One plus one was not just three, it was exponential in value.

But here’s the kicker: it wasn’t a democracy. When all the arguments were on the table, the leader made the final call. And when the decision was made, the dissenting voices stopped, by convention, the decision became a group decision which all supported. That balance between encouraging dissent but knowing when to move forward was key to our success.

I discovered the downside when that person to whom I had been reporting left the business. I was elevated into his role, now reporting to an MD of the group whose view of dissent was different. Being still young, and  somewhat impervious to his displeasure, believing I had the runs on the board to claim the right to ask questions and argue a dissenting perspective, I did not last beyond the first ‘restructure’.

 

Header courtesy Scott Adams and Dilbert.

 

 

 

How to deliver bad news, and be loved for it

How to deliver bad news, and be loved for it

Dec 9, 2024 | Communication, Management

 

From time-to-time leaders and managers must deliver bad news.

Delivering bad news is one of the most stress inducing actions any manager and leader must undertake from time to time.

My technique over the years has been what I call ‘delivering a Sh*t sandwich’.

The bad news sandwiched between two pieces of better news.

For example:

‘Sales are going well and are above budget’.

‘Sales in your area are poor, your colleagues are carrying your short-comings and are becoming very tired of that’.

‘We are sending you to the ‘Harvard improve your sales skills course’ next month hoping it will help you improve.’

This generally works quite well.

The alternative as demonstrated by the following story I found from an anonymous source, is to deliver some outrageous and imaginary really bad news, which then makes your bad news seem like a huge relief in comparison.

 

“Dear Mom and Dad

I’ve dropped out of school. Bob and I have moved to Alaska. His penal officer has found him a job, and we live above the gas station where he pumps gas. The doctor says my pregnancy is coming along as well as can be expected.

Love,

Jane

P.S. There’s no Bob, I’m not pregnant, and I didn’t drop out of school. But I got a D in chemistry. I just wanted you to read this with the right perspective.”

Note: this last technique also works in reverse.

Rolls Royce no longer display their cars at auto shows. In that environment, they are hugely expensive vehicles, with many very good, and much cheaper alternatives. Instead, they now display at air and boat shows, where by comparison, a Roller is pocket change.

 

 

 

Are you considering the increasing value of intangibles?

Are you considering the increasing value of intangibles?

Nov 20, 2024 | Communication, Management, Strategy

 

 

When thinking about selling your business ensure you spend time and effort identifying the intangible components that could contribute up to 90% of the value of the sale

Almost 6 years ago I wrote a post that identified intangible value at  87% of the Standard and Poor’s index. An update to that index done by Ocean Tomo now puts the number at 90%. While this is a small increase only, it is off an extraordinarily high base, and the index is based on 2020 numbers. Given the run of technology stocks over the last couple of years, I hazard a guess that the number is now well over 90%. It is the last 10% that is, as everyone knows, the hardest to capture.

This is a considerably greater percentage than the other major stock market indices. For example the European S&P at 75%, Shanghai Shenzhen index is at 44%, and the Nikkei sits at 32%.

This wide disparity comes from the makeup of the indices.

The US S&P top ten contains nine technology businesses the outlier being Berkshire Hathaway. In order, on Nov 16, 2024, the top ten and their share of the index is:

NVIDIA 7.2%. Apple 6.8%, Microsoft 6.2% Amazon 3.8%, Meta 2.5%, Alphabet 2.1%, Tesla 1.8%, Broadcom 1.7%, Berkshire Hathaway 1.7%.

Even amongst these behemoths, there is a strong skew to the top three.  This top ten constitute 35.4% of the total value of the 500 companies in the S&P index.  The Pareto Principle at work, again.

The trend is also clear amongst the other major indices. From much lower bases, they are all heading towards the increasing valuation of intangibles in the total value of their stock.

Ignoring this trend and failing to respond is leaving money on the table.

Over the last few years, I have consulted on several projects where small businesses have been sold. In each case, the sale has been made at a considerable premium to the standard industry multiples that would usually be applied. The driver of the premium has been the effort put into identifying and articulating the value of intangibles to the purchaser. I’ve called it finding the ‘Rembrandts in the roof’, a phrase I picked up somewhere after reading of a dusty Rembrandt was discovered and authenticated in the roof of an old house in Amsterdam 30 years ago.

Are you actively looking to identify and quantify your hidden Rembrandts?

 

 

The only 5 tools in a leaders toolbox.

The only 5 tools in a leaders toolbox.

Nov 15, 2024 | Governance, Leadership, Management

 

We tend to think that the person on the top of the pyramid has the power to do whatever they wish within the boundaries of reason and the law.

To some extent this is true but there remains only five tools they can use.

Volume.

Price.

Costs.

Culture.

Strategy.

Everything in a business stems from these five fundamental tools when they are focused laser-like on customers..

A leader that has at their fingertips a few simple metrics that reflect these five tools, and focuses attention on the drivers will be successful.

The first three are quantitative. The fourth, culture, is much harder to define quantitatively. However, there are measures that will deliver insight, such as staff churn, Surveys into items such as psychological safety, diversity of training, thought, and experience, and team collaborative success.

Strategy is also qualitative, in that it cannot be measured except in hindsight, by which time, it becomes useful only as a lesson, and driver of future strategic choices.

The combination of culture and strategy, when they are mutually reinforcing, and aligned is a potent combination, that drives the quantitative allocation of resources, measured in outcome by revenue, price and costs.

Header generated by the newest shiny thing in a subsection of the toolbox: AI.