Oct 4, 2022 | Analytics, Management, Operations
Too often KPI’s are all about the result, rather than the drivers that will deliver the result. When you are measuring just the outcomes, you have missed the opportunity to improve and optimise the actions that will lead to change the outcome being delivered.
Take for example the Cash Conversion Cycle (CCC) time. This measure is a fundamental tool in the improvement toolkit.
By improving the rate at which the cash outlaid to generate a customer service or product is turned back into cash by the payment of invoices, you reduce the amount of working capital required to keep the doors open.
The real benefit is to be found in the active management of the drivers of the CCC. The days taken to complete the cycle is just tracking the result of a set of actions that take place elsewhere, Manage the inputs, and the days will reduce.
For example, detailed examination of the debtors ledger will tell you which customers are slow to pay, thereby decreasing the speed of the cycle. It then becomes an item of potential improvement. Perhaps the salesperson responsible is not diligent enough, perhaps your collection processes are not explicit, you lack follow up, or clarity on your terms. In the end, perhaps you can decide that that a specific customer should be handed over to one of your competitors, weakening their cash position.
The same analysis becomes second nature around the inventory numbers: raw materials, WIP and finished goods. Improving those numbers without hurting the levels of customer service can dramatically improve the productivity of the investments made in the enterprise. As an added benefit, customers will thank you and give you more business.
As with anything, the absence of the information that details the drivers of an outcome, makes it hard to make improvements.
Another example. Sales personnel are often compensated by commissions on their total sales. If you want your salespeople to be out hunting for the next customer, rather than glad-handing existing ones, paying a commission on all sales is a poor strategy. It discourages the more time consuming and riskier task of finding and converting new customers. Existing customers in most cases can be professionally managed by an internal customer service function. The better use of commissions might be to encourage business development.
When you spend time identifying and managing the drivers of outcomes, the dollars will follow.
Sep 27, 2022 | Change, Operations
The world of manufacturing is in a state of perpetual change. The rate of which is accelerating at a scary pace, and Australia is falling further behind.
Manufacturing moved from being powered by steam to powered by electricity, a process that took over a hundred years from the early 1800’s to the 1920’s, but we did not notice it due to the time. It took 50 years for the internal combustion engine to go from early iterations to general use in affordable cars, and the telephone took even longer before it was standard in most homes. The dominant business model was based on Industry ‘verticals’ that usually included controlled supply chains.
By contrast, we moved into the age of digital in the early 90’s, and everything changed in a generation.
Suddenly we are seeing ‘ecosystems’ of manufacturers who compete in some things, and collaborate on others, people who do not have one employer only, industry boundaries are not just blurred, they are becoming seamless.
Amazon is a great example. It is a retailer, wholesaler, provider of systems and technology, newspaper publisher, technology investor, space explorer. Not an industry vertical in sight, rather a web of interconnected interests and cash generators.
The architecture upon which our manufacturing has been built for 100 years has broken down, and we seem unsure of what has replaced it.
If we are truly now in a ‘knowledge economy,’ it follows logically that we should be competing on the rate of learning we can achieve. Sadly, this is inconsistent with the way most Australian organisations are structured and run. The application of digital technology is evolving daily at a rate at which we must learn or be left behind. Algorithms that learn are increasingly intruding, while reflecting and building on patterns of behaviour, without us recognising it is happening.
Manufacturing is a physical process, increasingly being driven by digital, and that rate is accelerating, making it necessary to be competent in both the physical and digital, or fail competitively.
Manufacturing is becoming a hybrid beast.
It seems to me that future survival increasingly depends on our strategic priorities moving from the trends in our physical and competitive environment, to those in our relationships and learning environments.
These are much harder to measure and anticipate, so it is easier to ignore them until too late. Don’t be caught with a blindfold.
Sep 21, 2022 | Innovation, Operations
Yesterday, Tuesday Sept 19, 2022, I went along to the Modern Manufacturing Expo at the Sydney showground.
Expectations were high that I would be able to see the emerging technologies, techniques, product, and service innovations that might support the re-emergence of manufacturing in this country. Specifically, I was also looking for ideas for my clients.
Perhaps I was too focussed, and saw just what I wanted to see when I registered some time ago.
It took a bit to find the expo, as there was no signage at all. Instead, there was signage for the ‘Workplace Health and Safety show’. Confused, I wandered in to ask directions to the manufacturing show to find they were the one and the same.
So, I went into the pavilion hoping to find some of the inspiration and conversation I was looking for.
The manufacturing part of the show was in the back corner. A discarded program I found indicated the manufacturing part had 25% of the floorspace, but it seemed more like 15%, and then, there was not much to see.
My question, hopefully not too frivolous is, do we not need a vibrant and successful manufacturing sector in order to support the plethora of OH&S products, services, and associations? Where are their revenues going to come from if the manufacturing sector remains as constrained as it is currently? Judging from the exhibitors yesterday, OH&S has become the end, rather than a vital means to the end, which should be a vibrant, innovative, globally oriented manufacturing sector.
This is not to throw rocks at those who turned up, made the investment, and were there to generate awareness and leads from those in attendance, in addition to the obvious networking opportunities. It is simply a commentary on the lack of support from across the broad base of manufacturers and their suppliers, education, government, and service providers.
Perhaps it was just a lousy marketing effort by the organisers, the costs were too high (although the OH&S crowd fronted), or maybe it was just one too many expos?
At least my effort was rewarded by running into someone with whom I had a useful conversation about a topic that had nothing to do with manufacturing, and as he lives two streets away, I tend to see him around a bit anyway.
To my mind, the old question of which needed to come first was clearly answered yesterday, and sadly, we seem to have it the wrong way round.
Jun 20, 2022 | Change, Operations
Over time, as changes in the world trading environment evolved, corporations of all sizes matched that evolution through their supply chains by seeking efficiency.
China began to open its economy in the 1980’s, bringing a massive previously untapped labour pool onto world markets. The accountants in developed countries did what they do and took advantage of this cheaper labour by shifting manufacturing operations. This hit the labour market in developed countries hard, and drove change towards automation. The change also brought huge increases in the standards of living of millions of Chinese that increased total demand dramatically.
A key part of the automation processes was the deployment of operational improvement practises, lean, six sigma, JIT, and others. The driving force in these deployments was efficiency.
Over time as manufacturing focussed on efficiency, we did not recognise the downside sufficiently, and sacrificed the resilience in our supply chains against any sort of disruption. We engineered redundancy out, as it did not deliver efficiency.
This is all very useful in the relatively benign environment we had, barring a few hiccups like the 2008 financial meltdown. However, it becomes toxic when the brown stuff really hits the fan, as it did with Covid, and now the Russians. Having practised in Georgia in 2008, and the Crimea in 2014, they have gone after the bigger prize of Ukraine.
Suddenly the patterns of demand for all sorts of products from microchips to grains and consumer products have radically changed, and we discover the downside of engineering out resilience in favour of efficiency.
As one product becomes disrupted by the chaos, it creates waves of second and third level effects, many of which nobody has thought about. Suddenly, and belatedly, we recognise the interconnections and dependencies that compound the disruptions.
The huge challenge for manufacturing leaders is to devise new models that continue to build efficiency, while not sacrificing resilience.
May 4, 2022 | Leadership, Operations
Any company that has grown bigger than about twenty or so employees has developed functional silos as a necessity. The bigger the company, the more focussed and powerful drivers of behaviour of functional employees those functional silos become.
At some point, they risk becoming self-preserving organisms, which seek survival and growth in an internal environment that competes for scarce resources to be allocated.
This is always a huge problem when seeking to generate change.
Water runs downhill, it finds the easiest way down, it builds momentum, continuously making minor adjustments, carving out a modified route as necessary.
Individuals in an organisation have a choice. Metaphorically, they can just ‘go with the flow’, or they can create friction and try and redirect the water. Few attempt to redirect the flow, and fewer still have the power to mandate it.
At some point, someone comes in and says we want some water back at the top of the hill, so someone gets some buckets, fills them, and starts back up the hill.
Almost always the journey is too tough, and they give up.
The momentum of the water still flowing down the known tracks beats them.
The task of leadership is to make that journey easier, to enable the individual to redirect their piece of the water flow, not to where it is easiest, which is the way it went last time, but to a new way, forging minor changes that cumulatively create the new best route to the end point.
Customers do not care about your internal structures, rules, and priorities. They want their product as ordered, at the agreed price, on time, no defects. This is inherently cross functional.
We have organised businesses for our own convenience, when in fact they should be organised for the convenience of customers.
Header photo credit: Lunayuna via flikr.
Mar 23, 2022 | Analytics, Operations
6 sigma is a statistical toolbox designed to assist process improvement. It was originally developed by Motorola in the 80’s as they struggled with quality problems in their booming but now extinct mobile phone business. The tools seek to identify and remove the causes of variability and resulting defects in manufacturing processes. It uses statistics to identify problems, formulate remedial action, then track the impact of improvements as they are implemented.
In simple terms, 6 sigma compliance means there is less than 3.5 defects in a million opportunities for that defect to occur. This can apply to a specific machine or action, or whole production line. Clearly the latter creates many more opportunities for error, and therefore harder to stay ahead of the 3.5 defects/million opportunities benchmark.
Improvement projects are run to a proven statistical ‘recipe’ going by the acronym of DMAIC.
Define. Using statistics, define the problem, and the deliverables of the project.
Measure. By collecting data, you measure the ‘current state’ of the process or activity. This is the starting point from which the improvements will be measured.
Analyse. By analysing the data from each point of input, usually by experimentation, you isolate the cause-and-effect chains in the activity. This identifies the root causes of the variation being investigated.
Improve. Removal of the causes of variation will result in improved performance. The improvements require that changes be made and that the improved processes become the Standard Operating Procedures (SOP).
Control. Control is the continuing monitoring of the improved process to ensure that there is no ‘back-sliding’.
When engaged in a 6 sigma type project, I like to combine it with the SMART methodology in each component of the improvement process. This enables pro-active project management of the components of the process.
6 sigma is often confused or conflated with ‘Lean’ methodology. They use a similar toolset while coming at problems from different perspectives. In my view, and some disagree, they are highly complementary.
