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© Eminence Consulting, Inc.© Eminence Consulting, Inc.
Creating a high performing organization
© Eminence Consulting, Inc.
Introduction
Overview of Operational Excellence
Leadership and Customer Focus
Confetti Game
The IPO model
Decision Making – Finance Example
Performance Measurement
Strategy and Tactics
Creating a High Performing Organization
© Eminence Consulting, Inc.
Operational Excellence is a philosophy oforganizational leadership that stresses continuousimprovement, teamwork, and problem solvingthroughout the organization by focusing on theneeds of the customer, empowering employees, andfocusing management attention towards sustainableimprovement of organizational performance.
The focus of Operational Excellence is to alwaysachieve current operational goals, and strives toestablish a lasting positive change in organizationalculture.
© Eminence Consulting, Inc.
© Eminence Consulting, Inc.
Customer Focus and Leadership
Stable and CapableDelivery System
Continuous ImprovementCulture
Vision and Mission Strategy and Tactics Performance MetricsValue Analysis andValue Proposition
SynchronousFlow
CapableProcesses
EmployeeInvolvement
and Teamwork
Root Cause Analysis and Problem Solving
Operational Excellence
FocusedImprovement
Initiatives
WorkforceCapability and
Flexibility
SystematicCapacity
Expansion
Management System
Decision Making
Change Management
Sustainability Profitable Growth
© Eminence Consulting, Inc.
The conventional way organizations usually look toimprove is to evaluate the current assets and howto better leverage them (inside looking outside)
In the value-based process the starting point isvalue from the customer, market, or productperspective (outside looking inside)◦ The quest to deliver the identified value generates the
needed assets required to create the competitiveadvantage.
© Eminence Consulting, Inc.
“Value is created by removing a significantlimitation for the customer, in a way that wasnot possible before, and to the extent that nosignificant competitor can deliver.”
Dr. Eliyahu M. Goldratt
© Eminence Consulting, Inc.
© Eminence Consulting, Inc.
Establish and maintain stability◦ A system that does not have any special causes (or
assignable causes) of variation present, and all thevariation in the system is from common cause (orinherent) variation.
Eliminate special causes of variation◦ Having a stable Operating System means that the
time to complete all the processes in the system(the value stream), however defined, from start tofinish, is highly predictable
© Eminence Consulting, Inc.
Special causes of variation Easy to identify
lack of supplies due to late deliveries from vendors or sub-contractors,
unplanned process downtime,
quality issues
Difficult to identify
processing easy items at the expense of the harder items,
jamming rush jobs into the system without consideration ofcapacity,
batching jobs together in order to be “efficient”,
pulling jobs ahead to “save” or reduce setups,
bad multi-tasking
© Eminence Consulting, Inc.
What limits many organizations from making significantimprovement?
Management Attention
How to exploit Management Attention?By bringing ongoing Stability and Growth of the organizationby:
1. Building the decisive competitive advantage2. Capitalizing on the decisive competitive advantage3. Sustaining the decisive competitive advantage
Necessary Assumption:
The way to have a decisive competitive advantage is to
satisfy a customer’s significant need to an extent that no
significant competitor can.
© Eminence Consulting, Inc.
Removing a significantcustomer limitation
Number of competitors
Changing aparadigm forthe customer
Changing a deeprooted policy
Quality
Price
Ocean
Time forcompetitors to
replicate
© Eminence Consulting, Inc.
Regardless of the type of problem, to be goodproblems solvers, we must be excellent in cause andeffect thinking What is an effect?
an outcome that is a result or consequence of an action
What is a cause?
something that brings about an effect or a result
What is root cause?
the initiating cause of either a condition or a causal chain thatleads to an outcome or effect of interest.
© Eminence Consulting, Inc.
“An ounce of prevention is worth a pound ofcure.”
- Benjamin Franklin
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PLAN
Assess thecurrent
situation
Define theproblem
Analyze thecauses and
determine theroot cause
Implementpermanent
countermeasures
Check theResults
Standardize theImprovement
EstablishControls
DO
ACT
CHECK
ACT
Identifyprimarycauses
DO
© Eminence Consulting, Inc.
The confetti game outline:
• The game consist of two rounds.
• Each round the participants will work on 2 projects:
yellow project
green project
• Each project consists of ripping the paper into strips andthen ripping each individual strip into pieces.
• Each round will explore different methods for managingwork in a multi-project environment.
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After each round the performance will be measured:
Time to complete the project work
Average completion time
Range of completion times (variation)
First pass quality
© Eminence Consulting, Inc.
1 2 3 4 5
1
2
3
4
5
6
Step 1: Make 4 rips in the length ofthe paper.
Step 2:Make 5 rips in eachstrip of paper
Note: You can only rip 1piece of paper at a time.Therefore you cannotcombine multiple stripstogether and rip them.
Round 1 rules:Starting with the yellowproject, make 3 rips.After 3 rips, switch to thegreen project and make 3rips. Alternate betweenthe yellow and greenprojects until all rips arecomplete.Record your time.
http://www.online-stopwatch.com/full-screen-stopwatch/
© Eminence Consulting, Inc.
1 2 3 4 5
1
2
3
4
5
6
Step 1: Make 4 rips in the length ofthe paper.
Step 2:Make 5 rips in eachstrip of paper
Note: You can only rip 1piece of paper at a time.Therefore you cannotcombine multiple stripstogether and rip them.
Round 2 rules:Starting with the yellowproject, make all 29 rips.Record your time.Start the green project,and make all 29 rips.Record your time.
http://www.online-stopwatch.com/full-screen-stopwatch/
© Eminence Consulting, Inc.
Round 1 Round 2
Average completion time
Range of completion time
First Pass Quality
2:30
45% 86%
1:30
1:30
2:00
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A process a series of actions or steps taken in
order to convert inputs into desired outputs
INPUT PROCESS OUTPUT
The generic format is described by the IPO model:
© Eminence Consulting, Inc.
A chain has two distinct measurable characteristics:
1. Weight = Cost Is determined by summing the weight of all the individual links
2. Strength = Throughput Is measured by the strength of the weakest link.
© Eminence Consulting, Inc.
Management Decision Model
A15 min/unit
RM1$20/U
RM2$20/U
RM3$20/U
Purchasedpart$5/U
B15 min/unit
A10 min/unit
C10 min/unit
C5 min/unit
B15 min/unit
D15 min/unit
D5 min/unit
Product P Product Q
Demand = 100 Units/week
Selling Price = $90/Unit
Demand = 50 units/week
Selling Price = $100/Unit
© Eminence Consulting, Inc.
Additional operating details
◦ All resources are available 8 hours/day
◦ Only 4 resources are available (A, B, C, and D)
◦ Zero quality issues
◦ Zero variability in cycle time
◦ Zero setup time
◦ Total weekly operating expenses is $6,000/week
◦ Direct labor rate is $10/hour ($1,600/week)
© Eminence Consulting, Inc.
Cost accounting method
Product P Q Preferred
Raw material
Direct labor (min)
Direct labor cost @ $10/hour
Overhead cost allocation (Allocation % * Direct labor cost)
Total cost (Raw material + Direct labor cost + Overhead cost)
Selling price
Margin (Selling price – Total cost)
% Margin (Margin / Total cost)
Preferred Product
Note: Allocation % is calculated by dividing the total operating expenses by the direct labor expense forthe same time period(e.g. $4400/$1600 * 100% = 275%)
Judgment on Product Profit
$45.00 $40.00
60 min 50 min
$10.00 $8.33
Q
$27.50 $22.92
$82.50 $71.25
$90.00 $100.00
$7.50 $28.75
9.1% 40.4%
Q
Q
Q
*
© Eminence Consulting, Inc.
Production quantity worksheet
Preferred Product Resource A Resource B Resource C Resource D
Production time/resource(min/unit)
Customer demand (units)
Resource capacityconsumed by product
Maximum capacityconsumed (min)
Available capacity (min)
Remaining capacity (min)
Non-Preferred Product Resource A Resource B Resource C Resource D
Production time/resource(min/unit)
Maximum productiontime/resource(min/unit)
Quantity of non-preferredproduct (units)
Notes: Produce as much of the preferred product as possible with the available capacity
With any excess capacity, produce as much of the non-preferred product as possible
Judgment on Product Profit
Q
10 min 30 min 5 min 5 min
500 min 1500 min 250 min 250 min
15 min 15 min 15 min 15 min
50
1500
2400
900
P
15
60
© Eminence Consulting, Inc.
Judgment on Product Profit
Weekly Profit and Loss Statement
Using Cost Accounting method and preferred product
P Q Total
Production quantity
Sales revenue
- Raw Material
- Direct Labor Variance =
Gross Margin
- Operating Expense
Profit or (Loss)
60 50
$5,400.00 $5,000.00 $10,400.00
$2,700.00 $2,000.00 $4,700.00
$600.00 $416.67 $1,600.00 $583.33
$4,100.00
$4,400.00
($300.00)
© Eminence Consulting, Inc.
Judgment on Product Profit
Production quantity worksheet
Non-Preferred Product Resource A Resource B Resource C Resource D
Production time/resource(min/unit)
Customer demand (units)
Resource capacity
consumed by product
Maximum capacityconsumed (min)
Available capacity (min)
Remaining capacity (min)
Preferred Product Resource A Resource B Resource C Resource D
Production time/resource(min/unit)
Maximum productiontime/resource (min/unit)
Quantity of non-preferredproduct (units)
Notes: Produce as much of the non-preferred product as possible with the available capacity
With any excess capacity, produce as much of the preferred product as possible
P
15 min 15 min 15 min 15 min
1500 min 1500 min 1500 min 1500 min
10 min 30 min 5 min 5 min
100
1500
2400
900
Q
30
30
© Eminence Consulting, Inc.
Judgment on Product Profit
Weekly Profit and Loss Statement
Using Cost Accounting method and preferred product
P Q Total
Production quantity
Sales revenue
- Raw Material
- Direct Labor Variance =
Gross Margin
- Operating Expense
Profit or (Loss)
100 30
$9,000.00 $3,000.00 $12,000.00
$4,500.00 $1,200.00 $5,700.00
$1,000.00 $249.90 $1,600.00 $350.10
$4,700.00
$4,400.00
$300.00
© Eminence Consulting, Inc.
Judgment on Product Profit
Throughput accounting method
Product P Q
Selling price
Raw material cost
Throughput dollars (Selling price - raw material cost)
Constraint production time (min/unit) *
Production rate (units/hour) (60 / Constraint production time)
Throughput rate ($/hour) (Throughput dollars * production rate)
Preferred Product
* Note : The constraint is determined by the resource that limits the amount of
product that can be produced (e.g. resource with the longest production time inmin/unit)
*
$45.00 $40.00
15 min 30 min
$45.00 $60.00
4
$120.00$180.00
$90.00 $100.00
2
© Eminence Consulting, Inc.
Simple & easily understood at all levels of theorganization
The information must be timely
Provide data that is:◦ relevant for decision making
◦ consistent with the company’s strategy and tactics
Used for cost management rather than costallocation or variance avoidance
© Eminence Consulting, Inc.
© Eminence Consulting, Inc.
Should be both financial & operational
Must be aligned to the company’s strategy
Must provide timely feedback
Must induce employees to the take actions thatimprove company performance not localperformance
Operational:
Productivity
First Pass Quality
Delivery Performance
Lead-Time
Financial:
Throughput
Operating Expense
Net Profit
Return on Assets
© Eminence Consulting, Inc.
“A Vision Without Execution is a Hallucination”
-Thomas Edison
“However beautiful the strategy, you shouldoccasionally look at the results”
- Winston Churchill
© Eminence Consulting, Inc.
© Eminence Consulting, Inc.
Introduced by Dr. Eli Goldratt in 2002
He defined “Strategy” as, simply, the answer to thequestion: “What for?” (The answer is the objective of aproposed change).
He defined “Tactic” as, simply, the answer to thequestion “How to?” (The answer is the details of theproposed change).
From these definitions, it is clear that every Strategy(What for?) should have an associated Tactic (How to?)
Therefore Strategy and Tactics must always exist in“pairs” and must exist at every level of the organization.
© Eminence Consulting, Inc.
Strategy and Tactic trees are a logical structure fordefining and communicating all the necessary andsufficient changes to achieve the company’s strategy
They define:◦ The sequence of implementation of the changes to achieve
the strategy
◦ Not only what to change, but more importantly, what not tochange
◦ How to implement the changes and why.
© Eminence Consulting, Inc.
Necessary Assumptions
Parallel Assumptions
Sufficiency Assumptions
Why is the change needed?
What ForWhat is the objective of the change?
Why is the change possible?
Why do we need more details?
How will the change be achieved?
How
© Eminence Consulting, Inc.
© Eminence Consulting, Inc.
Starts with developing the value proposition from thecustomers perspective
Then creating a Strategy and Tactics Tree with the focusof improving value (removing a significant limitation forthe customer)
Then developing and aligning the Key PerformanceIndicators with the Strategy (and eliminating metrics thatdon’t align with the strategy)
Then achieve buy-in from all levels of the organization bycommunicating the Strategy and Tactics tree andaddressing all reservation and negative implications
© Eminence Consulting, Inc.
Customer Focus and Leadership
Stable and CapableDelivery System
Continuous ImprovementCulture
Vision and Mission Strategy and Tactics Performance MetricsValue Analysis andValue Proposition
SynchronousFlow
CapableProcesses
EmployeeInvolvement
and Teamwork
Root Cause Analysis and Problem Solving
Operational Excellence
FocusedImprovement
Initiatives
WorkforceCapability and
Flexibility
SystematicCapacity
Expansion
Management System
Decision Making
Change Management
Sustainability Profitable Growth
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