140515 APICS PDM...Wilson&Perumal&&&Company,&Inc. OperaonalExcellencedeliversindustryleading performanceacross7ValueDrivers Giventwocompanieswithsimilarstrategies,theonethat

Opera&onal Excellence Ge#ng the most out of your Lean Six Sigma programs

Wilson Perumal & Company, Inc.

Agenda/Objec&ves

•  Why a new approach is necessary •  How to diagnose the real problem •  Three things you can do to get the most out of your LSS Programs

Wilson Perumal & Company, Inc. 1) AlixPartners Survey2) 2010 Accenture Survey

A new approach is necessary

•  OperaKonal excellence is more important than ever – customers demand it! –  Increased compeKKon driving decreased

margins –  ExpectaKons of customers, shareholders, and

society are higher than ever –  News of poor performance travels far and fast

•  TradiKonal approaches are not achieving expected results –  Only 31% of companies were able to achieve

the results promised by LSS pracKoners1

–  58% of execuKves report conKnuous improvement programs produced minimal financial impact2

Consider the case of 1-‐800-‐Flowers

Leadership engagement is oFen blamed, but is that the real reason?


The world has changed!

Volume

Cost

Pre-‐Industrial Age

“Individual producKvity”

Dominated by variable costs

Volume

Industrial Age

“Economies of Scale”

Dominated by fixed costs

Complexity

Post-‐Industrial Age

“Complexity”

Dominated by complexity costs

Wilson Perumal & Company, Inc. 5

TECHNOLOGY IS MORE COMPLEX PRODUCTS AND SERVICES MORE COMPLEX

PROCESSES MORE COMPLEX ORGANIZATIONS MORE COMPLEX

REGULATIONS MORE COMPLEX

MARKETS MORE COMPLEX

Complexity is stretching the capabili&es of most companies

X

X X

X

X


Many companies are passing a complexity threshold

VALUE (diminishing returns)

COST & RISK (exponenKal growth)

Level of complexity you can support

$

#Items #links

1 0

2 1

3 3

4 6

5 10

…

10 45

Complexity

Opera'onal risk grows exponen'ally with complexity

Few companies are s'll here

Many companies are here

An increasing number of companies are here


Tradi&onal approaches to Opera&onal Excellence are not effec&ve in the face of complexity

•  They do not address strategy, which is o\en the source of complexity

•  They take a “Bo_om-‐up” approach to improving results

•  They can actually add more complexity

•  They seek to improve before establishing control

•  Complex environments require a different approach to leadership


Complexity arises from the interac&ons between products, processes, and the organiza&on

•  Complexity is a cube funcKon—as it increases on one axis, it mulKplies across the others

•  TradiKonal approaches address individual processes—not interacKons between product, process, and organizaKon


Example: The impact of product por^olio complexity on process complexity


Tradi&onal approaches typically employ a “Boaom-‐up” approach, which doesn’t address complexity

Bo=om-‐up approach: Improving one process at a 6me

Top-‐down approach: Start with a framework


The typical response is to add even more complexity, which compounds the problem

Complexity increases

Poor execuKon

Loss of process control

Poor business results

More people & processes Vicious

Complexity Cycle


Tradi&onal approaches aren’t effec&ve in the face of complexity

•  TradiKonal approaches a_empt to improve processes before establishing control: –  Controls for individual processes are

created, but the underlying system necessary for sustainment is not

–  Results in improving processes without knowing their real capability

•  Establishing control is the necessary first step: –  Ensures sustainment –  O\en produces greater

performance improvements faster and with fewer resources


Agenda/Objec&ves

•  Why a new approach is necessary •  How to diagnose the real problem •  Three things you can do to get the most out of your LSS Programs


Defining Opera&onal Excellence – the oFen overlooked first step

Leadership Alignment

Consistent Messaging

Employees Understand

Clear Roles and ResponsibiliKes

Increased Commitment

•  Leaders must be united and share a common vision

•  If leaders aren’t aligned, messages won’t be clear and consistent

•  Unclear and inconsistent messages impede employee’s understanding

•  If employees don’t understand vision, they will spend Kme trying to define their roles

•  In the face of ambiguity, many employees take a “wait and see” stance


Common defini&ons of Opera&onal Excellence are vague and lack the ability to be measured

•  “Each and every employee can see the flow of value to the customer, and fix that flow before it breaks down.”SM -‐ InsKtute for OperaKonal Excellence

•  Opera6onal Excellence is a philosophy of leadership, teamwork and problem solving resul6ng in

con6nuous improvement throughout the organiza6on by focusing on the needs of the customer, empowering employees, and op6mizing exis6ng ac6vi6es in the process. -‐ Wikipedia

•  A philosophy of the workplace where problem-‐solving, teamwork, and leadership results in the ongoing improvement in an organiza6on. The process involves focusing on the customers’ needs, keeping the employees posi6ve and empowered, and con6nually improving the current ac6vi6es in the workplace. -‐ The Business DicKonary

•  “The leveraging of the disciplines of Lean, Six-‐Sigma and Leadership as key to any Con6nuous Improvement ini6a6ve – towards the increase in performance of both individuals and the companies for whom they work and resul6ng an indelible and posi6ve impact on stakeholder value.” – LinkedIn OperaKonal Excellence Group

These definiKons contain components of the systems and culture necessary to achieve OperaKonal Excellence, but because they lack the ability to be measured, they are not useful for understanding how to achieve OperaKonal Excellence, or why it is important.


Opera&onal Excellence delivers industry leading performance across 7 Value Drivers

Given two companies with similar strategies, the one that executes be_er will have be_er performance across all 7 Value Drivers.

Sound Strategy

Operational Excellence

Leading Performance

7 Value Drivers

1.  Safety 2.  Environment 3.  Compliance 4.  Quality 5.  Produc&vity 6.  Yield 7.  Cost

Strategy

1.  Product por^olio 2.  Markets served 3.  Distribu&on channels 4.  Price point 5.  Level of service 6.  Partnerships 7.  Opera&ng model

Opera'onal excellence is the execu'on of the business strategy more consistently

and reliably than the compe66on.


Agenda/Objec&ves

•  Why a new approach is necessary •  How to diagnose the real problem •  Three things you can do to get the most out of your LSS Programs 1.  Address non-‐value added complexity that

arises from your strategy


Technology

Strategic intent

Value chain processes Culture

Structure and

authority People

Sound strategy requires aligning decisions to allocate resources consistent with strategic intent

Make strategic decisions consistent with intent

1.  Value discipline –  Product innovator –  Customer inKmate –  Low cost

2.  Markets to parKcipate in –  Local –  Global

3.  Value chain –  VerKcally integrated –  Single segment

Processes and Culture must support the strategy

Technology, organizaKonal structure, and people capabiliKes must support

the processes and culture

Strategic Intent Components of the Opera&ng Model

Aligning the OperaKng Model to the strategy isn’t enough. We must also implement the management system processes necessary to execute the OperaKng Model.


Agenda/Objec&ves


arises from your strategy 2.  Simplify and standardize your Management

System


Opera&onal Excellence is a func&on of the management system & culture

Effective management

processes and

procedures

Culture of Operational Discipline


Understanding this rela&onship helps cut through complexity to quickly iden&fy the real problem from the “top—down”

Sound Strategy


Leading Performance


Understanding the different types of processes is an important first step

Acquire raw

materials

Convert to finished good

Store finished goods

Distribute finished goods

Collect payment

Pro

cedu

res

Roles a

nd Respo

nsibiliKe

s

Training

Risk Iden

KficaKo

n A Management System Process or Key Control is a process whose primary purpose is to ensure effecKve execuKon of a value chain process

Applied across each phase of the End-‐to-‐End Value Chain

The End-‐to-‐End Value Chain represents the core acKviKes a firm performs to deliver value to its customers


The founda&ons of an Opera&onal Excellence Management System

Key Value Drivers

OE is defined by measurable business performance across specific value drivers

Safety

Environment

Compliance

Quality

Produc&vity

Yield

Cost


The 4 Sources of Risk

Equipment Processes People Inputs Acted on by

To produce

Finished Goods/ Services

The OperaKon

•  Any failure of the operaKon to produce a good or service that meets the customers requirements is a result of 1 of 4 sources: 1.  A person failed to do what they were expected to do. 2.  A process failed to perform as expected 3.  A piece of equipment failed to perform as expected 4.  Un-‐managed change



Key Value Drivers

Four Sources of

Risk


There are only four sources of risk for failure to perform against the

value drivers

Safety

Environment

Compliance

Quality

Produc&vity

Yield

Cost

People

Processes

Equipment

Change


Each source of risk can be analyzed for the key causes of failure

People

Unaware of expectaKon

Unable to perform as expected

Chooses not to perform as expected

ExpectaKons don’t exist

ExpectaKons not communicated

ExpectaKons not enforced

Lack of knowledge

Lack of talent

Lack of virtue

Wrong incenKve



Equipment

Inadequate Design

Unplanned Failure

Improper OperaKons

Inadequate Maintenance Strategy

Inadequate execuKon of Maintenance Strategy

Personnel not allocated

People

Process

Insufficient tools/materials

People



Process

Process is not capable

Process not in control

OperaKng limits not defined

People

Equipment

Change

MOC process not capable

MOC process not followed

People

Change not idenKfied



Key Value Drivers

Four Sources of

Risk

Common Causes of Failure



value drivers

The four sources of risk tend to fail for the same reasons regardless of the type of operaKon

Examples


Lack of knowledge

Wrong incenKves

Equipment not capable


Process not capable

MOC inadequate

Safety

Environment

Compliance

Quality

Produc&vity

Yield

Cost

People

Processes

Equipment

Change


If the causes of failure are consistent across various opera&ons, the necessary set of Key Controls is as well

People

Unaware of expectaKon

Unable to perform as expected

Chooses not to perform as expected


ExpectaKons not communicated

ExpectaKons not enforced

Lack of knowledge

Lack of talent

Lack of virtue

Wrong incenKve

Ops/maintenance procedures/policies/standard work

Core communicaKon strategy

Audits/assessments, org structure, performance management

Training/cerKficaKon

SelecKon process

Culture, selecKon process

CompensaKon strategy, performance management

Key Controls



Equipment

Inadequate Design

Unplanned Failure

Improper OperaKons

Inadequate Maintenance Strategy

Inadequate execuKon of Maintenance Strategy


People

Equipment

Insufficient tools/materials

People

CriKcality Ranking, FMEA, RCM

Engineering Disciplines

Gatekeeping, Scheduling

Planning, Parts Ki#ng, Parts Strategy



Process

Process is not capable

Process is not in control

OperaKng limits not defined

People

Process

Change

MOC process not capable

MOC process not followed People

Process Engineering (LEAN Six Sigma Tools)

Process FMEA, Process Control Plan

Management of Change Program



Key Value Drivers

Four Sources of

Risk


Specific Key Controls



value drivers


The set of Key Controls necessary to prevent

failures is also the same

Examples

Vision/Procedures

Training/CerKficaKon

Performance Mgmt


Planning/Scheduling

Design for Six Sigma

MOC Process

Culture

OrganizaKon Structure

Process Control Plan

FMEA

Examples


Lack of knowledge

Wrong incenKves



Process not capable

MOC inadequate

Safety

Environment

Compliance

Quality

Produc&vity

Yield

Cost

People

Processes

Equipment

Change


Management System processes can be grouped into Elements to reduce complexity

Risk IdenKficaKon

Process Hazard Analysis

Failure Modes Effects Analysis

Risk Registers

The value of the 7 Elements

•  Easier for people to remember than all key controls

•  More efficient to organize around

•  Creates common language that facilitates learning: –  Between management and

employees –  Between leaders –  From site to site

•  Encourages systems thinking –  Ensures proacKve management of risk in development of new systems

–  Used in root cause analysis, problems aren’t seen in isolaKon


The 7 essen&al Elements of an Opera&onal Excellence Management System

Leadership

Employee accountability

Risk idenKficaKon

Risk miKgaKon

Knowledge sharing

Management of change

ConKnuous improvement

Leaders arKculate a clear vision of OperaKonal Excellence and create a culture of OperaKonal Discipline

Processes are in place to ensure employee’s are properly incenKvized and know what they are accountable

Risks are idenKfied , assessed , and prioriKzed for processes and equipment

Controls are put in place to miKgate the idenKfied risks

CommunicaKon and training systems are in place to share knowledge about the risks and their controls

Processes are in place to management changes of people, processes, and equipment

All processes are measured, verified, and conKnuously improved



Key Value Drivers

Four Sources of

Risk


Specific Key Controls

OEMS Elements



value drivers


The set of Key Controls necessary to prevent

failures is also the same

Key controls are organized into

Elements to facilitate implementaKon and

management

Examples

Vision/Procedures

Training/CerKficaKon

Performance Mgmt


Planning/Scheduling

Design for Six Sigma

MOC Process

Culture

OrganizaKon Structure

Process Control Plan

FMEA

Examples


Lack of knowledge

Wrong incenKves



Process not capable

MOC inadequate

Leadership

Employee Accountability

Risk ID

Risk Mi&ga&on

Knowledge Sharing

Management of Change

Con&nuous Improvement

Safety

Environment

Compliance

Quality

Produc&vity

Yield

Cost

People

Processes

Equipment

Change

There is an “order” to implementa&on

Leadership

Employee accountability

Risk iden&fica&on

Risk control

Knowledge sharing

Management of change

Con&nuous improvement

Commi_ed leadership is the foundaKon

Employees must know their accountabiliKes

Once leaders and employees are commi_ed to prevenKng risks, idenKfying them creates value

Risks must be idenKfied and assessed before they can be controlled

Controls must be in place before employees can be trained on them

Processes must be clearly defined and controlled before change can be managed

Assessing a process that is known to be out of control o\en creates li_le value


Agenda/Objec&ves


arises from your strategy 2.  Simplify and standardize your Management

System 3.  Leverage culture


Opera&onal Discipline is necessary to achieve Opera&onal Excellence

Effective processes

and procedures

Culture of Operational Discipline


A robust OEMS alone will not lead to Opera&onal Excellence; Opera&onal Discipline – doing the right thing, the right way,

every &me – is also needed

Sound Strategy


Leading Performance


Complex opera&ng environments require a different approach to Leadership

•  In complex operaKons, leaders can’t possibly idenKfy all the situaKons that an employee will face.

•  A_empKng to create a laundry list of rules or tasks will not cover every possible situaKon.

•  By idenKfying the fundamental behaviors of an OperaKonal Disciplined organizaKon, we can create a framework that helps employees determine how they should behave in a given situaKon.

U.S. Nuclear Navy—A High Reliability OrganizaKon (HRO) ‒  Remarkably low number of mishaps

‒  Highly complex and inherently hazardous tasks

‒  Consistently over a sustained period of Kme


At an operator level, safe and reliable opera&on rests on the “Pillars of the Program”…

•  Integrity •  Level of Knowledge •  Ques&oning Artude •  Formality •  Forceful Watch Team Backup

REACTOR SAFETY & CONTINUITY OF POWER

LEVE

L OF KN

OWLEDG

E

FORM

ALITY

QUESTIONING ATTITUDE

FORC

EFUL BA

CKUP

INTEGRITY


The “Pillars” of Opera&onal Discipline •  Integrity. Be reliable. Do what you say you are going to do, compleKng every task the right way,

every Kme, even if no one is watching.

•  Level of Knowledge. Understand not just what you do, but why you do it. ConKnually seek greater knowledge about the systems, processes, and hazards in and around your workplace.

•  Ques&oning Artude. Constantly ask yourself what could go wrong. Check for out-‐of-‐the-‐ordinary and learn to anKcipate potenKal problems. Don’t assume things are okay—verify.

•  Formality. Treat your workplace and your role with respect, recognizing the seriousness of what we do and your role in that as a privileged trust and part of something bigger.Follow authorized procedures and expect the same from others. Do not take or tolerate shortcuts. If you think of a be_er way, follow authorized processes to review and improve the procedures.

•  Forceful Watch Team Backup. Backup your co-‐workers by looking out for what they may have missed, and expect the same in return. Have the courage to care, intervening even when it makes you uncomfortable. If you see an issue, own it.


Leaders need to understand basic concepts related to culture and human behavior

•  Leaders play an essen&al role in shaping culture and changing behaviors

•  A recent Booz & Company study1 revealed that 48% of execuKves “think, other than communica6ons and leadership alignment, they do not have the capabili'es to effec'vely deliver change”

•  Understanding what culture is, and why people behave in a given way, will help leaders be_er understand how to lead the change

•  Leaders –  Cannot force people to change beliefs –  Cannot force people to change behaviors –  Can change the consequences

Beliefs

Behaviours

Consequences

influence result in re

inforce or und

ermine

Culture is the shared beliefs of the group


4 Steps for crea&ng a culture of Opera&onal Discipline

•  Need for the Pillars

•  DefiniKon of the Pillars

•  Approach for implementaKon

Align Leadership on the Pillars

Create the Case for Change

Internalize the Fundamentals

Embed in Management

System Processes

•  Use case study like Deepwater Horizon to make case for change

•  Create a sense of discomfort

•  One-‐on-‐one conversaKons between leaders and employees using right/wrong framework to discuss behaviors

•  Leader interacKons on the shop floor

•  New hire selecKon

•  OrientaKon/training

•  Incident invesKgaKon

•  Performance Management

Crea&ng a culture of Opera&onal Discipline must start at the very top of the organiza&on!


Summary

•  A new approach is required due to complexity

•  First Step: Diagnose the problem using a “Top-‐down” approach –  Is it strategy, management system, or culture

•  Address non-‐value added complexity that arises from your strategy

•  UKlize the 7 Element OEMS to break the vicious complexity cycle and regain control

•  Remember that there is an “order” to things

•  Define and create a culture of OperaKonal Discipline

Reducing complexity and regaining control of your opera&on will revitalize your Lean and Six Sigma Programs


Email: [email protected] [email protected]

On the Web: www.wilsonperumal.com Blog: www.wilsonperumal.com/blog

Twi_er: @cpseifer @Wilson_Perumal

LinkedIn: h_p://www.linkedin.com/in/christopherseifert h_p://linkd.in/10BnH1i

Phone: (972) 800-‐3618 (972) 716-‐3930

Contact Informa&on

Documents

140515 APICS PDM...Wilson&Perumal&&&Company,&Inc. OperaonalExcellencedeliversindustryleading performance*across7Value*Drivers Giventwocompanieswithsimilarstrategies,theonethat

140515 APICS PDM...Wilson&Perumal&&&Company,&Inc. OperaonalExcellencedeliversindustryleading performanceacross7ValueDrivers Giventwocompanieswithsimilarstrategies,theonethat