Manuficient Consulting

Can OEE be Used to Reduce Operating Cost?

OEE or Overall Equipment Effectiveness measures manufacturing performance against perfection. It is regarded as the global benchmark for managing and improving manufacturing efficiency. Any deviation from perfection drives up operating cost. OEE looks at three different losses and multiplies them across to assess total losses. Those losses are:

Availability – This is a measure of downtime (both planned and unplanned)

Throughput – This measures rate loss against the theoretical maximum run rate

Yield – This measures the amount of efficiency lost due to quality issues

Each of these factors has a cost impact. There are measurable financial and other costs associated with having people at work, the lights on, and machines operating. Anytime these things are happening and you aren’t producing at theoretical maximum levels, you are suffering efficiency and financial losses. Most factories are operating at or below 60% OEE but have no idea. Additionally, most factories do not measure productivity, and many who do, use methods that exclude significant losses such as changeover times, start-ups, throughput loss and many others. Again, anytime you have people on the clock and product yet to be made, anything less than the theoretical max output is a loss…for whatever reason – controllable or uncontrollable. At the end of the day, all aspects of running your business are controllable; the only real question is: are you willing to do what it takes to “fix” something that is perceived as “uncontrollable”. I’ve worked with manufacturers who, for years, wrote off “bad raw material” as uncontrollable but have never talked with the supplier about fixing the problem or investigated sourcing with other suppliers. In almost all cases, uncontrollable is synonymous for “we don’t want to deal with it”.

The Logic

For a factory with a direct operating cost of $10M annually and an OEE of 60%, the total efficiency losses are 40%. Therefore 40% of the direct operating costs are also losses, or $4M in this case. At 100% efficiency, the operating cost would be $6M.

World-class execution is 85% OEE, which equates to a direct operating cost of $8.5M in the example above. For the same factory, there is a $2.5M savings opportunity for improving from 60% to 85% OEE. What would you do with an extra $2.5M dollars per year? Expand production? Pay bonuses? Acquire a new business? Buy a small yacht and sail around the world?

Achieving 85% OEE is challenging but attainable for the vast majority of manufacturers. Click the link below to receive a free report on how much savings opportunity you might have based on your direct operating costs and efficiency performance:

My Total Savings Opportunity

If you don’t know your OEE, we can get you up in going on fOS in less than a month. It will help you track OEE by product, line, shift, team, and even individual. It’s a great tool for highlighting exactly where to focus improvement efforts. For the sake of the tool mentioned in the above link, input 60% as a reference point and see what you get for a savings opportunity if you’re unsure of your current OEE.

 

 

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Systematization: The Teeth in the Gears of Continuous Improvement

Manuficient - People & Gears

Systematization is standardizing a sequence of events through automation or verifiable reaction protocols designed to produce consistent outcomes. It’s also where the rubber hits the road for the Percent Perfect Methodology® (PPM), which is designed to achieve rapid and sustained results in operating efficiency and manufacturing profitability. We see systematization everywhere we look, especially in manufacturing. For example, every factory has a system for tracking and managing when and how much an employee should get paid based on the hours they worked each payment cycle. If an employee wants to take a day off or works an extra shift, there are usually well defined protocols in place to make sure that employee is compensated accordingly. The reason just about every company has gotten this particular process down to such a science is because failing to fairly compensate employees could land them in some serious hot water. In this case, the motivation is fear of a lawsuit or disenfranchising workers; it’s also just outright unprofessional when people aren’t getting paid on time and in full.

Manuficient Methodology1.1 SystematizeSystematize is the fourth and final phase of the PPM. In Phase 1, we defined perfection for your manufacturing operation. Phase 2 assessed where exactly you are in your journey to Operational Perfection (OP). In Phase 3, we prioritized 3 – 5 critical initiatives needed to make substantial progress toward your potential. In Phase 4, Systematize, we look closely at how to fully integrate the 3 – 5 critical initiatives identified in Phase 3 into your operating model, or the way you do business, to close the gap between your current state and OP. This produces rapid results and ensures that improvements are sustained.

There are a several key elements required for an initiative to be systematized:

  1. An event or trigger to indicate that waste has occurred.
  2. A method or technique for making the waste or inefficiency visible and/or highly detectable.
  3. A reaction protocol – This could be an automatic or manual series of steps to be taken to remediate and eliminate the opportunity of re-occurrence of waste.
  4. A method or technique to track, quantify, and report waste events and their impact on operating cost and service levels. There also needs to be a way to evaluate the quality of response from element 3.
  5. A method or technique for allocating the appropriate resources to minimize or eliminate chronic process waste – This is to continuously improve processes where the greatest ongoing opportunities exist.

An overwhelming majority of Continuous Improvement initiatives fail to sustain because the organization gradually (and sometimes instantly) rejects the changes needed to make progress. For example, I’ve seen organizations do kaizen events to reduce changeover times (called SMED events) but fail to systematize the initiative to see and effectively respond when there is a deviation from the new procedure – and thus waste is allowed to creep back into the process. In other words, the organization rejects the initiative. If this backsliding were to happen with the payroll system and people were not being paid on time and in full, the reaction would be swift and possibly quite extreme. For this SMED event to sustain, there should have been techniques installed to ensure that the new process was being executed as specified and detailed reaction protocols to address any deviation from standard. One tool for achieving this would be something like a changeover clock that alarms or sends an alert if the allotted timeframe is exceeded, indicating that waste is occurring. Then the alarm or alert triggers waste elimination protocols. Generally speaking, lights and sounds are great tools for highlighting that waste is occurring. These are called andon systems.

Tools of Systematization

Automated Response tools:

  1. Poka Yoke – If waste could be eliminated automatically then it should. The tool for this is called poka yoke, or error-proofing. This is a technique for preventing or limiting any activity that produces waste. It is also the most effective tool to Systematize improvement. Examples are guides that ensure perfect assembly on the first attempt or an outlet designed to prevent the wrong device from being plugged in.
  2. Autonomation – The close cousin of poka yoke is autonomation, which automatically detects and rejects bad parts or waste in order to minimize the impact to production. An example would include an opening on the production line that removes parts that do not fit through it. In this case, the defective unit would be swept aside as not to interrupt production.Non-automated Response tools
  3. 5S – Finally, 5S which stands for Sort, Set in order, Shine, Standardize, and Sustain can be used as a tool for making waste highly visible. 5S is a technique to organize a workstation to increase efficiency and make so that wasteful activity becomes visualized. For example, if cleaning tools are to be staged near the production line, an area should be designated for those cleaning tools. If the tools are not in use or in their designated space, waste is likely occurring because the line operator will end up needing to wait or walk to another workstation to get the supplies they need.
  4. Performance Reports – The purpose of performance reports is to highlight the amount of and other details about the waste that has occurred. The more real-time and actionable these reports are, the more waste can be eliminated from the process. This is ranked last on the list of Response tools because it’s the least reactive method of eliminating waste. The interval between reports indicates the window that inefficiency is allowed to fester before it can be identified and addressed. For example, up to a week may go by before you become aware of an issue if you’re using a weekly report. The rule of thumb for Performance Report effectiveness is visibility. The objective is to make waste very obvious and public, which has to do with how the report is formatted. It also has to do with how the report is presented. For example, huge boards or screens that highlight opportunities positioned in the main entrance where everyone can easily see are going to be a lot more effective than a report that gets saved on a hard drive and left there. The fOS at http://factoryoperatingsystem.com is a great tool for reporting performance since it automates the data synthesis and disseminates performance reports along with success stories to appropriate personnel within the operations chain of command.

There are many other great tools to systemize improvement but these are the Big 4. For any of these tools to work, they need to be coupled with reaction or escalation protocols. There are two types of escalation protocols:

  1. Immanent Issue Escalation – This is the sequence of steps to be taken when waste occurs that threatens the ability to meet the immediate objectives, such as attaining schedule for the day. An example of an Imminent Escalation protocol might be:
    T=0 mins – Begin 5 Why / Troubleshooting Analysis
    T=5 mins – Notify production lead or mechanic to continue 5 Why / Troubleshooting Analysis
    T=10 mins – Notify production and maintenance supervisor to continue troubleshooting and deploy additional resources if needed; also to coordinate production to minimize waste in other areas
    T=15 mins – Notify Operations Manager to support coordination of other production activities to minimize impact of waste; also to deploy additional methods of analysis or technical resources
    T=20 mins – Notify Plant Manager to engage necessary resources including but not limited to reaching out to other facilities for ideas and supportThis protocol would be executed until the issue is resolved. For example, if the issue is resolved after 10 minutes, the Operations and Plant Manager would never be engaged. However, the issue would still be presented in Performance Reports and followed up on to ensure absolute resolution.
  2. Chronic Issue Escalation – This process is used for issues that impact performance but not to the extent of threatening schedule attainment. For example, a date coder system that kicks out one unit out of hundreds every 20 minutes would probably be a chronic issue. A Chronic Escalation protocol might be structured as follows:
    Day 0 – 1 = Line operators are given an opportunity to resolve the issue through Root Cause Analysis (RCA) or other CI tools.
    Day 2 – 7 = A mechanic or other administrative personnel is assigned to the issue to continue the RCA process and deploy additional resources
    Day 8 – 30 = A Staff member or Manager is assigned the issue to drive it to resolution by deploying tools and resources as needed
    >Day 30 – The Plant Manager takes the necessary measures to completely resolve the issue including but not limited to engaging outside resources

The Plant Manager is the last point of accountability for ensuring that the escalation protocols are being used and are working as expected. He or she should apply downward pressure to resolve issues before they reach the Plant Manager level. Again, this only applies to issues that do not use Automated Response tools; and thus is why the Automated Response tools are superior. At each phase in escalation, a specific person and due date needs to be assigned. There also needs to be a set of rewards / consequences for resolving or allowing issues to escalate. This set of rewards and consequences will vary by organization and company culture. Lastly, before items can be removed from the escalation process, there needs to be a method to ensure that the issue has been resolved effectively.

MIC_Lean - Systematic

In the Systematize phase of the Percent Perfect Methodology®, the 3 – 5 initiatives identified in the Prioritize phase are “systematized” into your operations model. Automated waste identification / prevention and correction tools are deployed to reduce or eliminate inefficiency. Escalation protocols are also implemented to make sure that systemic process failures are effectively managed and eventually eliminated for key initiatives. This also includes training internal resources to see the waste and to develop proficiency in the tools that are best fit to eliminate it. The fOS gives you a good indication of where you are in your journey to Operational Perfection by team, product, production line and other factors. A Plant Manager should also be mindful of how many issues are being escalated to their level because this indicates how competent the management team is. A highly competent team would resolve more issues at lower levels and prevent escalation. Frequent escalations indicate that additional training is needed to increase operational discipline.

A manufacturing efficiency expert such as those at Manuficient can help to systematize improvement initiatives and ensure sustainment of improvement efforts.

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The Compounding Benefits of Prioritizing in Continuous Improvement

Manuficient - Compounding

Albert Einstein once said that the most powerful force in the universe is compounding. Just as in finance, this is true for managing a manufacturing operation. New problems, big and small, arise everyday. When a problem goes unresolved, it behaves like a disease on your productivity. Additionally, new problems are added to old ones, which creates a snowball effect, and thus the compounding dynamic takes effect. At some point in the life cycle of a manufacturing operating, it takes what Grant Cardone calls “massive action” to reverse this momentum and get into a position where compounding is working in your favor. To do this, you must develop a thorough understanding of what specific wastes are driving inefficiency and pick them apart with well orchestrated and massive action. The 85/15 rule (a variation of the 80/20 rule) definitely applies here. In other words, 85% of your inefficiency is probably being driven by 15% of the issues. The key is to systematically identify the 15% of issues and prioritize the fewest number of initiatives needed to eliminate 85% of inefficiency, which will result in substantial profitability increases.

Manuficient Methodology1.1 PrioritizePrioritizing is the act of deliberately ranking needed activities, then allocating time and other resources in the order of greatest to least significance. Prioritize is the 3rd Phase in the Percent Perfect Methodology® (PPM), which identifies the 3 – 5 tools and initiatives needed to capture the greatest gains toward achieving your operating potential. In Phase 1 of the PPM, we looked at how to define perfection for a manufacturing operation. In Phase 2, we reviewed how to Assess where you are in your journey to Operational Perfection (OP). In this phase, we look at how to determine which specific initiatives will have the greatest impact on closing the gap between current state and perfection.

There are hundreds and perhaps thousands of Lean Six Sigma and other Continuous Improvement tools out there to be applied depending on the specific application. In fact, any repeatable activity that makes a process more efficient can be classified as a tool, which makes the list virtually limitless. The challenge is knowing a) which tool(s) should be applied and b) how to most effectively apply the tool(s) selected. Just like a mechanic needs to have the right tools for a given job and know how to use them without completely mucking up the project, so do manufacturing leaders. This takes resourcefulness, knowledge, and skills – which are all a function of having the right quantity and quality of experiences.

You can identify the appropriate tool to apply based on the type of waste that is occurring. The 8 lean wastes are: defects; overproduction; waiting; non-utilized talent & ideas; transporting; inventory; motion; and excessive processing.

There is a 6 Step Process for determining which tools will have the greatest impact on closing the gap to OP for your manufacturing operation:

Step 1: Determine what perfection would be for your manufacturing operation. Use the Factory Operating System (fOS) to achieve this. It’s a free tool and provides the best way to set and establish your theoretical maximum productivity levels.

Step 2: Analyze where you are in your journey to Operational Perfection. The fOS will also help you complete this step. It provides a user-friendly interface to track, aggregate, and report production performance. It also helps to cultivate employee motivation around CI by disseminating success stories such as personal records and breakthrough performances across your manufacturing network.

Step 3: For each of the three significant types of loss (availability, throughput, and yield), further categorize each type into the 8 wastes.

Step 4: Quantify the total losses being driven by each type of the 8 wastes and perform a Pareto Analysis grouped by type of waste and total annualized losses (in dollars or other currency).

Step 5: Select the set of tools or processes that are best fit for eliminating or reducing the types of wastes that are resulting in the greatest losses. The objective here is to identify the fewest number of tools that will cut waste to within 15% of Operational Perfection, which is widely considered to be World-Class execution. For example, motion waste is best address through time and motion studies; and transporting waste is minimized through process layout re-design and a technique called Point of Use Supply (POUS) among others.

Step 6: Develop the specific initiatives needed to best leverage the selected tools for maximum effect. This may mean customizing or combining tools to refine an ideal set for your specific needs.

Once you’ve gotten this far, you’ve won more than half of the battle. Abraham Lincoln once said that “If you give me 6 hours to cut down a tree, I’ll spend the first 4 sharpening my ax.” After Phase 3 of the PPM, the axe is razor sharp and you’re just about ready to deliver a swift blow to your manufacturing operation’s inefficiency. Unfortunately, many companies skip this phase and consequently, this is where they go wrong with their CI program implementations. Instead, they often mistakenly approach it as either a beautification or fire-fighting program. They start with something like 5S because it’s very visual and friendly or they go with problem-solving / kaizen events just so they can pull their CI resources into the weeds of daily operations with them. This isn’t necessarily a bad thing, it’s just not the most effective use of time and resources. They rarely take the time (and it usually doesn’t take much time) to assess exactly where the greatest gains can be achieved, then prioritize effort and resources. As a result of this and other factors, 70% of improvement programs fail in their first couple of years according to a study completed by the McKinsey & Company consulting firm. Furthermore, having the prioritized list of initiatives on hand helps to recruit / promote the ideal talent for manufacturing leadership roles. For example, if your greatest opportunity for improvement is to reduce changeover times, the optimal talent for a director or plant manager role would have a tremendous track record for implementing the SMED tool (Single-Minute Exchange of a Die) for minimizing changeover times. You can see how having a rock solid CI playbook changes your entire approach to how you play the game. Can you imagine how many major decisions are made everyday without taking any of these factors into account?

MIC_World Class Mfg

I can assure you that the powerful dynamics of compounding are either working for or against you. If you’re not taking deliberate action to leverage this phenomena to your advantage, then it’s most likely working against you. The key to changing the trajectory of your manufacturing operation’s performance is to prioritize the small set of CI initiatives that will produce the greatest impact on closing the gap to Operational Perfection. Defining perfection provides the North Star for manufacturing leaders to navigate the complex maze of day to day manufacturing operations. Assessing the current state helps you to gauge exactly where you are in your journey. The fOS tool at http://factoryoperatingsystem.com is the best tool available to define and assess where you are against operational perfection on an ongoing basis. Finally, prioritizing provides a clear and executable roadmap to World-Class execution. From here, you have laid the groundwork to capture rapid gains in productivity and profitability.

A manufacturing efficiency expert such as those at Manuficient can help you to prioritize your CI initiatives and gain immediate results in performance.

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Copyright © Calvin L Williams blog at calvinlwilliams.com [2016]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

 

FREE Whitepaper: Why Most American Continuous Improvement Initiatives Fail

Why American CI Fails 1 It has been estimated that 70% of Continuous Improvement efforts such as Lean, Six Sigma, Agile Manufacturing and others fail to meet expectations. This happens for two primary reasons: 1) The Factory’s Operating Systems lack sufficient structure and are not conducive for Continuous Improvement. The Operating System is the array of policies, processes, people, and technology that are used to execute operations. 2) CI requires a high degree of Operational Discipline that, in the absence of a well-structured Operating System, is nearly impossible to cultivate. Through an in-depth assessment, a set of conditions have emerged that hinder progress toward creating a culture of Continuous Improvement. These conditions are the result of human nature in the manufacturing environment and thus require an Operating System that provides the controls necessary for performance breakthroughs. Some of these conditions include:

  • Competing interests and misaligned agendas
  • Issues that could have easily been resolved evolving into expensive problems
  • Uncertainty about how much time systems are down and why
  • Lack of issue resolution and insufficient accountability systems
  • Changes leading to expensive problems caused by a lack of preparedness
  • Implementations that don’t sufficiently capture the opportunity
  • …and many more!

Download the whitepaper titled Why Most American Continuous Improvement Initiatives Fail from Excelville.com to get the full list of conditions including descriptions that create and perpetuate a lack of operational discipline. Also discover what manufacturing leaders can do to cultivate discipline and lay the foundation for successful CI implementations. Visit the Manuficient Consulting website at manuficient.com or subscribe to my blog at calvinlwilliams.com for more information on this topic. Feel free to share this link with colleagues, friends, or anyone else interested in understanding how to improve factory performance.

Regards,

Calvin

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Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

Manufacturing Change Management: Leveraging Forces of Change to Grow

Manufivient - Threat - Opportunity

In manufacturing, change happens – rather you’re ready for it or not. Sometimes these changes are expected and sometimes not so much. There are many forces acting on the manufacturing system (or any business system for that matter). These forces create pockets of pressure and vacuums that ultimately result in disruptions to the manufacturing system if not handled effectively. There are many sources that these forces can emerge such as: corporate mandates, governmental mandates, personnel changes, competition activity, technological advancement, customer taste changes, new market pursuits, improvement events, etc. This list barely chips the iceburg. When the forces of change becomes strong enough in any direction, the manufacturing system has to have the agility to quickly adapt and sustain acceptable productivity levels. Change is risky but absolutely necessary; it is also unavoidable. With that said, how can a manufacturing system be in pursuit of perfection, when the system is in a constant state a flux? While I’m a huge proponent of Lean Manufacturing, the reality that the manufacturing system is in a constant state of flux highlights a limitation of Lean, which sometimes assumes that processes remain generally the same. It also exposes the urgency of Agile Manufacturing.

An effective Change Management System is essential in our pursuit of the perfect manufacturing system. This is based on the definition of a perfect manufacturing system being one that can sustain above 85% OEE, even under changes of any frequency and magnitude. This being a manufacturing system that is both Lean and Agile – or Leagile as some are now calling it. A Change Management System can help prime the organization for upcoming changes as to minimize disruption and avoid compromising any element of manufacturing execution. There are several critical components of any effective Change Management System:

1 – Change Tracking Log – This provides a database of past and future changes and allows effective prioritization. The log allows for changes to be spread out on the factory’s calendar so that non-critical changes can be scheduled around critical ones. The Tracking Log also helps to predict how upcoming changes will affect one another. Finally, the Tracking Log helps to identify which key stakeholders have signed-off on the change and which buy-offs are still pending.

2 – Change Management Communication – CM Communication provides the critical change information to the right people on a regular basis so that all stakeholders remain aware of what changes are coming down the pipeline. This helps leaders to predict how upcoming changes will impact their areas of accountability and allows them time to take steps to prepare. The CM Communication could occur in the format of a weekly meeting, emails, publishing printed documents or whatever works best within the context of your manufacturing environment.

3 – Risk Assessment – This is a process that provides a safe format for all key stakeholders to assess risks and voice their concerns about an upcoming change. The Risk Assessment also provides a platform to collaborate on any mitigating actions needed to sustain acceptable business performance.

4 – Key Stakeholder Buy-offs – Stakeholder Buy-offs allow key stakeholders the opportunity to approve or dis-approve on the quality of execution of the agreed-upon mitigating actions from the Risk Assessment. Depending on how your CM System is designed, the owner of the change will likely have the obligation to provide as much evidence as needed to validate effective execution of mitigation actions. This could include test results, photos, training sign-off sheets, or any other form of proof.

5 – Change Management Review Process – The CM Review Process is a step to ensure the integrity and Continuous Improvement of the CM process itself. Its possible to develop CM metrics to measure the team on the effective execution of the CM process. For example, one metric could measure if the change owner obtained 100% of required sign-offs before the change actually took place. Another could measure the delta in OEE% for a process following the implementation of a change.

Implementing an effective Change Management System is an initiative in itself. Just like any initiative, its success or failure depends primarily on the discipline of its leaders to see it through even when others have not bought in. An effective Change Management System can be a tremendous asset for people on all levels in the factory and the company at large. It provides a systematic way to drive the changes that need to be made. So if you’re an operator on the plant floor, you can use the CM System to initiate a change for much-needed improvements in your production area. Likewise, the Plant Manager can use the CM System to ensure team engagement and support before engagement. Additionally, in the most Agile organizations, CM Systems are used company-wide to affect changes initiated across different business units such as Marketing, Sales, Distribution, Finance, or other.

A manufacturing efficiency expert such as those at Manuficient can help create a Change Management System tailored to the nuances of your organization that helps sustain and drive Continuous Improvement.

Visit my Excelville Profile for tools and resources for your operations excellence initiative.

Regards,

Calvin

fOS Lead Capture2PPM Lead Capture2

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Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

Hiring, Promoting, and Firing for Transformation in Manufacturing

Manuficient - Hiring

What is the mix of attitudes toward change within your organization? Is your factory’s mix of attitudes optimized for transformation?

One of the most critical factors of a successful Continuous Improvement implementation is having the right people on the bus. When undergoing this type of change, the organization is going from a steady state to a transformative state of operation. To optimize the speed and strength of an implementation, it helps to have the right mix of personalities, talents, competencies, and attitudes in place. For instance, the greater manufacturing competency (such as experience with Lean, Six Sigma, or other), the easier the implementation. In regard to personalities, it helps to have a diverse team that can bring a variety of perspectives to the table. Also, talent brings magnitude to the direction that is set for the change. However, the predominant factor in the organization’s Agility is people’s attitudes toward change at the onset of the initiative. Organizational Agility is the speed at which it can effectively change and return to steady state. Granted, people can change and judgement needs to be applied as to how much a person can change and by when, the amount of time required for people to change adds time to the implementation. As you may have gathered at this point, a CI implementation needs to happen in the attitudes and behaviors of people, just as much as it happens with other manufacturing assets on the production floor. Depending on the specific current and future needs of your business, your approach to getting the right people on the bus will vary.

One of the most profound publications on people’s attitudes toward change is “Who Moved My Cheese” by Spencer Johnson, MD. According to Spencer, there are four types of attitudes towards change which I’ll summarize below:

Sniff (or the Change Agent) identified change early. He kept things simple and adopted the change. He would represent those in the organization who advocate change for the others.

Scurry (The Supporting Agent) was eager and quick. He was flexible, aware and accepted the change that was taking place.

Haw (the Adapter) dealt with change in a different way. He was able to relinquish old behaviors and learn from past mistakes.

Hem (the Stabilizer) preferred to stay in his comfort zone and ignore the reality of the situation. He felt entitled and just trusted his needs would be met if he took the easiest path.

One of the keys to optimizing a CI implementation is finding or cultivating the right mix of attitudes. Based on personal experience, the typical organization at steady state might contain the following mix:

Change Agents (2%) | Supporting Agents (15%) | Adapters (50%) | Stabilizers (33%)

For a more effective Continuous Improvement implementation, a more appropriate model might look as follows (depending on the organization’s goals):

Change Agents (10%) | Supporting Agents (35%) | Adapters (40%) | Stabilizers (15%)

The point is to show a significant shift from people on the Stabilizer end of the spectrum toward the Change Agent end. This is especially true within the Leadership group of the organization. This may also require either helping people to change their attitudes or hiring/promoting/firing people to optimize the mix required to strengthen a transformation. Notice that even in a state of transformation, some population of Stabilizers is still required to support implementation. This is because Stabilizers are best suited for driving adherence to standards, which is critical for continuous improvement.

To effectively apply this model, an inventory of attitudes toward change should be taken to get a snapshot of the organization’s current state. An expert can help you determine the attitude mix required to achieve the desired future state. After the implementation has reached maturity, there should be a shift in attitudes away from Change Agents and toward Stabilizers in efforts to sustain desired changes. At any state of operation, there is an optimal mix which should be evaluated and decided upon based on the current and future needs of the business.

A manufacturing efficiency expert such as those at Manuficient can help to assess your organization’s current state and help develop the optimal mix based on business needs.

Visit my Excelville Profile for tools and resources for your operations excellence initiative.

Regards,

Calvin

fOS Lead Capture2PPM Lead Capture2

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Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

Continuous Improvement in HR Part 3 – The Value-Creator Ownership Model

Manuficient - Business Owner

Have you ever heard of an economic model where everyone makes about the same amount of money regardless of what actual value they contribute to society? Of coarse you have…just pick an American factory at random and that’s pretty much what you’ll find. The norm for US factories is to have minimal or marginal income diversity, especially among blue collar workers. Let’s look at this model in a slightly different context. Take entrepreneurship for example. Entrepreneurship usually takes a substantial degree of risk but can be tremendously rewarding if it works. Just about every entrepreneur would tell you flat out that the potential for rewards out-weighs the risk, and that’s why so many people go for it. This is one of the most powerful engines in business and for any economy. In fact, some brave soul(s) made this calculation prior to the birth of every company in existence. If you told an aspiring entrepreneur that no matter how much risk they take on with their dream venture, they would never make much more than $18/hr, do you think they would still go for it? Do you think they would bother with all the brainstorm sessions, raising capital, breakthroughs in innovation and all the exciting and sometimes dreadful aspects of entrepreneurship? Probably not so much.

This model of marginal income diversity contradicts some of the values that America is founded on. Some of those being freedom, prosperity, equality, competition, individualism, progress and change, etc. The compensation system currently used by most American companies is designed to make life easy and predictable for the accounting function. It was designed and deployed before we had computers to do the vast majority of our bean counting. The downside of the current low-income diversity model is that it gradually disengages employees and is counter-productive to the most predominant American values. In other words, it shuts the growth engine off at the shop floor level. This leaves managers scrambling to find the next motivation and performance management tactic to deploy in efforts to maintain or increase productivity levels.

So the question becomes – How can we leverage the values that have made America the most powerful economy in the world to make your company more successful? The answer lies in providing those who create value for your customer with the freedom to create wealth for themselves. Not by working slower and racking up overtime hours; but by working smarter with the time they have available. Not by asking them to claw their way up the corporate ladder in hopes for a higher salary; but by tying their value contribution to their income on a daily basis. The answer lies in converting employees into business owners that operate within the framework of the larger company.

The Value Creator Ownership Model

This is an example of a model where employees are given a tremendous degree of ownership of their work. Every employee has internal suppliers and customers, just like every business has. In this model (in the manufacturing environment), there are those who make stuff and those who provide services. Anyone not a part of the immediate value chain is a Service Provider. The compensation of those on the value chain is linked to the value they contribute on a daily basis. Those on the value chain (aka Value Creators) would be allocated a production budget. Internally (or externally) contracted services would be paid for out of that Value Creator’s budget. The Value Creator is allowed to take home whatever portion of their budget that they don’t use. Value Creators who want to increase their take-home pay might invest more in training and continuous improvement to reduce their operating costs. See my post on Value-Based Compensation for more details on how this works.

Service Providers are compensated based on being “hired” by Value Creators internally to provide a service at rates that they control. In this model, a service provider, such as a maintenance technician or trainer, could potentially price themselves out of the internal market. This provides an incentive for service providers to strive for quality and perfect their craft to keep steady business. Since Value Creators have a choice in who provides their services, Service Providers who are poor performers will struggle to find work in the factory. A Service Provider who wants to increase their pay might invest more in training so they can charge higher rates or they can foster strong relationships with Value Creators to maximize billable time.

The major benefit to this model is that the production floor becomes virtually self-managed. Poor performance anywhere results in lower pay everywhere on the value chain. If a supplier struggles to get parts made, it reduces the value that can be created downstream – resulting in reduced pay for all those affected. This makes the pain of poor performance hit home across the board and puts tremendous pressure on everyone to work together to achieve more.

This model self-corrects many of the issues that plague American manufacturers today such as resistance to change or improvement, managing individual performance, eliminating waste in activities both on and off of the value stream, and others. One of the potential drawbacks to this model is that some people may end up making less than minimum wage. Minimum wages can be instituted as well since manufacturing typically pays well over the legal minimum wage. This works out because those who don’t perform well and end up making just the minimum wage can (and probably will) easily find manufacturing work elsewhere for substantially more money. This automatically free’s up opportunities to on-board higher performers. In the end, your factory becomes a sub-economy that is driven by people’s own desires for freedom and prosperity instead of top-down command and controlling. A manufacturing efficiency expert such as those at Manuficient can help you develop an employee compensation model that leverages American values to create an internal growth engine.

Visit my Excelville Profile for tools and resources for your operations excellence initiative.

Regards,

Calvin

fOS Lead Capture2PPM Lead Capture2

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Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.