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 Impruver 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.

 

 

The 8 Lean Wastes and Their Potentially Disastrous Effects – Motion

Manuficient - Motion [Katrina]

Motion – any movement that takes time and / or effort that does not directly add value. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Motion to understand what causes it, how to see it, and how to eliminate it.

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

In 2005, Hurricane Katrina broke the levees in New Orleans’ lower 9th ward, resulting in catastrophic flooding. Despite the desperate and obvious need for relief, local, state, and federal emergency response agencies failed to supply sufficient aide with any level of urgency. Officials deliberated, stalled, and wasted critical time deciding when, how, and rather or not to respond. An estimated 1,836 lives and $108 Billion were lost due to the flooding. It’s difficult to quantify exactly how much of this loss can be attributed to the poor emergency response; but we can all agree that the amount of time and effort wasted prior to providing aide was a complete disaster in itself.

Corrective Action:

During the event, aide, although debatably insufficient, began to arrive for some affected by the flood. Many people have fled the northern gulf coast to cities like Houston, Nashville, and others around the US – never to return home. Programs to help Katrina victims to resettle elsewhere sprang up around the United States. After Katrina, FEMA was granted authority and tools to respond to crisis more urgently, including the Post-Katrina Emergency Response Act (PKERA). This new system was tested a few years later during Hurricane Sandy and the results were markedly improved.

Interesting Fact:

All major studies concluded that the US Army Core of Engineers (USACE) were primarily responsible for the failing levees. However, they were granted immunity under the Flood Control Act of 1928. The USACE cited budgetary constraints for installing the insufficient levee system. This is one case where saving perhaps a few million dollars ending up costing thousands of lives and hundreds of billions of dollars in the end.

For more details on this case study, check out the Wikipedia article at the following link:

https://en.wikipedia.org/wiki/Hurricane_Katrina

Motion waste occurs in abundance in just about any manufacturing or supply chain operation. Anything from reaching across a table to grab the next unit to shuffling pallets in the warehouse to get everything to fit can be considered motion waste. It is nearly impossible to eliminate all motion waste but it can definitely be reduced greatly. Reducing motion waste reduces process cycle times resulting in an increase in throughput. The best way to measure motion waste is the perform a detailed breakdown of the work needed to execute a process called a Time & Motion Study. In this case, the more granular, the better. For example, a time & motion study output might look like this:

Manuficient - Motion Waste Chart

 

Observe how over 30% of the time spent processing this unit was wasted motion. This type of waste can be reduced by identifying the waste from time & motion studies on critical process steps and optimizing workstation design to increase efficiency. This method allows you to optimize for efficiency within a process step at a very technical and granular level; but can yield tremendous cost and lead time savings if you can increase throughput at the bottleneck step by 30%.

Impruver also helps you see motion waste. Motion waste reduces throughput, increases operating costs, and lengthens lead times. Impruver helps to motivate employees to reduce motion waste by highlighting achievements such as Raising the Bar (outperforming the previous standard). When motion waste is reduced, it can lead to the previously established standard being exceeded, at which time best-practices and operator recognition is distributed across your manufacturing network. This helps others to make progress toward creating breakthroughs in performance as well.

 

 

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.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Inventory

Inventory – any materials or other resources stored or staged until demanded. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Inventory to understand what causes it, how to see it, and how to eliminate it. Lean.org defines inventory as “materials (and information) present along a value stream between processing steps.”

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

In 2007, Toyota issued a massive recall that affected 9 Billion vehicles worldwide. The recall was triggered by several reports of gas pedals “sticking” and causing unintended acceleration. At the time of the incident, dealerships across the US were holding substantial amounts of inventory, which could not be sold until they were all serviced to minimize the risk of further unintended acceleration issues. A study was conducted to estimate the losses associated with all of this inventory that was placed on “hold”, which revealed that dealerships were losing the staggering amount of $2.5 Billion per month in combined income.

Corrective Action:

In response to this issue, Toyota conducted an investigation to identify the root cause of the unintended acceleration and concluded that the configuration between the floor mat and the gas pedal was defective. They also began to experiment with an alternative supply chain model with the Toyota Scion where a base unit would be built to about 70% at the factory, then buyers would be allowed to customize how the vehicle would be finished. Finally, the base unit would be shipped to the buyer’s local dealer to complete the final manufacturing steps; a process known as Late-Stage Customization. This kept inventory low for the Scion at the dealerships and allowed consumers more control over the features and functionality that would be included with their vehicle. Unfortunately, the Scion did not perform well in the market; however, I don’t think the supply chain model was the problem. It simply isn’t a very good looking car.

Interesting Fact:

Even though Toyota distributes vehicles all over the world, the only reports of unintended acceleration came from the United States. Also, there was never a definitive conclusion for a mechanical failure that was causing the problem. However, once the floor mat / gas pedal configuration was changed, no further issues were reported.

For more details on this case study, check out the 24/7 Wall Street article at the following link:

http://247wallst.com/autos/2010/01/29/toyota-dealers-face-2-5-billion-monthly-loss/

This case study exposes one of the many major problems with building and carrying inventory. Building inventory has the same issue issue as batching, which is a form of inventory in itself. When there is a quality defect that needs to be contained, many times the entire batch needs to be recalled and investigated due to limited granularity in traceability.  This requires the manufacturer to cast a wide net instead of being able to pinpoint the specific units that are affected by the defect.

Another major issue with carrying inventory is that it enables poor manufacturing execution and erodes operational discipline. Part of the equation for determining how much inventory you need is how unreliably your factory performs. In other words, being unreliable means you need to maintain higher inventories to meet service expectations. The path of least resistance is to build inventory as opposed to addressing your factory’s reliability issues. A little trick to kicking off a lean implementation is to cut your finished inventory gradually and challenge your teams to maintain service levels with lower inventory stocks. This will require improving factory reliability and becoming more lean in the process. Finally, inventory hurts your factory’s lead time on special order and rush items. This is because orders often need to wait in inventory buffers in between process steps before the next value-added step can be completed.

Impruver also helps you see waste from inventory, which often manifests itself in the form of unreliability. In Impruver, unreliability shows up as downtime, rate, and yield losses. By addressing these issues, you can increase plant reliability and subsequently reduce safety stocks. When inventory is reduced, working capital is freed up to be invested in other more important matters. Impruver also allows you to quickly estimate the savings to be gained in just one click by driving out efficiency losses. This powerful functionality is made available to everyone from the shop-floor up to be used for justifying continuous improvement ideas.

 

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.

Are Your Metrics Causing You to Lose Money?

Manuficient - Metrics

As Peter Drucker, one of the founders of the study of modern management, once said, “if you can’t measure it, you can’t manage it.” Rather you agree with this statement or not, the practice of measurement, or expressing things, events, and ideas numerically, is only increasing in the way we run our businesses. Metrics are critical to Continuous Performance Improvement since they provide the frame of what exactly we’re working to improve. They also provide us a perspective on things that can be imperceivable through everyday experiences. Lets look at professional basketball for example. Witnessing every game in an NBA season is not only impractical, it’s not even possible for most of the people on earth. However, with a few good metrics, you can get a quick snapshot of an entire season in just a few minutes. This is no different if you’re an executive or manager of a manufacturing company with several areas of responsibility. Without good metrics, your ability to effectively prioritize and allocate resources is severely diminished, if not completely lost. In other words, metrics can tremendously improve management effectiveness.

With that said, metrics can also completely ruin your life if ineffectively applied. As technology continues to make it easier to capture data, more and more metrics appear. But all metrics are not created equal. It takes some skills to design metrics that actually drive performance and provide you with mission-critical information in a timely manner. In the realm of Continuous Improvement, metrics should serve one primary function: provide the timely process feedback needed to drive performance improvement. I often see companies heavily invested in metrics that don’t even come close to doing this. Consequently, these metrics quickly reach a point of diminishing returns and long outlive their usefulness; resulting in dysfunctional organizational behaviors.

The following are a few traits of dysfunctional metrics:

  1. Metrics that systematically exclude improvement opportunities – The way you measure productivity is crucial to how productive you will likely become. I’ve seen cases where efficiencies over 100% were being reported on a daily basis; yet operating costs and lead times were increasing for no good reason. This is a sign that key areas for improvement opportunity are being ignored by the efficiency metric. For example, many companies measure adherence to schedule to gauge their efficiency, which is usually based on the average historical production rates. This metric inherently drives a mentality of “let’s just try not to get worse.” This measure of efficiency fails to reveal opportunities to reduce process waste that could be resulting from planned and unplanned downtime, rate loss, yield losses or others. The gold standard for measuring manufacturing productivity is Overall Equipment Effectiveness (OEE). World class execution is considered 85%, which very few factories on earth have been able to achieve. Your metrics should show you how much better you could be and give you some insight into what to do to get better. If a factory is not using OEE, there’s a good chance they could make dramatic reductions in their operating costs and lead times. The best way to implement OEE is to use the Impruver.com. It does a great job of creating shop floor enthusiasm and excitement around your lean implementation and a culture of getting better every day.
  2. Vanity Metrics – These metrics only highlight how well the organization (or the reporting manager) is performing. They are very common and even seductive but have no place in a continuous improvement culture. Their whole purpose is to make people feel good but do not drive any real action or desire to make things better. One example of a vanity metric that I see everywhere is “Days Since a Recordable Incident”. While it’s vitally important to maintain a safe working environment, reporting this metric provides no insight to what specific opportunities exist to make the workplace more safe. As long as the number is “high enough”, everyone gets a pat on the back for not killing themselves today and go on without addressing any of the behaviors or conditions that will inevitably result in someone getting hurt. It also contributes to a culture of hiding injuries to protect the metric. A better metric would measure safe behaviors and conditions against perfection. For example, I’ve used safety audits that evaluate behaviors and working environments for any potential risk, then scores the results against well-defined criteria for a safe workplace. If someone does get hurt, the auditing criteria is modified to safeguard against the conditions that led up to the injury. This is an example of how metrics can incorporate organizational learning. Impruver has artificial intelligence that learns from you as you go. Standard run rates are updated automatically when you exceed the previously established rate for a product on a line. This continuously raises the bar and makes opportunities for improvement more easily identified.
  3. Long Reporting Intervals – Metrics designed for management should help you get better. If you are receiving a report weeks or even months apart, then you may go months before you even realize there’s a serious problem. Sure you can rely on people to be communicative and escalate issues informally, but we all know that this isn’t a reliable way to run a business. As a leader, ask yourself how long is too long before you are alerted of an issue. That should give you some insight to how frequently performance should be reported. The best systems are real-time with alerts for min-max performance thresholds. Other good systems report hour-to-hour at the line level, and day-to-day at the factory level. This allows for quick and resolute action on performance issues as they arise. Impruver automates these processes to ensure that you are the first to know when performance reaches unsatisfactory levels.
  4. Burden of Metrics – High-burden metrics create stress for the entire organization. Burden is considered the amount of time and effort required to acquire data, complete calculations, and report performance. Burden is suffered by the Line Operator who is incurring significant downtime to collect data, the Supervisor who has to constantly double-check and provide feedback to the Operator, and the Plant Manager who is constantly questioning the integrity of the metrics and requiring revisions / explanations. I’ve worked with factories that had Industrial Engineers spending over 20 hours per week collecting data and generating reports. This is a massive waste of time and talent; and very few people on the planet enjoy doing this. High-burden metrics don’t stick. As soon as the pressure lets off to keep producing the data or reports, they will gradually go away. Impruver employs a great data input design that only requires less than one minute per production run input using the plug-and-play version of the system. This not only  engages the line operator with the Continuous Improvement system, it also performs all calculation and reporting functions automatically. The data goes straight from the shop floor to all internal stakeholders instantaneously.

The right metrics make all the difference in running a successful operation. The wrong metrics can send us down a path of dysfunction and actually make us more disconnected from what’s important. Your metrics should help you get better and instill a culture of Continuous Improvement. So to answer the question in the title: no, your metrics aren’t causing you to lose money. Being inefficient causes you to lose money but your metrics aren’t doing you any service if they aren’t giving you complete, real-time, and actionable information.

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.

How to Implement OEE in One Day

Manuficient - Excellence Compass

OEE (or Overall Equipment Effectiveness) is the ultimate tool for measuring and eliminating process waste. Wikipedia defines it as “a hierarchy of metrics developed by Seiichi Nakajima[1] in the 1960s to evaluate how effectively a manufacturing operation is utilized.” OEE combined with rigorous process improvement efforts can drive significant cost savings, reduce stress of daily operations, and increase manufacturing capacity. Simply put, you’re not doing Continuous Improvement or Lean if you’re not using OEE. The metric itself is taken by multiplying Availability (%) x Rate Attainment (%) x Yield Attainment (%).

To implement OEE effectively, you need to track each of these indicators on a continuous basis and perform the OEE calculation for a line, shift, factory, or entire manufacturing network on the interval that you see fit. Here are a few steps to implement OEE:

  1. Capture the % Availability. This is the efficiency lost while the line is not in operation (but the labor force is on the clock). Create a spreadsheet that allows line operators to input the time it takes to start up the line (from clock-in to steady state). Also capture other planned downtimes such as changeovers and shutdown times. Finally, capture each unplanned downtime loss as well.
  2. Capture the % Yield Attainment. This is a measure of the efficiency lost due to producing sub-par quality product. This calculation is done simply by taking the total good units produced divided by the total units produced.
  3. Capture % Rate Attainment. This is essentially the efficiency lost while running less than the maximum possible run rate. To capture this this, develop maximum theoretical run rates for each product on each production line. This should be done by an Industrial Engineer or trained professional. If you don’t have one on staff, you can contract someone to do it or use what I call the maximum empirically demonstrated rate, which is the fastest rate the line has demonstrated in it’s history for the given product. From there, track your total throughput and divide by your theoretical max rate to get your % total losses. Then subtract out % Availability and % Yield Losses. The remaining losses are rate losses.

Then multiply the three indicators across and the result is your OEE, which is a measure of perfection. 100% OEE represents zero efficiency losses. Once you have began tracking these metrics on an ongoing basis, you can aggregate this data to calculate your OEE anytime you want. The more frequently you can report this information, the more actionable the metric is for you. You certainly don’t want to wait weeks or months to find out there is a serious problem; but daily reporting is usually sufficient. Reporting by shift is even better.

With all of that said, the best way I’ve seen to implement OEE is a tool called Impruver at www.impruver.com. It’s the best free tool out there and it calculates and reports OEE for you by product, line, shift, and even team or individual team members. You could simply have your operators enter each production run into the system and the tool does the rest. It takes less than a minute to enter a production run. It even sets your theoretical max rates for you based on your best demonstrated rate. Then it updates the standard automatically when a run is entered that exceeds the previously established rate. In other words, you don’t have to set or update production standards – the tool does it all for you. It’s great!

 

OEE is the benchmark for measuring factory performance and can be used across all industries to highlight areas that can be made more efficient. It’s a metric that can be used to drive substantial cost savings along with targeted process improvements.

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.

The Politics of Performance: The Relationship Between Results & Rhetoric in Business

Manuficient - Chess Piece

There is an interesting mix of performance and politics present in any group of people who share resources and work together. Performance can be viewed as any activity needed to help the organization to achieve its goals. If it’s a basketball team, performance can be viewed as either scoring points or stopping the other team from doing so. I like sports analogies when discussing performance because it’s one of the most objective ways to measure results. In sports, it’s difficult to deny that Michael Jordan scored a ton of points, which greatly contributed to his team winning a lot of games.

In most other businesses, performance can be viewed as activity that contributes to productivity or sales, a safer work environment, better quality product or service, or any other of the organization’s performance goals. Since these things are rarely, if ever, achieved in a vacuum, it’s not so evident who deserves credit for what aspect of success or failure. This is especially true in the absence of high-fidelity data down to the blocking and tackling level, which is often not practical for most businesses – outside of professional sports of course. Usually, everyone involved played a role in either creating success or causing failure. Who’s to say that what one person did was so much more significant that what the next person did to improve performance? Sure, this guy is in here 16 hours per day but who can say that he is productive for even one minute per day? Likewise, this other lady comes late and leaves early every day but who’s to say that her contribution didn’t accounted for 99% of the outstanding results?

In the absence of granular data and a thorough / objective evaluation of people’s actions and the impact thereof, their contributions are typically measured by one thing – other people’s perception of their performance. And perceptions are shaped by…you guessed it – politics.

Politics often have little to do with actual performance. It determines who gets access to resources, promotions, bonuses, fired, blamed, their way in a disagreement, and sometimes even life and death. Politics is about jockeying for power or control over resources; and exists as a result of scarcity. Scarcity can come in many forms such as financial, credit / credibility, titles, authority, privileges, promotions, etc. One of the rules of politics is – what gets repeated becomes reality; if not immediately, then eventually if it’s repeated enough and by enough people. This is why professional politicians develop “talking points” so that the same themes get repeated and ultimately accepted as truth. Unfortunately, politics can enable people with terrible performance to win and people with outstanding performance to lose. When this happens (as it does more often than you would think) the entire organization loses. The reality is that the poorest performers tend to get really good at politics for the sake of their own survival. Superstar performers are rarely good at politics since they believe the world is generally fair and their results will speak for themselves. However, whenever good results are produced, there are always a few over-ambitious and under-performing sharks waiting for the opportunity to take more than their share of the credit. Likewise, whenever teams do fail, these same people have toolbox full of techniques to deflect blame to someone else.

It can be annoying that we have to play the politics game; especially if you’re no good at it. However, it’s one of those things that will either propel your business to success or accelerate it’s failure. As business leaders, we tend to talk about performance as if politics doesn’t exist. But oh it does – and it has everything to do with how the business performs. But what is the right mix of politics and performance?

Internal politics is never value added but may be necessary. The ultimate goal of politics is to influence people’s decisions in one way or another and to shift / sustain power. There is a certain amount of value-added work that must be done in order for the business to achieve it’s objectives. Leadership should always look to minimize the amount of political behavior and maximize the amount of value-added activity. To do this, there must be a fair way to measure progress against equally challenging targets. Then grant power to those making the strongest strides toward achieving those targets. Thus, adverse political behavior should not be rewarded as it only begets more political behavior. However, when actual high-performance is adequately rewarded, it encourages stronger performances across the board.

The following leadership characteristics encourage adverse political behavior:

  • Favoritism
  • Gossip
  • Being aloof; unaware of people’s actual contributions
  • Incompetence; not understanding the value of people’s work
  • Granting unequal access to face-time, coaching, and mentorship
  • Creating or failing to eliminate scarcity of resources or recognition
  • Failing to acknowledge strong contributions or distribute recognition fairly
  • Punishing productive or progressive behaviors (even if they fail)
  • Accepting gossip as fact without sufficient investigation
  • Promoting based on political prowess as opposed to verified performance
  • Failing to recognize people’s (or your own) prejudice when considering a point of view
  • Failing to hold people accountable adverse political behavior

On the other hand, the inverse of these behaviors promote strong performance and help keep adverse political behavior to a minimum.

Political behavior can also be beneficial. The truth is that we are all the same; breathe the same air and bleed the same blood. We can accomplish a lot as individuals but a lot more by working together. The process of determining who will lead the group is done through politics. The better job we do of gathering and assessing people’s quality and quantity of contributions, the better results we get when we assign power to someone. We also need to assess our leaders’ capacity for respect for others and ability to get results through people. Unfortunately, by not having adequate systems in place, it’s difficult to truly size up someone’s contributions; and often use other people’s perceptions to make these pivotal decisions instead. What’s the solution? Be systematic. Continuous Improvement assumes you have a system in place to improve. Without a system (or standard) for assigning power to people, you have nothing to perfect. Once you have something, you can effectively assess each success or failure on its own merit and use that information to engineer a more perfect system over time.

One example of a great system for assessing true performance is the Factory Operating System (fOS). It helps to evaluate the members within the manufacturing operations chain of command based on the same metric. The metric is based on the principle of OEE (Overall Equipment Effectiveness) but improved so that it can measure the performance of people, assets, and entire systems. OEE is regarded as the benchmark for measuring performance against perfection and assessing the gap to World-Class execution, or 85% OEE. The fOS calculates the performance of shop floor operators, managers, and executives alike. It considers the performance of the leader to be an aggregate of their direct reports’ performance, which ties everyone in the chain of command up to the CEO to the execution on the shop floor, which is where value is created for the customer.

 

 

10 Signs that Your Factory has Swagger

Manuficient - Woman Warrior

There are many cultural aspects that affect a factory’s performance and reliability. Some of the cultural elements support operational excellence and some hinder growth. Ultimately it is the role of the company’s leadership to shape a culture that propels the company toward it’s vision. This helps to instill a confidence that the business is on the right track, even if it has a long way to go. This is what is meant by swagger. Below are 10 signs that your factory or network of factories has swagger and the type of culture it needs to foster manufacturing success:

1) The employees know that they are the best at what they do. But they also know that they need to get much better

2) There is little to no tolerance for sub-par performance. The strong thrive and the weak quickly learn that their talents are better applied elsewhere

3) People don’t try to hide deficiencies in the production system. They quickly bring them to the surface and lead the charge on getting them dealt with effectively

4) People at the shop floor level gladly step up to lead Continuous Improvement activities in the factory. They can also show documented results of how their process has gotten better and how much better it can get

5) Managers put most of their  time and effort toward taking the plant to the next level and little to no effort into hand-holding or micro-managing employees

6) Other factories in the network look to your factory as the benchmark for operations excellence; yet your factory actively seeks opportunities to incorporate best-practices from other factories

7) Each and every individual on the shop floor has an honest shot at becoming Plant Manager

8) Each and every manager has an honest shot at becoming Vice President of Operations

9) Promotions are based more on merit and demonstrated leadership than anything else

10) If you ask anyone who works there who they work for, they all give the same answer – The Customer

Next time you walk into a factory, ask questions to get a feel for what type of performance culture is in place. And if the signs outlined above don’t sound anything like your workplace, remember that you don’t have to accept that as a way of life. Its up to you to take action to make a difference; that’s what separates the leaders from the followers.

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.

How to Get Undeniable Buy-in for Driving Change in Manufacturing

Manuficient - Thumbs Up / Change Management

Have you ever had the feeling that someone was telling you they were on-board with a change but they didn’t even fully understand or think through the change you were proposing? Or maybe they were just saying yes because they like you but not taking your idea very seriously? Or perhaps you’ve done all the groundwork for a change and one or two people are just dead set against it for no rational reason. And then you go ahead and make the change as promised and two things happen: 1) those same people who said they were all for it are now visibly uncomfortable with what you’ve done and 2) those who were against it before have now declared you public enemy number 1.

If you’re already in this situation, this blog post won’t be very helpful for you. Good luck and stay tuned for the post on How to Dig Yourself Out of Whatever it is That You’ve Stepped in. Fortunately, this post may help keep you from stepping in it again in the future. I’m going to share with you a process for garnering stakeholder support for the changes needed to drive manufacturing efficiency in your organization.

There are many reasons people hold out from making the changes that are needed for progress. The change could pose a legitimate threat to safety, quality, productivity, morale, or some other important aspect of the business. It could also be that the change threatens someone’s personal position of authority. However, no matter the reason, the bottom line is that people are going to be uncomfortable with change. And the bigger the change, the more resistance you will face. The key is to take the burden of change upon yourself to make sure all risks are identified and satisfactorily mitigated to address and minimize the discomfort of your stakeholders. The way to do this is as follows:

1) Organize a risk-assessment. Invite all relevant stakeholders to participate in identifying the risks involved in making the proposed change. If the stakeholders themselves cannot be present, have them substitute a representative that they can trust to effectively express their interests. Make sure everyone understands that the proposed change is just for discussion at this point and you want help understanding some of the risks involved. Try to keep this session to under an hour because that’s about as long as you can reasonably hold people’s attention; especially in a manufacturing environment. Make sure to capture all identifiable risks. This means giving your participants free-reign to add risks to the list at will. The last thing you want is for someone to come out in the 11th hour before implementation with the objection that you did not capture during the risk-assessment. Also ensure the group’s leader is present  to keep some of the risks grounded within the realm of reality. Even better, get the boss’ general buy-in before going into the risk-assessment.

2) For each risk identified, work with the stakeholders to develop a course of action that would satisfactorily mitigate the risk. Its important that the person who raised the risk agrees that if the mitigating action was completed satisfactorily, they would have no further objections. Here is where artful facilitation is needed. If you’re not a skilled facilitator, you will need help to get good ideas out and keep the meeting on coarse. Ideally you can get the concerned party to propose the solution themselves; second best, you or another attendee propose something that they can publicly agree to. This may mean slightly changing the scope of your initiative, completing more testing to verify the cost / benefit, including additional training or documentation, or expediting planet’s revolution around the sun by 6 or 7 days. Whatever it is, you as the change agent need to build consensus around what specific actions are needed before you can earn the stakeholders’ buy-in. In a group setting, people’s personal intentions are a little more difficult to hide and they tend to engage with the idea that their concerns can potentially be addressed, especially if everyone else is playing along.

3) Take your mitigating action items list and get to work. Complete every single item to the best of your ability. It doesn’t matter if you complete these items yourself or delegate. In this case, you cannot afford to deny or delay any of the items. Gather proof that demonstrate the completion and quality of workmanship of each item. Use pictures, standard work documents, data or test results, sign-off sheets, or whatever else it takes to provide a paper trail of thoroughly completed action items. Neatly package the artifacts and preparation to get sign-offs. Then create or use a sign-off sheet and have all the key stakeholders sign the sheet saying they are satisfied with the mitigating actions taken and that they are ready to proceed with the change. Then you are clear to proceed in changing the world – your world at least however small it may be.

Going through this level of rigor to get people’s buy-in has a psychological effect that the change is worth it and it shows that you value the authority and professional integrity of the key stakeholders. I’ve seen cases where people have forgotten that they ever were opposed to the change by the time the mitigating actions are taken and its time to sign-off. In this case, they just sign-off so they can hurry up and jump back into rescuing the plant from today’s crisis. Either way, this process covers your bases and lays out a path for continuous improvement both in the manufacturing and leadership buy-in process. Keep a record of the sign-off sheet, risk-assessment, and proof of completion artifacts in case you need them for future reference.

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.

Value-based Compensation for Continuous Improvement in Manufacturing

Manuficient - Man Thinking4

This is a great post. You’re gonna love this. It will challenge the very paradigm of how we run our factories from a standpoint of performance management and improvement. The concepts presented here are, by design, controversial, breakthrough, and disruptive. The ideas presented here define where the rubber hits the road for the Put Your Money Where Your Machine Is series of posts.

In Part 1 of this series titled Measuring Plant Performance by the Common Denominator in Business, we discussed measuring factory performance by cash gains and losses even at the individual shop floor operator level. Then feeding this information in real time to that operator so that he/she is always aware of how his/her decisions are impacting the bottom line.

In Part 2 of this series titled Plant Profits: The Whole that is Greater than the Sum of Its Parts, we discussed how to define value created during manufacturing and gauge value-in versus value-out as a measure of profitability for the manufacturing operation.

In this post, we break the paradigm that was created at the beginning of the mass production era for managing and compensating employees and introduce a concept that is strikingly new, yet not new at all. It is the very engine that drives the most powerful economy in the world – the American economy. It is based on the principle that people can grow their personal wealth by working smarter and bringing greater value to the people they serve. It is based on the principle that the individual is in control of their destiny and they have the power to change their circumstances if they have the will to work for it and make it work for them.

The current compensation model:

The plant floor operator goes to work, punches the clock, puts in their hours, and goes home. They make the same amount of money regardless of what value they have created for the day. If they want to make more money, they can work a little slower (but still within the range of acceptable pace) and hope that they can snag a few overtime hours for some extra pay (at the expense of their personal time of course). Otherwise they can organize, negotiate, pray, and hope the company is kind enough to give them a pay increase or bonus for all of their trouble after an entire year. In other words, compensation has little to do with the value created by the employee, but how much of their life (time) gets sacrificed on behalf of the all mighty and powerful company. Even if they create no value at all, they still get paid the same; its not sustainable but believe me, it happens on various degrees every day. This creates a dynamic where there are just as many incentives to be inefficient as there are to be efficient. This also creates an environment that breeds complacency and inadvertently slows any efforts to drive process improvements that require behavior changes.

The Value Creation Model:

In the Value Creation Model (VCM), the operator would run their production line as if it were their independent business. It would adopt a model very similar to a franchise with opportunity to control your own earnings, but with a little more income security. After establishing and quantifying value in terms of cash, the company would establish a base pay (probably below what the employee would be compensated in the current model and below market rates) and they could earn a commission relative to the amount of value they created that day. For example, base pay might normally be $12/hr. In the VCM, base pay might be reduced to $9/hr but the employee could earn as much as $15/hr depending on the amount of value they created for the company that day. This ties compensation for the employee to compensation for the company as a whole. You don’t have to worry about the performance appraisal process because performance will be appraised daily by the system and compensation for the day will mirror contribution.

To take this concept of independent ownership further, a daily operating budged would be developed per production line. The operator would be responsible for delivering production targets within budget. Within this budget, there would be allowances for direct labor (the operator), maintenance or technical support, training, quality control, and any other support functions required to sustainably operate a production line. If the operator has a downtime issue, the incentive would be to quickly get to the root of the issue and repair it themselves to keep costs down. Otherwise, they have to “hire” a mechanic (internally) to help them with the issue, which comes out of their operating budget. Mechanics in the VCM would be compensated based on how many hours they spent “on hire” by an operator – in addition to their adjusted base pay. All other support personnel would operate in a similar fashion. At the end of the day, the operator would earn their base pay plus some portion of the unused operating budget. This model re-organizes the plant hierarchy with the operator on top and all other support resources to support the operator in providing as much value as possible to the customer. All quality and safety requirements would remain in place.

In the VCM, the incentives go from “work more hours” to “create more value“. At this point, continuous improvement becomes a path for the operator to increase their personal wealth, instead of a path for losing wealth or losing their job altogether. It shifts wealth from those who create little value, to those who create great value for the organization. This is the way the free market works and what makes the American economy the strongest in the world. This is a pivotal shift for implementing continuous improvement initiatives such as Lean and Six Sigma in American companies. In this model, the drive for individual prosperity would drive greater operating efficiency, bringing overall production costs down over time. Winners would stay and losers would leave for a higher base pay elsewhere. The idea is to create a self-correcting market where those who do not create value cannot thrive. This model also automatically right-sizes administrative overhead costs over time.

© 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.

Breaking Out of the Death Spiral of Manufacturing Inefficiency

Manuficient - Plant Downward Spiral

Ready…Fire…Aim.

No Wait that’s not right, Aim…Fire…Ready.

Wait wait, one more time. Fire…Ready…Aim. Why is this so difficult?

THE PROBLEM

It’s natural to want an issue resolved as quickly as possible. Issues are painful – sometimes all we want is for the pain to go away, immediately. It’s been proven time and time again through experiment, people are more likely to take $100 today than $150 in two weeks. It takes both discipline and patience to avoid capturing the short-term gain at the expense of long-term success. This is especially true when customers, managers, supervisors, and line operators are all under immense pressure to meet daily production schedules all while cutting production costs. In this environment, the band-aid approach becomes the expected course of action over the sometimes slow “permanent fix” approach. Over time, this creates a culture where the goal of the day, is to survive the day. If we can just hit schedule, we can all go have steak dinners, even if we know we’re going to have to deal with many of the exact same issues tomorrow. Many manufacturing operations go on for years if not decades this way, especially prevalent in high-speed manufacturing environments. In discrete manufacturing environments, the pressure to high daily schedules is less, which creates an environment that cultivates process inefficiencies. The erosion of performance still occurs, just at a slower pace.

THE EFFECT

In this environment, there is a snowball effect that erodes manufacturing efficiency. Over time, just like anything else, the manufacturing system and its performance declines. Machines get old and just don’t do it with same vigor and vitality that they once did. When a band-aid is place on an issue, it provides a “weak bridge” to be crossed to meet the daily production target. The problem is that it gives somewhat of an illusion that the problem is gone. However, that weak bridge needs to be crossed every day to hit daily targets. Meanwhile, other weak bridges are being built every day to deal with other issues in the factory. The underlying fact is that the very root level issues and conditions are not being identified, understood, or eliminated. Unfortunately, those root level issues are allows to fester and create one issue after another that erode manufacturing efficiency. Before you know it, there are dozens if not hundreds of weaknesses in your manufacturing system that produce failures at an increasing frequency. One day you wake up and realize that you are quickly descending into the death spiral of manufacturing performance.

THE REMEDY

This is easier to avoid than it is to fix, especially if your customers or bosses aren’t going to give you the time or space you need to make sustainable improvements. Making improvements means deliberately stopping production and getting to the root of the issues. In many facilities, the cultural view around consciously stopping production for any amount of time is unheard of, especially to pull people together for a meeting to do Root Cause Analysis – it’s just bad optics. This is a dire situation but it can and needs to get better. The key is to find ways to buy yourself time to research, collaborate, experiment, and resolve issues – permanently. If you are part of a network of factories, it’s reasonable to have a sister site support production demands while you schedule more downtime to get issues permanently resolved. A skilled professional can help you build the business case for this type of arrangement considering the total financial impact including incremental labor and logistics cost to have a sister facility provide service support. Often the savings from permanently resolving an issue, by far, outweighs the incremental production support cost. This behavior needs to become part of the manufacturing operating model so that issues could be resolved permanently as they arise. If you don’t have the luxury of a network, or just would rather not take that route, another route is to use your planned downtime wisely. It may not be a bad idea to schedule extra raw materials to use for equipment / process testing during scheduled downtime. This is the time to perform a manufacturing efficiency blitz and tackle the issues that pose the greatest threat to performance. Once you’ve brought your manufacturing system “back to base”, implement preventative measures and find a way to incorporate continuous improvement into your daily operating model.

© 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.

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