Before we decide where we want the company to
go, we need to know where we are. We need to know what activities
are already good and what we need to improve.
• Separate Internal from External
conditions—Government, Labor, and Financial institutions
and their regulations create some constraints on our businesses
that affect our operations. External market factors (customers,
competitors, vendors) may be only marginally influenced by our
efforts. Strategic management must have the wisdom to recognize
what can be changed with a reasonable effort (internal
conditions), and what must be accepted as is (external
• Quantify activities—Define the
processes and procedures that describe our internal operations.
To start, use broad flow times. It is not necessary that
routings, process times, or bills of material be 100% accurate.
The major problems will become clear quickly and we can focus
corrective efforts on a few critical areas. Too many companies
won't start until they upgrade all the data, which means they
• Compare results with expectations—Are
we competitive in the marketplace on Price, Quality and
Delivery? What do the customers, competitors, shareholders,
employees, and vendors expect from us? We don't have to like
it, but we must know in order to decide if we want to change our
performance to meet some criteria.
• Evaluate local actions versus global
effects—Some local actions clearly have global effects.
Two extra days in production or in engineering will add two
days to the lead time. Other cause & effect linkages are not
so apparent. Combining batches at any step often increases the
lead time of all flows that use that step, or are fed by that
Identify Opportunities For Improvement
To achieve our vision and objectives, we must
decide what needs to happen to improve our internal results
(time/money) or our external results (sales/service). These
improvements can be guided by the following:
The Flow Concepts
Given: The goal of the organization is making
money now and in the future.
Assumption: The products and services the
organization offers meet an external demand in the marketplace
relative to price, quality and delivery.
The organization must produce these products
and services at a low enough real cost to allow us to make money. Any
activity that does not provide value to the customer or to the
organization should be eliminated.
The movement of products and services to
customers in the shortest possible time will turn investment into
profit in the shortest possible time. Any activity that adds
value to the products and services, or processes the order must be
Maximizing the value of our products and
services, simultaneously with the above two conditions, will
maximize our profit. Opportunities to improve the quality of
internal and external activities and of their results must be
continuously searched for at all levels of the organization.
What to Measure
Measures deal with Magnitude—the absolute and
relative values of velocity, complexity, stability, control, and
investment. Measures deal with Flow—the time or rate of moving
information, decisions, paper, and material. Measures quantify
Impact—the loss of time, material, control, and reputation.
Measures monitor Trends—the direction and speed of change in
Globally, a company begins with a definition of
what's happening now and of what needs to happen. High-level
targets and measures are designated to stimulate and track
progress. Links to lower-level activities are established. Clear
expectations for results are communicated and monitoring measures
agreed on. Local measures must be consistent, fair,
understandable, objective, and relatively easy to get and use.
• Magnitude—The absolute or relative
values of elements or things. Measured in units of dollars,
hours, items, quantities, or occurrences. Compare expectations
with results in ratios or percentages. Specific opportunities
should be looked for in the following areas:
— Velocity—Something takes too long.
Measures: Mfg cycle time, queue time, movement time, value-added
versus non value-added time, inventory turns, total elapsed
time, accounts receivable aging, process time, set-up time.
Measure inventory turns by class (RM, WIP, FG), if possible.
— Complexity—Something isn't necessary.
Measures: Steps, transactions, personnel, commonality of parts
& processes, fixtures & tooling, adjustments, skills,
long set-ups, forms generation & distribution,
decision-approval levels, dependencies. Simplify before you
— Stability—Something is variable.
Measures: Quality, warranty returns, maintenance, delivery,
material, handling, process adjustments, specification tolerance
& spread, breakdowns, inspections, dependencies. Process
stability prevents product variability.
— Control—Something requires
intervention. Measures: Delivery performance, schedule
adherence, variances, expedites, reschedules, data inaccuracy,
premium freight, overtime, quality, process yield, Material
Review Board activity.
— Investment—Something costs too much.
Measures: Dollars, resources, premiums, out-of-pocket costs
versus internal costs, inventory levels, inventory time,
Throughput per employee, scrap, rework, outside services.
• Flows—The time or rate that
information, decisions, or material are processed. Ultimately,
the speed that money is generated by the company's operations.
Opportunities are found in reducing the flow time of any
internal or external process.
— Measure functional cycle time for orders:
Sales processing, design, manufacturing (set-up, run, wait,
move, queue), test, shipping, invoicing, and collection.
Determine the total elapsed time for an order.
— Measure general activity time: Quoting, engineering
changes, material release, customer service,
research and development, document generation, invoice mail-out,
accounts receivable aging, purchase lead time, outside
vendor service, etc. Determine which activities affect the
total elapsed time of an order.
— Measure feedback/response time. Decision
speed is a function of data gathering, steps in the
transformation of data, and approval levels needed for
evaluation and action.
— Compare value-added time versus non
value-added time, Work-to-Wait Ratio, quotes made versus quotes
won, products and product line performance, period to period
• Impact—The deviation from planned or
optimum performance. As discussed above, the Cost of
Un-Quality quantifies the loss of money, time, reputation, and
control. Major priority decisions are made by evaluating the
impact of a problem on the customer (external measures), or on
the business performance (internal measures).
Impact is a function of the cost and the
frequency of occurrence. A 10% reduction in setup time is
generally easier in a two-hour setup than it is for a
twenty-minute set-up. However, the impact to the business may be
greater from doing the latter if many more of the shorter
set-ups are normally done.
• Trends—The direction and speed of
change in the measurements, plotted over time. Comparisons by
time periods and areas of responsibility highlight areas of the
need for increased understanding and cooperation.
Cause and effect expectations can be evaluated
versus results. Early changes are easier to do and produce faster
and larger results. Subsequent changes are more difficult to
justify because of an overall slowdown in achieving results. These
later activities should recognize this and have milestones with a
different expectation of progress.
To be Continued
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