Check yourself against these 5 criteria. If you are not well in the green on them you probably have significant potential for bottom line improvement.
Global vs. Local Optimisation
Experience has shown us that most businesses behave in a way that indicates they believe that optimizing all the components of a business will optimise the whole. In most businesses departments and functions are given goals to optimise their performance which, if managers want to progress, will pursued to the maximum of these manager’s ability. Unfortunately we know that this practice leads to conflicts between and among departments and functions. These conflicts are not open war; they simply result in most if not all functions and departments not meeting their targets and the business as a whole is certainly not optimised.So, where does your business stand on the scale between local optimisation (all departments seek to optimise their performance) and global optimisation (all departments seek to optimise the businesses performance? Rate yourself on a scale of 1 (local optimisation) to 10 (global optimisation).
Aligned Key Performance Indicators
Frequently we see Key Performance Indicators (KPIs) that give the organisation mixed signals. For instance: Production should on the one hand achieve the lowest cost position and on the other hand they should support sales by excellent due date performance and short lead-times. Since these are often incompatible production will favour whichever KPI is the bosses favourite. A similar situation for production is the need for lowest cost and the lowest possible inventory levels. Sales of course wants perfect due date performance and short lead times which conflicts with production’s need for lowest cost.Are your Key Performance Indicators aligned across all departments and functions? Or do your KPIs cause conflicting situations between and among departments and functions. Where do you stand on the scale? Please rate yourself.
Your Limiting Factor(s) (Constraints)
Experience has shown us that most businesses have not recognised their limiting factor or constraint. When we speak with a business we often hear about many constraints and constraints that move about from one resource to another.Systems thinking and the Theory of Constraints tell us that any system of interdependent entities (like a business) can only really have one constraint. In any case only a very few constraints are possible (just like a chain can have only 1 weakest link).Since most businesses have not identified their weakest link (the limiting factor or constraint) it is unlikely they will have decided how to get the most (for the bottom line) from this constraint. These businesses will almost certainly have not aligned the rest of their company to the way they want to exploit (get the most from) their weakest link. Such businesses are missing opportunities for profit! Your business may be different. Please rate your business on the scale according to how well the entire organisation is aligned to get the most from your limiting factor or constraint (which might be operations, sales, R&D…). Properly deciding how to you want to get the most from your limiting factor and aligning your organisation to that decision can be very beneficial to your bottom line.
Reliability
Many businesses are not as reliable as they could be – delivery performance (products or projects) is not near perfect or product availability in warehouses or shops leaves customers dissatisfied. Our experience indicates that businesses within an industry generally perform at more or less the same level of reliability. If the industry as a whole is relatively poor every company has a significant opportunity to gain market share.Please rate yourself on the scale. It runs from 50% due date reliability (On Time In Full) to 100%. The further away from 100% you are, the greater your potential.
Effectiveness
Effectiveness is defined as doing what is supposed to be done and NOT doing what should not be done. Work In Process (WIP) and inventory levels are an indication for Effectiveness. Too much WIP (and thus long lead-times) indicates that work-orders are released into production too soon or projects are released to the organisation too soon. The result is a chaotic environment with unclear priorities and long lead-times. Inventories in the supply chain are indications of the same problem and the practice of producing in large batches (usually due to pressures to reduce cost). Big production batches are likely to block capacity for items that are needed now while a significant part of these batches will not be required for many weeks and months.Please rate yourself on this last scale. This rating is a bit more difficult because some inventory to buffer for uncertainty and unreliability is essential. Zero-inventory is not a good idea – it will lead to poor customer service. Moving inventory to suppliers or customers is simply a question of ownership – it does not change the effectiveness question.
Summary
If you have rated yourself in the deep green for all of these, then you are very likely to be in a powerful position in your chosen markets. Your performance towards clients is excellent, your cost structure is in great shape and because of your reliability you are unlikely to be under much cost pressure. Your profitability will be more than acceptable.If you have rated yourself in the deep green and the results I expect (the above paragraph) are not evident there is a good chance you are fooling yourself with your rating. I would look at each scale again and think deeply about the reality within your company.If you have rated yourself somewhere in the yellow or even red, then your business has considerable scope for bottom line improvement – even if your business is doing well today.If you would like to evaluate the size of your potential we have a one page Excel spread sheet with which you can evaluate the bottom line implications for your business. If you would like a copy send an email to csstw@bluewin.ch with your name, email and phone number and business address.
