Where to Focus your Scarce Resources - 4

The warning in the previous post still holds … do not try to address everything. Choose well!

What follows is the first part of issues from production environments. Have fun!

Is Production your Limiting Factor?

Does your production have a huge and growing backlog? Are your lead-times getting longer and longer – maybe so long that you are losing business? Is the sales organisation complaining about long lead-times and unreliability delivery promises? Is your OTIF (On Time In Full) performance indicator poor or declining? Are production priorities set by hot, RED HOT and DO IT NOW!!!? If so you certainly appear to have an overloaded production.

1. An item produced in your factory has a certain production time (not necessarily (and often not) equal to the production time found in your ERP system). That same item has a “touch-time” during which it is being worked on but the much larger part of production time is waiting in front of a machine until the item’s turn comes. In most factories touch-time is less than 10% of production time and often it is less than 1%. In many factories there appears to be considerable scope to reduce production times. The table below illustrates that by cutting production time in half we will still have a very large amount of waiting time for the article.
   
   
   
   
   
   
   In your factory, what % of production time are touch-time and waiting time for an item? Does your production have significant scope to reduce production time?
   
   
    
   
   
   
    
2. Your factory will have orders and raw material (or components) waiting to be started; it will have a number of orders somewhere within the factory slowly progressing to finished product; there will likely be a considerable amount of inventory (Work in Process) on the factory floor and there will be finished inventory ready to be shipped or in the warehouse, waiting for a (call-off) order.
   
   The amount of WIP (Work In Process) determines the waiting time your products experience as they move through your factory. WIP and lead-time are inextricably connected. Double WIP and lead-time will approximately double. Do the reverse and lead-time is cut by 50%. Whatever you do with lead-times or WIP the work to be done on items remains the same. If this last statement is true we can hold back orders for half the current lead-time and then start releasing work again, but with ½ the original lead-time. All we change is the lead-time, the amount of WIP and the confusion over priorities in the factory. Do this and only god things can happen
    
   In your overloaded factory how much WIP is actually in the factory (WIP is an indicator for lead-time; more means longer lead-time)? Is this too much? Should you launch even more production orders (and increase WIP and lead-time further)? Can you evaluate what is too much or what is just right?
   
    
   
   
   
   
   
    
   Production units are often measured by cost and efficiency measurements. This way of measuring performance means all units will strive to be as efficient as possible. They will seek work to make sure they are always busy. After all a resource standing idle is a major waste; correct? This kind of thinking must cause managers to seek work in order to keep their area, all their people and all their machines busy.
   
   Seeking work, keeping busy is, on the face of it, admirable. But, is it wise? The practice (unless the limiting factor in the factory is the first machine) will lead to more and more work in process – much more than the constraint can process. We have to ask – ‘What is the point?’
   
   In your factory, do your employees seek work to make sure they are always busy? Do managers seek work to make sure their machines and people are always busy? Is every local group measured by its performance rather than its impact on the factory (or business) as a whole? Does your factory optimise locally (each machine) or globally (the factory as a whole).
   
    
   
   
   
   
   
    
3. Too much WIP (as described above) leads to unclear priorities on the shop floor, a risk that important tasks are missed or forgotten and as a result production is more unreliable than it could be. Even with significantly less work in process the shop floor should have a clear view of what are the most important orders at any given time – always ranked in order of priority.
   
   Does your shop floor have an absolutely clear understanding of what should be worked on now? Do they have the necessary information to decide, without any management intervention, what they need to produce next? Is this in the form of a simple 1-page view of the currently highest priorities such that they can be read and understood at a glance?
   
    

 

 

To be continued!

 Our and the next Village!

Where to Focus your Scarce Resources - 3

It needs to be said again! All of these possibilities are just that. Before you decide to focus on any one of them you must first determine what your limiting factor or constraint is and what you want to get from your limiting factor - decide how you want to exploit it. What you read here are possibilities (in the absence of a real organisation) - so analyse and choose well. Addressing many of these possibilities id NOT the way to go. Try that and it will be a long time before you get bottom line results - unless you are very lucky! When we discuss engineering and project management a key action (if projects/engineering are your constraint) will be to stop multi-tasking.

What follows are the rest of the sales/marketing improvement opportunities I have decided to discuss.

Is Sales and Marketing or the Market your Limiting Factor? - 2

• So far we have discussed ways to increase sales through new business gains. You have however; existing customers that should, because of your excellent products and performance, continue to buy from you. The rest of your business can impact this existing repeat business considerably. Poor due date performance, long lead-times and other factors will eventually cause customers to look elsewhere. Poor operations performance wastes the sales organisation’s time as the must console disappointed customers. The more severe an operations problem is, the more sales time is wasted and the more customers are lost.
  
  How good is your operation’s performance? How often must sales get involved to fight to maintain good relations with customers in order to not lose future sales? What % of a sales person’s annual hours is spent protecting existing business due to some inadequacy or mistake made in operations?
  
  
  
  
  
  
  
  If it is relatively easy to maintain market share despite relatively poor perceived performance by operations; then we can conclude that your competitors have equally poor operations. This indicates you have the potential for a competitive advantage vs. your competition – something that can help the sales organisation massively. If your industries poor performance damages clients – by forcing them to hold high inventories, by making their lead-times long and unreliable etc., then the potential from an operations competitive advantage is even greater.
  
  Does your sales organisation understand the consequences of your industry’s poor performance? Can the value the damage caused to clients? Can your organisation (sales and operations together) take advantage of this opportunity?
   
  
  
  
  
  
   
• A decisive competitive advantage would help increase sales dramatically. Most managers would likely claim that such a decisive competitive edge is not easy to imagine, let alone realise. However if any of the situations described below were realised, would they lead to such an advantage?
  
  
  • The organisation is able to develop and launch significantly more new products than currently – at a rate faster and with shorter lead-times than any relevant competitor can.
  • Delivery performance is nearly perfect – products and projects are almost always (nearly 100% of the time) delivered on time or early (if that makes sense).
  • Lead-times are considerably shorter (by 25 – 50%) vs. all valid competitors. This advantage includes the due date reliability mentioned under point b.
  • In make to stock environments availability of all stocked products is nearly perfectly reliable – when a client wants to buy the desired product is immediately available.
  • The company can produce significantly more (20 – 50%) without adding resources.
  • The company can deliver the above performance with much less inventory in the supply chain (raw materials, work in process, finished product).
  
  When you consider the above 6 items that, if achieved, probably will lead to a decisive competitive advantage (at least a competitive advantage) then you must ask yourself how can this be done? If it can be done, why has it not been done? Organisations have achieved the kind of improvements described, so there is evidence that at least some companies have made the improvements outlined and have gained the hoped for competitive advantage. Whatever your experience, it is possible. 2 of the key changes a company must make are: a) prevent the organisation from optimising every department or function. In other words the company must opt for global optimisation vs. optimising everywhere; and b) the amount of work in process must be limited so that everything flows – projects, production, the sales funnel etc.
  
  Can your managers envisage that some or all of the above would give your company a decisive competitive advantage. If you cannot, would you like to speak with someone that can show you the way to such a solution?
  
  
  
  
  
  
  
  
  Should you pursue these opportunities be careful that you do not try to implement all the ideas at once. I you do work in process will be too high and ‘nothing’ will get done. Results will take so long to achieve you and your employees will lose interest – its just another one of those improvement initiatives that does not work. So, select the order in which you want to implement and then implement and complete the highest priority initiative first before starting the next one. Make sure your people are not impeding flow by multi-tasking. Make sure work in process is at a level that supports a fast flow of work towards completion. Get results quickly!
  
   My Dog!

Where to Focus your Scarce Resources - 2

Important: What follows are a number of possibilities to work on. Several of them may be attractive directions to take. However do not try to do several at the same time - it will take much longer to get results since your scarce resources would be forced to multitask and thus lose effectiveness.

Is Sales and Marketing or the Market your Limiting Factor? (1)

Could sales and marketing (or the market is not buying enough to fill your operation’s capacity) be blocking more profit and higher profitability? If management and especially operations are pressuring the sales and marketing organisation for more sales and work then it is likely that a lack of demand is hurting profits and profitability. The sales and marketing organisation is your constraint or limiting factor.

Assume your products are about equal to those of all of your competitors. If this is the case (in many markets this is the case) you need to decide how best to exploit your sales forces capacity. Things to think about include:

• A sales person’s responsibility is to sell as much of the available time as possible. Ideally he is in front of his client 100% of the time. Recent studies show that the actual number is around 30% of a sales person’s time is at the customer. How can you change the organisation and sales process so that 30% becomes 40%, then 50% then even more? An increase from 30 to 40% is a 33% increase and implies a 33% increase in opportunities and sales (assuming your sales people do not stay unnecessarily long at clients – simply boring them).
  
  What is just a 10% increase in sales worth? Based on the table below such a suggested effort is very worthwhile.

 

 

 

 

 

 

 

             How much of their time do your sales people actually spend selling at their clients?

 

 

 

 

• Your sales people are well trained in the art of selling – that beginning a sales appointment by talking about the product is not the way they start. Your sales people start sales appointments by seeking to understand the client’s problems and their consequences (the damage or cost of the problems). Your sales people understand the features and benefits (in relation to their clients) very well and are in a position to help the client (whatever his function) to think about his issues in new ways. The relationship your sales people have with their clients is one of causing the client to reframe how he thinks about his business; is one in which the salesman speaks in relation to the clients business. Your sales person brings value to the client – through his knowledge, expertise and business insights he has.
  
  How do your clients perceive your sales people? Are they seen as simple order takers and information conduits or real partners with the customers’ managers?

 

 

 

 

• Not only do you want many client appointments; you want to focus on those potential clients with the greatest opportunity – in terms of sales and the chance of making the sale. Sales and marketing need to focus efforts on opportunities with which the chances for success are the greatest. A current hit rate of 10% means a sales person must work on 10 opportunities to make one sale. Through proper focus our “hit-rate” should increase significantly – with a constant number of customer appointments and a 50% increase in your hit rate sales will increase accordingly.
  
  How good is your hit rate today? If we don’t already measure it, how should we measure hit-rate?

 

 

 

• Your sales funnel is the sales process that transforms potential clients into new (and hopefully lasting) business. There can be quite a number of steps in the funnel before a client actually buys. Along the way your sales organisation will potential clients that have decided, for one reason or another, that your competition is the better option. Where you lose the majority of potential clients should be your focal point in this process – why do we lose potential business at this point (and consequently waste our expensive and scarce sales resources time)?
   
  The process of the sales funnel usually involves more than just the sales organisation. Potential clients evaluate your performance in terms of responsiveness, reliability, speed, quality and, of course, price. If the rest of your organisation is slow to respond (qualification orders are often small and costly) then your hit rate and business growth will suffer. All of your company and not just sales are equally responsible for ensuring growth.
  
  Do you know where in your sales funnel new business is lost? Do you no why this business is lost? What are you doing about it? How well are you managing your sales funnel?

 

 

 

 

More to come!!!!

Where to Focus your Scarce Resources - 1

In the “Your Businesses Potential” article you were asked to evaluate your business against 5 criteria (Global vs. Local Optimisation; Aligned Key Performance indicators; Your Limiting Factor(s) (Constraints); Reliability and Effectiveness. Local optimisation (every department and function optimises its area of responsibility) is wasteful of scarce resources because most of the optimisation efforts bring nothing to the bottom line – since your limiting factor determines what your bottom line can be. Focus your scarce resources on your limiting factor to always realise the greatest positive bottom line impact!

So, where is your limiting factor or business constraint located? What part of your business is blocking your ability to increase profits and profitability?

Your Goal and Necessary Conditions

To determine where to focus scarce resources necessitates an understanding of your goal and necessary conditions. For our purposes we will assume your goal is something like: “We want to make money now and more in the future”. The necessary conditions we assume are: 1. We want to satisfy clients now and in the future; and 2. We want provide our employees with a satisfying and secure employment. Whether or not you agree with the goal and the necessary conditions matters not. Key is the goal.

Your limiting factor is that part of your business system that is blocking you from making more money (and that you believe will continue to block you in the future). Now is a good time to think about what might be blocking your bottom line performance. From the following list pick that part of your business you believe is blocking performance. Since your business is a system of interdependent entities (the functions and departments) only one of them can be the blocker!

• Sales & Marketing; the Market
• Production•Distribution
• Engineering, Research and Development, New Product Development
• Sourcing/Purchasing; Suppliers
• Human Resources; Employees
• Finance
• Legal
• Management; Senior Management
• Policies, Performance Indicators, Behaviours, Company Culture

What does your intuition tell you? Try to verbalise why you believe your pick is the blocker or limiting factor. Explain to yourself through cause and effect analysis why your choice must be correct. This blocker is the place for your scarce resources to focus and improve performance – is it not?

Your intuition might be faulty. Would that be dangerous for your business? It would not, since your efforts to improve the non-limiting factor would overload the real constraint even more than it already is. If this does happen, then switch your focus to your real constraining factor.

Might this kind of focus result in much greater bottom line improvement vs. spreading improvement resources across all departments?

What follows may help you to qualify your intuition will deciding on the location of your limiting factor.