Author Archives: jadetrillium

ARE YOU WORKING FOR A ZOMBIE COMPANY?

RIPHave you ever heard the old saying “Too much of a good thing is not a good thing”?   Probably… but what does that have to do with zombies?  Stick around and I will get back to that, but first I want to talk about Lean Management.  The guiding principle behind Lean is the elimination of waste of all kinds, whether that is excess inventory, inefficient production processes, poor quality or any of the rest of the 7 deadly wastes of lean.  At the tools, training and implementation of Lean is focused on the understanding that ANYTHING that does not increase value to the customer is a waste and must be eliminated.  From a relatively high level review of Lean Management this is readily understandable and easily applied to all aspects of the business.  Notice that I have consistently used the term Lean Management rather than Lean Manufacturing, Lean Operations or any of the other common names.  I do that deliberately because most of the different names seem to suggest that Lean is a production tool but in reality Lean techniques and processes can be applied to any process in any part of any organization.  That means that Lean is applicable not only in manufacturing but also in logistics, front or back office, logistics, sales or any other part of an organization.  The key to how and where Lean Management is used though still boils down to identifying what is waste and what is required.  If something is truly waste then removing it is clearly “a good idea”.  But what happens if we start eliminating things that are necessary?  Maybe that is not such a good idea… but, of course we would never do that.  If something is necessary then we would obviously never choose to eliminate it.  Right?

In its simplest terms waste is anything that does not add value to the customer but how do you identify what adds value?  Some of these are obvious but even for the ones that are obvious, can you go too far?  Eliminating scrap loss is obviously a good thing and no reworking or changing of scrap is going to add value to the customer.  The problem occurs when the cost of eliminating scrap becomes greater than the cost of accepting scrap.  Now reducing scrap loss (a good thing) is costing the company money, increasing their costs and eventually increasing the customers cost (not a good thing).  This is an obvious example where too much of a good thing is not a good thing.  Want another example?  How about forecasting?  One of the absolutes about forecasting is that they are wrong.  That is OK as any planner or forecaster is far more interested in how wrong it is rather than the actual forecast.  This forecast errors leads to all kinds of waste such as excess safety stock, incorrect inventory levels, incorrect lead times, etc.  Therefore, reducing the forecast error must be a “good thing”.  But reducing error creates cost.  That is OK so long as the increased cost is less than the increased savings.  But once the cost is higher than the savings it is “not a good thing” and a certain level of forecast error becomes acceptable.

So now we have the idea of “Too much of a good thing is not a good thing” clear in our heads, right.  Still does not explain about zombies though.  Essentially every process in a company directly affects capacity and flexibility, and those that do not affect it directly will do so indirectly.  Also, both capacity and flexibility represent a cost to the organization.  As we implement Lean Management and start eliminating various forms of waste, many of these changes will have the side effect of decreasing both capacity and flexibility as well.  Some of the projects may even be directly aimed at reducing capacity as a way to reduce costs (after all, excess capacity is a cost and anything excess must be a waste).  Since all these things are reducing costs they must be increasing value to the customer and therefore must be “a good thing”.  Right?  Not necessarily.  The problem is that by reducing capacity and flexibility you also reduce the organizations ability to respond to changes in product demand.  If you are currently running at close to 100% of capacity and an opportunity to take on a new customer to significantly increase business comes along…will you be able to accept the new business without affecting your current customers?  Or will increasing your capacity to allow you to accept the new business require so much time and expense that the customer goes elsewhere?  Many companies have spent the last several years systematically reducing their capacity to the point that they no longer have any flexibility left.  Yet new business is the only way to grow a company, whether it is from an existing customer or a new customer.  One of the things that organizations share with plants and trees is that they are either growing or they are dying.  Plants cannot stay the same and neither can organizations.    Lean Management is a good thing but too much Lean can be a bad thing.  Many organizations have leaned themselves to the point that they are effectively dead already but do not know it yet.  Any major economic shock and they will be out of business due to their lack of flexibility.  In effect they are Zombie Companies…dead but still moving, which brings me back to the original question…Are you working for a zombie company?

One last point, this phenomenon may partially explain the rather jerky recover from the latest economic downturn.  Everyone was expecting a recovery but it seemed to have a lot of trouble getting any traction.  Maybe enough companies were having trouble increasing their production due to minimal available capacity and flexibility that opportunities were being missed and delayed which created problems in trying to get the economy up and running smoothly again.

Considering introducing a Lean Management program? Already have one implemented?

What do you need to be aware of to make effective use of a Lean Management program yet still ensure you do not accidentally kill your organization by over-leaning?   Contact Ed White at Jade Trillium Consulting to discuss whether we can help your organization and how best to proceed.

Hope you enjoyed this posting.  Talk to your friends and co-workers about their experience and thoughts on this topic, especially what it means for your organization.   And, as always, I would love to hear back on your (and their) thoughts.  Just fill in the comment box below along with your contact information to let me know what you think.

DEFINING SUPPLY CHAIN – PART 2

tilesIn Defining Supply Chain – Part 1 we talked about how each department was becoming more and more specialized which in turn created a need for a group that specialized in communications and connectivity between all these specialists.  We identified this group as Supply chain or “the grout group”.  In order to communicate and coordinate effectively the supply chain people needed to have at least a general knowledge of what each group of specialist did as they will be interacting to some degree with every other specialist group in the organization.   They do not need to understand all the details to the depth of knowledge that the specialist do but they do need to understand what success looks like and what the options are.  In essence they need to be “specialists in generalization”.  So what did we mean by specializing in communications and connectivity?  Every group of “specialists” naturally tends to concentrate on their specialty and the measures that are used to ensure compliance with their objectives.  This creates a sort of myopia with regards any other groups’ objectives.  The problems occur when the objectives between groups conflict.  For example, the main measure of most production groups is efficiency which is supported and increased by such tactics as longer production runs, scheduling to minimize product changeovers, and loosening quality specifications.  If we look at the measures used by inventory control we see things like low overall inventory value, fast turnover, and product delivered to the customer (internal or external) On Time In Full (OTIF).  In these examples, the measures used by the two groups conflict in a number of ways.  Production’s measures tend to create long runs which in turn creates excess inventory and long lead times for products that are made later in the schedule which negatively affects when and whether product is ready to ship (the basis for the inventory control measures) .  Without proper communications and coordination one of these two groups is not going to satisfactorily meet their objectives.  Management has to decide which combination of the two sets of objectives is most important to the organization and adjust the measures accordingly.  Please note that this is a Strategic decision and must be made at a high enough level to be enforced on both groups.

This does not mean that Supply Chain is the only group looking at the big picture.  If no one else, at least the C level objectives are also looking at the big picture.  The difference between the C level and Supply Chain is that the C level is concentrating on the strategic picture while Supply Chain is concentrating on the conversion of Strategy to Tactics.  Another important point is that none of the above means there are no specialist groups in Supply Chain.  In fact there are many such groups such as procurement, scheduling, warehousing and logistics just to name a few.  The important point is that none of these groups can do their jobs properly if they allow any myopic behaviour.  They all work hand in glove with other groups to ensure the right material is available at the right time and in the right place so that all internal and external customers are satisfied.

We have been talking about how what you measure directly affects how people do their jobs.  When you get right down to it, the main measure of how effective an organization is, is how happy is the customer.  This also must include the organization making an acceptable profit (however that is measured).  Profit is one of the direct drivers of customer satisfaction.  If your profit is too high, customers will assume you are gouging them but if profit is too low you will either go bankrupt or start failing deliveries due to internal issues.  Either way, customers will become dissatisfied and eventually go looking for a new supplier.  That is not good for the organization no matter how you measure it.

So, in summary, when you are defining Supply Chain it is not all about the various tools available nor is it about the specific tasks that they perform.  The key to the modern concept of Supply Chain is that, as a group, they are facilitator’s tasked with ensuring all the various specialists in the organization “play nice together”, that everyone is pulling together in the same direction to meet customer requirements at the lowest possible cost without negatively impacting the Customer Value Perception.