Contributors to Poor Flow | Operational Excellence Quick Hits

Speaker 1: (00:04)
What are contributors to poor flow? So, from our experience, we’ve seen many contributors to poor flow. So, the first one is a cost reduction mentality. So, people are always trying to focus on reducing costs. So, especially when sales starts to decline. And if your organization is struggling with getting sales, the first thing is, “Oh, what costs can we cut?” And it typically ends up being cutting labor. We can’t find good people. And then, when things get tough, we lay them off.

Speaker 1: (00:32)
Then, this is the result of reducing workforce to save cost and making isolated cost reduction decisions that have no impact on the overall organizational performance. So, I was working with a company one time and they said, “Oh, we need to reduce cost. We have too much workforce.” I’m like, “Okay, let’s calculate the financial impact. And then, what’s the morale impact of laying people off.” So, they have about 100 employees. So, I said, “Okay, you have 100 employees. Let’s take a look at your income statement, what percent is your direct labor of your total revenue?” So we looked at the income statement, direct labor was 12%. So, what they’re paying their direct labor employees was 12% of the total revenue that the company generated.

Speaker 1: (01:23)
Okay, you have 100 employees. So, if you have 100 employees, how much does each employee contribute to that cost? If I lay one person off, what do I save? You save 0.12%. 12% divided by 100, each employee contributes 0.12% to the operating expense. It’s insignificant. When somebody gets laid off no other costs change in the organization. Yes, maybe insurance costs, or other benefit costs reduce, but it’s not significant.

Speaker 1: (01:58)
Another contributor to poor flow is batching work, trying to drive high efficiency and utilization everywhere by batching work. Next, is batching decision-making. So, not only batching the physical work, but also how we make decision. Waiting for meetings to make a decision. So it’s like, “Oh, we don’t have the authority to make a decision. We got to have a meeting. Oh, nobody’s available until Friday. So, I guess Friday is when we’ll make the decision.” But if we gave the people, the authority to make the decisions and held them accountable, then we can eliminate the batching of decision-making.

Speaker 1: (02:32)
Next, is the wrong performance metrics. We talked about this in the last session about how important performance metrics are to achieving the right behaviors. Next, is bad multitasking. So, forcing people to stop what they’re doing, and go on to something else. So, that’s switching from task to task before finishing a task. Last is poor problem solving skills. So, if I had to classify what companies are terrible at, it’s problem solving. So, adding more non-value added steps in the process to band-aid the situation and not fix the situation.