Organizational Opportunities from the Frontline Story 22: Improving Organizational Productivity | Operational Excellence Quick Hits
Quick Hits share weekly tips and techniques on topics related to Operational Excellence. This week’s theme relates to organizational beliefs. We hope you enjoy the information presented!
In today’s session, we’re gonna continue on the series on organizational opportunities, stories, and lessons learned from the front lines. Today’s story is about improving productivity of the workforce.
The company was a manufacturing company looking to improve their on-time delivery, shorten their lead time, and reduce the cash conversion cycle. They had set up departmental productivity goals with the intent of making sure that all employees are productive. However, they found that many employees were busy but not really productive. So, the question was how to improve performance in this situation, specifically aiming for reduced lead time and better on-time delivery, which would automatically improve the cash conversion cycle.
To understand productivity, it is essential to measure the effectiveness of a resource in converting inputs into useful outputs. Useful outputs are those that the downstream process can actually use to perform their work. To determine productivity, it is important to define the necessary and sufficient inputs required by the next step in the process. This analysis starts with understanding the needs of the customer and working backward to identify the inputs required for the preceding process.
Busy work refers to activities that are undertaken to pass the time and stay busy but do not add any value for the customer or the next step in the process. Value-added activities, on the other hand, contribute to moving the product or service one step closer to meeting the customer’s demands. Identifying and eliminating busy work is crucial as it creates waste within the organization.
In some cases, companies view a resource standing idle as a major waste. This belief can lead to misalignments between operations, resulting in increased work-in-process, quality issues, extended lead time, and reduced on-time delivery. To maintain proper flow and balance capacity, inventory can be used as a shock absorber. However, it is important to understand the inventory profile required to meet customer demand rates effectively.
In an unbalanced system with different capacities at each step of the process, it is normal for some resources to be idle from time to time. A general rule of thumb is to have 20% extra capacity in all other resources, with the capacity constraint or Pace Setter operation being the exception. This protective capacity helps overcome issues that may arise throughout the week, such as machine breakdowns, supplier delays, or quality problems.
Overutilization of resources and excessive work-in-process in an unbalanced system can lead to extended lead time, tied-up cash, increased risk of quality problems, overtime costs, and expedited requests. Shifting the focus from individual departmental goals to a shipping goal can help align production with actual customer demand. By eliminating excess inventory and working on items needed for shipping and customer orders, the misalignments and inefficiencies can be addressed.
Contrary to common belief, attempting to make all processes efficient can actually hurt organizational performance. The goal should be to create flow and keep everyone productive and efficient. In most cases, to make the system efficient, many processes need to be less efficient, which represents a paradigm shift for many companies.
By implementing changes and improving flow, the mentioned manufacturing company was able to significantly reduce lead time, work-in-process, and improve the cash conversion cycle. They also saw a reduction in quality issues and improved on-time delivery performance.
That concludes our session for today. Thank you for joining. Feel free to connect with me on LinkedIn or visit our website and YouTube channel for more videos on creating breakthrough performance improvement for companies.