Synchronous Management Principle 2: Effectiveness vs. Efficiency | Operational Excellence Quick Hits
Quick Hits share weekly tips and techniques on topics related to Operational Excellence. This week’s theme relates to understanding the difference between effectiveness and efficiency. We hope you enjoy the information presented!
Speaker 1: (00:05)
In today’s session, we’re going to continue on the concept of synchronous management going through the various principles of synchronous management and today’s session’s going to be on principle number two. Principle number two is focused on the flow of work and not the efficiency of the individual tasks. So let’s dive into that concept a little bit deeper and what does that mean? What’s the effects of that when we focus on flow and not focus on the efficiency of the individual tasks?
Speaker 1: (00:34)
First of all, if we look at any organization, there’s three flows in any organization. So it doesn’t matter what type of organization you are. There’s the three flows of information flow, which flows from customers back through your organization to suppliers. We have the value added flow, which flows from suppliers through your organization through various process steps to the customer. Then the almighty cash flow, which flows the same as information from the customers back to the organization to suppliers. Many organizations are focusing on improving cash flow, as I believe cash is king. So we always want to focus on improving cash flow. So how do we do that? Either by improving information flow or improving value added flow, and what I prefer is to improve both information flow and value added flow simultaneously.
Speaker 1: (01:30)
If we look at an organization that has unsynchronized flow, what does that mean? So the flow doesn’t flow consistently through the organization. It might start, stop, start, stop, and it flows through and it lumps through the organization from start to finish. If we look at efficiencies, we see efficiencies all over the place. So if I look at this system here where I got different operators, you see operator one had efficiency of 107, operator two 103, operator three 92. But when we go downstream operator six had 43, operator seven 55 and if we focus on efficiencies, individual efficiencies, we’re going to look at operator five, six, and seven and say, why aren’t you guys performing? Your efficiencies are poor. You need to get your efficiencies up. When we look at this type of unsynchronized flow, what are the effects that we see?
Speaker 1: (02:25)
So first of all, we see large differences in lead time. So if we look at the lead time of this whole system and we look at the days of inventory between each operation, the first operation I have 4.8 days, 2.5 days, 20 days, 9.9 days, 0.9 days, 0.6 days. So the total here is about 29 days of lead time. When we have this, of course, this doesn’t help our cash flow because we have a lot of cash tied up in the system. So what happens in the unsynchronized system? Lead time becomes extended in highly variable. Cash is tied up in inventory. Quality issues become more of a problem. Delivery performance is reduced and expediting and overtime increases.
Speaker 1: (03:15)
So how do we get out of this with all these undesirable effects? How do we start focusing and improving? So let’s understand what flow means. So when we talk about flow, there’s two types of activities, value added activities that transform the product or service one step closer to what the customer’s demanding and non-value added activities that don’t transform. If we look at an example of what does poor flow look like, it looks like where we have a long lead time and the value added activities are a small percentage of that lead time. Again, this can be applied to any environment. Everyone’s experience at the doctor’s office, where you go in, you have very little activity when you check in and you sit in the waiting room. You get called back to the office. The nurse does some vitals, another few minutes of value added time. Then you sit in the office waiting for the doctor to come in, he sits with you for a few minutes and said, oh, you might need some blood work. So then I sit in queue again and you get blood work and I’m out.
Speaker 1: (04:19)
So that’s poor flow. We’ve all experienced that. If you look at the value added time that the doctor’s office spends with you, it’s really small compared to the total time you’re in the office. What we really want is improved flow where we’re not focusing on the cycle time or the transformational time. We’re focused on the queue time between steps and in this case, you would come in the office, check in, go right into the exam room, have your vitals taken. Doctor comes in and sees you, you get your blood work and you’re out. So the total time in the system is much less. So the ratio of the touch time, the lead time becomes much higher and that’s what we’re looking for.
Speaker 1: (05:01)
Most systems, in the last session we talked about unbalanced capacity and to achieve flow we want that unbalanced capacity. So what does that mean? So that means in any value stream, we have the capacity of the value stream that’s determined by the resource with the least amount of capacity, which we call the capacity constraint resource. Any system can’t operate with zero protective capacity, because that’s a balanced system. What happens in a balanced system is delays transfer downstream, gains never do. So if we have variation in our system and we have resource contentions, then we need unbalanced capacity.
Speaker 1: (05:42)
This unbalanced capacity, the capacity above the capacity constraint resources, what we call protective capacity. When we focus on efficiency and overutilize our protective capacity, what happens is we get unsynchronized. Well, we really want a synchronous flow so let’s talk about effectiveness versus efficiency. Of course our goal is to flow work to customer demand and when we do that, let’s look at a rowing crew to explain the difference between effectiveness and efficiency. So when we look at the rowing crew, we see this rowing crew up the top here is very effective because they’re all rowing in sync with the goal of getting to the finish line in the most effective manner. In the second rowing crew, the second rower is three times more efficient than everybody else. So by him being efficient, the boat goes off course.
Speaker 1: (06:38)
So we don’t need to focus on individual efficiency. Individual efficiency is trying to make every rower row as fast as possible and when we do that, the boat rows off course. We want to be in sync and rowing together. So let’s define what effectiveness is. So effectiveness from my perspective is the degree to which an organization provides value to the customer while simultaneously improving its own performance. So we need to increase the value that we provide to the customer and improve the performance of the organization. If you can do that, then you’re an effective organization.
Speaker 1: (07:15)
That’s our session for today. Next week’s session we’re going to talk about principle number three, which talks about the marginal value of time at the bottleneck resource. That’s equal to the throughput rate of the products process by the bottlenecks. We’ll dive into that principle a little bit more detail and next week’s session.