Effective Decision-Making | Operational Excellence Quick Hits
Quick Hits share weekly tips and techniques on topics related to Operational Excellence. This week’s theme relates to Organizational Performance Part 1: System Thinking. We hope you enjoy the information presented!
Speaker 1: (00:06)
In this session, we’re going to talk about making decisions based on system thinking. What we want to do is we want to make the correct decisions that are best for the organization. If we talk about a system, what is a system? A system is an organized, purposeful structure that consists of interrelated and interdependent processes. Interrelated means that there’s relationships in terms of cause and effect. One action in one department can have negative or positive effects in other departments. Also, interdependent means that one process is dependent on the next process so the second process and the flow here can’t start their work until the first process finishes their work.
Speaker 1: (00:51)
Therefore, a system is a combination of different processes, multiple processes make up an organization, all organizations can be described as a system. What we want to do is we want to think of the organization as a system. The best way to explain this is the chain analogy. If I look at a physical chain, the physical chain has two distinct measurable characteristics, it’s weight and its strength, so the weight of a chain acts like cost in an organization.
Speaker 1: (01:23)
Therefore, if I know the cost of each department, how do I determine the cost of the organization or the operating expense? I add them up, so cost acts like weight which follows the additive rule. I can also measure the chain’s strength, so a strength is its capacity or its ability to generate throughput. If I look at the different links in this chain that have different capacities, the strength of the chain is determined by the weakest link so I can’t get more capacity out of the system than from the weakest link.
Speaker 1: (01:57)
In this case, the chain has a capacity of 950 pounds. If I want to strengthen the chain, that’s the goal of any organization is to strengthen the chain. If I look at two ways of affecting the chain, one is I can reduce the weight. That’s a cost reduction strategy so we’re not about cost reduction, we’re about strengthening the chain. If I look at reducing the weight of the chain or reducing cost, how would I do that? Well, one way is to remove a link from the chain. That’s acting like outsourcing work to a sub-contractor so I don’t take the work inside, I take and I sub that work out to somebody else.
Speaker 1: (02:37)
Another way is to reduce the size of a link so if I shave the capacity of the link down and make it lighter that’s like laying off workers. The third way I can do that is replace a link with a lighter material so I can invest in new technology that has the same strength but is lower cost. What we really want to do is strengthen the chain so how do make the chain stronger? To me, that’s a growth strategy. There’s only two ways I know to make the chain stronger and that’s to increase the capacity of the weakest link and there’s two ways you can do that.
Speaker 1: (03:11)
One, is to increase the utilization of that resource so if I can get more work out of that resource per unit of time, that’s increasingly utilization. Utilization is looking at how available that resource is over a shift and how many hours it’s actually producing work or value added content. The second way is to increase the throughput of the constraint, so if I can get paid more for each unit that goes through that resource, that’s also strengthening the chain. Again, we need to make decisions based on strengthening the chain, not making the chain lighter.