Understanding System Thinking | Operational Excellence Quick Hits

Speaker 1: (00:04)
I want to explain the importance of measurement, and I’d like to use an analogy: the chain analogy. So the reason I use a chain, because a physical chain acts and responds like a company. So each link in the chain here represents a department, okay? So we have multiple departments. There’s dependencies between the departments. So one person does one activity, the second person can’t start that activity until the first person finishes. Each department has capacity, okay? So there’s two ways we can measure this chain. The first way to measure it is by measuring its weight. So the weight of the chain acts like cost in a company. How do I determine the weight, so if I know the weight of each link, how would I determine the weight of the chain? Well, I just add up all those links in the chain, and that gives you the weight of the chain.

Speaker 1: (01:05)
So the weight of the chain follows the additive rule, just like costs in a company. Cost follows the additive rule. So if I add the cost of one department, plus the cost of another department, plus the cost of a third department, I add up all the departments in the company, I can get the total costs to run that business. But there’s another way we can measure the chain, is by strength. So strength represents capacity. It is our ability to generate throughput or to generate sales. So if I look at the capacity of each link, so I have these different links that have different capacities, how strong is the chain? Well, it’s determined by the weakest link. So you can see this one link here only has a capacity of 950. So if I were to put stress on this chain and start adding weight to the chain, when’s it going to break? About 950 pounds, the chain’s going to break.

Speaker 1: (02:08)
So why is this important in terms of measurement? So let’s talk about these two measurements. If the goal of the organization is to reduce costs, we call the cost reduction strategy, how would I reduce the weight of the chain? Or if the goal was to strengthen the chain, how would I strengthen it? So I believe that every company’s goal should be to strengthen the chain, not make it lighter, okay? So let’s talk about actions, how I would make the chain lighter. If I wanted to make the chain lighter, one way I could do is to remove a link. So I can take this link and remove it, and the chain will be lighter. That’s comparable to outsourcing work to an outside supplier, okay? Another way I can make the chain lighter is I can reduce the capacity of this link so I can take some material and make the link smaller. That relates to laying off people, right?

Speaker 1: (03:10)
So I can lay off people in the department, then make that link in the chain lighter. Or I could find a new technology that has the same capability but is lighter weight. So that would be bringing in a new technology in an area that’s not the weakest link, right? Makes the chain lighter, it doesn’t make the chain stronger. So all those activities are actions we can take to make the chain lighter, but it doesn’t strengthen the chain. How can I strengthen the chain? There’s only one way to strengthen the chain, and that’s right here: make this link stronger. Any accident I do to any other link in the chain isn’t going to make the chain stronger, only acts into this one. So in reality, I need to get more capacity from that resource. So we know that every process can be improved and improved significantly, so to increase the strength of this link is not that difficult. And we can improve the strength of the whole chain.

Speaker 1: (04:22)
You notice the actions to reduce the weight of the chain and the actions to strengthen the chain are totally different. If we have our measurement system aligned with actions to reduce cost, we’re never going to strengthen the chain. Vice-versa, we need measurements that are geared at strengthening the chain. So take a look at your own organization, look at your metrics, and understand, “How many metrics do I have that are focused on cost reduction? How many metrics do I have focused on strengthening the organization, in terms of the ability to generate value added?” Okay? That’s the goal of operational excellence: strengthen the chain to generate the ability to generate value added at a faster rate.