A New Perspective on Operational Excellence
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The world has changed dramatically since LEAN and Six Sigma were popularized in the early 1990′s. Globalization, product proliferation, information technology, intense competition, and an activist regulatory environment have contributed to a rapid rise in complexity. As a result, many companies are finding that LEAN and Six Sigma aren’t delivering the results they expected. In this presentation, delivered by Chris Seifert at APICS 2013, we discuss a new approach that a select few companies are utilizing to achieve Operational Excellence in the face of complexity.
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A New Perspective on Operational Excellence
- 1. A New Approach for a Complex World A New Perspective on Operational Excellence
- 2. Chris Seifert, Consultant Wilson Perumal & Company • Expertise in manufacturing, operational excellence, and management system design and implementation • Former Operations Leader, Owens Corning (increased plant productivity by 25% in just 9 months) • Former Plant Manager and Manager of Business Strategy & Analysis, Georgia Pacific (Koch Industries) • Top-ranked submarine officer, US Navy (ranked #1 of 9 submarine junior officers) • MBA, Summa Cum Laude, University of Georgia; BS Business Administration, St. Louis University
- 3. Agenda/Objectives • Discuss reasons a new approach is necessary • Defining operational excellence (OE) • Explain the foundations of the operational excellence management system (OEMS) and state its implications • Describe the steps in implementing an OEMS
- 4. A new approach is necessary • Operational excellence is more important than ever – customers demand it! • Traditional approaches are not achieving expected results • Leadership engagement is often blamed • A different culprit is to blame
- 5. The world has changed! Volume Cost Pre-Industrial Age “Individual productivity” Dominated by variable costs Volume Industrial Age “Economies of Scale” Dominated by fixed costs Complexity Post-Industrial Age “Complexity” Dominated by complexity costs
- 6. The Vicious Complexity Cycle Complexity increases Poor execution Loss of process control Poor business results More people & processes Vicious Complexity Cycle
- 7. Traditional approaches aren’t effective in the face of complexity • Address individual processes – not interactions between product, process, and organization
- 8. Traditional approaches aren’t effective in the face of complexity Bottom-up approach: Improving one process at a time Top-down approach: Start with a framework
- 9. Traditional approaches aren’t effective in the face of complexity • Attempt to improve before establishing control
- 10. Agenda/Objectives • Discuss reasons a new approach is necessary • Defining operational excellence (OE)
- 11. Defining Operational Excellence • The often overlooked first step • Many definitions exist • To be effective, it must be measurable Leadership Alignment Consistent Messaging Employees Understand Clear Roles and Responsibilities Increased Commitment • Leaders must be united and share a common vision • If leaders aren’t aligned, messages won’t be clear and consistent • Unclear and inconsistent messages impede employee’s understanding • If employees don’t understand vision, they will spend time trying to define their roles • In the face of ambiguity, many employees take a “wait and see” stance
- 12. Example - Definition of Operational Excellence Operational excellence is a philosophy of leadership, teamwork and problem solving resulting in continuous improvement throughout the organization by focusing on the needs of the customer, empowering employees, and optimizing existing activities in the process. - Wikipedia
- 13. Operational Excellence delivers industry leading performance Sound Strategy Operational Excellence Leading Performance 7 Value Drivers 1. Safety 2. Environment 3. Compliance 4. Quality 5. Productivity 6. Yield 7. Cost Strategy 1. Product portfolio 2. Markets served 3. Distribution channels 4. Price point 5. Level of service 6. Partnerships 7. Operating model Operational excellence is the execution of the business strategy more consistently and reliably than the competition.
- 14. Operational Excellence is a function of the management system & culture Sound Strategy Operational Excellence Leading Performance Effective processes and procedures Culture of Operational Discipline Operational Excellence Understanding this relationship helps cut through complexity to quickly identify the real problem from the “top—down”
- 15. Agenda/Objectives • Discuss reasons a new approach is necessary • Defining operational excellence (OE) • Explain the foundations of the operational excellence management system (OEMS) and state its implications
- 16. The foundation of an Operational Excellence Management System Performance Indicators Safety Environment Compliance Quality Productivity Yield Cost
- 17. The 4 Sources of Risk EquipmentProcessesPeopleInputs Acted on by To produce Finished Goods/ Services The Operation • Any failure of the operation to produce a good or service that meets the customers requirements is a result of 1 of 4 sources: 1. A person failed to do what they were expected to do. 2. A process failed to perform as expected 3. A piece of equipment failed to perform as expected 4. Un-managed change
- 18. The foundation of an Operational Excellence Management System Performance Indicators Four Sources of Risk Safety Environment Compliance Quality Productivity Yield Cost People Processes Equipment Change
- 19. Each source of risk can be analyzed for the key causes of failure People Unaware of expectation Unable to perform as expected Chooses not to perform as expected Expectations don’t exist Expectations not communicated Expectations not enforced Lack of knowledge Lack of talent Lack of virtue Wrong incentive
- 20. The foundation of an Operational Excellence Management System Performance Indicators Four Sources of Risk Common Causes of Failure Examples Expectations don’t exist Lack of knowledge Wrong incentives Equipment not capable Personnel not allocated Process not capable MOC inadequate Safety Environment Compliance Quality Productivity Yield Cost People Processes Equipment Change
- 21. For each key cause, there is a Key Control to prevent the failure People Unaware of expectation Unable to perform as expected Chooses not to perform as expected Expectations don’t exist Expectations not communicated Expectations not enforced Lack of knowledge Lack of talent Lack of virtue Wrong incentive Ops/maintenance procedures/policies/standard work Core communication strategy Audits/assessments, org structure, performance management Training/certification Selection process Culture, selection process Compensation strategy, performance management
- 22. The foundation of an Operational Excellence Management System Performance Indicators Four Sources of Risk Finite Causes of Failure Specific Key Controls Examples Vision/procedures Training/certification Performance mgmt Engineering disciplines Maintenance planning/scheduling Design for Six Sigma MOC process Culture Process control plan FMEA Examples Expectations don’t exist Lack of knowledge Wrong incentives Equipment not capable Personnel not allocated Process not capable MOC inadequate Safety Environment Compliance Quality Productivity Yield Cost People Processes Equipment Change
- 23. The Key Controls can be grouped into Elements to facilitate application Value of the Elements • Easier to remember • Creates common language that facilitates learning • Encourages systems thinking Risk Identification Process Hazard Analysis Failure Modes Effects Analysis Risk Registers
- 24. The Key Controls can be grouped into Elements to facilitate application Value of the Elements • Easier to remember • Creates common language that facilitates learning • Encourages systems thinking Risk Identification Process Hazard Analysis Failure Modes Effects Analysis Risk Registers
- 25. The foundation of an Operational Excellence Management System Performance Indicators Four Sources of Risk Finite Causes of Failure Specific Key Controls OEMS Elements Examples Vision/procedures Training/certification Performance mgmt Engineering disciplines Maintenance planning/scheduling Design for Six Sigma MOC process Culture Process control plan FMEA Examples Expectations don’t exist Lack of knowledge Wrong incentives Equipment not capable Personnel not allocated Process not capable MOC inadequate Leadership Employee accountability Risk identification Risk mitigation Knowledge sharing Management of change Continuous improvement Safety Environment Compliance Quality Productivity Yield Cost People Processes Equipment Change
- 26. Implications of the 7 Element OEMS • Benchmarking is essential • Manage the sources of risk, not the outcomes • The OEMS is applicable across all types of operations • All incidents are the result of a failure of at least one Element • You must break the vicious complexity cycle
- 27. Agenda/Objectives • Discuss reasons a new approach is necessary • Defining operational excellence (OE) • Explain the foundations of the operational excellence management system (OEMS) and state its implications • Describe the steps in implementing an OEMS
- 28. OE is achieved by applying plan-do- check-adjust to each element Audits, assessments, and metrics Management review Goal translation and task execution Goal planning and budgeting processesPlan Do Adjust Excellence in each element will result in OE. Excellence in each of the 7 Elements Check
- 29. Developing the OE plan OutputProcess Steps Determine the “size of the prize” Benchmark excellence in each key value driver Measure current performance in each key value driver Identify gaps in OEMS elements Benchmark excellence in each element Assess current state of each element Develop OE plan Prioritize element gaps to close based on potential value Schedule, and resource strategies for closing gaps Metrics and targets that will be used to measure progress. List of the systemic breakdowns that are causing failures. Prioritized action plan.
- 30. There is an “order” to implementation Leadership Employee accountability Risk identification Risk control Knowledge sharing Management of change Continuous improvement Committed leadership is the foundation Employees must know their accountabilities Once leaders and employees are committed to preventing risks, identifying them creates value Risks must be identified and assessed before they can be controlled Controls must be in place before employees can be trained on them Processes must be clearly defined and controlled before change can be managed Assessing a process that is known to be out of control often creates little value
- 31. Summary • A new approach is required due to complexity • First Step: Define and quantify OE • The 7 Element OEMS breaks the vicious complexity cycle • Apply plan-do-check-adjust to each element • Remember that there is an “order” to things
- 32. Questions
- 33. Email: cseifert@wilsonperumal.com cpseifer@gmail.com On the Web: www.wilsonperumal.com Blog: www.wilsonperumal.com/blog Twitter: @cpseifer @Wilson_Perumal LinkedIn: http://www.linkedin.com/in/christopherseifert http://linkd.in/10BnH1i Phone: (972) 800-3618 (972) 716-3930 Contact Information
Editor's Notes
- Achieving Operational Excellence is more important than ever Competition is greater – margins are tighter Expectations are higher – customers, shareholders, community/government News of poor performance travels fast – social media Traditional approaches are not achieving expected results 58% of executives report their continuous improvement programs produced minimal financial impact1 *2010 Accenture Survey Chevron CEO Quote about LEAN/Six SigmaOther data points Leadership Engagement is often blamed Is this really the case? They invested the money – why didn’t they get the results
- Given two companies with similar strategies, the one that executes better will have greater performance across ALL 7 Value Drivers.
- Given two companies with similar strategies, the one that executes better will have greater performance across ALL 7 Value Drivers.