As head of a department responsible for developing a culture of operational excellence and improving efficiencies, I spend a great deal of time leveraging human and manufacturing assets, influencing systems and technologies, and sharing best practices. I’ve also worked on ways to create teams that can tackle larger issues and some tools for continuous improvement.
Here are three tips I’ve learned along the way that can help others seeking to make operational excellence and improving efficiencies a focal point of their decisions: set up a system of metrics to measure your program and regularly report on your progress; develop ways to network to seek out improvements; and find ways to incentivize good performance.
What is operational excellence and why do we need it?
Operational excellence equates to operating most efficiently, which in turn increases a company’s bottom line. There are huge financial benefits to such a program because the savings you make go straight to the bottom line.
To be effective, operational excellence should be integral to the way a company does business – not an add-on that gets considered for a time and then dropped when things get busy. And while these programs do concentrate on internal processes, always keep in mind that their overall goal should be focused on how activities help customers.
Operational excellence activity should be results focused. Our program focuses most on three key areas – safety, cost efficiency, and customer satisfaction – but there’s no one size fits all approach, so your results may be focused on other areas. For companies that operate globally, be sure activities fit in with any local commercial strategy and embrace local culture.
Another reason to champion operational excellence is to fight any trend towards commoditization of your product. As you make a product in larger volumes and competitors enter the market, margins become squeezed. Constantly looking for efficiency improvements is a good way to extend the life cycle of products. At the same time, the best programs will always have an eye on the most efficient ways to introduce new products.
Will you recognize operational excellence when you see it? Look for manufacturing facilities with these features:
- Always ready for a customer visit at any time.
- Continually identify opportunities to improve performance and implement the best ideas across the board.
- Safe, clean and bright working environments, high levels of customer satisfaction, clear visual management, an engaged and well trained workforce, excellent communications, high process yields, reliable equipment, external recognition such as ISO certification and customer awards, and a growing, profitable business model.
Tip # 1 – Develop an appropriate system for metrics
One of the most important features of a program focused on operational excellence is a way of measuring success. Deciding what metrics are most important to your business and what you will watch is the first step to achieving excellence. There are many things to measure, but here are a few that make sense for our business.
Scrap percentage of sales – This is a measurement of efficiency that takes the dollar value of what you scrapped that month divided by the amount sold.
On time delivery – How you are maintaining delivery times; a leading indicator of customer satisfaction.
Recordable injury rate (RIR) – Safety metric
Return on capital employed percentage – A measurement of how profitably you are employing capital, it is an indicator of how well investments in that aspect of the business are doing.
Inventory turnover – The number of times your inventory is used in the same period, for example a year. Working with a just-in-time approach usually is preferable, but there may be specific reasons why this metric has to be adjusted.
Gross margin percentage – A financial measure of efficiency, sales minus cost of goods sold; many projects undertaken to improve efficiency are conducted to improve gross margin.
Overhead percentage of sales – Another efficiency measurement; this one tells you how much labor you need to run the business and shows a direct correlation with competitiveness.
Our internal metrics program began in 2010 with several metrics focusing on efficiency. We later added on time delivery, safety, and most recently, the introduction of new products. Metrics will shift over time, and it is important to be careful when creating baselines and targets. Don’t over tighten metrics so they result in disincentives for good performance.
To implement our program we developed a system to create a score for each plant based on performance on key metrics – the compilation of scores is inputted into a “dashboard” we call Max-Matrix™. The system was developed in North America, and has since been implemented worldwide. Each metric has an “owner” from each manufacturing plant to champion that metric and upload it to a file used for scoring. We have also been improving the process, automating the data collection to make it easier and more efficient by pulling information from other internal systems.
The latest changes were made in 2014, to focus even more on safety metrics. We also developed a set of “world class definitions” to appropriately tune the system for plants that are already performing at a high level. Since the metric targets are tightened each year, the significant amount of progress would otherwise make improvements bump up against the law of diminishing returns. For some areas, as they approach the levels listed, the metrics aren’t tightened as much for the next year – this is to ensure that plants doing well have an incentive to continue paying attention to the system.
In 2015, our goal is to further automate the system so each plant will upload its metrics into a centralized cloud-based system with even more information being drawn from internal systems. Automation reduces discrepancies and reduces lead time, so the results are ready for management review immediately after the month closes. We are also adding a metric that measures the percentage of business from new products. Whereas earlier efforts focused on efficiency and safety, the newer metric seeks to measure and further reward growth through the creation of new and relevant products.
In developing a program, make sure you are aligning to your true desired outcome. The side effect of only focusing on efficiency could be that you may be cutting overhead and research and development. This may appear to be beneficial – until the products you are producing are no longer relevant in the marketplace.
Another important requirement is that you align your business objectives with a particular vision. Each year we review the baseline to see how plants have performed, determine what may be changing in the following year, and negotiate if there is a major change to the business. For example, if a plant is maintaining inventory (for a customer) as part of a Kanban system, it might have a negative effect on the inventory turnover metric – so we could make an adjustment if this is an integral part of their business plan.
Tip #2 – Network to seek out improvements
Make sure you have systems to support businesses or departments that may need help. Find ways to pull together teams and resources – and aim them in a focused way. This can be a formal system or an informal one – the key is getting people access to the help they need.
For example, with a North American employee count of upwards of 2600 and a number of discrete businesses that may have had different origins, our team has been working on a way to link those in need of assistance with operational experts within the company. We developed and are now beta testing an app we call OPERA (OPerational Expert Resource Application), a searchable directory of subject matter experts and process owners who can provide assistance with a particular process. Our ultimate goal is to make it easier to create cross-functional teams that can be pulled together quickly to help a business with any operational issue.
The app, creates a profile for each plant and lists specific expertise and equipment that might be used as a shared resource.
Tip #3 – Celebrate your success and incentivize good performance
The key to this tip is to build support, both from the top down and bottom up. One of our company’s strategic priorities is to have a culture of operational excellence and cost efficiency and my role was created to further that goal. This gives the program a lot of influence and the needed push to keep momentum going. Whatever the size or nature of the organization, make sure that organizational excellence is in the forefront and that it is being watched by the management team.
In addition, be sure to reward good performance. The scoring we do with the Max-Matrix™ program definitely creates a friendly competition among the different plants. The competitive atmosphere gave the program ongoing visibility. At the end of the year we offer awards for first and second place, along with a President’s Award for Excellence for the best example of optimum performance.
Maintaining and improving a dashboard of key metrics for each team and senior management has given me an excellent window on how to use best practices to promote efficiencies and ensure that capital expenditures improve technical effectiveness. To do the same for your business, develop your own tools, projects and programs that align with your own business goals and objectives, share best practices, and above all, make sure that you think of operational excellence as a continuous process integral to all your activities.