how to beat the recession: bos, operations excellence and a problem solving culture

How to Beat the Recession

Implementation Tips for Top Management

You’ve Read the Headlines

• The Drumbeat of Bad News:– US job losses in November alone will be 200,000– Dow Jones has fallen from nearly 14,000 to under

8,000– Oil is below US$50 bbl, from a high of over

US$145 six months ago, demand off 5+%– Euro Zone Purchasing Manager Index at 43.60,

lowest ever, sign of full-blown recession– Slump in auto sales projected to continue– Beginnings of broad-based deflation as demand

continues to weaken

2 Copyright Omnex 2008

Specifically...India

• Production and Growth projections were slowing before the current collapse

• Rupee to dollar Rs.50.28 vs. Rs.39.34 a year ago*

• Sensex at 8,400, off 52% for year, lowest in three years

• Exports to Europe, US and Japan will weaken further (The World in 2009—Economist)

• Pressure on costs will accelerate

* The Economist, 20/11/083 Copyright Omnex 2008

The Best Defenseis a Good Offense

An Aggressive Pro-Active Response is Essential to Survival

Upside• Global pressures on cost give an advantage to

low cost producers• Slowing growth provides an opportunity to

improve• We know how to do it, it’s not by accident:

– Use BOS/TQM to target and manage strategically critical improvement

– Use Lean to radically increase efficiency, shorten lead times

– Use Six Sigma to eliminate systemic defects– Use Process Review to continually improve capability– Create and sustain a Problem Solving culture


Challenges

• Traditional approaches:– “Cost cutting” vs. achieving real efficiencies– Correcting defects rather than preventing systemic

causes of defects– Fixing blame rather than fixing problems– Demanding performance rather than enabling it– Controlling products rather than processes– Focusing on the factory floor rather than

integrated systems of business processes– Reacting rather than anticipating– Aiming too low!


What is Needed?

• Strategic Performance Management to drive down costs while increasing value

• Operations Excellence:– Efficient—minimal waste

– Capable― <3 ppm defect levels

– Fast—extremely short lead times, true JIT performance

• Problem Solving Culture and Discipline– “No Problem” is a problem—use problems to learn

• Efficient & Effective Process Control– Minimal use of non-value-added, ineffective

inspection/detection controls


IMS*9001, 18001,

14001LeanSix Sigma

Performance-Driven Culture

Systems &Tools

EmployeeAttitudes

Integration of Systems, Methods & Tools

5S

TPM Error-Proofing

CRM BOSDFSS

LPA

SPC

ProblemSolving

*IMS: Integrated Management System


BOS: Alignment of Customer Requirements & Quality Objectives

Copyright Omnex 20089

No Operational Interruptions

Receive required parts at scheduled time

100% of shipments received by customer on scheduled day

% On-Time (on day required)

Customer Expectations

Result Measurable

Quality Objective

Customer Requirements

An Example


The Basic Operation of a BOS

CustomerExpectations

InternalKey Processes

and Events

Measurables forKey InternalProcesses

Trend ofMeasurables

PredictDownstreamPerformance

ConstantEmployee

Awareness

C E

Verify & Adjust

EstablishCorrelation Identify

Track

Select


Basic Elements of a BOS

CustomerExpectations

CompetitiveBenchmarks

MissionStatement

Teams

Strategic Goals and Objectives

ResultMeasurable

ResultMeasurable

KeyProcess

KeyProcess

KeyProcess

KeyProcess

KeyProcess

KeyProcess

ProcessMeasurable

ProcessMeasurable

ProcessMeasurable

ProcessMeasurable

ProcessMeasurable

ProcessMeasurable

ImprovementAction

ImprovementAction


Data Driven – Cascade To All Levels

Key performance objectives cascade down while performance data pass upward for analysis and action at each operating level.

Operations Excellence

• Combines Lean, Six Sigma and a Problem Solving “Kaizen” Culture

• Creates a discipline of continual improvement• Engages and empowers process owners• Focuses on Processes rather than Functions• Pushes decision making to the lowest

possible level; does not rely on “Command and Control”

• Involves leadership at the Gemba, rather than the conference room.



Operations Excellence Core Values

Excellence is:• Customer Success• Value-Added Content• Consistency• Built-In• Continuous Improvement

SS

20%

10%

50%

30%

10%

Lean

30%

60%

20%

20%

40%

LSS

50%

70%

70%

50%

50%

LSS – Complimentary Strategies


Profits

Performance

Process

Projects

People

Scorecard

Scorecard

Scorecard

Scorecard

Scorecard

Operations Excellence – Linked Scorecards Aligning Goals, Projects & People

Planning

Improving


Performance

Scorecard

Profits

Process

Projects

People

Scorecard

Scorecard

Scorecard

Scorecard

B.O.S. – Business Operating System

Value Stream Maps

Continuous Flow Supermarket PullSix Sigma Breakthru SMED/TPM/Five S

StandardsEducationTrainingResourcesFeedback

Planning for Improvement

GAPS (PROJECT SELECTION)


Performance

Scorecard

Profits

Process

Projects

People

Scorecard

Scorecard

Scorecard

Scorecard

Achieving Improvement

New Knowledge, Skill, Attitudesand Behaviors

New Methods, Policies & Procedures

Lean Productivity & Six Sigma Quality

Improved Satisfaction Increased Sales Increased Margins

Copyright © Omnex 2008.18

AccountingHumanResources

OperationsPurchasing Sales

Strategic Objective & Measures – Voice Of the Customer

Process Variation

Process MeasuresVoice Of the Process

Leadership TeamObjectives

Lean Six Sigma Aligned with B.O.S.

Projects

Lean Six Sigm a Im provem ent O rganization

L e a n S ix S igm a S en se i

L S S P ro je ct T e am



L e a n S ix S ig m a P ro je c t M a na g er









L e an C ha m p ion

Balanced Scorecards

• Performance measures must address the concerns of ALL Stakeholders.– We can’t afford to optimize one measure at the

expense of the others.

Copyright © Omnex 200519

•Cost •Quality•Delivery•Technology•Sales•Margins•Satisfaction

What is Lean?

• Maximizes “value-added” content– Define value in the eyes of the Customer– Eliminate waste

• Optimizes “flow”– Cost of Poor Flow– Pull systems– One piece flow

• Process approach• Pursue perfection (the pit crew)



Extra Handling & StorageCosts

Expediting Costs

PremiumFreight

Charges

Late Deliveries

Long Lead-times

Cost to Customer

Excess Inventory

Excess Scrap & Rework

Excess Capacity

Lost Customer loyalty

Excess Labor Costs

Opportunity cost if salesPotential is greater than

Current capacity

Cost of Poor Flow (COPF)


Lean Strategies

• Implement Continuous Flow Processing• Manufacturing and Assembly Cells

• Use Pull not Push Scheduling • Supermarket Pull With Kanban

• Level Demand• Heijunka

• Control Quality at the Source• Source Control & Error proofing

• Develop Flexible Production Equipment• Quick changeovers - SMED

• Manage Overall Equipment Effectiveness• Total Productive Maintenance


Operational Benefits of LeanGeneral Motors Framingham Assembly Plant versus Toyota Takaoka

Assembly Plant, 1986

GM Framingham

Toyota Takaoka

Gross Assembly Hours per Car 40.7 18.0

Adjusted assembly Hours per Car 31 16

Assembly Defects per 100 Cars 130 45

Assembly Space per Car 8.1 4.8

Inventories of parts (average) 2 weeks 2 hoursNote: Gross assembly hours per car are calculated by dividing total hours of effort in the plant by the total number of cars produced.

“Adjusted assembly hours per car” incorporates the adjustments in standard activities and product attributes described in the text.

Defects per car were estimated from the J.D. Power Initial Quality Survey for 1987. Assembly space per car is square feet per vehicle per year, corrected for vehicle size.

Inventories are a rough average for major parts.

Cost Savings from Continuous Flow

• 30 to 50% reduction in direct and in-direct labor

• 50 to 75% reduction in WIP inventories• 75 to 90% reduction in process lead time• 30 to 40% reduction in floor space • Significant improvements in quality due to

fast feedback• Increased flexibility to adjust to volume or mix

variation



Example: Inventory Carrying Costs

Inventory Cost Categories:

Cost of Money 6-12%Taxes 2-6%Insurance 1-3%Warehouse 2-5%Handling 2-5%Clerical 3-6%Obsolescence 6-12%Loss 3-6%

Total 25-55%

Inventory Cost Categories:

Cost of Money 6-12%Taxes 2-6%Insurance 1-3%Warehouse 2-5%Handling 2-5%Clerical 3-6%Obsolescence 6-12%Loss 3-6%

Total 25-55%

Source: Strategic Logistics Management, 2nd edition, 1987, Stock & Lambert, Irwin, Homewood Illinois.

What is Six Sigma?

• A systematic, scientific, fact based, data-driven problem solving process

• Projects are led by Black belts• Corporate culture and structure• Process capability = 3.4 defects/million


2σ 308,5373σ 66,8074σ 6,2105σ 2336σ 3.4


Six Sigma Deliverables

• An understanding of the product – process relationship

• Key Product Output Variables (KPOV) as a function of Key Process Input Variables (KPIV)

Y = (X1, X2, X3, X4. . . )Output Input Variables Process Variables


Quality engineeringand administration

Inspection/test (materials,equipment, labor)

Expediting

Scrap

Rework

Rejects Warrantyclaims

Maintenance and service

Cost to customer

Excess inventory

Additionallabor hours

Longer cycle times

Quality auditsVendor control

Lost customer loyalty

Improvement program costs

Process control

Opportunity cost if salesgreater than plant

capacity

Cost of Poor Quality (COPQ) We See Only the Tip of the Iceberg

Sigma is Directly Correlated toCost of Poor Quality


6050403020100

7

6

5

4

3

2

1

0

COPQ (% Sales)

Sig

ma

Lev

el

Industry average is 20% COPQ for a 4 Sigma Company

What is Process Review?Systematic approach to analyzing and keeping “live” our Process Flows, PFMEAs, Control Plans, and Plant Floor Controls


What is a Process Review?

• A systematic approach to analyzing and making “live” our Process Flows, PFMEAs, Control Plans, and Plant Floor Controls

• A discipline for determining and defining linkages between FMEA, Control Plan, and Plant Floor Controls– Use error proofing and layered process audits to

ensure control


What is a Process Review?• A discipline that updates the FMEA regularly using

information regarding customer, warranty, and internal failure history – The process then updates the mistake proofing worksheet, the

control plan and the layered process audit

• A process for empowering employees on the shop floor to take ownership and manage “Process Control”– Work the hand-off from “quality” to “manufacturing”

• An approach to ensure employees know how their actions affect customer perception of quality and company expectations of performance


The Objectives of Process Review

• Process Review…

– enforces standardization (definition and actions)– simplifies processes– provides a knowledge base for Advance Product

Quality Planning (APQP)– guarantees employee involvement– provides for cross-functional communication– provides an understanding of shared problems


Process Review is a Vehicle for Knowledge Management & CIP

• Process Review…– identifies areas where engineering changes may

be required– highlights areas needing improvement– identifies the methods that will be used to achieve

improvements– focuses attention on processes

The Objectives of Process Review

The Goal of Process Review is Zero Defects


Copyright 2007 Omnex. All Rights Reserved.35

What is Problem Solving?

– Creative Thinking– Rational Thinking– Decision Analysis– Risk Analysis– Checksheets and Work

Instructions– Pareto Diagrams and

Trend Charts– Process Flow Diagrams,

FMEA and Control Plans

– Cause and Effect Diagrams

– Dot Plots and Histograms

– Scatter Plots and Analysis of Variation

– Control Charts– Simulation– Regression Analysis– Designed Experiments

• A disciplined process used to identify root causes of problems and provide permanent corrective actions to eliminate them

• Strictly fact based• Uses various tools:

Root Cause Analysis and Methodologies

Copyright 2008 Omnex. All rights reserved36

FMEA

Disciplined Problem Solving

DMAIC(DOE)

Root CauseKnown

Root CauseFound

yes

no

no

Basic

Intermediate

Advanced

yes


Team Based Problem Solving…

• Addresses Complicated Problems– The team approach works best when the problem

– and its associated information – is complicated and beyond what one member is reasonably capable of knowing

• Addresses Special Cause and Common Cause Problems– Designed to work best with special cause

problems– Can also be used with common cause problems

and improvement actions


Team Based Problem Solving…

• Uses Cross-Functional Inputs– Working in a cross-functional team means:

• Each problem solver no longer needs to know all the technical details about how things work

• Necessary information is available from a variety of team members

• Promotes Standardization– A team approach to problem solving leads to:

• A common language• Effectiveness, consistency, time savings, and change control

• Designed for Problems with Unknown Root Causes– Used to identify root causes of problems and provide

corrective actions

• Facilitates Timely Solutions


The Problem Solving Process

Become Aware of Problem

Form Team

Describe the Problem

Implement & Verify Containment Actions

Identify Potential Causes

Select Likely Causes

Identify Alternative Solutions

Select Permanent Corrective Actions

Is Potential Cause a Root Cause

Implement Permanent Corrective Actions

Prevent System Problems

Congratulate the Team

Step0

1

2

3

4

5

6

7

8

Find and Verify Root Causes

“No Problem” Is a Problem

In Summary

• The current economic climate, while threatening, also provides opportunities to achieve and sustain competitive advantage via:– Sustained Strategic Performance Management– Creating an “Excellence Culture” that drives down

cost while sustaining or increasing value– Employing Operations Excellence to maintain a

focused, disciplined approach to radically improve efficiency and capability

– Becoming a knowledge management and problem solving culture.


In Summary

• Operations Excellence will aggressively attack the costs of inefficiency and defects:– BOS/TQM Strategic Improvement Management– Integrated Lean/Six Sigma in Process & Product

Development– Process Review targeting Zero Defects– Disciplined Problem Solving Culture– Effective Supplier Development and Supply Chain

Management, to develop and sustain these methodologies throughout the value stream.



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Any Questions?

Thank You!

Dave [email protected]

how to beat the recession: bos, operations excellence and a problem solving culture

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