8 Operational Excellence Principles to Grow your Business
The word improvement in an operation means different things to different people. Some define it as lower operating cost or reduced inventory while others describe it in terms of increased efficiency or better quality. The process of improvement in an organization often involves management setting one of these goals, employees making changes in their areas to achieve it, then management setting a new goal.
If everything goes right, the best this cycle will yield is a climb up the staircase of continuous improvement year after year. Rather than a never-ending journey with no destination, a more recent approach is to design the performance of the operation, and then ensure that it performs in accordance with the design specifications.
The first step in our design is setting a destination so that we will know exactly where we are going. Our destination is to create Operational Excellence, where "Each and every employee can see the flow of value to the customer, and fix that flow before it breaks down."SM
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Achieving the destination, meaning how the company will actually get there, must be based on a process so that each employee knows the steps along the way, they can see the signposts that tell them they are heading in the right direction, and they know when they have arrived.
Just like an engineer uses the laws of physics to design an aircraft, a bridge, or a car engine, we will follow some principles to reach our destination of Operational Excellence. There are eight principles that we will use:
Principle #1: Design lean value streams
We need to design on paper an end-to-end lean value stream flow, starting from the time we receive an order or request for service from the customer until the time we deliver it. On our future-state map, information is given to only one process in the value stream. All other processes know what to do next because the information will flow with the product through the connections created from that one point. The key is that each process is connected, and material and information moves only when the next process needs it.
5 Steps to Lean Value Stream Design
Principle #2: Make lean value streams flow
Next, we take our design from paper to the real world of our operation and implement a self-healing value stream that creates Operational Excellence. The first step in going from paper to performance is to provide formal training, including a review of the current-state value stream map, the eight guidelines for flow, application of these guidelines to the target value stream, and finally the implementation plan. Most importantly, all employees are taught the destination of Operational Excellence and the common goal of business growth.
Principle #3: Make flow visual
Once we have taken the design from paper and physically created the framework for flow, the next step is to make flow visual so that each employee can see how the processes are connected to one another and to the customer. In Operational Excellence, just about any visual indicator in the operation should have something to do with the flow or the progression of the flow of product to the customer.
Principle #4: Create standard work for flow
Once we’ve created a good visual lean flow that lets employees see how the flow should normally work, our next step is to apply the concept of standard work to that flow. While the typical application of standard work is applied at the processes, in this principle, we will establish standard work between the processes, specifically targeting the connections that have been established between them. By applying standard work both at the processes and between the processes, we stabilize the complete end-to-end flow to reduce variation and create normalcy for the entire flow.
Principle #5: Make abnormal flow visual
In Operational Excellence, we want every employee to see when or before abnormal flow happens. The idea is that if we rigidly define what normal flow is (as we have done in the first four principles), then we should be able to see when or before abnormal flow happens. That way, we can learn not just how to correct it but how to prevent it from occurring in the future without management.
Principle #6: Create standard work for abnormal flow
Even though employees have been taught how to adjust the flow to maintain it, eventually, the flow will break down. The key is to have a course of action that an operator would take before calling a supervisor to get the flow back on track. To do that, we create standard work for when abnormal flow occurs by first determining when management has to jump in. We record the top responses management usually gives then create a menu of responses so that the people who are in the flow take these actions automatically, without seeking the approval.
Principle #7: Have employees in the flow improve the flow
Once we have turned over the delivery of product—the part that delivers value to the customer—to the employees who work in the flow, we want to maintain and improve a level of performance using some proven continuous improvement tools. But this is not an endless journey of eliminating waste; this is about the operations side of the business attaining a level of performance that affects business growth and then maintaining and improving that performance to support further growth.To do that, the correct application of these tools is to have them prevent abnormal flow from happening.
Principle #8: Perform Offense Activities
Operational Excellence is about business growth. It gives management the ability to take time away from running the operation and put it into growing the business. This is done by reducing or perhaps even eliminating the activities that operations management performs when delivering the product to the customer. By changing their role, operations management can now be involved in sales, engineering, and innovation – up front – to become part of the process that will evolve us from being a parts supplier to a solution provider.
The eight principles to reach the destination of Operational Excellence
A Process that Delivers
The eight principles we use will also create a process that we can use to achieve Operational Excellence in many areas of the company and throughout entire divisions – from the production floor to marketing and every other area of an organization. Once the flow is installed, we can leverage it to work on offense in the form of product development and new technology in which Operationsis a major part of delivering innovation.
One example of a company who was able to apply the principles of Operational Excellence and realize significant business growth is IDEX. IDEX Corporation’s Health and Science business segment, based in Rohnert Park, CA, produces highly precise fluidics components and sub-assemblies used in analytical and diagnostic instruments at its headquarters and three other sites in the U.S.
In 2005, IDEX began to initialize a program of Operational Excellence across the organization, in every site in every business segment, from the largest company all the way down to the smallest. At Rohnert Park, the site faced the challenge of flowing a broad mix of products down the same value streams and creating flow through its shared machining processes. To strategically build Operational Excellence into its value stream, it used education and applied a formal process for handling both mixed-model and shared resource flow into its value streams.
However, it didn’t strive to just to create flow, but designed from the beginning a self-healing flow, which meant that every employee could see if their designed flow was normal or becoming abnormal. If there were interruptions in flow, employees were able to anticipate those situations and use standard responses for correcting flow, without management intervention. The flow, rather than management, dictated what everyone worked on next.
When the flow dictates what everyone works on next rather than management overseeing, prioritizing, and guiding people on what to work on next, managers can spend their time on offense, or activities that grow the business. The result is an operation that drives overall business growth -- increased market share, competitive advantage, and shareholder value.
At Rohnert Park, the results have been exactly what you would expect: significant lead-time reduction, reduced inventory, increased on-time delivery, and improved quality. More than 70 percent of all products are manufactured based on visual signals from the shop floor. There are far fewer schedules from the office, and there are no changing priorities. The resources that are normally tied up in a traditional production control department have been freed up for use elsewhere. Of particular note is how much less time the supervisor needs to spend dealing with issues in the flow.
Where she would previously have devoted three to four hours of her eight-hour day dealing with issues in the flow, today she estimates she only spends about thirty minutes on problems in the flow. She spends the rest of her time during the day working on offense, which in this case entails continuously improving the company’s value streams and working with Engineering on the launch of new products.
The results were obvious in the company's performance:
- In 2010, the company grew at about three times the market average.
- R&D spending did not drop during the worst of the recession in 2009.
- Rohnert Park set three high-water marks for sales in 2010.
- The general manager spends about 60 to 70 percent of his time on offense.
- In 2010, Rohnert Park had twice as many products in development as it had compared to other years (and having more products means being able to provide more solutions to customers).
In 2010, Roehnert Park's business grew 3 times the market average
By applying the principles of Operational Excellence, IDEX’s corporate leadership was able to unleash its managers to focus on offense by providing them with time to spend on growing the business.
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Kevin's Duggan's book, Design for Operational Excellence, takes you beyond Lean and Six Sigma to achieve true Operational Excellence. By developing a "design for operational excellence" you can leverage the operations side of the business to enable continuous growth. This book provides the design criteria and guidelines that enable you to grow your business organically by refocusing management’s attention from running the business to growing the business. The book is available for purchase directly from the Institute for Operational Excellence.