How Productive Is Your Company?

Jack Welch once said the best measure of productivity is units of input per unit of output. Some companies will have $18 of revenue per dollar spent on labor, while others will have $3, but regardless of the actual revenue what we want to see is improvement over time.

In this case, we see a clear problem:

 

This client asked me to come in because he had problems with shipped-on-time and was convinced that the fault lay with the warehouse. When I asked if he wanted me to look at the production facilities as well, he replied that production was perfectly fine.

However, when I looked at the financial statements I discovered that dollars shipped per labor dollar had declined from about $18 to $8 over the course of a year. When I asked about the plummeting labor productivity he admitted he had no idea that it was happening.

This company has been through Lean, but no one ever bothered to measure labor productivity.

© 2016 Rick Pay – All rights reserved.

The Essential Gauge

The dashboard of a small airplane has a number of gauges that provide a litany of information to the pilot. There’s one big dial right in the middle that’s extremely important: the artificial horizon. In the center is a round ball, the top half of which is white and the bottom half is black. It rotates and moves to show the pilot what the plane’s attitude is relative to the ground. Watching it, you know if you’re going up or down, or even whether you’re upside down. Obviously, this is an essential gauge.

The big dial on the dashboard for most organizations (regardless of type), is shipped-on-time. This might also be call DIFOT (delivered in full, on time) or perfect order. Perfect order includes specific reference to quality. Most practitioners consider all three of these measures to be equal. Ship good product, complete and on time.

Not only does this apply to products, but also to services. For instance, the accounting department could measure shipped-on-time related to the monthly financial statements. Are they accurate? Did you close the books in 5 days or whatever your commitment is, and deliver them to managers or your bank on time? For sales, did you enter all of the orders accurately and on-time?

Measuring shipped-on-time for your organization is a big gauge. It just might keep you from crashing into the ground.

© 2014 – Rick Pay – All Rights Reserved

Urgent or Important?

The concept of “The Tyranny of the Urgent” has been around for a long time, yet many people get caught up in the urgent every day. Charles E. Hummel wrote the booklet Tyranny of the Urgent in 1967. That was followed by The Time Trap by McKenzie and Co. and then The Seven Habits…. by Covey. Time management is clearly a concept that captures many people’s thinking, especially those who find themselves trapped by urgency.

I’ve seen many companies get caught up in urgency (get it shipped!) without focusing on importance (quality products, on time, complete – the “Perfect Order”). If you focus on what’s urgent, it feels like you’re running a sprint all the time, out of breath, never getting everything done. It’s frustrating and stressful.

The definitions of urgent vs. important actually go back to Dwight D. Eisenhower, 34th President of the United States. He defined urgent as a task that requires immediate attention and is often performed in a hurried, reactive manner. Important is a task that contributes to long-term values and goals and is performed in a responsive mode that leads to new opportunities. Just the sound of “important” feels good.

Clearly, getting away from a narrow focus on urgency and prioritizing importance allows for accelerated growth, profitability and cash flow for your organization. Do you focus on the urgent? Are you trapped in the tyranny? Have you defined what’s important?

© 2014 – Rick Pay – All Rights Reserved.

Three Steps to Go From Good to Great

A CFO recently told me, “We’re so good at being good that we forget to be great!”

A lot of businesses have taken shelter under the awning of “good.” To survive, companies are turning to cost reduction, cash conservation, labor efficiency and stronger bank relationships to weather the storm. They focus every day on being adequate, but they forget that the competition is looking forward, thinking proactively, and becoming great.

How can you join the great companies?

1) Find out what your customers want (have you asked them lately?) and give it to them in spades. Provide the quality, service, and whatever else they crave to build an advantage that the competition can’t copy.

One of my clients is making hay by providing superior lead times and top quality. Even though customers could get lower prices from an offshore competitor, the competitor’s unpredictable deliveries hurt their customers’ overall profitability. My client’s customers are happy to pay for quality and shipped on time.

2) Grow. Cost reduction may drive some markets, but it offers only a fleeting advantage. Many companies have tried to cost-cut their way to success, but growth is the best way to survive a poor economy. Look at companies like Apple. Despite a lagging economy, Apple launched new products with great success. A constant stream of innovative new products keeps customers excited.

3) Collaborate. All of us are smarter than one of us. Chances are your employees have ideas for improving existing processes and generating new products. Keeping employees engaged by involving them in the business and asking for their input, rather than relying on what someone once called “drive by Kaizen,” is the most powerful way to increase competitiveness.

© 2013 Rick Pay – All rights reserved.

If You’re Going to Measure One Thing…

If you’re going to measure one thing in your company, it should be shipped on time. I’ve found that many companies not only fail to measure this important factor, but they don’t have any idea what the measure would be if they did.

Late shipments cause lost profits in three ways. First and foremost, late shipments can be very damaging to the customer. Many companies subscribe to Just-In-Time methods of inventory control, which require predictable lead times. If you ship late, it can disrupt their production or worse, their customer relationships. The results can be lost customers, lost sales and depressed profits.

Another negative impact is the need to expedite shipments to get late orders to the customer quickly. This often requires using expedited freight services and airfreight, which can amplify freight costs, directly impacting the bottom-line.

Finally, in an attempt to reduce late shipments, many companies build up inventory levels, adding to the costs of holding inventory. More warehouse space is needed, handling and counting costs go up, and worst case, some of that inventory might eventually become obsolete.

Late shipments can be very costly to a company. Companies can become more profitable and have happier customers by paying attention to this vital element.

© 2012-2013 – Rick Pay – All Rights Reserved

How Productive Is Your Company?

Jack Welch once said the best measure of productivity is units of input per unit of output. Some companies will have $18 of revenue per dollar spent on labor, while others will have $3, but regardless of the actual revenue what we want to see is improvement over time.

In this case, we see a clear problem:

 

This client asked me to come in because he had problems with shipped-on-time and was convinced that the fault lay with the warehouse. When I asked if he wanted me to look at the production facilities as well, he replied that production was perfectly fine.

However, when I looked at the financial statements I discovered that dollars shipped per labor dollar had declined from about $18 to $8 over the course of a year. When I asked about the plummeting labor productivity he admitted he had no idea that it was happening.

This company has been through Lean, but no one ever bothered to measure labor productivity.

© 2012 Rick Pay – All rights reserved.

Late Shipments – More Damage Than Just Customer Relationships

Recently I wrote a blog post that suggested that if you were going to measure one thing it should be shipped on time. I have found that many companies not only don’t measure this important factor, but they don’t have any idea what the measure would be if they did. Late shipments cause lost profits in three ways.

First and foremost, late shipments can be very damaging to the customer. Many companies subscribe to Just-In-Time methods of inventory control, which require predictable lead times. If you ship late, it can disrupt their production or worse, their customer relationships. The results can be lost customers, lost sales and depressed profits.

Another negative impact is the need to expedite shipments to get late orders to the customer quickly. This often requires using expedited freight services and airfreight, which can amplify freight costs, directly impacting the bottom-line.

Finally, in an attempt to reduce late shipments, many companies build up inventory levels, adding to the costs of holding inventory. More warehouse space is needed, handling and counting costs go up, and worst case, some of that inventory might eventually become obsolete.

Late shipments can be very costly to a company. Companies can become more profitable and have happier customers by paying attention to this vital element.

© 2012 – Rick Pay – All Rights Reserved

 

Shipped on Time and Other Measures

If you’re going to measure one thing in an organization, it’s shipped on time. If you can’t ship on time you won’t have any customers and then nothing else matters. Measuring shipped on time by orders, not line items, makes a big difference. An incomplete order – even if it’s on time – doesn’t make customers happy.

Tracking inventory turns is another important aspect to measure. Inventory absorbs money, takes up storage space, requires people to move it, accrues interest that you pay to the bank, and in many cases eventually goes obsolete and becomes an expense. Gross profit margin is another important measure, because it reveals improvement (or lack of improvement).

Key measures are not only a way to show people how they’re doing, but they have the power to change behavior and establish accountability. One of my clients had a 24% shipped on time rate when they came to me a few months ago. This week it’s in the mid-80s. They also cut their backorders partly by tracking them and posting the numbers every day. In the past at this company, the sales department saw operations as an adversary. Now the sales manager is applauding operations and saying, “Now we’d better get out there and sell.” Keeping sales in the critical path is what allows the business to flourish and revenue to grow, and forecasting and planning is the front end of it.

© 2012 – Rick Pay – All Rights Reserved

Keeping Your Eye on the Ball

I toured a client’s manufacturing facility last week. I had not seen it since about six months ago.  Part of the facility looked neat, organized and seemed to have very good flow. There was a bit more inventory around than in the past, but not enough to worry about, I thought.

Then we moved into the other part of their operation. It was messy, dirty, and inventory was piled wherever there was space. The total output was about the same as six months ago, yet overtime had become excessive and on-time shipments had decreased.

Six months before, this area had been neat, clean, efficient and effective. Now it was a mess. What happened? Could it be that they got comfortable and took their eye off the ball? I’ll find out, as they’ve retained me to discover what went wrong.

The second law of thermodynamics says that if systems aren’t improving, they will decline toward chaos.  One of the clear requirements of any process improvement program is continuation. It is called continuous improvement for a reason. If you take your eye off the ball, conditions will deteriorate. It’s a basic law of nature.

© 2011 – Rick Pay – All Rights Reserved

Are Your Operations Truly Agile and Flexible?

Many Operations organizations seem to plateau after several years of implementing continuous improvement, Lean or Six Sigma. I believe that the next step is to become truly agile and flexible. But what does that mean?

Agility is the ability to think quickly and make quick and well coordinated movements. The key here is quick. I see many organizations take forever to solve problems and develop new innovations. One client I have is struggling to improve shipped on time, with many meetings, excuses and delays. Being agile would suggest that we should see initial significant results in 90 days or less. There is a Japanese term for this – Kaikaku – which means quick, revolutionary change. Agile thinking helps.

Flexibility includes the ability to bend without breaking, susceptibility to modification, and willingness to yield. Two key words there are susceptibility and willingness, because the great measure of flexibility is in your head. Organizations need to be willing to make the necessary changes to get where they want to go. So many companies struggle with change initiatives simply because they aren’t really willing to change, don’t believe they can, or are locked into the old ways of doing things.

To truly move to the next level, organizations need to be agile and flexible.

© 2011 – Rick Pay – All Rights Reserved