Achieving Operational Efficiency by eliminating waste
Introduction
Operational efficiency (OE) can be defined as:
“The ability of an organization to reduce waste in time, effort and materials while still producing a high-quality service or product”.
Sounds simple enough but where is the waste in your business? Lean Six Sigma theory has great examples for manufacturing and supply chain, but these don’t necessarily translate easily to software, professional service and support businesses. This article outlines seven examples of waste in the context of these businesses and how they can be reduced, managed or eliminated.
Executive Summary
Operational Efficiency (OE) should be a basic requirement in all business models no matter where they are in the cycle of start-up growth accelerate and consolidate. Having a strong base of ways of working that are reliable, repeatable and measured is key to sustainable profitability.
We have characterised the principals of OE into seven categories. Each dealing with a symptom of “waste” that alone or in association cause a drag on efficiency and irrecoverable cost. The seven symptoms of waste are:
Rework
Lack of Timeliness
Duplication
Volatility or Movement
Defects
Excess inventory
Over production
We can also see the impact of inefficiency in workload and performance over a recurring period in the shape of a hockey stick often referred to as “Mura”, or the waste of unevenness. We believe the shift of production/input towards the end of a task is a direct result of inefficient upstream behaviours.
Seven Wastes and the Waste of unevenness
Rework: Where an output, be it a product or process, does not meet the needs of the recipient, causing it to be returned for rework.
We see this frequently and the most common cause is a misalignment of requirements in terms of content and format. A simple fix is for the receiving party to explain to the provider exactly what they need, how it should be presented and when it is needed. Start at the end of the process i.e., where the product or output is shared with an external party or customer and work back to the source.
In it’s simplest form this can be the difference between the receiver needing an excel spreadsheet and the provider supplying a word document. Time spent retyping or converting and correcting files is costly and prone to errors. Cutting out the manual intervention through process design and communication is the simplest way to improve.
This will identify issues in terms of system output and format, to achieve OE these need to be ironed out. The goal is for the process to deliver the customer-facing product right first time, on time, every time. Standardised, documented, understood, repeatable and measurable processes are the key to eliminating rework.
Timeliness: Time lost to unnecessary meetings, late approvals, absences, lack of coordination, lack of planning and no clarity on the order of priority.
Achieving consistently efficient handover of information and product is extremely difficult without processes that are understood by all participants, together with clear and agreed timelines that allow for the work to be completed properly and handed over in full.
If everyone involved in a process does not share their respective timing and priority then issues, delays and confusion are likely. Communication is key to understanding the issues of the upstream supplier and needs of the downstream customer.
A national retailer I worked with recognised their finance reporting process was not working. After a short process discussion, it became clear that the team did not have a view on the overall process and timings. Therefore, analysts were preparing data in a vacuum and not aligned to one another causing unnecessary delays, frustration and errors. Within two monthly cycles we had reduced the reporting timetable by 25%, 50% by month four.
The virtuous circle of improvement meant that the extra capacity created, allowed the team to get behind the numbers, offer more insights and improve the value added by the finance team.
Achieving timely approval and sign-off requires planning and preparation. Taking time to understand an approver’s requirements/triggers and booking time in their diary for briefing and sign-off will greatly facilitate an efficient sign-off with limited rework. Nobody likes surprises or a time-based gun to their head. Being ahead of a foreseeable event will make sure you can hit your timeline.
Duplication AKA “reinventing the wheel”: Addressing a problem as a new and unique circumstance requiring a new and unique outcome.
All too often when presented with a new issue, a team will try and resolve it from first principles. This may be right in some circumstances but certainly not all. Most problems faced in a business have been previously addressed by someone, whether internally or externally.
One of my previous employers used the phrase “steal shamelessly”. Teams were rewarded for finding solutions already in use through discussion with colleagues, subject matter experts or external sources. The side benefit of this approach is to address the “not invented here” syndrome. Just because a situation is new to you does not mean it is new to someone else.
Volatility or Movement: Moving product or shifting between incomplete tasks and workstreams will absorb time in terms of refreshing your mind on the task as well as repeating activity that has already been performed.
In the late eighties, the Morgan Motor company were singled out by Sir John Harvey Jones for the inefficient movement of cars across their site during production. The time and manpower lost pushing the part-built cars between workstations was dead time that added cost but no value.
The same can be seen when people switch from task to task before each one is complete and handed over to the next step in the process. The “switching” cost can appear slight but each time you need to remind yourself where you are in the process and the state of completion. A recipe for being busy but probably not productive.
Setting aside time for a task and not being disturbed by emails, phone calls, door stopping by colleagues, etc., will improve focus, performance, and productivity. Set aside time for emails, i.e. first thing, half an hour before lunch, mid-afternoon for half an hour. Close your door or find a quiet space to work, turn your phone to silent. Planning your time reduces distractions while being on time reduces stress and improves performance and productivity.
Defects: Physical product failure, system “bugs”, inaccurate data. All three are defects requiring scrappage or rework.
Defects are more easily recognisable in a manufacturing process with parts per thousand failures being the usual measure. How does this translate into a service, software or healthcare business? What is an acceptable rate of failure?
The answer is usually a unique measure tailored to the business and a rate that is derived through experience, knowledge of competitors and customer expectations.
System bugs in base software require rectification testing and roll out, all of which is costly in manpower and reputation. Service industry failures can be measured through customer satisfaction and require costly manpower to rectify and rework solutions.
In short, defects impact the bottom line, customer satisfaction, loyalty and reputation. By implementing repeatable and reliable quality assurance processes, defects/bugs/fails can be captured before they reach the customer. Quality control and quality assurance are an essential part of OE rather than a “nice to have”.
Excess inventory: essentially excess capacity but in a solid rather than unrealised form. This can be undelivered features, under-utilised headcount, unlaunched marketing programmes or products. Basically “benched” staff, products, and potential.
Excess capacity is the buffer that smooths business delivery during unforeseen peaks and troughs in demand. To be operationally efficient, therefore, the business needs to be able to forecast short- and medium-term demand with a significant degree of accuracy.
If it takes 3-6 months to train up a consultant, then the forecast period needs to be at 6 months with a significant degree of accuracy. Any less is likely to cause over capacity as a “safety blanket”; any more is a misuse of management time and resource.
Similarly, where features and programmes are designed into products, we need to be conscious of over-engineering and over-delivering simply because it is possible and not because the customer has a requirement. Most users operate in a world where 20% of the functionality of any given piece of software delivers 80% of their requirements. This is not to say that dumbing down a product is always the right answer; however, there is no need to design a Nobel Prize winner every time.
By way of example, anecdotally all semiconductor processors are born equal with the manufacturer then deliberately reducing capability to suit the use of the chip, from cheap laptop to professional gaming machine. In other words, performance is matched to price and need rather than having latent performance unused and unpaid for.
Over production: Manifested not in excess inventory but in over-complicated and non-value add activities in delivering a service or product.
Processes, like all things, develop organically over time reflecting both current requirements and those carried forward from prior eras that are deemed important though no one remembers why. This is because the status quo is comforting while change is unnerving. The result is that processes can become unwieldly despite the best of intentions.
I was involved in a project for a large corporate where tens of reports were being transferred from a legacy system to a new ERP system. These reports had been designed and run over many years and were evaluated by the user panel as essential enough to warrant the expense of transferring and testing in the new system.
Budget was tight and we decided to pause production of several older reports to see if there truly was a user base. Unsurprisingly, there were a few complaints but not many and we therefore initiated a second and third round of culling reports.
The point is that a business should regularly revisit its core process flows to optimise and align ways of working to current thinking and technology. To do this, processes need to be:
Standardised
Reliable
Repeatable
Measurable
Documented
Owned
I inherited a department where it took 4 weeks to close the month and report monthly performance. As you can imagine, morale in the finance team was low. We were unable to challenge the data, answer management questions or even plan a little as all our effort was expended on reporting the figures rather than understanding them and offering insight.
With help and perspective from a non-finance manager, we were able to step back and examine our process flows, the internal and external interactions, timings and format of data transfer. While the transition wasn’t smooth or perfect, three months later we were reporting in two weeks and could spend time analysing, supporting, adding value, balancing our lives and feeling appreciated again.
The first time out is difficult and takes effort and diligence to get right. Thereafter eliminating unnecessary steps, loops and rework is possible due to the knowledge gained. This is an iterative process but with an open mind geared towards continuous improvement, this approach can be a source of incredible OE improvement.
The Hockey Stick: This is the final point and one that tends to reflect the impact of the above inefficiencies.
It is natural for an organisation to work to a deadline, building activity to a crescendo by focusing resources to achieve the goal at almost any cost. However, if the preceding processes and structures are inefficient, the outcome is likewise inefficient and costly. This is the theory of the hockey stick with activity/output on the vertical axes and time on the horizontal axes.
I worked in a multinational manufacturing business where we based our forecasts on solid sales and operations planning techniques, engaging all parties in a consensus driven forecast which was reasonable, stretching but achievable.
We had a monthly volume target and measured it weekly. Typically, at the end of week 1 we would have shipped maybe 5% of the month’s volume due to shortages of staff or components. By week 2 we might have shipped another 10% and by week 3, possibly 20% more. This meant we needed to ship 65% of the forecast in the last week, which was only achievable with extreme disruption to workload and production scheduling. When week 1 came around again, the team were exhausted, material and production schedules were compromised and the customer nearly always unhappy. And the cycle began again.
The solution was to forecast monthly volumes and plan weekly output at a planning horizon of, say, 8/12 weeks. The situation improved but it took time and understanding from all parties to balance the expectations of customers and management with the improving efficiency of the processes and workforce.
If you are currently operating in a hockey stick environment, you need to look deeper into the organisation and understand your processes to identify excess capacity and complexity. Remove duplication, be timely and eliminate defects with a view, ultimately, to removing all rework. Align your input requirements at each stage with the preceding output and then measure improvement.