This is the third of a four post series. You can read the first two posts here:
Removing variation and waste from the process and balancing the process to optimize the constraint will improve the operation. However, where many businesses struggle in Operations Improvement is in realizing these improvements. For example if a simple manufacturing line scheduled the line to produce 10 widgets per hour, then some good process improvements were implemented, but the business continued to schedule the line to produce 10 widgets per hour, was the improvement really worth all the effort?
Pillar 2 – Management Tools aims to attack this and a few other key concepts.
In short, management tools are the tools that managers use to plan ahead, track in real time, and measure past performance of the process.
How To Organize Management Tools
The clearest way to think about Management Tools is to consider 7 buckets of tools:
- Business / Strategic Direction – High level forward looking constraints and plans of the business. These tools typically comes in the form of annual budgets, capital plans, business objectives, etc. These tools are planning in nature and generally look out a year or more.
- Forecast – Forward looking estimate of the amount of business that the company expects to achieve. Forecast time frames range from weekly to annually, and vary in specificity and structure. Forecasts can estimate the dollar revenue, the number of units, or the number of operations activities expected to be required based on sales of the company’s products.
- Performance Plan – Forward looking translation of performance requirements that a company must achieve to accomplish the Forecast within the constraints of the Business Direction. For example if a company forecasts sales of 100 widgets for a month, and the budget (business direction) calls for operations costs of $5,000, the performance plan for the month should plan operations to achieve cost per unit of $50.
- Schedule – A discrete plan of who, what, and when the business will perform the operations required to achieve the Performance Plan. For example, if the cost per unit expectation is $50, the materials to produce the unit cost $5, and the wage for the staff that produces the unit is $10/hr, the schedule should plan for staff to spend no more than 4.5 hours on a unit. ($50 cost per unit expectation – $5 material cost = $45 per unit available for wages / $10 per hour wage rate = 4.5 hours)
- Operations Control – This is the intersection of planning ahead and measuring the past – it is the tool that allows a manager to know RIGHT NOW if they are on track to achieve the Schedule (which was built to achieve the Performance Plan… which was based on achieving the Forecast and Business Direction)
- Results Measurement – Backwards looking measurement of performance. These tools allow managers to identify variances and lend to operations improvements by identifying the parts of the process that are not achieving the Schedule… Performance Plan… Forecast… Business Direction.
- Continuous Improvement Loop – A set of tools tracking performance variances and linking operational activities to financial outcomes.
I’ve worked with ~60 businesses, and I have yet to find a single one that comes even remotely close to having a full suite of Management Tools that link clearly from top to bottom. For that matter, only a handful of those businesses link more than 2 of the 6 buckets in a manner such that managers are able to use the tools thoroughly.
So you ask, how do we improve operations using Management Tools?
Using Management Tools for Operations Improvement
In my experience, the fastest way to impact operations for the better by using Management Tools takes 3 steps:
- As a manager, make a specific list of everything that needs to be accomplished for the day (ignoring the business direction / forecast / performance plan for now…)
- Quadruple the specificity of the list. If you originally wrote down “complete 100 widgets by 5pm,” re-write it as “complete 25 widgets by 11:00, 50 by 1:00, 75 by 3:00, and 100 by 5:00”
- If you accomplished the 100 by 5pm, reflect on how you did it, and raise today’s expectation drastically. If you did not accomplish the daily target, create a list of the times and reasons that you fell off track, then when you create today’s schedule plan to take deliberate action so as to prevent the same variances from happening today.
Bluntly, the most common and critical flaw in most business’s Management Tools is that they are not specific enough and do not drive action planning.
To continue driving operational improvements, start at 5. Operations Control and work backwards through each bucket of tools. Blindly I can identify opportunities in ANY business’s operations by stating the following:
- The Schedule is not specific enough – does not clearly depict WHO is going to do WHAT by WHEN
- The Schedule is not based on the Performance Plan (e.g. if the business requires 100 widgets and an employee can produce 10 widgets per hour, why are two employees scheduled for 8 hour shifts? (100 / 10 = 10 hours required… 16 hours scheduled… what will the business receive in return for the 6 extra hours being paid?)
- Operations Control tools are not linked to the Schedule – Intra day the manager may perceive that his operations are on track to accomplish the schedule, but at the end of the day the numbers do not reconcile.
- Results Measurement tools are not timely – Managers review performance January performance in mid February, far too late to take action to identify, let alone correct variances.
And so on…
The bottom line power of management tools in improving business operations is in giving the supervisors on the front line a clear measurable expectation that is usable by them hour to hour and day to day that will ensure their accomplishing the higher level business goals. That is, give the supervisors an OPERATING metric such as “widgets per hour” as opposed to a monthly FINANCIAL metric such as “cut labor costs 10%.”
Continue Reading 3 Pillars of Operations Management:
- Part 1 – 3 Pillars of Operations Improvement – Introduction
- Part 2 – Pillar of Operations Improvement – Business Process
- YOU ARE HERE – Part 3 – Pillar of Operations Improvement – Management Tools
- Part 4 – Pillar of Operations Improvement – Management Behavior
Looking forward to discussion in comments,