Is anyone really operationally excellent?

Friday, July 21, 2017

President Fulcrum ConsultingWorks, Inc, AME Author,

The majority of manufacturers today claim “lean” or “continuous improvement” operations. When pressed, most would have to admit to quasi-lean or quasi-CI because so few are anywhere near ingrained lean or continuous. But focus on improving operational performance seems to be clearly in place. No healthy business believes yesterday’s execution is sufficient for tomorrow.

What about results?

Displays of Key Performance Indicators (KPIs) summarizing operational achievement are widespread. Hour-by-hour takt boards are posted so production workers know at any given time how output is comparing to plan. Kaizen events are common. Focus on teams and suggestion systems reflect an intent to engage all employees.

So why do I ask: “Is anyone operationally excellent?”

On-time and in full (OTIF) with 100 percent quality is a fundamental, and reasonable customer expectation. Manufacturers have been tracking on-time delivery, with +95 percent the target for decades. Yet clearly watered-down versions of “on-time” are used by all too many and generate false confidence. It turns out that, outside of automotive OEM, 95 percent OTIF is extremely rare.

Wal-Mart recently announced it would begin fining suppliers of high-volume items that don’t deliver on-time and in full. They are tightening the definition of on-time to -0/+0, and suppliers are in an uproar. Wal-Mart expects that 95 percent of deliveries will eventually meet that requirement, although the financial penalties initially demand only 75 percent performance.

According to Bloomberg, big name highly respected suppliers like P&G and Unilever are nowhere near 75 percent OTIF with Wal-Mart. Some top suppliers are as low as 10 percent. Smaller companies are reported to be unfamiliar with the OTIF concept. Both of those assessments are hard to believe, but Bloomberg is a reliable source.

Really? After all these years of operational excellence work and we think 75 percent OTIF is a stretch goal? We claim significant progress in mixed-model scheduling, reduced lot sizes, and process control, yet are concerned about this expectation? Do KPIs have anything to do with meeting customer needs?

What is your company’s metric for OTIF? Do you pretend shipping most of the order within a few days of the due date is OTIF? It’s not. Never has been. Never will be.

If a customer orders 50 each of 10 items for delivery on a specific date, we should believe that’s what they expect, want, and need. Can we honestly claim that any operational performance that fails to deliver 50 good ones of those 10 items on that date is operationally excellent?

For years the majority of manufacturers have used a watered-down metric of OTIF, stretching the definition of both on-time and in-full, excluding quality from the measure totally.  Some argue that the customer need date is not realistic. Others argue that customers don’t really need 100 percent fill, that “some” will tide them over until the rest arrive. Others say that reporting the valid OTIF metric would be internally depressing.

Your challenge:

“Grasp reality” is a fundamental concept, and first step. Examine your top performance-to-customer metrics. Are they designed to reflect what the customer expects, not what you think is good enough or a reasonable goal? If they are misleading, fix them. Using a bad scale doesn’t change your weight, nor does cheating a FitBit make a person healthier. If your definitions are solid, you’re on the right track.

The kicker?

The customer isn’t the only one that matters. When you’ve been honest there, do the same thing for performance measurement serving your other constituencies:  suppliers, employees, investors, and the community at large.