We know that deploying lean tools improves our performance indicators. We see employee engagement rise when improvement activities are successful.

But how do you convince the managers who hold the purse strings of the financial benefits?

The answer lies in talking to them in their language – money and more specifically profit. Improvement initiatives can help your business to make more profit in two ways; by:

1. Making more product without additional cost
2. Making the same amount of product for less cost

So work out the monetary benefits of your activities and communicate them.

Both of the following examples are from actual MasterClass events (identifying information removed).

Additional product made – calculate the marginal contribution

The marginal contribution is the additional sales value minus the material, labour and overhead costs of producing additional quantities.

There are three steps involved in the calculation:

1. Develop a Profit and Loss (or contribution) account based on the current state of the area you are working in.

Include reference to the measures that will be used to monitor the progress of the improvement.

Use the previous twelve months’ activity. If data is only available for a shorter period it should be extrapolated to produce an annualised figure. This gives a fair comparison.

2. Recreate the account using the improved measures to show a forecast profit or contribution for the next twelve months.
3. Compare the bottom line figures calculated in the two columns.

Marginal contribution example

Application of the Line Balance technique resulted in improved People Productivity and reduced Not Right First Time. The additional output is sold and the cost of scrap is reduced.

Measure	Before Improvement	After Improvement
Not Right First Time	28,476 ppm	25,234 ppm
People Productivity	268 ppoh	277 ppoh

Benefit Calculation

		Before Improvement	After Improvement
Sales volume A		32,000,000	35,200,000
Sales price/unit B		£0.16	£0.16
Total sales C	C = B X A	£5,120,000	£5,632,000
Direct material cost/unit D		£0.0386	£0.0386
Total direct material costs E	E = D X A	£1,235,200	£1,358,720
Scrap cost/unit F		£0.0098	£0.00814
Total scrap cost G	G = F X A	£313,600	£286,528
Contribution H	H = C – (E + G)	£3,571,200	£3,986,752
Additional contribution I	I = H after – H before	£415,552

 

The increase in sales volume, material used and the reduction in scrap will show in those lines of the Profit and Loss account.

The additional contribution calculated in the table, is the overall increase that will show in the profit line of the Profit and Loss account.

Reduction in a cost item – calculate the total impact

Cost savings may result from the reduction in the amount of labour required, the amount of scrap generated, the amount of consumables, materials or power used, the loss of material, fluids, oils, coolants or compressed air used, special freight charges or late delivery penalties.

Again calculate the saving over a fixed period of a year. The figures you need are usually found in accounts.

Total impact example

The Set Up Improvement technique was deployed resulting in reduced set up time. This allowed an additional number of set ups to be done, resulting in reduced batch sizes, less work in progress and finished goods being held. The financial benefits are calculated as follows:

		Before Improvement	After Improvement
Stock A	From stock check	£375,077	£201,121
Stock cost % B	Between 10 & 50% organisation dependent	30%	30%
Stock holding costs C	C = A x B	£112,523	£60,336
Savings D	L = C before – C improved		£52,187
Cash generated E	E = A before – A improved		£173,956
Interest % F			10%
Interest saved G	G = E x F		£17,396
Total annual savings H	H = D + G		£69,583

The reduction in stock holding cost is seen in various line items in the Profit and Loss account depending on what costs are incurred in your business.

The reduction in stock and increase in cash generated will show as changes on the Balance Sheet.

The total annual saving is seen as increased profit in the Profit and Loss account.

Using the financial benefit

If the activity results in making more for less and reducing cost items you can add both the calculated benefits together.

Remember though, when you communicate the benefits you need to include the cost of the improvement activity!

Finally, you mat want to make sure somebody revisits your costing system to translate the savings made into a reduced price for the customer.

If you have found other ways to show the impact on your bottom line, share it with us.

Big data is all the rage, but are we using our “local” data to our best advantage?

Let’s call “local data” the raw data you generate in your work place; like your KPI results, breakdown and maintenance print outs and various quality logs.

What do you do with it?

If you use it correctly you can maximise your business performance. You need to:

• Turn the data into useable information
• Act on that information to improve your performance

1. Turn the data into useable information

Data analysis is the conversion of raw data e.g. print outs, KPI numbers etc. into easily understood information that can then be used to drive action.

Most forms of data analysis result in a chart, graph or data trail being produced,

Try this exercise to understand why we convert raw data to a chart.

How quickly can you identify; the highest, the lowest and the repeated number from the following list? Time yourself.

Now try the same test with the following data. How quickly can you identify; the highest, the lowest and the repeated number? Check both your answers at the bottom of the post

 

 

I bet you were quickest interpreting the chart? And if you got an answer wrong it was on the list test?

Why is that?

The chart is easier and quicker to interpret accurately.

This is because the data in the chart is arranged in ascending order and colour has been used to highlight the area of interest. But what is it really doing for us?

If we add other relevant information to the chart we start to turn the data into useable information. In this standard grid format we have added:

• Titles to the top and the axes for context.
• A target line to place the level of performance.
• A data source box to aid validation and future comparative analysis.

And at the bottom of the grid:

• A comment – which sums up what the chart is telling us
• An action – which brings us to the 2^nd thing we must do with our data

2. Act on that information to improve your performance

The action tells us what needs to be done next. This may be an immediate response to ensure daily performance targets are achieved, or it may be more data collection, further analysis or a focussed improvement action.

It is vital that each piece of data analysis done drives an action. If no action is taken all you have done is create expensive wallpaper!

Tip: Display the information and actions on clear visual display boards. Locate these as close as possible to the relevant workplace.

• Use them as a central point for communication meetings and briefings between managers, team leaders and teams.
• Their use raises awareness and helps involve everybody in working towards a common goal.
• It focuses action by using facts instead of allowing “who shouts loudest” to win.

 

Have a look at the data you have in your workplace.

• Is it turned into useful information?
• Do you act on that information to make improvements?

If you don’t, challenge yourself to make your data count.

 

Answer A lowest 12, highest 47, repeated 25.

Answer B lowest 13, highest 45, repeated 29.

We all know it’s vital to get senior management engagement if we want our improvement programmes to be successful. We also want our managers to lead them with the right attitude to change.

Here are two quick exercises you can use to help you influence the approach management teams take to improvement initiatives. They require minimal equipment and advance preparation and so you can use them exactly where and when you need them.

1. The Cane Game

• Objective
  • The team must lower the cane to the ground keeping it perfectly level at all times!
• Instructions
  • Break into teams of at least 8 people
  • Line up opposite each other
  • Each team member holds out the forefingers of each hand
  • When the fingers are level, but not touching, the facilitator lays a garden cane on top of the fingers
  • The facilitator starts the exercise by saying ‘go’, and makes sure that the team keeps the cane perfectly level
  • They must stop and level up before moving further down to the floor

I have never found a team yet who can keep the cane level all the way to the ground on their first attempt!

Now capture their comments on how they found the game.

Learning points

• Working as a team is hard
• Change is hard
• Sometimes an obvious request goes frustratingly slowly

Tip: You don’t have to have a garden cane, any straight pole will do, like a brush handle. If you travel a lot then buy a folding tent pole; usually under £10 from camping shops.

1. The Wallet Exercise

• Objective
  • The team will be asked to conduct an improvement activity on other members’ possessions.
• Instructions
• Ask everyone in the room to stand up and place their wallet or purse on the table or floor in front of them. (Don’t panic if people opt out. Put yours in to encourage a few takers)
• Have everyone move one place to their left (or right, it doesn’t matter)
• Tell everyone to pick-up the wallet/purse in front of them and when the facilitator says go, they have to dump it all out and reorganise Get rid of everything they don’t think is needed and put items back where they think they work best

At this point, everyone in the room will get a bit upset… this is good.

• Don’t actually go ahead with having anyone reorganise another person’s wallet, but capture peoples reactions on a flipchart

Learning points

• The emotion you feel at the thought of having someone else pry into your possessions is what employees feel if outside teams come into their work place and start to make changes without them being involved or consulted
• How did the people who did not hand over their wallets feel compared to those who did? They might be feeling safe, and possibly a little smug!

How would you deal with these people in the workplace if they were refusing to join in with your improvement activity?

Have a look at The tale of the team and the newt to see what could happen depending on the choice you made.

Tip: This exercise is useful for heading off situations where prior communication and consultation has been sub-optimal and you haven’t got time to introduce the Change Management principles in full.

Have you tried these exercises before? Did you get the results you were looking for or do you have a different “game” that works?

1 million parts per month, from brackets to fully functioning coffee machines. An average batch size of just 36 parts and the introduction of 450 new parts per month.

Yet the employees at this fast moving engineering firm still found time to save £435,000 last year.

I went to catch up with Operations Director, Keith Nicholl, to find out how KMF Precision Sheet Metal Ltd. has generated this improvement culture.

In the last 5 years the company have saved £1.6 million as a result of implementing employees’ suggestions.

All 385 employees are eligible to register in the Productivity Share Scheme. Each idea they submit is rapidly assessed and if considered worth investment the employee gets the go ahead to implement it.

Progress is monitored at the weekly Continuous Improvement Review meetings, held for both day and night shifts.

There is an established tariff for savings. A standard amount of money is allocated per hour of time saved and for quality, safety and welfare improvements.

Each employee can make unlimited suggestions and actual savings made over the year are accumulated in a pot. At the end of the year all those who have achieved the minimum savings target (£1500 this year) take a share of the pot.

Since starting 6 years ago the number of employees signing up has increased from 150 to 282 and the savings have gone from £100,000 to £435,000.

Successful entrants have risen from 65 to 176…its tough and so not everyone hits the target.

The savings have contributed to a profitable performance and have allowed KMF to expand their business. In the last 2 years over £2million has been invested in new folding equipment alone as the company supplies new sectors.

What is the secret behind the success?

“It’s a back to basics approach” explains Keith. “Employees get training sessions in 5C, 7 Waste and the Plug Game. This demonstrates the benefits of those tools as well as flow.”

Despite the complexity of the product flow it is the application of lots of simple ideas that has yielded the benefits.

Keith adds, “Lean had been tried before but ideas were rarely implemented. Making the person who suggested the idea responsible for implementing it has made a big difference. The weekly CI Review meetings have never been cancelled and A3 summaries are used to track progress and capture learning as well as instilling a PDCA (Plan, Do, Check, Act) attitude.”

How will you sustain the culture as you expand?

“When I started as Business Improvement Manager 9 years ago, there were two of us leading improvement. Gary Sutton is now the Quality Manager. The CI team who report directly to me is expanding to three.”

Keith now manages engineering, quality, New Product Introduction, design and the CI functions. This includes the set up and layout of new manufacturing areas and will soon add the recruitment and induction function. Add that to the widespread involvement in the Productivity Share Scheme and you can see that the influence of CI is spreading.

However as the product range expands and the company grows it isn’t plain sailing. Keith points out that it is very easy for standards to slip in an environment that is constantly adapting to meet its order book.

“The focus now is to reinforce the back to basics approach through the Team Leaders. If we look after the 5C condition everything else will follow”

Write in if you would like to share your success story with us or to ask Keith a question.

For examples of how Industry Forum helps companies with the back to basics approach visit our case study section.

There is an overwhelming, and sometimes conflicting, amount of advice about must have key performance indicators. Try these ideas to help you select the most useful for your particular business.

1. Choose the KPI appropriate for the level you are measuring at

In your organisation you have different groups of employees. They require different information in order for them to carry out their responsibilities.

Research into businesses that have successfully implemented a continuous improvement culture concludes that you must use measures appropriate to each organisational level. In addition these measures must tie in with the organisation’s strategy.

Do the measures you have selected meet the needs of all the different user groups?

• Shareholders, board and executive members.
• Operations managers at plant and department levels.
• Team leaders and team members at cell level.
• Managers and team members of non manufacturing departments.

And do the measures cover?

• Meeting daily performance targets and satisfying customer demand.
• Achieving strategic goals.
• Tracking the progress of improvement activity.

At the end of this post I have put a few links to articles and publications demonstrating the wide variety of measures you may consider.

2. Don’t have too many

Just having one key measure will not give you the full picture. Equally having a one size fits all “dashboard” of measures with the complexity of a flight deck attracts limited buy in.

In my days as a fire fighting shift manager, a team of external consultants insisted my colleagues and I needed 96 key measures to manage daily operations. I walked out!

Perhaps if they had helped us to put in just 3 or 4 measures we would not have rejected the idea. And if those measures were selected to help us focus on our biggest problems and eliminate them……..

The key is to create a set of measures that are appropriate for each level of the organisation and tie daily business to the achievement of both strategic and operational targets. The Integration Model, discussed in a previous blog, helps you to do just this.

3. Test it – could it drive the wrong behaviour?

An associate I recently worked with shocked me with this story. Many schools in the UK are judged on their pupil attendance metric. When it snows there are usually a number of children who can’t get into school and so the pupil attendance figure drops.

However if the school is officially shut for the day (often using Health and Safety as a reason) then the pupil attendance figure does not drop!

Is this metric driving the right behaviour by the schools? What is the knock on effect on working parents?

The same associate recommends this approach when defining your KPIs. As a team, brainstorm all the ways in which you can improve the KPI. Then examine if any of these could drive unwanted behaviours and try to mitigate this.

You may need to use 2 measures to ensure a balanced approach. You can achieve excellent Delivery Schedule Adherence by keeping high levels of finished goods, but this drives up costs associated with inventory. So measure Stock Turns as well.

How have you selected the best KPIs? What horror stories have you found?

Interesting Links

• For basic cell and department level measures that provide a great start for focusing on operational issues read QCD
• Bernard Marr 25 KPIs Every Manager Must Know
• Greg Jacobson 6 Continuous Improvement Metrics

 

Do you find that no matter how hard you try you always seem to have some people who refuse to join in with your improvement initiative? How do you deal with them?

Well here is a really useful analogy I learned from my training days with the Nissan, Toyota and Honda master trainers. It works for me every time.

First let’s imagine a team playing on a field.

 

10% of your team are playing towards goal.

10% are being defensive.

80% are waiting in the midfield to see if they can move towards goal, or if they need to rush back and defend.

This is like your team at work. 10% are striving for improvement and embracing change. 10% are resisting change and new ideas; they defend the status quo. The remaining 80% are waiting to see what happens and then will rush to the end that appears to need them the most.

How do you get everybody to move forwards?

Option 1: Tackle the defenders

You spend a lot of your time working with the people resisting change, trying to persuade them to see your point of view. Maybe you give up and transfer them to another department or even sack them!

But beware! Let us think about the garden newt.

What happens if we cut the tail off the newt? ……………..In  a little while it grows back!

And this will happen if you follow option 1. If you pay a lot of attention to the 10% resisiting change or worse, get rid of them, your midfield watchers will rush to assist those defenders. Result – distrust spreads, more defenders of the status quo, and your initiative loses momentum and fails.

Option 2: Concentrate on the attackers

Pay a lot of attention to the 10% going forwards, work with them, and celebrate their successes. The 80% in midfield will start to rush forwards as well and join the attack. Result – feel good factor, more people attack and the initiative gains momentum.

But what about the tail? The tail actually follows along, it may never move into attack, but it does move forwards from its original position. It may even decrease in size.  However the tail will always be there, you can’t cut it off!

A cautionary tale

One day I forgot about this analogy and I attempted to engage one member of the team who was particularly reticent about joining in with the kaizen event. I asked him to go and take the team photos for me, so we could use them as part of the event story.

15 minutes later he proudly returned, not with a set of photos, but with a trail of other team members who suddenly didn’t want to be photographed or be part of the event! Too late I remembered about the newt’s tail and it took a lot of extra work to get the team back on board.

Have you had similar experiences? Let me know how you move your whole team forwards.

 

 

Appointing a project manager for each project has been identified as one of the six basic success factors to improve your ability to get new products to market quicker and cheaper.

In essence the project manager has the authority to run the project on a day to day basis and is responsible for ensuring project success within the tolerances set by the project sponsor.

Projects typically have to be delivered within certain time, cost and quality limits and within the tolerances set on scope, risk and benefits.

To simplify the huge range of information and guidelines for project managers I have created one simple model of core responsibilities. You will see that it combines PRINCE2 project guidelines with Adair’s Action Centred Leadership model, the PDCA cycle and vital leadership skills.

The 4 key responsibilities boil down to:

1. Manage day to day tasks
2. Manage information flows
3. Conduct specific project tasks
4. Lead the project team

 

 

1. Manage the day to day tasks. These are represented by the Plan, Assign, Monitor, Control cycle. This is a version of Deming’s Plan, Do, Check, Act cycle.

The project manager plans the sequence of tasks to achieve the project objectives and the resources to achieve those plans. Plans in NPI projects typically exist at project, stage and task level and are produced at different times with different levels of scope and detail.

The project manager assigns some of the tasks to others; especially those requiring specialist knowledge e.g. design.

They then monitor the tasks to make sure they are on plan. If not then some form of corrective action plan is made in order to control the project. Continuing problems are escalated.

The control phase also includes the introduction of performance improvement, such as ways to improve cost or reduce lead time.

2. Manage the information flows. The project manager needs to make the right information available at the right time to the right people, for them to make the right decisions. In our diagram, information flows are represented by the two way orange arrows.
3. Conduct specific project management tasks. The project manager has the responsibility for; initiating the project, preparing for the gates and closing down the project. Useful guidelines on these tasks can be found in PRINCE2.
4. Lead the project team. People are crucial to the success of a project; it will not succeed simply by having excellent strategies, guidelines, standards and rules. The project manager needs to balance the project, the team and the individual. Adair’s Action Centred Leadership model is a useful structure to help gain this balance.

To do it well the project manager needs the ability to:

• Delegate to individuals and cross functional teams.
• Motivate individuals and cross functional teams.
• Manage people through periods of change and when assigning project tasks.
• Adapt their leadership style to meet the needs of the team in a variety of situations.
• Communicate effectively.

As you will realise there is a lot of detail behind each of these 4 key responsibilities, but hopefully these give you a balanced overview of the project managers’ role. Let me know if there are any other core responsibilities that you would include.

 

 

Whether you have chosen TPM, lean, EFQM, 6 Sigma or another method, you need to ensure it supports the achievement of your operational targets and your strategic goals.

But each organisation has finite resources in terms of the people, time and money that can be dedicated to achieve these. Typically we find that 99% of a managers’ time is spent dealing with items on the operational side, leaving the strategic decisions and improvement programme as bolt on or additional activities.

The secret to balancing all of these demands is to not overburden the organisation with numerous different plans and to ensure that there is no conflict between managing daily business, achieving the vital few stretch goals and introducing an improvement programme.

To do this you need to carefully consider and then merge the review systems used to manage these aspects of your business. This then gives you the framework to position your chosen improvement methodology and maximise the benefits.

At Industry Forum we developed what we call the Integration Model that has helped organisations to do just this. Click here for an overview of the Integration Model.

Central to the Integration Model are:

• Having performance measures for both operational and strategic management in one place
• An effective steering and governance system

Operational and strategic performance measures in one place

The best way of doing this is to set up visual communication boards within the organisation and use them for reporting daily, weekly and monthly progress. We usually place these at plant, area and team level. The plant board is often called the Obeya and is developed over time to incorporate these key features:

• The annual plan and daily performance measures, X-Matrix and SQCD in this example
• Current performance vs. targets for both sets of information
• Demonstrated links between the annual policy targets and daily measures
• Action plans for gaps between actual and target performance
• A method to limit the number of open actions

This Obeya schematic shows the maximum number of corrective actions and activity trackers, A3s, allowed to be open at any one time.

 

The link between operational and strategic targets and the number of ongoing actions are critical. If there is no link or there are too many open actions then your resources will be swamped and few goals will be achieved.

Effective steering and governance

This encompasses the rules that state who meets, when, at what frequency, what they do at each meeting and what the expected outputs are. In order to eliminate duplication and other forms of waste your steering and governance system should be designed to use joint resources, people and physical report formats.

Now that the operational and strategic goals are linked you are in an excellent position to embed your chosen improvement methodology. Do this by using direct references to the tools and techniques to be deployed on the plans and action trackers on the visual management boards.

Planning, deployment and review of your improvement programme becomes part of the daily, weekly and monthly reporting structure. Conducting specific improvement activities becomes the way to achieve operational and strategic targets.

Have you benefited from using a system like this? Let me know how you have got on.