Learning Happens When Realized Value is Verified

A project is proposed.  Most projects have an return-on-investment (ROI) associated with them to help sell the idea.  The ROI lists out the benefits of completing the project.  The project gets approved.  People work on it until it is completed…hopefully.  Congratulations are given on good work.  People move on to the next project.  The End.

Notice anything missing?  Arguably the most important part?

No one goes back to verify if the project produced the benefits that were stated in the ROI.

How does the organization know if the investment was a good one?  A bad one?  Or a great one?

Checking the benefits isn’t the “sexy” part of the project, but it is the rewarding part of the project.

Why don’t people go back and check the benefits?  Is it because it is a month to a year after the project is complete before they are seen and people forget?  Is it because people put inflated benefits on the ROI statement and they don’t want to get called out on it?  Is it because putting a value to some of the benefits is extremely difficult?

Whatever the reason, it can’t stop you from checking the actual value realized from a project.  What if you didn’t reach the realized value stated?  Can something be done to increase the realized value.  What if you exceeded it?  Don’t you want to celebrate it?  Use the learnings to sustain the extra value realized.  The learning from verifying the realized value is immense.

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OEE in the Lean News

I saw a post from Michel Baudin, Is OEE a Useful Key Performance Indicator?  I don’t think it is.  A few years back I wrote a blog about OEE and how it is very unclear as to what is really happening in a facility.  It violates nearly every rule as to what is a clear and relevant metric.

Michel’s post started out with a bit from Jeffrey Liker’s post about OEE.  This is the piece I found interesting from Jeffrey Liker:

Ignacio S. Gatell questions whether companies using OEE really understand it, can explain it clearly to their customers, and understand what it means to compare OEE as a KPI across plants. He questions whether even plant managers understand how it is calculated and what it means.

The only good argument for OEE is that at a macro-level in a plant it provides a high level picture of how your equipment is functioning.

I have to agree with Liker’s statement.  OEE is good for a macro level idea of what is happening but you can’t understand what is happening without splitting it up into the components.  Seems like Michel Baudin is thinking the same thing.

It is an overly aggregated and commonly gamed metric that you can only use by breaking it down into its constituent factors; you might as well bypass this step and go straight to the factors.

This is one of those blogs that gives me some of my sanity back.  OEE seems to be so entrenched in “good business practices” it is hard to get people to move away from it.  I get a lot of looks like I am completely crazy when I bring up my point of view.  Thanks, Jeffrey and Michel.  I see I’m not the only one now.

You Don’t Deserve a Profit!

My wife saw a post by a shop owner on Etsy this week that just drove us both absolutely crazy.  The shop owner posted how you should determine your wholesale and retail pricing.

The first step was to determine your costs.  What are your costs of materials?  Even what is the cost of your time?  While I agree with that logic, the cost of my time can be very subjective, but it makes sense.  There was a exhaustive list of what to include in determining the cost of a product.  A very large portion of it we agreed with.

After this is when it got interesting.

According to the shop owner, your wholesale pricing should be double your costs.  Your retail pricing should be double your wholesale pricing.

The shop owner was very firm that this is the only way to price.

Based on this logic, you are entitled to a 75% profit margin when selling it in retail and a 50% margin when you are selling wholesale.

So why are people going out of business?

Because, this is not correct at all.  The price is set by the consumer.  If the consumer, sees value in your product at that price then they will pay for it.  If they don’t, they won’t.

As a shop owner, it is your responsibility to control your costs to help control your profit.  If your costs are low and the market is willing to pay a very high price then you will get a large profit margin, but if the opposite is true then you may lose money.

If everyone deserved a 75% profit margin then no one would be going out of business.  Just because you are in business does not mean you deserve a profit.  If you want a profit…earn it.  Know your market.  Set the price appropriately and then control your costs.

This is the heart of entrepreneurship.

Gaming the System – MLB HGH Testing

There was an interesting story a couple of weeks back about the use of HGH in Major League Baseball (MLB).  It took years but there is finally testing for performance enhancing drugs, including human growth hormone (HGH).

The part that was most interesting from a lean and metrics standpoint was about the base lining of HGH.  Instead of using baseline data for the amount of HGH a person should have established by the World Anti-Doping Agency (WADA), MLB is establishing their own baseline.  What is even more incredible is the MLB is telling players when they will be tested for the baseline.

A MLB player can load himself with HGH in preparation for the test.  This would be no different than a department manager saving some of the extra production from the week before and print the finishing tickets the next week so both weeks look good.  MLB’s baseline procedure would allow players to skew the baseline to the high side.  Players could continue to take HGH as a performance enhancing drug and still “be within the baseline.”

This is gaming the system to your benefit and missing the true intention of what is trying to be accomplished.  This is why the principle of directly observing the work is so important.  When you go and see what is actually happening gaming the system becomes harder because you see the finished product on the floor waiting for tickets or that players might be juicing up for the baseline test.

A balanced scorecard and direct observation can help prevent gaming the system.

Guest Post: Hoshin Planning: Clear Business Objectives Help Guide Success

This week is Lean series week at Beyond Lean.  The blog posts will center around strategy deployment (or Hoshin Kanri).  Justin Tomac, Chad Walters, Karen Wilhelm and Tony Ferraro will be guest blogging.  This will give you different perspectives from on strategy deployment all right here at Beyond Lean.

Today’s post is from Tony Ferraro, on behalf of Creative Safety Supply based in Portland, OR (www.creativesafetysupply.com). Tony strives to provide helpful information to create safer and more efficient industrial work environments. His knowledge base focuses primarily on practices such as 5S, Six Sigma, Kaizen, and the Lean mindset. Tony believes in being proactive and that for positive change to happen, we must be willing to be transparent and actively seek out areas in need of improvement. An organized, safe, and well-planned work space leads to increased productivity, quality products and happier employees.

Website: www.creativesafetysupply.com

There are many businesses out there proposing new and creative ideas but somehow lack the guidance and direction to make a good product idea a successful reality. What is it that curbs these business ventures? Is it funding? Is it technology? Or is it a true sense of guidance and leadership? In most cases, the unfortunate truth is that a great product idea or truly unique business plot will flounder and fail without a strategic direction and strong force of leadership helping to guide business objectives. One of the ways to meet this need is to implement the principles of Hoshin Kanri or simply Hoshin Planning. Hoshin Planning is a Japanese term that basically means “strategic planning.” This type of planning strives to really involve all employees in the objectives and improvements within the organization. Top levels of management make it a priority to assure that that all employees feel involved and that they are working as one big team towards a common goal. With this mindset there are no winners or losers within the company, it is purely a team effort and everyone participates and is accountable to help in meeting the identified objectives. The need for continuous improvement is also a highly valued component in this type of planning.

Possible Hoshin Objectives

One of the first and most important steps within Hoshin Planning is to identify the areas in need of improvement, and since Hoshin Planning is about setting clear business objectives it is important identify which objectives are most valuable to the livelihood of the business. Some common continuous improvement objectives include: increasing production, improving current market share along with new market sales, reducing raw material costs and also reducing direct and indirect labor costs. The reason this step is so vital is because everything can’t be tackled at once, think of the analogy that the “big rocks” must be taken care of first in order to start focusing on the “little rocks.”

Organizing Objectives for Clear Measurement

Unfortunately, objectives are merely a list of far-fetched desires if they are not organized properly for action. Sure, a group of leaders can set aside some time to devise a list of company objectives and write them neatly upon a fancy sheet of paper. However, without a concrete plan to guide the objectives the objective planning session would be deemed useless, and the paper may even end up getting lost in someone’s briefcase only to stumble upon it again weeks later. Instead, once objectives are identified they need to be taken seriously and should be categorized and organized for efficiency. For example, once a group of leaders has clearly identified the objectives they would like to implement into the business, they could categorize them into four different types such as improvement projects, specific action projects, 3-5 goals, and annual objectives. By doing this, top company leaders as well as employees will be able to visualize the different objectives and goals and really understand the time frames behind them as well. Essentially this sets the stage for developing the approaches needed to help pursue the stated objectives and goals when moving on to the strategy development phase of Hoshin Planning.

Hoshin Planning is really a dynamic and multifaceted form of strategic planning which involves all areas of a business. However, in order to reach optimum effectiveness all staff should be on board and involved. With that said, and in conjunction with the right objectives, Hoshin Planning can be a huge asset to any business looking to improve overall company performance.

H&H Color Lab – American Company Growing Through Lean

H&H Color Lab began in the basement of Wayne and Shirley Haub’s residence in a suburb of Kansas City, Missouri, in 1970. Wayne and his brother, Ted Haub, owned a portrait studio that had just landed its first high school senior contract. With a background in and love for color printing, Wayne chose to install his own color processing equipment in the basement of his home.

Business increased, and so did the need for additional space and employees. What began with Wayne doing everything from his basement has grown to 165 people and 55,000 square feet of space over 40 years later.

H&H customers are primarily school/portrait/wedding photographers.  The offer a wide range of products from photo prints to books to Leather bound albums and digital products.

In 1999, H&H Color Lab started is Lean journey led by Lee Gabbert.  Lee had been with the company for 5 years at the time and was chosen to learn more about lean and teach others at H&H.  They started by reading “Lean Thinking” by James Womack and Daniel Jones.  H&H also decided to get a sensei to help them learn as they traveled the bumpy road down the lean path.

H&H Color Lab started by setting up work cells, going away from a department mentality. H&H moved to smaller batches, moving cells closer to the monuments (that they couldn’t move), standard work, and lots and lots of 5S.

Muda (waste), lead times, late work and quality all had improved. In fact, the gains from lean had now freed up space that was once occupied by manufacturing departments.  It allowed H&H to take the space and use it as a training facility to help customers from all over the United States. Thus, H&H University was born. Roughly 3,000 square feet of space was now designed and transformed into a learning center, working photographic studio with equipment, mock up photography sales room, photography studio work area, kitchen to host all day training, library sitting room with sample products that H&H produce on the book shelves and restrooms. By providing training for customers (mostly free of charge), you truly can engage in a partnership that can grow.

All of this work allowed H&H Color Lab to make a success transition from the “Age of Film” to the “Digital Age”.  Understanding their customers and providing training and education others companies do not, shows how the most important part of lean, focusing on the customer, helps you innovate, grow and thrive.

Here are results that H&H Color Lab have seen from their lean implementation.

	1999	2012	% Change
Late Orders	3,076	25	99% reduction
WIP	10,421	1731	83% reduction
Redo	5.3%	1.3%	75% reduction
% Shipped Late	49.3%	5.8%	88% reduction
Time in Plant	7 days	1.1 days	84% reduction
Sales			22% increase

Setting Objectives with Goals

As the year comes to an end, companies and organizations start to evaluate how they performed for the year and what they need to do to make next year better.

The planning for the new year starts with objectives.  What is it the company needs to do to be successful in the upcoming year?  Reduce costs. Increase sales.  Bring new products to market.

Objectives are only half of the work though.  Too often, I see companies set objectives above but never publish a goal for the objective.

Can I reduce costs by $1 and be successful?  $100 million?  What?

How much do I need to grow sales?  What part of the company’s market needs to grow in sales?

How many new products need to hit the market?  How much revenue to new products need to generate?

Without answers to these questions how are people suppose to know if they are being aggressive enough during the year?  Maybe we only need to reduce costs by 5% or maybe it is 25%.  The answer to this question will inform how you go about reducing costs, growing revenue or bring new product to market.

As leaders, we need to set goals/targets for each objective.  Then we need to give updates during the year to understand how we are progressing towards these objectives.

These isn’t new or earth shattering.  But it is something I see quite a few companies neglect.

What are your objectives for next year?  What is your goal for that objective?

My Ode to Visual Management

As we go through Visual Management week here at Beyond Lean, I was asked to kick it off.  I haven’t been able to see the other posts, so I hope I don’t step on any material coming later.

Looking at the Lean ‘Toolkit’, I think that Visual Management concepts are fundamentally the most important.  That’s pretty easy for me to say when you could bucket almost all of the tools in some way or another under a visual workplace umbrella.  But, I think my affinity for it comes from a more altruistic place.  The underlying keys to effectively utilizing Visual Management are built on things like trust, respect, and honesty.  As a shop floor operator (or your workplace equivalent), there needs to be a trust that what you are responding to, what you are reporting, and what you are following will be used productively by “the management” and not as a bigger hammer to hit you with.  As a “manager” effectively utilizing the tools means you have to treat people with respect, dignity and honesty in order for the data to mean anything past the initial kick off.  As business leaders, we have to be willing to share an honesty and transparency and trust with our suppliers, customers, managers, and front line workers.

(Case in point on the last one…  Last week I toured a factory that I am a customer of.  In a WIP queuing area, they had skids of product that they charge premium prices for labeled as “OVERSTOCK”.  I couldn’t even be mad because they were so honest about how their product flow worked that they were willing to show anybody that walked in the door what was going on and how they viewed their operations.)

Pretty much anybody who has worked in a continuous improvement situation can point out failures of visual management tools.  But when they are working well, they are a clear signal of a different kind of workplace.  The openness, honesty, and trust that they reflect are the difference between workplaces where people trade their time for money and workplaces that are built on something more.  That something more is a collaborative spirit where all of the parties build something greater than they could separately.

So, as we read through the thoughts of some really bright people this week, I hope we can all pick up some great ideas we can take back to our own workplaces.  I hope that in the long term we can also use these to help build and/or strengthen the cultural differences that make a Lean workplace truly special and unique.

Use Data that is Meaningful

A couple of months ago, Joe wrote a great blog on Problem Solving Pitfalls.  I have read that post  few times.  Partly because Joe and I made some of those mistakes together.  Partly because I think there is another to add to it.

Free image courtesy of FreeDigitalPhotos.net

Just because data is being collected does not mean it is useful.

Too many times I have watched people (including myself) use data because it was available.  It was not the data that would tell the story of the process.  You may have to decide what data would be helpful and devise a way to collect the data.  he data does not have to be what is available in a computer.  Having it captured by hand is a viable way to collect the data.  The data may only need to be collected for a specific amount of time during the problem solving process.  Once the problem has been solved, there may be no need to collect the data.

This can be difficult but it will be well worth the effort in the long run.  You will get a better picture of the problem you are trying to solve and in turn this will lead to an easier time getting to the root cause of the problem.

My Kaizen Day

I have spent a lot of time here discussing data.  I have covered in and around topics like data integrity, data quality, data interpretation, and even motivations behind data.   I am pretty passionate about making decisions based on high quality data.  But, sometimes you just don’t have data that you can trust.  Maybe it’s from the measurement system or some other human bias, maybe it’s just too poorly compiled to do anything with.  That usually leaves you with 3 choices:  Do nothing, Get Better Data, or Do Something.

Today, my M.O. is to DO SOMETHING.  It may sound obvious, but I’m going to spend time today focusing on making a change in a process instead of focusing on what I should be looking at.  It may mean I’ll work on something that I later realize is the 5th or 7th most important topic, but at least I’ll knock that off the list as I’m trying to figure out what should be the number 1 priority.

I think there is a lot of gray area between “Analysis Paralysis” and “Shooting From The Hip”.  Sometimes, even with the best of intentions, it’s really easy to get lost there.   Today I’m going to lend more to the latter than the former and learn something new along the way.   Hope you find some improvement on your way today.