Operational Excellence and Sustainability
Operational Excellence – “OpEx” – is the application of fundamentally different ways of thinking about manufacturing, the results of which can lead to dramatically improved performance[i]. “Performance” is ultimately determined by acceptance in the marketplace, by today’s customers and tomorrow’s. Since Sustainability is all about “thriving in perpetuity”[ii] developing Operational Excellence, in the factory and in all of an organization’s business processes, is a critical aspect of the pursuit of Sustainability.
The Performance Curve
Take the manufacturing facilities in the United States and measure the performance[iii] of each. Then rank them, from best performing on the left to worst performing on the right:
“Performance” refers to the ability to compete. The relative performance of manufacturing firms roughly follows Pareto’s principle: the familiar 80 / 20 rule. The performance of the best firms is as different from that of the rest as the performance of the best professional athletes is, compared to everybody else.
Viewing manufacturing performance in this way helps explain why so many manufacturing firms are fighting for survival, while a few others prosper. The high performing firms on the left side of the Performance Curve are different in kind from those on the right. It isn’t simply a matter of degree. This difference in kind reflects the passing of a paradigm. The Industrial Era paradigm — the system of thinking that the Industrial Era embodied – is in the throes of being replaced.
Manufacturers who embrace new ways of thinking can improve their performance and move toward the left side of the Performance Curve. Those that don’t change can expect to continue to be squeezed toward the right.
The End of the Industrial Era
The Industrial Era in America was tremendously successful. During the later decades of the19th century and most of the 20th, the Industrial Era transformed America from a mostly agricultural society to a nation of factories, products and prosperity. The Industrial Age was built on body of operational ideas and methods. These operational ideas and methods emphasized hierarchal and autocratic organizational structure, focus on the efficient utilization of labor, product quality by inspection, and “sell what we make” marketing.
In the 1980’s, Edwards Deming’s famous Fourteen Points[iv] heralded the demise of the Industrial Era by calling for fundamental changes in managerial thought, as well as actions. In other words, Deming called for recognition that a paradigm shift in manufacturing had already occurred. The Fourteen Points were published over two decades ago, and they still merit careful study by anyone involved in manufacturing today. Deming’s ideas provide the foundation for a new manufacturing paradigm called “Operational Excellence”.
Operational Excellence is the application of fundamentally different ways of thinking about manufacturing, the results of which can lead to dramatically improved performance. Boiled to the essence, the OpEx paradigm begins with close attention to customers and their ever-changing needs and preferences, then works backward to satisfying those needs more ever more effectively and ever more efficiently. The change from the Industrial Era paradigm to the OpEx paradigm starts with a change in emphasis from “how to best utilize the factory” to “how to best satisfy today’s customer — and tomorrow’s”.
The Purpose of Operational Excellence
The purpose of OpEx is to make the organization more competitive by making it possible to seize market opportunities and to serve customers better, today and tomorrow.
- Improved product quality consistency, resulting in lower cost of production and fewer customer disruptions.
- Improved on-time deliveries, resulting in lower cost of production and fewer customer disruptions.
- Reduction in wastes of materials, time and capacity, resulting in lower cost of production.
- Increased effective throughput, resulting in lower cost per unit produced and more product available for sales.
- Improved response–ability, meaning more agility to respond quickly and effectively to changes in customer needs and requirements. This applies to immediate matters such as changes in order quantities or delivery dates, as well as longer-term situations, such as ability to create new products.
Practically speaking, the terms “Operational Excellence” and “Sustainability” both refer to ends to be pursued. The means for that pursuit lies in the judicious application of a number of methods and technologies. There are many such methods and technologies, including Lean Manufacturing, Six Sigma and a lot more. It is necessary to pick and choose some combination that fits your organization. One of the roles of Sustainability Planning is to do just that.
Thoughtful comments and experience reports are always appreciated. Click on the title of this post to open the comments section.
… Chuck Harrington (Chuck@JeraSustainableDevelopment.com)
P.S: Contact me when it is time to get serious about Sustainability.
[i] “Operational Excellence”, like “Sustainability”, isn’t readily defined, since both terms refer to ends, rather than means. The Institute for Operational Excellence makes an attempt on their website, at: www.instituteopex.org/site/resources/what_is_operational_excellence
[ii] Werbach, Adam, Strategy for Sustainability, Harvard Business Press, Boston (2009), page 9
[iii] Please notice that “Performance” has not been defined. Almost any measure of performance that can be measured as money and applied consistently will work. The Curve is simply an expression of Pareto’s 80/20 rule. The shape of the Curve — which emphasizes the importance of continuously moving to the left-hand side of the curve — is the point.
[iv] Deming, W. Edwards, Out of the Crisis, Massachusetts Institute of Technology, Cambridge, MA (1982), page 23f