Another Look at Continuous Improvement

Dreamstime - Crystal BallEverybody knows that the reality of globalized manufacturing is a continuous spiral of faster, better, cheaper. Regardless of how good your processes, practices and products are, it is essential to keep improving. On Continuous Improvement, a post from November 2015, takes a pragmatic look at continuous improvement, with some thoughts on how that might actually be accomplished. Another look at On Continuous Improvement is always timely. — C.H.


On Continuous Improvement (from November 2015)

Remaining Competitive

Everybody understands the need to be truly competitive in this globalized economy. What’s more, since everybody knows, everybody is trying to improve – so the bar is continually being raised. The 5th of Dr. Edwards Deming’s famous 14 points is characteristically blunt: [1]

“Improve constantly and forever the system of production and service.”

In practice, there are two ongoing modes of improvement. The first mode consists of numerous incremental improvements to existing products, processes and practices. The second mode involves fewer, larger improvements such as new products, new equipment, or R&D advancements. This essay focuses on the first ongoing mode of improvements.

What to Improve Continuously?

Rereading Deming’s 5th point clearly answers the “what to improve” question: “the system of production and service”. The “system of production and service” means the entire assemblage of manufacturing and processes, procedures and practices, along with their interactions and inter-dependencies, through with your organization functions. It is necessary to appreciate that Deming’s use of the term “system” is not an accident.  A “system”, as Deming intends that term, is assembled in order to serve a specific purpose (Deming prefers the term “aim”, rather than “purpose”).

Deming says that the aim (purpose) of a business is to “stay in business, create more and more jobs”. To me, that means a sustainable business that can continue to grow indefinitely.

To be more specific, it is necessary to constantly improve our products, our manufacturing processes, procedures and practices; as well as our business processes, practices and procedures. Further, it is necessary to do so in a manner that advances the overall aim of the system. Improvement in one component of the system at the expense of another component is counterproductive. Usually, most improvement efforts focus on diminishing variation and waste.

How to Improve Continuously?

Deming tells us that wanting to improve is not sufficient. It is necessary to have a method for doing so. Fortunately, there are several methods that are widely used by manufacturers, each with many books, publications, courses and consultants ready to assist. Generally speaking, my personal preferences are Lean Manufacturing (especially for reducing wastes), Shewhart Cycles with control charts (for reducing variation) and Theory of Constraints (for prioritizing improvement efforts).

Lean Manufacturing

Competitiveness starts with the systematic elimination of waste in all of its many forms. “Waste in all of its many forms” includes losses due to hazardous working conditions, unsafe work practices, emissions to the environment, inefficient use of energy, and on and on. Lean Manufacturing provides a proven, readily available means to do that.

Lean Mfg Text Box

Just about everybody in manufacturing has heard about Lean Manufacturing, or about the stunning success of the Toyota manufacturing system, which serves as Lean’s global model. The fact is that Lean Manufacturing is good sense, systematically applied. Lean doesn’t require computers, robots or big capital outlays. It does require access to the know-how, a willingness to apply that know-how, and a person experienced with Lean implementations to lead the effort.

Shewhart Cycles

Dr. Deming was a statistician. Early in his career, Deming met Walter Shewhart, a pioneer in statistical quality management. He learned of Shewhart’s work with control charts and PDCA improvement cycles. Control charts provide a ready method to plot process outputs and, importantly, to distinguish variation due to the process itself (common causes) from variation due to other causes (special causes).

Variation can be reduced by identifying and eliminating special causes. Shewhart Cycles, more commonly called PDCA Cycles, provide a way to do that. Shewhart Cycles consist of four steps:

Deming PDCA CycleStep 1: The first step is to study a process, to decide what change might improve it. Organize an appropriate team. Do not proceed without a plan.

Step 2: Carry out the tests or make the change, preferably on a small scale.

Step 3: Observe the effects.

Step 4: What did we learn? Repeat the test if necessary. Look for side effects.

Theory of Constraints (TOC) [2]

TOC regards a manufacturing facility as a system consisting of interacting and interdependent processes. Those processes are not all equally important to increasing throughput. A few, usually one, process limits — constrains — the system. TOC focuses on identifying the limiting process and addressing that limitation. “Addressing that limitation” means increasing the capacity of that process, such that it no longer bottlenecks the facility. In addition, TOC uses a buffer before the constrained resource and a raw materials release system to prevent overproduction at non-constrained resources.

Once a constraint is addressed and throughput increases, another constraint will be revealed — otherwise, throughput would be unbounded. So, TOC is an ongoing process of identifying and addressing constraints. As production capacity increases, the constraint to increasing revenues eventually moves from the factory to the market or to some business practice or policy.

Concisely, Theory of Constraints provides a convenient way to prioritize opportunities for improvement so as to improve the aim of the system.

Chuck - Red Rocks3Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Image: PDCA Cycle ID 46845201 © Raducomes | Dreamstime.com


[1] Understanding continuous improvement starts with Dr. Deming. For those not familiar with Deming’s work, I suggest Mary Walton’s The Deming Management Method, Perigee Books (1986)

[2] To learn more about the Theory of Constraints, see Appreciating the Theory of Constraints, this blog, http://jerasustainabledevelopment.com/2015/06/27/appreciating-the-theory-of-constraints/

What About Industry 4.0?

Industry 4.0

Dreamstime - Crystal BallProductivity – the value created per unit of resources deployed — is the primary driver of standard of living. In manufacturing, the “resources deployed” include raw materials, human talents, skills and efforts; and capital investment. Several times in the past, the availability and application of new technologies have occasioned marked improvements in productivity. These improvements have benefitted increasing numbers of people.

“Industry 4.0” refers to a group of digital technologies that, when employed in an interactive and integrated fashion, promise to initiate a fourth industrial revolution. In essence, Industry 4.0 extends the industrial “Internet of Things” beyond local manufacturing process condition sensing and analysis to automated decision making, integrated across entire value chains.

The Boston Consulting Group, (BGC) an international consulting firm, identifies nine key emerging digital technologies that comprise Industry 4.0: [1]

  • The industrial Internet of Things
  • Horizontal and vertical integration
  • Digital simulation technology
  • Autonomous robots
  • Big data and analytics
  • Augmented reality
  • Additive manufacturing
  • “The Cloud”
  • Cybersecurity

BGC does a good job of introducing these component technologies that can read and download. However, the point of this post isn’t the component technologies. The point is how those technologies might be employed to actually result in significant increases in productivity within manufacturing firms.

Goldratt’s Four Questions

Eliyahu Goldratt, author of The Goal, noticed that employment of new technologies in the past often resulted in large improvements for some firms, while many other forms experienced little, if any, improvement at all. Goldratt uses the logic of his Theory of Constraints to propose a series of four questions for those considering employment of Industry 4.0, or any other technology: [2]

Question #1 – What is the power of this technology?

In the case of Industry 4.0, massive employment of digital sensing, communication, evaluation and feedback promises to significantly improve productivity, primarily through increased throughput and reduction of wastes, across entire value chains.

Question #2 – What limitation does it alleviate?

Absent the technologies of Industry 4.0, many forms of waste across an entire value chain (e.g. raw materials variations, machine conditions or human errors) are not sensed, identified and acted upon quickly enough to prevent or alleviate them, or to prevent additional wastes.

Question #3 – What rules do we use to work around that limitation now?

Local methods for sensing and communicating conditions that create wastes are employed. Heuristics are often employed to guide remedial or corrective actions.

Question #4 – What new rules will be necessary with this new technology?

Industry 4.0, above all, requires a comprehensive systems approach to entire value chains. Such an approach will require redefinition of relationships among the components of entire value chains. It also entails significantly increased reliance on machines for making routine decisions and taking appropriate actions.

For Smaller Manufacturers

All manufacturers, large or small, must remain competitive with, literally, a world of competitors and potential competitors. To do so almost doubtlessly requires the employment and integration of new technologies as they become available. The logic behind Industry 4.0 provides a platform – a basis for thinking and acting – for the introduction of new technologies over time. The changes in thinking that Industry 4.0 requires are monumental.

As a beginning, smaller manufacturers should become increasingly aware of the emerging technologies that comprise Industry 4.0, and, even more importantly, how they fit together. Look for future posts to this blog on Industry 4.0, especially as a platform for systematic actions. Buckle your seat belts.

Chuck - SedonaThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about 21st century manufacturing … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. Blog posts are published weekly.

Transparent globe image: licensed through www.dreamstime.com


[1] Read or download BCG’s paper at: https://www.bcgperspectives.com/content/articles/engineered_products_project_business_industry_40_future_productivity_growth_manufacturing_industries/

[2] E. Goldratt, Beyond The Goal: Goldratt Speaks on Theory of Constraints, audible presentation, LLC Gildan Media (Presented on CDs, available from Amazon)

 

Focusing Improvement Efforts

Everybody Can Always Improve 

Competing in today’s globalized economy is tough. Competing tomorrow will be even tougher. The need to constantly improve manufacturing processes, products and business practices is obvious enough. How to decide what should be improved next may not be so obvious. Removing the Blocks, a post from last year, provides the insight necessary to focus improvement efforts where they can do the most good.


Removing the Blocks

From: 6 March 2014

Sometimes, improvement doesn’t require innovation or invention. Rather, existing, perhaps even obvious paths to improvement can often be revealed by removing the blocks that obscure them. Consider the question: “why didn’t we produce one more (whatever you make, including dollars) last (shift, month, quarter, year)?” Regardless of how many you did produce, there is always some reason why one more didn’t happen.

The Primacy of Throughput

Eliyahu Goldratt’s Theory of Constraints provides a widely applicable method for addressing the “why didn’t we produce one more…” question. Theory of Constraints began with the familiar factory floor problem of getting orders out when promised. Theory of Constraints, as its name implies, focuses on locating, prioritizing and elevating constraints to throughput. Initially, “constraint” referred to some specific piece of equipment or work center that, for whatever reason, consistently limited the throughput of the entire facility. [1] [2]

Goldratt’s idea of throughput is worth considering. For Goldratt, “throughput” might be defined as a measure of progress toward achievement of the organization’s goal. Since a business unit is a system, that goal needs to reflect the throughput of the entire system, not the performance of various parts of the system. Goldratt originally defined the goal of a commercial enterprise as “to make more money now, as well as in the future”. [3] [4]

Be aware that “throughput” refers to products sold — to revenues, not to building (and valuing) inventories. Unlike conventional managerial accounting methods, throughput trumps operating costs as a managerial tool. [5] Simply put, costs cannot be reduced beyond zero, while throughput has the potential for increase without apparent upper bound.

“Zoomed out” Blocks [6]

As mentioned, Theory of Constraints was originally envisioned as a tool for factory floor improvements. However, as improvement progresses, the operative constraint zooms out from the factory floor to policy issues, or to the market, or to many other areas.

Tesla Motors is currently facing a numerous and diverse array constraints as they attempt ramp up throughput of their electric automobiles. Tesla’s current situation provides a rather extreme example of the sorts of constraints that must be prioritized and addressed in order to bring a new industry to global reality. Here are a few of them:

Quality: For a new product like Tesla to rapidly gain traction globally, product quality (and all that “quality” means) must be exceptional. Tesla has won prestigious awards for design, quality and safety. Still, when three Tesla automobiles were involved in fire situations, public reaction (fanned by the media, of course) was harsh, never mind that the fires were related to significant impact situations, that nobody got hurt in any of the fires, and that thousands of ordinary automobiles are involved in fires every year.

Tesla Model SRecharging: Since potential customers are reasonably concerned about recharging the Tesla automobile wherever they go, Tesla is building extensive networks of recharging stations in North America, Europe and China (Tesla’s biggest markets). Also, Tesla automobiles are equipped with GPS locators, so drivers always know where near-by charging stations are.

Dealer Networks: For sound reasons, Tesla prefers to market its automobiles directly to consumers, rather than through a conventional dealer network. However, several States have passed laws to require that automobiles be sold exclusively through dealers. Tesla’s preference for direct sales requires that Tesla provide satisfactory vehicle delivery, maintenance and service alternatives to local dealerships.

Supply Chain: In 2014, Tesla’s current manufacturing schedule will require almost half of the lithium ion batteries produced in the world. So, Tesla has announced that they will build a “gigaplant” to produce the batteries that will power Tesla vehicles, to be on stream in 2017. This in addition to the usual problems associated with locating and proving suppliers for any rapidly growing manufacturing business.

Surviving / Striving / Thriving

Firms in crisis — survival mode — may have little alternative to intense costs management — including cost reductions that are likely to have negative consequences in the future. Firms that are on a more solid footing, however, should emphasize throughput increase over operating costs reductions, as Theory of Constraints suggests.

This does not mean that operating costs controls are not important. It does mean that the opportunities for improvement through increased throughput usually far exceed those of costs reduction. It also means that emphasis on costs — especially allocated costs or costs that do not involve immediate cash expenditures — often lead to poor management decisions.

Chuck - California Coast 2Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] Information on Theory of Constraints, as cited in this post, relies primarily on E. Goldratt The Goal, Third Revised Edition, North River Press (2004) and on E. Goldratt, What is TOC?, Chapter 1 of J. Cox III and J. Schleier, Theory of Constraints Handbook, McGraw-Hill Professional (2010).

Note: Several individual chapters of the Handbook, including Chapter 1, are available for inexpensive download on Amazon.

[2] Wikipedia, referencing Goldratt’s The Goal, lists the steps in the Theory of Constraints program of on-going improvement as follows:

Assuming the goal of a system has been articulated and its measurements defined, the steps are:

  1. Identify the system’s constraint(s) (that which prevents the organization from obtaining more of the goal in a unit of time)
  2. Decide how to exploit the system’s constraint(s) (how to get the most out of the constraint)
  3. Subordinate everything else to the above decision (align the whole system or organization to support the decision made above)
  4. Elevate the system’s constraint(s) (make other major changes needed to increase the constraint’s capacity)
  5. Warning! If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system’s constraint

(http://en.wikipedia.org/wiki/Theory_of_Constraints)

[3] Goldratt later rephrased this goal as “to become an ever-flourishing company” to emphasize the importance of building stability as the business grows. “(T)o become an ever-flourishing company” implies an emphasis on Sustainability. For more on this, see Beyond Red Curve, Green Curve, this blog: http://blog.jerasustainabledevelopment.com/2013/12/11/beyond-red-curve-green-curve/

[4] My personal choice for most manufacturing firms is to express this goal operationally as net sales dollars (revenues minus directly associated raw materials costs) and return on capital employed objectives.

[5] For more on managerial accounting and Theory of Constraints, see Thomas Corbett, Throughput Accounting, North River Press (1998) or Eric Noreen, et al, The Theory of Constraints and its Implications for Management Accounting, North River Press (1995).

[6]  “Zoom lens” thinking is a hallmark of this blog. For more on zooming in and zooming out, see Green and the Zoom Lens Mind, this blog: http://blog.jerasustainabledevelopment.com/2012/02/22/green-and-the-zoom-lens-mind/

 

Constraints and the Smaller Manufacturer

The Manufacturing Extension Partnership (MEP)

The MEP is an alliance between the National Institute for Standards and Technology (part of the U.S. Government’s Department of Commerce) and a fleet of local manufacturing assistance partner centers, located in all 50 states. Local MEP centers are organizationally diverse. Many are associated with educational institutions. All focus on serving smaller manufacturing businesses. [1]

The NIST monitors the performance of local MEP centers through surveys of MEP clients. For the governments FY 2014, NIST reports that the MEPs served 30,131 clients, helping those manufacturing firms reduce costs by $1.2 billion, create 18,789 new jobs and retain over twice as many more. [2]

NIST also surveys client firms about their business concerns (“challenges”). The latest survey garnered 6,069 responses from 8,166 client firms selected to participate. That survey presented a list of nine challenges. Those surveyed were asked to identify which three of the nine challenges they deemed most pressing for their firm over the next three years. Each of the nine challenges was “scored” by the percentage of the respondents that indentified that challenge with one of their three checkmarks. [3]

The Top Three Responses

#1 – Continuous Improvement (69.6%) – In my view, continuous improvement programs need be built on a sound operating environment. The quick gut check is to assess your accident rate, downtime, absentee rate and product quality incidents. If these factors aren’t where they ought to be, the operating environment in your firm isn’t “sound”, hence initiatives like Lean, Six Sigma or ISO will have little chance for success.

To correct an unsound operating environment, my usual recommendation is to start with safety. A good safety program is foundational to a sound operating environment. See On Safety and Sustainability: http://jerasustainabledevelopment.com/2013/10/24/on-safety-and-sustainability/

Equipment reliability usually comes next. This requires a structured maintenance program. See Structured Maintenance: http://jerasustainabledevelopment.com/2012/01/12/structured-maintenance/

Once the four “gut check” issues – accident rate, downtime, absentee rate and product quality incidents – compare well with other factories, then initiatives like the introduction of Lean concepts have a good probability of success. See Thriving with Lean: http://jerasustainabledevelopment.com/2013/09/05/thriving-with-lean/

#2 – Growth (53.4%) – In my view, it is necessary to formulate a working definition of “growth”: First, should top line growth (revenues) be emphasized, or should growth in profits be emphasized? Second, does the reason that your firm didn’t sell one more unit or earn one more dollar last year lie within the factory walls or without?

From here, actions can be taken to determine, address and correct whatever is currently constraining throughput (defined as goods and services invoiced). Once a constraint is relieved, the next constraint appears. (Otherwise, shipments would become infinite, wouldn’t they?). The process of identifying and removing active constraints continues indefinitely, within the factory walls, within the supply chain or in the market.

Theory of Constraints (TOC) provides insight as to locating constraints to growth. Lean manufacturing techniques, market analysis and value chain assessment are among the tools available for relieving constraints as they appear. Start with Creating and Capturing Value: http://jerasustainabledevelopment.com/2014/06/25/creating-and-capturing-value/ and Systems and Constraints: http://jerasustainabledevelopment.com/2013/09/26/systems-and-constraints/ [4]

#3 – Product Innovation (47.9%) – Management sage Peter Drucker said “If you don’t understand innovation, you don’t understand business.” Innovation is that important. But product innovation is only part of the picture. Innovation in other areas, including process innovation and, especially, business model innovation, also matter. Start with Three Modes of Innovation: http://jerasustainabledevelopment.com/2014/11/29/three-modes-of-innovation/ and On Transience and Innovation: http://jerasustainabledevelopment.com/2014/04/02/on-transcience-and-innovation/

For Smaller Manufacturers:

The NIST’s survey provides useful insight as to what manufacturing managers’ concerns and priorities are. Local MEP offices provide one avenue for addressing those priorities.

However, each manufacturer has its own set of concerns and priorities. My preference is to establish an individual plan for each manufacturer. That plan takes a systems approach by determining the firm’s current situation, establishing an operating system framework and formulating meaningful objectives. Then methods for identifying and tools for addressing the constraints to achieving those objectives are established. From my point of view, diagnosis comes before prescription. And the prescription – the tools for addressing the constraints as they arise – changes as one constraint follows another.

Chuck - Pacific 3Thoughtful comments and experience reports are always appreciated.

 

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about confronting 21st century realities.  — CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.


[1] Locate the MEP center nearest you at: http://ws680.nist.gov/mepmeis/FindYourLocalCenter.aspx

[2] The figures presented in this paragraph are from: http://www.nist.gov/mep/upload/MEP-PARTNERING-IMPACTS-2014-Final.pdf

[3] For more information on this survey, see: http://nistmep.blogs.govdelivery.com/keeps-night/

[4] Quality expert Bill Dettmer wrote an exceptional paper that introduces Theory of Constraints as a diagnostic tool used with Lean techniques as means to confront constraints. Bill’s paper is available at: http://www.goalsys.com/books/documents/TOCandLeanPaper-rev.1.pdf

Leveraging Resources to Improve Margins

Competition in the 21st Century

This blog has often endorsed Adam Werbach’s definition, “… being a sustainable business means thriving in perpetuity”.[i] Clearly, for any business, reliably earning a sufficient profit is a necessary condition to surviving, let alone thriving. For manufacturers in the globalized 21st century, competition is more intense than ever. And competition can be expected to continue to increase as manufacturing sophistication continues to increase, especially in developing nations hungry for international markets.

As competition increases, pressure on margins increases. It follows as a condition of Sustainability that an on-going program of actions to support and improve margins in an absolute necessity. Obviously, margins can be enhanced by reducing costs, increasing revenues or, better yet, both. The Great Recession has schooled just about everybody in the cost side of production. So, this post looks at ways to improve margins on the revenues side, without expanding the factory.

Emphasize Throughput

Theory of Constraints (TOC) points out that throughput can be increased without obvious upper bound, while costs can, at best, only approach zero. TOC, especially in combination with Lean manufacturing concepts, provides insights for improving production capacity utilization, hence increasing Throughput (measured as quantity of product produced in a given period).

Number of widgets produced, however, is only part of the picture. For present purposes, it is more useful to measure Throughput as net margin dollars – dollars invoiced in a given period, less the direct variable cost of the corresponding products. So, measured this way, Throughput can also be increased by increasing the average value added to each widget, hence the revenue associated with each widget. Here are three ways to do that:

>> Redefine “product”: In fact, your product is that which your customer chooses to buy. Buying decisions are based on a complex of tangible and intangible (mostly intangible) elements, including price, availability, packaging, personal relationships, impressions, past experiences, and on and on. Differentiate by adding value through intangible elements, such as financing, or installation services.

As examples: Solar City bundles system design, liaison with power utilities, building code approvals, installation and financing with solar energy panels for residences like mine. Consulting now exceeds computer hardware and software in IBM’s product mix. DuPont’s industrial safety expertise both protects DuPont employees and generates revenues by providing safety training to other companies. New technologies like 3D printing can lead to services such as prototyping and tangible product customization. Incidentally, there is a 3D printer on the International Space Station that produces specialized repair parts as needed – just upload the drawing and specs!

>> Build a Pyramid: Some customers will choose value – added alternatives. For decades, Sears offered Good / Better / Best alternatives in nearly all of its catalog offerings.  Automobile manufacturers offer a pyramid of brands (like Chevrolet, Buick, Cadillac) and a pyramid of finish styles (such as L, LE, XLE) within each brand

>> Co-marketing:  Leverage resources by partnering with other firms. Expand your tangible product offerings by offering related products. As examples: A manufacturer of pipes might purchase and resell related pipe fittings. Amazon, as a company, excels at leveraging resources to expand revenues (think Kindle, fulfillment services, renting internet server capacity, Amazon Prime and Zappos).

Succinctly

Net margin dollars pay the bills and provide a profit. Increases in net margin dollars go almost entirely to the bottom line. This post offers some ideas for doing that. Of course, each manufacturer’s situation is unique, so the examples shown may not apply. The general approach of leveraging resources to increase net margin dollars does apply, one way or another.

Chuck - Vancouver3Get your crowd together, dream up some creative ideas on how to leverage the resources you already have, generate more net margin dollars and tell me about your success! 

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on weekly.


[i] Adam Werbach, Strategy for Sustainability, Harvard Business Press (2009), page 9.