Issue Jul Aug 15
Is your company excellent in operations? If you asked manufacturing leaders that question, you might get very different answers. This describes very well the dilemma and ambiguity of operational excellence as there is no consensus on a quantitative system to evaluate and compare a manufacturing company’s level of performance. This discussion is even more crucial in light of a manufacturing renaissance in the U.S. with operational excellence as a key vehicle to achieve sustainable competitiveness. How can manufacturing companies get a quick first indication about their performance level and what is considered to be excellent?
A lack of industry standard
Even after 25 years of Lean discussions and efforts to implement it, there is no industry wide standard of measuring and comparing excellence in operations. Therefore it seems that two views on operational excellence have evolved: a very narrow one and a very broad one. The narrow interpretation of operational excellence refers to a couple of overall measurements like quality and productivity.
The broader perspective on operational excellence tries to include as many aspects of operational performance as possible, even qualitative criteria. Some consulting companies use that approach to combine everything into an overall performance score. The problem is that neither of these approaches allows for any objective comparison of operational performance: the first group is too focused on a few indicators and does not show the full picture that is needed; the second group is losing focus by having far too many indicators and also includes indicators that are not comparable.
Decathlon as an Analogy
In order to find a more practical industry wide approach that offsets the disadvantages of the two approaches, the sports industry has an equivalent that could help to find a solution. Operational performance can probably best be compared with a decathlon competition – for three reasons.
First, the number of metrics needed to describe operational performance is more in the neighborhood of the amount of events in a decathlon. Second, the decathlon disciplines are very different just like operational performance requires different capabilities.
And third, if you want to be an international decathlon champion, you have to be world-class in most disciplines of a decathlon and cannot really perform poorly in any of the 10 disciplines.
“Sometimes you have to resist working on your strengths in favor of your weaknesses,” said Daley Thompson, considered one of the greatest decathletes of all time.
This should be the same in operations: if a company claims to be excellent in operations, there should be no poor performance in any of the key areas. An excellent company has to perform at the highest level in all relevant areas of operations and not just in a few.
A proposed framework for manufacturing operations.
From a performance standpoint, excellence in operations has to demonstrate two things:
- 1. Superior launch performance
- 2. Sustained levels of world-class performance in daily operations
In order to identify the 10 +/- key indicators that define operational excellence, the metrics have to
- > have a significant impact on these two criteria
- > need to cover the entire supply chain as well as the main competitive priorities
- > need to be comparable and not unique to a company’s situation
- > be ideally backed up by performance benchmarks
The result is a set of measurements that probably cannot explain 100% of a company’s operational performance, but the majority of it:
- > Outbound – Customer quality and on-time delivery
- > Internal – Scrap and rework, OEE, safety record, employee turnover
- > Inbound – Supplier quality and on-time delivery
- > Launch – Adherence to quality, time, one-time cost and running cost targets
This Pareto or 80/20 Rule approach provides a good first indication of a manufacturing company’s operational performance level as a minimum requirement for excellence.
“For many events, roughly 80 percent of the effects come from 20 percent of the causes,” said Italian economist Vilfredo Pareto.
It is a balanced view to reflect the main competitive priorities (quality, time, efficiency and sustainability) along the entire supply chain. If a company claims to be excellent in operations, it should perform at levels that are considered excellent for most of the indicators and no indicator should be way below that standard. Defining this as a minimum requirement is consistent with the chosen approach of focusing on key metrics that can be quantified and compared between manufacturing companies. Performance levels are considered to be excellent.
There are three categories to define world-class in manufacturing operations for these selected indicators:
- > Performance benchmarks that are recognized and widely accepted (OEE of 85 percent; quality at six sigma level; employee turnover of less than 5 percent)
- > No excellence standard – performance should be close to the optimum (On-time delivery at least 99 percent; “zero accidents” with very low TRC and DART)
- > Adherence to stretched launch targets (Minimal deviation from defined quality, time and cost targets at launch)
The topic of measuring operational excellence is a rather difficult and sometimes also controversial discussion, but vital for U.S. manufacturing and its global challenges.
Although relevant metrics in operations are known and most of them can be easily quantified, there is no industry wide standard in manufacturing that clearly defines and quantifies operational excellence as a whole.
The proposed approach derived from sports is an attempt to facilitate the discussion and to make a step toward a more aligned view on operational performance. It is certainly understood that this framework cannot claim to be complete or perfect, but is hopefully a contribution for a more complex subject.
Leaders have to make decisions all the time based on the 80/20 Rule – why not apply this to Operational Excellence?