The Virtuous Loop to Excellence
A new world is emerging and in it, our old and reliable management and administration rules are just not cutting it anymore. Agility is now the condition of survival: we need to be able to deliver the right product, at the right time, at the right price and with the exigency of maximizing profit. The golden industry period which ran from 1945 to 1975 reffered to as “les Trente Glorieuses” by Jean Fourastier has implanted a constant truth to industry managers: quest for full occupation of resources, mass production, organizations splitting up with an obsession of local performances, producing, purchasing and delivering according to economic batch size… All those methods that were pretty good when we were assured that every part produced will be sold in a short delay, are fully obsolete now that we have to produce only what has been sold. Aware of this issue, companies are now moving toward approaches like TOC, Lean or Six Sigma with the hope to find a solution. This movement may seem promising, yet we unfortunately note many blunders and misinterpretations regarding the management of these approaches, the deployment of their attached tools, the setting up of their goals and the measurement of their benefits. The root cause to this situation can be attributed to the incredible persistence of well-established beliefs known as local optima's and in most cases Lean, Six Sigma and even TOC are used with the goal to improve them. New management rules are to be imagined. From a systemic approach and pattern of industrial company, we suggest a unique KPI named Global Interactional Performance that includes operating expenses, raw value added, lead-time and customers satisfaction. We then recommend an ongoing improvement loop, focused on this KPI and based on TOC, Lean Management and Six Sigma tools. This movement embraces the five value-added processes of the company: sell, design, purchase, produce, deliver. If one and only one of these processes is down no more value added is generated by the company. These five processes are simply described by their four main characteristics: actual lead-time, nominal capacity, quality level and involved operating expenses. To facilitate the comprehension of this pattern, a process is compared to a simple tube in which length represents lead-time, volume represents capacity, leaks represents quality level and thickness represents operating expenses. Then we try to identify the existing causes and effects links between these four characteristics and our global KPI. Proceeding in this manner we can quickly and easily highlight the true limitation of the company. Bottlenecks may reside in any of the five value-added processes. In this way, a quality bottleneck will be eliminated by using Six Sigma, a speed bottleneck with Lean and at last a capacity bottleneck with TOC. The continuous and sustainable improvement loop of GIP is launched : more, better, faster with the same people and respectful of our ecosystem!
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The Virtuous Loop to Excellence
- 1. José GRAMDI The Virtuous Loop to Excellence
- 2. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr MARKETING COMMUNICATION PROMOTION QUOTATION SALES DESIGN PURCHASE PRODUCTION RECEPTION QUALITY DELIVERY BILLING Most companies are organized following the silo approach in which each manager is focused on his local KPI : the function cost. The only way to improve such an organization is to reduce these costs. So everyone tries to achieve this goal forgetting the real goal of the company : to serve the market quickly, with no loss, with quality and sustainability
- 3. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr A B C D The consequence is that most often, although our very good local KPI's, the global performance is not reached : we have shortages or over-stocks, very long lead-times, bad quality service and our products keep travelling all over the world… MARKETING COMMUNICATION PROMOTION QUOTATION SALES DESIGN PURCHASE PRODUCTION RECEPTION QUALITY DELIVERY BILLING
- 4. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr A B C D COMPANY SYSTEM An alternative to this analytic and cartesian vision can be found in the systemic approach that consider that every organism can be seen as a system which is a set of interactive elements organized toward one goal. This simple definition applied to company offers very interesting perspectives
- 5. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM Any company can be approached as a system with the goal to transform Purchased Input Elements (PIE) into Sold Output Elements (SOE) while respecting its ecosystem (social, societal, environmental) Supplier Customer SOE PIE
- 6. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM € TVE € € OVA = DSR - TVE € € DSR € From a financial point of view, this transformation appears as the Overall Value Added (OVA) defined as the difference between Direct Sales Revenues (DSR) and Truly Variable Expenses (TVE) of goods sold Supplier Customer SOE PIE
- 7. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr € OOE € OER = OVA / OOE Expenses that occur even when no transformation process is activated are aggregated into Overall Operating Expenses (OOE) : labour, sales, admin, R&D... It is now possible to express the Overall Efficiency Rate (OER) of our system defined as the ratio between generated OVA and consumed OOE during the concerned period € TVE € € DSR € Supplier Customer SOE PIE € OVA = DSR - TVE € EBITDA = OVA - OOE
- 8. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM Systemic practitioners love analogies… This company system, the goal of which is to generate more OVA than consumed OOE, can be compared to a simple tube. Let's now explore its four fundamental characteristics. Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 9. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM First characteristic : its section which is representative of the company capacity to generate OVA Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 10. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM Second characteristic : its length that will represent the crossing time of purchased elements, i.e the OVA generating speed Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 11. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM Third characteristic : its porosity that will figure the quality level of generated OVA Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 12. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM Forth characteristic : its thickness that will symbolise the structure of the company : its OOE Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 13. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr COMPANY SYSTEM If we now express speed and quality by s and q coefficients ranged between 0 and 1, it becomes possible to propose a unique master KPI that we will call Overall Interactional Performance™ and that we can consider as the goal of the company : OIP = s x q x OVA / OOE And this KPI combines the four main characteristics of our tube! Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 14. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr DESIGNSELL PURCHASE PRODUCE DELIVER Let's now look at this tube more in details. Any company can be seen as the combination of five processes that are directly involved in OVA generation. These five processes transform input elements (IE) into output elements (OE) and can be compared again to tubes with the same four characteristics than the company. We are now in a fractal model… Supplier Customer SOE PIE € OOE € € TVE € € DSR € € OVA = DSR - TVE €
- 15. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr Suppliers Customers Order Demand ProductProductItemItem Functional Requirement Operational SolutionOrder Product Request Item Request SELL PURCHASE MAKE DELIVER DESIGN It is now possible to consider the system dynamic to ask two fundamentals questions : - What are the interactions between the characteristics of these five tubes? - Which characteristic of which tube is the most influent on OIP?
- 16. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr IE OE Supplier Customer The answers to these questions will naturally lead us to identify the tube and its the characteristic on which it is relevant to act in priority
- 17. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr IE OE Supplier Customer If the identified tube presents a porosity problem, we will apply Six Sigma methodology and tools 6σ
- 18. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr IE OE Supplier Customer Lean 6σ If it has a length problem, we will use Lean Management
- 19. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr IE OE Supplier Customer TOC Lean 6σ And if the problem is a capacity limitation, we will apply Theory of Constraints (TOC)
- 20. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr EE ES Fournisseur Client EE ES Supplier Customer TOC Lean 6σ In the three cases, our actions will allow to identify wastes and so will lead to thickness reduction, but as a consequence not as a goal! The OIP limitation now reside in another characteristic of another tube that we have to locate and fix. The continuous and sustainable improvement loop of OIP is launched : more, better, faster with the same people and in the respect of our ecosystem! An exciting and motivating journey for each actor of the company!
- 21. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@interaxys.fr www.interaxys.fr The Virtuous Loop to Excellence DEFINE MEASURE ANALYSE IMPROVE CONTROL Specify Map Transform Improve Pull Define Measure Analyse Control Improve Identifiy Exploit Subordinate Prevent Elevate Speed Bottleneck Quality Bottleneck Throughput Bottleneck6σLean ToC Company as A system OIP Processes characteristics Modeling Simulation Steering Performance
- 23. CopyrightJoséGRAMDI-Tousdroitsréservés–jose.gramdi@utt.fr GRAMDI, J. La Boucle Vertueuse de l'Excellence Paris : LEXITIS Editions, 2013. 168 p. ISBN 978-2-36233-115-2