Category Archives: General

Measuring Business Performance – the Only Three Ratios You Need

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A business can thrive forever if it has happy customers, happy employees and happy investors (all at the same time!). Here are three ways to measure how you’re doing:

  • Happy Investors: Return on Capital Employed (ROCE) or Return on Net Assets (RONA)

If you think this is too simple and you’re determined to have lots of Key Performance Indicators (KPI’s), you might want to add some of the following:

  • Operations: Value-Added Ratio or Throughput Efficiency (ratio of Value-Added Time to Total Lead-Time (Dock-to-Dock))
  • Operations: Overall Equipment Effectiveness (OEE)
  • Finance: Return on Sales (ROS) or Net Margin
  • Innovation: Percentage of sales turnover generated by products or services  developed in the last x years (x=2 is common)

The Balanced Scorecard approach has a lot to commend it – a balance of measures including Financial, Operational, Marketing/Sales, and Learning and Growth / Innovation. See  http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

Lean – How, What and When to Improve

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Whatever stage you’ve reached on your Lean journey, you need to know how and what you should be improving.  We’ve all encountered (been guilty of?) the “Too busy to improve” syndrome, but what exactly should you be doing when business is flat-out, and what should you be concentrating on when things are quiet? Well, now that we’re talking strategy you won’t be suprised to hear that there’s a two-by-two grid for that! I’ve attached a PDF copy here: Improvement – How, What and When,  [opens in a new window] so let’s run through what it means – the How, What and When of Lean.

As you can see the two sides to the grid are (a) “Busy” (lots of orders) -vs- “Quiet (few orders), and (b) “Inefficient” – vs- Lean. So we have four combinations or boxes to look at:

1. Inefficent and Quiet. You definitely don’t want to be starting from here! If you are then you might simply have left it too late. If you can rescue the business then you need to take massive turnaround action. From a Lean perspective you’ll probably want to focus first on quick cost-reduction, and cash-generation. Areas to consider include: Easy, High Impact ideas to reduce cost, ways to reduce stock and work-in-process (lead-time reduction, SMED to reduce batch sizes), 5S sort-out’s to convert unused assets into cash.

2. Inefficent and Busy. As we’ve said the biggest danger here is falling into the “Too busy to improve” trap. “Busy Fools” is the common description – you’re putting in lots of time, effort and energy but you have very little to show for it and you’re often making little or no profit, or even running at a loss. The most important thing is to tackle the worst areas of inefficiency as quickly as possible, and to do it in a way that takes up as little time and resource as possible. Look for rapid employee engagement to generate Quick Wins: Easy, High Impact ideas to reduce all forms of waste, with a particular focus on tackling those that waste the most time and money.

3. Lean but Quiet. You’ll already have addressed those areas that actively lose you business – customer complaints and non-conformances – so the key focus of Lean here should be on increasing Value-Add. In other words, finding ways of providing more and more value for your customers, and actively selling the value of what you offer, rather than the cost. Areas to focus on include: cross-functional teams to visit customers and spot value-add opportunities, Voice of the Customer exercises, and use of the Kano Model.

4. Lean and Busy. This is where it gets really good – you’re working flat-out and throwing off cash as you go! The main focus here (apart from sustaining Lean)  is to ensure that you re-invest, you innovate (to ensure you continue to succeed) and you look for opportunities to inspire excellent performance. Success generates success so it’s time to think about some of those “what would you do if you knew you couldn’t possibly fail” ideas! It’s time to think about larger investments to achieve a step-change in performance – increasing your capability not just your capacity. You probably also need to check that you’re up to date with current technology – unless you’re a technology-led business you probably don’t need to be at the cutting-edge but you do need to make sure that you’re making best use of proven, up-to-date appplications.

How to Sustain Lean – the Discipline of CANDO (5S) …

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It takes Leadership and Discipline to build a great company. And it takes Leadership and Discipline to sustain the Lean journey.

Back in 2oo6 at the AME Conference in Dallas, I heard a keynote presentation by Jim Collins, bestselling author of “Good to Great”.  I can’t do justice here to what was an outstanding presentation, but you can guess the main thrust of what he said: “Of all the things that helped companies go from being good performers to outstanding performers, Leadership and Discipline are by far the most important”.

Previous blog posts here have talked about Leadership, so let’s have a look now at Discipline, and why it’s a critical element in sustaining the Lean journey.

Put simply, Discipline is about doing a small number of important things consistently – day in, day out, week after week, month after month, year after year. So you can immediately spot why most organisations and most people never achieve greatness.

Let’s take an example that will immediately be familiar to  most manufacturers – Workplace Organisation.

Workplace Organisation is most commonly known as “5S”. Sometimes – particularly in the automotive industry – it’s referred to as 5C. Far less common but the one that I prefer is the acronym “CANDO”. The “D” stands for Discipline, so you can see where I’m going with this.  Most organisations don’t find it too difficult to complete the first three steps of CANDO- Clear out unwanted items, Arrange everything in the right place, then ensure Neatness. The next two steps are far harder – Discipline and Ongoing improvement. It’s often said that CANDO is above all a test of management discipline. That’s why the Japanese regard it as probably the first and most important building block of Lean. Put simply, if managers and leaders don’t have the discipline to sustain CANDO then they probably don’t have the discipline to sustain any worthwhile improvement journey. More importantly, they don’t have the discipline to create a great business.

The tools and techniques needed for sustaining CANDO are well known – agreeing and setting the standard, implementing checklists, standard operating procedures, measures and audits, etc, etc. Where most organisations fall down here is that they don’t build it into the day job and make it a habit.

So here are some ways of achieving the necessary Discipline:

  • Ensure that Line Managers / Team Leaders are held personally accountable for maintaining the agreed standard in their area
  • Train and encourage them to ensure that every employee works to that standard every day
  • Check and record performance hourly or daily
  • Audit performance weekly or monthly
  • Apply PDCA to find and address the root causes of non-conformance

In future blog posts we’ll look in more detail at Discipline and “how to build Lean in” – as always, your comments and experiences are very welcome!

Beyond Lean Manufacturing: Value-Driven Business

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For many manufacturers – particularly those well advanced on their Lean Manufacturing journey – the burning question now is: “So what do we do next?”

Manufacturers have been applying “Lean” techniques across their production operations for many years now. Most of them have reduced their costs, most of them have increased their productivity, many of them have engaged their employees and some of them have sustained a culture of Continuous Improvement (CI). So far, so good. But what do you do next?

You’ve streamlined your manufacturing operations, you’ve created a good CI system, most employees are actively engaged, Lean has become part of the day job, and you’re confident that improvement activities will be sustained.

You know that Lean Thinking works, you know that it’s a journey not a destination, and you’re wise enough to steer clear of the latest “management initiative” (fad).

So what do you do next?

To answer that question, let me offer you three “next steps” to consider:

  1. Apply Lean Thinking across all areas of the organisation, not just in Production or Operations. Train all employees (and I do mean all!) to understand the basic concept of “Lean” and how to apply it in their areas of the business. They’ll need a different approach – and some different tools and techniques – from “Lean Manufacturing” but the tools are there if you know where to find them. And the opportunities for improvement are usually much greater than in Production or Operations. Have a good look – you’ll be amazed at what you find! Some of our “World Class” clients have found rework levels of more than 90% in their “back office” and support functions – it’s not uncommon.
  2. Work on the entire Value Stream / Demand Chain. Extend beyond Operations to cover all stages of the order fulfilment process (from “Quote to Cash”). Once you’ve done that inside your own business, extend outwards to include your suppliers, customers, agents, distributors, and end-users. If you can create your own unique Value Chain (even if none of the components are unique) then you can create a very valuable business. Some of our clients have created a unique competitive advantage for themselves by doing exactly that.
  3. Focus on the “Value-Add” side of Lean – the part that most people ignore! Look for opportunities to add more value for your customers. See where you can “in-source” or “back-shore” your operations, and find out if you can do some of the things that your suppliers and customers currently do. Some of our clients have increased their turnover by more than 50% in less than a year by doing exactly that.

The three steps that I’ve just outlined are part of a much broader approach to business improvement, called Value-Driven Business. When it’s applied to manufacturing businesses – which is mainly what this blog is about – it’s called Value-Driven Manufacturing. You can find other blog posts about Value-Driven Manufacturing here on the Manufacturing Times blog (helpfully categorised under “Value-Driven Manufacturing”!), and you can find out more about Value-Driven Business at www.ValueDrivenBusiness. co.uk. There’s enough there to take you well beyond Lean Manufacturing!

World Class Manufacturing Leadership

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World Class businesses have world class leaders. So what does it take to lead a successful World Class manufacturing business in 2012? Here’s my view…

The leaders of World class manufacturers are highly driven; they need to be the best in the world at what they do. They have high expectations, they create a strong sense of urgency and they inspire the right people to join them on the journey.

They understand that you don’t have to invent anything new and different in order to be world class. What you have to do is configure a value chain that delivers unique value in a different way.

Here are some of the things that they do:

Purpose: they communicate the purpose of the organisation in a way that is meaningful

Performance: they inspire people to perform at their best and they do not tolerate mediocrity

Passion: they are personally invested in what they do – they get fired up and it’s contagious

Process: they create streamlined processes that deliver outstanding and unique value to their customers

People: they get the right people on the bus; they expect to make some people unhappy

These are just some of my own thoughts – what are yours?…

Motivation Made Simple – the Top Four…

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Allow people to do what they do best every day. Give them the tools to do the job right. Make sure they know what’s expected. Regularly recognise and praise good work. That’s it!

If you can provide a workplace that delivers these things then you’ve addressed the Top Four Motivators (*) for most people.

Here’s my simple take on employee engagement, motivation and world class manufacturing:

  • There’s no such thing as a world class plant without an actively engaged workforce.
  • The more employees who are engaged, and the fewer who are actively disengaged, the better the organisation performs.
  • Employee engagement can be measured.
  • There are 12 Top Motivators.
  • If you want to improve the performance of your plant, company or organisation, do as much as you can to address these, measure the results, and keep at it.

* The Gallup organisation (www.Gallup.com) has conducted more than thirty years of research into employee engagement, with nearly two million employees. They’ve boiled all of that down into the Top 12 Motivators and these are the Top Four. If you want the best motivated workforce in the world, try all Twelve! They’re at http://businessjournal.gallup.com/content/811/feedback-real.aspx and you can read about them in the book “First Break All the Rules.”

Too busy to improve? Try the Rapid Results Programme

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Warren Buffett does not invest in businesses with “busy” managers. Yet most successful business leaders I work with are very busy people. How come?

Buffett’s hard-won experience is that Managers who follow the latest fads, hop around from one great idea to the next and live in a state of perpetual “busyness” do not create long-term value for their owners.

Effective leaders know where they want to get to and however busy they are they always make time to do the right things. In other words they avoid the “too busy to improve” syndrome and they make time to save time.

I had another great example of this yesterday, which  is what prompted me to return to this theme.

I was working with an engineering company that I first worked with ten years ago. In that time the Owner-MD and his team have doubled the workforce, doubled the factory and quadrupled their turnover. Their next milestone is a further 70% growth, and they’ll achieve it. The MD has a great team around him who have made it happen, and many of them have been there for more than ten years. They’re absolutely flat out and they turn down business they don’t want.

Yet yesterday each and every production employee took an hour out of their working day for “non-productive” work. What they did was get together in small workgroups to identify wastes, inefficiencies and barriers to progress, brainstorm improvement ideas and then use “Ease and Effect” to create a prioritised improvement plan.

By 4.30 pm we’d combined the ideas from all five workgroups (nearly 50 people) and created a prioritised factory-wide improvement plan. Over the next three months at least half of those ideas will be implemented and they’ll increase productivity by at least 10%.

And the easiest thing to do instead would have been what most companies do – spend all of their time working inefficiently and spend no time on improvement.

The moral of the story? However busy you are you’ve got to make time to improve. If you’re flat out, bring in some help and concentrate on short, sharp activities that will make you more productive and more efficient. Result: more productivity, more output, less effort and more time to improve.

So here’s the shameless “plug”: The company mentioned above is achieving these results by taking part in Nicholson Consultancy’s Rapid Results Programme. If you own or run a UK Manufacturing business and you think you might benefit from a short, sharp improvement project like this, follow the link to find out more about the Rapid Results Programme (opens in a new window), or email info at ImproveMyFactory dot com.

Andy Nicholson

Rapid Results Programme Leader

The Manufacturing Rapid Results Programme

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If you own and run a UK manufacturing business and you want rapid improvements but don’t have the time, resources or expertise in-house, the Rapid Results Programme from Nicholson Consultancy could be the answer.

It’s a proven way to solve specific problems quickly and effectively – without holding up the day to day running of the business.

The core is a results-driven project that lasts between 1 and 12 weeks, depending on your business needs. An experienced manufacturing specialist works with you to identify the precise results that you are looking for and then manages the day-to-day implementation on site. 

The programme offers exceptional value and a rapid payback – it’s all about results and return on your investment. The programme leader – Manufacturing Consultant Andrew Nicholson – agrees with you up-front the results that you can expect, so that you know exactly what the benefits will be and what return you will get on your investment. And limited funding is available for qualifying businesses, so you could double your return. To find out if you’re eligible follow the link to The Manufacturing Rapid Results Programme.

Value-Driven Manufacturing and Value-Driven Business

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Value-Driven Manufacturing is an application of Value-Driven Business, in the same way that the Toyota Production System is part of the Toyota Management System. For an outline of the  main points there’s a free PDF download: What every Owner-Manager needs to know about Growing a Great Business

Leading the Value-Driven Business: Competence and Character

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“Your ability to eilicit people’s best efforts depends on their trust in you – their confidence that they can count on you to do the right thing” *. In a previous blog post we talked about the fact that this trust is earned by Competence and Character. Let’s look at how you can incorporate these principles into your Value-Driven Business System.

Firstly, the whole area of competence. For every role you need to  need to know what skills and knowledge are needed to do the job well. Critically you need to understand the core competences – the things that make the difference between an average performer and an excellent performer. The Value-Driven Business System uses core competences as a key part of the “People” system. Painful Truth #1: in a small business you won’t have the time or the resources to develop these so recruit people who already have them. If you want excellent performance, recruit excellent performers. This is particularly important when it comes to management. When I started my management career in the 1980’s British Industry was blighted by “Happy Amateurs” at all levels of management. Sadly, little has changed since. Management is an area of expertise in its own right – it needs specific knowledge and skills, and these have to be developed. Painful Truth #2: managers have to take responsibility for their own development, particularly when times are tough. If they don’t, don’t retain them. Regularly assess the skills, knowledge and performance of key staff. Where there are gaps, take action to fill them quickly. Either provide the right training and development, or move the employee out of the role.

Secondly, character. This is about values, beliefs and behaviour. Value-Driven Businesses are successful because they have clear values and beliefs – everyone knows “how we do things around here”.  Recruit, recognise and reward those who demonstrate the values. Painful Truth #3: if employees don’t live the values then you need to move them out of the company. Jack Welch, former CEO at GE, felt that any leader who did not live the values did not belong at GE. Bob Chapman, CEO of Barry-Wehmiller has a great phrase: “Some flowers grow better in someone else’s garden”!

The Value-Driven Business System incorporates a version of Jack Welch’s Performance-Values grid. Why? Because the Goal is to maximise the value of the business, and a large part of that value is based on the value of the company’s employees. It’s part of the Complete Balance Sheet, another component of the Value-Driven Business System.

[* Harvard Business Review (HBR) blog post – “Do your people trust you?”(http://blogs.hbr.org/hill-lineback/2012/03/do-your-people-trust-you.html ]

 If you have any thoughts or comments on these topics, or if you’d like to know more about the Value-Driven Business System,  please comment directly here or drop me an email at “an at nicholsonconsultancy dot com”

You can find other blog posts about Value-Driven Manufacturing here on the Manufacturing Times blog (helpfully categorised under “Value-Driven Manufacturing”!), and you can find out more about Value-Driven Business at www.ValueDrivenBusiness. co.uk.