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2015

Any truly effective process of ongoing improvement (POOGI) in any system (read: a company, a not-for-profit organization, or even a department or function) must begin with visibility.

 

By visibility, we might apply any number of definitions:

  • The condition or fact of being visibleVisibility Fog.jpg
  • The relative ability to be seen under given conditions or circumstances
  • Having the ability to provide a relatively large range of unobstructed vision

Managers and executives frequently think they have visibility

 

If you ask most managers and executives, they will tell you two contrary things—if they are being honest:

  1. They will say that they know and understand what is going on in their organization, their industry and their markets
  2. They will say that they need “greater visibility” into their organizations, their industry and their markets

 

Unfortunately, when most of these executives and managers talk about their need for “greater visibility,” they all too frequently are thinking they need more reports, more dashboards, and more technology—maybe even, big data.

 

But reports and dashboards, at best, provide data about what happened. Reports and dashboards cannot give executives and managers clear visibility into how things happened or why things happened. That is one very sound reason that the Toyota way of managing includes a method that can be translated from the Japanese as “go for yourself and see.”

Visibility into Your Current Reality

 

Real visibility comes from making things that are presently obscured, obstructed or even opaque to management visible. Real visibility means finding a way to make that, which presently is very hard to see, come into clear view despite the circumstances or conditions that exist. Real visibility means extending the view of management past reports, dashboards and meetings so that everyone becomes clear as to what is working—and failing to work—all across the organization.

 

Real visibility means taking all of the apparent complexity within the organization and capturing it in visual formats that allow what is known about how the system (read: the whole enterprise) works—or fails to work—can be reviewed, analyzed, prioritized, communicated, talked about and monitored in clear, unmistakable terms.

 

In the Toyota Production System (or, what has become known as “Lean”), the visual formats that are used are several, but a leading method is referred to a “value-stream mapping.” This approach is intended to capture in a visual format how the system (read: the organization, the supply chain, or other) works in producing value for the customer. It also captures, in a visual format, where things are being done that do not add value for the customer.

 

The value of the visual format is that it becomes a common language by which everyone from the executive up to the line worker on the shop floor can talk about, analyze, review and communicate what adds value and what results in waste and inefficiencies.

 

When we work with clients, we use a different method to achieve this visibility—a method that has long proven its effectiveness and has been used in a vast array of industries and organizations ranging from mom-and-pop donut shops to major players in the aerospace industry. Instead of value-stream maps, we use the logical trees found in the Thinking Processes [PDF] (rooted in the Theory of Constraints).

Steps Toward Creating a POOGI

 

While the Lean approach, as referenced in typical Hoshin Kanri practice, uses different terminology from that used by Theory of Constraints practitioners (like us), the essence of the process involved in producing a process of ongoing improvement (POOGI) is amazingly similar.

 

Hoshin Kanri Creation Sequence

Theory of Constraints Approach

Clarify the organization’s mission

Identify the goal of the system

Complete a situation appraisal

Identify the system’s constraint and the system’s current reality (Current Reality Tree)

Create a vision of the desired future state

Beginning from the Current Reality Tree, create a vision of the future reality (Future Reality Tree)

Develop organizational goals to achieve the future state

Determine what must change from the Current Reality to create the Future Reality (Transition Tree)

Establish metrics for the goals

Change metrics from those seeking local (departmental or functional) improvement to metrics for improvement of the whole system’s performance

Prioritize breakthroughs

Prioritize changes to be made based on simple, clear metrics based on Throughput, Investment and Operating Expenses

Identify strategies to achieve goals

Identify strategies for a “viable vision”—the ever-improving and growing organization

Capture goals and strategies in a visual format

Capture strategies and underlying tactics in a visual format (Strategies and Tactics Tree)

 

We believe that these strong similarities merely lend credence to their effectiveness. These methods can be applied to any system—even systems that extend outside the four walls of a single enterprise—such as a supply chain.

 

We would like to hear your thoughts on these concepts. Please leave your comments below.

This is Part 2 of my comments regarding an article originally posted by Curt Finch under the same title. You will find Finch’s article posted here.  In the article, he covers the following aspects as “factors” for consideration in the purchase or upgrade of an ERP [Enterprise Resource Planning] system for a business enterprise:SuperERP Solution_fakeAdv_B.jpg

  1. Versatility
  2. Local or cloud
  3. Customization
  4. Reporting
  5. Integration
  6. Vendor analysis

 

We covered the first three factors in Part 1. In this article we would like to take a look at factors four, five and six from a different point of view.

Reporting

 

Finch’s questions, in our opinion, barely scratch the surface: “What information do you need to retrieve? What analytics do you need to access? What trends will you need to monitor over the next five years?”

 

Underlying these questions are more fundamental questions to ask, we believe:

  1. In what ways will the data captured and made available to you through your ERP system help management attention focus on those very few factors that lead to increasing Throughput, reducing Investment requirements—now and in the future, or slash Operating Expenses—while continuing to support significant increases in Throughput?
  2. In what very practical ways will our analytics help our management team improve our market segmentation, or help drive more, better and faster product development with the goal of increasing Throughput?

 

One of the huge mistakes we see business executives and managers making over and over is to hold the fantasy in their heads that “more data means better management” and that “if we just had all the data perfectly available to us, we could manage perfectly.” The result of this widely held belief leads all too frequently to “data overload.” Enterprises are so swamped with data that management focus is entirely diffused. No one is certain where they should focus their management attentions.


Management attention is every firm’s most valuable asset. Do not squander it my thinking that better—or, more—reporting capabilities will lead to better management. Instead, focusing management’s attention on the very small number of factors in your organization where change will truly lead to a process of ongoing improvement (POOGI) will lead to discovery of the right things to capture, report on, and measure.

Integration

 

Mister Finch properly assess that “[a]n ERP solution is only a solution if it helps ease workflow issues, not compound them.” This is true, and I would add that, not infrequently, the best software to attack a specific issue is seldom to be found in any ERP solution—anymore than the best camera you can buy would be found in a smartphone or other multi-function device.

 

Best of breed solutions for supply chain management, banking, treasury management, or vertical industry requirements (like, say, the concrete and aggregate industry) are not to be found built-in to any ERP systems. These best of class solutions must be integrated into your business and integrated into your ERP system. So, looking for an ERP system that makes high quality integrations easy, simple and affordable can be a smart move.

 

If you are going to be doing a fair number of integrations, then consider investing in an integration engine of some kind. Frequently these have graphical user interfaces and many built-in tools to make creating, changing and managing multiple integrations much less time-consuming and costly.

Vendor analysis

 

To tell you the truth, I found this sixth factor from Finch to be a bit baffling. Off all the possible factors for consideration in the purchase or upgrade of an ERP system, why focus on the niche of “vendor analysis”? I think he might be a bit off the mark on this one (with all due respect).

 

Now, if Finch had, instead, list “Vendor collaboration,” I would have agreed with him wholeheartedly.

 

In today’s economy, the real competition is between supply chains, and not so much between specific companies. This is especially true when the outside-in supply chain is considered and the supply chain is not narrowly defined as buying, transporting, and selling products.

 

For very successful companies like Toyota, the supply chain covers everything from product design all the way through to after-market service. Toyota’s key suppliers are tightly integrated into the whole design-develop-manufacture-deliver process. This requires high levels of vendor collaboration.

 

In my view, anything a company can do in term of improving and facilitating vendor collaboration is a positive step. If the firm’s ERP system can make taking those positive steps forward easier and less costly, then the firm is another step ahead of its competitors who must struggle to make it happen.

 

Please leave your comments and questions below. We look forward to hearing from you.

evaluate.JPGCurt Finch wrote an article under precisely the same title. You will find it posted here.  In the article, he covers the following aspects as “factors” for consideration:

  1. Versatility
  2. Local or cloud
  3. Customization
  4. Reporting
  5. Integration
  6. Vendor analysis

 

We would like to take a look at these factors from another point of view.

 

Versatility

 

Finch writes, “As businesses grow, they may acquire other companies or split into multiple divisions or have greater degrees of separation between the various parts of the company. A good ERP [Enterprise Resource Planning] system provides the tools necessary to manage a diverse, and continually diversifying, business.” We really have no disagreement with this, although we would suggest that anyone shopping for a new or replacement ERP system consider the likelihood of leveraging the software to business advantage—read: profitability—before spending money on versatility for the sake of versatility.

 

Local or cloud

 

Writer Curt Finch sums this section up by saying, “[I]t is important to select an ERP that offers the option [on-premises or cloud] your business needs.” Of course, this goes without saying. But, here again, we like to remind ERP “shoppers” and buyers that the decision to buy a replacement ERP system should not be made in a vacuum as a “technology” decision or, perhaps worse, a purely “functional” decision based on a “requirements list”—which is, too frequently, little more than a wish-list from some parts of the organization.

 

The decision of local versus cloud should be based on the business advantages or disadvantages of each. These calculations should be based on estimates and projections considering three key factors:

  1. Changes in Throughput (i.e., revenues less only truly variable costs)
  2. Changes in Investment (including inventories)
  3. Changes in Operating Expenses

 

It is likely that an on-premises ERP will increase Investment more, while a cloud-based ERP will have a more dramatic impact on Operating Expenses. But the real question should begin with: What advantages will one choice over the other have on our ability to increase Throughput significantly while minimizing Investment and holding the line on Operating Expenses?

 

If your firm starts with that question, you will be more likely to make a wise decision.

 

Customization

 

“If keeping up with your industry’s changes is like hitting a moving target, you need an ERP system that is designed from the ground up to allow in-house customization and configuration,” Finch opines. We would agree to some degree.

 

However, we have seen companies of all different sizes undertake customizations that probably should never have been done at all. For this reason, we would first ask the question whether a customization should be required at all.

 

Not long ago, we worked with a company that insisted that they needed a fully-custom sales order entry screen to support all of their “unique” (every company thinks they are entirely unique, apparently) requirements in customer service and sales operations. After listening to what they wanted to accomplish, we suggest that they stick with the out-of-the-box sales order entry screens with just a couple of easy-to-manage modifications. This suggestion, however, was roundly rejected by the firm.

 

After spending very nearly $100,000 in development of their fully-custom order entry system with still not all of the features they thought they needed in-place and working, they reconsidered their decision. Upon reconsideration, they decided to abandon their fully-custom order entry application and implement the out-of-the-box standard order entry screens with minor modifications.

 

Our recommendation to our clients is to consider any expenditure on customizations on the basis of the three metrics mentioned above—and, most importantly, in this priority order:

  1. Will the customizations or modifications help us increase Throughput?
  2. Will the customizations or modifications help us reduce Investment elsewhere in our enterprise?
  3. Will the customizations or modifications help us slash Operating Expenses—or, at least, hold the line on Operating Expenses—while supporting significant increases in Throughput?

 

If your management team will answer these questions honestly, chances are you will make wise decisions in this arena. It is most important that the matter of reductions in Operating Expenses be limited to real reductions—not “rules of thumb” or “savings” that will not be made real through layoffs or other hard changes.

 

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We will continue this review in Part Two of this series.

 

Please leave your comments and questions below.