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2016

Most of the executives and managers with whom we come into contact already have a pretty good idea about where improvements need to be made, or could be made, in their operations and their SMART Goals.JPGsupply chains.

 

Typically, we hear about areas like

Setting goals for improvement projects

 

By now, almost all our readers have probably heard the popular acronym for goal-setting. Using S.M.A.R.T., these state that all goals should be

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time-related

 

Let me say from the outset that I, personally, do not see a lot of distinction between “attainable” and “realistic.” Clearly, in my mind, an unattainable goal is not a realistic goal either; and an unrealistic goal is likely unattainable for one reason or another.

 

The How-To of setting S.M.A.R.T. goals

 

Let’s walk through how we might help a client start to set S.M.A.R.T. goals for an improvement project. For this example, we will say that the company’s current customer service levels average around 84 percent as calculated using this formula:

 

Average Number of Customer Order Lines Shipped Complete and On-Time / Average Total Number of Customer Order Lines to be Shipped

Or, in this specific case,

18,480 / 22,000 (per month) = 84%

 

Next, for our hypothetical case, we will say that their cross-functional team has created a plan to move to a full-fledge Demand Driven MRP (DDMRP) implementation. They have laid out a rational plan, with our help, that says they can complete the implementation in about 90 days to 120 days. They believe that improvement will begin to be manifested at 60 days into the implementation, and that the company will improve to a 98 percent customer service level within six (6) months.

 

Furthermore, the plan suggests that they can achieve this improvement in customer service levels without any additional net investment in average inventory dollars.

 

This gives us two factors to measure:

  1. Customer Service Levels
  2. Averaged Inventory Dollars

 

This satisfies the first two S.M.A.R.T. requirements: we have specific metrics, including rules for calculating them. And, with the rules in place, we know how to measure them. They are, therefore, measurable.

 

We have also factored in a time-related element.

 

It will be simple enough to create a Microsoft Excel® workbook that can track and chart over time Inventory Dollars on-hand against the baseline average. In the same workbook, we can create a sheet—and a chart—that tracks week-by-week Customer Service Levels. This would be compared to a forecast improvement that begins at 84 percent 60 days after the commencement of the DDMRP implementation, and follows a straight-line trend up to 98 percent over six months.

 

That takes care of the ‘T’ in S.M.A.R.T.

 

Now, let’s talk about Attainable and Realistic

 

The ‘A’ and ‘R’ are at the very heart (literally) of S.M.A.R.T. Nevertheless, they are the most overlooked part of creating truly “smart” goals for improvement projects.

 

Read that paragraph again, above, that begins “Next, for our hypothetical case, we will say….”

 

In a great many cases, the attainable and realistic analysis never gets much beyond the kind of language contained in that paragraph. The fact that someone—or some group of folks—have convinced themselves that their actions will improve customer service levels from their current level of 84 percent to 98 percent over six months does not, in itself, make the goal either attainable or reasonable.

 

Unless a cross-functional team has clearly identified the bottlenecks in the current modes of operation that have, heretofore, kept the firm and the supply chain from achieving a consistent 98 percent customer service level, then the “goal” is little more than wishful thinking.

 

I say this because, if such an improvement could be achieved without a clear comprehension of what is presently keeping it from being achieved, then it would already be done.

 

Our approach is to help the supply chain’s (or, company’s) cross-functional team come to an indisputably clear understanding of their current situation and its bottlenecks by helping them apply the Thinking Processes originating with Eliyahu Goldratt (Theory of Constraints). By constructing and refining a Current Reality Tree (CRT), the team comes to find real clarity about the causes of their current situation and the fundamental changes that need to be made.

 

Building on this understanding as a solid foundation, they are then able to extrapolate to the clear and concise strides that are needed to carry out step-by-step improvements necessary to actually achieve the targeted 98 percent customer service levels.

 

In the absence of this clarity and detail, there is no “attainable” or “realistic,” there are only wishes and desires.

 

Smart cannot be spelled without the ‘A’ and the ‘R.’

 

Proceeding without these two elements makes your team only ‘S.M.T.’, not S.M.A.R.T.

 

 

We would be delighted to hear from you. Tell us about your successes with using S.M.A.R.T. goals for improvement. Or, if you have questions, we’d be happy to field those, as well.

 

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Save 392Hours per Month.jpg

Recently I received an email advertisement from a reputable company (which shall go unnamed). The startling claim in the headline of the email was, “How to Save Your Warehouse Over 392 Hours per Month!” and it was about an automated pick, pack and ship technologies, along with integrated credit card processing, for a specific ERP system.

 

The headline was backed up by this statement in the text: “Using this integrated combined solution one customer has reported to save over 392 hours a month!” [Emphasis in the original.]

 

Let’s do the math together

 

A reduction of 392 hours per month calculates to be an average of 19.6 hours per day (based on 20 working-days in a typical month). Divide that 19.6 hours per day by 8 hours per day per person, and you have 2.45 person-days “saved” per day.

 

If the typical warehouse employee costs the company $45,000 annually (including direct wages and all direct labor overhead), that would suggest the company is saving on the order of $110,250 per year in this new operating mode.

 

Based on that old saw that any cost reduction falls directly to the bottom line, then the company reported should be making nearly $10,000 per month in additional profits.

 

Wonderful!

 

Yes, but…

 

How many of you just read the paragraphs above regarding the $110,000+ in new “profits” with a jaundiced eye and thought to yourself, “Yes, but….”?

 

My guess is that most of you did.

 

But, why?

 

Why do so many managers and executives seeking to buy new solutions accept “cost justifications” and “payback” figures from their technology vendors? This is especially a provoking question when faced with the reality that—in their heart of hearts—most of them know they will probably never actually see the benefit the promised “savings.”

 

For the sake of this discussion

 

For the sake of this discussion, let us say that—in the example above—the estimated cost of the “integrated combined solution” just happened to be $100,000. That might be low, but let’s use it for simplicity’s sake.

 

At a cost of $100,000, and a first-year savings of $110,000, the new technology is a “shoe-in” with a payback period of under one year!

 

But, as you are probably thinking, there’s a problem with our numbers.

 

Well, the numbers (we will assume) are 100 percent accurate and precise!

 

The costs always come to true

 

Here is the real problem with taking any kind of “savings” numbers at face value without further logical consideration and planning.

 

Unless the company hyped by the technology vendor in their advertisement laid-off two (2) full-time warehouse workers and reassigned another about half-time to some other operation, or cut back overtime by 260 hours a month (more than 60 hours a week), then no real dollar-valued “savings” occurred.

 

Nevertheless, if the new technologies cost the company the promised $100,000—and those promises virtually always come true, and are many time exceeded—then the payback period has become infinite ($100,000 divided by $0 in annual savings).

 

Increases in Throughput are key

 

It is possible to have “savings” that are not lay-off dependent. If the company in the advertisement is on a steep growth trajectory, then the “savings” may be accrued over time as Throughput increases, but operating expenses are held at current levels. This might lead to “savings” by not having to hire 2.5 employees to support increases in Throughput.

 

Our argument, in such as case, is that these matters should never be taken for granted. Instead, they should be thoroughly articulated in the justification of any improvement effort. We use an easy-to-comprehend formula to help our clients work these out.

 

ROI = (delta-T – delta-OE) / delta-I

where T = Throughput,
OE = Operating Expenses,
I = Investment

 

This formula can be read as return on investment (ROI) is equal to (the change in Throughput less the change in Operating Expenses) divided by the change in Investment.

 

If the company referenced in the advertisement is not going to base new Throughput (we define Throughput as revenues less only truly variable costs) on this investment and is not going to reap the labor savings in dollars through layoffs or reassignments), then their calculation would be:

 

ROI = ($0 - $0) / $100,000 = 0%

 

Not a very enticing proposition, is it.

 

With layoffs and / or reassignments to garner the savings in OE, it would be:

 

ROI ($0 – (-$110,250)) / $100,000 = 110.25%

 

With an estimated $200,000 increase in Throughput (first year) and no change in OE, we would state it as follows:

 

ROI = ($200,000 - $0) / $100,000 = 200%

 

Either of these options are worth considering.

 

Every improvement project deserves hard-dollar evaluation

 

We believe every improvement project deserves hard-dollar evaluations. And that those evaluations ought to be clearly articulated and understood by executives and managers before a commitment is made for the hard-dollar investment.

 

We help our clients make such evaluations based on the principle that “approximately right is more important than being precisely wrong.”

 

How do you analyze your potential improvement projects to provide a greater assurance of real and effective ROI for your investment? We would like to hear from you. Let us know what works for you?

 

Please leave your comments below.

 

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Do you ever find yourself sitting at your desk, just staring off into the distance somewhere thinking to yourself, “It seems like I’ve tried everything to improve the performance of my DeathtoStock_Creative Community3.jpgsupply chain (or, my company), and nothing seems to really stick. I can’t seem to find any keys to long-lasting success. I seem to be able to make short runs at improvement, but I’m not seeing long-term improvement.”

 

Becoming a tribal leader for change

 

Seth Godin, writing in Tribes (Godin, Seth. Tribes: We Need You to Lead Us. London: Piatkus, 2008.), gives us a solemn reminder:

 

We live in a world where we have the leverage to make things happen, the desire to do work we believe in, and a marketplace that is begging us to be remarkable. And yet, in the middle of these changes, we still get stuck.

 

Stuck following archaic rules.

 

Stuck in industries that not only avoid change but actively fight it.

 

Stuck in fear of what our boss will say, stuck because we’re afraid we’ll get into trouble.

 

By the way, even many who are, in fact, “the boss,” are also stuck in fear—fear if being wrong; fear of making a mistake. Because of this, they tend to stick to the well-worn paths. They get stuck doing the same things every other mediocre player in their industry is doing. They get stuck doing these same things over and over and over again, always hoping in vain from some real and long-lasting improvement that never seems to come.

 

Does this describe you? Does it describe your company? Does it describe your supply chain?

 

Leadership isn’t about authority

 

Godin (in Tribes) briefly relates the story of Thomas Barnett who changed the Pentagon from the bottom up. Almost singlehandedly, “Mr. Barnett overhauled the concept to address more directly the post-9/11 world,” the Wall Street Journal reported.

 

Without status or rank, “Barnett led a tribe that was passionate about change. He galvanized them, inspired them, and connected them, though his ideas,” Godin says.

“One man with no authority suddenly becomes a key figure. Tribes give each of us the very same opportunity. Skill and attitude are essential. Authority is not. In fact, authority can get in the way,” opines Godin.

 

Steps to tribal leadership and real change

  1. Create a sense of urgency – Getting people excited about change means showing them that their lives (both individually and within the context of the company or supply chain) can be better off if they are willing to join you in your adventure into (perhaps) uncharted territory. After all, you’ve already proven over and over that the well-known paths don’t really lead to long-term improvement—just more firefighting.
  2. Build a guiding coalition – Get a small, but strategic, handful of people on-board with your goals and methods early. Having tools that help them see your reasoning can help. We suggest using the Thinking Processes that originated with Eliyahu Goldratt and the Theory of Constraints.
  3. Form a strategic vision and define key initiatives – Conceiving a truly effective strategic vision is not beyond your skillset. However, clarifying that vision and articulating it to your tribe can be more difficult. Here again, we find in working with our clients that using the Thinking Processes to be extremely valuable. In particular, the process moves from the development of a CRT (Current Reality Tree), in order to understand your current situation, to the development of a FRT (Future Reality Tree) as the articulation of your “strategic vision.” Next comes the use of the TrT (Transition Tree) to help define and articulate key initiatives require for ongoing improvement.
  4. Enlist a volunteer army – With a vision and concrete actions that can be clearly communicated to a larger group—thanks to the Thinking Processes toolset—you are ready to enlist more volunteers; that is, to enlarge your tribe.
  5. Enable action by removing barriers – Building your Transition Tree has already helped you and your tribe foresee the obstacles to improvement. Plus, using the TrT as a tool, your tribe has already figured out what logical actions need to be taken to overcome these obstacles. Now, it’s time to take action.
  6. Generate short-term wins – Our experience in helping clients implement a process of ongoing improvement (POOGI) using the Thinking Processes shows that, almost without exception, there are at least a handful of things that can be done immediately, and a little or no cost, that will lead to immediate improvements that pay off handsomely in terms of increase Throughput and cash-flow.
  7. Sustain and accelerate – Tribes built around the Thinking Processes tend to become obsessed with the concept of ongoing improvement. Sustaining the POOGI is not a chore, and improvement tends to accelerate over time.
  8. Don’t let inertia set in – POOGI tribes tend to begin seeing change as the normal condition, because it is impossible to improve without change. If improvement is to be ongoing, then change must also be ongoing.

 

It is important to realize that a Thinking Processes-based POOGI almost always results in a long-term change in the culture of the supply chain or company.

 

But, after years of trying the same methods over and over with little to show for it in terms of long-term gains, isn’t it time to try something new? It’s time to say: “Enough is enough! Let’s try something new—something we haven’t tried before.”

 

 

Please tell us about your POOGI efforts. What is working? What is not working? What new things have you tried in the three to five years?

 

Leave your comments below. We would really like to hear from you.

 

Follow us on Twitter: @RKLeSolutions and @RDCushing
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