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I interviewed Farhan Mirza who discussed Effective Program Management Leads to Effective Delivery Management.







It’s great to speak with you again today, Farhan. We’ve done interviews in the past. Today's topic is “Effective Program Management Leads to Effective Delivery Management.”


Can you first provide a brief background of yourself?


Sure. Thank you again for having me on board, Dustin. A pleasure coming in. I’m Farhan Mirza with BAFF Consulting, specializing in the supply chain operational and leading manufacturing and quality management systems. Generally we go in and work with companies, helping them eventually improve their EBITDA and then improve their operating margins. In the past year I’ve had the opportunity of helping certain organizations with this specific topic, so I thought it’d be a great topic to share my experiences.


Thanks. What are the issues you typically see in the consulting world at your client-manufacturing sites, which drive back to the need for effective program management?


What I’ve noticed over the past almost 20 years of my various experiences from the quality manufacturing and supply chain assignments I’ve worked on, Dustin, is, whether it’s a retail service or manufacturing environment, generally, program management has the following typical issues—seven to eight is what I bucket them in.


1. One is late to delivery as committed to the customer.

2. Shortage of parts; again, there could be a reason for that—because we didn’t plan it right. Excess or off inventory where what’s needed is not there and what’s not really needed or in lesser quantity is in abundance.

3. Meetings to obsolescence, because engineering changes happen at the last minute, when we didn’t plan it right in the planning phase.

4. The fourth issue is people training, where we have abundance of workforce, but then the right people for the right assignment and the right work cells were not trained, whether it’s training for a call center operation or training for a specific manufacturing operation.

5. The fifth comes in as you have got policies. People take vacation, which is all fine, but the plan that key members of the work cell without having the training matrix completed are sent on vacation, and then what really happens? Then you’re struggling for the right workforce to come and support the operation.

6. The seventh thing I see is a purchase-order process not implemented. What that does is basically, purchase orders are implemented, but there is lack of control; in that process, duplicates or excess and overshooting the budget happens.

7. The next thing I see is approval processes are not in place. You may see a $100,000 PO approved without the right due diligence where you go through a lot of pain trying to get a $1000 PO approved.

8. Last but not least is escalating SPOT BUYS (3:09—unclear) happening where we see the budgets overshoot, managers come under extreme pressure by the senior leadership or the board for having projects go beyond budget. Sometimes, not all the time, but quality is being compromised just because they’ve got to cut corners somewhere. In that zeal of making sure things happen right, we are crossing the boundaries and then not making it right with enough checks. At the end of the day, warranty costs escalate because we’re trying to do a lot more in a shorter period of time.


How do you implement an effective program-management system?


From this point on, of all the seven to eight things I mentioned, what we call a true,cradle to grave project-management system from my automotive days, what we used to term as the master Dot philosophy. It truly means from the sales order being agreed, when the sales team on the organization’s side to the customer with whom they got the sales order, once that is locked in, from that point on until, especially if you’re talking a manufacturing environment, you’re going to the installation and commissioning of the project. Anything and everything in between; that’s what I call it a cradle to grave approach.


Now, in this process there is a set template we use, and then it’s tailor-made, custom-made to every organization, but the broader principles are the same. You bucket them into, I would say, four ideal pillars: management and human resources as the one pillar; quality systems as the second pillar; manufacturing, processes, and systems as the third pillar; and safety as the fourth pillar. You can add another pillar to delivery due diligence, contact management, and legal, but that could go as a support function.


These are the five main areas. What we do is, within each of those, view the steps from the point of a sales order, as an example, what should happen that engineering should then eventually come up with the prints, what should happen for the prints to be approved by the customer or the drawing of the product, even if it’s the garment industry. Customers see what you produced. Then you go in and talk to the president, then they get a chance to talk to their supply chain; they get a chance to talk to what tooling and other equipment is needed; then the training aspects come in, and so on and so forth in every area. You could go in and then figure out what specifically is needed. And this is how the custom-made, tailor-made requirements are being set in to this program-management template.


How do you execute the implemented system?


Once we go through this system, the five pillars, the key, obviously, is, one is you get the key to open the safe. The second thing is how you’re going to take everything safely out of the safe and carry it to that destination; that’s where execution comes in. Execution is based on the plan do act check methodology. We call it the, in the planning phase, you want to absolutely make sure that nothing is going to cost the planning phase and go and become an issue down the road.


Then you go to the manufacturing phase and figure out—just like Reverse process Failure Mode and Effects Analysis (FMEA) (7:04—unclear).We want to figure out what there is at all possible that’s not going to become an issue in the manufacturing of the product, then you go to the quality side of the business and say, “What I want to absolutely make sure is not going to happen and become an issue outside my facility, that all the checks and balances are in this quality system,” and all the right

pieces are present so that the flawless product is going to eventually reach the customer. The final result of that, obviously, will be that there’s going to be no warranty and then, as defined for you, it’s going to be in the hands of the final customer. Every line item I mentioned above has to accomplish this, will get a Countermeasure Sheet (7:55—unclear), and then every line item in that custom-built template I mentioned, those five pillars, will have a deadline and honor a specific, tailored, very succinct, clear line item as an action. If not, a few lines, a couple to three or four words; very succinct and very clear. You can look at it on the wall and see how it is.


The whole thing is printed, and then, to each of those actions, if the action is not going to happen as per the timing, you have to have a counter measure. All of this is printed on the wall, and the counter measure sheet is below this mega project plan. On the counter measure sheet, you’ll have, if something’s early to timing, you have to still count the measure because you don’t want to get burdened on the subsequent operation; if you’re late to the completion date, you still have to counter measure; and if you’re getting a late start or have not started because there was a prior activity going on, you still have to count the measure.


And, last but not least, no target date can ever move. The target is not a moving target. We have committed to the customer, and what it drives in the organization is the culture. The culture is: We have to do everything possible to make things change in our process to still hit that final target date for every single action item we listed. The target dates and the discipline cannot move, and at no point in time will we agree that the resources are going to be changed without the entire team’s buying. We are not going to pull someone just because some other department feel it is needed without the entire team buying it and seeing what the entire allocation has to do for the overall project.


Last but not least is: Lessons-learned documentation. We have to absolutely have a lessons learned so that subsequent projects and partnered projects which are happening will carry forward these lessons learned. Certain organizations go through the very good discipline of having a lessons-learned database, where all this is documented. The lessons-learned database is going to be reviewed before the sales order is kicked off into a purchase-order process and an engineering-design approval, everything is done. That minimizes the risk of having issues with subsequent projects.


How can the audience reach you if they need help with the implementation or other questions they may have?


Sure; I’m at, the Web site. Over there you have got the e-mail, as well as the phone numbers. My personal e-mail is


Thanks again for sharing.


My pleasure. Thank you again for having me on board. I’m looking forward to further interactions with you, Dustin.







About Farhan Mirza



Farhan Mirza


VP | Operations | Manufacturing | Global Sourcing, Supply Chain, Logistics |


LinkedIn Profile

I interviewed Rod Collins who discussed How Collective Learning is the Essence of True Organizational Learning.







It’s great to speak with you again, Rod. I’m looking forward to hearing your views on the topic of how collective learning is the essence of true organizational learning. My first question is: What is collective learning and how is it different from other kinds of learning?


Dustin, good to be with you again. Collective learning is at the heart of the new emerging management model. When you look at companies such as Google and Gore and Valve, Zappos, some of the best-known companies, if you look closely at them, you notice that they are organized as networks and, as such, are organized to leverage their collective intelligence. This is in contrast to traditional organizations, which are primarily designed to leverage individual intelligence. That’s why, in hierarchies, we build top-down structures and give people command-and-control authority, so the smartest individuals wind up giving directions to everyone else. The new networked organizations see intelligence very, very differently. I think they realize that our highest form of intelligence is really collective intelligence, and this is where we’re able to aggregate all the thinking of the full diversity of the people involved in the organizations. By aggregating that, we’re able to come up with a higher level of knowledge than any one of us can come up with individually.


Let me give you an example of where that happened recently. There was biomolecular problem that was causing a lot of difficulty. The world’s best scientists had been working on it for ten years, and, despite that, they couldn’t crack this puzzle problem they had. There was a professor at the University of Washington who had an online group called Foldit. He threw the problem out to that global community, and they solved the problem in ten days. I think that shows the power of collective intelligence.


When organizations have processes where they’re able to collate the collective intelligence within their organizations, this gives them an incredible asset when it comes to speed. The primary difference between collective and individual learning is: Individual learning is what we learn to do in schools. It’s the idea that we gather knowledge and we become masters of it on an individual basis, whereas collective learning is based on the idea that we continually combine the different information we all have, and, in so doing, we’re able to create a level of learning that is actually greater than the sum of parts.


Does collective learning mean that we erase the individual from the equation?


That’s a great question and, no, not at all. It’s not a question of either-or; it’s a question of both-and. It’s also a recognition that collective learning oftentimes achieves a higher level of result than individual learning by itself. However, collective learning is most powerful when we’re bringing together the intelligence of highly intelligent, smart individuals.


This point was especially made by James Surowiecki, who wrote a book called The Wisdom of Crowds. What he focused on in that book is how, oftentimes, collective intelligence works much better than relying upon the intelligence of a single individual to plot a course of action or to make a decision. He’s very careful to point out that in order to get collective learning and contrasting it, if you will, to group think, there are four conditions that are very important.


The first is: You need diversity of opinion. The second is: You need independent thinking; people have to be free to express what they think. You have to have a lot of local knowledge, so a lot of individual intelligence and local factors—be they knowledge about customers, a knowledge about business processes—is critical to the process. Finally, you need an aggregation mechanism to pull it all together. Clearly, individual intelligence is an important component if we want to get to a high order of collective intelligence.


Can you be both an individual and also be part of a collective?


Yes, yes. In putting together and processing collective intelligence, you want individuals to have the freedom to express the intelligence they have. Oftentimes, I think particularly highly intelligent individuals really come to value the collective-learning process because, as a result of it, not only do they get to contribute their individual knowledge, but by experiencing and helping to craft a collective-learning solution, they’re also expanding their own individual intelligence even more.


My last question is: What’s the difference between cooperation and collaboration?


This was a point that Jane McGonigal focused in on. She wrote this wonderful book called Reality is Broken. I think a lot of times, especially those who come from traditional management backgrounds, they often perceive collaboration as just another term for cooperation. McGonigal points out that collaboration is really much deeper and broader than mere cooperation.

She defines collaboration as the intersection of three factors, one of which is cooperation. Cooperation is the attitude of “I’m going to work more effectively with other people.” She also points out that in addition to cooperation, another element is coordination. While cooperation is the attitude of “I’ll work with you,” coordination is the specific processes of coming together and do the cooperation.

She says there’s a third element, and this is what really distinguishes collaboration from simple cooperation. The third element is cocreation. She makes the point, without cocreation, you can’t have collaboration. This is, again, why networks leveraging collective intelligence are so important. Collective intelligence is, by definition, a form of cocreation.


The problem with traditional organizations and their reliance mainly on coordination and cooperation is, what they’re really looking for in those two dimensions is that people will get on the same page, they’ll fall in line with the company directions and become good followers. In traditional organization, which is leveraging the individual intelligence, if you will, of the managers, there is not only not an expectation of cocreation, but, oftentimes, the organizational processes are designed so that cocreation is impossible, because it’s not seen as a need. Creating is something that is essentially happening at the upper echelons, and there’s no need for that to go out in the lower levels of the organization.


Truly collaborative enterprises see it very differently. They see that cocreation by all people involved within the organization will lead to a situation where the organization is more likely to achieve a higher level of results faster and more quickly. You can see from that, because of this element of cocreation, collaboration is fundamentally different from mere cooperation.


Thanks again for sharing today, Rod, and I hope we can continue to do our own collective learning with this blog and continue to evolve our discussions.


Dustin, it’s always a pleasure to speak with you.


Thank you.


Thank you.




About Rod Collins



Rod Collins


Author, Speaker, and Innovation & Organizational Design Expert at Optimity Advisors


LinkedIn Profile

I interviewed Mary Adams who discussed Smarter Supply Chains.





It’s nice to speak with you again, Mary. We’ve done great interviews in the past, and today I’m looking forward to hearing a new topic you have, which is smarter supply chains. Before we start, can you provide a brief background of yourself?


Sure. Hi, Dustin. Really glad to speak with you again; it’s always interesting to hear your perspectives and your experience in this space. My background is, I spent close to 15 years as a high-risk lender, so I was in the financial world; then I had a strategy consulting firm for another 15 years or so.


Two years ago I started Smarter Companies, which is really a knowledge-era story. In the first 30 years of my career, I developed a deep understanding of this new and tangible side of business, which has been growing and growing, and developed some tools and methodologies we were using in our consulting firm. I had a lot of consultants from all over the world approaching me and saying, “We’d love to try and use your tools as well,” so Smarter Companies is a network of consultants who are all using this space of tools we’ve created and hopefully continuing to innovate and build on the experience space, because there’s so much going on with business on the intangible side that I’ll talk about in a second. That’s my mission: to help people see and measure and really bring their organizations to a new level of performance and value and value creation by paying attention to these intangibles.


Can we start by talking about what smarter supply chains are?


It’s interesting. In this new course that we’re launching next week, called Building Smarter Companies, one of the key examples we use throughout is Federal Express. The reason we do that is because it’s a great example that everybody knows—and certainly one relevant to a supply chain audience—of what’s happening in business today. Essentially, about 80 percent of the value and value creation in business today is in tangibles rather than intangibles. At first blush, you say, “Well, how can they be? A company like Federal Express has the largest private air fleet in the world. They have countless trucks and pieces of equipment and scanners and facilities, so it seems like a very tangible business.”


When you think about where the value is and what really makes that company tick and successful, it’s not those things they own, those tangible goods. It’s the systems and processes and the data they’ve accumulated over decades and the training they have in place for their people and the competencies that those people exhibit every day, the partnerships they’ve developed in hundreds of countries around the world and in each local market where they’re serving their customers. It’s their culture, their business model. All of these intangible things are really what makes Federal Express successful, it’s what makes the company unique, and, if you think about really most companies or parts of companies or companies related to the supply chain, the same logic applies. Anybody can buy a truck. If you have enough money, you can buy an airplane, you can buy the equipment, but that doesn’t make you a successful supply chain player. It’s the intangibles that make you successful.


The problem is that we’re all still working with Industrial Era information systems, and when you talk to the people in Accounting, they know how to put planes and ships and equipment on a balance sheet; they don’t know how, and they don’t, put things like processes and data and competencies and partnerships on that balance sheet. Where do you go? How do you talk about this system in an integrated way and with a nice, clear set of data that says, “Okay, this is what we have, this is how well it’s performing, this is how we’re investing in it,” just the way you should and do for your tangible assets?


Who can benefit from your training?


The training is oriented to external consultants or internal, as we call them, catalysts. People who are seeking to drive some change, who are in a position where they can come forward and say, “We have this problem.” I call it the intangible-information gap, the 8/0/20. Most organizations, 80 percent of their information is about 20 percent of their assets, and there’s very little information on a clear, consolidated basis about intangibles.


The people who can benefit are external or internal consultants or catalysts, people who want to provoke the conversation and know that having better information about these things will drive better decisions and will also enable them to tell a more clear story about what a company has and what’s needed for the future. I think a lot of what happens in supply chain is about communicating with the different partners about the viability and strength and risk associated with intangibles. I hope, 20 years from now, everybody in a management program learns about intangibles. For now, we’re starting with the consultants and catalysts.


I know you mentioned a little bit about why. Can you talk a little bit more about why use this training?


When you go into a conference room and sit down and start talking about these things I’ve mentioned—processes and data and capabilities and partnerships—most of the information we use is anecdotal, and it’s based on people’s experience. You may have deep information about little pieces of specific processes or specific things, but no one has an overall, I call it a balance-sheet equivalent, that says “Here’s what we have and here’s how it all works as a system.” What happens if all the information is kind of in people’s heads, if they’re making their own judgments about how well things are working, then you’re never going to be able to make the progress you want to, because you’re going to spend all this time discussing or arguing between yourselves about if it’s working or not, how well it’s working, if you are or aren’t at risk.


All of these things are things that can be quantified and identified and managed; it’s just, most people haven’t been trained to do it. Why should you do it? Two basic reasons. One is: You’re going to make better decisions. And, two: You’re going to be able to tell a better story. We all end up having to tell stories to recruit partners, to win funding for new initiatives.


We just had a situation last week with one of our clients where this information was critical to getting board approval for a big new investment. We all need to learn to tell the story about the way the system works and, obviously, to make better decisions about it.


How do you use this training effectively?


Well, it’s interesting because one of the things we teach is that there’s not one right framework for every organization; every organization’s a little different. If you think about what distinguishes—if we go back to the Federal Express example—what distinguishes FedEx from DHL, from UPS, from the U.S. Postal Service—I’m using U.S. examples, although many of them are international; you would have equivalents in all your different markets, because I know you have an international audience. What differentiates them? Yes, there are some common themes, but in today’s world we’re very much a knowledge economy, so it’s the people and the culture and the way you decide to solve problems that differentiates you.


How do you use it? What we’re really training people to do with the Smarter-Companies process—and I’ll just mention the process quickly, because I think that helps make it clearer—we’re teaching people how to go on a journey to map and measure and drive results with the unique, intangible set a company has. There are four steps in the process and it’s a continuous process and we have a module for each one.


The first one is matter. Why do intangibles matter? How do they relate to your goals? How do they drive financial results? What are your intangibles and how do they work together? Most organizations, if you can see a factory or you can see a distribution center, you know the way it works or it’s a lot easier to, but you can’t see inside computer systems and people’s heads, so you need to create a model of what’s going on.


Once you have a model or inventory, then you can, our third M is measure. People are not nearly as disciplined as they could be about measuring the intangibles. We teach three basic families of solutions. One is financial measurement, another is quantitative, and the other is qualitative. Qualitative is actually a really interesting emerging measurement if you think about Amazon and Expedia and all kinds of online profiles; it’s really qualitative measurement we’re all valuing much more than quantitative.


And the final step is manage. There are a lot of nuances to managing knowledge-based businesses as opposed to hard assets, so we just have an introduction to all those issues. Then, of course, you’ve gone through model, measure, manage, and it leads you right back to matter. How is this connecting with results? How can you communicate those results to others?


That’s what the course entails. What’s interesting for me as an intangible capitalist is that this course is basically taking you something that has been delivered—we’ve been doing this either face-to-face or via WebEx for a couple years now. The methodologies are about ten years old; the course is about two years old. Now we’re putting it online, which enables lots more people to access it. You can do it on your time; it doesn’t cost as much because I don’t have to talk through every single word of the course, but we still have an online community of people within the course communicating with each other. We’re excited. We’re launching it, as I said, next week.


How can people sign up if they’re interested in joining?


Dustin, I’ll give you a link you can put on your blog. I’ve got a little page on my site that says Smarter Supply Chains, and it explains to people if they’re interested in hearing more, I have a series of three articles that talks about how this consulting process works, how you sell this process—whether you’re doing it internally or with an external client—and then how you use this kind of thing to drive results, and how it all connects back to the intangible and the financial results people are accustomed to seeing.


If people are interested—even if they don’t want to take the course, they can read these three posts and learn a little bit about it, and then if they want to, we’d love to have some people from the supply chain world join in the conversation. One of the things that’s really fun about all the trainings we’ve done to date is that we have people from diverse fields who come in, and the participants end up learning a ton from each other because you have an innovation consultant and an evaluation consultant; they each have a deep expertise that they bring to each other. Although, as I said, I think it’d be interesting to have a version of this course just for supply chain people too, so maybe we can talk about that someday.


Yep, I look forward to reading those three articles you mentioned and getting more awareness of your course so we can have more of a learning community regarding smarter supply chains.


That’d be great; I’d love to.


Thanks, I’ll talk to you next time.


Thanks, Dustin.



How to sign up for Building Smarter Companies


The time has arrived and registration is now open for our charter on-line class for Building Smarter Companies!




About Mary Adams



Mary Adams


ICountant, Author, Speaker and Founder of Smarter-Companies


LinkedIn Profile

I interviewed Chuck Intrieri who discussed Why Lean Fails in Manufacturing, Distribution or Service Industries.




Lean is not a project. Lean is not a set of tools.


Lean is a philosophy. It is a new way of doing business. Lean is the elimination of all waste and bringing value to the customer. Lean is a paradigm shift. It takes a lot of education and training for everyone, including top management. If people see top management in training classes, they will take it seriously. Training is not over after initial training. Training is continuous as the Lean implementation continues.


Lean will fail if top management does not get behind it. Top Management must be a leading force behind Lean. They should be part of Lean teams. They must show that they are committed to Lean. With implementing Lean, top down is the only way Lean will work. Bottom up will fail.


Lean has to be in the hearts and minds of everyone in the company.


Genuine teamwork, not lip service, has to take place. Cross-functional teams have to work together in harmony and collaboration to eliminate all waste and bring value to the customer. Quality has to improve to 3.4 defects per million chances. This is Six Sigma. If you add Lean to Six Sigma (Lean Six Sigma or LSS) you obtain quality at a faster throughput to the customer. This quality mission takes everyone in the company.


These genuine teams need to use daily Continuous Improvement (Kaizen) to solve all problems that face the company in its goal to eliminate all waste and bring excellent service beyond the customer’s expectations.


If the company is not disciplined Lean will fail. One aspect of Lean is: DMAIC: Define, Measure, Analyze, Improve and Control. The key is Control. This takes discipline. Employees cannot fall back to the old ways of doing business. Lean takes sustaining any new implementation. Top Management must reinforce new, individual implementations to avoid “falling back.” Small wins in implementing Lean means a lot to the people.



Other members of the company’s Supply Chain has to be included. The Suppliers and Customers also have to practice “Extended Lean.” The Suppliers and Customers, in collaboration with the company, have to be part of the planning process called Sales and Operations Planning (S and OP) or Sales, Inventory and Operations Planning (SIOP).



The company has to get closer to the Customer’s actual needs to avoid inventory buildup. Inventory is money, and has to be perfectly accurate and minimal to meet needs not wants. Suppliers have to reduce their lead times in collaboration with the company and the Customers. If Third Patty Logistics (3PL) providers are involved, they must become part of the extended Lean team.


If the company culture is in place, top management is actively leading the way, training is extensive and continuous,genuine team work is in place, and Lean is in the hearts and minds of everyone in the company, you can look next at the Lean tools. The Lean tools are: 5S, Kaizen/Continuous Improvement, Kanban and Lean Six Sigma. This implementation of tools is a challenge as well.


To implement Lean, and not fail, all of these things need to be in place.


Easy? No way.


Lean is a challenge even with the right culture and discipline from everyone in, and outside (Extended Lean) the company.


Despite the enormous popularity of Lean, the track record for successful implementation of the methodology is spotty at best. Some recent studies say that failure rates for Lean programs range between 50 percent and 95 percent.


The basic reason why the implementation of Lean fails at most companies boils down to the culture.



About Chuck Intrieri


Charles (Chuck) Intrieri

Charles M. Intrieri Consulting




Chuck Intrieri

Supply Chain, Warehouse and Logistics Consultant specializing in 3PL, LEAN initiatives and collaboration


LinkedIn Profile

I interviewed Igor Queiroz who discussed Spare Parts Optimization.







It’s nice to speak with you today, Igor. Today I’m looking forward to hearing your views and experience regarding spare-parts optimization. Before we start, can you provide a brief background of yourself?


Thank you, Dustin, for having me here today. I’m working at Visagio, which is a consulting company, for more than four years as a project manager, leading projects mainly related to supply chain management, such as mining and retail. I’ve been also working on international projects in South America, Europe, Africa, and Russia.


Can you talk about your recent successful project when you working on spare-parts optimization and talk about the main goals you had for this project?


Sure I can. We recently finished three successful developments of spare-parts optimization in Africa. Two projects were in Burkina Faso, and one project was in Kenya. Normally, spare-parts stock-optimization projects, they try to help companies manage their spare parts.


Mainly, questions that companies are willing to have an answer are: Which items should I buy? How much of each item? When should I buy these items? These are questions that iron mind of procurement directors, and they normally have problems because of the high number of items they have to deal with.


An interesting point of such kind of project is the positive impact on companies since it affects both working capital and operational efficiency because spare parts are expensive and they’re also critical to operations. When we normally go to an operation, the common similarity we see is inconsistent database. Databases that companies deal, they’re full of duplications and also missing data.


Also, all the processes related to stock management, they’re not integrated, both with procurement department and end users. Also, there’s no proper methodology to calculate optimized min and max parameters so that they can manage the spare parts in the databases. As a direct consequence of these scenarios and issues I mentioned, companies end up having overstocked items, which is a working capital, and understocked items, causing stock-up defense, which impacts prediction efficiency.


To tackle these kinds of issues and to develop projects in order to solve most of the problems related to spare-parts stock optimization, we have a five-step approach.


1. The first one is: Clean the database. We collect data, we look for the duplications using mathematical models, and try to exclude duplications from the system. Then we go into other databases, trying to retrieve information that’s missing, such as unit prices, part numbers, and categories of items.


2. Once we have a clean database, then we’re ready to start the second part of the work, which is to collect inputs to optimize min and max parameters. Most important of these inputs is consumption and criticality of these items, because, normally, companies, they don’t have this information, or this information is very poor. With this work of assessing consumption criticality , we cannot simply use information that’s already in the system because the information is unreliable, as I told you. We have to map this information with the end users. It’s work that demands a lot of preparation with forms, training end users so they can really provide you with proper and reliable information of consumption criticality, and also monitoring this work. This is one of the most critical parts when you’re developing a spare-parts stock-optimization project.


3. Once you go through the second step, collecting this information from the end users, then comes the third step, which is the optimization process itself, which means that, in this part, we will put together all inputs we collected from end users of consumption and criticality and, together, we input information of lead time, unit cost, order cost, and stock-holding cost. We include this information in an optimization tool that we have developed. This optimization tool, it puts these inputs together and uses statistical models to properly calculate min and max parameters for both high-turnover items and low-turnover items, which are the most complicated ones that just simple mathematical models cannot deal with.


4. After you’ve finished the calculation and optimization processes, then we go through the implementation of new processes, because optimization process, it handles items that they already have in their system and they work with. When there’s a second part which the operation is still running and new items will be purchased, they’ll have to create these items and manage them properly. In order to avoid in the future that they will have such problems as they’re facing now, we have to guarantee that process of creating items, it’s in place in a way that they will be able to calculate proper minimized parameters with correct data so that they can manage them properly in the future.


We designed a new process of item creation and update in a way that we define roles and responsibility between the procurement department and end users. The procurement department is responsible for inputs that they have access to, such as lead time, such as unit cost and they ask, in the process, they receive information from end users criticality of items and expected consumption during the year. Then we apply these new processes—the optimization tool I told you we use to optimize items during the optimization process. We give this tool to the procurement department, to the client, so they can use the tool to help create minimized parameters for the new items that will be created.


The second process we also have to implement is to redefine the process that companies use to reorder items. It seems, many of them, they don’t even have minimized parameters; they have to develop a detailed process so they know exactly how to use minimized parameters once we percolate and give the parameters to them.


5. The fifth step, which I think is the most important, that is going to make sure that companies will be able to manage the spare parts after a project like this, is training. Normally, we conduct around 40 hours of training and a sit operation to guarantee all these new processes that I told you, they were absorbed by the procurement department and that they can run the process without the presence of the consulting team there. By the end of the project, after this training, the procurement team should be able to run processes without help from the consulting team; they will be independent.


As a typical result of a spare-parts optimization project—and these are even results that we had a chance to receive, because there are projects that we finished more than a year ago—there is an expected reduction of working capital of 20 percent in two years. We also see a very fast and short-term reduction of stock in transit. Companies stop buying things that are overstocked, so it’s an immediate impact; stock in transit goes down. We also see an increase of availability they won't run out of these parts. And cost avoidance around $2 million during the process.


Cost avoidance is one of maybe the shortest-term results that you can find in a project like this because once you have the preliminary parameters, you can already challenge purchases that are during the project to try to see if there is any overestimation or underestimation of these purchases. During the project, even without finishing, we are able to prevent the procurement department to purchase wrong.


I think those are the typical results that we find in our stock-optimization projects. That was a brief description of how a project of stock optimization is conducted.


Thank you, Igor, for sharing today. Do you have any final recommendations?


Recommendations. Companies should really try to assess how they are in terms of stock management, basically trying to see if there’s any feeling if they’re overstocked and, at the same time, they see end users complaining that they don’t see the items that they should find in the warehouse. If you are in this situation, if you see this scenario, your company or operation is probably one big candidate for a project like this.


Thanks for sharing today.


Thank you, Dustin.



About Igor Queiroz



Igor Queiroz


Consultant at Visagio


LinkedIn Profile

I interviewed Arnaud Deshais who discussed Supply Chain for E-Commerce Companies.







It’s good to speak with you again, Arnaud. It’s been about a year or so since we did our last interview. Today I’m looking forward to hearing your new topic on supply chain for e-commerce companies. Before we start, can you provide a brief background of yourself?


Sure. Hi, Dustin, and thank you again for inviting me for another interview. Basically, I’ve been working in supply chain management for about 20 years. I started in Europe, where I’m from—I was born in Europe, in France. I started to work for Lexmark, a printer company, where I was managing the flow of products for export outside of Europe. Then I moved into consulting with CapGemini, Ernst, and Young for a couple years, and that’s how I went to the United States to work in the supply chain consulting practice. I did a couple jobs on the West Coast of the United States, working in industries like electronics, defense, medical devices, biotech. Then in the past four years, I’ve been focusing myself mostly on retail and e-commerce supply chain. I thought that would be an interesting topic. The Internet is not something new, but companies are still learning how to do business over the Internet.


Can you provide a general understanding and some specifics for supply chain and e-commerce within retail? Can you talk about supply chain for e-commerce retail?


Absolutely. Basically, companies—small companies and larger companies—have started to evolve and are basically opening their channels of distribution outside the brick-and-mortar store, trying to sell product to customers over the Internet. We see that across the board either thorough businesses that were brick-and-mortar and decided to open their e-commerce channel or some companies that basically started right away from an Internet standpoint.


Obviously, the benefit of using the Internet right off the bat without a retail store is that you don’t have all the inventory locations and the stores and all the fixed costs you have as compared to traditional retail. Basically, the e-commerce business works with one or multiple e-commerce Web sites, so from a B to C standpoint, customers go over that site and purchase whatever they can browse through and feel like finding. This has a lot to do with branding.


Your primary job is to get customers to get to your Web site—and usually through Google search or e-mails or any other promotional channels—unless you are a very well-known company, such as Amazon, where people get to search right away. It’s kind of interesting, I would say, that Amazon is kind of eating up a little bit into the Google search where, when customers know they want to buy something, they no longer, for the most part, go to Google and research the product; they sometimes go directly to an Amazon page. This is how the industry got transformed. From a retail standpoint, what that means is, as compared to B2B, the B2C is a lot of small transactions that are happening, sometimes over $100 and no more, but sometimes over multiple Web sites, global, as anyone can buy anything from a Web site; the only thing you have to deal with is the shipping aspect.


Usually, also from a traditional retail standpoint that’s also true with e-commerce is the seasonality standpoint, where maybe one-third of the sales are going to be made over the last few weeks of the year for the holiday-Christmas season. And also another factor is the competition. Many e-commerce companies have different Web sites, and it’s becoming harder and harder to compete from a supply chain standpoint due to the Amazon standard. Amazon has total * (5:36—unclear) the world of supply chain and delivery because you can buy on Amazon and sometimes get the product a day later, two days later, sometimes with free. We all know what happened with Amazon Prime and all the customers are in the Amazon Prime business.


Supply chain is becoming the primary aspect of an e-commerce Web site because it’s all about delivery time. Customers are looking for instant gratification. They’re clicking and from the last click, now the time’s going to tell how quickly they’re going to get their products. It’s very key and that’s why e-commerce companies are now looking into supply chain as potentially a key differentiator in terms of how much it’s going to be costing to ship product to a B2C customer, which, by the way, is expecting free shipping as it becomes more and more the norm, and how quickly it’s going to be delivered. If you’re in a supply chain or working for an e-commerce company, you basically have to find faster shipping at the cheapest cost; otherwise, a customer might not return and go to the competition. What’s interesting bout it is that e-commerce is not just marketing, but it’s getting very much looking for supply chain professionals to really help them deliver products in the most critical way.


How do you measure success for supply chain in e-commerce?


The most searched-after standard I say would be the net promoter score, what’s also known as NPS. It’s basically what you get from an e-mail after you purchase the product 20, 30 days later. You get a question that says, “How likely will you recommend this Internet company, this e-commerce company, to a friend or family?” Customers vote and give a score from 0 to 10. That is kind of the primary tool that’s been used from an e-commerce standpoint to measure success.


Now, a follow-up question would be, “How satisfied were you with the delivery time?” In other words, how fast the product got to you. From my own research, I found out that deliver time and the net promoter score are related and very highly correlated upon 7, upon 9, almost 1-to-1 relationship, because delivery time is the most critical aspect. In other words, that means that when customers go to a Web site, of course they want a good price, but they really want to make sure they’re going to get the product very fast. How fast can they get it?


NPS, where we measure the * (8:44—unclear), promoters, and * (8:48—unclear) is a way that companies are measuring the success of their product, of their delivery, and their supply chain.


And do you have any success examples?


I would share a couple things that brings companies to success when it comes to getting higher NPS scores or providing a faster delivery time. The very first one would be: Are you operating on a global or regional model? Let’s say you’re operating your Web site out of the U.S. but shipping all over the world. The biggest success is to find and to have inventory in the regions, in Europe, in the U.S., in Asia to deliver the product to the customer probably in less than a week. You bypass customs, you bypass * (9:51—unclear) freight, and you deliver product fairly immediately within a week from original network.


The success, yes, I’ve had success. The first key to success is to provide original distribution of the product. The second key to success is listening to the customer. I know that’s going to sound like something very obvious, but, really, it’s key to have user group, focus group, reading what you get through NPS comments, the qualitative data, quantitative data to understand what the customer truly wants, because in an e-commerce business, you’re not seeing the customer at the store, so you’re getting very limited feedback unless you ask. And if you ask by e-mail, that’s just one more e-mail, and we know that response rates are fairly low.


The challenge for the supply chain professional is to get to the customer and understand what their requirements are from a delivery standpoint, whether it’s delivery time—in other words, the time from the last click to the delivery—or the delivery condition, the packaging. Packaging is very, very important.


There is a trend that’s very interesting to the teenage group, and you can find that on YouTube. Teenagers are posting what we call unboxing videos. They take the product they receive from the e-commerce company, and they’re having fun displaying on video the opening of the package. They’re buying themselves a gift, even though it’s not truly a gift, and they’re showing how the packaging looks, how well the product is presented, any damage there. Packaging is becoming very, very important.


Of course, we know that from a branding standpoint because companies have a successful used packaging that’s actually reusable. For example, if you shipped a product in a bag and the customer doesn’t trash the bag, reuse the bag to go, let’s say, shopping, then it gets the brand across all over the place, and it’s extremely very positive. Again, original model and packaging would be two keys to success that I would recommend to any e-commerce company that really wants to grow.


Thanks for sharing today.


You’re welcome, thank you.




About Arnaud Deshais



Arnaud Deshais


VP/Head of Supply Chain and Quality Assurance at Redbubble


LinkedIn Profile

I interviewed Dean Dorcas who discussed A New Approach to Developing Labor Standards Using the Big Data Approach.







It’s good to speak with you again, Dean. This is the second part of our interview topic. In the last interview, you were mentioning (here is the link to that interview). In the last interview we did a few minutes ago, you mentioned a new approach to developing labor standards using the big data approach, and you talked about some of the advantages over the more traditional approach. Can you go into more detail on that?


Certainly. If you look at, traditionally, how labor standards have been developed, generally, they’ll take an industrial engineer, they’ll take a stopwatch, go out on the floor, and spend, let’s say, eight hours for each process that’s being performed. They’ll take their observations, their studies, they’ll come back and analyze that, and they will then build out a model that says how long this job should take based on the different types of work being performed. That approach has been kind of an industry norm, and it’s probably the best approach you can have based on the scarcity of data that’s available. What’s happened now is that data’s becoming so common, there’s so much of it available that it starts opening up new approaches that we didn’t have in the past. The approach that we tend to take with our customers—I’d probably say 70 percent of our customers will take this approach, and 30 percent will continue to use an industrial engineer—is, you let the data basically look for correlation to tell you how much time you should be getting for each of the variables in the work being performed.


If you think about a process—let’s say picking—and I’m going to a location and I pick one unit and you go to a location and you pick a hundred units. If we’re just looking at a single metric, so cases per hour or lines per hour, those standards aren’t going to be fair. If I picked one case at a location went on, my lines per hour are probably going to be pretty high compared to yours because I just picked a case. But if our metric is cases per hour, you picked a hundred cases in that one location, I only picked one; your cases per hour is going to be much higher than mine. Therefore, neither one of those is going to be a fair and accurate labor standard.


The first thing we need to do, whichever approach we’re taking, is look at what the variables or metrics are that impact how long it’s going to take me to do a job. Going back to our example, if I am picking one line, that’s going to take a certain amount of time. If I’m picking one line and one case, it will take less time than if I’m picking one line and a hundred cases. In that example, I might want to give them time for each line that they pick, plus additional time for each case; therefore, each of us can get a fair amount of time to do that job. Then we might look at other variables, such as orders. Maybe if I’m picking one order and it has ten lines with a hundred cases and you’re picking ten orders that have a total of ten lines and a hundred cases, it might take me longer to do that because I’ve got ten lines or ten orders that I have to pick to get the same number of lines of cases.


In that example, we might give time for each order processed, plus time for each line picked, plus time for each unit. Therefore, regardless of the mix of those three variables, we’re each going to get a fair amount of time for that. Then you can look at other things like travel distance, et cetera, that may or may not be necessary in order to get to that fair-labor standard, but the key is to figure out what those main drivers are that you need to take into consideration to get to a fair-labor standard. There is no lottery ticket; there’s no good job or bad job; there’s no order that’s easier to process versus another that will help me hit the goal. There should basically be a common—if I’m an employee who tends to hit 100 percent, I should hit 100 percent regardless of the types of work, types of jobs I’m doing. The goal is to get to that fair-labor standard.


Once you’ve identified those different metrics, those drivers, of how much time it should take. Then we need to start figuring out how much time to give to each one of those. I might give them a minute for each line they process and five seconds for each case and maybe five minutes for every order. That would go into the labor standard.


Once we’ve identified the processes, trying to come up with that time, there are two different main approaches of doing that. Going back to the industrial engineer, more traditional approach, they’re going to do the time studies, they’re going to figure out and calculate how much time an order typically takes and how much time to travel to each location and how much time, once you’re there, to pick a case. They’re going to basically engineer all that and come up with a labor standard based on that. That’s going to be based on what they’ve observed on their eight hours that they are out there.


The big data approach is going to take a different way of getting to the same information. It’s going to bring in, let’s say, hundreds of thousands of examples of somebody doing the job, different people doing the job, the different types of product, and then let the computer system go though and analyze that data and come up with what will give you the tightest amount of time, the tightest variants, so when all these different people do the job, if I give them a certain amount of time for each of those variables, the results are as tight as possible. We look at it by each individual employee and come up with a very tight labor standard.


That tells you how to weight the different variables, and then the only thing left to do is figure out how hard to set that benchmark or that standard against how they’re currently performing. This is one advantage that you might have with the traditional engineer approach; an engineer’s going to give you a standard based on what they think should be fair. Big data’s just going to look at here’s what’s currently going on, what’s currently happening out there, and then we can set that stretch goal as an improvement over what they’re currently doing, or we could look at our top 20 percent of employees and say we’re going to set that standard based on what the top 20 percent are achieving. However the company wants to determine how high to set that bar, then they’re going to base the standards on that.


The advantage of the industrial-engineer approach is, you’ve got some human saying, “I think they can do thirty percent more than what they’re doing.” The disadvantage of that is, he’s basing that off of eight hours of observation and over a period of months and months; that eight hours that he saw may or may not be applicable to what happens over a period of time, or there may be some exceptions in there that happen on a different day that he just doesn’t see, and that wasn’t considered in there. That’s a disadvantage of it.


The other disadvantage of the traditional approach is, it’s very expensive. It can oftentimes cost $100,000 to develop those standards across all the processes within an operation. Then, over time, those standards become outdated, and it’s more cost to go in, reengage engineers, have them come in, and do that analysis. With the big data correlation, you’re letting the data determine where to set those standards based on whatever stretch goal you want. And then, periodically, whether it’s every three or six or twelve months, you’ve now got even more data in there, and you can continue to reoptimize those processes. There are different ways we do that to continue to get them so they’re nice and tight and fair.


The key is that, over time, you don’t want one process that’s much easier to hit goal on than another process. You want them to still have an equal stretch goal to shoot for, especially if you’re going to be tying in a pay-for-performance system. If I’m doing pay-for-performance and one job is a gimme and another job is impossible to hit a standard or to hit the goal, then you end up creating a negative environment instead of a positive environment. So, keeping them all with a similar stretch goal is pretty important, and the correlation model is a great way to do that.


Thanks, Dean, for sharing today.


I appreciate the chance to speak with you again, Dustin.




About Dean Dorcas




Dean Dorcas


CEO at Easy Metrics Inc.

LinkedIn Profile

I interviewed Robin Balestero who discussed Establishing International Cross-Dock Logistics Platforms.







It’s nice to speak with you again, Robinson. This is our second topic that we want to cover today. The topic is establishing international cross-dock logistics platforms, which would be hubs for shipping internationally and in an efficient way. You’ve already introduced yourself. Can you start by introducing this topic?



Sure. As you know, Dustin, I’m located in Brazil, and Brazil has very complex customs systems. We have many regulations very difficult to meet sometimes, and the costs for clearing imported material, they are high in Brazil. The system is not so efficient; besides being expensive, it’s not so efficient sometimes. I have heard of friends who work with important material, and they sometimes have an average of 12, 15 days of lead time to go through customs, to get the customs release, which is, for many countries, too much to bear. This takes so long to get the customs release in Brazil, and you learn that sometimes between the physical cargo and the documentation be it the greatest cause for disarray.


The officers at the customs area, they are very strict, sometimes they are very demanding. They believe that you are bringing material and it’s your responsibility as importer to bring material according to documentation. But on the other hand, if you go on the position of the importer company, then how can you make sure that your supplier or your exporter in another country is shipping exactly as the paperwork is saying?


All those items, they can’t secure the paperwork. If they’re not matching, then you have a problem and sometimes you have to pay a penalty, sometimes you have get the correct, verified paperwork.


All this takes time and then your import becomes more expensive because it is in customs area. Also, the other concern, for example, unavailability of the material.


Set up cross-dock platforms.


For example, suppose you have plans to ship, let’s say, Europe to Brazil, material. Then if something goes off schedule, then you have to set your confirm you’re running out of specific material.


To Brazil, you give responsibility of this logistics operator to make sure each number of information for the container is really lacking the data on the paperwork. The paperwork must be very, very, very accurate. This process in Brazil, it doesn’t matter if it’s an air freight or sea freight, any customs officer will see a perfect match between paperwork and cargo. Service contracted to ship material to a country like Brazil is very helpful because you really decrease very much the risk to get the customs reduced.


You really have a narrow pipeline like this. Of course, to operate in an efficient way, you have to really work hard with your suppliers on the schedules, delivery schedules, which calls for material planning. You should only plan according to your needs. Because this is complex shipping system you probably will have a company that doesn’t know the material you’re purchasing. It’s pretty much logistics. You really have to manage your supplier and make sure your supplier base is real doing their jobs. You need materials to be shipped according to your needs with paperwork matching the cargo. For a company who has several suppliers outside Brazil, I would recommend you consider establishing a service like that for shipping to Brazil.


Thank you, Robinson, for sharing today.


You’re welcome.





About Robinson Balestero



Robinson Balestero


Supply Chain Manager at Alstom Transport


LinkedIn Profile

I interviewed Per Olof Arnas who discussed Unsolved Problems in Freight Transport - Climbing the Three Mountaintops of Real-Time Data.







It’s good to speak with you again, Per. It’s been a while since we did our last interview, and today I’m looking forward to hearing your views on unsolved problems in freight transport, climbing the three mountaintops of real-time data. Before we start, can you provide a brief background of yourself?


Yeah, I’m a Ph.D. in freight transport and logistics. I work at a technical university called Chalmers University in Gothenburg, Sweden. I do research on the digitalization of the freight industry, and I’m also doing a lot of teaching in advanced master’s and postgraduate levels of freight transport logistics and ITS, international transport systems.


Thank you. What are the unsolved problems in freight transport?


Well, the unsolved problems are the unhandled problems, more likely. The freight-transport industry, due to a number of reasons, is a very reactive industry. It doesn’t take initiatives unless someone forces them to do it. One of the main reasons behind this is, of course, that this is a high-capital investment, low-margin industry where you need a high turnover in order to make money because—in Europe, at least, when a company has a profit margin of 2 percent, they’re really good. They don’t have this kind of money to freestyle in research and development that other industries may have. This has made the freight industry very cautious in how they treat new ideas and how they adapt to concepts and change in environmental parameters.


One example of this is the transportation system we have today is very much based upon standardization. It’s based on hard-coding decisions, hardcoding rules so that we sort according to zip code; we decide cities into zones; we have fixed timetables, fixed routes, et cetera. All of these actions are to prevent decisions being made in real-time because decisions made in real-time or close to real-time in an operational setting in the freight industry, they are almost always badly informed and probably suboptimal.


The freight industry loves planning and it loves to put things into motion and to see the plan carried out. The problem here is, these are the unsolved problems that things happen in real-time that these systems cannot handle. The way they try to handle them is by allocating more capacity than they actually need at a capable than they would actually need and not utilizing the resources the way that they could theoretically be utilized. These are the unsolved problems.


Are there any other reasons why these problems exist?


Yeah. I think that—I’m not saying this is a bad system, by the way. How the system has been working, the past 50 years, since the freight container was introduced, we’ve seen a tremendous growth of trade across the globe, in many ways thanks to these standardization issues and containerization. What you also can see is that as soon as you standardize something, you force the variance or the long tail if you may; you force the tail very few standardized services, like container transport, and so on, where the industry naturally wants to force large volumes into these standardized services, thereby creating a long tail of specialized services with very low volumes. There is much business to be done in this long tail if you just can mass-customize your services, and the transportation industry is not very good at that.


Can you talk some more about how the problem can be solved?


Fortunately, we’re in the 21st century now, and we have information technology, we have sensor technology, we have computer capacity, and we have what I call an app maturity. We, as humans, we are very much used to having, for instance, subscription services like Netflix or shopping experiences like Amazon, where we constantly get new recommendations and help from these systems, and we are constantly using information technology without realizing that we’re doing it; it’s just an extension of ourselves into the digital realm. In the transport industry, we’re still very much trapped in the old paradigm of spreadsheets and tables and paper-based information. What the freight industry needs is to do what, in many ways, the passenger-transport industry already has done: move into the digital realm. To do this, you need to climb these three mountaintops that I’m referring to.


The first one is: You have to be able to collect data from a lot of different systems, connectors, and domains in real-time or very close to real-time. This requires sensor technologies to be implemented; it requires APIs, application programming interfaces, that enables a computerized system to gather data from a third party, for instance. This first mountaintop is about collecting data in real-time and in a structured manner so that you can utilize this data.


The second mountaintop, that’s even harder. You have to, in real-time, process this data. You need the tools that we find when we look at big data at the moment: advanced visualization. The purpose behind this real-time processing of all this data is, of course, to create decision support, to make real-time decisions feasible and better informed than they are today.


And then the third and most difficult mountaintop is when you have to take these decisions—if you get good decision support for the second step…you need to be able to exploit, often in very short timeframes, large amounts of information to make things happen in the real world. I think that’s the ultimate challenge, and that’s where we will have most problems, I think.


Thank you. Did we cover all the points you wanted to make about the unsolved problems in freight transport?


Yes, I would say that. The unsolved problems are…we need to look beyond the standardization as the only way to increase sufficiency. You have the technology to actually mass-customize transport services in a way that’s not been done before. It’s being done but on very small scales due to very highly efficient individuals, traffic managers and so on, drivers as well, if you look at road transport, but it’s not being done in a systematic way by the big actors; they are still very standardized.


Everyone I know has had a number of these yellow notes from UPS or FedEx stamped to their door, for instance, when they come home. “We’re trying to reach you. You were not here.” They will try this three times, and then you have to pick up your own cargo. It’s the 21st century now; there has to be a better way to solve these problems.


Thanks for sharing today.


Yeah, thanks.


Unsolved problems in freight transport - climbing the three mountaint…



About Per Olof Arnas





Per Olof Arnas


Senior Lecturer and Logistics Researcher at Chalmers University of Technology


LinkedIn Profile

I interviewed Jeff Sipes who discussed Frame Lean Transformation with Operating Principles.


Summary: When a company gets serious about transforming its operations to be lean and competitive, the initiative elevates to a strategic level and costs quickly get into hundreds of thousands or millions (depending on the size of the company). This investment in the future requires structure and one part of that structure can be Operating Principles.

Operating Principles are five succinct and focused statements that provide the leadership with evidence of their having developed direction and the workforce with a sense of what is most important. The Operating Principles create alignment from top floor to shop floor if utilized effectively. They help leadership teams and workforces to avoid wandering and trashing…a form of hidden waste that sucks scarce resources from otherwise important work and makes an organization “angry”.

The process to create the Operating Principles is simple. The output is simple. But the value to an organization is profound!





It’s nice to speak with you today, Jeff. I’m looking forward today to hearing your views on the topic of frame lean transformation with operating principles.


Thank you, Dustin. It’s good to talk to you again too. By way of refresher, I’m with Back2Basics, a consulting company that primarily works with manufacturing companies on lean and business-process management initiatives to help get competitive.


The topic about frame lean transformation with operating principles is one that is, I think, a very important topic for companies, particularly those companies serious about transforming their operations to be lean and more competitive. When they do that, their initiatives are going to elevate to a strategic level, and, very likely costs are going to go into the hundreds of thousands, if not millions, dollars, depending upon the size of the company, of course. This is an investment in the future that requires some structure and one part of that structure can be operating principles.


Operating principles are five succinct and focused statements that provide the leadership with evidence that they have developed a direction and with the workforce with a sense of what’s most important. The operating principles create alignment from top floor to shop floor if they’re done well and effectively, they help the leadership teams and workforce to avoid wandering and thrashing and confusion; what a form of hidden waste that is that sucks scarce resources that could otherwise go to important work and, quite frankly, can make an organization angry. The process to create the operating principles is a simple process. The output is a simple output, but the value to an organization, Dustin, I believe is profound.


Can you talk a little bit more about why a company that’s embarking on a transformation journey needs what you call operating principles?


If the company has been on their improvement journey for some period of time, they very likely have started off with spot projects or relatively narrow projects. As they get deeper into this and begin to understand the potential for their business and begin to think in terms of transformation as opposed to just a series of projects, they start wondering, How do I tie it together? How do I create a sense of purpose with this improvement transformation? The operating principles are one way that you can begin to create that link or anchor that pulls this all together.


How do operating principles differ compared to business strategy or goals?


Operating principles are, as stated, very operational. Let’s contrast the operating principles to the business strategy that says, “We’re going to be in XYZ Market and this geography.” That’s the business strategy that tells you where you’re going to go; this is not what the operating principles are doing. Likewise, you might say, “Our financial goals are to reach Y percent of return on assets,” whatever your measurement happens to be.


Again, that financial goal is something that’s very specific and for a stated purpose, but, again, it’s different than the operating principles. The operating principles define what you want this business to look, smell, feel like. It provides a sense of direction that’s at a higher level, that we can become very passionate about, quite frankly.


Can you share a couple of examples of operating-principle statements to help us understand what they look like?


Sure, Dustin, let me take two here. These are two of my favorites. By the way, from company to company, these operating principles aren’t going to be the same. This isn’t a cookie cutter but, rather, it’s something that you build to be consistent with that organization.


A couple of examples I have, the first one is: clear, or clarity. The statement that goes with this for this particular client goes like this: Clear. There is no ambiguity in our work processes. We know what, when, and how to do it. That’s a pretty succinct statement, but it’s full of meat and potatoes. If I go to a part of my operation and I don’t have standard work, I don’t have standard processes, I don’t have a consistent way that things should be done, then I don’t have clarity.


Likewise, if I have somebody working on my front line in my business and that person on the front line asks their boss or their technician who comes around or their quality person a question about what they’re doing and we don’t give that person on the front line an answer and leave them hanging, we don’t have clarity, and what a disservice we do when we create that kind of situation.


The second example is clean or cleanliness. The statement for this particular client goes like this: Our facilities are clean and organized. Always customer-visit ready, anytime, any day. Think about that statement. It says, “I don’t care when you come to look at my plant”—if I’m in the manufacturing business; that’s where a lot of my work tends to be—“I don’t care when you come. I’m not going to get ready for you; I’m always ready for you.”


That drives down into the organization such that we have an expectation for everything in its place, a place for everything, clean, organized. With that comes all kind of operational effectiveness and productivity as a by-product. Those are just two examples that hopefully will help illustrate what I’m getting at with operating principles.


What is the process to create the operating principles for a company or segment of a company?


Great question, Dustin. They need to be driven from the top of whatever the organization is, whether it’s the whole organization, a division, or even a plant or business unit, for that matter. It needs to drive from the top, and the way we do that is to start with a population of 20 operating statements. These are a wide range of operating statements, but it begins to paint a picture.


I would work with the leadership group to a bit of background and baseline training with them, but then we would take that set of 20 operating statements, and, individually, they would rank-order them. They’ve decided individually what are most important to them, submit them—and I say, “Don’t work on these together. I don’t want to know what you collectively think yet; I want to what you individually think”—send them to, in my case it would be me, and I would tabulate those and begin to do a bit of analysis on them such that we can see where the commonalities are at and where the differences are at among this group of leaders, because that’s very telling as you start to get it back.


Then we would work together to boil this down to that set of top five ideas that are important to their business. If I have 20 top ideas, it’s too many to pay attention to. I’ll get confused in the size of all that. I boil it down to the five that we can really begin to link on to. We would work those statements so that they reflect that culture, that geographic area, but it would be their statement that they then would share with the workforce, and that becomes the anchor for improvement.


It sounds so simple. Why do you say the operating principles can have a profound effect on a company?


I truly believe they can be a profound effect because they create that alignment from top floor to shop floor; they serve as a way to get everybody in the organization—I don’t care if you’re on the front line, if you’re in the executive suite or somewhere in between—it allows us to become anchored to a foundation so that we know what’s important, that the projects we’re taking on ought to support these operating principles.


Quite frankly, sometimes somebody will say, “Here’s a project we ought to do,” and it doesn’t support the operating principles or vice versa, and you say, “Is this a project we really should do?” Maybe it’s not. It helps to sort out some of that wheat from chaff, but it allows that whole organization to become passionate about improvement. That’s why I think it is so simple, yet so profound.


Thank you, Jeff, for sharing today.


Thank you, Dustin, it was my pleasure. Talk to you later.



Frame Lean Transformation with Operating Principles
July 27, 2014
Jeff Sipes
Back2Basics, LLC


Link to Article: Blast the silos to unlock potential -



About Jeff Sipes



Jeff Sipes


Process Improvement and Manufacturing Strategy Specialist (Lean and BPM) at Back2Basics, LLC


LinkedIn Profile

I interviewed Vinicius Palerosi Ribeiro who discussed The Challenges of the Entrepreneurship in Emerging Countries.







Brief background


I am Mr. Vinicius Ribeiro, from Brazil. Professional with a solid track record in Multinational Companies, passing through of the areas, such as: Supply Chain, Purchasing, Import & Export, Inventory Management, Manufacturing and Ops on general lines. As educational historical, I am IT developer technical through high school, bachelor in Administration and currently I'm writing for the Master's degree where I'll start in next Feb'15. Researching by Business Network Management. Although I have a robust background and brought huge savings for the Companies, sincerely I was not glad in acting for private Enterprise and then I'm planning for strike a defiant project to become an entrepreneur. I know this goes to bring an financial independence for me, however, also I'll face a lot of issues and I need be prepared for that.


What are the challenges?


Clearly the main challenges when you are willing to become an entrepreneur the most difficult faced is gather the total initial capital for invest in your project, this considering every nuances of the deal. I mean, be prepared for the cash flow, raw material even if it's services, in this case your raw material is intellectual capital, meet deeply all kind of fees charged around the your deal, opponents, figure out and try to foresee always what your customer is looking for. These are some of small legal requirements that we can mentioning here, but effectively the biggest challenges there are beneath of the carpet. So, in emergent countries, we have corruption, lobby by the most diverse areas and segments, no fair play between the opponents, most of the competitors plays paying your customers to buy your products, including big companies, many times this is made tacitly and no constraint. For instance who sale for the governmental organisms by legislation you are by forceps forbidden to participate of a BID where most of Companies pay for the who describe the official BID to reflect exactly its product and the remaining competitors never will win the auction, because the description of the product is toward a predictable winner already.


How do you address the challenges?


To address the challenges is needed to get resilience and perseverance, besides of try to always offer quality with the small price and by many times depend of the negotiation priceless in return of a future assured deals. Additionally is so important keep its business updated, principally to doesn't be surpassed for other offer market or new technologies with reduced cost applied, one more important thing is always be woken up regarding where you can attack to save taxes in your business, is pretty important be always with open eyes for opportunities to reroute your savings to get existent incentives that the  governs gives. Interstate transportation zones, handling ware of a point to other, kind of installment services, verify what kind of tariff your deal could leave to pay by legal means.


Where have you seen success?


This what I'll talk, I believe and trust severely that the unique way for you get success in the emergent countries without mercy of the big Companies fated to lay off anytime or never be recognized even bringing many fruits for their safes. The entrepreneurship in emergent countries, specially in Brazil is the unique manner unless if you are a soccer player or a famous singer or artist is become an entrepreneur, because in spite of all difficulties somehow all people whom I have person contact, best friends and kin, every them whose are entrepreneurs are always free of debt or bad with financially. Because though they have to working heavily to save money, no holidays per many time, no vacations, no free time to get sick and other particularities, your chance to growth is unlimited. I listened recently of an famous entrepreneur in Brazil who said with an analogy.


Like a bird in the cage !


When you are an employee, you are a bird in the cage, always you gonna have water and food, the same quantity in the same time. And be sure that this goes happening monthly.


When you are an entrepreneur and fighting to become and a successful businessman you never get 100% of sure that you have the water and food but you are out of the cage and free to fly for the unlimited gains, with a chance to become your dreams in reality otherwise as a employee you always goes donate up for a Company and they always gonna be growing theirs safes while you have that little water and food monthly with a chance of neither get this one a day if they decide lay off you.




About Vinicius Palerosi Ribeiro



Vinicius Palerosi Ribeiro


Import & SC Planning Specialist


LinkedIn Profile