In Part I of this blog series we discussed the role of strategy and leadership on the path to operational excellence (OE). In Part II we move on to execution of those OE strategies, highlighting five factors that drive successful execution.
In guiding our clients through an evaluation of the optimal emphasis of OE as a source of strategic success, we identify the priority focus of Operational Excellence activities — improved quality, capability, shorter lead times, increased service levels and lower cost — through consideration of the five execution drivers of operational competitive advantage.
1. Safety
The safety of personnel and assets involves building an environment in which business operations can be successfully conducted. The operation and maintenance of facilities with zero harm and minimized incidents is a critical success factor in achieving compliance, cost and talent retention.
How can this be a source of competitive advantage and not just an issue of regulatory compliance? In several industries, particularly those in the capital equipment, construction and natural resource sectors, an increasing trend in contract award consideration is the historical safety performance of the vendor.
2. Asset Productivity
A seemingly obvious statement, asset productivity — the revenue generated per dollar of the organization’s asset base — is of critical importance to the well-being of asset-intensive manufacturers. However, many organizations fail to take the opportunity to optimize their asset footprints. By using capital as a means to maintain alignment between assets and sales revenues rather than investing in OE activity, organizations miss the opportunity to increase the flexibility of their current asset base. By using a comprehensive asset strategy, companies carefully consider the number and location of facilities, operational improvement initiatives and maintenance strategies aligned with volume requirements and the business cycle.
If there is such a thing as an upside of downturn, it is a forced emphasis on the improvement of asset productivity and utilization. With the flows of easily-available capital greatly diminished, organizations must tap the underutilized resources that exist within to release value and defer investments as demand levels rise when growth returns.
3. Human Capabilities
The area of human capability development and productivity improvement is the third element in which competitive advantage can be gained in every region of the world. Over the coming decade millions of man years of technical, operational and ‘tribal’ knowledge will simply walk out of the workplace. Those organizations which address the challenge of knowledge retention stand to create a distinct advantage that will manifest itself across a broad range of operational metrics. Failure to do so will result in long organizational ‘re-learning cycles’ with the potential to negatively impact each area of potential OE advantage.
This applies as well to emerging manufacturing regions. Research indicates that China has a unit productivity shortfall in comparison to mature regions. This gap, initially masked by a lower hourly labor cost, will be increasingly exposed as pressure on wage rates continues to rise. It is already resulting in manufacturing relocating to provinces with cheaper labor and to other emerging production centers in Asia and Eastern Europe.
4. Quality
The area of product and/or service quality provides rich opportunities for OE focus. Recent events have demonstrated that global manufacturers who had previously unquestionable credentials for ensuring product quality and responsiveness to customer needs can now experience potentially catastrophic difficulties. This issue of improving and maintaining quality is relevant to both mature and developing operational markets.
Increasing demands from customers in the developing world — and in mature economies — will ensure that quality improvement through improved process management, variation control, waste reduction and increased levels of product consistency provide a potentially enduring area for disciplined and focused efforts with OE applications.
5. Business Process
Business Processes are the steps that convert inputs into outputs. In an effective OE strategy leadership must first ensure that the processes required to deliver a competitive advantage are in place.
If a competitive advantage can be built through world class performance in a production-to-ship cycle, then it must ensure that the processes that support this are in place: forecasting, planning and scheduling, production control, expedition and inventory management.
The importance of removing process deficiencies to achieve Operational Excellence cannot be overstated. The most significant process deficiency is, of course, not having one. Just because work ‘gets done’ does not mean that there is a valid process for it. For a process to be effective it must be well designed, measured and managed. If this criterion does not exist then a process will be sub-optimal and not deliver the advantages that the organization requires. Unless applied in this broader context, OE technique application runs the risk of short-term unsustainable improvements that, in the worst case do, the wrong things more efficiently.