Company Philosophy  

Upper Management Support – Key to any Successful Business System Transformation

Pick up most any business or software magazine today and you will find many accounts of software business system modernization efforts that have gone array. One might ask, “What went wrong?” Were the various projects under funded? Did the companies choose the wrong software package? Were there time constraints placed on the projects that were un-reasonable? The SI management team does not believe that this is the case. We stand on the premise that Upper Management Support is the key to failure or success of any enterprise or undertaking within a company! Given any transformation project, there will be a naysayer. Let’s take an example. Within the LEAN community, all resources are brought to bear to ensure the success of any given venture. A successful transformation to LEAN will require many changes. Even to the financial system that may have been in place for many years, possibly since the inception of the company. These types of changes do not happen easily. The need for a consistent approach and a steady drumbeat to the project is critical to ensure a successful outcome. One of the basic tenets of the SI philosophy is that “People make decisions”! Software systems do NOT make decisions for you! Software systems should be set up to allow the TEAM to better understand all of the quantifiable data, quickly, in order to make a BETTER, FASTER, SMARTER, decision working together! We believe that many implementations fail, simple because the system is set up and the thought is, “Okay, we’re done”! Setting up the new COTS software system to perform and support LEAN is just the start. Continuing with the full support of management and engaging the hearts and minds of the workforce, truly enables the transformation to take place. How can we expect one person to know everything there is to know about General Ledger, Accounts Receivable, Accounts Payable, Bills of Materials, Inventory Control, MRP, Shop Floor Control, Engineering ECR/ECO, Marketing, Order Entry, and Shipping and Receiving, not only from a technical point of view, but from the philosophical view of how we want to conduct business in the future?

For us to gain our expected results, the automated system must be supported by sound management policies, sound organizational structure, sound business philosophy, sound procedures, even plant layout, and above all, management commitment.

A Few Words on Commitment

There have been many words written about top management commitment but very little said about what top management commitment really is. It certainly isn’t, "I’m right behind you men, keep me posted on how things are going." Top management commitment becomes a reality when the president or general manager of a company or division accepts the responsibility for the successful implementation of the business plan. Accepting responsibility means, if the implementation of your system is not what it should be. YOU have personally failed as the Chief Operating Officer. You are the keeper of the business plan and you must pass this same feeling on to your management team.

The business plan is the philosophical method of producing the product you manufacture, on time, with a profit. It includes management policies towards how the company is to be run, inventory policies, ordering policies, organizational structure, departmental charter, etc. It also includes the acceptance that the software selected is a productivity aid to help you accomplish the business plan more efficiently and not the business plan itself.

You must also be the defender of LEAN. There are those among you who, unknowingly, do not want orderly control. Comments such as, “We used to be able to do it a lot easier before we had the automated system”, should not be left unchallenged. If you investigate each statement made, you’ll probably find the comment had no basis. But we rarely challenge what we know little about. Bad attitude is as destructive as good attitude is productive. We have found that sometimes, after all else has failed, there is a need to replace the person who perceived it as a problem with one who sees it as the next wonderful opportunity for growth. That’s commitment!

Management Policy Examined:

While conducting a survey of a company’s problems in implementing their business plan, I noticed that ABC analysis was not being used to determine the amount of time consumed counting, picking and creating kits for the shop floor. These basics fundamental materials management concepts, if not used, will destroy any hopes for a successful transformation project. One example: A stock clerk was placing four eyelets, at a cost of .004 cents, in a small plastic bag. He then affixed an ID tag to the plastic bag and placed it in an assembly kit. The stock clerk was filling an assembly kit for one printed circuit board. Further investigation revealed there were 153 orders on the assembly floor with eyelets issued in quantities ranging from 4 to 4000 pieces. While the act of filling a kit does not seem to indicate a problem, the philosophical business plan here is totally ridiculous. If we follow the one piece order to the shop floor there are certain underlying procedural and management policies lacking that we will uncover. First, an eyelet insertion machine has a hopper that can hold thousands of eyelets and by issuing the eyelets to each individual order our management policy implies the machine’s hopper will be empty when this particular order is ready to run. It also implies the machine operator will dump the four eyelets into the giant hopper and if, during insertion, one of the eyelets were to miss hit and fly out, landing on the assembly floor, the machine operator should make out a scrap replacement requisition, go to the stock room and get another eyelet. It sounds ridiculous, but you would be surprised how much of this lack of sound management policy exists in our companies. This is Muda! What we forget, as managers, is that management policy determines how we are going to run the company. How we run the company determines work load. Work load determines how much stress there is on our ability to complete our business plan. Too much stress breaks the business plan down and who or what gets the blame for it? The software of course, when all we needed was to follow basic rules for inventory management that have been in place for decades!

Here’s Another Example:

While conducting another survey of the inability of a company’s purchasing department to complete the business plan, we selected 20 parts at random and determined how many purchase orders ( PO’s) were issued during the previous year. We found that 80 PO’s had been issued. Now we must ask ourselves: Is that too many? Is it too few? Or is it OK? If we overlay a management ordering policy utilizing an ABC philosophy that would allow C parts being ordered with less frequency and in larger quantities than A parts. etc. we found that only thirty seven POs would have been required. Imagine, with upper management support, we eliminated 50 percent of the purchasing department’s work load (at least on these twenty). That reduction in work load also extended to the receiving dock, receiving inspection and the stockroom. Imagine, a 50 percent reduction in workload! Did we need to re-invent the wheel? No! Just establish the time tested 20/80 rule that has been documented over and over, as a sound inventory management reduction policy.

Using ABC analysis we are able to achieve tremendous reductions in inventory that puts money back in your company’s profits and/or opportunity cost bank. Tight serialized control for our hard to manage, long lead time and expensive, A item assets. Use Material Requirements Planning (MRP) for our less expensive, B items, where if we make a mistake, we can recover quickly. And, finally, manage the C items, Min/Max and just don’t run out, so we always ship on time!

We need to ask ourselves, “What key factors truly affect our ability to ship on time?” Our business plan must give priority to how we intend to ship on time, not how we account for it. Another problem that we often encounter is the tendency to turn the software system into a large accounting system. When this happens productivity suffers. Incorporating LEAN financials solves both of the needs. A company can be CFO compliant, follow Generally Accepted Accounting Principles (GAAP) and also allow the software system to provide the critical data required to run the business on the shop floor.

The tendency to turn away from manufacturing based businesses in the United States has been largely due to the Japanese demonstrating a superiority in workforce productivity. Much of this is true only because we haven’t paid attention to the details of running our company. Regardless of what individual managers may say they "must have," the only banner we should endorse is “Ship on time, and take care of our people”! That’s why we are here and that is our only goal. When trying to decide on the value of doing something procedurally and when you have to decide on one of many ways, find the one that enhances shipments and engages the hearts and minds of your employees. Profits will follow.

In Closing

Should we expect a president or general manager of a company to get involved in manufacturing when he typically rose from the sales or engineering world? He knows very little about manufacturing and material control. His own ego will probably keep him out of such areas so unknown to him as materials planning, purchasing and shop floor control. But he should get involved and add the expertise and special talent that made him president. You’ll be surprised how much common sense will prevail and how much of it has been missing.

Become part of the planning process by attending a master schedule review meeting. Find out why shipments are missed, first hand. Find out what your company policies are regarding ordering raw material, inexpensive parts that are highly common, and expensive parts. What is your inventory control policy? How much? How long? How are your shop and assembly areas scheduled? Do you have a master schedule that truly reflects what you expect to ship? What percentage of the master schedule did you ship last month? What about the previous six months? In your organizational structure what department has the responsibility for on time delivery of your products? If your answer to the last question is "We are all a team working together", you just found the first thing to fix. Can you go to a terminal to determine the location of a manufacturing order and then go find it and have the part in your hand in less than five minutes?

Take the time to answer some of these questions, and when you do, do it with a frame of mind that you are not testing the system but instead you are testing yourself on how well you have supported the implementation of your business plan and your personal understanding of your LEAN transformation.