The term “Operational Excellence” seems to be relatively young, but operationally based organizations are seeking it forever. Operational Excellence is a relatively new name for ages old effort to make operations better (what is better?).
Over the last 60-70 years the operational world is progressing through leaps of advancement of knowledge and technology. Since the first MRP systems to the Industry 4.0 technologies. It is evident that the effort for improving operations results with impressive technological advancement (both in terms of operations management knowledge as well as operations technologies). Operations management knowledge has been given so many names over the years; TQM, JIT, Lean, Agile, Opex and many more. Operations technologies include; advanced manufacturing equipment, technological controllers and sensors, video surveillance and IT.
Considering this immense progress one should ask what is the effect? Did we achieve similar leap jumps in operations performance? Of course, the answer depends on the specific measure one uses to evaluate the progress. If we measure machine productivity (OEE) it definitely improved, if we measure quality there is a significant improvement here too, if we measure the amount of manpower required in operations, we have been also able to substantially reduce it. But, are these the key measures we should look at? How would we know if they are? Maybe, we should go back to basics and ask – why do we seek operational excellence?
Obviously the key reason is (or at least should be) improve competitiveness. Improve competitiveness can be defined as – “Keep at pace with competitors, do not fall behind” or – “Outperform competitors and gain a meaningful market advantage”. If we settle for the first, than all the advancements in operations management and most of our operational excellence programs are achieving the objective. It is clear, as in most markets it is highly difficult to point out any company outperforming competition. It should also be a startling realization that together with the meaningful improvements in machine productivity, quality and operational cost other operational KPI’s did not improve at all in comparison to the “pre-technology” era. Measures like lead-time, due date performance and inventory turns. Even the overall productivity of facilities is not improving (of course facilities are able to produce many more units than they used to, but the relative productivity of the facility remains pretty much the same).
When seeking to improve competitiveness it is obvious, that the most that is commonly achieved is “not falling behind”. Most companies will explain, that this is also the most that they can aspire to. This opens a self-fulfilling prophecy cycle – We do not believe that we can become meaningfully better then competitors, we implement solutions that are designed to “not fall behind”, we keep up the pace (and sometimes do fall behind), thus enhancing our belief this is the most we can aspire to.
The key issue is that our efforts are directed at measures, that dictate the results. If we are looking to improve these measures – Operational cost and machine productivity, the most we can hope for is not to stay behind. Primarily as these measures, when they improve it does not necessarily mean our competitive performance improves. This is because of the inter dependencies between the operational measures.
Everyone in operations has seen it – improvement achieved in one operational measure (i.e.; cost, machine productivity and quality) resulting with deterioration in other operational measures (i.e.; lead time, facility productivity, inventory turns) and vice versa. Interestingly, if you analyze the relationships between these measures you will find that this phenomena happens for all combinations, but one. The only measure that when improved, will result with improvement of all others is – LEAD TIME (the time from releasing an order to operations to the time it is ready to be delivered to the customer). The shorter the lead time, the better are all other operational KPI’s. And even more interestingly, for most operationally based companies, shorter lead time also means improved competitiveness.
With all due respect to the importance of operational cost and machine productivity focusing our operational excellence programs on these measures is not likely to achieve anything more than “do not fall behind” and sometimes not even that. The term KPI itself should indicate – Key Performance Indicator. How many keys you have for one lock? If you want your operations excellence programs to result with tangible, noticeable and meaningful improvement in all operations KPI’s you need to focus primarily on lead time reduction. The rest will follow.