- March 25, 2020
- Posted by: David Marshall
- Category: Management, Measurement, Productivity
Over the years, I have developed a management philosophy I call the Four Non-Negotiables. For the next couple weeks, I’ll share what each of them are and what they mean. This week is about Non-Negotiable #3, Productivity
As you manage your organization’s Safety, and the Housekeeping is well in hand, you want to look at the Productivity of each employee.
It’s more than just whether a person can get their work done, or whether they have too many distractions, meetings, or problems with their workspace. It’s the measurable, quantifiable results of their efforts and results. It’s the measurable quantifiable results of your processes, equipment, and even your policies.
That’s the key to Productivity, because that’s how you’re going to determine whether you’re actually improving. Productivity isn’t just getting things done, it’s getting things done better than before. And you can’t know what to improve, or whether it’s even working, until you measure everything you’re doing.
Ultimately, you should be able to improve something every day, or you’ll end up with your costs going up and your profitability going down. As the world becomes more competitive, not less, you’re going to find yourself squeezed out of your own market.
If you’re not already the leader of your industry, this is how you can do it.
It starts with measurement.
If you are able to measure everything and everybody quantifiably, you’ll find that people can very quickly root cause their own issues; management can also root cause their own issues. And when you can find the root causes of the problems and focus on an area of improvement, you can set some pretty lofty goals.
For example, let’s say you’ve got someone handling order entry for your company. It may seem like a mundane clerical function to some, but it can be an important role within the company. Here’s how.
Let’s say that for every ordering error this person makes, it will require that you have to return the goods that were ordered, issue a credit, issue a new internal sales order, reship the product, and readjust your inventory accordingly. You’ve basically repeated a new order, but didn’t make any money for it.
But if you measure everything and everyone, you can quickly find out who is making the errors. You’ll be able to measure how many credits you issued, the cause of each credit, and the total cost of the errors. You’ll also be able to determine whether it’s a training issue, a competence issue, or even a systems issue, and solve the problem.
We’ve all heard the expression, “Everybody has the time to fix something, but doesn’t seem to have the time to do it right the first time.”
The whole order corrections process I just described usually took up to two weeks and 10 to 15 additional transactions, not to mention a pissed off customer. But if the order entry person had just taken an extra five minutes to make sure they got each order typed in properly, they could have saved themselves a few hours of extra work down the line.
The problem is, corrections are an accepted part of many businesses. You don’t know where it’s happening or why, you just know that it’s happening. And you can tell people to “do it better,” but without knowing where the problem lies in the first place, you’ll never know how to fix it.
Let me share a story: When I first joined Robroy, 40% of all our invoices that were sent to customers came back as debit memos.
In other words, four out of every 10 invoices had some kind of error on it. It could have been in pricing, the quantity we sold, the quantity we sent, or any other kind of error that required us to fix that problem on our end.
For Robroy, that meant we had to have three times the number of people we actually needed to handle 40% more transactions. All these errors affected more than just the invoicing. They affected the inventory, receiving, shipping, and accounting.
We were able to improve the entire process by measuring everything and everybody.
That means that whenever a credit was issued, somebody had to create the base problem. That is, someone created the first error to begin with, and so the credit given would be tallied against that individual or that group. Whether it was the order entry group, the quotations group, or the shipping group, we tallied that credit against the group, and the person in the group.
We did that monthly, as part of our accounting process, which said there had to be a reason for a credit to be issued, and that reason was measured and tracked. As we identified the problem, we determined whether it was training, competence, or the system, and we made the necessary corrections.
We also applied exactly the same principle of quantifiable measurement to our products and product quality. We looked at manufacturing, sales, shipping. Everywhere. We measured everyone and everything quantifiably, and looked for areas of improvement.
We found that the errors were happening across the board. Since we were measuring everything and everyone, we found that everyone was committing the errors everywhere.
Our goal was to follow the philosophy of “only touch something once.” We never wanted to touch an order, a part, a shipment, an invoice more than once.
In other words, we wanted to do it right the first time. We didn’t want it to come back for us to fix it.
When we were done, 7 out of 13 years at Robroy saw record profitability. And in those 13 years, our pretax profit was in excess of 20% per year.
Here’s another example:
One of our practices was to link people’s time directly to the things they produced, which we did for our associates working the floor. In a production environment, there are 480 minutes in a shift, and you pay people by the hour. So if you’re not getting 480 minutes of production from an associate, you’re wasting a lot of money,
In most production environments, people will clock in, go to their work stations, and start working. I implemented a rule that people should be at their work station at the beginning of their shift, and they should clock in at their work station, and they should immediately start on the work order that tells them what to do.
We had already measured the time it takes to produce their parts against a standard that was already put into the system. So what I wanted was for people to start working immediately on their work orders, and their performance was measured against the work standard, ensuring we got 480 minutes of work from each of them.
Our system was also able to measure down time (how long a machine breaks down) and idle time (how long the operator is standing and doing nothing). We discovered 20% idle time on the floor.
That’s significant, depending on the size of your workforce. That’s 20% of your total labor. That’s like losing a whole day of production.
If you go into most manufacturing operations, they’ll tell you that’s not the case. But if you measure it, you will prove it one way or the other.
Thanks to our measurements, we were able to reduce the idle time, and hold the individual responsible for it. Basically, if the individual wasn’t producing a work order, he or she was then idle. And because each individual was accountable for their idle time, the fix was simple.
In many cases, it would take 30 minutes for someone to clock in and get to their work station because they’d chat, take a bathroom break, or have a smoke. But if they clocked in at their work station and start production right at the beginning of their shift, you eliminate that problem immediately.
We called this system plant workflow. There was some initial resistance to it, and it washed a few people out of the system. But very quickly, the good people once again demonstrated the Pareto principle in action. And it reduced our costs and improved our profitability.
But what about management productivity? That’s a touchy area, because management rarely allows that kind of measurement. But it’s a problem, because these errors I talked about finding? The managers let that kind of thing happen in the first place. We were finding the results of their decision making.
For argument’s sake, the 40% error rate on all our invoices? It was management who let standards slip without actually trying to fix the problem as they started to grow.
So we started measuring management on things like the ROI of their decisions. If someone approved a capital expenditure, we measured the ROI of that expenditure.
Ultimately, measurement is going to drive your productivity and show you where you’re having problems and then tell you if you’ve been fixing them properly or not.
I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business using the Four Non Negotiables as a template. If you would like more information, please visit my website and connect with me on Twitter, Facebook, or LinkedIn.
Photo credit: Martinelle (Pixabay.com, Wikimedia Commons)