Operational Excellence is a philosophy of leadership, teamwork and problem solving

resulting in continuous improvement throughout the organization by focusing on the needs of the
customer, empowering employees, and optimizing existing activities in the process.

Operational Excellence stresses the need to continually improve by promoting a stronger

teamwork atmosphere. Safety and quality improvements for employees and customers lead
towards becoming a better enterprise.

The continuous improvement is not only about improving HR quality, but also it is about the
processes and standards improvement. You can not improve if you do not
measure. Metrics and KPIdefinition for any process is of pivotal importance. Once a metric value
can be calculated, from the data coming directly from the process crucial measurement points, it
should be logged. Then continuous improvement means continuously improving on existing
metrics and KPIs values.

Organization should also be improved. OE'S main objective is to reduce operation cost
and wastes, without affecting quality, time delivery and cost of products and services one
has to offer.

"Toyota  has turned operational excellence into a strategic weapon. This operational excellence is
based in part on tools and quality improvement methods made famous by Toyota in the
manufacturing world, such as just-in-time,  kaizen, one-piece flow, jidoka, and  heijunka.
Operational Excellence can help you:
 Unlock the true potential of your business
 Create competitive advantage
 Introduce consistent operations
 Identify value streams
 Use of data and facts to help decision making and influence key stakeholders
 Understand the link between actions and business outputs
 Reduce waste
 Have greater people involvement
 Make small changes that deliver big improvements
 Increase efficiency
 Increase customer satisfaction

No two organisations are the same so we offer a range tools and techniques to meet your
individual Operational Excellence requirements:
 LEAN Business Processes
 Six Sigma & DMAIC methodology
 Value-Stream Mapping
 Metrics and Measurement
 Visual Management
 Problem Solving Tools and Techniques
 Kano Model
 Cost of Poor Quality
 Multi-Variable Analysis (CVE)

World Class Manufacturing

First a definition of World Class. It is the recognition of an organisation as a

benchmark by its industry sector and, for some aspects, by other industry
sectors. World Class organisations consistently deliver exceptional performance,
frequently in excess of expectations. The final essential characteristic of a World
Class organisation is that it is continuously improving its performance.

There are 3 principles behind World Class Manufacturing.

 The first is what is known as Just in Time or Lean Manufacturing,

the step by step elimination of waste. Waste in this sense is
defined as any activity that adds cost but not value to the end
product such as excess production, stock, idle work in progress,
unnecessary movement and scrap.
 The second is total quality, a culture of intolerance to defects both
in the processes and also information such as bills of material and
stock records. Total quality is often these days called Six Sigma
which uses total quality and lean manufacturing techniques to
attempt to reduce rejects to 3.4 per million parts produced.
 The final principle is the principle of total preventative
maintenance where, whenever practical, a preventative
maintenance programme means that unplanned stoppages due to
equipment failure are minimised.

World Class Manufacturing is a very different set of ideas, principles, thoughts,

policies and techniques for operating and managing a manufacturing company.
World Class Manufacturing concepts were developed as the United States
influenced the resurrection of Japanese manufacturing industries after World War II.
It adopts many of the innovative ideas that were developed and used by the
Japanese electronics, automotive, and steel companies to increase their competitive
edge. Primarily, it focuses on using the concept of “kaizen” to improve cost, quality,
lead time, customer service and manufacturing flexibility.

World Class Manufacturing is a process approach which typically includes these

techniques and philosophies; Quick Changeovers (SMED), Statistical Process
Control (SPC), Just in Time (JIT), Visual Management, Streamlined Flow, Small lot
sizes, Cross Functional Teams, Employee Empowerment, Part Families, Reducing
Process Variation, Cellular Manufacturing, Zero Defects, and Total Preventive
Maintenance (TPM).

Companies taking part in World Class Manufacturing strategies tend to focus on

improving their operations, and to attempt to eliminate waste to create a lean
business system. This approach results in higher productivity and better profits.
However, these businesses will also focus on increasing the velocity of their total
order volume to improve delivery without relying of excessive or increasing inventory
levels. Sequential methods of performing work are being replaced with synchronized
manufacturing methods to speed up the operations to compress time, and
hierarchical departmentalized functions are being replaced by self directed work
teams.

World Class Manufacturing is a process focused approach using teams to improve

all the manufacturing operations. World Class Manufacturing techniques contradict
many of the traditional manufacturing concepts, which were developed during the
industrial revolution. The implementation of world class techniques will often bring up
resistance to change with management and employees. Resistance to change is
often supported by the statement "we've always done it this way". The most
resistance is often found in the lower and middle management levels. A process for
change has to be implemented with the full participation of management and
employees working together.

Capital investment is another huge issue for management teams. World Class
Manufacturing has the approach of “use creativity before capital". However,
sometimes improvements can be financially justified. This would be true, especially
when improved methods require an organization to purchase new technology or
equipment to achieve quick changeovers, more efficient cycle times, and give more
flexibility in their operations. Executives will often choose to take the option to save
on costs but this can be short sighted. They will become equally frustrated with the
less than desirable outcome as a consequence of not financially supporting the
improvements.

Like everything else, World Class Manufacturing is not a universal remedy or silver
bullet, nor should it be. It is an operational approach that, if used correctly, it will
provide new insights and allows a business to become more competitive in global
markets. It is the ideal system to quickly design and develop new, higher quality
products at lower costs, as well as delivering them with shorter lead times and better
manufacturing processes.

total productive maintenance (TPM)

   
Definition
Methodology designed to ensure that every machine in a production
process always performs its required task and its output rate is never disrupted.
Pioneered by the Japanese firm Nippondenso, a manufacturer of
automotivecomponents and a member of the Toyota group.

TPM (Total Productive Maintenance) is a maintenance philosophy

designed to integrate equipment maintenance into the manufacturing
process. The goal of any TPM program is to eliminate losses tied to
equipment maintenance or, in other words, keep equipment producing
only good product, as fast as possible with no unplanned downtime.

Are Your Operations and Processes Excellent?

It is my hope that the last great fad is process excellence. I have learned through the Baldrige
National Quality Award process that all work is a process. In turn, if we are able to make all of our
work processes excellent, it stands to reason that we will have organizations that are excellent as
well. Certain organizations are choosing to focus on operational excellence prior to expanding
their 'excellence efforts' across the organization. The following questions represent those that I
have been asked to comment on in recent months.

Operational Excellence Frequently Asked Questions

What is Operational Excellence?

My definition of operational excellence is based on the criteria of the Malcolm Baldrige National
Quality Award, and how I have seen recipients of the award apply these criteria to make their
organizations more sustainable.  Operational excellence must be demonstrated by results, not
just by words.  45% of the 1,000 points associated with the Baldrige award are results focused. 
In order to maximize the degree to which these 450 points are attained, an organization must
show sustained improvement over time, in all areas of importance, against ‘best in class’
organizations.

Operational excellence is therefore demonstrated by results that reflect (1) sustained

improvement over time, (2) improvement in all areas of importance (both performance areas and
segments within each area), and (3) performance at a level that is at, or superior to, ‘best in class’
organizations.  Common areas of importance for a cost center are safety, quality, people, and
cost.  Profit centers add the revenue generation performance area to this mix. Common
segments within each performance area include employee groups, facilities, departments, and
external customer types.

How does operational excellence compare to process excellence?

My answer to this question is influenced to some degree by my operations background as a

production supervisor and plant manager. To me, process excellence reflects a broader focus
than operational excellence does. For example, with a process excellence focus, groups like the
sales force, marketing department, and upper management teams are expected to consistently
improve the processes they own, just like the people in operations are. I see the phrase
"operational excellence" as being a little restrictive - process excellence encompasses all work,
whereas operational excellence may focus more on those processes that exist directly in the
value stream.

My preference is to pursue process excellence over operational excellence. The superior results
obtained by those organizations who have received the Baldrige award for performance
excellence at the state and national level have convinced me that viewing ALL WORK as a
process is the focus we should have. Many lean initiatives are difficult to sustain simply because
we fail to involve all work groups in the lean effort. In other words, the operations people make
improvements, but the sales and marketing teams fail to improve in a similar manner. In turn,
companies find that they need to layoff people as a result of their lean operations improvements,
instead of using the time and money which has been saved to support increases in sales from
existing and new customers. Has a limited operational excellence focus made it difficult to sustain
your improvement initiatives?

How do lean and six sigma methodologies contribute towards operational excellence?

Stated simply, the goal of any lean initiative should be to minimize waste while maximizing
customer value.  In an operationally excellent organization, lean practices are applied to all key
processes, not just those of a operations nature.  Additionally, value is defined from the
perspective of both the external and internal customer in a measurable manner – it is not just
what management thinks the customer wants. Lean tools are just that - a set of tools that can be
used on a regular basis to help you pursue operational and process excellence.

According to Womack and Jones, there are seven types of process waste – rework,
overproduction, excess inventories, non-value added process steps, excess people movement,
excess material transportation, waiting, and non-value added goods of services.  Common
examples of process waste incidents in organizations include accidents, rework, downtime,
material waste, absenteeism, equipment damage, product damage, customer complaints, and
lost customers.  A variety of lean tools are used to reduce and minimize these common causes of
waste across the organization’s value stream (from supplier to end customer).

Six sigma at its core is simply a measure of process variation. In an operational or process
excellence world, process variation is both known and minimized as much as possible through
the use of effective waste stream identification, root cause analysis, and project driven systems
change. Kaizen and six sigma teams are used to support the daily continuous improvement
efforts of each process owner, but they are not seen as the sole drivers of the operational
excellence initiative. Too many companies are currently making this mistake - they are striving
towards operational or process excellence as a goal, but they are (1) relying primarily on their
kaizen or six sigma teams to drive their process improvement efforts and (2) in turn failing to
attain high levels of employee engagement in the pursuit of process excellence.

How would you define 'World Class' in terms of operational excellence?

World class operational excellence is exemplified through the selection of ‘best in class’
benchmarks that are global in nature.  For example, an organization might be able to
demonstrate ‘best in class’ performance within its industry in the United States, while an
operationally excellent organization at the world class level would be able to demonstrate
superior performance against organizations that extend beyond its industry and country of
operation.  Most organizations are content with surpassing the industry average within their
country of operation – this is not world class excellence.

As an examiner for the Malcolm Baldrige National Quality Award, what attributes do you
look for to gauge operational excellence?

This question is in essence answered in my definition of operational excellence.  I will add

however that there are three key things we examiners look for, especially when we visit a finalist
for the award.  First and foremost, we try to ask questions of a high percentage of the workforce
to help validate the degree to which the organization’s high performance work practices and
approaches have been deployed.  You can’t achieve a significant percentage of the award’s
‘approach / deployment points (55% of the total) if your key approaches are not deployed to a
high percentage of the workforce. In other words, a high level of employee engagement is a
prerequisite for pursuing operational and process excellence..

Secondly, we review lots of documentation and talk to more people to help validate the degree to
which what was said on paper actually exists in the organization.  Eleven core values serve as
the foundation for the award and its criteria (things like fact-based management, visionary
leadership, and valuing employees).  Most organizations can talk a good game, but few can back
it up in the workplace.  That’s where the third thing comes in – even in those cases where an
organization might have the right systems in place, they can rarely demonstrate how these
systems have been consistently improved over time and have lead to improved results, again in
all areas of importance.

What is the most “critical factor” in making an improvement initiative successful?

This is a tough question, because I am torn between two possible answers.  An improvement
initiative will not succeed if time is not allocated towards it, and that time, if allocated, is used
effectively.  That said, an organization can allocate this time on paper (in a strategic plan, job
description, or expense budget for example), but fail to require EACH of its leaders to
demonstrate the degree to which they are personally using this time to improve the key
processes they are responsible for.  If I could only change one thing, I would change what I
expect from each of my leaders, because most people will find a way to reach a goal if that goal
is clearly stated, along with significant consequences for failing to achieve that goal.

What is “Activity Based Costing” and how does its use support “operational excellence”?

My experience has convinced me that activity base costing (ABC) is a requisite for operational
excellence.  Most importantly, activity based costing helps you allocate overhead to each product
more effectively, instead of using ratios based on a percent of direct labor dollars, pounds per
labor hour, or line hours.  With ABC, the primary cost driver for each expense group (cost center)
is identified, and then product specific percentages are derived for each cost driver.  For example,
rental expense is allocated to each product based on the percentage of floor space that product
occupies.  Engineering or sales wages and benefits are allocated to each product or service
based on the amount of time each engineer or sales person reports spending on a given product. 
Human resource costs might be allocated to each product based on the number of labor hours
worked per product.

The key is that the cost driver type varies with each cost center – no single set of multipliers is
used to allocate all overhead costs.  Using activity based costing helps more clearly define a
product’s or service's true profit margin, instead of allowing one product or service to carry an
excessive amount of another product’s overhead burden.  For example, I have seen one candy
bar type essentially die on the vine because it was carrying an excessive amount of sanitation
labor costs. Because sanitation costs were allocated based on line hours of operation (both
products ran for the same amount of time each week) instead of on the sanitation hours that were
actually needed to clean the line (the other product was very messy, and required twice as many
people to clean it), the 'easy to clean' product’s profit margin was understated, and in turn,
management was hesitant to try to grow that brand.  Additionally, the profit margin for the messy
product was overstated.

Activity based costing also helps an organization focus more on transaction costs instead of
merely managing to a budgeted number.  In an operationally excellent organization, the goal
should be to consistently drive down the cost per transaction (i.e. the cost per pound or the cost
per customer served) in EACH process area, not just overall.  ABC helps non-production groups
in particular, because it helps clarify the primary reason they exist. For example, what is the
human resource cost per person hired or per employee?  How has this number changed over
time?

How can managers in a facility monitor the performance of supervision to ensure they are
properly carrying out the daily tasks and duties necessary to maximize the effectiveness
of the improvement process?

As with any type of supervision or process ownership, a balanced set of metrics and reporting
should be used to track leadership behavior and task effectiveness.  A ‘bottom up’ Leadership
Index should be provided to each supervisor by his direct reports at least once a year as a
behavior effectiveness metric.  The process owner should also be held responsible for the safety,
cost, quality, and people metrics that his or her processes produce over time (in the form of trend
lines and a balanced scorecard). A key mistake which is made in most organizations is related to
expecting an external department, such as Safety, Quality, or Human Resources, to manage the
process results in these areas across multiple process groups.

I also expect each of my process owners to provide the following each month – a key project list
for their processes, a monthly summary of their key accomplishments and challenges, and a
performance summary spreadsheet that shows DAILY process inputs and outputs.  Because I
expect my supervisors to spend 30-60 minutes a day on these items and use a spreadsheet to
compile and organize them, I can review their progress at any time by simply looking at the
spreadsheet itself, the results trend lines posted in their process areas, and/or their hard copy
monthly report (or intranet web page). My "Process Excellence From the Inside Out" workshop is
specifically designed to help you install a similar process for your process owners in your
organization.

What is a system? Back to Top

In his book "The New Economics", Dr. Deming defined a system as being "a network of
interdependent components that work together to try to accomplish the aim of the system." In his
book "The Fifth Discipline", Peter Senge, who was a disciple of Deming, adds that systems are
"invisible fabrics of interrelated actions which often take years to fully play out their effects on
each other." The human body for example, consists of many different systems - respiratory,
circulatory, neurological, etc. - which allow us to exist and live each day. Freeway systems
consist of on and off ramps, shoulders, traffic lanes, and signage that work together to help guide
traffic to its destination. Work systems exist in a similar sense, even though we may not be aware
of their design or of the different aims that they are actually designed to accomplish. In many
cases, we simply come to work each day and do things as they have been done by others before
us, as well as ourselves, without giving much thought to why we are doing things this way or if the
actual results (the real aims) our different systems are producing are consistent with the aims we
have stated as desiring..

My operational definition of a system is also based on the use of the term "systematic" in
the Malcolm Baldrige National Quality Award criteria. That definition refers to "approaches that
are well-ordered, repeatable, and use data and information so that improvement and learning are
possible." I would say that in most organizations, their work systems are repeatable, even though
the results they provide are not actually measured. Unfortunately, the processes that are being
repeated each day as a part of a given work system are (1) NOT producing the types of results
that are truly desired, (2) NOT being executed in a similar, well-ordered manner across all people
and work groups, and (3) NOT using trended data to gauge process performance so that key
problems can be identified for the purpose of learning, resolution, and in turn, improvement.

For example, most companies have a planning system that can be defined by looking at the
patterns of behaviors that are used to arrive at organizational plans of different types. Different
departments or leaders may use a set of processes however to arrive at their plans that is
inconsistent with the ones that others in their company use, and few actually measure the
effectiveness of their planning process so that it can be further improved over time. They have a
planning system, but that planning system is not systematic. I have unfortunately found that in
most organizations, this can be also be said for the daily leadership, customer satisfaction,
employee engagement, training, measurement, hiring, and other key work systems that are used.
Worst of all, because these key work processes are not well ordered or effectively measured,
they are waste laden, with one the key waste streams being the limited time each of us has to
devote to our work each day.

What is the difference between a system and a process? Back to Top

In short, a system is a collection of processes. For example, a leadership system consists of

several processes, including a development process, an evaluation process, and a expectations
definition process. A process is a series of repeatable steps - simple enough? In performing our
personal routines each day, we are executing repeatable steps in both a predictable and
measurable way (if we were so inclined to do so). We follow a lot of these steps subconsciously -
teeth brushing, showering, driving to and from work, going to meetings, processing e-mail, eating
lunch (versus dinner), and managing projects.

We do the same thing in our organizations - all work is a process. We repeatedly execute a series
of steps each day to produce a product or provide a service. We do this as individuals, as teams
when we meet, and in the decisions we make as a managers and leaders. Each of these cycles
has an average cycle time, a cost, and a degree of somewhat measurable effectiveness other
than cost in terms of customer satisfaction. To save money, you reduce cycle time by eliminating
non-value added activities. You improve the value added activities so that they provide even
greater value. This is not just a work thing - it is just as applicable in our personal lives!

How are systems and culture change related? Back to Top

In my book "You Can't Win Indy in an Edsel - How To Develop a High Performance Work
Culture", I make a simple statement - change systems to shift cultures. Organizational cultures
develop over time, and your existing work culture is shaped by the people your hiring process
brings into the organization and the systems that reinforce daily work behaviors and beliefs. You
can't shift a culture towards continuous improvement by simply asking, let alone ordering, people
to change. You have change the systems that are used to measure performance, teach people
new skills, and reinforce performance expectations. Through my 27 years of work experience and
my nine years of experience as a national Baldrige Examiner, I have been able to define ten key
work systems that high performing organizations rely on to help them consistently improve the
results their work processes give them over time.

Your existing work systems are reinforcing your existing work culture every minute of every work
day. At the same time, our social systems are reinforcing social cultures that also impact the
beliefs that our people have about how work should be done and how our internal and external
customers should be treated (serviced). Unfortunately, our prevailing social systems don't
promote continuous improvement, lean thinking, or teamwork near as well as they should, and in
turn, our work systems should be even more robust in promoting these values that we need to
live in order to remain competitive and become great. In most organizations however, they don't.

What do you mean when you say that a system will give you what it is designed to give
you? Back to Top

The structure of a given system will give you a certain mix of results, whether you are aware of
these results or not. For example, the time that is required for you to travel to and from work each
day is predicated by weather systems, highway systems, legal systems, automotive systems, and
the various systems in the human organism. You might have a strong desire to cut your travel
time to work in half, but if you want to actually make this happen on a consistent basis, you have
to change the systems that are giving you your current results.

Similarly, your existing leadership system is giving you a certain mix of leadership results in your
organization. You can ask or demand that your leaders become better process improvers,
motivators, or coaches, but this will not happen if you don't change the systems that are currently
being used to develop and evaluate your leaders. You might define the strategic need to hire
employees who care more, are absent less, and have higher skill levels, but this need won't
become a reality unless you change the systems that are being used to recruit, hire, and retain
employees. If you have a weak hiring process, you will hire substandard people, whether you
have a stated goal to avoid doing so or not. If you fail to address employee needs or fairly
compensate them, you will fail to retain your good people, whether you like it or not.

How do I know if my work systems are 'great' or not?  Back to Top

Systems assessment begins by measuring and trending the performance of your work systems
over time. Without measures, and trends for those measures, you can't begin to assess systems
greatness. You also have to be measuring the right mix of things, as opposed to measuring just
certain aspects of a system's performance (such as measuring only throughput, even though
quality, cost, safety, and people results are also being generated). Great systems demonstrate
consistent improvement over time in all areas of importance. Areas of importance are defined
both by the mix of performance areas that exist (such as safety, quality, people, cost, and
revenue generation) and by the different areas where those results are generated (such as
departments, product types, or locations).

Once you have determined that your systems are consistently improving over time in all areas of
importance, you are in a position to assess true greatness by comparing the performance of your
systems to others in your line of work and outside of your work. The truly great organizations
have systems that produce results which are not only better than those produced by others in
their line of work, but are also better than those produced in other lines of work.
How can I improve my work systems? Back to Top

In order to improve a work system, you have to improve the processes that are part of that
system AND improve the manner in which these processes interface with each other. To improve
a process, you have to reduce process waste - this is the focus of most lean and six sigma
initiatives, such as kaizen or six sigma teams. Unfortunately, these teams typically make two
critical errors. First of all, they fail to perform effective root cause analysis - we tend to assume
that human error is the root cause instead of looking for the systemic causes of repeated human
error. Second, we write poor and largely ineffective corrective actions for what may, or may not,
actually be the systemic root causes of a problem. In turn, a lot of time and money is wasted,
people get frustrated, and the problems keep coming back. We fail to make the transition from
reactive work to proactive work.

Each process can be improved by minimizing process waste and increasing the level of customer
value that the process delivers, but if you don't also look at how one process is dependant on the
results of other process, or plays a role in determining the results of other processes, you won't
be successful. Too many organizations focus only on cost or waste reduction, and fail to also try
to increase customer value - they fail to involve their internal or external customers in determining
what types of process results are needed or are currently being obtained. For example, in most
organizations where lean and six sigma initiatives are being pursued, only 10-15% of the
employees are engaged in these efforts.

If you want different results, you have to change the systems which are producing the results you
are not satisfied with. That's the theory, but how do you make this happen? Fortunately, you don't
have to blaze new trails by yourself - there is a small percentage of organizations (I estimate this
number at 5-10%) that already have great systems in place. By studying these systems and
redesigning your own work systems to better mirror them, you too can get better results. The
primary goal of this website, and Great Systems naturally, is to help you learn from the successes
other organizations have realized already, so you don't have to reinvent the wheel. Some of you
may be able to do this simply by reviewing the more than 150 pages on this website. I am also
quite willing to work with you personally, via e-mail, telephone, or in a face-to-face manner, to
help you improve your existing work systems. All you have to do is ask.