During the third quarter of 1989, the service arm of a major corporation (for convenience and anonymity we'll refer to it as SERVCO) projected that they would exceed their revenue target for the year and began to address their goals for 1990. The challenge was to continue to increase revenue, hold current manpower levels relatively constant, reduce inventory, "significantly" improve cycle time across the entire operation, reduce the supplier base, keep current customers happy, and expand the number of customers for whom they were performing repairs and product overhauls. Sound familiar?
Faced with the formidable task of trying to achieve these goals, the staff began looking for a starting point. The one thing that kept appearing as their customers' highest priority was "the time to repair hardware." The perception was that it always took too long. Factoring this in with corporate expectations, they chose to approach their task in a nontraditional way by using continuous process improvement (CPI) methodology, tools, and techniques. Rather than trying to attack all things in their previous reactive, firefighting manner, they decided to focus on reduction of repair cycle time and tie all other efforts to it.
The change began by narrowing their purview to the "critical few" processes considered essential to attaining business plans and goals which included reduction of repair cycle time. The initial focus was narrowed to five processes for which natural teams were selected for CPI training.
Let's digress briefly from SERVCO's problems to determine what this thing called CPI really is. The objectives here are (1) to introduce you to the general concept of continuous process improvement and (2) to help you develop a working definition of CPI from a personal perspective and from the viewpoint of your "natural work team." If you're wondering what is meant by the term "natural work team," it's all the people who work together daily and "own" a particular process. We'll get into the process ownership concept in the section "Why does CPI work?"
CPI is fundamentally a toolbox of skills and techniques applied with a simple methodology to stimulate continuous improvement and control of processes. The processes are in turn used to satisfy customer needs and expectations, both internal and external to a business.
Take a moment to define, in your own words, the meaning of the word "process." If you are working with a team, and you should be to get the maximum benefit from this book, share your definition with all your team members. Then consider Webster's definition:
Process: A particular method of doing something, generally involving a number of steps or operations.
Compare your definition with Webster's and decide if you need to alter yours. Typically, people have found that the dictionary version reinforces what they initially recorded. Before sharing any further thoughts or definitions with your team, let's get back to the business scenario.
SERVCO opted to begin the process in a nontraditional manner with a heavy commitment to management training. They wanted to send the message through the organization, "We're serious about this."
The process began as a pilot in the fourth quarter of 1989. Doing the right thing at the right time was of supreme importance. By beginning training and implementation at a time when the traditional focus was primarily on meeting year-end shipments at all cost, the management team sent another clear message that things would be different. They were and still are.
As you might expect, along with the changes came some good news and some bad. The good news was that repair cycle times had been reduced in more than ten major business processes. Improvements ranged from 24% to 60%, and all were accomplished by the natural teams, with the support and direct involvement of the management team. Some teams involved key suppliers in the process and none required or recommended capital expenditures. After one year of training and implementation, SERVCO had 28 active process improvement projects that applied CPI methodology on a daily basis with an average reduction of 47% in repair cycle time.
The bad (but not unexpected) news was that the real world still existed. Change from the previous modus operandi was going to take time, patience, and persistence. The modified processes and implementation of the methodology were healthy albeit fragile. A few skeptics were still not buying into the process, causing opposing challenges the management team would rather not have to cope with. However, the team persisted, the process worked, and the results were well worth the effort.
Business plans for the future took on a clear focus involving customer needs and supplier partnerships. The improvement purview was expanded to include processes related to inventory while maintaining customer satisfaction and further reducing cycle time. A clear message was sent that the business would continue to integrate CPI methodology into management and daily activities.
This business grew and flourished because the management team chose to do things differently. They continue to use the simple tools and techniques of CPI to ensure customer satisfaction and improve daily operating processes. The dramatic reductions in repair cycle time not only led to improved customer satisfaction, they also translated directly into improvement of the bottom line. What more could a business want than a growing clientele, a healthy balance sheet, and a successful launch into a rapidly changing and challenging decade?
The global business world of the 1990s represents an arena where complacent businesses, managers, and others who are not receptive to change will most likely perish. To survive, let alone flourish, businesses in the '90s must meet the ever increasing and more demanding challenges of:
* Dynamic customer expectations
* Expanding worldwide competition
* Strategically implementing state-of-the-art technology
A strong, healthy business today is the direct result of meeting the challenges of the past. However, to remain strong and productive and be the natural choice of the customers, some changes will most probably be required.
If you don't believe what you've read so far, or if you don't intend to open yourself to change to meet the challenges of the 1990s and the twenty-first century, don't bother reading any further. Why? Because you and the people around you will most probably be doing something else in the very near future. If you haven't figured out the answer to "Why bother?" it's because business as usual isn't good enough!
However, if you do believe what you've read so far, the information and methodology presented in the following pages can help you improve your business. As you proceed, remember that CPI is not a panacea, nor is it a solution looking for a problem to solve. Proof exists to illustrates that it is possible for any business to experience SERVCO's success. There is nothing magical about it. Simply apply the methodology presented in the following chapters. Be aware that it takes leadership, time, patience, and persistence to make it happen and last. It's entirely up to the business team members whether they choose to change or chance ending up a casualty of the 1990s. CPI can help make that change successful.
What Is CPI?
Before getting started with the logic, skills, and techniques that make up CPI, let's establish some fundamental ground rules for creating the appropriate environment. They must be treated as canonical and adhered to at all times. It is essential that these ground rules be clearly articulated, understood, and abided by within each and every team and that they are fully supported at and by all levels of management. All successful CPI teams follow these basics. As you peruse and internalize them, you will begin to understand why they are emphasized.
1. Be open. Don't be afraid to share an idea. Remember, it's yours and it represents an expression of yourself. As you listen to other people's ideas, be open, supportive, or passive. Never attack! It kills ideas and erodes trust.
2. Be supportive and noncritical. When someone expresses an idea, be supportive and you'll be surprised how it is returned. Contribute in a noncritical manner. Remember, criticism kills ideas. Open support nurtures and encourages participation and builds trust.
3. Be positive. After listening to an idea or comment, respond positively. Try forcing yourself to say something like, "I like that idea because..." Remember, around every donut hole there is a donut.
4. Be willing to share your thoughts and feelings. Express your ideas no matter how insignificant or dumb you think they might be. When you share your thoughts and feelings you make yourself vulnerable. You will discover that when you are vulnerable, most people will want to help. Open sharing is a great team-building activity.
5. No finger pointing. Never be threatening. Remember to check your hand to see how many fingers are pointing back at yourself when you point at someone else.
6. K.I.S.S. (Keep it straightforward and simple). This is a cardinal rule of CPI. If you are tempted to try to make something complex, don't. If you are attempting to solve a complex problem or address a complex process, break it down to its simplest form, then proceed.
7. Have fun. When people have fun together, the stress level goes down, defenses go down, and creativity is enhanced. Never take yourself too seriously. I still hate to hear my wife tell me to "lighten up." But it always works. Learn to laugh at yourself or a bad situation. Remember, only you can control your attitude and outlook.
Recalling the earlier exercise where you defined "process," now expand your definitions to include the terms continuous and improvement. Webster defines these terms as:
Continuous: Going on or extending without interruption or break, unbroken, connected.
Improvement: An increase in value or in excellence of quality or condition.
Using your definitions and the reinforcement of Webster, your team should develop and record a definition of continuous process improvement. When your discussion has achieved a consensus, make sure it is reinforced by Webster's terminology.
Since you have now decided on a definition of CPI, let's discuss what it is not.
CPI Is Not Just Another Program
A typical program has a beginning and an end. It exists for a finite period of time and is usually created to accomplish a single specific goal before being discarded. In contrast, CPI has a beginning, but it has no end until the process it is associated with is no longer a functioning part of the business and has been eliminated or replaced by another process of greater value. And this is only where the differences begin. Later when we address the topic "Why does CPI work?" you will have an opportunity to explore further the characteristics of programs and how they differ from CPI.
From this point forward you are instructed to strike the word "program" from your vocabulary when you speak of CPI. It will not be easy, but it will help you achieve the fundamental change required to make CPI the way you think and do your job. A question that always arises is, "How much time do you expect me to spend on this? I still have my job to do, you know." My response has always been met with inquisitive looks and silence from managers and individual contributors alike:
I expect you to spend forty or more hours a week on the process because it must become the way you do your job. It can't be something extra to do. It must become the way you think and act every day. It must become such a part of what you do and how you do it that eventually you will be doing it without talking about it.
CPI is a proven prevention and improvement system built on four basic principles:
* Continuous improvement must be a way of life.
* Problems must be prevented rather than reacted to.
* Results must be measurable and directly related to business plans and goals.
* Team ownership of a process is essential.
The process helped several businesses identify and implement total savings in excess of $35 million from simple process improvements during the first two years of its use. By calculating the ratio of dollars spent on training and identified business savings, you arrive at an impressive 80 to 1 return on the training investment.
CPI consists of a logical set of simple and straightforward steps that are used by "natural work teams" to analyze and understand the processes they use in their work and to focus on the critical parts of those processes that require attention. Initially it provides a systematic way of eliminating the unnecessary, nonessential, non-value-adding parts of the process followed by continuous improvement of the simplified, streamlined process. It is a transportable process that is not only applicable to "manufacturing" type processes, but has proven applicable and powerful in a variety of business processes. You will see examples of various team activities in case studies and project summaries as you proceed through the text and begin to gain personal experience with the tools and techniques.
What Can CPI Do for Us?
Now that we've briefly explored what CPI is and how it involves the management team, let's look at the value it holds for the individual members of natural work teams. Basically, we want to answer that age-old question, "What's in it for me?" But in this case let's begin by asking the question from the team point of view: "What's in it for us?"
You don't need to be an international economist or CEO of a major corporation to understand that we are living and working in a complex world. We have seen technology shrink the world and launch us into a global economy that has forced us to think and act in a strategically different way. We find ourselves faced with more and larger problems while still dealing with the nitty-gritty things we must do just to survive. Many businesses have proven that by adopting CPI as a business strategy, they have been effective in meeting the challenges of worldwide competition by:
* Overcoming complacency
* Attacking the things they've learned to live with
* Getting rid of non-value-added work
* Preventing problems rather than reacting to them
* Continuously improving all business processes
From the individual team's perspective it does much more by simply:
* Focusing attention on detail
* Allowing people to contribute "from head to toe" rather than being used only "from the neck down"
* Understanding processes through examination and analysis
* Building focused teams
* Fostering open, honest, and supportive communication across traditional functional barriers and throughout the sometimes sacrosanct level structure
* Identifying root causes of system deficiencies rather than simply and naturally jumping to conclusions
* Instilling the improvement habit
The idea for the improvement habit was not mine. It came from a conversation I had several years ago with a product assurance manager. He said, "George, what we don't need here is another initiative. What we really need is for all our people, including the managers, to get the improvement habit." When I asked him what he meant, he explained that he believed everyone should get into the habit of constantly improving what they do and never stop.
Finally, CPI will enable and empower people to:
* "Visualize" processes
* Focus on "critical-to-quality" activities in a process
* Significantly improve process output
* Establish an evolutionary improvement system to improve their businesses and help ensure customer satisfaction
* Work together as focused teams
* Build a network of business teams focused on process improvement and customer satisfaction
I recall the reaction of a worker in a consumer electronics plant after her team had diagramed their portion of the manufacturing process. "I've been working here for twenty-two years," she said, "doing basically the same job day in and day out, and I never before knew why I did certain things. Now I can see where I fit and why my job is important. If I don't do my job right, then the next person who gets my work will suffer. Ultimately, we won't make our customers happy, and that's bad for our business."
She had found the link between herself and the customer. The job she had grown to look at as insignificant had taken on new meaning and she knew she had value.
Now let's turn our attention to the broader topic of business benefits. The objectives of this section are to help you:
* Identify the measurable business benefits which result from implementing the process
* Understand why and how to select an "area opportunity" from a process
* Begin to link broad team plans and goals to business plans and goals.
We will accomplish these objectives by addressing the following subjects:
* What can CPI do for our business?
* The Iceberg Phenomenon
* The Rule of Tens
* Why was our process selected?
* What can our team do for the business?
What Can CPI Do For Our Business?
The benefits of using CPI vary from business to business and from process to process. However, from a broad perspective, CPI (1) provides a strategy focused on prevention and improvement, and (2) helps build "natural" focused teamwork.
More specifically, the process enables the "natural" focused team to logically, simply, and systematically:
* Reduce scrap and rework
* Reduce cycle time
* Reduce waste
* Reduce inventory
* Provide significant short-term return on investment
* Introduce long-term profit and productivity gains
* Identify and eliminate non-value-adding, nonessential work from processes
* Improve and polish processes worked with daily
Specific examples of team results will be introduced later in the form of case studies and team project summaries.
The Iceberg Phenomenon
Everyone is familiar with the phrase "and that's just the tip of the iceberg," but have you ever thought about what it might mean in the business sense?
The Iceberg Phenomenon is nothing more than recognizing that what you see and measure with respect to losses, scrap, rework, and customer complaint costs is usually only a small and sometimes insignificant part of the total cost impact on a business. If you can accurately account for and measure direct cost drivers and then compare those costs to the indirect costs, you will be able to define the iceberg ratio for your business. Mathematically it would look like this:
Iceberg ratio = indirect costs/direct costs
Direct costs can be measured and tracked, and are usually accounted for in management reports. The finance and manufacturing divisions are the traditional sources for such data and are the recommended starting points for your search for data in your business.
Indirect costs are those costs that may be difficult to account for, but that you know are real. Some examples are:
* Excess inventory
* Engineering buy-offs
* Material review boards (MRBs)
* Preparation of rework procedures
* Material handling/expediting
* Engineering changes
* Excess capacity
* Marketing concessions
* Lost future orders
Take some time to develop and expand the list for your business and calculate an Iceberg Ratio.
When you have gathered the necessary information and begin to calculate your Iceberg Ratio, you might be interested in what you can expect to find. A ratio of 6 to 1 is not at all unusual. The better you track your losses and account for the true costs associated with such things as customer service, concessions, retraining, expediting, field corrective action, and associated travel expenses, the smaller your ratio will be. Conversely, the fewer records you have and the more loosely you track your indirect costs, the larger your ratio. Some businesses use a complaint accounting system to track these costs. The most important thing to remember is that these costs are real. They are real because they are subtracted from your bottom line, and that realization will get the attention of any finance manager or CEO.
The Rule of Tens
The next subject we will address is called the Rule of Tens. This concept is credited to Dr. Ohno of Toyota. Put in my own words:
Not doing something right the first time costs ten times as much to find and fix each time it escapes to a subsequent stage of handling.
Let's create a scenario to help you fully understand the concept. Suppose you found a design error in a product after it had been delivered to a customer. The number of stages it passed through from design to delivery will indicate how many factors of ten you wasted by not finding and eliminating the problem at its root. For example, if it passed through four stages, then it would cost you approximately a thousand times as much to fix it in the field as it would have cost you in the design stage. The factor stages might look something like this.
So remember, if you are a design engineer, don't be too anxious to "throw the design over the fence" to production. If you and your design team, which should include manufacturing or production personnel, have not verified the design, it could be very, very costly. It seems that we always have the time to do something the second or third time until we get it right. But now you can see that eventually you won't be able to afford it. In fact, look at what you save by doing it right the first time, even if it takes a little longer to check and verify the design. From the point of view of a general manager, it would be cheaper, more cost effective, and would send the right signals to the business team if shipping dates were missed, as long as that delay meant that it was done right the first time. Think about it.
Why Was Our Process Selected?
This topic is sometimes better known as "Why me?" or "Was it something I said or we did?"
People tend to get paranoid when they, or their work teams, are singled out for a special project. Why? It's usually because something went haywire and the boss is looking for someone to blame. Well, rest easy folks. In the case of the natural work team there is no boss looking for someone to blame because the boss is part of the team. And if something does go wrong within the team he or she will know what went wrong and why and won't go looking for who. In this case, we want to spend some time exploring why certain processes are selected as focal points while others are scheduled to be addressed later. It all comes down to the most critical factors affecting the business and the ability to provide products and services for your customers.
All businesses are composed of a series of processes which are used to provide products and services to customers. They are all important; however, the critical focus changes from time to time based on market needs, competition, and other environmental factors such as corporate expectations and policies.
Based on the "current environmental factors," the top management team identifies the "critical areas of opportunity" for focus and improvement to better meet market needs and fulfill customer expectations, thereby attaining business goals. Just as the natural work teams use certain tools and techniques and follow a given logic to improve their processes, their business management teams use a similar logic and the same tools to select the areas of opportunity for team focus. This allows everyone to speak the same language and enables them to link team plans, goals, and efforts directly to the top-level business plans and goals.
Therefore, it will not be a mystery why management selects a particular CPI team or chooses a "natural" work area as a focus for process improvement. Furthermore, it's not threatening because management is asking what, when, how, and why rather than asking who.
When the system was first implemented in one business, one of the managers reportedly said, "This will help us stop asking the five who's and start asking the five whys."
What Can Our CPI Team Do For The Business?
Now that you're over the hurdle of answering the threatening "Why me" question, let's move on to the more pragmatic discovery of what the team can do for the business. In order to help a team understand its charter and contribution to the business, it is necessary to form a clear understanding of the mission of the business.
A clear statement of the business mission must be obtained from top management to ensure that there is no misunderstanding of the basic task. This is the point at which the work begins. Once a mission statement has been clearly formulated, published, and issued to all members of the business, the task of interpreting it begins. It is essential that all levels of management be able to articulate the mission statement in their own words and make the pragmatic link to the process areas they manage. Once that is done, then the natural work teams must take the process one step further and interpret it so that it links to the processes they work with daily. Unless this occurs, the workers will not be able to see the connection between the value of their own jobs and the mission and goals of the business.
It is vitally important that each team in the business know and understand its charter and how it links to the overall mission, plans, and goals. Once that is accomplished, the team can proceed to address simplification and improvement of its own process, knowing that the results will support and have direct impact on overall business plans and goals. That in turn makes it possible for each team member to recognize personal contributed value to the team and to the business.
How Does CPI Work?
Now it is time to share with you the implementation model that has proven to be so successful. My vision of the model may be compared to what I refer to as the "co-op" system of education. When I was in college and graduate school I was always amazed at the direction and interest the co-op students seemed to have. They seemed to have more focus than the rest of us.
As I thought about what made those students different, I discovered one basic underlying and overwhelming factor. The ordinary student simply learned and acquired knowledge, whereas the co-op student experienced the implementation and application of that knowledge. It was this practical application that helped to reinforce the "book learning" and provided guidance toward additional skills and tools required to attain personal and business goals.
Implementation format follows a sequential application:
* Learn a new skill or technique.
* Try in class.
* Experience through application on the job.
* Reinforce through class discussion.
* Continue the cycle.
* Team coaching on the job through successful implementation and initial project completion.
* Congruent training of business coaches to radiate and propagate the process.
The training sequence takes several consecutive weeks using a flexible implementation model. Classes are conducted by a pair of coaches who have first experienced successful teamwork and implementation and are then trained in coaching techniques. The experiential prerequisite builds confidence in the coaches and credibility in the process.
During the initial training, a half day devoted to the use of skills is followed by on-the-job coaching. Later, training is devoted to coaching and continuous use of skills and in some cases the introduction of state-of-the-art technology and a systematic way of deciding when and how to use it. This introduction helps the teams recognize that it isn't necessary to use the latest and greatest technology just because it's there. Rather, they learn to use it when necessary to meet the needs of their customers and the challenges of a complex marketplace.
On-the-job application projects are not dictated by management. Instead, management guides the team by providing areas of opportunity directly associated with their process and linked to the mission, plans, and goals of the business. The team is totally responsible for selecting an application project because no one is more familiar with the process than those people who live with it every day. This builds confidence in the team that management trusts them to do the right thing. Because it empowers and enables the team to do their job, this decision-making capability builds the team's ownership of their process and its improvement.
During the application phase, formal meetings are held to review progress and to see that the plan is being followed. Management attendance and involvement demonstrates commitment to the process. This ensures that the teams are getting active support and not just passive lip service. Formal team presentations are included to (1) report and discuss progress and (2) develop and hone presentation skills. One entire training segment should be devoted to project organization as well as management and presentation skills.
The following cases have been included to help you understand how the process can be implemented and to exhibit the transportability of the tools and techniques into all types of business processes.
Case Study: Electronics Business
The CPI methodology was used effectively by a high-volume electronics manufacturing operation to achieve significant yield improvement in a relatively short time. The plant produced three basic sizes of TV picture tubes in a volume of approximately 7,000 tubes daily.
The techniques were first applied in the matrix room, where black lines are photo-etched onto the surface of the TV screen. The matrix room encompasses a number of sensitive processes which are highly automated. At the time of CPI implementation, the matrix area had an overall yield of approximately 89%. While month-to-month yield variation was experienced, little improvement had been made in the last nine months. Significant machine down time and sudden process aberrations were frequent contributors to the scrap generated in the area. To compound the situation, extra weekend shifts were being used to meet output requirements, while available resources were stretched and time for maintenance activities was minimized. Matrix scrap was detected during a final inspection operation prior to shipment by conveyor to the next process area. Unfortunately, this inspection operation was not 100% effective, resulting in an additional 3% to 4% of scrap in the subsequent process. Additional losses in the final tube test area resulted in significant quality cost losses virtually equal to that accounted for in the matrix room itself.
A multifunctional, multilevel team was assembled. The manager of process engineering was chosen as team sponsor because he was in a position to overcome many of the hurdles and roadblocks the team might encounter. Included on the team were a process engineer, a production supervisor, a machine attendant, and an operator from the chemical mixing room that supplied material to the matrix room. Also, a