RKL eSolutionsBlogs

Increase Profits with a Process of Ongoing Improvement

English: Portrait of Eli M. Goldratt

Portrait of Eli M. Goldratt
(Photo credit: Wikipedia)

It seems that there is no end to what dedication to a process of ongoing improvement (POOGI) can bring to firms in terms of increased profits. At least one visionary, Eliyahu Goldratt, believes that virtually any company has the potential of turning its revenue figure of today into its bottom-line profit figure over the course of five years dedicated to unrelenting ongoing improvement.

Interestingly, many firms have yet to consider taking Lean or Theory of Constraints or any of the proven methods and cultures for ongoing improvement seriously. They still manage by outdated methods—the way their fathers ran the business—or, perhaps worse, by the latest management “fad” or “flavor of the month.”

At the other end of the spectrum are firms that have discovered that nothing in the supply chain is off-limits for consideration in a full-fledged POOGI.

In a recent article published by McKinsey, Markus Hammer and his cowriters bring some valuable examples of new applications of the Lean approach to a POOGI to light. We feel these examples are worth repeating here for one purpose—and for one purpose only: to spark the innovative imagination of all executives and managers who read these examples toward inciting fresh innovation in their own organizations and operations.

Example 1: A pharmaceutical company

A pharmaceutical company “applied lean manufacturing to a series of processes in its biological reactors, where it grew cell cultures.” The firm applied value-stream mapping along with deep statistical analysis, and then set about problem-solving in sessions involving both “engineers and operators” in order “to identify improvements [possible] in the productivity of the biological resources.”

“The company expects the [resulting] improvements to boost yields by over 50 percent—without additional costs,” the McKinsey report says.

This is all the more remarkable in light of the fact that the firm was already “well-versed in lean thinking and methods.” The firm had not recognized these opportunities for improvement earlier because the executive and management team had previously assumed “variability in biological materials” as a given that could not be addressed through a process of ongoing improvement.

Example 2: A European chemical company

The McKinsey report also relates how “a European chemical company used lean value-stream analysis of raw-material flows in one of its businesses to understand which activities created value and which created waste.” As a result, “the company learned that up to 30 percent of its raw-materials inputs were wasted.” They further discovered that “some plants were far more wasteful than others, despite otherwise appearing” to be quite efficient.

After making these discoveries, the firm undertook to “prioritize a range of improvements.” These improvements started with “how it sourced raw materials” and extended all the way to “equipment and process changes in production.”

These improvements resulted in net gains of more than 50 million Euros annually.

Example 3: A look at energy consumption

Since rising energy costs affecting the entire supply chain, some resource-intensive suppliers are now taking a closer look at energy consumption versus value-added in the supply chain.

By combining the value-mapping of Lean with big data analytics, one firm identified a series of process control improvements that, when taken together with opportunities to reduce thermodynamic energy losses during processing, contribute a net 15 percent savings in annual energy costs. These savings were equivalent to three-fourths of the plants entire fixed labor cost.

The enduring value of a process of ongoing improvement

The McKinsey report concludes with this important point:

“While… these examples are impressive on their own, perhaps more impressive is the enduring power of lean principles to generate unexpected savings when companies gain greater levels of insight into their operations…. In the years ahead, as emerging-market growth continues to boost demand for resources and to spur commodity-price volatility, more and more companies should have incentives to experience this power for themselves.”

Lean, of course, is not the only school or culture for gaining “greater levels of insight” into your operations. Goldratt-inspired Theory of Constraints has also proven to be hugely effective and its Thinking Process tools help unlock “tribal knowledge” like none other of which we are aware.

Without exception, however, is the fact that greatest enemy to a process of ongoing improvement is the attitude that “we know”—not being on a constant quest for greater understanding of your own operations, your own supply chain, and what might be done to improve it.

Begin your own POOGI now. Tomorrow may be too late.

We would sincerely like to hear your thoughts on this important matter. Please leave your comments below, or contact us directly, if you prefer.

See also: Hammer, Markus, Paul Rutten, and Ken Somers. "Insights & Publications." Bringing Lean Thinking to Energy. McKinsey.com, Feb. 2014. Web. 25 Feb. 2014.

Enhanced by Zemanta

Questions? Need Support?
Get in Touch