By Robert O. Martichenko, CEO | LeanCor Supply Chain Group and co-author of Discovering Hidden Profit
There is an ancient eastern proverb that states “Where profit is, loss is hidden nearby.” The corollary is also true in that “Where loss is, profit is hidden nearby.”
This powerful statement is fundamental to our belief that organizations need to embrace continuous improvement to remain competitive and profitable. Yet while this may seem logical and obvious, the hard truth remains that organizations continue to struggle to create cultures where continuous improvement rules the day as measured by getting a little better each day.
Which begs the question, what’s the problem? Or, the more appropriately structured question of what’s the problem that’s keeping people and organizations from solving problems that result in significant business improvement?
Is it a case that CEOs, executives and all employees of an organization simply don’t want to improve the business? While there may be isolated cases of this example, I think it’s safe to say that in principle, all leaders and team members want to improve their work and overall results of their efforts.
Is it that people don’t know how to improve? This may also be the case in some situations, but trending initiatives and activities, such as the powerful concept of Lean Thinking, show that organizations have invested significantly to teach people how to show problems. (If you’ve been trained in lean, think about your lessons on Pareto, Fishbone, 5 Whys, Root Cause Analysis and Value Stream Mapping).
Maybe it’s a case that organizations don’t have problems that need fixing? To address this, I remember the old saying I was once taught that “No problem IS a problem!” It’s safe to say that all organizations have their fair share of problems that require attention in order to improve business results.
So, there really does seem to be a challenge that we need to address.
Path to Relentless Continuous Improvement
Business leaders have always recognized the potential for better operational and financial performance if leaders across core processes and functional areas worked together more cohesively. To do this, leaders and managers in an organization need to see and think about the business from a holistic business-wide point of view. We need to be system-wide thinkers. We need to understand that an organization is similar to an organism – action, reaction and results are difficult to predict.
In contrast, we also need to embrace that organizational functions are similar to a machine – a series of connected processes that form a whole, a system of gears that act as a whole to produce some planned and expected outcome. To that end, we need to implement operating principles that emphasize customer value and total cost at a business system-wide level. We need to focus on profit as a function of revenue and total cost from a holistic point of view across the entire business enterprise. We need to make profit predictable.
The path to continuous business improvement and discovering and extracting hidden profit rests within viewing the organization from a new perspective, one where we go from being focused on single-process optimization to viewing the business as a total system formed when we connect people and processes.
This is the essence of Discovering Hidden Profit, where you identify and capture incremental profit opportunity by simply viewing and acting upon your business from a total-system perspective.
People inside a business need to learn how to solve problems across the entire business. Consequently, an organization needs to mature in its ability to execute and sustain long-term business improvement.
This is a maturing process, where the organization matures in its capability to solve problems effectively. Solving problems effectively means that we have the knowledge to truly understand the right problem, use relevant data and facts to identify contributing and root causes, be creative and forward thinking in our developed solutions, and recognize what the extended value-stream implications will be for the intended solutions.
The following are the stages of problem-solving maturity that we need to progress through to achieve Advanced Supply-Chain Performance.
Stage 1: No Improvement Activity In this stage, there is no formal business-improvement activity within the organization. The next step is for people within the organization to learn how to make problems visible, and from there they will need to know how to solve functional (local) problems using fundamental tools such as Pareto, 5 Whys, Fishbone and basic project-management tools.
Stage 2: Functional Improvement. In this stage, improvement activity is focused on waste reduction within a specific function and does not consider any other functions when implementing improvements. An example would be to make improvements within manufacturing while not taking inbound or outbound logistics into consideration relative to their possible impact on the improvements. While functional improvement is valuable and necessary, the challenge is often that the improvements will have unintended consequences in other areas of the business and may at times actually create more waste across the supply chain than that which is being reduced in the functional improvement.
The next step in maturity from functional improvement is to make improvements across the functional value stream, starting with adjacent processes upstream and downstream to the functional process you are focused on.
Stage 3: Value-Stream Improvement. Within this stage, improvement activities are focused within a core business process, namely business strategy, product life-cycle management, sales and marketing, or supply-chain operations. In this stage, adjacent and connecting sub-processes are considered when implementing improvements. An example would be to make improvements within manufacturing while taking the sub-processes of inbound or outbound logistics into consideration relative to their possible impact on the improvements. The improvement activities would be completed and accomplished by all sub-processes within the core process.
The next step in maturity from value-stream improvement is to make improvements across the extended value stream.
Stage 4: Extended Value-Stream Improvement. In this stage, improvement activities are focused across all four core processes of the business. The improvement activities are focused on the implementation of agreed-upon operating principles and set goals for improved business improvement. This stage of business improvement is the next frontier for significant business results. This is our ultimate goal of relentless continuous improvement.
It’s important to recognize that many organizations are not solely inside one stage of their improvement-capability maturity. That is, they have various levels of maturity depending on functions, divisions, or particular skills of specific leaders. However, for successful implementation of continuous improvement, the organization needs to understand their current maturity level and formalize a plan to develop people and processes to climb the growth curve towards extended value-stream problem-solving capability.