Category Archives: Systems

Your Problems Are Not All Internal

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“I thought we had everything firing on all cylinders,” Manny explained. “We had the perfect customer offering, at the perfect price point, with the best quality. Suddenly, market demand just tanked. Over the past three months, our backlog disappeared and our order forecast is a disaster.”

“It’s not enough to get everything working on the inside (internal systems),” I said. “We also have to look outside. There are external systems, like your market, that will hit both revenue and bottom line. And even if you get your market right, there are other external systems you have to pay attention to –

  • Market (external system) – consists of your customers, your competitors, your suppliers. Sometimes there are incremental changes, sometimes major disruptions.
  • Regulation (external system) – most companies pay taxes, but there are other financial regulations, tariffs and fees. Environmental regulations in terms of prohibited materials, impact fees and unknown liabilities.
  • Finance (external system) – we go to the bank in search of a loan and think the bank should loan us as much as we have the ability to repay. The bank has other ideas called covenants, internal ratios (internal systems) that have to be maintained. It’s an external system with an impact on how you internally organize. Finance can take the form of lines of credit, term debt, stockholder investment, private equity. All external systems.
  • Labor (external system) – usually impacted by unionization and unemployment statistics, more recently impacted by governmental intervention.
  • Technology (external system) – technology has changed the way we work, the things on our desk, the way we communicate, attend meetings. Most importantly, technology as an external system has changed the way we make decisions and solve problems.

So, when we look at our perfect internal systems, we also have to look at the imperfect external systems in which we operate.

Killing a Neighboring Function

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“And operations does it absolutely perfect, every single time?” I asked.

Roberto exhaled like he was going to speak, but stopped. “Okay, you got me. I know it’s a trick question.”

“If operations does it absolutely perfect, every single time, then you have no need for Quality Control?” I smiled.

“We measure reject rates, but they have been pretty good, in fact, on a down trend,” Roberto replied.

“But your customer service call counts remain high. What’s up with that?” I wanted to know.

“That’s where we really put our energy. We get very high marks on our customer service. We put resources where we need them.”

“So, is there a correlation between low reject rate and high volume of customer service?”

“If you ask our department managers, they are very proud of their statistics. In fact, our customer service manager just asked for more budget because they are doing such a good job.” Robert’s turn to smile.

“There’s a connection,” I said. “When you look at integration inside a company, you can’t look at a high performing single function. You may find that a high performing single function is killing its neighboring function. And, you may find a problem in one function by looking at what’s happening in another function. You can get profitable by focusing on a single system, but you can’t scale until you look at all the functions together. It’s about total system throughput.”

Work Moves Sideways – Release and Pace

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“It happened again,” Peter grimaced. “We just got a large order with a tight deadline. We went to expedite the order and turns out there are projects stuck in the middle of our system.”

“What do you mean stuck?” I asked.

“I mean stuck,” Peter replied. “We run a just-in-time shop. We don’t order materials until we have a project, and some of those materials have lead times, so we have a bit of coordination to do. If we have a material with a three day lead time that we can’t schedule that project for tomorrow.”

“So, what’s the problem?”

“Supply chain. We know we will have the material in three days, so we release the project to the floor so when it’s time for those materials, the materials are there. Until they’re not. We found out that material is out of stock from our supplier with a three week lead time, not three days. But the project is already on the floor. Without the material, the project is stuck. And, it’s big and heavy, stuck in a staging area waiting on material. We can’t move around it, we can’t move over it. It’s stuck. Now, we have a highly profitable project, lots of gross margin that we can’t start because the other project is stuck on the floor, for the next three weeks.”

“How often does this happen?” I wanted to know.

“With supply chain the way it is, more and more,” Peter shook his head.

“What have you learned so far, about what to do and what not to do?”

“Well, for one thing, never release a project to production until we have all the materials in hand. That will keep things from getting stuck. Also, a couple of workstations are very quick and sometimes get ahead of themselves, pushing out too many assemblies, stacking them in the way. The guys in that work cell are so proud of their output, they don’t see they create a problem. I think we may have to idle that process during portions of the day so things don’t stack up. Weird that I would have to tell that team not to work so hard.”

Work Moves Sideways – Output Capacity

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Every system has a output capacity over time. If a machining system requires twenty minutes to complete a process, it can produce no more than 24 units in an eight hour shift, and that’s if nothing goes wrong. If there are variations in the process that require setup time, the capacity moves down from 24 for each twenty minutes of setup time. If a tool, in the machine, gets dull, that twenty minute process might increase to 23 minutes and reduce the output capacity.

Sales may have no similar constraint, and arrive back at the office with sales orders for 175 units promised by Friday. You do the math. Some of those sales orders will turn into back orders and some of those backorders might turn into canceled orders. What’s the problem?

The problem is that we have a discrepancy between the output capacity of sales and the output capacity of production. It may look like a communication breakdown or even a personality conflict between the sales manager and the production manager.

There are several levers you might use to optimize the output capacity of the two systems. You might need one less sales person. You might need to schedule promise dates. If the market is strong and sustainable, you might need two of those machines to increase the output capacity of production to 48 units per eight hour shift.

Work Moves Sideways – Outputs and Inputs

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“Sales is complaining again,” Marlene announced. “They say all the leads that marketing gives them suck. They say they don’t even want the leads from marketing. If that’s the case, then why do we need the marketing department. Sales says that marketing is just a waste of their time.”

“Interesting,” I replied. “Then, what is the purpose for marketing? If you were in sales, what would you say is the purpose for marketing?”

“That’s simple,” Marlene said. “Leads. Marketing creates the circumstances where we identify people who have the kind of problems that we solve.”

“And, isn’t that what our marketing department does?”

“Yes, and no. The marketing department uses a variety of campaigns, trade shows, press releases, giveaways and social media to create inquiries. They are very proud at the number of leads they deliver to the sales team.”

“Then why the complaints?” I asked.

“The sales team has a very specific customer profile they identify as the ideal customer. Most people who don’t fit the profile, don’t buy. Last week, at a trade show, marketing gave away an iPad in a drawing in exchange for a business card. They got sixty business cards and turned them in as leads. When sales followed up, they found sixty people who didn’t fit our ideal customer profile. Waste of their time.”

“So, the sales team is looking for a very specific input, that meets several criteria for your ideal customer. But, the output of your marketing department is a list of people who want a free iPad? Your outputs and inputs don’t match.”

“Exactly,” Marlene nodded.

“So, if that’s the problem, how are you going to fix it?”

Growing Pains

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“He was my best supervisor, and, now, it’s like he went brain-dead,” Marie complained. “James always followed things by the book. A stickler with rules. Some of our services are life and death, so rules are good. But, now, he questions, pushes back on certain decisions.”

“What else has changed?” I asked.

“When he pushes back, he is unsure of himself. When he enforced a rule, he was authoritative, sure of himself, gave off a sense of reliability. His team followed him with the confidence that he would not lead them astray. Now, when he pushes back, his team is confused. Execution slows down.”

“Example?” I pressed.

“We work in complicated projects with other teams. There is a project schedule that requires we show up at a certain time. James always shows up with a full crew, tools ready with all our materials. Now, sometimes, the project isn’t ready when we show up, so we can’t do our work. James always documents the delay to support our claim for costs, you know, full crew, mobilization.”

“And, our contract requires that,” I confirmed. “What now?”

“Now, James is checking the project status the day before to see if the project is ready. He questions showing up if our project segment can’t be completed the next day. I mean, he’s right, but now, his crew is confused. Are they supposed to show up if the project isn’t ready? Now, they begin to question the accuracy of our project schedules. I hear bitching and complaining that we, as a company, are unrealistic, and that James in particular doesn’t know what he is doing. Most of the time, it’s not James, the fault lies in some other project segment over which we have no control.”

The Necessity of Management

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“Everything seems to change, every day,” Charlotte whispered. She felt the change, but had never said the words.

“Think about this,” I suggested, “if nothing changed in your company, what would your team members do every day?”

The anticipated blank stare pierced the silence.

“That’s right!” I exclaimed. “If nothing changed, they would never do anything different. They would continue to do the same thing they did the day before. And life would be good.

“But things do change, and that is why you have a job as a manager. Think of change as your job security. As long as there is change, you will have a job to do.

“As your customers change, as specifications change, as technologies change, as we find better ways to do things, your job, your role as a manager is to modify your systems and processes to accommodate those changes.

“The more things change, the more your company needs competent managers. Lecture over, last one through the door, turn out the lights.”

Take Your Company to the Next Level – Market Platform

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Strategic platforms help us understand our business model and where we compete for customers, what our customers expect from us and how we go to market.

  • S-V – Industry platform, where our enterprise competes using industry standard practices.
  • S-IV – Market platform, where our multiple systems integrate with market systems.
  • S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
  • S-II – Process implementation platform (of someone else’s system, like a franchisee).
  • S-I – Product or service platform, where it’s all about the product.

As the organization grows from product to process to system, it ultimately ends up with multiple systems. The hallmark of an S-IV company is its ability to integrate those systems and subsystems. Internally, that integration inspects how work travels from one function to the next with a close eye on the capacity of each system and how that capacity impacts the capacity of its neighboring systems.

Until the organization emerges as S-IV, there is one system in its strategy often overlooked. That system is NOT internal, it is external. It operates like any other system, but it sits outside the company and it’s called your Market.

When the organization matures into S-IV, it finally has the capability to look outside. Prior to that, all energy is directed inside, on the product, process and internal systems. At S-IV, the company blossoms to look outside. That outside look is market responsive.

A market responsive strategy looks at the internal product or service offering through the lens of the customer, through the lens of the market. Adjustments are made in the product, not because of technical expertise, but because the market demands it. Car manufacturers took out ashtrays and installed cupholders. Why? Because the market demanded it. The market is mindful of gas mileage, but, at the end of the day, it demands cupholders.

Take Your Company to the Next Level – System Platform

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Business platforms help us understand the condition of our business model, its requirements, characteristics, competitive edge.

  • S-V – Industry platform, where our enterprise competes using industry standard practices.
  • S-IV – Market platform, where our multiple systems integrate with market systems.
  • S-III – Single serial system platform, where we see the introduction of warranties as a competitive edge.
  • S-II – Process implementation platform (of someone else’s system, like a franchisee).
  • S-I – Product or service platform, where it’s all about the product.

Bob’s Burger was all about the product. Assuming Bob’s Burger is the best burger around, how do you beat Bob? You get more trucks, geographic expansion. And, geographic expansion (more trucks) comes with its own set of problems. The quality of the burger begins to suffer. Raw ingredients scream for a supply chain where there is none, several trucks run out of lettuce. One truck runs its griddle too hot, the burger tastes like shoe leather. Customers expecting Bob’s Truckburger to be as good as the original Bob’s Burger are disappointed. Worse, Bob is in no-man’s (no-person’s) land. Expansion costs money. The unit cost for more trucks and more people are driving up overhead. A little bit of success can create a whole lot of overhead. Bob is everywhere with his new trucks, and, he is struggling. Bob has plenty of revenue coming in, and, profitability is elusive.

How do you beat Bob’s Truckburgers? Move to the next level, the system level. Bob had trucks, but no system. Bob could have purchased a system from McDonalds, Burger King, Wendy’s. If Bob had, he would never run out of lettuce, because the supply chain would be a system with ordering min/max’s. The griddle in each truck would always be the same temperature, calibrated on a monthly basis. Every burger would always taste the same. This is scaling. Scaling requires a system. Scaling without a system is a disaster.

Outside the burger world, you will notice a business model with a system frequently offers a warranty, a promise. A warranty promise without a system is a disaster. A warranty promise with a system yields predictable results. And, for the first time, profitability emerges. If you want to improve your profit, improve your system.

Process and People

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“I feel a bit overwhelmed,” admitted Melissa. “There are so many things that can go wrong on this project, and I’m just not sure if I can manage it all.”

“You are right,” I replied. “You cannot manage every detail. Success consists of the execution of a hundred things, most of which cannot be managed.”

“Then how?”

“Most things we accomplish as managers consist of process and systems with elements that can be measured and managed. But that is only part of the story. Success also requires elements like focused attention, cooperation with team members and commitment to the result. Those are elements, difficult to measure, but more importantly, almost impossible to manage. You cannot manage focus, cooperation and commitment. This is the people side of management, and people don’t want to be managed.”

Melissa was silent, thinking. “The people side is more difficult than the process side, and maybe more important. I think I would take a mediocre process with some fired up people, over a spectacular process with a poor attitude.”