Tag Archives: reinforcing system

The Danger of Missing Stratum IV

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From the Ask Tom mailbag –

Question:
We have silos. Everybody is in a power struggle. We used to have a great reputation, but I think we outgrew it. The company seems lopsided. Sometimes sales outstrips our ability to fill orders, so some of our sales orders turn into back orders, some of our back orders turn into canceled orders and some of our best customers defect to the competition. Other times, production outstrips our ability to sell, so our finished goods don’t get sold, they stack up in the warehouse. The warehouse gets full, so we rent another warehouse. We carry inventory so long it turns obsolete and costs to hold, eat up our profit. We are like a monster machine. Just read a book by Ken Blanchard Be a Silo Buster. Do we really have to bust up the company and start over?

Response:
With all due respect to Ken Blanchard, you created those silos for a reason. Do NOT bust them up. You need efficient, profitable internal systems. It is not a matter of busting up silos, it is a matter of integrating them together. This is a classic example of a company growing into Stratum IV. This is similar to the chaos we see in Stratum II companies, but on steroids. This is not a few individuals stepping over each other. This is whole departments, internally focused, head down, nose to the grind stone without care or consideration for the other functions in the company.

But, the fix is not to tear them down. The fix is integration and requires capability at S-IV. This is not finding the constraint in a single serial system (S-III), but understanding the impact of one system on another system (S-IV). This is not root-cause analysis, but systems analysis. We have reinforcing systems and balancing systems. This requires, not serial thinking, but parallel thinking.

This is not multi-tasking (because humans cannot multi-task), but truly seeing the dependency, inter-dependency, contingency, and bottle-necks that exist among out multiple systems and sub-systems. This requires a parallel state of thinking. Two specific things to look at –

  • Balance of each system output, optimized to its surrounding systems output.
  • Handoff of work product from one system to the next system as work output flows through the organization.

Optimization
Sales has to be optimized to production. There is no sense selling inventory that cannot be produced timely to the sales order. There is no sense producing finished goods that cannot profitably be sold timely to the market. The output of both systems has to be optimized so they work in sync. Reinforcing systems and balancing systems.

Handoff
A department, head down, will work to their own internal efficiency. The state of their work product may be incomplete or carry a defect for the next stage in the work flow. Work does not flow up and down in a department. Work flows horizontally through the organization, output handed off from one department to the next.

  • Marketing hands off to sales.
  • Sales hands off to estimating
  • Estimating hands off to contracting
  • Contracting hands off to project management
  • Project management hands off to operations
  • Operations hands off to QA/QC
  • QA/QC hands off to warranty
  • Warranty hands off to research and development
  • Research and development hands off to marketing, and so the cycle goes

Each handoff must be inspected and improved. This is the role at S-IV.
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To read more on system constraints, theory of system constraints, The Goal by Eli Goldratt.
To read more about reinforcing and balancing systems, The Fifth Discipline by Peter Senge.

The Danger of Missing Stratum II
The Danger of Missing Stratum III
The Danger of Missing Stratum IV

Finger Pointing Between Functional Departments

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From the Ask Tom mailbag –

Question:
Any advice as to how to align all members from multiple cross-functional departments into one purpose; create an efficient, streamlined process that assures that communication, documentation and actual product flow is executed efficiently?  We are specifically a design firm, but our revenue comes from the products manufactured from our exclusive designs.  So, we have mature internal systems in each department, but the transitions of work flow from one department to the other sometimes break down, so there are logjams, finger-pointing and sometimes, general chaos.

Response:
Much of the answer is in your question.  Let me pick out your key words.

  • Purpose
  • Efficiency
  • Flow

Let me add three more.

  • Balance and optimization
  • Authority
  • Accountability

What you have described is the classic transition from Stratum III systems to Stratum IV system integration.  It sounds like you have done an adequate job of creating multiple internal systems, that are efficient in each of your workflow disciplines.  It is the integration of these systems that is giving you fits.  Let me take a stab at listing some typical systems in this flow.

  • Market research system
  • Design system
  • Prototyping system
  • Approval system
  • Production system
  • Finished goods inventory system
  • Marketing system
  • Distribution and logistics system

Each of your internal systems likely works well within itself, but now you are experiencing balance problems between your internal systems.  It is not sufficient to have a great design system and a great production system.  If you have a weak prototyping system, your designs will get stuck on paper and never make it to production.  You may have a great marketing system that creates consumer demand, but if you have a weak finished goods inventory system, your products will never find their way to distribution.  Your weak systems will be doing their best and your strong systems will be finger-pointing.

So, that’s the problem.  What is the solution?  This is a Stratum IV issue, where someone needs to have end-to-end accountability.  Some companies attempt to solve this problem by creating a role called product manager.  The product manager would be accountable for tracking each step, likely creating a Gant chart of product progress from one function to another.  While this role gathers necessary data about the status of a single product in the chain, it still might only document that the product is stuck.

That is why this is a Stratum IV issue, one of balance and integration.  The S-IV manager (likely a VP) would be accountable for examining each system for capacity and handoff.  This is not looking internally at the mechanics of a single system, but the interaction of each reinforcing system to each balancing system.  It is not a matter of having one or two high performing functions, but having all functions able to keep up with each other, optimized for capacity.  No single system manager will have the authority, nor likely the capability, to do this work.

And somewhere in this integrated whole system, there will be a constraint.  There will be some limitation in a single system which will drive the cadence of all the systems working together.  The hat trick is identifying and placing that constraint strategically.  Typically, this strategic constraint will be an expensive resource, too expensive to duplicate (which would double the capacity of that system).  The identification, selection and placement of the strategic constraint, and then subordination of all other systems to the strategic constraint is the work of the S-IV manager.

With this integrated system design, then the work of documentation, handoffs, communication and feedback loops begins.  Most companies get this backward and have a communication seminar without balancing the systems for total throughput.  You can imagine that this communication seminar makes everyone feel good, but nothing changes in throughput, the finger-pointing continues.

For more reading, start with Eli Goldratt’s The Goal and Peter Senge’s Fifth Discipline.