Tag Archives: 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

Why Would They Skip a Step?

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“What do you mean, I see things that my team cannot see? If they would just look, they would see it, too,” Max pushed back.

“Max, you are a manager. You are responsible for creating all the systems that people follow. You know more about how things work and how things go wrong. Give me a short list of things you see, that your team doesn’t see,” I asked.

“Short list?

  • Sometimes, we get parts in from our vendor that have a slight defect. If we use that part in our assembly, when we get to the end, the unit will fail a pressure test.
  • If we skip the pressure test, the units get boxed and sent to customers, who install defective units. Their first call is to the salesperson, who gets an earful from the customer.
  • If the salesperson gets three customer phone calls complaining about defective units, the salesperson loses confidence in our ability to make a quality product. He stops selling.

Should I go on?” Max quizzed.

“Why can’t your production people see that?” I prompted.

“I guess they can’t put the dots together. From the time we get that first defective part, to the time the customer complains could be three months time. And when the customer complains, we still have to track down the problem, then reference our production codes to find out when the units were actually produced. It might take another week just to track down the problem. There is too much disconnection for my production team to follow. They just know they get yelled at for skipping a parts-inspection and a pressure test.”

“And, why would they skip a parts-inspection?” I wanted to know.

“Funny, the team was actually proud of their assembled output that week. We were in a bind for a large order. It meant overtime and a team bonus for 50 extra production units that week,” Max lamented.

“So, let me understand. You design all the systems out here, including the bonus system for exceeding production quotas in a shorter period of time? And you wonder why the team skips steps, to get their bonus?”

Smile Training

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WHY I wrote Outbound Air –

As the organization grows, the chaos of Go-Go is killing the organization. The company has clearly defined its methods and processes, but the sequence is not necessarily efficient. Mom and Pop, who started the organization, long for the days when they could just do everything themselves. This motley crew of people (the team) is going through the motions, doing what they have now been trained to do.

For the most part, the product or service makes it to the customer, and for the most part, the customer is happy. But as sales volume grows, the chaos of Go-Go creates enough substandard output that people begin to notice. Deadlines are missed, defects become visible. The organization reacts by creating a customer service department, to apologize and smile.

But smile training doesn’t cut it. The company is now in pursuit of some sort of consistency, so that every product consistently meets its specification, so that every service meets the standard, every time. The strategic focus turns to a system focus.

____________Adolescence – system focus
________Go-Go – define and document methods and processes
____Infancy – focus on sales, production, find a (any) customer

The methods and processes are examined for sequence and priority to create a system that is efficient, predictable and most of all profitable. The bank wants that line of credit paid off.
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Homage to Ichak Adizes, Corporate Lifecycles, 1988.

You Designed the System

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“I have so many things going on, seven projects in the air, but the worst part is, people just seem to interrupt me, all the time,” Rosalee explained. “They don’t realize how hard it is to get anything done, when every ten minutes, I have to drop everything to answer a question.”

“Who is they?” I asked.

“Well, it’s my own team members, and it’s my manager, and my manager’s manager.”

“Sounds like you are pretty important around here,” I observed.

“I do have a lot of experience, and my projects are very complicated. Lots of moving parts and shifting deadlines,” she replied.

“So, what are you going to do?”

“I don’t know. I tried shutting my door, so they text me. I tried hiding in another office, they found me. I tried coming in to work early and staying late, but that turned into 14 hour days,” Rosalee shook her head.

“Why do you think everyone depends on you, so much?” I prompted.

“They are smart people, but sometimes I think they are lazy. They don’t have to make a decision using their own judgement when they can just ask me.”

“And if you refuse to help?”

“I can’t do that. Decisions wouldn’t get made and production would slow down,” she protested.

“So, the system that interrupts you, is a system that you designed?”

Kristen’s Recruiting System

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Kristen put away the behavior profile. “Okay, you’re not going to look at this. You want a role description. But you want more than a role description, you really want a system?”

“Yes, a system,” I replied. “Let’s sketch out these elements, put each element into a circle, then put arrows between each circle, to indicate the workflow. You may add and take away elements as we go along. This picture will represent your system.

  • Identify the work
  • Identify the necessary roles to do the work
  • Identify the necessary roles to make sure the work gets done
  • Assemble a role description, broken into Key Result Areas, including tasks, goals and level of work
  • Create ten questions specific to each Key Result Area (6 Key Result Areas = 60 written questions)
  • Write a Job posting
  • Resume review
  • Screening phone calls
  • Telephone interviews
  • Face to Face interviews
  • Skills Testing
  • Selection Matrix
  • Reference checks
  • Background checks
  • The Offer
  • Drug Testing
  • Offer (confirmation)
  • Orientation
  • Training
  • Task assignment
  • Assessment
  • Training (more)
  • Career path, development program

“Now we have documented the steps in your recruiting system. What’s next?”

Your Customer is Not Your QC Department

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“You cut your lead time from six weeks to four weeks. Higher throughput with the same number of people, with the same equipment, in the same facility, you lowered your cost. You shifted from just getting the orders out the door, to a consistent, predictable system. And that’s when your troubles began?” I was curious.

“Yes, we were certainly focused on our systems,” Arianne continued, “but we had to match a competitors warranty. We figured, no problem, but we were wrong. We had our cost-to-produce down, but our warranty returns went through the roof. Everything we made up in cost savings went right back out the door in warranty repairs and replacement. We had a quality problem.”

“Pace and quality,” I said softly.

“Yes, our throughput was quicker, but it just meant we were making mistakes faster.”

“What did you do?”

“We were relying on our customer to be our Quality Control department. Bad move. We had to retrench, put inspections after each major step, so if we had a problem, we could identify it before we made another thousand parts. We tracked everything on white-boards. We didn’t make it to six-sigma, but enough quality improvement to make a big difference.”

“So, finally you got organized, accelerated your throughput, beat your internal quality standards. It must have been a proud moment,” I encouraged.

“Not really,” Arianne replied. “That’s when the rug got pulled out from under.”

Shift to Efficiency

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“You were more organized, but you almost went broke?” I pressed.

“Yes, we managed to get all the orders out the door, but it cost more to produce, than the revenue could cover,” Arianne replied.

“So, you needed to raise your prices?”

“Not that simple,” she explained. “We had competition. Our competitors price-to-the-customer was 15 percent below our cost to produce the same product. We waited for two years for them to go out of business. There was no way they could sustain that loss. But after two years, we figured out they weren’t losing money after all. They had found ways to be more efficient and productive.”

“What did you do?”

“It wasn’t enough to be organized. We had to examine every step. Turns out there were more efficient ways to work. We changed the sequence of some of the steps. Some steps could be done at the same time by different teams, increasing throughput. It was amazing. We cut our lead time from six weeks to four weeks. Higher throughput with the same number of people, with the same equipment, in the same facility, we lowered our cost. We shifted from just getting the orders out the door, to a consistent, predictable system.”

“Problem solved?” I asked.

“Not really. That’s when our troubles really began.”

Flowcharting the System

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“So, what does it take to create a system like that?” I asked. “To create a system that would notify for rejected parts along with lead times for replacement parts and alternate suppliers?”

Valerie was shaking her head. “I know our computer software pretty well and to program that functionality would be pretty expensive.”

I reached in my bag and pulled out a handful of 3×5 index cards. “Suppose I said that you were not allowed to modify your software and the only tool you could use were these 3×5 cards? Now build a system. Let’s start with how frequently it happens.”

“You’re right,” Valerie started. “It doesn’t happen that often. Our QC guy who certifies incoming parts, could send a card with the details to our purchasing person. Our purchasing person has access to lead times and alternate vendors. Purchasing gets their order quantities from sales orders, so they could run a reverse report to find out what orders would be impacted, that’s easy.”

“What else do we need to know to effectively respond?”

“We would need to get our sales people involved to find out what wiggle room we have on those orders. Since we are three weeks ahead of the game, there are all kinds of adjustments that can be made with ample notification.”

“If I asked to draw a picture of this on a piece of paper using circles, arrows and labels, could you do that?”

“You mean, like a flow chart?” Valerie asked.

“Like a flow chart.”

What a System Delivers

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“Well, I thought our team did pretty well, given the circumstances,” Valerie continued to protest.

“Yes, they did,” I replied. “And those circumstances should never have existed. To come down to the wire and find you are missing 500 critical parts on an order should never have happened.”

Valerie shifted in her chair. “But stuff happens.”

“Yes, stuff happens all the time and that’s why your system should detect these conditions. When did you find out that your supplier had shipped 500 defective parts?”

Valerie looked to the left. “Three weeks ago.”

“What difference would it have made if your system had delivered a report three weeks ago that showed 500 rejected parts along with replacement lead time, a list of alternate parts vendors and their lead times, along with all orders pending that required that part?”

Valerie’s head was nodding. “We would have had three weeks to work on the problem instead of three days.”

System Detection

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“But, we got the parts in and shipped the units. I thought we handled that quite well,” protested Valerie.

“You are right, your supervisor did a good job. That’s what supervisors do. But your work, as a manager, was not done,” I replied. “The job of the manager is to create the system. When you discovered you would be short of parts, it was your supervisors job to go find the parts, but it was your job to ask

  • Why didn’t our system anticipate this shortage?
  • Why didn’t our system detect this shortage as soon as the order was placed into our system?
  • Why didn’t our system spot our supplier’s inventory and indicate a shortfall in those parts?
  • Why didn’t our system have alternate vendors for those critical parts?
  • Why didn’t our system continually track alternate supplier inventories to find odd lots at aggressive pricing?

“The job of the manager is to create the systems, monitor the systems, improve the systems. It’s great that we have a supervisor who knows how to scramble. But I prefer a system that responds to our constantly changing circumstances. The role of the manager is to create those systems.”