In today’s dynamic and complex global world spiced with today’s financial crisis, companies are more than eager to cut down costs and work more efficient. Companies tend to start become limited in their ways of acting and adapting to upcoming changes, and thereby too often focusing on short-term solutions. Hence, the activity of iterative (adaptive) planning is even more important! The concept and importance of; “the plan is nothing; planning is everything” is getting invaluable in order to survive today’s dynamic and extreme business context.
However, let’s go back to my starting point where I argue that companies are more than eager to cut down costs and work more efficient. I will try to exemplify this argumentation of how we think we are cutting down costs and working more efficient, while we (ironically) might be doing the exact opposite by sub-optimizing and building inventories! I would like focus my discussion based on two wide areas of; the obsession of eliminating waste and the ambition to optimize.
The process of becoming more efficient and cost effective often starts with an executive management decision. This decision, often as a directive, to overlook all activities in each respective department is then communicated down to the rest of the organization with the focus of identifying and eliminating all waste. The received directive is then transformed into an ambitious process by the different departments that immediately starts identifying all waste, and starts effectively eliminating them one by one. Hence, please note that the focus here is identifying and eliminating waste within value-adding activities with no consideration to the total lead-time i.e. identifying and eliminating waste in non-value-adding activities!
What is quickly discovered and realized by the organization is that the value-adding activities are a much less percentage than the non-value-adding activities (refer to the image below). The blue slots represent value-adding activities whilst the white slots represent the non-value-adding activities.
Now, with the discussion above in mind, we need to ask ourselves what happens within an organization once the executive management makes a decision on becoming more efficient and cost effective. Obviously we are asked what we can do in order to become more efficient in our work. The answer to this question is often to work faster i.e. cutting down the time spent on an activity from 2h to 1h. For example, looking at the picture above, we can conclude that working on the clay model have some a value-added activities that could be made more efficient i.e. cutting down activities from 2h to 1h. So far so good. Looking a little bit more into it we realize that this is just a small percentage of the total lead-time of the product. Hence, becoming more efficient in the daily work of creating a clay model may in that particular (limited) activity be seen as a great improvement but looking on the lead-time for the whole product we have changed and improved.. nothing!
In summary: What I am trying to say is that when we are trying to improve things we need to consider them in the whole and not just parts of the whole. Considering them as isolated activities can (and will) lead to sub-optimization. There are two conclusions from this discussion. First, when we are facing the challenge of identifying and eliminating waste, we need to focus on the real waste which is the non-value added time spent on the product. This should be obvious by now that the percentage of this non-value adding time is much higher than the value-added time. Second, focusing on improving the value-added time is good, but is not the place where the efforts should be done since this is just a small percentage of the total lead-time.
However, when we are asked to make our organization more efficient we are trying to make all the value-added time spent on the product more efficient. I consider this wrong (as you can see from the picture above). In the best case (referred to as “improved lead-time” bar above) we have improved the value-added time spent on the product resulting in an overall improvement (this is very seldom the case).
We could at the same time end up in (“non-affected lead time“) that all our efforts improving the value-added time spent on the product, has actually resulted in zero improvement in the overall lead-time which makes the whole effort a waste!
Now, in the very worst of cases (“increased lead-time“), we might even have ended up making our work so efficient that we have build up inventories within the organization resulting in that the improvement actually leads to longer lead-times! Hence, our improvement work has therefore (paradoxically) resulted in being very efficient being viewed from that part of the organization while it has resulted in being a large waste being viewed from the whole organization as such..