SOURCE: Kay Sever | September 29, 2023
In January, 2023 I introduced the term “organizationaldynamics” as a key factor in optimization success. Dynamics is defined as the science of the motion of bodies and the action of forces in producing or changing their motion. If we apply this definition to business, “bodies” are individuals or groups in a company and dynamics refers to how these individuals or groups act, react and interact in the workplace. This is Part 5 of my article on an invisible dynamic that hinders or prevents optimization… managing interdepartmental touchpoints.
When investing millions of dollars to expand production, management may ask specific departments to develop requests for capital. Sounds like a logical approach, but here’s the problem… the data used to prepare expansion capital requests comes from your actual/ budget data and/or capacity/throughput stats provided by equipment vendors. None of this data is linked to existing operating capacity or optimum capacity limits for your value stream. Why is this important?
1) Actual data includes the impact of upstream bottlenecks and inefficiencies which invisibly lower actual production stats. As a result, perceived system bottlenecks will not be the true system bottlenecks, causing expansion capital tobe misplaced, a very expensive mistake.
2) Baseline budget data includes reductions for unmeasured upstream productivity losses that have been occurring for years, which means that capacity can be hidden in multiple places in the production value stream, resulting in overspending or expanding capacity in the wrong place.
3) Vendor specifications for equipment capacity/productivity are specific to a unit of equipment and do not consider the production environment where that equipment resides (i.e., operating plans, quality of inputs, etc. This means that using vendor capacity/throughput stats can contribute to the misplacement of expansion capital OR spending more than was needed.
The bottom line is that actual, budget and vendor data can create risks for big financial mistakes in evaluating/approving expansion capital. What data IS NEEDED to insure correct expansion capital placement AND how is that data linked to interdepartmental touch-points?
You need data that reveals your value stream’s current hidden/excess capacity BEFORE you invest millions of dollars to expand capacity.
1) This data is not in the general ledger or in your actual/budgeted operating stats, but you can create it BEFORE spending millions of dollars for the wrong equipment.
2) In the process of creating that dataset, hidden operating potential in the form of production capacity and hidden excess cost are often discovered. Existing hidden operating potential DOES NOT REQUIRE CAPITAL to capture because you already spent the money to create it. The problem is that your data is hiding it from you!
3) To capture existing operating potential, your PEOPLE/ORGANIZATION must change how they interact with equipment and each other… a management-controlledsolution that is often FREE!
SO…the purpose of developing an operating potential dataset is revealing your true value stream bottleneck(s) and your current hidden operating potential that can be tapped BEFORE youapprove expansion capital. Having this data is particularly important in times when it is difficult to borrow money to finance your expansion.
Case Study – a $50,000,000 example:
Years ago one of my clients was considering a $50,000,000+ expansion at one point in the production value stream. I had already helped the site’s production value stream departments develop data for their hidden operating potential. The senior management team was very close to approving the expansion request which was prepared by a capital project group. This group used actual and budget data to justify the capital request (as they had always done). They were not included in the scope of optimization work for the production value stream.
After I analyzed the expansion request using the site’s operating potential data, I found hidden capacity at the plant planned for expansion and was able to identify the true bottleneck upstream that required an expansion before existing downstream excess capacity could be tapped. My analysis was reviewed by several engineers from the requesting department and the bottlenecked upstream department. They all agreed that 1) the original assumptions in the capital request were based on data that did not reflect existing excess capacity AND 2) expansion capital was needed upstream instead. As a result, senior management approved the capital for the upstream plant… a $50,000,000 mistake avoided!
Creating a “big picture” perspective across your operation/company
Once you create your dataset for current operating potential, your management team can 1) strategically connect your people to it so they can convert it to profit and 2) ensure that your planned expansion capital placement is correct. Management’s strategy for who sees the data and what they do differently after they see it IS THE KEY to your success!
In the above case study, the capital project group was excluded from the optimization initiative at the site because they were an administrative group (not part of the production value stream). The last-minute shift in capital placement was a GIFT to that senior management team, who was ready to approve expansion capital for a department that already had the capacity to process the additional throughput they were requesting. Think about that… $50,000,000+ would have been spent without the ability to supply the throughput to use it… a credibility problem that could never have been overcome by that senior leadership team. For this reason alone, having a management strategy for sharing operating potential data across an organization should be a high priority.
Based on all my years of experience with this work, I can confidently say that:
1) The broader the knowledge base “across” a company(not down a vertically controlled organization chart), the smaller the hidden losses will be AND the urgency to fix weak interdepartmental touchpoints will go up exponentially.
2) Problems that seemed unfixable will suddenly be easy to fix because everyone understands the “Big Picture”. They all see that a different choice is all that’s needed to stop some losses.
3) This dataset and organizational mindset focused on maximizing the use of operating potential facilitate “placement analyses” that add credibility to expansion timing and placement.
Thought for the year: There is an astounding lack of management awareness about the power of moments… moments when opportunities to capture millions of dollars hang in the balance… moments when courage is the defining factorin preventing or stopping losses and shaping a corporate culture capable of sustaining optimization over the long term. Executives and management teams that have this awareness are empowered to help their people achieve optimization and accomplish great things!
Kay Sever is an Expert on Achieving “Best Possible” Results. Kay has 25+ years of experience working in the optimization arena. She helps executive and management teams tap their hidden profit potential and reach their optimization goals. Kay spent 3 years analyzing the impact of management systems on optimization success. As a result of that study, she developed a LIVESTREAM management training system for Optimization Management called MiningOpportunity – NO TRAVEL REQUIRED.See MiningOpportunity.com for her contact information and training information. Email Kay directly at [email protected].
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Kay has worked side by side with corporate and production sites in a management/leadership/consulting role for 35+ years. She helps management teams improve performance, profit, culture and change, but does it in a way that connects people and the corporate culture to their hidden potential. Kay helps companies move “beyond improvement” to a state of “sustained optimization”. With her guidance and the MiningOpportunity system, management teams can measure the losses caused by weaknesses in their current culture, shift to a Loss Reduction Culture to reduce the losses, and “manage” the gains from the new culture as a second income stream.
