SOURCE: Kay Sever | October 27, 2023
In January, 2023 I introduced the term “organizational dynamics” 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. Part 1 of this article brings new insights about 1) the traditional “limited”scope for optimization and 2) how that “limited” scope is often management’s “Achilles Heel” that sabotages optimization success and sustainability.
Dissecting the Traditional “Plug and Play” Optimization Approach
When companies consider moving from improvement to optimization, they have been taught to expect new/upgraded equipment and systems to deliver the optimized results for them. I call this traditional four-step equipment-based process a “plug and play” optimization approach.
STEP 1: EQUIPMENT SHOPPING/SELECTION
Some equipment and systems are designed to help companies optimize performance, either within a function or across a production value stream. This specialized equipment is promoted by vendors as optimization solutions, which is why engineers and process specialists attend conferences like MinExpo, where they can see and touch specific units with desired capacities and throughout rates and visit with experts familiar with optimization features. Vendors later visit sites to present design features of their equipment in greater detail and help sites choose the “best-fit” for an operation.
STEP 2: CAPITAL REQUESTED/APPROVED
The equipment needed to achieve management’s optimization goals is identified and capital requests are prepared by operations and financial groups. The executive team and board of directors already know that moving forward with an optimization initiative is not cheap, but they believe the savings/payback makes it worth the investment. After approvals are official and financing is secured, executives and the BOD believe that their active role in the optimization process is finished.
STEP 3: ORDERS PLACED/GAINS BUDGETED
After the expenditure is approved, equipment orders are placed and delivery/installation schedules are mapped out. Expected start-up/go-live dates are shared with executives and expected increases in production and reduction in costs are included in the next budget cycle based on an assumption that the equipment is all that’s needed to deliver the expected throughput and cost structure.
STEP 4: OPERATIONS RESPONSIBLE/PROJECTED GAINS MATERIALIZE
Once the equipment goes live, responsibility for achieving and sustaining an optimized performance level rests primarily with operations. Incremental changes in production, throughput and costs are compared to plan and variances are reported and explained. Expected gains may be achieved right after start-up or after a long ramp-up period; sometimes the gains never reach the projected ROI.
If we were to express the “plug and play” optimization processas a formula, it would look like this:
1) Equipment Shopping/Selection +
2) Capital for Equipment Requested/Approved +
3) Equipment Orders Placed/Gains Budgeted +
4) Operations Responsible for Equipment/Projected Gains Materialize =
“Plug and Play” Optimization Process Complete
What Happens When Gains Fall Short of Expectations?
If the expected gains materialize, the decision-makers are happy and believe that they have optimized performance. If the gains in profit do not materialize,
1) Was the wrong equipment purchased?
2) Is the equipment not performing at the level promised by vendors?
3) Are some of the gains from equipment being offset by hidden losses elsewhere in the company? If so, management has no guidance for where to look for these hidden losses or how to value them because the optimization scope was too narrow.
Unintended Consequences of a Narrow Optimization Scope
If the gains needed to pay for the investment never materialize, the credibility of operations, executives and the board of directors will be at risk. In that situation, what actions will management take to compensate for the shortfall? Will operations make changes to increase gains in the short term but sacrifice profit in the long term? What will executives be willing to change to mitigate the shortfall?
These questions and problems directly impact the long-term success of an operation and the credibility of the executives who approved the capital for optimization. They are also deal-breakers for a successful and sustainable optimization initiative. A broader scope for an optimization initiative helps answer these questions, prevents/solves these problems and results in higher gains for the long-term.
Weaknesses in a “Plug and Play” Optimization Scope
A narrow scope implies omissions. If the scope involves optimization, some omissions will eat management’s lunch (sometimes from behind the scenes). If we must view omissions as weaknesses in the optimization process, this means that we can strengthen the process by strategically adding some things back. I have consistently found that the most critical step in achieving and sustaining an optimized level of performance is looking for what’s missing in a process, in a team and in an organization.
1) Why is that important? Because the factors that materially offset real equipment gains and prevent the capture of millions of dollars of hidden operating potential reside outside the scope of an equipment-focused “plug and play” optimization process.
2) Why is looking for what’s missing a challenge? Because we seldom measure anything that’s missing. Instead we measure what we can see and touch – production units, throughput, dollars spent, etc.
Non-Negotiable Elements in a Solid Optimization Scope
There are three core elements of every company that must be strategically included in every optimization initiative if a company wants to achieve and sustain “best possible” performance over the long term: 1) equipment/systems, 2) the organization and 3) the management system/team.
Next month we will dive into more details about why the organization and management system must be linked in some fashion to every optimization initiative to truly maximize gains over the long term.
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 factor in 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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