SOURCE: Kay Sever | November 1, 2024
The Renaissance Period was rooted in a desire to explore and discover new knowledge. Renaissance thinking focused on discovering “what was unknown, overlooked, missing or misunderstood”. In 2024, we will be using Renaissance Thinking to understand what’s missing from a traditional optimization scope and how to broaden that scope to capture millions of additional dollars with no additional capital.
For those that are new to this column, here’s a brief summary of topics that set the stage for this article:
In February we explored the history of accounting and learned that the 800-year-old accounting system developed by merchants to track trade (i.e., “buy and sell”) transactions, inventories and profit is still in use today (with few modifications). Companies around the world use it to track/report revenue, costs, inventories and profit. We learned if your goal is optimization (i.e., “best possible” performance), the financial system does NOT contain or report metrics for that goal.
Optimization Metrics quantify “how good you can be” and give executives and management teams a new context for their “upside potential” or money they “left on the table”. The gap between today’s performance and your “best possible” performance is defined by:
- Existing but hidden production capacity that has not been tapped.
- Profit potential (profit that equipment and people were capable of generating but didn’t).
- Hidden financial losses linked to organizational weaknesses.
Once your team develops an optimization metrics dataset, the metrics alone will not deliver or sustain “best possible” performance. A subset of management’s tool box must be also upgraded to drive “best possible” thinking and actions across the organization and sustain gains. Without these upgrades,
- Efforts to achieve “best possible” performance will be sabotaged from behind the scenes.
- Management will be left wondering why their goals for excellence seem elusive, not knowing that the root cause is totally within their control. (See September’s article for more details).
From September-November, we have shared specific examples of “management system mismatches” and how “optimization upgrades” helped achieve/sustain “best possible” performance. In September we focused on haul truck tires and in October we talked about drilling. This month we are covering optimization as it applies to SIPOC (Supplier-Input-Process-Output-Customer) management.
Example #3 – SIPOC:
(Full disclosure: I have helped cross-functional teams “optimize” SIPOC flows and improve upstream/downstream/value stream performance for copper and coal operations).
The SIPOC concept defines processes and service requirements between 1) external suppliers, 2) internal suppliers/customers and 3) external customers. Applying optimization concepts and metrics to SIPOC work enables the capture of millions of dollars of upside organizational potential and prevents millions of dollars of untracked/unreported losses driven by weak working relationships between suppliers, departments and customers.
Participating in the process of identifying optimum requirements/metrics for working relationships raises awareness about the link between great working relationships and higher earnings. Traditional management processes call for setting goals for productivity and cost by department. In SIPOC work, the focus shifts to satisfying the needs of downstream customers, no matter where people work in the value stream. Once managers and employees have a new paradigm for how actions impact a company’s financial success, ALL BETS ARE OFF on what a company can achieve and sustain.
- A shift in thinking about the quality of interaction within an organization MUST OCCUR within leadership before involving employees in the process.
- Calculating (unreported) losses linked to organizational weaknesses accelerates the shift.
- A high level of interaction between leaders, employees and external parties is required to achieve and sustain “best possible” performance across an organization.
- Knowing what a department needs from its internal and external suppliers is the first step to reducing lost production, excess/wasted costs and product quality penalties in the value stream.
- Knowing what your external customers need and then working to achieve those specs in your company builds a strong partnership between companies and strengthens supply chains.
- Agencies can be included in the external customer category. In the past, my experience showed that when agencies were part of the optimization scope, errors, rework and number of submissions for approval were significantly reduced and months required for approvals/permits were cut out of the process. In one case, an agency saw the benefits of this work and decided to apply SIPOC concepts and processes to its internal processes so the agency could better serve its customers (i.e., companies like my client).
- The ISO audit process can be included in a SIPOC optimization scope. ISO auditors gave positive feedback when they saw SIPOC tools designed to help employees achieve/sustain ISO certifications. These tools helped the auditors see that the COMPANY’S INTENT was achieving “best possible” performance instead of meeting ISO minimum requirements.
SUMMARY REMARKS:
SIPOC optimization work touches many functional activities…
- Production functions: drilling, blasting, loading, hauling, crushing, grinding, floatation, smelting, refining, tailings, loadout to name a few. Unmeasured losses can occur between each… these losses are often buried in actual historical costs and are budgeted year after year.
- Working relationships between internal functions and external customers/suppliers can cause millions of dollars of losses. These losses may be known and may be caused by problems believed to be unsolvable because metrics for “best” are missing from management’s toolbox.
- Administrative groups that support production must be involved in SIPOC work to eliminate hidden losses caused by weak support groups that do not know what their internal customers need to succeed. Knowledge is power and in this case, it’s also worth millions in extra earnings.
- External suppliers and customers can be involved to extend the goal of “best possible” beyond your company’s borders to important partners linked to your success.
Broadening the organization scope of SIPOC optimization work yields big benefits for project management, capital projects, expansions and promoting “big picture thinking”. For example, when a plant is expanded and upstream/downstream requirements for “best” are known,
- You can be more confident that you have the right eyes and minds on a project.
- You can ask different questions and assess the upstream/downstream impact to help maximize ROI.
- You may discover that the expansion scope needs to be bigger to get the best result.
- You may find excess capacity upstream or downstream that will reduce capital required.
- You may learn that expansion capital needs to be shifted upstream or downstream to the true “optimized” bottleneck.
SIPOC optimization work can save millions of future dollars in capital and cost…
SIPOC optimization work using optimization metrics helps reveal the cost of weak working relationships between internal departments, between suppliers and departments and between departments and external customers. Millions of dollars are sucked out of the bottom line every year because management lacks data that “flags” these relationships for focus/repair. Here are two of many examples I witnessed in my work with SIPOC and optimization metrics:
- MISPLACED PLANT EXPANSION: A plant was designated for a $75,000,000 expansion. SIPOC optimization work revealed hidden excess capacity at that plant, so the expansion was shifted upstream to the “true” bottleneck before any money was spent. A $75,000,000 mistake was avoided because defined SIPOC optimums were in place at the time the expansion was planned. If expansion capital had been spent on the wrong plant, millions of additional dollars would have been required to expand the actual bottleneck. The ROI on this project would have been very low and the credibility of the management team would have suffered greatly. It might have cost them their jobs.
- POOR ADMIN SUPPORT: Centralized procurement made all purchasing decisions for sites and sites were forbidden to contact procurement if there were problems… a management-created silo. When the magnitude of site losses caused by poor quality parts and supplies was finally shared with procurement, communications opened, the silo came down and a new policy for sharing equipment/process requirements with procurement was implemented to stop the losses. As a result, millions of dollars of extra income were reported as costs were reduced and production increased. Example: $4,000,000/year was lost due to a poor quality part that caused breakdowns. This loss STOPPED at the moment people were allowed to talk to each other about what was needed to succeed… a FREE SOLUTION!
Thought for the year: Renaissance thinking has a direct application in positioning your company for success with capital-free optimization. If executives and management teams foster and nurture the desire to explore for hidden profit potential everywhere, what they learn will give them a huge advantage when they want answers to “what’s possible to achieve”.
Kay Sever is a Performance Optimization Expert and Optimization Management Strategist/Coach. Kay helps executive and management teams quantify and tap their hidden profit potential to reach their optimization goals. Kay has developed a LIVESTREAM management training system for Optimization Management called MiningOpportunity – NO TRAVEL REQUIRED. See MiningOpportunity.com for her contact information and training information.
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- About Us
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.
