Chapter O – Operations

2. What is the difference between operating results and operating success?

Let’s assume that you’re responsible for getting customer orders out the door.  Let’s further assume that once an order is received, it takes five days for processing and shipping.  Now let’s look at a key metric: The percentage of the items ordered that actually shipped. For purposes of this illustration, let’s say that out of 100 items orders, only 87 left the building. 13 were backordered. That’s an 87% service level.  Is this success?

Certainly we have results.  But are these successful results?  Place yourself in the shoes of a customer.  In a world where instantaneous gratification is more the norm than not, will your customer be happy knowing that their order will take five days before shipping?  And when the order is received, how happy will they be when over 10% of what they ordered didn’t arrive?  To be clear, the average (from 2006 to ’10) for industry leading companies when it comes to delivering their orders complete and on-time 95.8%+ of the time.

The first step is to measure activity.  Establish key performance indicators (KPIs) that quantifiably assess performance.  Average days outstanding, scrap rate percentage, service level, inventory turnover, and dollars shipped per sales representative are all examples of metrics that can be tracked and are critical to your success.  And by tracking these kinds of metrics, you can also plan.  If, to be profitable, the company must achieve $1,000,000 in sales per month, then the goal is $50,000 per business day.

Once measured, what do these numbers mean?  The above-mentioned 87% service level, based on best practice norms of 96%, renders that activity sub-standard. So it’s important that you, your department and the company set objectives that, when realized, achieve success…not only in your eyes, but also in the eyes of the customer, whether internal or external.  What you want in the end are not just results but successful results.

8. Must you choose between efficiency and effectiveness?

A track and field sprinter has one – and only one – goal in mind: To get to the finish line as quickly as possible. At the other end of the spectrum, a bomb disposal expert diffusing live munitions must take all the time they need to do the job right. The heart surgeon, however, must walk a fine line between speed and outcome.  The heart can only be on the heart machine for so long, yet one slip and the patient’s life is in jeopardy.

The heart surgeon is balancing efficiency with effectiveness. In operations the two are also inseparable.  They’re joined at the hip.  Consult your dictionary and you’ll see the following definitions –

• Efficiency – accomplishment of or ability to accomplish a job with a minimum expenditure of time and effort
• Effectiveness – adequate to accomplish a purpose; producing the intended or expected result

Or, as Peter Drucker put it, effective is doing the right thing, while efficient is doing things right.

Let’s move from the operating room to your office, factory floor or warehouse.  No matter what the task, isn’t the goal to perform the activity as quickly and accurately as possible? Whether it’s the manufacture of the widget, the shipping of an order or the deposit of cash, the faster the task is completed the less it costs the company.  Lower costs translate to greater profitability.  And more profits could mean bonuses or increased salaries.

But: Does doing the work at top speed mean that the task was done correctly; that it achieved the desired results?  No. The typists who type at 80 words per minute but make a dozen mistakes won’t keep their job very long, nor will the order-entry assistant who enters the most orders in the department but also makes the most errors.  The production manager who produces a record amount of widgets per hour, but must scrap 20% of the finished goods will also soon be looking for another job.

Your responsibility is to balance efficiency with effectiveness.  One without the other will prevent you from achieving operational success.

9. Is it critical to continuously improve your processes?

By the time this book hits the streets, it’s quite possible that Apple will have introduced to the marketplace their next generation iPad. If the rumors are true, the “iPad3” will have even more than its predecessors.  The launch of the original iPad was enormously successful.  So why the need to unveil generation 2? G3?

This is because the goal of any company should be constant improvement.  Intel knows that as they introduce their latest chip it will be replaced soon; the next generation is already beyond the drawing board. Therefore, they want to be the ones who make their own chip obsolete because if they don’t, someone else will. Continuous Process Improvement (CPI) is an ongoing effort aimed at improving current business processes used to provide goods or services.  It’s an ongoing effort to incrementally improve how products and services are provided and internal operations are conducted. The implementation is tactical, but the concept is strategic.

CPI activities target process simplification and reduction to elimination of process waste.  Think about the tasks you perform.  Can they be completed in fewer steps than what it takes currently?  How much time would that relieve for you to focus on other activities?  And how many dollars would that save the company/your department?

CPI is not just a managerial approach; it helps develop a culture of innovation and constant improvement within the company. It focuses on improving the bottom line, by saving money through increasing efficiency and raising sales through enhancing quality.  I highly suggest you become a champion of CPI (see Chapter P – Process Improvement for more information).