5 Steps to Continuous Improvement

An Introduction

Early in my career I joined a mid-size Illinois manufacturing company.  After a year on the job, the master scheduler, a key employee, experienced a heart attack and I was called on to fill the chief planning/scheduling role in the company.  I quickly learned that I needed to focus my limited time and resources on bringing improvements to the company in my new role.  I found the answer to my problem in The Goal, a book written by Eliyahu Goldratt that included a five step process of ongoing improvement.  Over the next 20 years, I have practiced this improvement process with positive results at different companies; large and small, domestic and international, serving various industry segments for sales and operations issues.  The key benefit for me was finding a process of ongoing improvement that could be applied in most situations and provided a focus to help me and the organization do what’s right for the business at the right time.

The Five Steps of Ongoing Improvement

Goldratt described a five step improvement process based on the premise that each profit-seeking organization is driven by the goal to make more money “now and in the future”.  Different companies will define this goal using their own industry jargon.  Effective company management will make increasing bottom-line net earnings one of a few primary goals for the company.  The rate of achieving this goal, to make more money now and in the future, will be limited by at least one system constraint or bottleneck that prevents the company from maximizing net earnings. 

Before you start a process of ongoing improvement, define the goal for your company.  What does ‘making more money now and in the future’ mean for your organization?  Define the goal in terms that your management and your workforce will understand and in a way that has meaning in their day-to-day activities.  For one job shop manufacturing company, their goal was to increase the amount of production hours booked since they were selling the time to convert raw material to finished goods.  By applying an ongoing process of improvement at this company, we doubled the new business pipeline that doubled in turn, the productive hours sold. 

After defining the company’s goal, the five steps for ongoing improvement are:

  • Identify the bottleneck constraint or significant obstacle (what prevents the organization from obtaining more of the goal in a unit of time?)
  • Decide how to exploit the bottleneck constraint or significant obstacle (how to get the most out of the constraint)
  • Subordinate and synchronize everything else to the above decisions (align the whole system or organization to support the decision made above)
  • Elevate the performance of the bottleneck constraint or significant obstacle (make other major changes needed to increase the constraint's capacity)
  • If in any of the above steps the bottleneck constraint has shifted, go back to Step 1; do not allow inertia to become a system’s constraint.[2] 

These five steps aim to ensure ongoing improvement efforts are focused on the organization's bottleneck constraint.  These five steps provide the foundation for many solutions, which include the management of processes, inventory, supply chains, product development and projects (single and multiple), personnel, and decision-making.  How can any generic solution have such broad applicability? Let’s explore step four and how it works.

Step #4: Elevate the performance of the bottleneck.

In many cases, when the organization reaches this step the constraint is overcome.  But if the constraint remains, now is when the organization can bring additional resources to the constraint. 

What work can be routed to another resource?   How can the organization bring more resources to help raise up the constraint to increase overall value stream throughput?  What outside resources can be utilized to increase throughput capacity at the bottleneck resource? 

The organization can solve any constraint with enough time and money.  If all efforts have been exhausted, then use both, time and money, as necessary to eliminate the constraint and increase the organization’s throughput.  Only now is it the right time to spend more time and money to eliminate the constraint.  The organization has exhausted all low cost methods to increase throughput at the constraint resource before this step. 

Only at this step has the organization done the necessary analysis and preliminary work to not waste resources on the wrong area.  If the wrong constraint was chosen, capacity will have been increased but the organization will not increase overall throughput.  The non-constraint resource will have been improved, therefore, stop working on it and go back to the first step and focus the organization’s improvement efforts on the constraint resource. 

In the German company example, it was not necessary to bring additional resources or to spend more money to eliminate the bottleneck in the process.  However, I did travel to the customers’ locations to make sure their teams fully understood the information they received.  By making myself available as a company resource, the customers had an advocate to provide timely information to bridge the after-the-sale process leading to a more successful equipment installation and sign-off. 

Illustrations for step 5 will appear in a future newsletter article. 

Conclusion

Apply the five step improvement process as the methodology for driving results in the organization.  Bring other management disciplines to bear, like lean manufacturing or six sigma, etc. only if those apply.  If they don’t apply, even the best six sigma project, for example, applied at a non-constraint resource will have limited effectiveness. 

I’ve applied this methodology in many different organizations to double the new business pipeline, triple sales revenue at another and increase throughput by 50% and double net income for an already profitable company.  An organization using the five focusing steps is limited only by how big it dares to think.  Imagine what that can mean for your organization! 

References

[1] Cox, Jeff; Goldratt, Eliyahu M. (1986). The Goal: A Process of Ongoing Improvement. [Croton-on-Hudson, NY]: North River Press. ISBN 0-88427-061-0

[2] Goldratt, Eliyahu M. (2004). The Goal: A Process of Ongoing Improvement. [Great Barrington, MA]: North River Press.  ISBN 978-0-88427-178-9

 

About FGMK

FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.

 

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