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 is 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 in turn, doubled 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 three and how it works.

Step #3: Subordinate and Synchronize Everything Else to the Above Decisions

This step is often overlooked or undervalued.  The rest of the organization must participate in the improvement process.  Management must ensure each part of the organization contributes to the solution.

Don’t allow incorrect policies to stand in the way of throughput improvement.  Don’t allow efficiencies, batch sizes or minimum run sizes to limit increased throughput.  Don’t allow excess inventory or productivity metrics on non-constraint resources to get in the way.  Don’t let, “we’ve never done it that way before” to prevent the necessary improvements.  There are no “sacred cows” to protect when the organization is working to increase throughput and break a constraint.

Don’t allow the financial or management accounting systems to interfere with the throughput calculation.  By increasing the capacity of a value stream constraint, the entire organization can count the financial impact of one more unit produced at the constraint until capacity is slightly higher than demand.  Too often the financial or management accounting calculations will interfere with your throughput decisions.  Trust me, don’t allow that to happen.

If the market is the constraint, look at the organization’s quality systems.  The organization cannot afford any defects.  Look at any department within the organization that owns an obstacle to increased order flow and increased throughput.  Ask why the unintended conditions exist and work to eliminate the obstacles.  When the market is the constraint, find a way to ensure your organization is never blocking increased throughput.

For example, a German company I was working with had a policy that my post-installation service and support team didn’t work with the installation team, therefore, we didn’t work with the customer until approximately 2 to 3 years after the contract was signed.  You see, the sales department would negotiate the contract for a large capital equipment sale and turn over the responsibility to manufacturing.  The manufacturing department would produce the equipment and coordinate with the installation team to delivery and commission the equipment.  The installation team would get the service and support team involved only after the equipment was out of warranty, some two to three years after the contract was signed.

This was the traditional, common practice way that this capital equipment company handled the sales and installation process.  However, the service and support team was left out of the mix at a time when the customers were seeking information about how to operate and care for their new equipment.  As the company was growing through an increase in market share, the technical support team in Germany had some difficulty keeping up with all the requests for support information.

This traditional practice was causing more difficulty in the business relationship and needed to be corrected at once.  With my German colleagues, I developed a solution and offered to assist in the process to create an answer to this constraint policy.  I became a resource to eliminate many obstacles that prevented closer harmony between the American customers and my German colleagues.  Together, we changed the company practice and effectively removed this bottleneck from the sales-manufacturing-installation-service/support process.

Illustrations for steps 4 and 5 will appear in future newsletter articles.

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 have 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.

 

Please visit our website for our complete list of services.

Search


Thought Leadership
Press Releases
Tax & Estate Planning Guide
Subscribe to Newsletter