Operational Strategy

December 6, 2013 2:56 pm
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Operational Strategy sounds like a contradiction in terms. Operations, after all, is about the day to day creation and delivery of products and services. Yet businesses constantly change. New lines or factories are built and old factories closed or are consolidated. Therefore somebody somewhere is pulling the strings and that surely must be in line with an Operational Strategy?

Very few people we talk to who head up Operations believe they have a robust Operational Strategy in place. In fact, several believe there is a gap between Operations and the business strategy.

The economic downturn has driven businesses to take a good look at themselves. In 2009, the hatches were battened down and survival was the driver. Over the last 12 months we have seen clients realise that survival is not a long term strategy, but neither is short term intervention. The smart clients are thinking longer term. We have seen increased enquiries into Coriolis from clients wanting to understand the levers they can pull to unlock bottom line value in the next three years suggesting most of the low hanging fruit has gone.

There are five key stages in developing your Operational Strategy.

Stage 1 – Generate powerful business information

We see the following six types as critical to developing and implementing a robust and successful strategy:

1. Business Strategy / Market Analysis – Thinking Big

2. Capabilities, capacities, constraints and criticalities

3. True Margin and contribution analysis by product

4. R&D and available or potential technological developments

5. Overhead analysis, allocation and cost drivers

6. SWOT analysis of your operations

Stage 2 – Translate the Business Strategy into operational requirements

The Board will have developed five or six strategic priorities to deliver the vision, such as “Focus on Brand”. Additionally they will have identified the must do activities to support these (often commercially driven) such as “Launch new product X”. They should also identify their value proposition, as this drives your value chain.

Using this and the powerful information collated you can identify your own key activities that support the strategic priorities and business vision. For instance, do you have the capacity or capability to deliver “New product X”, if not, what do you need to do? A key activity may be “Recruit a process development team” or ”Increase capacity by 10%”.

Once all this information is in place we can start to understand what the future could look like. It is likely an operational strategy will not have one route, but scenarios and responses to potential deviations and the relationships between paths chosen must be understood and communicated to all. A “Vision” is often used to do this.

Stage 3 – Find hidden value and opportunity to give you the advantage

We have identified four example areas where businesses can get ahead:

Design to Manufacture

Operational people are not known for their product innovation, but yet they are known for their process improvements and innovations. When you look at it, they are one of the same! Involving operational teams early in the NPD process can add a new spin on innovation and ensures products can be manufactured.

Does your test kitchen replicate the manufacturing environment? Or do you have a “Pilot Plant”? The ability to ensure products are designed for manufacture will dramatically improve your costing process, product launches and bottom line.

Capital Investment

You do not need to be the most invested business to be the best, but you do need to invest smart. Are you sitting with equipment on your balance sheet that you do not use? Having a roadmap and end goal in place ensures you evaluate your investments against this.

Paybacks may be within 2 years, yet depreciation charges are for 10 years. We see businesses far too often purchase a future bottleneck. So, consider the User Requirement Specification (URS) based on your future vision, evaluate the extra cost of flexibility and capability vs. replacement cost in the future. Recognising your decision now could prohibit investment in year 5.

Collaboration

Benchmark and sharing sites best practices optimises your manufacturing facilities and capabilities. Sites work in isolation focusing on their individual operating models. Moving volume, equipment or people between sites may not benefit one site, but if they benefit the total group profitability then it is the right move. Do your sites discuss this at an operational detail level? A good S&OP process can facilitate this.

Establishing “Centres of Excellence” for product/process types can add real value and enhance both performance and customer experience. Remember other sites can still hold sprint capacity and performance improvements can be shared.

Operations Roadmaps

Having a vision that your operations team understands ensures your teams are pulling in the same direction. Communicate this to the entire business, but remember, clear messages need to be tailored to the audience. Establish the true potential capability of your business and ensure this is over communicated. Commercial teams will start to understand your core competencies and will see or develop a pathway to growth.

If your core competencies lie in a dying market, you can plot a diversification strategy now. Too many times businesses fall into diversification and then fail because they rushed or just did not have the capability to do it.

Stage 4 – Don’t fix everything

Strategies can easily become wish lists where every possible improvement is included. Brainstorm ideas together and generate the perfect world. Work back from this to the “Must Do’s” that support the delivery of your strategic priorities. Resources are finite and that means it is important to consider what you will not do. Small nice to haves should not be lost, they just do not need to be in your strategy.

Stage 5 – Stand by your strategy but not to the death

Investing the time with your team each year will payback. You need to realise the factory does not fall over when you go on holiday, and the same goes when you take a day or two out to think about strategy. It is not an easy activity and sometimes you will think it’s a slow process. Align your people to a core set of deliverables, which will support a “high- performing and functioning team”.

The strategy should not be used to validate decisions as a prescriptive roadmap. It is claimed that 80% of strategies fail – we believe it is often because they were too detailed and something changed early that invalidated them. It is the framework that you should communicate. By allowing your team to assess whether activities and opportunities are aligned to the strategy, decisions can then be made on resource allocation.

A strategy can only fail from the top down. Below this it is the delivery that will be the failure. If the strategy really is not working, do not just change the operational focus, instead challenge back to the root cause. Recognise the market place changes and strategies must be live and responsive to the external world. Walk away and reconsider.

 

Written by Paul Eastwood, Director

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Ethical Trade – Improvement over audit

December 6, 2013 2:54 pm
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“Insanity: doing the same thing over and over again and expecting different results” is a quote often attributed to Albert Einstein in 1925, yet here we are in 2013 and insanity seems a fitting description for supply chains reliance on ethical auditing as a conduit for improvement.

Audit is still the favoured choice of measuring ethical standards and it provides a snap shot of conditions; however audit alone is not a tool for improvement. Suppliers spend a great deal of resource and effort on re-auditing and expect it to be the golden key to unlocking more business but audit without improvement is a wasted opportunity.

As an Ethical Trading Manager for a global retail organisation and previously an ethical auditor, I have worked in the ethical trade arena for over 12 years. Whilst I have seen an increase in interest in ethical trading from consumers and an increased awareness of the ethical trade agenda by suppliers, what I haven’t seen is a proportionate increase in efforts from suppliers to address the underlying issues, through improvement measures.

What I have often witnessed is suppliers expending serious time, effort and money, avoiding applying improvement measures, despite the benefits that improvement can bring. If only suppliers would apply this level of energy to improvement I’m sure they would begin to reap the benefits.

Clearly there are exceptions to what I mention above but on the whole I am disappointed by the response from global supply chains to the proven benefits in investing in people and management systems.

Investment in improvement, whether it is HR, Health and Safety or systems management provides benefits not just for workers but for businesses as well, which has been shown through initiatives, such as the DFID funded RAGS BBW project. For example, improving communication and relations with works can boost morale, aid worker retention and can lead to improved efficiency. This form of improvement is not necessarily costly either which can, in some cases, be a barrier to implementing improvement.

I am not suggesting that there isn’t a place for audit, as used properly it can provide valuable information and help inform buying decisions. But what we currently face is a complacent attitude to improving ethical standards because to do so requires thought and action.

What we need to do is embrace improvement and focus on how we can build efficient and profitable businesses that make a positive difference to workers lives. I hope that we can move away from constant re-auditing and toward improvement. If the argument above is not compelling enough, what will be?

Supply Chain Planning: Does inventory support or weigh down your business?

December 6, 2013 2:53 pm
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Working capital is under pressure everywhere, and for businesses where inventory represents a significant investment it is essential to work at the lowest level of stock commensurate with customer service and cost targets.

In food manufacturing, inventory strategies are frequently based on experience rather than science, and Supply chain staff often have only a basic understanding of the concepts involved; enough to pass muster when asked a few basic questions, but not enough properly to optimise the balance between customer service, obsolescence, waste, changeover frequency and warehousing costs (especially external)

Forecast accuracy impact on working capital.

One of the key drivers of inventory in many businesses is “safety” stock. Safety or buffer stock is the level kept of an item to ensure we service a customer if demand is unexpectedly high, or we are let down by suppliers. It is often based on a rule of thumb such as fixed period of time (e.g. 2 weeks). Doing it this way is expensive and ineffective. The first question that should be answered is, where to keep it? For example, should it be in WIP, Finished goods or both? If both, how do I calculate the quantities at each stage? Even after this has been agreed the correct safety stock can only be set when you know the likely forecast error and supply stability for each item over its lead time. This means collecting and analysing historic data, allowing for factors such as promotions and seasonality.

For most manufacturers customer service targets are non-negotiable. As a result the poor safety stock strategies result in excessive inventory, obsolescence, disposals and the poor operating efficiencies that result from ever changing production schedules. The focus for all food manufacturers must be good forecasting linked to a robust safety stock strategy.

Case study – Organix

Organix, the baby food producer was struggling with service. “We were shorting retailers, even though we had plenty of stock in the warehouse”. To be exact, Organix had 6 weeks of cover. After implementing a more appropriate forecasting methodology, measurement system and safety stock policy it was found that an average of only 3 weeks of cover met the required service levels.

Poor old Operations

Operations are probably unhappy with the number of changeovers currently carried out, as they are a burden on performance. However, the benefits of increasing them are significant. If the business can double the number of changeovers then the batch sizes will halve and the finished goods safety stock can go down by 30%. This will also reduce the cost of storage and obsolescence, at least for your own finished goods.

The right way

The following steps, properly carried out, will enable a business to define the optimum strategy:

1. Identify the appropriate stock holding points for the different inventory categories

2. Define the required inventory management and demand planning processes

3. Measure forecast accuracy and carry out an inventory segmentation analysis

4. Determine the type of safety and optimal stock models to use based on product profiles

5. Check and adjust your forecast models to ensure they suit your product profiles

6. Review segmentation and inventory policies on a regular basis and adjust as

required

Inventory management in the food industry needs to be undertaken constantly and rigorously. Having the right systems, tools and processes not only allows effective policy setting but also enables a business to control all the critical variables. It helps keep pressure where it belongs, on the competition.

 

Written by John Fenton, Associate Director and Sam Rabi, Supply Chain Principal

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What is the balance between challenges and opportunities facing UK private label food manufacturers?

December 6, 2013 2:51 pm
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Dr Clive Black, Head of Research,
Shore Capital Stockbrokers.

November 2012

Private label has emerged as a central component of retailing in Developed Markets. However, after stratospheric growth in its ‘mother country’, that is the UK, overall participation has levelled off. Indeed, the structural change in the direction of food prices since 2006, that is upwards, has to our minds, created more new challenges that opportunities for many private label manufacturers across the world.

Firstly, input price inflation has been treated by leading proprietary brand players as something that is best managed through a hi-lo promotional strategy. So, the more expensive cost of goods has, in many respects, been recovered by the brand leaders through case prices rises. To some degree this could be seen as an opportunity for private label to gain share with its lower price points. However, the flood of promotions, sometimes 70%+ participation, has squeezed private label shelf space, and in some cases such as household & personal care (HPC) led to notable share losses. So long as food prices grow ahead of wages, promotional participation is expected to remain fulsome and so the branded component’s participation is likely to be strong.

Secondly, rising input costs pose a greater challenge for private label than proprietary brands from the perspective of cost recovery. The magnitude and speed of any such cost recovery depends upon the capacity balances of each product sector. Where there is over-capacity, which is often the case, then the retailer wears the trousers and recovery can be time consuming or not evident at all. For many listed companies this has led to high profile warnings, albeit private companies endure the same outcome but not in the public domain. Accordingly, as an outcome of this pressure, we have seen examples of less capital going into private label capacity in the UK in recent years, with some examples evident of capacity reduction due to margin compression – we cite the UK ready meals market.

Despite these challenges, private label remains very relevant for the retailers. Indeed, each of the ‘Big Four’ supermarkets in the UK is engaged in material modernisation programmes for their mainstream, as opposed to entry price or premium, ranges at present. Private label in ambient & frozen is to a large extent about value and keeping brands on their mettle. Private label in fresh & chilled is much more about value added, innovation and establishing and sustaining distinctiveness.

Many private label manufacturers have much to contend with at the moment. Where there is over-capacity it is a slog and restructuring can be expected to be the order of the day. However, where capacity balances are more favourable, balance sheets strong and categories display growth credentials, then the channel remains innovative, exciting and worthwhile. Indeed, it is worthwhile stating, that at a time when the UK economy faces structural challenges, private label consumer goods remain a market where ‘we’ are happily world leading. Keep fighting!



Visual Workplace

December 6, 2013 2:42 pm
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A visual workplace is a self-ordering, self-explanatory, self-regulating and self-improving work environment – where what is supposed to happen does happen, on time, every time, 24/7.

Visual management is used to display and monitor the key performance measures that guide improvement. It allows teams to understand immediately how a process is performing, without the need to stop or leave the workplace. Team members are kept aware of current quality, cost and safety performance and can use their input to suggest improvements.

The use of a visual workplace builds a team ethos and generates ownership of tasks, ensuring everyone shares a common understanding and remains focused on the key areas. As decisions are made more effectively and communicated quickly working time is also used to greater advantage. In addition, reviewing performance in this way makes it easier to track progress and thereby establish and embed a continuous improvement culture. The intention is that problems are solved at the lowest level rather than referred up. Many successful organisations use this as key Lean tool to drive improvement and engagement.

In summary a visual workplace can:

Visual Workplace

VISUAL THINKING

A person or organisation who thinks visually is:

“One who recognizes motion and the information deficits that cause it – and knows how to eliminate both through visual aids”1

Motion is moving without working1. It is the corporate enemy since when people are in motion they are away from the area in which they add value.

Aligning Information Sharing

Fig. 1 Aligning information sharing



To start eliminating motion you need to ask two simple questions:

Question one: “What do I need to know?”

What do I need to know that I do not know right now in order to do my work – or do it better? (Note: it is “I” not “we”)

Question two: “What do I need to share?”

What do I know that others need to know in order for them to do their work – or do it better? (Note: it is still “I” driven)

Basing the visual tools and functions around these two questions creates a visual workplace which is effective and efficient.

SIX CATERGORIES OF VISUAL FUNCTION

Creating a Visual Workplace is not as simple as installing a few performance boards, there are six categories of Visual Function:

Catergories of visual function



VISUAL WORKPLACE IN PRACTICE

Coriolis has worked with clients to install a range of Visual Functions on production sites across the UK and abroad.

CASE STUDY – GÜ DESSERTS

With space at a premium in the London factory, order and efficiency is critical to luxury chocolate dessert manufacturer GÜ Desserts. In the course of a project to maximise throughput, Coriolis worked with GÜ to install a number of visual tools that improved performance. Two areas in particular were of great importance:

  1. Understanding line performance
  2. Controlling material flow to reduce downtime
Fig. 3 Performance Board

Fig. 3 Performance Board

Fig. 4 MiMo

Fig. 4 MiMo

Understanding the performance

Visual displays and Visual Metrics were designed and installed to enable team members to understand a situation at a single glance, make decisions and take actions.

Too many companies treat shop floor data as something that is collected to be analysed later, this is a great lost opportunity. Visual metrics monitor current performance (short interval control) and report back – provoking a response to drive instantaneous corrective action. Their immediacy and proximity to the shop floor is invaluable in identifying root cause in a way that data analysis can never achieve.

Morning and evening shift reviews were installed on site, in which the previous shift’s performance and downtimes’ were discussed. Fig. 3 shows the main performance board. A performance management system (MiMo), designed by Coriolis, was installed on site to provide live performance data for each production line. Fig. 4 illustrates how the software can be remotely accessed to provide live data 24/7. The information was updated every three hours (other options, including continuous data capture are also available) and if there was any deviation from the set performance target, action was taken immediately, rather than reviewing the problem the next day – when it is too late.



Fig. 5 Visual Metrics

Fig. 5 Visual Metrics

Fig. 5 demonstrates an example of visual metrics being used on the line side. This tool highlighted to the line crew when performance was below target. Text boxes were present for operatives to record the cause for the poor performance and whether it had been resolved.

Control of material

Visual controls require little or no interpretation – the device is the message. They help people do ordinary things extraordinarily well, visually answering the quantity based core questions; how many or how much, when or how long. They use structure to share information and become more powerful when linked with other visual controls, for example those related to material replenishment and flow. When linked they can trigger a chain of responses.

The systems used at GÜ Desserts were Kanban (figs 7 & 8) and Two Bin (figs 8 & 9)

Fig. 6 Before Visual Order

Fig. 6 Before Visual Order

Fig. 7 After Visual Order

Fig. 7 After Visual Order

The first step to take was to create visual order so that each item has its’ place. This involved setting out boundaries and location ID’s in the material decant corridor (see fig 7).

Fig. 8 Visual Pull System - Board

Fig. 8 Visual Pull System – Board

Fig. 9 Visual Pull System - Kanban

Fig. 9 Visual Pull System – Kanban

Asking the two core questions “What do I need to know? And “What do I need to share?” enabled suitable Kanban and Two Bin systems to be designed and installed. As a result materials were pulled through the system rather than pushed. When materials were running low or a required for a changeover, operators were warned in good time and downtime ‘waiting for materials’ was eliminated.

FOCUS

Creating a fully functional visual workplace rarely works first time. It is a combination of: Methodology and Inventiveness.

Focus on one area initially to install visual systems and make an “area of excellence” for the rest of the organisation to follow using the two questions stated at the start and the six visual categories, The success of the pilot will dictate the success of the whole programme so make sure you get it right before you move on, and involve someone you know has succeeded with it before.

Good luck!

REFERENCES
Visual Workplace – Visual Thinking, Gwendoline D. Galsworth, Visual-Lean Press (2005)

 

Written by Amir Sadreddini, Consultant

type amir.sadreddini@coriolis.co.uk chat +44 7708 395 559 talk +44 8452 263 364