In my last posting I gave
you an example of how a very profitable solution to an existing problem was overruled
by cost accounting’s belief that the key to profitability was through saving
money. As I’ve written about many times
on this blog, the Theory of Constraints version of accounting, referred to as
Throughput Accounting, demonstrates quite nicely that the key to profitability
is through making money. The difference
between these two approaches toward profitability is radically different. In this posting I want to demonstrate this
difference through another mini case study from the same parent company as
before, but a completely different environment.
You will recall that the initial case study was from an organization
responsible for making sure that jet engines were maintained, repaired and overhauled. This case study involves the maintenance,
repair and overhaul of helicopters.
When I arrived at this site
I found quite a chaotic environment. The
client had to supply “x” number of helicopters every day or they would receive
a substantial $ penalty for each aircraft that fell below “x.” Because they were significantly below “x” the
financial penalties were substantial. Additionally,
they were on mandatory overtime to the tune of 12 hours per day which was
further eroding their profit margins.
Because of the sustained mandatory overtime, the workforce was exhausted
and the morale was absolutely terrible. Furthermore,
because they were not synchronizing the flow of aircraft into and out of the
maintenance hangars, there were significant numbers of aircraft tied up in
WIP. The airfield site leader and
maintenance manager had just been changed out by their corporate headquarters
and the new team was desperately looking for help.
I met with the site leader
and his team to better understand how serious their problems were and as the
meeting progressed, it was clear that action had to be taken sooner rather than
later. I also met with the shop floor
people and it became clear that they were not engaged at all. They were tired of working overtime every day
and felt that they were not appreciated or respected. They were happy to see a change in leadership
because the previous leaders were very much into command and control
management. It was so bad that the
workers were out looking for lower paying jobs just to get away from this site.
My first action was to explain
to the leadership team that if they wanted to turn this site around and make it
profitable, then they had to significantly improve the throughput of
helicopters through their scheduled and unscheduled maintenance processes. I explained that in order to do that
successfully, they had to engage their total workforce. I then told them that the only way to engage
their workforce was through something I refer to as Active Listening. Active
listening is achieved by forming a core team of a cross-section of the hourly
workforce, soliciting ideas and solutions from them and then implementing the
solutions exactly as presented as long as no company or contractual rules were
violated. Because the team had no other
recourse, they agreed to do this.
The team was formed and our
first order of business was to map the process.
When this was completed I gave the core team some training on the Theory
of Constraints and Goldratt’s 5 Focusing steps.
For those of you new to this blog, the steps are:
1.
Identify the
System Constraint.
2.
Decide how to exploit the system constraint.
3.
Subordinate
everything else to the system constraint.
4.
If necessary, elevate the system constraint.
5.
Return to step 1, but don’t let inertia
create a new system constraint.
We then created a higher
level process map and determined that the constraint was getting all of the
necessary approvals, parts, tools, etc. in place before any maintenance work
could begin on the helicopters. The team
had many ideas on how to reduce the cycle time on this constraint and the
leadership team readily implemented all of them as fast as they could. There were many other ideas for improvement
on other parts of the process, but because the core team believed that they
should focus their efforts only on
the constraint, they were not implemented.
The improvement to
throughput was immediate and swift and within two weeks three significant
changes had occurred:
1.
The number of daily available aircraft
increased above “x” so that penalties were almost completely avoided. So much so that they actually had spare aircraft
available and $ penalties dropped to nearly zero!
2.
All mandatory overtime was stopped with the
reduction in overtime $’s dropping to levels not seen in previous years.
3.
The morale of the workforce jettisoned upward
to levels not seen in years, if ever.
While this case study had a
happy ending, the real difference between this one and the one I covered in
posting 143 was that the focus was not on cost reduction, it was on throughput
improvement. And the results clearly
demonstrate why I always focus on increasing throughput and not on cost reduction. Which method appeals more to you?
Bob Sproull
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