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2016 | Buch

Operational Excellence

A Concise Guide to Basic Concepts and Their Application


Über dieses Buch

As industrial companies are placing a higher focus on operations, this book comes at the right time with a compilation of basic concepts of Operational Excellence and their application.

Operational excellence allows companies to recover from reductions in gross margins and low profitability, which largely occur due to a rise in agile competition and the short life span of new technologies. This book helps managers and consulting academicians as a ready reference for cross-industry implementation of operational excellence.


1. Introduction

Nowadays industrial companies place more focus on operations. This book comes at the right time bringing a compilation of the basic concepts of Operational Excellence and their applications in operations.Operational excellence enables companies to recover from reductions in their gross margin and from low profitability, which occur largely as a result of the rise in agile competition and new technologies short life span. This book is a ready reference for cross industry implementation of operational excellence designed to help managers and academic consultants. The book was written by operations experts combining the four operations disciplines of industrial engineering, people, financial and technology management in to one unite practical methodology for long term success and flourish of the business.

Gilad Issar, Liat Ramati Navon
2. Assurance of Supply (AOS)

As a first priority, Assurance of Supply, is embedded in all activities of the operations. Every member of the operations team should know always the actual production pace versus its goal. Production pace should reflect out from operations reports and dashboards. In order to prevent supply stop, the production line constraint needs, by design, to have some over production capacity. Once production line stops, a task force needs to be activate. While solving production stops safe inventory will serve to ensure the supply.

Gilad Issar, Liat Ramati Navon
3. Cost of Goods (COGs)

Cost of Goods includes the material cost, production cost, labor, supply chain, depreciation and overhead costs. Material cost needs long term cost reduction plans together with the suppliers. Labor cost reduction is built on production cycle time reduction. Innovation in supply chain logistics and warehousing contributes to overall COGs reduction. Manufacturing overhead cost reduction support lean operations and effectiveness though needs to be done with a lot of caution and sensitivity.

Gilad Issar, Liat Ramati Navon
4. Decision Support Systems (DSS)

Decision Support Systems are important for continuous measuring, monitoring and reflection of operations critical parameters, results and performance. In order to promote improvement the DSS need to measure a few important and critical parameters. Measurements, systems and reports need a high level of accuracy and usage by the operations team. Every department needs to define and configure its specific critical systems and reports. All systems need to extract their data from the central ERP and same product characteristics data base.

Gilad Issar, Liat Ramati Navon
5. Drum, Buffer, Rope and Days of Inventory (DOI) Control

The theory of Constraint (Goldratt, The goal: A process of ongoing improvement, 1992) is subordinating the production line input and output material to the line bottleneck/constraint capacity. The line inventory in days (DOI), is optimized by using the TOC rules. The constraint’s daily output, the line’s Drum Beat, defines the amount of raw material which enters the line. Connecting the beginning of the line with a theoretical “rope” to the line’s constraint, with same Drum Beat- the same amount of material, governs the line entrance through the constraint. In order to secure the continuous feeding of the constraint, a buffer, a few days of work in process, is kept a step or two ahead of the constraint.

Gilad Issar, Liat Ramati Navon
6. emails (The LEAN Version)

Although e mails are the operations most important tool of communication, if they are not used effectively they may turn into a burden, on the operation’s efficiency. In operations, solving critical problems such as line downs or major quality failure events, is affected by the length of time it takes. Sorting email messages and solving the operation’s top priorities first is very important. Good quality infrastructure, less task forces and less unpredicted events of failures, will reduce the amount of email transactions and support Lean and effective work in the operation. Reducing unimportant email transactions will free the operations team to invest their time in improving the operation’s infrastructure, which will consequently reduce the amount of failures and task forces.

Gilad Issar, Liat Ramati Navon
7. Empowerment

Empowerment is a continuous process of personal development an employee undergoes with the support of his manager. The goal of the process is the employee’s personal growth. But in order to achieve this goal the manager needs to build relationship of trust with the employee and establish safe space for him. This chapter describes the order multiplication gain in the operation indicators as cost, quality or output and overall operations performance through empowerment of individuals and the teams.

Gilad Issar, Liat Ramati Navon
8. Enterprise Resource Planning (ERP)

ERP consolidates all of the operational business processes under one umbrella, in one system.It stores the product tree, ordering and scheduling of materials and parts arrival, it reduces and replenishes inventory, manages warehousing, invoices, payments and more. The ERP system leverages operations planning, unites financial management, inventory management and establishes one financial baseline for commercial and operational transactions. The ERP implementation project is complex and involves all of the activities in the organization. Therefore, it needs to be planned and executed with a large amount of specific knowledge and previous ERP experience.

Gilad Issar, Liat Ramati Navon
9. Failure Mode and Effect Analysis (FMEA)

Although statistical variances and unpredicted events are part of operations routine, analyzing events commonalities and dependencies can reduce production deviations occurrences. FMEA is a tool for proactively identifying those failure commonalities and dependencies ahead of their occurrence, through listing the potential effect, rating them according to their severity and occurrence and developing preventive actions. The root causes for quality and technology failures reduces. In this chapter we cover FMEA approach to predict and prevent quality failures in future and thus achieve better control of technology and consequently financials performances.

Gilad Issar, Liat Ramati Navon
10. Gross Margin (GM)

In order to reach a high Gross Margin, which supports the company’s financial health, operations always need to keep an assurance of the product’s supply to the customer and a control over the product’s cost of goods (COGs) together with all of the other operations cost parameters. This can be achieved by translating the operations KPI to the P&L GM improvement goals. Since the operation’s KPI, such as cycle time and yield, are not expressed in financial terms or directly in the amount of money saved, we need to convert the operation’s KPI to a percentage of the gross margin. Every department in the operation needs to translate its operational metrics and numbers into Gross Margin saving goals, in percentages. Besides reaching the goal of cost saving and P&L strengthening, gross margin improvement projects are an excellent opportunity to encourage people to express their innovation in projects, such as cycle time, COG and yield improvements.

Gilad Issar, Liat Ramati Navon
11. Hiring Practices for Operations

Recruiting the most suitable people for operations teams is one of the first conditions for building leading team for operational excellence. Therefore there is great importance in the way the process is conducted. The set of requirements for recruiting and the mix of hired employees and hiring manager’s practices are discussed.The chapter describes the importance of a proper recruitment process; the unique characteristics of the operations team as a diverse team. And assembles several tips for running an effective integration process.

Gilad Issar, Liat Ramati Navon
12. Human Resources (HR)

There are four classic HR, support to the operation, major content subjects: compensation, people development, team development and performance management. They are a part of the historic view, which sees people as a resource. Nowadays, since people have advanced and expanded their learning web access abilities, the people support teams need to shift, and offer more assistance in the areas of personal and team development. The People skills it is important to develop are: coaching, mentoring, inspiring and listening, as well as e-learning and team development. These should be the peoples and departments areas of focus in order to develop and drive the current operations people, to their best performance.

Gilad Issar, Liat Ramati Navon
13. Innovation in the Operations

Innovation, although not always expected of the operations teams, holds significant potential for cost reduction and for increase of the people’s development and contribution. However, promoting innovation in the operations is only recommended when the product reaches a certain level of quality and robustness. Promoting an innovative culture in the operations means that we expect every individual and every team to bring, in their area of responsibility, ideas for improvement which have added value. When innovation is not restricted to certain populations or disciplines, improvements in a variety of the operations different activities will flourish. Professional literature emphasizes the rising importance of innovation to companies’ competitiveness. In the following chapter we will describe several factors that affect innovation; initiation, adoption and implementation.

Gilad Issar, Liat Ramati Navon
14. Interfaces and Their Improvement in Operations

As operation is build out of several disciplines, it requires effective management through healthy internal and external organizational interfaces. Quality organization interface are characterized by systematic thinking which established on openness, wide involvement and effective interactions. This chapter reviews the importance of developing systematic thinking in the organization by promoting effective organizational interfaces.

Gilad Issar, Liat Ramati Navon
15. Just in Time (JIT)

Managing the arrival of material to the production floor by using JIT methodology, schedules its arrival to exactly when it is needed on the production. In order to achieve exact material and ‘just in time’ arrival, we need detailed planning and knowledge on the length of time required for production of the part as well it’s vendor’s production capabilities. Since there may be daily fluctuations in the product’s demand, communication between the production floor, the supply chain and the vendor is essential in order to keep the arrival of material to the production JIT. When applying the JIT methodology we need to consider the size of the material and its value. Although it requires professional systems and knowledge, in order to avoid risk to the Assurance of the Supply, the JIT methodology is one of the most effective methodologies for keeping inventory low.

Gilad Issar, Liat Ramati Navon
16. Kanban

The Kanban system is a double drawer physical location system, for parts and material, on the production floor. Its two major advantages are, the continuous flow of material to the production floor and the immediate visual recognition of shortages in the material on hand. In order to leverage the Kanban’s advantages we need to apply routine maintenance and inspection to the drawers, the demand for material from them and the content of parts in them. When we have fluctuations in the production quantities we need to adjust the Kanban’s stock quantities, in order to have continuity of material supply to the production floor.

Gilad Issar, Liat Ramati Navon
17. Key Performances Indicators (KPI)

This chapter provides a simple and practical approach to key Operations performance parameters known as Key Performance Indicators. The four major groups of KPI’s follow the product life: Design, Production, Financial and Supply Chain. The specific performance parameters chosen must accurately measure an important aspect of each group, and be limited in number so as to allow focus and provide a clear direction for performance improvement. Target values of KPI’s should reflect overall improvement goals for the Operations and the Product performances over time.

Gilad Issar, Liat Ramati Navon
18. LEAN Operations

LEAN culture and practices refer to the continuous achievement of improvements in quality and productivity by leveraging the abilities of personnel and production innovations, which lead to increased gross margin and decreased production costs. Its principles involve the use of observation, waste elimination, technical improvements, problem solving and organizational learning. LEAN rules are structured activities that connect to both suppliers and customers, in simple and data driven way. Methodological tools such as Kaizen events, Five S, Poka Yoka and others have been developed to aid in the implementation of Lean practices.

Gilad Issar, Liat Ramati Navon
19. Leadership in the Operations

In order for leadership in operations to be appreciated, it needs to overcome the variability in the performances of operations results by using knowledge and strategic methodologies. The way to build such knowledge is through deep understanding and by experiencing the different disciplines of operations. By having wide operations knowledge and by leveraging opportunities as well as integrating and coordinating between the different departments and disciplines of the operations, over time consistent and predictable results are achieved. Continuous cooperation between supply chain and engineering, or manufacturing and services, reveal and prevent variability in the performances and the inconsistency in the operations results. Experienced operative leadership acquires the required detailed operative knowledge and the strategic operational thinking, through internal or external resources.

Gilad Issar, Liat Ramati Navon
20. Meetings and LEAN Decision Making

Using all best known methods and technical practices in order to create an effective meeting, does not necessarily ensure high value results. A reference for high value meetings, can be previous a meeting that brought a breakthrough or step function improvement in operations KPIs results such as yield, COG, quality or output.A very good practice, for achieving quality meetings, is using systematic problem solving. By using it, we can measure, immediately after the meeting ends, whether the meetings’ outcome has generated measurable results which are higher than the subjects’ situation prior to the meeting. Personal ownership of KPI performances which were discussed in the meeting, will direct the meeting to value results and implementation, and make sure that the meetings’ results are followed and are being implemented.

Gilad Issar, Liat Ramati Navon
21. Manufacturing Overhead (MOH) and Departmental Expense Control

Manufacturing overheads represent the cost of operations that are not directly derived from the production costs. Operations need to disperse the overhead cost between the different departments, and control their improvement in regard to the annual budget goals, on a monthly basis. Also, innovations in cost reducing projects need to bring added financial value. When the production volume grows, agility in the rotation and responsibilities of people, LEAN culture, innovation and automation, will prevent an increase in overhead costs.

Gilad Issar, Liat Ramati Navon
22. Manufacturing Excellence in Daily life

Although operational excellence recommendations may be well accepted, in order to apply them in the manufacturing daily life some practical assistance is needed. One practice that helps us to start in assimilating the recommendations is to unite different activities as quality improvement with cost reduction activities, or NPI tasks with people development needs, within our routine and daily tasks. By this we integrate the different operations goals harmoniously in to our schedule. Other practices are implementing the changes in small steps all the time. Adhering to improvement activities, although in small steps continuously and constantly will ease the implementation and assimilation of changes in to the daily life of the manufacturing.

Gilad Issar, Liat Ramati Navon
23. New Product Introduction (NPI)

New product release to the market is a sensitive phase for the organization. In one end too early releases before product is technically mature has its cost consequences. And from the other end a late product release in order to improve product maturity will risk the market opportunity window. COGs and gross margin results, assists in defining optimum product level of maturity for product release timing. Quarterly sales and market share indicates market time window status. This chapter discusses concurrent engineering and detailed product life cycle methodologies in order to financially optimize both market and budget objectives.

Gilad Issar, Liat Ramati Navon
24. One on One Meeting

Unlike technical meetings on AOS, cost and quality, one on one meetings are about creating personal communication, openness trust and accountability. Personal accountability in one on ones meetings evolves due to the nature of the discussed subjects as employee performances and development. One on one meetings needs good preparations of the subjects with thinking on several cycles of questions and answers. We need to create safe and open atmosphere in our one on one meetings, through practicing focused, active and emphatic listening.

Gilad Issar, Liat Ramati Navon
25. Personal Development

The personal development process is part of the wider performance management process and takes place during career and career discussions. It is a continuous process, in which an employee and manager define the knowledge, skills and competencies required for development in the employee’s current position and in possible future career paths. Effective leaders create the basis for personal growth which in turn, results in high performance at the team level. This chapter reviews the personal development process goals, the characteristics of effective personal development process. Main area and guiding questions for manager-employee personal development dialog and tips for managing this dialog effectively.

Gilad Issar, Liat Ramati Navon
26. People Motivation, Productivity and Satisfaction

People motivation and contribution needs to be part of operations routine discussions and activities. Every team member and manager has to conduct discussions on personal development and contribution not once a year but every quarter. The discussions needs to have KPIs to record improvement over time. Special training and coaching needs to be held in order to have quality and emphatic communication.Culture of involving discussion on contribution and motivation will enrich operations with diverse, innovative, and lean motivated team. Professional literature Kahn (Academy of Management Journal 33(4): 692–724, 1990), connects people motivation and contribution to three psychological conditions.

Gilad Issar, Liat Ramati Navon
27. Quality

Due to current fragmentation and worldwide distribution of current operations, a united quality philosophy is important for consistent quality operations performance and for its improvement. The operations quality structure is built of systems, processes, continuous improvement and quality culture. This chapter describes major system and processes required in order to ensure product quality. The Systems and processes are described from the early stage of product design, to the performance and customer feedback on product quality.

Gilad Issar, Liat Ramati Navon
28. Return on Investment (ROI) Calculations and CAPEX Decisions

Return on Investments (ROI) calculations helps us in planning the operation’s annual budget and to compare between different alternatives for investments. ROI calculations helps us to sort the project list, and find few “anchor” projects, which have the highest return on the investment. Those projects helps to improve the operation’s financial results along the annual budget. The major projects, together with new and innovative projects, are reviewed in advance and on a monthly base. Through continuously review of the project advance, we compare the projects predicted ROI results with the actual savings. This follow up assists the operation in improving the accuracy of its project’s ROI calculations and the improvement in planning the next year’s cost improvement projects timelines.

Gilad Issar, Liat Ramati Navon
29. Safety

Building a safe work environment in operations consists of several processes and systems which require specific professional safety knowledge. The following chapter describes 14 safety systems and processes which establish a safe environment in the work place. Among the systems are: Safety Management by Walking Around, Log Out Tag Out of hazardous energies chemicals and gases, Personal Protective Equipment and others. Learning about these systems and applying them improves the safety in the operations and establishes a safe work environment, care for employee health and safety and a safety culture in the operations organization.

Gilad Issar, Liat Ramati Navon
30. Supply Chain and Win–Win Relationship with the Suppliers

Commercially effective relationships with our suppliers have to rely on a “no superiority, no inferiority” attitude. Detailed knowledge of the supplier’s technology cost structure and operation is important for forming win–win relationships. Transparency and joint KPIs also increase the trust between the customer and the supplier. Building a strong infrastructure which contains routine meetings for all levels, including reports, visits and joint projects sustains the mutual goals of quality and profitability.

Gilad Issar, Liat Ramati Navon
31. Services and Customer Assurance

High value technology product services are based on the quality of the product knowledge and its accessibility. Transfer of the knowledge to the customer, starts by capturing it from the developers and documenting it properly. The next stage of knowledge transfer is high quality training of operators, service engineers and the technical community who deals with the product. The quality level of knowledge updates is reflected in the product’s utilization and recovery time.

Gilad Issar, Liat Ramati Navon
32. Team Work and its Development

These days there is no profession, role or task that a person can do on their own. Regardless to whether the employee or manager has unique knowledge or if they have unique skills, in order to execute an idea a team of partners is required. Those who will support the idea, those who will promote it to the decision makers and those who will develop and implement the idea. This chapter will review the team work affect on team members’ outcomes; the role of the direct manager in developing team work and the team development stages up to the performing stage.Team work is required not only when we are dealing with new topics, it is an essential need for every team of employees and managers who have regular and frequent or infrequent work relations—whether it be a nuclear group, consisting of members who have worked together over a long period of time or a task team formed to deal with a problem/lead a joint mission etc.One of the basic management skills is the ability to facilitate the work of others. This is done through two main channels-Team development and Coaching.

Gilad Issar, Liat Ramati Navon
33. Theory of Constraint (TOC)

A production line by definition has multiple constraints. Marginal production equipment or marginal processes may go out of production and cause production stops. The knowledge gap which exists while a new product is introduced, an incorrect definition in information systems, such as ERP, or process control can cause production stops as well. Many practices support the prevention and minimization of unplanned production stops, due to line constraints. Using the principles of the Theory of Constraint (Goldratt, The goal: A process of ongoing improvement. North River Press, Great Barrington, MA, 1992): identifying, exploiting and preparing the correct buffer, can diminish the constraint’s effect on production.

Gilad Issar, Liat Ramati Navon
34. Variability: Managing the Variability in Operations

The statistical nature of the operations consist of several variables as production equipment performances, people proficiency, process stability and few others. When we apply certain methodologies in planning and managing this variability we can minimize and diminish the effect the variability in the operations on its efficiency, output and financial results. These methodologies are significantly cost effective in compare to the alternative of building more plants for production and high capital investments in production equipment.

Gilad Issar, Liat Ramati Navon
35. Voice of the Employee

In today’s hypercompetitive business environment, employee inputs, innovation and initiatives intended to improve organizational functioning and therefore, are critical to the organization performance and competitiveness. This must be the reason the lately the term ‘Voice of the employee’ is heard often. When we look in depth at the term we discover that the critical ingredient in establishing the employee’s ability to be heard is the manager’s ability to create a safe enough environment for the employee. This chapter focuses on the term ‘Voice of the employee’; recognizing the most significant component in establishing the employee’s ability to be heard. Voice of the employee offer’s the organization diagnostics tools to be used on an annually and allows identification of trends and the constant improvement of organizational culture.

Gilad Issar, Liat Ramati Navon
36. Yield, Improvement and Sustaining High Yield

Yield improvement holds within it the potential for major saving of cash for the company. Yield improvement is also an important quality objective and an opportunity for operations to excel. This chapter recommends tools such as weekly Prato and yield analysis meetings, as well as yield charts of major yield heater trends and planning the right timing and the precise practices to bring yield improvements along the product’s life cycle.While product volumes are low, we have a short window of opportunity in which we can improve the yield without causing a high financial hit. A yield sustain, after production is stabilized, is an opportunity for empowerment and development of the production people towards driving and fulfilling the engineering yield improvement responsibilities.

Gilad Issar, Liat Ramati Navon
37. Where, When and How We Can Apply the Operational Excellence Concise Guide Methods?

In this chapter we review in what occasions of time in the company life we can apply the book recommendations and implement operational excellence methodologies. There are several opportunities as merges and acquisitions when gaps between divisions and uncertainty, can be leverage in to strengthen and commonality in their performances. We review where and with what tools we should promote operational excellence with our counterpart?

Gilad Issar, Liat Ramati Navon
38. Appendices

Business operation books are always nice as a present at the end of a team building event, or as a farewell present when one of the team members is moving to a new position in or outside the operation. We also give or receive operations guides at the end of training sessions or development classes.

Gilad Issar, Liat Ramati Navon
Operational Excellence
verfasst von
Gilad Issar
Liat Ramati Navon
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