The 95/33 Solution

In a previous article, we described the “Common Core” solution in a remanufacturing plant.

The main line business addressed the most frequently used cores, what we called “the common cores.”  But there was another business opportunity that we discovered that had not been tapped.  It amounted to creating an entirely new business to deal with the old car restoration market.  This was a national opportunity and proved to be very profitable.

Here’s how that worked.

The primary business, the remanufacturing the 5% of the products that created 67% of the demand, was a typical inventory management problem.  And the owner managed this very well.  Raw material was consumed and replacement parts were ordered to replace it.  However, when we tried to look at the vast number of cores that made up the remaining available market, we recognized it as a “difficult problem” in our definition.  It required a different look at the inventory problem it posed.  

There were over 800 parts and the demand was totally unpredictable.  This was the market demand created by old car enthusiasts rebuilding their beloved old model car.  We analyzed the demand for these parts based upon delivered product over a 5 year period and we did the same for those orders that couldn’t be filled over those same 5 years.  In all, there were about 800 parts.  So we created a system to manage all the possibilities for those 800 parts.  There were some parts that had almost no demand so they were not included in this inventory management program.  But figuring out how to manage the 800 parts was enough of a challenge.

When old car enthusiasts knew that more than likely this business would have the part that they needed, our client would get the first call from them.  Their market demand grew and it became a mail order business as well as serving the local market.  To do that, we set up a kanban system that contained the 800 cores.  This was the challenge.  So here is what we came up with.

We started with a rack of 1600 cubicles to store the part cores.  That already existed in the plant.  Each part had two shoe boxes to contain the cores for that product.  They remained as cores until the demand came to convert them to usable replacement product.  It was assumed that most cores could be fixed with 2 cores.  Many of the old cores would have badly damaged parts that couldn’t be used in a repair.  So the inventory problem became one of profitably managing the inventory of these cores.  If you take 800 parts, times 2, they needed to have 1600 cores sitting on the shelf.  If they could keep the inventory value less than $8,000 that would amount to less than $5 per core in that inventory.  So a price of $150 to $250 for one of these remanufactured old alternators, starters and generators (plus the returned core – if no core was returned with unit add $100) would generate a huge profit for this part of the business or about 65% pre-tax profits, as it turned out.  

The inventory was managed in two ways.  First, there were two shoe boxes for each core.  When a shoe box was full, you could look at the rack and see that the shoe box was full if the red tape was not showing.  When the box was empty, it was turned around and upside down.  On the back of each box was a piece of red tape to indicate visually that the box was empty.  Finally, the inventory manager needed to order a replacement core.  But he didn’t want to pay more than $5.  If you rushed a core, you might pay as high as $60 to $80.  If however, you ordered the required cores as part of a big order, you could get the right price.  It was a lost leader for the core supplier when 400 or 500 cores were ordered.  And so, over 9 months, this core inventory was filled.  It then became a simple job to keep the inventory filled with a single sheet of paper (both sides) with the 800 parts listed and room for a check mark.  The inventory manager then worked off this sheet. Cycle counting was a snap.  Annual inventory management in this plant became a very easy process.  It took less than 1 hour to establish the inventory of raw materials from the cores.

This new business turned out to be a good idea because it put this company on the national remanufacturing scene and gave the owner visibility to the antique car market.  Additionally, it gave the senior assembler techs an opportunity to do something different when one of those orders came in.  The senior techs found the operation of these old parts to be a challenge and it kept them on their toes.  Every one of the techs wanted an opportunity to work the “95/33” cell.

As a problem solver, this was a difficult but fun project.  We got to solve 2 difficult problems with this engagement, the core business optimization and the Old Car components business.  And that gave us all great satisfaction.  

You can read more about the 5/67 Problem Solving in my recent book with Craig Humphreys with the same name: 5/67 Problem Solving: How to Solve Wicked Problems…correctly.  To buy the book: https://www.createspace.com/7576878.

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How to get all employees involved in the culture of Innovation.

 

2 different teams making presentations

Solving the Common Core Problem

I walked into this client over 28 years ago as a result of a fax generated lead.  He listened to what I had to say and signed up.   He had a business that he had started from scratch and, like a true entrepreneur, he had no idea what he had gotten into.  He had dropped out of high school in his sophomore year and took a job where he learned how to repair alternators and generators.  But being the bright guy that he was, he figured he could do it just as well and with higher quality results than his employer produced and make more money at the same time.

He knew nothing about running a business but by the time I got to him, he had been in business 10 years and had 30 employees.  He was making some money, usually just enough to pay himself, his bills and live for another week.  We all know this kind of struggling business.  He knew he needed to improve his business performance, but didn’t know how.  He had no real management structure in place to hold people accountable for performance.  And his place of business was both a fiscal and physical mess.  Chaos and disorganization was the order of the day.  So my job was to help him organize his business, bring some structure where there was none, and to figure out a way to improve his business and its profits.

This was not what 5/67 Problem Solving terms a Wicked Problem  Rather, it was just a very difficult problem.  And so I used a training program that I called the War on Waste to bring some problem solving skills to his employees.  Very soon our teams  figured out that we could create a number of work cells for the most common cores.  These cells would tear down and reassemble 

the alternators, generators and starters.  The design of these cells was created in conjunction with input from all employees and we had the factory producing at 3 times previous production by end of the 2nd month.  We got the cells of these common cores into full production and

productivity increased to a consistent 10 times the original numbers. We were really excited about this.  We had addressed the common core business and had it humming along.  After we got the cells operating, we collected the following report that we call a World Record Report:

 This was an amazing result.  It showed that the team was producing 134 units to start (after we had created the work cells) and over the next 30 working days, they ended up with a World Record of 296 units.  From where they were when we started on Day 1, around 30 units a day, we grew production to almost 300 per day.  This report, was used both as a monitoring report of daily production and became a driver to optimized production by a workforce that thrived in the continuous improvement environment.

Interestingly,  what we learned in short order was that this was not a re-manufacturing business but a common core optimization business.  The core was the physical, non-working unit that was removed from the car.  When it was turned in by a customer or mechanic, a replacement unit was supplied to replace it.  So for the common cores, the 5% of the products that generated 67% of the business, it looked like a remanufacturing business.  The cells managed the common core business and the owner’s job became focused on optimization of this inventory because the production process was taking care of itself.  We trained him to think “different.”  And he learned very well.  It made sense to him.  His focus was on what mattered most.

While we were working at this business, we identified another very profitable opportunity.  The cores that comprise the 95% of the parts that only generate 33% of the company revenue, could become an opportunity to generate a highly profitable business niche.  And that was a real test of our problem solving skills.  We’ll cover that in another article.  

Dealing with the common cores was a major achievement.  There was no other remanufacturing business that operated in this way in the United States.  It turned the business into a very profitable operation which the owner sold 4 years later.  We focused on the process and figured out a way to use a number of problem solving tools that we never figured to use before we got started on this project.

You can read more about the 5/67 Problem Solving in my recent book with Craig Humphreys with the same name: 5/67 Problem Solving: How to Solve Wicked Problems…correctly.  To buy the book: https://www.createspace.com/7576878.

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“Optimistic Humanism” needs “No Blame”

I just saw a 3 minute video of Steve Jobs talking about “Optimistic Humanism.” In the video he is talking about Quality and the role that it should play in a business and acknowledged by customers. His initial point in the video is that “the Japanese don’t talk about quality in any of their ads. Why?” he asks. But when you ask any American consumer who delivers the best quality and they will almost all say, “the Japanese.”

This is a significant observation because it points to the next point of his little discussion. He notes that there is a wonderful expectation that all businesses should have and that is respect of the people and the contributions that they will make. He noted that there was a humanistic characteristic of that position. To tell the world that you expect the people to deliver if given the opportunity is certainly optimistic about people. He called it “Optimistic Humanism.”

The key however is creating that environment. And that is where “No Blame” comes in.

People will deliver if they know that there is no reprisal for contributing an idea that disrupts the status quo. We call this “change without reprisal.” In Steve Jobs words, it would be “optimistic humanism.”

We have worked with that principle for over 30 years and, believe me, it is the cornerstone of all the work that I have done over those 30 years.

For me, it started early one morning in the first class that I ever taught on the Toyota Production System. After about 15 minutes, I asked the class if anyone had ideas for “muda (Japanese)” or waste that existed in their company. One gentleman in the front raised his hand and before saying anything, glanced to the back of the room, saw that there were no managers hiding in the back and immediately put his two ideas into play.

That told me something that has remained to this day, change is impossible if there is any fear of reprisal. There need to be an “optimistic humanism” in play to make the change happen. And we created that environment with “No Blame.” And in the process put over 10,000 ideas with a target of 50 to 1 into play.

Thank you.   Len Bertain

I can be reached at len@ewaronwaste.com or 510-520-8011.

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How to get all employees involved in the culture of Innovation.

I wrote a response to an Internet article and I would like to share it.

I have been doing research on incremental innovation at both small and large companies for over 30 years. My research consisted of assembling teams of 4 to 6 people and giving them a goal of finding $100,000 of waste (muda) that could be fixed for less than $2,000. We called it the “War on Waste” and delivered it to over 150 companies and 50,000 employees. We implemented over 10,000 ideas in this process. Our average ROI in one study was 38 to 1. Not the target 50 to 1, but we’ll take it

My point is this (and it is discussed in my book “The Tribal Knowledge Paradigm” – Amazon): we never encountered teams where the people couldn’t find an idea to address a waste in the business. And it worked in all businesses because all businesses have processes and it is the process wastes that we address. In many cases, it was a broken innovation process that was the waste, or a broken sales process (sales manager is the problem), etc and we did all this by invoking “No Blame.” In other words, if an employee thought something was a problem, it was a problem and the people followed our 6-step process to fix it.

We have now taken the process to the Internet to help companies deal with the issue of starting the Innovation Process. People are not the problem. They will have ideas. That is a guarantee. The big issue is finding a champion for their idea. Once that is taken care of, we work a team thru the process on line: 1) find the problem; 2) identify its root cause; 3) cost out how much it is costing the company annually ($100,000 can be top or bottom line); 4) map out a solution and its cost; 5) define an implementation schedule, and; 6) implement the solution and measure its results. We do the interaction with the teams using a facilitator in half-hour sessions over a secure video-teleconferencing platform.

This is the first stage of the “culture of innovation.” These ideas typically get implemented within 6 weeks from step 1. Once the first ideas start to roll, others catch on. It may be slow to start but once it catches on, it works. (see ewaronwaste.com) The real key here is what we report in the book: “The Tribal Knowledge Paradigm.” One of the tenets of the Tribal Knowledge Paradigm is: every manager has a job to support the discovery and implementation of ideas that address issues that get in the way of implementation of Strategy. Remember: strategy is how you make money, and waste is everything in the process that keeps you from making money. Managers are sometimes reluctant to buy this but once the CEO makes it clear that this is their job, it is no longer an option for managers, it is their job. Part of their job but “their job.”

This is not obvious. If it isn’t a manager’s job, new ideas can easily get ignored. But if getting ideas in play and completed is the manager’s job, then s/he will be anxiously looking for new ideas. We learned this the hard way, if it isn’t a manager’s job, then the manager can become what we call a black knight (recall Monty Python’s movie “Search for the Holy Grail” – denying problems – like a lost arm). These Black Knights really love to kill ideas. If they do it as a manager under our proposed Tribal Knowledge Paradigm, they will be looking for a new job. Look up our website (ewaronwaste.com) and try it out. It works.

Best,

Len Bertain  len@ewaronwaste.com  510-520-8011

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Using Kan Ban to Manage Business Expansion

A number of years ago, I had the privilege of meeting William Gore of W.L. Gore Associates. I was scheduled to meet with him over some technical things and toward the end of the discussion he got into how he decided when to split a division into two or more divisions.

He said that he believed that the optimum size of a business was 200 or so employees. This allowed for a very shallow management hierarchy and more importantly kept his vision of how you grow a large business with highly motivated employees.

In all the discussion about Innovation Cultures and such, very little is said about how you can structure a business to almost guarantee its ongoing innovation culture. I know from experience that it is difficult to start that discussion and sustain any progress in a 6,000 employee manufacturing facility. It is almost impossible for all the reasons everyone knows.

If there are only up to 200 people in a building, you can guarantee that if you have an idea, someone is going to listen. It just works that way. If nothing else you can stand on your desk chair and probably shout to everyone. If you look at the number of W. L. Gore Associates personnel records you will see that they have about 10,000 employees spread over 500 facilities, which works out to about 200 associates (employees) per facility. And employees didn’t have a boss, they migrated to the “leader” that they felt most comfortable with. How that works is the basis of another discussion.

What Gore’s goal ultimately was: create a culture of innovation that would sustain the company’s future. W. L. Gore Associates develops products that are based on special properties of organic chemicals that Gore discovered. His work led to other products and the company became an industrial and financial success. But it didn’t just happen.

It was based upon the following principles. I am paraphrasing these in the language that I use in the War on Waste and what we call the Tribal Knowledge Paradigm.

  • Associates are encouraged to improve corporate Tribal Knowledge (both for themselves and others)
  • Associates should embrace “No Blame” as the foundation of their daily activity
  • An Associate makes good all commitments to clients and fellow Associates
  • If an Associate makes a decision, it must not hurt the company.

That sets the stage for the point of this article.

In essence, how does an executive maintain the maximum 200 associates per plant as the business expands?

Gore was smart in that the parking lot only had spaces for parking of 200 people. When it filled up, it was time to think about some logical break-up of that facility.

The reason that this is like a Kan Ban system is that when Bill would visit a facility and he would see the parking lot getting full, he would broach the subject of a breakup of the division to his managers.

To me that is a basic component of the Toyota Production System, visual control. If all his managers knew that rule, they would start to think about this problem long before Gore raised the subject after a visit to the plant. I noted in the title that this was a Kan Ban System, but it really is an inverted Kan Ban System because it requires someone to take action when a “bin” gets full not when it is empty. But the principle is the same.

This is an out of the box solution to an issue that probably drove Bill to arrive at his solution. To me it is brilliant. But that is what all good “out of the box” solutions are.

Thank you,

Len Bertain.

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A View of Pioneers and Settlers from a David McClellan Perspective

I posted an article in response to a opinion piece about Google’s understanding of the perfect team (What Google learned about creating the Perfect Team). The article is on this website and is entitled (Pioneers and Settlers on the Perfect Team).

A friend of mine, Ian Blei, commented on this and it sparked a discussion on the real issue about teams is that we really don’t understand the dynamic because of the complexity of our human nature. But we keep on trying to understand them and we are all getting better at understanding how they work. I must admit that I have a very selfish motive, if I understand them better, I can increase the value of my services to clients when we help teams identify and solve a problem with a 50 to 1 ROI during my War on Waste program.

My long time business associate, George Sibbald, and I tried to get into this in our book The Tribal Knowledge Paradigm. We referenced David McClelland, who was an American psychological theorist who focused on understanding achievement motivation. Our interest in him was that his theory of motivation guided our thinking about the keys to creating any culture, especially an Innovation Culture.

McClelland believed that an individuals needs are acquired from the culture. Therefore, from his perspective, we needed to deal with the three needs that he identified: achievement, affiliation and power. And as you read further into McClelland, you see how the Pioneer and Settler concepts emerged.

He believed that achievement motivation is the most valuable in business. And through experiential learning, achievement motivation can be increased in a population.

So when we defined the culture of our paradigm, we needed to include some of his thoughts.

An achievement-motivated person would thrive in an environment where he could take some responsibility to solve problems. He would set moderate (not extreme) goals and would be inclined to take calculated risks.  And from our perspective, one of the keys, this person would want feedback on performance. In other words, he wanted “Atta Boys.”

However, the affiliation-motivated person would want to interact socially with others. This person is concerned with the quality of interpersonal relations. Thus these relations take precedence over task results. In dealing with the multi-ethnic work groups of today’s business, this issue is big. These different ethic groups value their social interaction of family and friends. And it means that teams, which are intense social structures, are going to be important in making businesses work more efficiently.

And finally, the power-motivated person would want to obtain and exercise power and authority. This person likes to influence others and win arguments. The key to this issue is where it goes. It is either positive or negative. The negative orientation occurs when a power achiever wants to dominate instead of lead people. Of course, the positive aspect occurs when these people demonstrate persuasive and inspirational behavior. They are our leaders.

So what we takeaway from McClelland are the basics of what a culture should look like and that positive reinforcing experience can improve a culture.  All this thinking contains some guidelines for the paradigm that we proposed in our book on the Tribal Knowledge Paradigm.

You can read more about this on the War on Waste Academy website: http://www.ewaronwaste.com. Go to the Blog (Len & Craig’s Blog) to see more material.

Thanks,

Len Bertain

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Pioneers and Settlers on the Perfect Team

I recently read an article on LinkedIn about research that Google did on managing teams. (see What Google Learned About Creating the Perfect Team)

I wanted to comment about that. 

I have led over 10,000 teams in my War on Waste program. Our goal is to find $100,000 of waste that could be fixed for $2,000. The target is 50 to 1 ROI. We actually never achieved that, instead, we got 38 to 1 as an average result. Not bad.

But here is what I learned about teams.

To start, I have a simple gauge of people: they are either pioneers or settlers.  The pioneer is the aggressive, driven individual that wants to win.  And the pioneer is the employee who shows up to work, does the job and expects to be paid.  You know the two types.  You could form your own formula of how you make the judgement.  It doesn’t need to be  scientific.  And I have been wrong about both types but not very often.  I merely made a personal judgement about the team members.  Using my assessment, as an example, I would watch the people in a team and see that there might be 3 pioneers in a 5 man team.  That was never successful. For precisely the reason noted in one of the 2 teams in the above cited article.  (2 teams were noted: 1 with aggressive Pioneers and one with a balance favoring Settlers).  There was no question which one was the most fun to be part of.  The pioneers would fight to get their idea into play and then try to sabotage the success of the pioneer with the winning idea.  So in my world, I would trade one of the 3 pioneers to another team with no pioneers for one of the pioneers. But the key to balancing this process was not letting the pioneers fighting impede my success. I wanted all the teams to be successful and to be successful quickly.  Fighting team members do not move quickly.

And it worked very well over the years.  My actions were subtle because I didn’t want people to know my strategy.  I think people that I have worked with acknowledge my success.  But what I learned recently was how to get success with all pioneers on a team.

I was doing a project with a Fortune 100 Executive team and I broke up the 12 executives into teams of 2 people and their goal was a 100 to 1 idea, at least $1 Billion waste and solved with a cost of less than $10 Million.  But the key was that they had to support the other executive on their little team.  It worked marvelously and all 12 ideas got implemented in short order.  Results were better than expected. But the key was putting them on a team that implemented 2 ideas.  So there was a mutual understanding that they needed to work together to establish favor with the CEO.

I wrote this short note to let the readers know that over my 30 years of doing my War on Waste that I am still learning a lot about teams.  What is interesting is that technology has slanted the team discussions in companies heavily laden with Pioneers.   And with that, we are all morphing our understanding of teams. 

Best,

Len Bertain

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