Making Better Decisions - Understanding Fitness for Purpose, Aligning Capability with Strategy

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This is an update to my Modern Management Methods 2014 talk in San Francisco. It includes an example kanban system based on lead time distribution and demand analysis.

Text of Making Better Decisions - Understanding Fitness for Purpose, Aligning Capability with Strategy

  • [email protected] @lkuceo Copyright Lean Kanban Inc. Presents Presenter David J. Anderson Stop Starting Start Finishing Stockholm May 2014 Release 1.2 Making Better Decisions understanding fitness for purpose, matching capability to strategy & objectives
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Blizzard Skis
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Mittersil, Austria Blizzard Factory
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Blizzard is the largest private sector employer in the Pengau Alps region of Salzburgerland, AustriaMittersil is a factory town with over 400 people relying on the factory either directly or indirectly for employment
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Since 1945 Hand-made by craftsman Innovator Award winner
  • [email protected] @lkuceo Copyright Lean Kanban Inc. In 2007, Blizzard, effectively bankrupt, faced closure from parent company, Tecnica in ItalyToday Blizzard is the most effective & efficient ski manufacturer in the world!
  • [email protected] @lkuceo Copyright Lean Kanban Inc. What went wrong at Blizzard, a proud & leading brand in alpine ski equipment?And what enabled a remarkable turnaround, from the brink of extinction to a return to innovation & profitability?
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Orders & Deliveries of Skis 2006 winter skis delivered to dealers Timeline for manufacturing, delivery and order placement for ski industry in northern hemisphere prior to 2007 timeNov Dec Jan 2006 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2007 Feb Mar Apr Start manufacturing 2007 skis 2007 winter skis delivered to dealers Start manufacturing 2008 skis Orders placed for 2007 winter
  • [email protected] @lkuceo Copyright Lean Kanban Inc. 2006 was a warm winter and poor snow conditions badly affected the ski industry as people stayed home and didnt buy new equipment Blizzard dealers were left holding a lot of 2006 inventory that they would hold & later discount during the 2007 winter
  • [email protected] @lkuceo Copyright Lean Kanban Inc. 2007 was also a warm winter as climate change began to seriously affect the Alps Gun shy from 2 bad winters, Blizzard dealers delayed commitment on 2008 orders until May after the ski season had finished
  • [email protected] @lkuceo Copyright Lean Kanban Inc. In 2006 business risks appear to be low 2006 winter skis delivered to dealers Changing climate conditions and its affect on ski dealers dramatically shifts the risk profile of ski manufacturing timeNov Dec Jan 2006 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2007 Feb Mar Apr Start manufacturing 2007 skis 2007 winter skis delivered to dealers Start manufacturing 2008 skis Orders placed for 2007 winter
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Previously lead time for delivery is 12 months 2006 winter skis delivered to dealers Traditionally manufacturers have had a full year to make the skis for the following winter timeNov Dec Jan 2006 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2007 Feb Mar Apr Start manufacturing 2007 skis 2007 winter skis delivered to dealers Start manufacturing 2008 skis Orders placed for 2007 winter Lead Time to manufacture 2007 deliveries
  • [email protected] @lkuceo Copyright Lean Kanban Inc. By 2007 the risk profile has changed dramatically 2006 winter skis delivered to dealers Dealers still holding 2006 & 2007 inventory decide to wait until the end of the 2007 season to place reduced orders for 2008 timeNov Dec Jan 2006 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2007 Feb Mar Apr Start manufacturing 2007 skis 2007 winter skis delivered to dealers Start manufacturing 2008 skis Orders placed for 2007 winter Orders placed for 2008 winter Volume is low due to over-stocking of older models The period of speculative manufacturing grows from 2 months to 6 months Time period of building to forecast rather than against customer orders Blizzard fail to anticipate falling demand and over-produce 2008 skis. Bankruptcy is a serious possibility!
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Tecnica Group & Blizzard managers turn to their business school education and seek to cut costs by consolidation & centralization Centralizing all order processing through Tecnica HQ adds 1 month to order times, increasing speculative build-to-forecast. As a result costs go up!
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Cutting costs will not make Blizzard fit for purpose !!! What is required to be fit for purpose in a period of climate change, is to defer manufacturing until firm orders are placed! Blizzard need to cut the lead time to build skis!
  • [email protected] @lkuceo Copyright Lean Kanban Inc. By 2010 the market has a new equilibrium 2010 winter skis delivered to dealers Traditionally manufacturers have had a full year to make the skis for the following winter timeNov Dec Jan 2010 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2011 Feb Mar Apr Start manufacturing 2011 skis 2011 winter skis delivered to dealers Start manufacturing 2012 skis Orders placed for 2011 winter Orders placed for 2012 winter Volume is low due to over-stocking of older models Lead Time to manufacture 2011 deliveries Lead time to manufacture skis to order is now 6 months. No speculative build-to-forecast To have a viable business Blizzard need a capability to make skis twice as fast as before!
  • [email protected] @lkuceo Copyright Lean Kanban Inc. In 2010 a Lean initiative was started in the factory. This was followed later with a Kanban initiative in IT and Quality Assurance Blizzard becomes the first Lean ski manufacturer in the world! CIO, Eric-Jan Kaak wins Austrian CIO of the Year 2013 and is promoted within Tecnica Group
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Lesson 1
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Blizzard initially made a bad decision because they didnt understand the dynamics of their external environment Once they realized that only manufacturing skis faster & deferred commitment would make them fit for purpose did they focus improvement efforts where they could be most effective Ski craftsmen are now idle for 6 months per year. They use this time to improve the factory processes
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Understanding fitness for purpose
  • [email protected] @lkuceo Copyright Lean Kanban Inc. What makes a pizza delivery service fit for purpose ? Fitness criteria are metrics that measure things customers value when selecting a service again & again Delivery time Quality Predictability Safety (or conformance to regulatory requirements)
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Meet Neeta - a project manager Neetas team are working late (again) Neeta needs to feed them with pizza What attributes do her team care about in a pizza delivery service? Delivery time = approximately 1 hour Non-functional quality = tasty & hot Functional quality (order accuracy) = doesnt matter if small mistakes are made, geeks will eat any flavor of pizza Predictability = +/- 30 minutes is acceptable Safety = so long as health & safety in food preparation is good, its fine
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Neeta is also a working mom! Neeta gets home late. Her kids are really hungry and even though she shouldnt she decides to order pizza for them What makes a pizza delivery service acceptable to her kids age 4, 6, 9 & 11 years? Delivery time = 20 minutes Non-functional quality = doesnt matter too much, its pizza!!! Functional quality (order accuracy) = it must be cheese pizza! No other flavor is acceptable! (even if you take the pepperoni off) Predictability = +/- 5 minutes maximum!!! Safety = only mommy worries about that stuff!
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Lesson 2
  • [email protected] @lkuceo Copyright Lean Kanban Inc. To be fit for purpose there is a product component & a service delivery component We need to offer a selection of different recipes which are tasty & popular. However, we must also deliver with speed & predictability
  • [email protected] @lkuceo Copyright Lean Kanban Inc. Modern crea

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