Are your manufacturing operations performing against an annual budget or standards?
How much loss did you build into the budget? How much improvement?
How was the performance base-line set? From last year’s performance?
These are questions pertinent to every manufacturing leader. Budgets and standards in the manufacturing environment serve a very useful role in simplifying performance targets and measurements for operational executives. The challenge is that they tend to systematize the losses in your existing processes as opposed to unveiling the true performance improvement opportunity.
What is Zero-based Thinking?
Zero-based thinking is a performance management mind-set in which there is no acceptable level of failure: no poor quality, no breakdowns, no delays, no customer complaint processes, no manufacturing wastes, etc. Ultimately, what we’re talking about is perfection. This way of thinking pushes manufacturers to consider the size of the overall loss composed of all failures (losses), which, for beginners in this process, is typically between 45-65% of COGS regardless of industry. Zero-based thinking forces companies out of “budget thinking” which we define as an acceptable, budgeted range of failure.
Despite being difficult or impossible to achieve, it’s hard to argue that zero shouldn’t be the goal, particularly for employee safety or quality. When you measure success toward an absolute zero goal, there is nowhere to hide.
Zero based thinking stretches you to perfection. When trying to discover the problem, you must ask yourself, what are the activities keeping you from perfection, and what are the costs of the activities keeping you from perfection? Understanding the cost of those activities allows you to work on the critical few things that control your greatest cost expenditure.
By focusing attention on activities that increase costs we also eliminate the frustration of trying to achieve vague and uninspiring performance mandates — i.e. reduce labor costs, increase EBITDA, reduce overhead. Stratifying losses to activities makes those performance mandates “bite-size” for your employees and pushes the improvement opportunity to their sphere of influence. The result is a culture change and associate engagement in the improvement activities that actually deliver your corporate strategy.
Zero-based thinking is not always an easy pill to swallow. Organizational paradigms will potentially be challenged in a greater way than ever before as long-understood necessities for success are put to the zero-based test.
Do you think about your performance from a zero-base? Does your team have the tools and methodology to take action? Zero-based thinking isn’t an easy concept but we have found no methodology that better defines the actions that will deliver greater performance.