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Operational excellence is defined as the process of executing a business strategy more consistently and more reliably than the competition, resulting in increased revenue, lower operational risk and lower operating costs. Defining operational excellence, in reality, isn’t easy. You’ll often find definitions that are too broad or too narrow that they seem highly plausible on paper – being world class, being the best globally, excellence in everything we do – look familiar?
Another popular, more simple definition from the Institute for Operational Excellence is as follows: Every employee can see the flow of value to the customer and fix that flow before it breaks down. Defining operational excellence this way works because it applies to all levels of an organization, from C-level to plant floor workers. Each person knows that, for their specific area, there should be a visible flow of product or information and they should be able to recognize whether that flow is normal or abnormal and what to do if it’s the latter. In other words, a product flows from process A to process B in a specific quantity, at a specific time, to a specific location; if it doesn’t happen this way, something is wrong.
The second part of the definition means that when something goes wrong, the employee should know how to fix the problem without seeing a manager, reporting it to management or calling a meeting. The idea here is employees focus on maintaining flow while management focuses on growing the business.
Operational excellence and continuous improvement go hand-in-hand when it comes to achieving a lean organization; however, they aren’t the same thing. Continuous improvement can be defined as an ongoing effort to improve an organization’s processes, products or services over time. It happens incrementally over time, rather than instantly from a single breakthrough.
While continuous improvement is important, it’s generally not enough on its own as an organization continues to grow and refine its processes, products and services. This is where operational excellence steps in. Operational excellence is more of a mindset that accepts certain principles and tools to create sustainable improvement within an organization.
Operational excellence is about applying the right tools and processes to create an ideal work culture that empowers employees to take ownership of the flow of the operation and ensure continuous improvement remains a constant.
Flow. That’s the driving force behind operational excellence in one word - seeing the value of flow and understanding how to fix it when it’s blocked. Imagine your plant allows tours where anyone can walk in and see all operations in action; visitors can see exactly how many processes or stations the product is from being shipped to the customer. A brewery, for example, typically has sales and operations offices above the floor where brewing, fermenting, bottling and packaging take place. Visitors on a brewery tour can stand and look around at all processes, from where sales are made, down to where the product is made and packaged.
This is a great example of a visual system that allows everyone, even visitors, to visualize flow from start to finish. Anyone should be able to answer questions like, “is our product on time to meet customer demand?” and “is everything flowing like it should be?” There are a few principles to ensure your flow is visual to everyone and that everyone can see the value of flow.
Operational excellence builds on a few building blocks: strategy development, performance management, leadership and culture, process excellence and team performance.
Performance management also includes things like KPIs, process management, continuous improvement and management reviews.
Operational excellence centers around the principles of the Shingo Model. The Shingo Model consists of guiding principles that are the basis for building a sustainable culture of organization excellence. They are divided into three dimensions: Cultural enablers, continuous improvement and enterprise alignment. The Shingo Model revolves around three insights: that ideal results require ideal behaviors, purpose and systems drive behavior, and principles inform ideal behaviors. Below we look at eight of these principles.
One of the best ways to show respect for employees, for example, is to involve them in any necessary improvements to their departments or areas. Since they are the ones on the front lines of their department each day, this helps them feel more empowered and motivated to contribute to positive changes. They know the flow better than anyone, having to work in it every day. Asking for their input on changes that directly affect them shows respect.
When a mistake or failure happens, implement a new way of thinking, one that avoids immediately pointing fingers at those involved and instead, assesses where in the process the failure occurred. Focusing on the process means identifying and solving the root cause of the issue within a given process, requiring all process material, data and other inputs are up to specifications before implementing them into the process, and documenting each process and managing any changes to operations.
Focusing on the process also means assuring quality at the source. Quality is assured when potential problems and deviations in flow are visualized, employees have the ability to stop the process to fix errors before continuing, and process results are analyzed for variation.
Operational excellence also dictates, not only should your employees clearly understand the purpose of the company, but they understand their individual role and how it leads to the success of the company. To do this, regularly communicate the purpose and direction of the company, avoid aligning goals in a cascading manner (top down), and involve individuals when creating performance objectives.
There are many methodologies you can use to achieve operational excellence; most of them fall under the “lean” umbrella. Below we’ll look at a few methodologies within lean manufacturing as well as the principle of six sigma.
DMAIC – define, measure, analyze, improve and control – is used when organizations want to improve existing processes. DMADV – define, measure, analyze, design and verify – is used when an organization is creating a new process. Six Sigma is a great tool to help achieve operational excellence as it focuses on process improvement and flow.
Operational excellence seems fairly straightforward on paper, however, the road to achieving it presents itself with some common road blocks every organization needs to get around before success is achieved.
Front-line employees should feel empowered to contribute to the fixing interruptions to flow, as they are the ones who deal with it on a daily basis. They have first-hand experience with the process and the issues that come from that process.
Often, operational excellence comes down to how your organization accepts change. Process improvement projects might take people away from their normal schedule for a bit while they learn and adopt new processes. This does require a new mindset, but there are other ways to soften the abruptness of continuous improvement. For example, sometimes running a pilot program before implementing a company-wide change or a change to an entire department might help work out issues before other employees need to take the time to train.
Additionally, communication needs to be at the forefront of everyone’s mind while changes and implanting processes are being done. Revise, adjust and recommunicate is key.