productivity improvement philosophy · with an overarching philosophy for productivity improvement....

Chapter

8Productivity Improvement

Philosophy

Knowledge + Leadership + Siloless Synergy =Optimal Productivity P. MOHAN

Objective

Productivity is the underlying message in the book applied systemati-cally to “process life cycle management.” This final chapter focuses onpulling together the concepts discussed in the previous chapters in tunewith an overarching philosophy for productivity improvement. The over-arching philosophy focuses on key elements such as knowledge, lead-ership, and siloless synergy.

Learning outcomes of this chapter will include:

� Understanding productivity improvement in the larger organizationalcontext. While Six Sigma methodology is critically important for pro-ductivity, it is a subset of a larger design that includes a well-balancedcocktail of knowledge, leadership, and siloless synergy.

� This book so far has focused on the analytical intelligence aspect ofleadership. In this chapter other equally critical aspects of leader-ship are introduced.

� Logistical strategy to engage the organization in the productivitydrive.

The learning is then applied to a comprehensive case study to gainpractical understanding of the application of the concepts.

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8.1 Introduction

In a competitive environment, organizations focus on productivity togenerate a winning proposition for their customers. The aim of produc-tivity improvement is to continuously or radically enhance manufac-turing metrics. At the organizational level productivity has to beenvisioned at a broader level encompassing all aspects of the business.In a complex, ambiguous, and dynamic business environment produc-tivity is the key differentiator of a successful business. Productivityimprovement methodologies have been discussed and applied in vari-ous stages of the manufacturing life cycle. Manufacturing life cyclemanagement includes process design (Chap. 1), manufacturability(Chap. 2), critical control strategy (Chap. 3), knowledge management(Chap. 4), variability reduction (Chap. 5), and emerging monitoring andcontrol strategies (Chap. 6). The productivity improvement methodolo-gies (Chap. 7) and productivity improvement philosophy (this chapter)are key to successful process life cycle management.

The entire book could be summarized in Fig. 8.1. This simple systemsdiagram of the process life cycle indicates the outcome from each phaseof the manufacturing life cycle. The commercialization phase (Chaps. 1and 2) includes process design, economies of scale, scale-up/scale-down,risk management, and validation and manufacturability. The objectivefor the commercialization phase is to focus on quality by design. The nextphase of the manufacturing life cycle is process capability (Chaps. 3and 4). It includes critical control strategy, critical process parameters,and knowledge and data management. The output from the processcapability phase is a capable manufacturing process.

The next phase of the life cycle is variability reduction (Chaps. 5 and 6).Variability reduction includes fundamental strategies for variability reduc-tion and advanced control strategies and focuses on executing a robustmanufacturing process. While productivity enhancement techniques fora learning organization are applied in all aspects of the process life cycle,they are equally significant for improving the process on an ongoing basisleading to optimal productivity.

In this chapter the productivity improvement philosophy is discussedin the broadest sense, and the key productivity enablers have been cat-egorized into knowledge, leadership, and synergy.

Knowledge leadership siloless synergy optimal productivity(8.1)

Innovation ensures longevity of a business. Manifestation of organi-zational knowledge into innovative (breakthrough) products and servicesis a very important factor in the growth of a business. This knowledgebase is the foundation for the organization’s intellectual property (IP).

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Productivity Improvement Philosophy 315

CommercializationEco

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Figure 8.1 Process life cycle management.

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316 Productivity

Knowledge is the fundamental productivity metric. Knowledge is gath-ered throughout the evolution of the manufacturing process. Building theknowledge base and the learning curve takes years of investment, andpreservation of the knowledge for posterity is critical for the survival ofthe business. A good knowledge management strategy is becoming a pre-requisite for world-class corporations; this also includes training as aplanned activity for knowledge enhancement. Chapter 4 discusses knowl-edge management and its critical value to an organization.

Besides knowledge, the other key aspect responsible for driving optimalproductivity is leadership (discussed in Sec. 8.2) and siloless synergy (dis-cussed in Sec. 8.3). Delivering successfully on the customer-focused score-card (Fig. 8.4) is a key objective of a manufacturing organization in thecompetitive landscape. The factors that are shaping the evolving compet-itive landscape include global dynamics, the Internet revolution, andderegulation. The dynamic business environment in this postindustrial erais characterized by ambiguity, complexity, and volatility. Some of the newrealities include: the Internet has unleashed a new era of transparency,connectivity, and customer power; the importance of branding based oncredibility and trust; the breakup of old structures and categories; thevalue of cultural dynamics in globalization; the rapidly changing geopo-litical situations; the development of new core competencies; and the com-plexity of internal governance. The old paradigm, orthodoxies and frameof reference (DNAcode) of an organization, is being continually challenged.A successful organization is in a continual state of transformation andrenewal so as to transform the new dynamics into competitive advantage.Such an organization is run by a special breed of leadership—transfor-mational leadership. The following section discusses transformationalleadership in detail.

8.2 Transformational Leadership

Jim Collins (Good to Great, 2001) suggests a five-level hierarchy ofleadership. Level 1 is a highly capable individual contributing throughtalent, knowledge, skills, and good work habits. Level 2 is a teammember contributing individual capabilities to the achievement ofgroup objectives and working effectively with others in a group setting.Level 3 is a competent manager organizing people and resources towardthe effective and efficient pursuit of predetermined objectives. Level 4is an effective leader who catalyzes commitment to and vigorous pur-suit of a clear and compelling vision, stimulating higher performancestandards. Level 5 is an executive who builds enduring greatnessthrough a paradoxical blend of personal humility and professional will.

This section introduces a higher level of leadership called transfor-mational leadership. To produce transformation in an organization,



Emotionalintelligence

Analytical intelligence Execution

Right people in the rightplace

The foundation Resonance

Soft skills

Har

d sk

ills

Fundamentalleadership skills

Strategy Mission

Intu

iti

on

In

tuiti

on

Data-driven systemsapproach

Doing the right things

Figure 8.2 Transformational leadership model.

leadership of a particular nature is required. Transformational leader-ship is defined as leadership that goes beyond ordinary expectations bytransmitting a sense of mission, stimulating learning experiences, andinspiring new ways of thinking. The approach to transformational lead-ership is one that synthesizes the current body of knowledge using asingle integrated model, which is represented in Fig. 8.2. This model cap-tures the need for transformational leaders to create personal and col-lective consciousness, possess an internal and external focus, understandthat a continuum of change exists, grasp the perspectives from whichto view change, and recognize the polarity of skills required to leadtransformational change.

Transformational leaders are change agents and must possess aninternal and external focus on the effects of change. The internal viewpoints to an understanding and an appreciation of change as experiencedby the people and systems within the organization. The external viewrequires transformational leaders to understand how change impactsthe people and systems outside the organization. The vertical axis of thetransformational leadership model speaks to the continuum of changein organizations. At the bottom of the axis is a focus on standardization,at the top, a focus on change. Transformational leaders are able to holdthis continuum in mind and make decisions about the kinds of change


318 Productivity

needed to achieve the vision and goals of the organization. Simply put,they cut through the confusion about the kinds of change needed.

The transformational leadership competencies required to lead postin-dustrial era organizations are illustrated as a model in Fig. 8.2. At theheart of transformational leadership lie the mission, vision, and strat-egy. Together they form the essence of the business, and are the primeresponsibility of leadership. Intuition is required to guide leadersthrough the realm of uncertainty, ambiguity, and complexity.

Intuition is when you know something without knowing how you know it.Intuition is an internal guidance system that is part association andmemory, part experience, and part unknown—Nancy Rosenoff.

Transformational leaders require both hard and soft skills to deliverthe essence of the business as enshrined in its mission, vision, and strat-egy. The soft skills include fundamental management skills and emo-tional intelligence. The hard skills include analytical intelligence andexecution.

Analytical intelligence is an important aspect of transformationalleadership. Analytical intelligence is the ability to engage appropriateobjective analyses in reaching critical business decisions. Analyticalintelligence is typically acquired through education, training, and expe-rience. As manufacturing systems become more complex and the envi-ronment (regulatory, competition, and so forth) becomes increasinglychallenging, leadership success hinges on knowledge of systems andanalytical methods. Analytical intelligence has three elements: theunderstanding of basic analytical tools and methodology, systems think-ing capability, and the capability of deep dives.

This book’s focus has been on analytical tools and methodologiesunder the overarching Six Sigma approach. Chapters 1 through 7 of thisbook have focused on the importance of a data-driven analyticalapproach. It is critically important that the transformational leader-ship has a good understanding of these methodologies and their poten-tial benefits.

Systems thinking is another key competency of transformational lead-ership. It is a scientific way of thinking, communicating, learning, andacting more effectively in a complex, ambiguous, and dynamic businessclimate. A system is a group of interacting, interrelated, or interde-pendent components that form a complex and unified whole. A systemcan be tangible (e.g., a car) or it can be intangible (e.g., processes, infor-mation flow, and so forth). Systems have several characteristics, whichinclude boundaries (structure) with input and output, subsystems, pat-terns and alignment for optimal performance, specific objectives withinthe larger system, stability through fluctuations and adjustments, andfeedback.



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Plant metrics, control chart, and so forth.

GBU metrics

Multiple plant metrics

Day-to-day operational data

Figure 8.3 Deep dives—analytical capability.

There are various interpretations of systems thinking. In this book,systems thinking denotes a data-driven scientific framework forapproaching a complex situation to uncover and model generic patternsfor learning and optimization. Flowcharting has been extensively usedin this book to indicate systems and subsystems representing a largercomplex manufacturing system with a key theme of productivity.Leaders with systems thinking competencies can break a complex chal-lenge into simple systems with boundaries and interdependencies, over-laying performance metrics and its alignment. Such a system is easy tocommunicate as it has illustrations in terms of flowcharts and a streamof interrelationships. The complex pattern of engineering manufactur-ing productivity detailed in this book is uncovered using a systemsthinking approach. One fundamental principle exists that is at the heartof all systems approaches. That is, a system should be structured andcreated to achieve the required emergent properties. The emergentproperties are those of the system as a whole, which cannot be replicatedby the simple addition of its parts. It is the interaction between the var-ious systems and subsystems that yields the emergent properties. Theconcept of systems thinking and systems engineering is discussed indetail in various compilations including the works of Kossiakoff andSweet (2003) and Blanchard and Fabrycky (1998).

Transformational leaders engage analytical intelligence in analyzingcomplex manufacturing operations on a day-to-day basis. They designthe performance metrics in a hierarchical form: day-to-day operationaldata; plant operational data, for example, composite control charts;multiple plant metrics; and global business unit metrics (see Fig. 8.3).The ability to gauge the health of the business by interpreting the data


320 Productivity

and using the knowledge to further enhance the success of the businessis a key competitive advantage. Knowledge does not mean that the lead-ers should become technical experts in every aspect of the process;instead it means a well-balanced understanding of the manufacturingsystem (as detailed in this book). This knowledge will help leadershipto interface at various levels in the organization and unravel innovativeapproaches to the transformational needs of the organization. The abil-ity to clearly understand and appreciate the technical challenges andthe ability to package them into business-aligned objectives is key tosuccess. Such leaders command respect (rather than demanding it) andprovide the much needed inspirational leadership crucial for motivation.Equally important is the ability to dive deep to ascertain the root causeof poor performance.

Though analytical intelligence is sufficiently discussed throughout thebook, it is equally important to understand other key aspects of trans-formational leadership, which are introduced in the following sections.

8.2.1 The essence of transformationalleadership—mission, vision, and strategy

Mission and vision. Mission, vision, and strategy form the essence of thebusiness. Mission defines the identity of the business—why do we exist?Vision defines the ultimate goal—what do we want to be? Whereasstrategy sets the direction to achieve the vision. Mission, vision, andstrategy are key differentiators of a business. Visionary leaders masterthe guts of the vision by creating a mission worth striving for, a visionthat is achievable and a strategy designed to optimize the return fromfinancial and human capital. Visionary companies are created and runby visionary leaders. Visionary companies prosper over long periods oftime, through multiple product life cycles and multiple generations ofactive leaders. Visionary companies display a remarkable resiliency, anability to bounce back from adversity.

Vision and mission state the core purpose for which a position, team,or organization is created. It is summarized in a clear, short, inspiringstatement that focuses attention in one clear direction by stating the pur-pose of the individual, business, or group. It is a compass and a stretch.Gast’s law (O’Halloron and O’Halloron, 1999) summarizes the keyessence of a business. Gast’s law implies that in order for a business tobe successful in the long term, it must not only provide a just return oncapital, but it must also do things such as produce a useful commodityor service, increase the wealth of society, provide productive employmentopportunities, help employees find meaningful and satisfying work, andpay fair wages. In return, employees have an obligation to make themost productive use of their labor and the organization’s capital.



Gast’s law could be stated as:

Law 1. A business must produce a want-satisfying commodity orservice, and continually improve its ability to meet needs.

Law 2. A business must increase the wealth or quality of life of soci-ety through the economic use of labor and capital.

Law 3. A business must provide opportunities for productive employ-ment of people.

Law 4. A business must provide opportunities for the satisfaction ofnormal occupational desires.

Law 5. A business must provide just wages for labor.

Law 6. A business must provide a just return on capital.

Law 2 indicates that value creation in society is an important objec-tive of a successful organization. Organizations that have done it wellhave created a brand name that has become a foundation for their suc-cess. J&J, Lilly, Merck, Pfizer, Nike, and so forth, are some of the com-panies that have successfully engaged in social focus by following Gast’slaw. Strong leadership is key in generating shareholder, social, learn-ing, and employee focus.

Core ideology. The heart of the mission and vision is a core ideologythat transcends short-term financial objectives and projects a timelesshorizon. Core ideology is the nontangible part of mission and visionthat captures the fundamental belief system of the organization thatdescribes its genetic code. The notion of a timeless horizon is manifestedin its core ideology—the north star of the business. A company musthave a core ideology to become a visionary company. It must also havean unrelenting drive for progress with all the key pieces working inalignment.

A key step in building a visionary company is to articulate a core ide-ology. Core ideology has two elements: core values and big hairy auda-cious goals (BHAGs). Core values are the essence of the business, thefoundation of the culture, and the genetic code of the organization.

Core ideology core values BHAGs

BHAGs—the organization’s fundamental reasons for existence beyondjust making money. A BHAG engages people, it reaches out and grabsthem in the gut. It is tangible, energizing, and highly focused.

Core ideology is inherent in the mission and vision statements.Following are the mission and vision statements of some of the leadingcompanies.

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322 Productivity

Lilly

Eli Lilly and Company is a leading, innovation-driven corporation com-mitted to developing a growing portfolio of best-in-class and first-in-classpharmaceutical products that help people live longer, healthier and moreactive lives. We are committed to providing answers that matter––throughmedicines and information––for some of the world’s most urgent medicalneeds. (www.lilly.com)

Merck

“To provide society with superior products and services by developing inno-vations and solutions that improve the quality of life and satisfy customersneeds, and to provide employees with meaningful work and advancementopportunities, and investors with a superior rate of return.”

Merck values include preserving and improving human life; ethics andintegrity; scientific excellence; profits only from work that satisfies cus-tomers’ needs and benefits humanity; integrity, knowledge, imagination,skill, diversity, and teamwork of our employees. (www.merck.com)

Dow

Dow’s mission statement can be broken down into three components:

� Constantly improve – This concept is bedrock to Dow’s culture and hasbeen since H. H. Dow first said, “If you can’t do better, why do it?” Itunderscores our drive to become an ever better and bigger company.

� Essential to Human Progress – The products we make find their way intoproducts that provide people the world over with improved lifestyles. Allof us at Dow must understand and take pride in this. We must also usethis concept to further connect Dow with the external markets we serve.When we think in terms of the markets we serve, we become more out-side-in focused and we can better seek growth opportunities.

� Mastering Science and Technology – We must put our science and tech-nology to work to create solutions for our customers and for society.(www.dow.com)

Dow’s values include integrity, respect for people, unity, outside-infocus, agility, and innovation. (www.dow.com)

Dupont

We, the people of DuPont, dedicate ourselves daily to the work of improv-ing life on our planet.

We have the curiosity to go farther ... the imagination to think bigger ...the determination to try harder ... and the conscience to care more.

Our solutions will be bold. We will answer the fundamental needs of thepeople we live with to ensure harmony, health, and prosperity in the world.

Our methods will be our obsession. Our singular focus will be to servehumanity with the power of all the sciences available to us.

Our tools are our minds. We will encourage unconventional ideas, bedaring in our thinking, and courageous in our actions. By sharing our



knowledge and learning from each other and the markets we serve, we willsolve problems in surprising and magnificent ways.

Our success will be ensured. We will be demanding of ourselves andwork relentlessly to complete our tasks. Our achievements will create supe-rior profit for our shareholders and ourselves.

Our principles are sacred. We will respect nature and living things,work safely, be gracious to one another and our partners, and each daywe will leave for home with consciences clear and spirits soaring.(www.dupont.com)

These mission and vision statements though from different companiesconsist of generic key elements of BHAGs and core values. Maximizingprofit or shareholder wealth was not the dominant driving force or pri-mary objective through the history of most of these visionary companies.They have tended to pursue a cluster of objectives, of which makingmoney is only one, and not necessarily the primary objective (followingGast’s law). Values are the principles, standards, and actions that peoplein an organization take, which they consider inherently worthwhile andof utmost importance. They include how people treat each other; howpeople, groups, and organizations conduct their business; and what ismore important to the organization.

Strategy. Strategy is derived from the Greek word “strategos ” meaning“art of the general.” Strategy was used by generals in ancient times as a“game plan” for winning wars. Today, strategy denotes the game planrequired to achieve vision and mission focused on winning in a competi-tive business landscape. Developing a good strategy is key to the successof an organization as it optimally engages its scarce resources—labor, cap-ital, and time—generating a winning proposition.

Hambrick and Fredrickson (2001) define strategy as an integrated,overarching concept of how the business will achieve its objectives withexternal focus. Strategy recognizes a business opportunity and a planfor seizing it. Hambrick and Fredrickson (2001) present a framework forstrategy design consisting of five elements with an example of a personalcomputer:

1. Economic logic. Economic logic is the central element focusing ongenerating returns above the cost of capital. If return on asset is thekey economic leverage, then the strategy would be focused aroundpricing, cost, and asset leverage. This is the essence of maximizingshareholder wealth and the fulcrum for profit generation. The economic logic for a PC manufacturer could include scale, JIT,direct to customers, and low cost.

2. Arenas. Arenas identify the playground where the business will beactive. This will include product categories, market segments, geo-graphic areas, core technologies, and value creation stages.


324 Productivity

The arenas for a PC manufacturer could be global with special busi-ness focus on United States, India, and China. The product classcould be customized personal computers.

3. Vehicles. Vehicles focus on the question: how will we get there? Theapproach may include organic growth, joint ventures, partnerships,acquisitions, and licensing/franchising.Vehicles for a PC manufacturer could be partnership for sales andmarketing outside the United States and organic growth within theUnited States. Another aspect could be the use of the Internet fordirect sales to customers.

4. Differentiators. Differentiators focus on the question: how will wewin? In other words what are the key core competencies that differ-entiate a firm from another giving it competitive advantage? Differentiators for a PC manufacturer could include build to order,direct to customers, and world-class services.

5. Staging. Staging focuses on the question: what will be the speed andsequence of moves? In essence this entails project management to pri-oritize resources and capital by strategic initiatives.The staging approach for a PC manufacturer could include focus onestablishing in the United States first and then focus on India andChina. Focus first on the home market followed by small businesses.Not to engage in large corporate sectors.

Executives replace formal reporting structures with strategic themesand priorities that enable a consistent message and set of priorities tobe used across diverse and dispersed organizational units. In the 1990s,companies extended the financial framework to embrace financial met-rics that correlated better with shareholder value, leading to economicvalue added (EVA) and value-based management metrics. The strategymaps and customer-centric balanced scorecards constitute the meas-urement technology for managing in a knowledge-based economy.

Manufacturing productivity metrics—customer-centric scorecard. The con-cept of a balanced scorecard (Kaplan and Norton, 2001) is a key strate-gic enabler of productivity. The Kaplan and Norton version of the balancedscorecard includes four perspectives, namely, learning and growth, inter-nal, customer, and financial. Vision and strategy are also integrated withthe measurement. A critical enabler to achieve desired performance goalsis the ability to measure performance. “What gets measured gets done.”

In this section a customer-focused scorecard, which forms the centralaspect of productivity, will be discussed. With customers at the center ofthe scorecard (see Fig. 8.4), the scorecard has two dimensions, namely,internal (within the organization) and external (outside the organization).



Customer

Focussed

Shareholder focus

Maximizeshareholderwealth

Social focus

Adding valueto society

Learning focus

Knowledgemanagement

Employee focus

People first

Ext

erna

lCustomer-focused scorecard—

winning proposition

Customer

Focused

Customer

Focussed

Customerfocused

Internal

Figure 8.4 Customer-focusedscorecard.

The internal dimension includes employee and learning focus whereasthe external dimension includes shareholder and social focus.

Customer focus drives higher product quality and lower cost. Asdescribed in this book the manufacturing organization’s response tocustomer focus lies in implementing a robust process design (with qual-ity built into the design), reduced variability, and a productivity improve-ment program.

Good organizations focus on their employees. People are the corner-stone as well as the foundation of a business.

We build great people, who then build great products and services.—Jack Welch

The challenge for leadership is to develop a win-win partnership withemployees. The business should provide a fertile ground for maximiza-tion of an individual’s potential and create a sense of ownership amongstemployees maximizing their commitment to the company’s success. Crisisof commitment is real when people are not working at their full poten-tial. Competitive advantage comes from the effort workers put in aboveand beyond “just doing their job.” If an experienced operator identifiesways to improve robustness in the operation but does not share it withmanagement, technically he is still doing his job. Sharing the infor-mation could be framed as “walking the extra mile” that cannot beforced by leadership. Employees provide it at their discretion, and ifthey choose to give it often enough, the power it gives an enterprise istruly awesome.


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Maximization of shareholder wealth drives a rigorous financial dis-cipline. Until a business returns a profit that is greater than its cost ofcapital, it does not create wealth, it destroys it. There are various finan-cial indicators, which are extensively discussed in various textbooks(Brealey and Myers, 1991; Stern et al., 1991). However, financial meas-ures are lag indicators: they report on outcomes, the consequences ofpast actions. Exclusive reliance on financial indicators promotes short-term behavior that sacrifices long-term value creation.

In an economy dominated by tangible assets, financial measure-ments were adequate to record investments in inventory, property,plant, and equipment on a company’s balance sheets. Income state-ments could also capture expenses associated with the use of thesetangible assets to produce revenues and profits. But a postindustrialeconomy, where intangible assets have become the major sources ofcompetitive advantage, calls for tools that describe knowledge-basedassets and the value-creating strategies that these assets makepossible. Opportunities for creating value are shifting from managingtangible assets to managing knowledge-based strategies that deploy anorganization’s intangible assets: customer relationships, innovativeproducts and services, high quality and responsive operationalprocesses, information technology and databases, and employee capa-bilities, skills, and motivation. The knowledge management aspectsare discussed in Chap. 4.

Social focus requires organizations to focus on adding value to society.An important source of adding value to society is the product itself.Equally important, social aspects include employment generation,enhancement of local economy, and charitable donations.

Critical alignment. The mission, vision, BHAGs, strategy, scorecard, andobjectives as discussed in the preceding sections must be aligned tomaximize the success of the business. Creating alignment is a key partof the effort to enable companies to transform themselves into vision-ary companies. Critical alignment requires two key processes: (1) devel-oping new alignments to preserve the core and stimulate progress and(2) eliminating misalignments—those that drive the company awayfrom the core ideology and those that impede progress toward the envi-sioned future. Figure 8.5 depicts a critical alignment at a strategic andlogistical level summarizing this discussion. Such an alignment betweenthe mission/vision all the way to the employees’ personal objectives iscritical to the success of the business.

Strategy and mission form the essence of the business and are centralto the transformational leadership model, as depicted in Fig. 8.2 and dis-cussed in the preceding sections. The first quadrant of this leadershipmodel is “fundamental leadership skills.” This quadrant is discussed indetail in the following section.



Mission

Vision

BHAG

Strategy

Customer centric

Functional objective

Personal objective

Why we exist ?

What we want to be ?

What we need to do ?

How to achieve ?

Implementation

How does the functioncontribute to BHAG?

What I need to do ?

Alig

nmen

t

Log

istic

Stra

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Figure 8.5 Critical alignment.

8.2.2 Fundamental leadership skills

Fundamental leadership skills (FLS) are the bedrock of transforma-tional leadership. The prominent skill set is character. Character breedstrust, respect, and integrity. Character is the foundation on which theother leadership attributes are built.

Fundamental leadership quality has been studied by leading thinkerslike W. Edwards Deming and Stephan R. Covey. Deming in his classiccompilation Out of Crisis (2000) suggests “14 points for management”to lead the transformation of American industry. These are:

1. Create constancy of purpose toward improvement of product andservice, with the aim to become competitive, stay in business, andprovide jobs

2. Adopt the new philosophy (understand the need for change)

3. Cease dependence on inspection (build quality in design)

4. Minimize total cost


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5. Improve constantly and forever the system of production and ser-vice, to improve quality and productivity, and thus decrease cost(improvement strategy to include both innovation and continuousimprovement)

6. Institute training on the job

7. Institute leadership

8. Drive out fear

9. Break down barriers between departments

10. Eliminate slogans

11. Eliminate work standard and management by objective on the fac-tory floor by substituting it with leadership

12. Remove barriers

13. Training education and self improvement

14. Participative transformation program

Covey’s (1992) concept of principle centered leadership has the pri-mary focus on people and the interrelation with natural laws. Coveydescribes principle-centered leadership as an inside-out approach withpersonal trustworthiness at the core of this concept. Trustworthinesscreates the basis for the managerial style of empowering others tounleash more of their potential and become independent and self-managing. The three levels of personal, interpersonal, and managerialrelationships form the necessary conditions for working on issues ofalignment—harmonizing the organization’s shared mission and values,structures, and systems as it responds to its customers, suppliers, com-petitors, and other stakeholders.

Individuals with fundamental leadership skills tend to develop thesofter aspect of leadership that is called “emotional intelligence.”Emotional intelligence forms the second quadrant of the transforma-tional leadership model (Fig. 8.2).

8.2.3 Emotional intelligence—connect and resonate with people

Emotional intelligence is a combination of two competencies—personaland social. Conscious individuals forming conscious groups workingtoward a shared purpose and vision are vital ingredients in creating aconscious enterprise. Consciousness of enterprise is seen when theentire organization has the ability to reflect and learn. For leaders oftransformational change, there are three primary perspectives in thering of mastery to be considered: self-mastery, people mastery, andenterprise mastery. Self-mastery includes clarity of purpose, vision,



planning, reflection, and feedback. Transformational leaders areengaged in the lives of the people in their organization, encouragingpersonal growth, feedback, continuous learning, and mentoring. Themost successful transformation initiatives are fostered by leaderswho are committed to their own self-awareness or personal masteryand to assisting others in the same process. People mastery requiresboth individual consciousness and an understanding of the attitudes,behaviors, beliefs, and assumptions of the collective in addition todeveloping skills in group dynamics. Relationship management, trust,management of agreements, and effective communication are vital tothe development of consciousness, mastery, and effectiveness at thegroup level. Understanding the business is a key component of enter-prise mastery. Enterprise mastery includes the skills and capacity ofthe organization’s leaders as chief architects of business, bench-marking, organizational culture, process improvement, motivationsystems, evaluation and measurement of performance, and the impor-tance of understanding the organization’s value and how it can changeover time.

Perhaps the emotional intelligence aspect of leadership is best repre-sented by great leaders (typically in the social arena—Mahatma Gandhi,Martin Luther King, Mother Teresa) who move us. They ignite our pas-sion and inspire the best in us. Great leadership works through emo-tions. To formulate a vision that will resonate with others, leaders startby tuning in to their own feelings and the feelings of others. The keyaspects of great emotional leadership are resonance, self-awareness, self-management, self-regulation, motivation, empathy, development of others,and organizational savvy.

Resonance. Being in synch with people’s emotional centers in a pos-itive way. One of the most powerful and direct ways to make that res-onant brain-to-brain connection is through laughter. Social awareness,particularly empathy, is crucial in driving resonance.

Self-awareness. Reading one’s own emotions and recognizing theirimpact. It also relates to knowing one’s strengths and limits andhaving a sound sense of one’s self-worth and capabilities. People withstrong self-awareness are realistic, neither overly self-critical noroverly optimistic. Rather they are honest with themselves about them-selves. And they are honest about themselves with others, even to thepoint of being able to laugh at their weaknesses.

Self-management. Allowing the mental clarity and concentratedenergy that leadership demands, and keeping disruptive emotionsfrom throwing them off track. Leaders with such self-mastery embodyan upbeat, optimistic enthusiasm that tunes resources to the positiverange. Self-discipline is key to self-management.


330 Productivity

Self-regulation. Managing one’s internal status, impulses, and resources.

Practicing self-control. Keeping disruptive emotions and impulsesin check.

Trustworthiness. Maintaining standards of honesty and integrity.

Conscientiousness. Taking responsibility for personal performance.

Adaptable and innovative. Handling changes flexibly and being com-fortable with novel ideas, approaches, and new information.

Motivation. Having an internal engine of emotional tendencies thatguide or facilitate reaching goals. This includes drive, commitment,initiative, and optimism.

Empathy. Being aware of others’ feelings, needs, and concerns. Thisis a key social competence for understanding others, sensing others’feelings and perspectives, and taking an active interest in their con-cerns. Great leaders are wired for empathy.

Developing others. Sensing their development needs and bolsteringtheir abilities. Services orientation anticipating, recognizing, andmeeting customer’s needs. Leveraging diversity—cultivating oppor-tunities through different kinds of people.

Organizational savvy. Being in tune with an organization’s emo-tional state, current priorities, and power relationships. Power rela-tionships include networking with people in positions of authorityand appropriately leveraging them for business and personaladvancement.

The success of an organization hinges on strong transformationalleadership; the leadership that masters the essence of the business(mission and strategy) and has the leadership attributes as depicted inFig. 8.2, namely, fundamental leadership skill, emotional intelligence,analytical intelligence, and execution. Execution is the “doing” part ofleadership, which will be discussed in the following section.

8.2.4 Execution

Bossidy and Charan (2002) define execution as the discipline of get-ting things done. It is the most challenging aspect of leadership andonly a few organizations excel in this area. The inability to executestrategy is a major weakness. Strategy execution can be more impor-tant than the strategy itself. Bossidy and Charan (2002) have iden-tified three building blocks and three core processes for effectiveexecution. The three building blocks are the leader’s seven essentialbehaviors, creating the framework for cultural change, and having theright people in the right place. The three core processes focused on



linking the strategy to operations include the people process, thestrategy process, and the operation process.

Mastery of the self is a key aspect of execution that can be manifestedin the leader’s seven essential behaviors (Bossidy and Charan, 2002),namely, know your people and your business, insist on realism, set cleargoals and priorities, follow through, reward the doers, expand people’scapabilities, and know yourself. The second building block of executionfocuses on the cultural system or the social software. Linking rewards toperformance is an important element of the social software and inenabling employees to succeed. To achieve high performance and developa result-oriented culture is an opportunity for management. The thirdbuilding block for effective execution is having the right people in the rightplace (Bossidy and Charan, 2002). The right people energize others, aredecisive on tough issues, effectively delegate, and follow through.

The people process emphasizes the importance of people first in link-ing strategy and operations. The people process should include linkingpeople to strategy and operations; developing the leadership pipelinethrough continuous improvement of succession planning, and reducingretention risk; dealing with nonperformers; and linking human resources(HR) to business results (Bossidy and Charan, 2002). The strategyprocess focuses on continual evaluation of strategy with respect to exter-nal environment, customers and markets, obstacles of growth, compe-tition, execution potential, balance between short term and long term,critical issues facing the business, and sustainable basis of profit gen-eration. The operation process focuses on the logistics of building oper-ation plans, developing budgets, promoting siloless synergy, settingrealistic goals, contingency planning, and quarterly reviews. The com-petencies of execution could be broadly categorized into personal effec-tiveness and organizational design. Personal effectiveness includesmastering the essence of the business, laser sharp priorities, organiza-tional savvy, consistent execution, and managing the social system.

Transformational leadership is a key enabler of any successful organ-ization focused at optimizing productivity. Another key element ofoptimizing productivity (Eq. 8.1) is siloless synergy. This will be dis-cussed in the following section.

8.3 Siloless Synergy

Synergy is the overarching goal of organization design. Organizationsconsist of numerous sectors, business units, and specialized departments,each with its own strategy. For organizational performance to becomemore than the sum of its parts, individual strategies must be linked andintegrated. The leaders define the linkages expected to create synergyand ensure that those linkages actually occur—a task that is easier said


332 Productivity

Lack of functionalidentity

Lack of functionalexcellence

Functional silo Ideal state

Horizontal integration—siloless synergy

Ver

tical

inte

grat

ion

Figure 8.6 Siloless synergy—four states.

than done. Organizations are traditionally designed around functionalspecialties such as finance, manufacturing, marketing, sales, engineer-ing, and purchasing. Each function has its own body of knowledge, lan-guage, and culture. Functional silos arise and become a major barrier tostrategy implementation as most organizations have great difficultycommunicating and coordinating across these specialty functions.

The boundary-less company would remove all the barriers among the func-tions: engineering, manufacturing, marketing, and the rest. It would recog-nize no distinctions between “domestic” and “foreign” operations—Jack Welch

A boundary-less company would knock down external walls, makingsuppliers and customers part of a single process. It would eliminate the lessvisible walls of race and gender. It would put team ahead of individual ego—Jack Welch

Boundary-less would also open us up to the best ideas and practicesfrom other companies—killing NIH (Not-Invented-Here)—Jack Welch

Figure 8.6 models four states of siloless synergy with vertical andhorizontal integration as two enablers. On one extreme a high level ofvertical integration signifies that the function has achieved a high levelof functional excellence though its ability to integrate horizontally isseverely limited, creating a functional silo. Such functions or globalbusiness units have difficulty generating synergistic values. On theother hand a function with low vertical and a high horizontal integra-tion lacks functional identity and functional excellence. Low vertical andlow horizontal integration lead to a dysfunctional organization.

The ideal state is a good balance between vertical and horizontal inte-gration generating synergistic value leading to cooperation, collaboration,convergence, and competence. The opportunity for leadership is to iden-tify the present state and devise and execute strategies to move towardan ideal state of generating value to the customers. As an example under



Continuous improvement—incremental

Proc

ess

impr

ovem

ent

Breakthrough improvement—step increase

Figure 8.7 Continuous versus breakthrough improvement.

Jack Welch’s leadership, the global business units within GE were askedto become either number 1 or 2 in their respective market segment—promoting vertical integration. The global business units who could notget to number 1 or 2 were either closed or sold out. Thereafter the func-tional silos between various global business units were synergized byJack Welch’s initiative of “boundary-less collaboration” maximizing andleveraging value creation for customers (Welch, 2003).

The previous sections introduced productivity improvement philoso-phy, and the following sections will introduce logistical strategies toexecute improvement, illustrated by a case study.

8.4 Logistical Aspect of ProductivityImprovement

Productivity improvement strategies are traditionally split into two types,which represent different and, to some extent, opposing philosophies(Imai, 1986). These two philosophies are continuous, incremental improve-ment and radical, step-change improvement (as shown in Fig. 8.7).

Continuous improvement entails a mindset geared toward problemsolving—determining root causes of inferior performance, converging ona solution, and systematically implementing that solution. Continuousimprovement involves modest but continual changes to an existingprocess. Continuous improvement is an evolutionary approach toimprovement and is synonymous with the concept of total quality man-agement (Imai, 1986; Oakland, 1989). It is a philosophy of businessthat aims to root ongoing improvement into the basic strategies, culture,and management systems (Deming, 1986).

Continuous improvement is often referred to as kaizen. “Kaizen meansimprovement. When applied to the workplace, kaizen means continu-ous improvement involving everyone—managers and workers alike”(Imai, 1986).

Radical change, in contrast, is a revolutionary approach. It is not aboutimproving existing processes, but reinventing them. Radical change


334 Productivity

involves streamlining, reorganizing, and integrating activities to createnew ways of working to support a process management orientation. Thisis essentially a fundamental rethinking of processes with the basic aimof getting dramatic improvements (Hammer, 1996). Processes for radi-cal change are usually classified in broad terms so that they cut acrossfunctional boundaries. Those with narrow scope and falling within onefunctional area provide little opportunity for radical change and radicalimprovement (Hammer and Champy, 2001). Radical change would alsotypically require redefining information flows, their points of use, andwork roles (Hammer, 1996).

Several key differences between continuous and step-change strategieshave been suggested. Step change seeks radical changes, indeed thetotal redesign of existing processes coupled with a significant improve-ment in performance (Hammer, 1996). The benefits from small, suc-cessive, continuous improvements are expected to be attained over a longperiod of time unlike radical change, which aims to create majorimprovements in the short to medium term (Imai, 1986). Continuousincremental improvement involves everyone in an organization, andthe changes are driven by them, thus requiring little senior managementtime and effort. Radical change is usually driven by a senior manage-ment champion and requires substantial senior management time andeffort (Imai, 1986). Both these approaches involve processes as theprimary unit of analysis, and rigorous measurement of process per-formance is necessary for either approach to succeed. Both process inno-vation and improvement also require significant organizational andbehavioral change to be successful. At the most basic level, all processmanagement approaches flourish only in an environment intent onimplementing operational change—improving the way work is done—rather than making quick fixes in financial results or organizationalstructure.

Finally, both continuous process improvement and process innovationprograms require a substantial investment of time, often as much as oneor two years, before significant results can be seen. Continuous improve-ment requires time-consuming training and cultural change, whileprocess innovation typically requires time for construction of new infor-mation systems and organizational structures.

Surprisingly, the differences between the two approaches are greaterthan the similarities. Process innovation or reengineering programsstrive for radical, sometimes tenfold levels of improvement in the cost,time, or quality of a process. Improvement programs are consideredsuccessful if they achieve a 10 percent improvement in any given year.Improvement programs start from the current state of the process andchip away at it. Innovation programs urge participants to imagine theyare starting with a clean sheet of paper. Improvement programs are



highly participative. Innovation programs tend to be addressed from thetop-down in terms of how the new work design is created. Improvementprograms stress the rigor of statistical process control to minimize unex-plained variation in a process. On the other hand, process innovationprograms attempt to identify the technological or organizational processfactors that will maximize variation and create fruitful changes.

8.4.1 Integrated approach

When there is little understanding of the differences between improve-ment and innovation, the wrong techniques can be applied. In certaincases expectations of innovation could be created with access to thetools of improvement. However, employing innovation-oriented tools toachieve continuous improvement is a recipe for failure. This can also leadto miscommunication with parties outside the inner circle of opera-tional change. Here, it is essential that concepts and terms be crystalclear. In some firms, for example, all initiatives to improve processes arecalled reengineering regardless of their change in goals or methods. Onesolution is to combine continuous improvement and breakthroughimprovement as an integrated strategy in the organization’s improve-ment plan.

It is critically important to generate a corporatewide “integratedimprovement vision” using Six Sigma as an overarching methodologyto integrate continuous and breakthrough improvement (see Fig. 8.8).Unless process improvement and innovation approaches are integratedin organizations, employees become confused about the differencesbetween change programs. Unless the subtle, but important distinc-tions between innovation and improvement are made apparent tothem, they are likely to view the different programs as passing fads.Failing to integrate these approaches can also be quite demoralizingfor those who participate in process change teams. Employees canspend time improving processes that may later be eliminated throughinnovation.

The first step of the integrated strategy is hypothesis generation(Fig. 8.8) followed by risk profiling and prioritization. Risk profiling isdiscussed in detail in Chap. 7, and prioritization is typically driven byfinancial consideration, which is also discussed in Chap. 7. The follow-ing section introduces hypothesis generation.

8.4.2 Hypothesis generation

Hypothesis generation aims at developing a list of ideas for improvementand innovation. However, hypothesis generation processes for innova-tion and improvement follow different approaches.


336 Productivity

Breakthrough improvement

Tertiary and secondary loop

Continuous improvement

Secondary and primary loop

Hypothesis generation

First principles andacademic leverage

Benchmarking

Realistic creativitySeed money investmentProof of concept

Riskprofiling

Prioritization

+

−Document learning

+

−

Internal leverage

Historic process data

Historic process dataanalysisKnowledge extraction

−Document learning

Document learning Document learning

+

+

−

Portfolio of innovation andimprovement opportunities

Figure 8.8 Define phase—innovation and improvement opportunities.

For innovation (breakthrough improvement) a “think tank” should beassembled in partnership with academics and consultants. The thinktank also sponsors external benchmarking and literature search. Thetask for the think tank is to develop a list of ideas containing hypothe-sis derived from mechanistic approach (a “deep knowledge-basedapproach”). Deep process knowledge includes underpinning technicalknowledge and experience with running the process. The cultural basefor breakthrough improvements is generally different from that of day-to-day manufacturing troubleshooting. This is a medium- to long-term



investment in enhancing process performance. The culture entails risktaking, rigorous analytical environments, process analysis and discus-sions, out-of-the-box thinking, sharing thoughts, collaborating withexternal centers of excellence in various aspects of the process, and soforth. It is more akin to a research and development environment. Thestaffing requirements are also similar. Highly qualified Ph.D.-level indi-viduals, experienced in the subject area relevant to the process, arerequired as technical leaders. As an example, for a bioprocess the list ofideas could include (in no particular order) strain improvement, feed-ing strategy, continuous sterilization, robotics, and lights-out operation.

For continuous or incremental improvement the targets for processperformance measures can be set by comparison with a variety of bench-marks, which, although not necessarily mutually exclusive, essentiallyfall into two types—internally based and externally based. Internalbenchmarking uses historical standards based on the past performanceof internal processes. The internal process might be the one undergo-ing improvement or it could be another similar internal process. The keydisadvantage of using the process itself as the base for comparison,while undoubtedly encouraging improvements in performance, is thatit only provides information as to whether the operation is getting betterover time rather than whether performance is satisfactory. Comparisonwith other internal processes has the additional advantage that it pro-vides a relative position for each process within the organization.

External benchmarking involves comparison with other organizations,using either competitor-based targets and/or best-in-field benchmarks.Competitor-based targets are those with similar operations in other,similar organizations. Best-in-field benchmarks are set based on theperformance achieved by organizations, which may or may not be in thesame field, but where the performance is considered to be outstanding.Organizations undertaking continuous improvement of operationalprocesses will primarily employ internally based targets, whereas organ-izations undertaking radical change will primarily employ externallybased targets. This is because organizations using these strategies wishto see incremental improvement relative to their historical achievements.Furthermore, as organizations using these strategies tend to be bothsuccessful and competitive, they may have already outperformed com-petitors or be the best-practice leader focused on building on theirexisting strengths.

It is important to define the organizational concept that can effectivelyexecute the integrated approach. Process engineering organization is keyto management of productivity improvement opportunities. It is anopportunity for transformational leadership to create an effective processengineering infrastructure that can lead productivity improvement inthe organization.


338 Productivity

8.4.3 Create process engineeringinfrastructure—holistic approach

One way of establishing the infrastructure is to consider all aspects ofthe manufacturing life cycle as entailed in this book, namely, processdevelopment, capability, variability reduction, and productivity improve-ment. A compelling reason for this holistic approach is to ensure a syn-ergistic organization with complementary parts cohesively moving withclear direction and alignment. Since it is typical in larger organizationsto have disjointed efforts competing with each other, creating wastedefforts adding less value (business and quality) than expected, theprocess engineering functionality could be subdivided into primary loop,secondary loop, and tertiary loop (see Fig. 8.9).

Primary loop (plant-based engineering) signifies a vital process engi-neering function responsible for “keeping the fire burning.” The role ofthe primary loop, which is closest to the manufacturing floor (planttechnology), is to maintain equipment in a qualified state, implementand sustain process improvements, and continually reduce variabilityand the required troubleshooting. This loop should have a mix of engi-neering talent and experience, typically 0 to 10 years, and should be theentry point for new engineers. Organizationally this loop should be anintegral part of the local site manufacturing management well inte-grated with the local quality, operations, and science functions. In thepharmaceutical industry, typically this function gets buried in currentgood manufacturing practices (cGMP) documentation and only occa-sionally gets to fulfill its core functionality. A possible remedy could beto align this organization into the integrated system of the secondaryand tertiary loops so that a clear functional vision could be achieved,without losing sight of the need for local control. Additionally, otherresources and functions (quality) can contribute to sharing the muchneeded cGMP documentation function.

The focus of the secondary loop (product-based engineering) should beon the product, which should include ownership of continuous improvement(including capacity), partnering for breakthrough improvement, newprocess implementation (commercialization), and also closely mentoring theprimary loop. This is a vital link that takes a step back from day-to-dayoperation and focuses on short- to medium-term improvements focused onindividual product. Ownership of the continuous improvement is a majorfunction, which includes enhancement of product capacity. The secondaryloop should also be involved in the commercialization of new processes.Working together with the tertiary loop, they should deliver a robust newprocess in the plant (commercialization).

The tertiary loop would do the process development at pilot scale. Theintegration with the secondary loop is critically important in scaling-upthe engineering aspects from pilot to production scale. Educating the local



Tertiary loop“Development engineering”

Secondary loop

Primary loop

1. Lead new process development2. Lead breakthrough improvement3. Lead technology assessment4. Technical mentoring

1. Lead continuous improvement2. Partner in breakthrough3. Partner in new process development4. Mentor the primary loop

1. Maintain equipment in a qualified state2. Variability reduction3. Implement and sustain process improvements4. Troubleshooting

Aggressively improving, capable and economically viablemanufacturing process, producing quality product reproducibly

Processtechnology

focus

Producttechnology

focus

Planttechnology

focus

A very strong integration with science“Science-engineering synergy is the foundation of manufacturing success”

Functional excellence

Functional excellenceF

unct

iona

l exc

elle

nce

Functional excellence

Figure 8.9 Process engineering infrastructure.

site concerning the technology challenges and opportunity along withmaintaining a close connection with the tertiary loop is critical to successof this loop. Mentoring of the primary loop is an important activity, whichinvolves regular exchange of technical information and coaching for tech-nical professional growth. It has been a subject of debate in industry as towhere this organization should fit; while a close integration with local sitemanagement has the advantage of integration by organizational design;


340 Productivity

however, a major disadvantage is that there is always a danger that thisfunction could become a primary loop extension. Acompromise could be thata matrix management be used to ensure that this critical function is linkedto the overall functional design with accountability toward the local site.

The tertiary loop (development engineering) should have a technologyfocus, the fundamentals of which should be applied to any process devel-opment or breakthrough improvement. The tertiary loop should have astrong external focus with links to academia and industry. The tertiaryloop should be a well-balanced team with highly experienced general-ists and subject matter experts (SME). The SME should be industry lead-ers in their subject of expertise and many of them may have higherqualification, Ph.D.s in the relevant subject area. They should be lead-ing “centers of excellence” in their subject of specialization with accessto engineering labs. Another major objective of the tertiary loop is to eval-uate emerging technologies and assess the risk of the improvementprocesses in pilot plant or engineering lab facilities. Technical mentor-ing is another important role of the tertiary loop, which involves tech-nical training in the areas of specialization to the primary and secondaryloops. Though often not given enough priority training and knowledge,sharing is a proactive approach of building a learning organization.

The tertiary loop should be the engineering department responsiblefor late stage development of new processes closely integrated with thescientific community. It is generally debated whether they should be apart of the scientific organization or a part of the engineering organi-zation. Being a part of the scientific organization ensures that closeintegration with scientists is built into the organizational design.However, the lack of integration with the engineering function mayresult in suboptimal functional excellence, which may hinder applica-tion of rigorous engineering. There is no right answer and differentcompanies have different philosophies. A compromise for late stagedevelopment could be to ensure that the functional integration is main-tained with the integration with scientific community driven by a“process-centric” approach with clear accountability. Dual reportingstructure and matrix management may also aid in integration with sci-entific community and with the functional excellence.

The infrastructure of process engineering and the portfolio of inno-vation and improvement opportunities define the productivity land-scape. The next step is to understand the productivity target.

8.5 Productivity Target

Productivity target is based on the needs of the plant. The definephase of Six Sigma can be used as an overarching methodology to setthe productivity target (see previous sections). In this section pro-ductivity avenues in relation to cost and capacity are discussed.



CapacityC

OP

- Variable cost reduction

- Capital investment - Replacement of assets

- Process improvement- Cycle time reduction- Enhanced asset utilization- Enhanced operational efficiency

Figure 8.10 Capacity versus cost of product.

8.5.1 Cost and capacity

The interaction between cost and capacity creates interesting dynam-ics and there are various levels of cost and capacity. Enhancement ofcapacity with reduction in cost of product (COP) is a preferred option.Capacity versus COP could be represented as shown in Fig. 8.10.

1. Variable cost reduction. Unit cost decreases as throughput increasesand variable unit cost decreases. The variable cost includes (asdescribed in Chap. 1) raw material, utilities, consumables, and main-tenance labor cost. There is always pressure to find a cheaper or bettersubstrate (medium). Fermentation industries may have an advantageover some other manufacturing industries in that their raw materi-als can sometimes be altered, within limits, and some buffering againstincreasing world prices may be possible. Another major advantage ascompared to the conventional chemical industry is that the fermen-tation raw materials are generally cheap agricultural products (waste,i.e., molasses, corn steep liquor, and the like).

Unit cost (fixed cost variable cost)/throughput(fixed cost/throughput) variable unit cost15

15

2. Process improvement/optimizing throughput/productivity. Optimizingthe process to maximize its full potential is a key focus for manufac-turing. For example, strain improvement using a mutation/selectionprogram for an organism being used in an established process or apotential process can be very cost-effective. The process improvementcould be continuous or breakthrough; these aspects have been coveredin detail in the previous sections of this chapter.

3. Operational efficiency. This is primarily related to scheduling ofboth man and machine. The shifts are planned to maximize the


342 Productivity

manufacturing potential. Along with that, the campaign strategyfor a multiproduct manufacturing facility is also closely examined.(For example, the number of units of a product that are producedbefore the facility switches to another product must be carefullyplanned.) Given the changeover and cycle time of a particular prod-uct, unit cost can be expressed as:

Unit cost (changeover cost/units per run) running cost per unit

An aspect of efficiency is waiting time in queue called CTq. Formanufacturing equipment in series (with no redundancies),Kingman’s equation defines the waiting time in queue as (Hopp andSpearman, 2000):

CTq V U T

where V variability term U utilization term T mean effective process time

The objective should be to minimize the cycle time in queue.Therefore, the variability should be minimized, the utilization mustbe enhanced [U u/(1 – u), where u is related to the utilization ofthe equipment, i.e., probability that the equipment is busy] and theprocessing time T should be minimized.

4. Reducing the cycle time for production. Cycle time is best defined byLittle’s law (Hopp and Spearman, 2000):

where CT cycle time, which is expected time spent at processingstage [ sum of queue time (CTq) plus process time]

WIP work in progress TH throughput

Reduction in WIP or increase in throughput or both could causereduction in cycle time. Cycle time can be affected by setting up lessfrequently (facilitated through setup reduction), by dedicating equip-ment (so that some product families can be continually run withoutchanging over), and by using specialized equipment (e.g., flexiblemanufacturing systems). Of course, some of these options can resultin larger inventories.

5. Asset utilization. Long-term economies of scale are functions of plantequipment itself. Economists have long noted that the cost of the equip-ment tends to be proportional to its surface area, while capacity is

55

55

CT �WIPTH

5

555

5

15



more closely proportional to volume. To illustrate the implication ofthis, suppose the equipment is a cube with side length l. Then costcould be expressed as

And the capacity as

where a1 and a2 are proportionality constants. To express cost as afunction of capacity, solve for l in terms of C, to get

with a3 representing another constant. Thus, in general, an increasein capacity leads to a reduction in cost of products.

The capital assets should be fully utilized to enhance asset produc-tivity. For example, in typical antibiotic production, increasing thevolume of the batch leads to enhancement of the asset utilization.

6. Capital investment. For a capacity-limited product there is always thedilemma of whether to continue to squeeze more capitalless capacityor to invest capital to build another manufacturing facility. The bestway to address this is to develop models to help understand the idealcapacity of the manufacturing facility and then to conduct a finan-cial analysis of building a new facility. The modeling aspect is cov-ered in detail in Chap. 2.

7. Replacement of assets. Capital assets have a limited lifetime, andreplacement of assets, generally with improved capability (may helpenhance capacity), has cost implications.

This chapter summarizes the productivity philosophies along withlogistical aspects. The following section applies these concepts to anindustrial productivity improvement case study. The systematic approachto productivity improvement using Six Sigma methodology is illustratedin this case study—using the define, measure, analyze, improve, andcontrol (DMAIC) approach.

8.6 Productivity Improvement Case Study

The case study from Chap. 3 is used to illustrate the application of SixSigma to productivity improvement. The operations involved (as shownin Fig. 8.11) in the production process are raw material storage, rawmaterial treatment, three unit operations, packing, and shipment.

l 5 a2C1/3�K 5 a3C

2/3

C 5 a2l3

K 5 a1l2


344 Productivity

Packing

Raw material

Product shipment

20 min to here

40 min to here

Rawmaterial

Unitoperation

Unitoperation

Unitoperation

Unitoperation

Figure 8.11 Overview of the production line.

8.6.1 Define

An improvement opportunity was identified based on external bench-marking with input from external consultants. The quality, organiza-tional, technological, and financial risks were minimal. Awell-thought-outcost justification was prepared for this case study. Inevitably, someassumptions about performance enhancement will have to be made toarrive at an estimate of savings. One possibility is if the objective is toimprove the performance of a large-scale manufacturing plant, an esti-mate of the ultimate performance could be obtained by applying thestrategy to a pilot-scale plant. Assuming the availability of a pilot plant,this does not overcome the necessity for engineering work and hardwareand software costs. Thus, while it would provide confidence in the likelyapplicability of the method to large scale, it would not satisfy the fun-damental objective of assessing likely savings before purchasing andimplementing the system. The major benefit gained by adopting thisapproach would be minimizing the risk of lost production, but the ques-tion of scale on system performance is a major issue. Under these cir-cumstances the more presumptive approach of cost-benefit analysismust be applied.

The strategy for cost-benefit analysis can be applied to processimprovements achieved through changes in operating procedures or



plant equipment modifications. The emphasis in this section is on oper-ating policy improvement through improved process control. Cost ben-efit analysis is possibly one of the most difficult areas to be consideredin the development of a control system for process improvement. Herethe term control system is used in its widest sense as referring to anytechnology that delivers improvement in operation.

8.6.2 Measure

When considering the implementation of control scheme modifications, itis essential to establish a base case against which improved operation canbe assessed. This involves building a historical record of operation priorto improvements and comparing this against resulting performance. Indoing so it is vital to agree on the method of quantifying performance atthe outset to avoid conflict in interpretation of the future results. Historicalprocess operating records usually provide the necessary information. Thetechnical requirements for a particular control system improvement cangenerally be ascertained prior to purchase by using a combination of pastexperience and process tests. However, what is much more difficult is todetermine how much improvement in control is possible and what thefinancial consequences of this improvement are.

An approach to cost-benefit analysis that has been widely applied inthe chemical industry to justify process control system investment ispresented by Anderson (1996) and Anderson and Brisk (1992). The basicassumption of the procedure is that improvements in control will atleast halve the existing variance of the output. This is a tried and testedstatistic, and the extent to which it can be exceeded obviously dependson the existing quality of control; where little attention has been paidto control, it is likely to be an underestimate. On well-controlled plants,this level of reduction of variance may require the implementation ofsome complex control schemes as described in Chaps. 3 and 6. In thechemical process industries, the average improvements from imple-menting various levels of control have been estimated. Table 8.1 usesinformation from Anderson (1996) and gives an indication of savingsachieved through control improvements.

Table 8.1 provides a useful insight into the typical costs associatedwith control system developments and the likely return on investment.The base case is a process primarily under operator control. If the costsand benefits of implementing a full optimization-based control schemeare considered to be 100 percent gain levels, then it can be seen that thebasic monitoring and control system constitutes a major investment forlittle benefit (i.e., 70 percent of the overall cost only achieves 20 percentof the potential savings). Implementing some of the more advanced con-trol procedures discussed in Chaps. 3 and 6 provides significant gain for


346 Productivity

Reducerecycle

Reducecapital

Reduceeffluent

Reducemaintenance

Increaseonlinetime

Minimizestocks

Improveyield

Increasethroughput

Financialgains

Figure 8.12 Sources of potential of benefits.

TABLE 8.1 Common Control System Benefits

Savings Overall cost of Control system improvement gained (%) control system (%)

Implementation of regulatory control 20 70systems and basic hardware

The use of advanced control procedures 75 80such as feed forward and model based

The application of optimization methods 100 100to the process

little extra investment. To achieve the 100 percent level requires a rea-sonable amount of investment. The key questions are

� What does the 100 percent level refer to in terms of financial gain?� Where do these benefits arise from?� What technology is required to achieve the benefits and what will it cost?� Do the benefits outweigh the costs sufficiently to invest in change?

Figure 8.12 shows a typical and by no means exhaustive list of areaswhere benefits can be found by making improvements in the controlsystem. Identifying areas of potential benefits for a particular process

Mohan_CH08.qxd 16/1/06 2:00 PM 6


requires careful consideration and is usually best achieved by estab-lishing a team with process knowledge and process systems expertise.

The team identifying improvement opportunities should have thefollowing skills:

� Business and economics understanding, as without this it would beimpossible to assess the implications of improvement.

� Process knowledge (e.g., process engineer) to provide knowledge of theengineering limitations and implications of any process modifications.

� Plant operation (e.g., senior operator), as they possess the greatestinsight into the current plant operating policy and are in the best posi-tion to advise on the practicality of modifying existing systems.

� Control expertise probably from outside the plant as control systemsengineers with the depth of experience necessary tend not to beplant based.

� The “outsider” provides the opportunity to question the conceived wisdom.� The “champion” is instrumental in establishing the team and with the

need to ensure long-term usage of any systems change.

To achieve savings, it is necessary to make a prior financial commit-ment. Costs can arise from a number of sources such as those shown inFig. 8.13.

Maintenance

Specializedpersonnel

High-qualityservices

Spares

Installation

Calibration

Trials(lost

production)

Improvementcosts

Figure 8.13 Costs associated with control system improve-ments


348 Productivity

From discussions in the previous chapters it is apparent that improve-ments in control could result from improved instrumentation or from moresophisticated control schemes. The important message is that whateverthe source, it is likely that the improvements bring with them difficultiesin installation and long-term maintenance requirements.

Given the assumption that the variance of the process may behalved, the next step is to determine the opportunities to realize sav-ings that result from improved control. These generally come fromtwo related effects:

By reducing the variance of the operation, it is likely that the vari-ance of the product quality will also be reduced. This should make theproduct more appealing from a customer perspective. However, thecost benefits that this brings are difficult to quantify.

In some cases, the best operating policy for a process is to closelyapproach constraints. Set points of process variables are specified asclose as possible to constraints, given the level of variation experienced.If the variation can be reduced, then the set point can be moved closertoward the constraint and hence benefits gained. It is more straight-forward to assess financial benefits arising from such situations.

8.6.3 Analyze

An example serves to highlight the procedure for calculating savingswhen constraints limit production. Consider the case study described inChap. 3. It was found that in the process shown schematically in Fig. 8.11,poor operational policies on unit operation 2 were causing product qual-ity to have significant variation. The degree of product quality variationprior to the implementation of improved control is shown schematicallyon the left-hand side of Fig. 8.14, together with the upper constraint onproduct quality. The upper constraint is shown, as, with the benefit ofprocess knowledge, moving toward it would improve yield, lower energycosts, and hence increase profitability.

So how was the case for justification of improvement made? First thestatistical variation of plant productivity was determined using his-torical process measurements. Making the assumption that the dis-tribution is gaussian, it is possible to determine the percentage riskof violating this constraint using the mean operating level, the vari-ance of the product quality, and the upper constraint. If it is nowassumed that the variance is reduced by improved control, then it ispossible with this new variance to determine by how much the meancan be moved toward the constraint and still have the same probabil-ity of violating the constraint. This idea is shown schematically onthe right-hand side of Fig. 8.14, and the distribution of performanceis shown in Fig. 8.15.



Poor control

Introduction ofimproved control

Move mean closer to constraint

TimeProc

ess

vari

able

Old mean

Upper constraint

New mean

Figure 8.14 Improved control leads to change in mean operating level.

The dashed distribution in Fig. 8.15 shows the resulting distributionafter the improvements have been made. Simple statistical analysis ofthe problem leads to the following movement of the mean (∆x):

(8.2)

where xL limit x current mean s current operating variance of the plant

snew assumed variance after improvement5555

�x � (xL � x) � Q1 ��new

� R

Before

Operating variable

Histogram

Process

XXL

Figure 8.15 Statistical determination of the change in mean.


350 Productivity

8.6.4 Improve/control

Process operating data were used to determine the likely change invariance and the resulting change in mean operating level that wouldbe possible. An estimate of a 1 percent increase in yield was determinedas a result. The question then follows, what is a 1 percent increase inyield worth? Since it was possible to sell any product that the plantmade, it was relatively straightforward to measure the benefits fromimproved sales. In this case a modest benefit would be found but farmore important were the implications on operating costs. Moving towardthe constraint considerably reduced energy requirements and thisexceeded any benefits from improved yield. Taking the hourly benefitand translating this to those achieved in a year is not just a matter ofmultiplying by the number of hours in a year. An allowance must bemade for reduced process operating times due to plant maintenanceand control system availability being less than 100 percent, resultingin a reduced benefit.

With the likely benefits determined, the next step was to consider thecosts involved in obtaining these benefits. In this case, modifying the oper-ating strategy involved changes in procedures, with little additional costsover current practice. In the general case, it would be necessary to accountfor the costs associated with the features shown in Fig. 8.15. With the cost-benefit analysis facts derived, a meeting with plant senior management tookplace to present the case for undertaking the project. With a strong case asa result of the cost-benefit analysis, permission was given to undertake theproject. The technical details of the project are described in Chap. 3.

Identifying the potential savings that result from control improve-ments is only the first step in realizing the benefits. Implementation andcommissioning of the system then follows. It is important at the com-pletion of the project to assess whether the predicted benefits actuallymaterialized. Performance assessment following system commissioninggives some indication of improvement, but determinations after the“honeymoon period” with long-term statistics are more realistic. In theearly stages of use, extra concentration on the system can give mis-leading indications of improvement. Once normality resumes, the truebenefits of the system can be assessed.

It is important toward the end of the improvement project to put inplace the procedures that ensure continued usage of any system at itspeak performance. It is for this very reason that the “champion” is partof the project team—if their vision for improvement is delivered thenthey will ensure that any system continues to function effectively.Without this champion, it is highly likely that following implementation,the control system will not be utilized sufficiently and will graduallybecome redundant. This is even true for relatively straightforward PID-(Chap. 3) based control loops. Indeed, in a large scale, multiunit plant



one of the tests for scope of potential improvements is to determine thepercentage of control loops in manual rather than automatic control. Ifa significant number are in manual mode, this indicates poorly tunedcontrollers or other equipment problems that, if rectified, could be asource of major benefit.

The system champion was apparent at the outset of the project andindeed in this case initiated the improvement study. Their role inimplementing and maintaining a functioning control system was vital.The results presented in Chap. 3 proved that the variation determinedover long-term performance was halved in line with the assumptionsmade. From a financial perspective the project payback time wasaround six months.

To summarize, the procedures to realize potential for improvement areas follows:

� Establish a team with intimate process knowledge.� Establish process operating goals and constraints.� List opportunities for improvement.� Quantify the benefits associated with each opportunity.� Produce an action plan to tackle appropriate opportunities.� Estimate the cost of the action plan.� Obtain financial approval.� Implement the control system and measure the benefit.� Establish a procedural framework to ensure that benefits are maintained.

Clearly, the cost-benefit analysis strategy presented is not just amethod by which to determine the potential savings, it also constitutesa design and implementation philosophy to bring long-term achievementof the objectives. The procedure described has been tried and tested oncontrol applications in the chemical industry. It is equally valid forapplication to other sectors, but a reasoned argument is not always thedriving force for improvement. Experience suggests that occasionallywhen considering the implementation of some of the more advancedapproaches, such as real-time knowledge-based systems, advances bycompetitors seem to be more influential than the pure financial argu-ment. Clearly, the situation is extremely complex, as long-term financialgain may result from short-term loss for the purposes of the assessmentof the performance characteristics and the determination of areas ofpotential application. This said, even when implementation comes underthe banner of research and development, it is good practice to make someattempt to assess the financial implications prior to embarking oncontrol improvements, whatever the driving force for the application.


352 Productivity

Concluding Comments

A productivity-conscious organization has a distinct competitive advan-tage. Productivity should be viewed as an integration of knowledge,leadership, and siloless synergy. Successful productivity efforts require

� Transformational leadership that can lead the implementation of acomprehensive vision

� An improvement infrastructure that can support the vision and imple-mentation

� Successful adoption of the Six Sigma methodology� A learning organization

Productivity improvement has two logistical aspects: continuous andbreakthrough. The continuous improvement concept has its origin in theJapanese manufacturing operating philosophy. This philosophy focuseson “ongoing operations introspection,” which is closely monitoring,learning, and challenging the operations to improve the process. Inthis chapter the concept of continuous improvement was discussed indetail with industrial examples. These include the concept of design ofexperiment, database techniques for identifying continuous improvement,and so on. Breakthrough improvement could be characterized byquantum leap (step improvement) in the performance of the process.Breakthrough improvement can lead to reengineering the process.

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