Leadership

How I Tripled My Profit In 3 YearsA Journey to Operational Excellence

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How I Tripled My Profit In 3 YearsDon Thompson, Director of Operations for a $45 million furniture manufacturer, arrived early in his office. He knew the 30-year-old air conditioning unit would lose it’s battle shortly after mid-morning, quickly turning his office into a sauna.

“I ought to get some gym equipment and market this as a spa,” thought Don, as he organized his thoughts for the day.

The report Don looked at was disappointing. Although it ran 65-pages, the message was simple: nothing was changing. Lead times, defect levels, productivity, and customer satisfaction levels were flat; they hadn’t improved at all in the last three years.

“We’re stuck,” thought Don irritably. “We’ve been talking about the opportunities here for a long time but nothing is changing. We’re doing the same old things hoping for a different result...insanity!”

As he reflected, Don realized he made a mistake last year when he considered launching a lean initiative but decided to take a wait-and-see approach. He remembered thinking, ‘Maybe this year will be different. I’ll just keep an eye on expenses and hope for the best. Maybe my team will figure it out.’

Unfortunately nothing changed. “I wish I had that year back,” said Don to the empty chair in front of his desk. What was even more disconcerting was the report; it was extensive in its review of the flat performance, was void of solutions. Don knew he didn’t have anything close to a real strategic solution.

“Bunch of band-aids,” Don muttered as he re-read the recommendations section. “This is just busy work; we have to come up with a strategy that will have a real impact. I am certain that continuous improvement is what we need, but I don’t know how to start.”

Don was interrupted by a knock on his door. Smiling pleasantly was Stan Bradshaw, a VP of Operations from a nearby printing company, who is part of a peer group that Don joined eight months previously. Don arranged a meeting with him in order to pick his brain and learn more about a major turnaround that he and his CEO had been leading for the past few years.

“Maybe some of these ideas will help a little, but that’s not what I need. We’ve got to come up with a strategy that will have a real impact if we’re going to stay in business.”

“Good to see you, Don,” said Stan, as he stood in the doorway. At 6’4’’ with a lanky frame, spiky hair, and a shirt-tail that refused to stay tucked, Stan hardly resembled the change leader that Don knew he was.

“Hey, come on in. I really appreciate you taking the time to see me.”

Stan shook Don’s hand \ folded his frame into a metal chair in front of Don’s desk and attempted to get comfortable.

“So here’s what I wanted to talk with you about. Our performance isn’t improving at all, and my management team and I don’t have a viable plan. We just keep kicking around the same old tired ideas. Nothing we’ve discussed will do squat to improve our costs or competitiveness. We’re not in dire straits but we could be if we don’t get our act together. What I really need is a new perspective. You’re the only one I know who’s actually done what’s needed here.”

“Actually, if you can believe it, the situation was worse at my company. We really thought we might go under there for a while,” replied Stan.

“So tell me, what happened? Obviously you figured it out,” said Don.

“Well, at first we ignored it, hoping for the best.”

“That’s what I’ve been doing.” said Don. “am guessing you eventually took action?”

“Yes, you’re right. We put together an internal taskforce to look at cost reductions, but it became clear very fast that we just didn’t have any breakthrough thinking. I mean, we were a great team for making sure that the day-to-day operations ran smoothly, but when the wheels came off the wagon, we were lost. Our plans looked just like those in the report on your desk. There was plenty of busy work, but nothing that was going to make any real impact.”

“So what did you do?” asked Don.

“We had been talking for some time about starting a continuous improvement program. You know, lean, six-sigma, and all that stuff. After some soul searching and frank discussion, we decided it was the thing to do,” Stan explained.

“So what happened?”

“We bought some books and sent a few people to training to learn about Lean Manufacturing. We even trained a few engineers to be Six Sigma black belts. We figured we were smart enough to learn how to turn things around.

“Each company has its own uniqueness derived from the people who work there, the leadership – and the distinct culture of the place.”

We even made one of our managers a full-time champion of continuous improvement.”

“How did it go?” asked Don.

“We never got any traction,” said Stan with a level gaze. “People just scoffed at us because we didn’t deal with the real issues behind the resistance. We vastly underestimated how much attention this was going to take from the leadership team. We treated it like a program, and that’s exactly how people labeled it — “the program of the month”. Sad part was that most people knew that change was needed. The problem is that we completely messed up how we approached it.”

“How did you get on track?” asked Don.

Stan leaned back. “The first thing we had to do was come to grips with the fact that we didn’t know what to do. We’d been trying to take a shortcut, but what we needed was an organizational change. None of our leadership team had any experience in this sort of thing. We decided to get help.”

“That makes sense to me. How did it go?”

“We interviewed about a half-dozen consultants. They came across pretty much the same: they spoke the same language and promised similar results. The problem we had was that all of their presentations were mostly technical in nature. They looked like what we had already tried to do. When we asked questions about culture and employee buy-in, things became a lot muddier and the presenters talked in circles. Pretty much what you’d expect from a consultant.”

“Well, we were getting discouraged and were wondering if we’d ever find who we were looking for. We really wanted a coach and a partner who understood our situation and would put our needs first. Finally, after months of interviews and proposals, we were referred to Shannon.”

“How did you know he was the right guy?” enquired Don.

Stan sat straight up in his chair.

“He knew all about the technical systems and processes, so it wasn’t as if we had to throw everything we’d learned out the window. But his approach was completely different, with an emphasis towards the people-side of the equation. Shannon challenged our thinking as leaders and helped us see what skills we would need to be successful.

He changed our mindsets, and made sure we understood we’d have to do the same with our employees. I don’t know why we didn’t think of this initially, but you really need to have an approach that gets the whole organization on board when you’re making large wholesale changes. It’s not just about the tools. ”

Don’s sweaty brow wrinkled as he tilted his head slightly to the side. “That’s interesting. Can you tell me more?”

“Well, specifically, Shannon talked at length about an overall approach to operational excellence that dealt with the technical and social components of change.”

Don picked up a pen and opened his notepad. “OK, I’m all ears.”

Create the Environment for Change“Well, we started by establishing a change environment. More specifically, we defined our direction and described the environment that was required to achieve our goals. We learned quickly that there were a number of things that needed to change if people were going to believe our message and join us on our journey. This was a real eye-opener for us as we discovered just how much our environment was in conflict with what we needed. We also aligned roles and responsibilities with our goals, and started to communicate in ways that really caused people to sit up and take notice. One of the first things we had to communicate was how serious the situation was.”

“That had to be pretty easy. After all, you guys were in tough shape,” Don said.

Stan shook his head. “Not at all. You see, we all knew there were big problems. I should say, the leadership team knew. The issue was that the employees had no idea how serious the problems really were. In retrospect, it’s not surprising. For years, we had been great cheerleaders, telling everyone that we were the best, the industry leader, and that our quality couldn’t be beaten. It was nothing but happy talk.”

Don looked up from his notepad. “Happy talk; That sounds familiar.”

“We had to stop filtering information and help people see the truth. This was hard for us, but we realized that people have to know there’s a problem to see the need for change.”

“That seems so simple,” Don said.

“Sure it does, but is establishing a change environment in your report?” Stan asked.

“This is good stuff,” Don replied as he pushed the report to the edge of his desk. “What was next?”

Apply Breakthrough Improvement Methodologies“Shannon helped us realize that we had to accelerate the pace of change and recommended that we use high impact improvement methods. The first was the kaizen blitz. We had never done anything like this before so we were pretty nervous about it, but he assured us this was a key part of the strategy and that we would see results like never before. He was right. In fact, we still do blitz events on a regular basis and we’ve added other change methods like six-sigma and A3 problem solving.”

Don was writing again. “What’s a blitz event?”

Stan continued. “It’s a team approach to process improvement. We put 8-10 people together with a trained facilitator for 3-5 days and they focus on a specific process. They study how the work is currently being done and identify big improvements. Then they design the new process and go implement it, all in one week.”

“Can they really get that much done in a week?” Don asked with a skeptical look.

“Don, I am still amazed by the results these teams achieve. The impact on productivity, quality, lead-time, and inventory is incredible. What’s more impressive though is how this approach has impacted the thinking of all employees and our leadership team. These are their solutions based on their observations and experience. Now, most of our 475 employees come to work every day with ideas that will help improve performance. We as managers stopped trying to tell them how to do their jobs – they are doing it better than we ever could have and they love it.”

“That would be a big change for us.” Don said with a sheepish smile. “But it sounds like these improvement tools make a huge difference.”

“You bet they do,” Stan replied.

Don took a break from writing and stretched his fingers. “So, creating a change environment and high impact improvement methods. Have I got that right?”

“Yep, you sure do. Now I left out a lot of detail in those two, but I think you get the picture.”

“Yes, I’m with you so far. Please keep going,” Don said.

Building a Foundation of Teamwork, Customer Focus, and Process Improvement“The next part of the approach was to build a foundation of teamwork, customer focus, and process improvement,” explained Stan. “We learned that building these mindsets pays great dividends.”

Don looked at Stan over the top of his glasses, “We’ve done thousands of hours of employee training, and I can’t say that it’s made any difference. I’m a little skeptical about this one.”

“I was too, Don, but not anymore. You see, we always thought we had good teamwork, but it was just more happy talk. When we started to look at how we worked together we found all sorts of problems. We began to realize that we didn’t always support each other and conflicts were rarely resolved in a healthy way. Our communication skills were poor, we had conflicts between departments and shifts. There was a huge wall between the office and factory, and the list went on and on. I don’t know why we were surprised though; our leadership team was probably one of the worst examples of teamwork in the entire company.”

“Maybe some of these ideas will help a little, but that’s not what I need. We’ve got to come up with a strategy that will have a real impact if we’re going to stay in business.”

“So the teamwork improved?” asked Don.

“Yes, because what we learned was practical and we began applying it right away. We also learned to listen carefully to our customers so we could serve them better. In the past we would complain about unrealistic demands, now we seek out customer feedback and use it to strengthen our relationship with them. We also got everyone involved in making daily improvements; this has made a big impact on quality and safety,” Stan continued. “This isn’t just training though, Don. We did a lot of training but Shannon made sure that the leaders held each other accountable for practicing what we preached.”

Don tapped his forehead with his pen. “We could use that kind of thinking here. We have all of the conflicts that you mentioned and more, sometimes we act like we’re on opposing teams. We also need to change the way we think about our customers. In fact, our customer service reps refer to email complaints as fan mail. I can see we have some work to do. What’s the fourth part of the approach?”

Stan stood up. “We needed some change agents to help us accelerate the pace of improvement. Shannon helped us identify two good candidates and went to work teaching them everything they needed to know. Stuff like leading kaizen events and six sigma projects, training employees, planning, coaching supervisors, etc. There wasn’t much classroom time for these two. It was almost all OJT. This was great because they learned while improvements were being made. This got us short-term results while they learned the skills themselves. Now Shannon just helps us with the really tough stuff – we can handle almost everything else.”

“So these two are your technical experts?” asked Don.

“Yes,” answered Stan. “But they learned the people skills too. In fact, they were part of almost all of the leadership training. It’s really important that these folks use the right approach and influence people effectively. They’re leaders too.”

Don paused, “This is great Stan. I really appreciate you sharing this with me. I’m already thinking about things differently.”

1

2

3

4

Create the environment for change.

Build a foundation.

Apply breakthroughimprovement methodologies.

Develop master level change agents.

“I always thought mindset was something that people brought to work with them. I never thought about changing it.”

Grow Star Leaders and Managers“The fifth component of the approach was to develop high performing leaders and managers. We all had good experience, but we realized that we were missing many skills needed to change thinking, performance, and behavior. At first I thought this was pretty soft stuff, but it wasn’t. In fact, everything we learned was specifically geared to influence people and improve performance.”

“What kind of skills did you learn?” Don asked with a curious look.

“Things like how to be a better coach. You know, having the difficult discussions that are usually avoided. This was great because we learned how to impact the way people think, and you can’t get commitment from people who aren’t thinking right. It was a little scary when I first tried to apply what I learned, but it went ok, and I saw a real change in that person. Now coaching is almost second nature to me. Heck, I actually enjoy it. I even look forward to the tough discussions because I know how to handle them and I can solve ‘people problems’ that I never could before. Most importantly, we don’t avoid poor behavior and performance anymore; we have the courage and skills to deal with it.”

“That sounds powerful. What else did you learn?” asked Don.

Stan went on. “Let’s see. Holding people accountable, flexible leadership, problem solving, dealing with excuses, just to name a few. We also focused heavily on our first level supervisors; they learned new skills and transitioned from firefighters to leaders. Today they run their departments like business owners. It’s pretty incredible; they measure their performance and get people involved in making improvements every day. Supervisors are key to our success.”

“This is very helpful Stan. I really appreciate everything you’ve shared so far. What’s the final part of the approach?”

Create and Execute Winning Strategies“I’m happy to help,” Stan replied. “Now, the sixth part of the approach is creating and deploying effective strategies. We realized that we were too tactical as managers and that we all had different, and sometimes competing, goals. We took some time to step back and look at the business as leaders and defined the strategies that would help us take the business to the next level. Then we used a tool called Policy Deployment to break those strategies down into manageable projects.”

“Did you accomplish your strategies?” asked Don.

“We sure did. In fact, we learned that we can be pretty aggressive with our strategies now that we have the tools and the mindsets behind them. In the past we would have been happy with a 4% productivity improvement, now we set our goal for 20% and have confidence that we’ll actually hit it. Our strategic planning session used to be an annual event. Now our strategy is our constant focus.”

“There is nothing better than an ‘a-ha moment’. And that’s exactly what Tapemark gets from Lean Partners. Their experts roll up their sleeves, dive in, and stay until the job is done. They do more than teach people; they lead us to breakthrough results. Their leadership sets them apart.”

Andy Rensink, President Tapemark

The entire organization is aware of the strategies and how to contribute to them. And they do.”

“Is that it?” Don asked.

“No, we also created a continuous improvement system as part of the strategy deployment. It’s sort of like a change machine. We have change agents who run the machine and our strategies provide it direction. The system consists of tools like value stream mapping to evaluate our business processes and help us create plans to move to the future state.”

“That makes a lot of sense,” Don said as he wrote a few more notes. “So, let me see if I got this right. The six areas of focus are creating a change environment, becoming strong leaders and managers, employing high impact improvement methods, developing change agents, strategy deployment, and the thinking foundation. Have I got that right?”

Stan sat back down with sweat running down his face. “You got it, and the first thing I’d do when you start making money is replace this chair and that air conditioner.”

Don put his pen down. “Speaking of profit, what kind of results are you seeing?”

“Well,” said Stan. “We’re about three years into this, and are really starting to build momentum. Our productivity is up over 37%, and we’ve reduced our lead times from four weeks to seven days. Our inventory turns increased from four to eleven, which has freed up over $6 million in cash. Our scrap and rework is down just shy of 63%, and our external defects dropped from 7500ppm to less than 400ppm.” Don was speechless.

Stan continued, “There’s more though. In the past, we had always thought of lean and six-sigma as cost-cutting tools. Now we understand that what we really did was create additional capacity when we eliminated wasteful activities. You see, we didn’t let people go when productivity improved; we had to find more for them to do. Fortunately, with our short lead time and improved quality, we’ve been able to take market share from our competitors.”

“So, you’ve been able to increase sales?” asked Don.

“Yes, improving performance to increase market share was part of the strategy all along, and we understood the impact this would have on our EBIT, RONA, and cash flow from the beginning. More importantly though, our on-time delivery, quality, and lead time are the best in the industry and our customers noticed that early on. So did our competitors’ customers. We’ve taken market share from our competition and we quote more work every day. This has caused us to expand our improvement initiative to product development and other office processes. The bottom line is that our customers used to complain constantly, and rightfully so.

“We’ve taken market share from our competition and we quote more work every day.”

Profit and LossNow they are delighted and are thanking us with new business. The financial impact of this has been unreal.”

“Can you share more?” asked Don.

“I need you to keep this under your hat,” Stan explained.

Don nodded in agreement.

“I’m no accounting wizard but we’ve grown our sales from $65 million to $89 million without adding labor or overhead. So we’ve added $24 million in sales with less than $10 million in additional cost. I’ve probably said too much already, but it used to be a good year if we made $6 million. Now we’re making more than three times that amount. That’s in addition to the cash we’ve made available from our inventory reduction.”

“Unbelievable,” Don said, as he stared Stan squarely in the eyes.

Stan replied, “I can see why you’d say that, but it’s not magic – it just takes the right approach and a strong commitment to change a culture.”

“Change a culture?” Don asked with a puzzled look.

“Yes, of course,” Stan added. “A big part of the approach is to change the way people think and act. That’s really what’s behind it all. People will do great things with simple tools if they are thinking right. Our goal from the beginning was to get much more than buy-in. We needed our thinking to change. In other words, our mission was to align employees’ thinking with our vision and create a shared mindset throughout the organization. When you combine the right mindset with some good tools, support, and direction – you have a train that’s hard to stop.”

Don scratched his head and responded, “I always thought mindset was something that people brought to work with them. I never thought about changing it. Can you really do this?”

Stan replied with conviction, “Yes, Don, that’s what leaders do. We know that if we use the skills that we’ve learned, we can actually influence the way people think about themselves, their co-workers, this company and their jobs. Poor performance, bad attitudes, excuses and babysitting almost disappear.”

SalesMaterials

LaborCOGS

Gross MarginSG&AEBIT

Capital @12%Tax

Net Earnings

65,000,00019,500,00026,000,00045,500,00019,500,00013,000,0006,500,0001,950,0002,275,0004,225,000

89,000,00026,700,00052,700,00065,000,00036,300,00013,000,00023,300,000

534,0008,155,00014,610,000

Year 0 Year 3

A note from Shannon Carver Managing Director, Texas Lean Partner

Thanks for reading our leadership feature, I hope you find it valuable. You probably have several questions and may be wondering how to get started. We make it easy. Call me at 817-948-4060 and I’ll explain how we help leaders like you create a go-forward plan that achieves your goals with the resources you have available. The process takes about two days on-site and there is no cost or obligation for those who qualify.

Shannon Carver

Don leaned back in his chair and folded his hands across his belly. “Stan, are you telling me that this approach helped you triple your profit and change your culture in about three years?”

Stan nodded. “Yes, we’ve accomplished a great deal but we’re not done. In fact, we are moving forward like never before. We’re still learning a lot, though. We never stop learning and the journey is just beginning. I believe the next three years will be better than the last.”

“So tell me about Shannon,” Don said with an inquisitive look. “What was his role in all of this?”

“Shannon played several roles and still does. At first he was very hands-on: facilitating our leadership team meetings, conducting training, leading kaizen events, and doing a lot of coaching. He helped us see what required attention and stepped in where needed. His presence was very strong in the first year; he was like a part-time member of our leadership team. As time went on though, he taught us to do what he was doing and we became more self-sufficient. He continuously emphasizes that this is our journey and he is there to help us succeed. Shannon is a great coach and teacher and he accelerated our journey. He keeps us moving when we have doubts, and is always at least one step ahead of us. He keeps saying you can do it – I can help. He is totally focused on our success.”

“How about you, Stan? How has all of this impacted you personally?” Don asked.

Stan looked down for a moment and responded as he resumed eye contact with Don. “I’ve been a manager for more than 22 years, but I have to admit, this is the first time I have felt like a leader. My job doesn’t feel like it used to. I’m having fun, and we are performing. I have so much energy. It’s ‘kinda’ funny though. I’ve always been in charge, but now I’m leading a team. I realize that leadership, not control, is what creates excellence. This has been a priceless journey for me so far.”

“What are your most valuable lessons over the past three years?” Don enquired.

Stan thought for a moment. “There are so many but here’s a few that come to mind.”

1. “An organization changes one person at a time. Memos and posters don’t have any real impact; it takes leaders who can impact thinking to create a change environment.”

2. “Change begins inside you and moves from the inside out. We wasted a year trying to figure out how to make change happen without changing our own thinking first.”

3. “Commitment comes from thinking; we can only get commitment if we impact thinking.”

4. “Arrogance makes change impossible; we don’t know what we don’t know.”

Don wrote quickly as Stan finished his thoughts.

“Stan, I have to admit that I was hoping to hear about a shortcut; you know, some way I could delegate this to a steering team or a champion. You didn’t do that. Thank you.”

They both stood up and Stan nodded as Don shook his hand. The hour had passed and the thermometer on the wall showed 89 degrees, but Don didn’t feel the heat. As Stan left his office, Don thought about next steps. His head was spinning and he had so many questions. He took a few minutes to review what he learned from Stan and then he wrote himself a note…

Shannon CarverManaging Director scarver@leanpartners.com817-948-40601169 N. Burleson BLVD Suite 107-229Burleson,TX 76028

The path to operational excellence is deceptively simple; establish the right direction, utilize effective tools, create the right mindsets, and you’re on your way to double digit improvement. While this may seem like common sense, it’s not common practice. What is common are managers looking for a shortcut; a way to win the prize without the journey. This approach is simply the fast track to the flavor of the month.

While there are no shortcuts to operational excellence, there is a proven approach that produces exceptional results in virtually every type and size of organization. We call this approach the Blueprint for Excellence. It has six parts:

1. Create the change environment.

2. Apply breakthrough methodologies.

3. Build a learning foundation, customer focus, and process improvement.

4. Develop master level change agents.

5. Grow star leaders and managers.

6. Create and execute winning strategies.

Leaders who effectively use this approach stand out from their peers. Knowing they need more than buy-in from employees, these star leaders create ‘want-to’ and as a result, produce double-digit improvements in productivity, quality, lead time, inventory, sales, and profit year-on-year.

While there are certainly some who have the skills and determination to lead this journey on their own, most wise leaders understand the power of teaming with a trusted partner who has walked the path before. When you choose us, you get a team of proven and experienced change leaders who are unconditionally committed to your success. This is not a transactional or contractual relationship. It’s a partnership where we bring everything we have to help you achieve everything you desire… and more. Call Shannon Carver to take the first step on the path to operational excellence.

Steve Lage President, Lean Partners

Blueprint for Excellence