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Tuesday, April 9, 2013

23A Introduction to Control and Process Improvement

The lectures up to this point deal with the management functions of staffing, motivating and communicating. These functions are the portion of effective leadership that derives from the fundamentals of Theory Z and are the people related functions. Executing these functions effectively are necessary to achieving highly motivated workers.  Now I turn to processes. Effective organizations require both highly motivated and well trained people and effective processes. Even the most highly motivated people with superior skills cannot be successful if they are encumbered with processes that produce defective products or services. In addition, even the best processes encounter problems from time to time due to changes in input materials, worker actions, business environment or machine related problems that are often subtle and hard to identify. Therefore the effective leader must have the skills needed to improve processes that produce defective outputs and the skills to fix and maintain good processes when unforeseen changes cause problems.
Processes involve the management function of control. Control is a complex management function and is specialized to the organization type. Whereas most of the fundamental principles of control are the same for different types of organization the implementation is vastly different for manufacturing, service or project organizations. Also specialization is necessary for nonprofit organizations compared to profit based organizations and within the many types of service organizations, e.g. health care vs. education.
A comprehensive treatment of the control function is beyond the scope of this course. This course treats four aspects of control that apply to all organizations. These are risk management, theory of constraints, process improvement and leading the team. Early in this course effective leadership was defined to be derived from combining the principles of Theory Z and Process Improvement. The theory of constraints can be considered part of process improvement although it was developed separately and is treated separately here. I do not know the formal history of risk management but it is certainly a critical part of the control function and a necessary skill for effective leaders so it is included here. Leading the team is of course the fundamental job of the organization’s manager and I’ll end with a brief description of a process that has proven effective for many organizations.
An important tool related to control that is essential in today’s environment is Taguchi methods for design of experiments. These are statistical methods that require a well-trained person to use effectively. Low and mid-level managers should have sufficient training to be able to identify when Taguchi methods might apply to problems in their organizations. Every enterprise should have access to a person with extensive training in these methods. It can be the same person experienced in statistics as necessary for oversight of process improvement activities discussed in later lectures. It is important to allow only well trained individuals to design and monitor Taguchi experiments. Properly used Taguchi methods save time, money and result in higher quality designs and products. However, used by inadequately trained personnel these methods can lead to costly mistakes.
I do not treat Taguchi design of experiments further in this book because of the extensive training necessary to be of value. Based on my experience with these methods I recommend that students seek training from trainers familiar with the students’ type of organization. Seeing examples of the methods use on problems familiar to students help them recognize where the methods can be useful in their organizations. Students in engineering organizations can benefit from reading Don P. Clausing’s book “Total Quality Development: A Step-By-Step Guide to World Class Concurrent Engineering” and Madhav S. Phadke’s book “Quality Engineering Using Robust Design”. Students in manufacturing, research in any science, and perhaps all students, may benefit from Genichi Taguchi and Yoshiko Yokoyama’s “Taguchi Methods: Design of Experiments”, although I have not personally read this book. I regret that I cannot recommend specific training sources for students in marketing, advertising, bio-technologies and other fields involving statistics but I suspect some research would find such sources.
In studying Taguchi’s methods do not confuse Taguchi’s strategy for quality engineering with his design of experiments methods. Only engineering managers need to be familiar with Taguchi’s strategy for quality engineering, which has the three stages of system design, parameter design and tolerance design. Taguchi’s design of experiment methods have much wider utility. Reading Wikipedia’s discussion of Taguchi methods provides students with a good starting point for more in-depth study of methods pertaining to their work.
The primary emphasis of the remainder of this course is on process improvement. Before beginning these subjects I provide some background relating to control in order to convince the student that control must be tailored to the type of organization.
Background on control
I assume that the student is part of an enterprise that has effective cost and schedule controls in place and that the student understands these methods. Presumably these are standard methods of control for manufacturing, services or projects as appropriate for the student’s organization. If these assumptions are incorrect and/or the student doesn’t know how control differs for manufacturing, services and projects then self-study is needed. I recommend Part II, Chapters 4-10 of “Production and Operations Management” by James B. Dilworth.
Unless the student is in the financial organization of the enterprise study in management accounting is recommended. Management accounting differs from the accounting used in financial departments, which is often tailored to tax laws and accounting standards. These tax and associated accounting standards are fine for their intended purpose but they do not provide a simple and clear picture of the costs of operating an organization or enterprise. This often leads to managers doing stupid and incorrect things in attempts to manipulate overheads in hopes of reducing costs. To easily understand and manage costs correctly the methods of management accounting that focus on cash inflows, cash outflows and true product costs are preferable. A book I have found helpful is “Managerial Accounting- Concepts for Planning, Control, and Decision Making” by Ray H. Garrison.
Control methods must match the organization type; applying methods appropriate to manufacturing to projects results in drastic decreases in effectiveness and vice versa. A few comments help to explain why control methods must match the organization type.
A manufacturing organization might have a split of costs of 80% material and 20 % labor whereas a project might have 80% labor and 20% material. In this example materials costs drive manufacturing costs and effective manufacturing control minimizes inventory and work in progress while maximizing through put per day or per hour. Labor cost drives overall cost in the project example and effective project control requires maintaining plenty of spare parts and even spare assemblies so that schedule delays due to lack of parts are avoided. The cost of a few extra spares is small compared to the “marching army” costs of labor idled while waiting for parts to be delivered if a part fails or is damaged. Note that both organizations are maximizing the productive work per time period but the most effective method of handling material depends on the material/labor cost split. Most service organization’s costs are almost all labor so that the details of how material costs are handled have little impact on the organization’s success. Restaurants are an exception in which the cost of food ingredients is a significant portion of overall costs and must be managed carefully to achieve business success.
Note also that research and development (R &D) is a project so control for R & D in a manufacturing organization should be different than that for production; a requirement sometimes lost on poorly trained manufacturing managers. Similarly, purchasing personnel trained for a manufacturing organization typically don’t understand control for R & D and try to impose constraints appropriate only to manufacturing, e.g. no sole source procurements.
Mangers of R&D activities in manufacturing organizations should expect problems with purchasing and stand up to purchasing people. In a manufacturing organization that I managed at one stage in my career the purchasing manager insisted that the sole source procurements the R & D people wanted were illegal until I had a government auditor personally explain to him that he was wrong.
A similar problem can happen when the quality department in a manufacturing organization is also involved in R&D or project work in the same organization. They may have rules calling for source inspection that are appropriate for production material but not for special parts needed for R&D or projects, e.g. parts that cannot be handled except in a special environment.
There are sometimes sound business reasons for combining two types of organization in the same business unit, e.g., manufacturing and projects or manufacturing and services. If one type is much larger than the other type in such combinations then the management tends to be from the larger type. Unless these managers are familiar with the different control needed for each type of organizations they can cause a lot of inefficiencies. If you find yourself managing in a mixed organization make sure you learn the proper control techniques for each.
Exercises: There are no exercises for this introductory lecture.
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