Jumpstarting Process Improvement in Your Organization: The Top 10 Essentials (Part 5 of 10)

Essential #5: Dedicated process improvement specialist(s).  I touched on this in the previous post.  It is very difficult for anyone to do process improvement in addition to his or her primary job.  There are several reasons for this.

  1. A process improvement skill set is quite different from a line management skill set. Just because a person is good at their job does not necessarily make then uniquely qualified to do the in-depth analysis that process improvement requires.  Conversely, process improvement skills are not necessarily optimal for managing day-to-day activities.  Neither is more or less desirable – just different.
  2. “Highest and best use.” Piggy-backing off the thought above, each employee has a skill set.  Whether or not that skill set is useful to your business is up to you to determine.  So, in deciding how to best leverage an employee’s skill set, jobs must be divided up in a way that maximizes an employee’s talents.  Process improvement is such a broad term, directing an employee’s time to one specific area of need may be beneficial.  After 2 or 3 years when the gains have been realized in that area, it may be time to shuffle the deck and dedicate another person to work on process improvements in another area.
  3. Time to think.  A large part of process improvement is introspective.  Resource utilization, the flow of materials, or policy and procedure development are not split-second realizations.  Discovery and innovation require asking many questions, process mapping, data collection, and analysis.  Trying to fit this type of work in between operational tasks is difficult at best and self-defeating at worst.
  4. Conflict of interest.  As a line manager, I was once asked to spearhead process improvement efforts in my large and fast-paced environment.  I agreed, of course.  I soon realized that my what I needed to accomplish long-term (process improvement) conflicted with what I needed to do that day (hit my quota).  Structurally, I was in a position to do neither job particularly well.  As an organization, we worked through it, but the answer ended up requiring dedicated resources to work the process improvement effort and others to meet our daily requirements.

The Juran Institute estimates that between 10 and 40% of total costs are due to inefficient or ineffective processes depending on the level of continuous improvement maturity in the organization.  As a rule of thumb, an experienced process improvement specialist can return 15-20 times his or her salary in improvements.  A less experienced professional should be able to double or triple his or her salary.  If we can make some estimate of the waste percentage and the experience level of the specialist we need, we should be able to do a back-of-the-napkin calculation of the investment required to jump start the process improvement effort as shown below:

Sample Calculation

Sales

$1,200,000

% of Waste estimate

x

18%

Opportunity

$216,000

Savings to Salary multiple

÷

3

Salary Budget

$72,000

This small business could realistically hire a full-time person to work on process improvement activities provided the specialist could deliver a 3 times salary return.  As you already had guessed, this calculation assumes quite a bit.  However, this is a risk-reward decision for the business to make.

Advertisements
Leave a comment

4 Comments

  1. Dean Major

     /  August 10, 2011

    The specialist should also work to a plan based upon data. What items need improvement, are costing the organization the most in problems/dollars, and can we apply the resources of the specialist in a logical manner with the improvement task supported by an improved change in the process problem or cost (to support the theory that the specialist can save three times their own cost to the system). A systematic plan based upon historical data should drive the direction of the improvement projects and the specialists.

    Reply
  2. Neil

     /  August 11, 2011

    I agree with the broad calculation but wouldn’t you want to use Org costs rather than sales as the starting point? I.E.
    Sales = 1.2M
    Margin = .2M
    Mat’l Costs =.8M
    Org Costs =.2M
    So a specialist could effect the Org waste of 18% of .2M = 36K/3 =12K
    Granted the carryover value may be realized in increased sales/ decreased Mat’l costs but the primary target of wast reduction is the org costs themselves..
    Just a thought..

    Reply
    • Absolutely you could and should in organizations where corporate allocations are so high. But, for a small or mid-sized company trying to figure out if it’s worthwhile to hire a BB, material waste, labor waste, and overhead should all be considered for optimization. Since margins are so slim these days, there’s probably not much difference between sales and costs.

      Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: