Strategic Perspective to Strategic Perspective to Fleet’s Total Cost of Fleet’s Total Cost of

OwnershipOwnership

Most Organizations Most Organizations Struggle to Stay Struggle to Stay

Competitive Competitive While a few seem to find ways to

become truly exceptional!

The DIFFERENCE?

• Becoming Principle Focused– Correct Principles!

– Traditional wisdom is frequently based on:• Incorrect or outdated principles• Only one principle at a time

Becoming PRINCIPLES Driven

ExampleExample

• If it’s not broke, don’t fix it.If it’s not broke, don’t fix it.– Traditional ‘common sense,’ that doesn’t Traditional ‘common sense,’ that doesn’t

make any sense at allmake any sense at all

Shigeo ShingoShigeo Shingo

IF IT’S NOT BROKE, BREAK ITCHALLENGING THE STATUS QUO – PRINCIPLE FOCUSED

Shigeo ShingoShigeo Shingo

Cost Management/Control

– How is it that so many organizations focused on lower costs, never achieve greatness (or real significant cost reduction, for that matter)?

Cost Management/Control

• Narrow focus?

• Wrong focus?

What is the Correct Principle?

• Accelerate the FLOW of VALUE

• And its converse – Identify and Eliminate Waste

Focus on Flow of Value

• What is value?

• What is waste?

• What is flow?

• Flowing Value – Principle based Focus!

• Identify and Eliminate Waste –– Everyone can contribute – every day

7 Wastes

1. Over-Production

2. Inventory

3. Waiting

4. Defects

5. Motion

6. Transportation

7. Over-Processing

Economies of Flow

• Reduced Lead Time– Increased reliability and predictability of results– Reduces Flow Time– Matches supply to demand and sustains pricing levels– Improves responsiveness to demand and product

changes – Reduces overall customer inventory– Reduces customer time to market (or similar)

Economies of Flow

• Cost– Quality

• Reduced costs of poor quality – inspection, rework, scrap, etc.

– Quality must improve as flow velocity increases– Less inventory makes defects more obvious

– Productivity• Decreases work time that is non-value added• Reduced overhead functions like:

– Purchasing– Planning & Control– All accounting for these

• Reduced inventory control points and complexity• Decreases needless movement of product

Economies of Flow

• Cost (cont.)– Lower capital investment

• Less space• Smaller equipment & less complexity• Lower inventory costs• Significantly improved operational equipment availability

• Increased Value– Less Feedback Delay speeds improvement rate– Closer positioning improves communication and

feedback– Complex systems improve rapidly– Clear determination of value added and non-value

added

Necessary but NOT Sufficient

• The principle - Flowing Value - is absolutely necessary

• There are other principles that are also required to achieve greatness

• The other principles magnify the impact of Flowing Value

WHAT ARE THE WHAT ARE THE PRINCIPLES OF PRINCIPLES OF OPERATIONAL OPERATIONAL EXCELLENCE?EXCELLENCE?

10 Principles• Nurture humility and respect for the individual.• All value is created through processes.• Maintain constancy of purpose. • Seek perfection.

• See complex systems holistically, dynamically, and as closed loops.• Seek to understand value from the customer’s point of view.• Value can only be created with demand.• Accelerate the flow of value.• Embrace Jidoka: Separate people from machines and  Stop and Fix

• Ingrain scientific methods throughout the organization. (Everyone is a scientist)

High Velocity Organizations

• Imbed all of the principles of ‘operational excellence’

• Recognize the interdependence of the of the principles

• Nurture a culture of total employee involvement in rapid continuous improvement

• Achieve incredible results consistently

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Product/Service DevelopmentProduct/Service Development

SupplySupply

OperationsOperations

Customer RelationsCustomer Relations

Concepts derived from Hino's book, "Inside the Mind of Toyota"

MIDDLE MANAGERS: MIDDLE MANAGERS: Develop systems in accordance with Develop systems in accordance with top management's directiontop management's direction

Internal Support Systems

Exerts leadership through principle based

paradigms and culture,

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EVERYONE:EVERYONE:

Quietly engages in worksystem improvement (kaizen)

Principles Apply Everywhere

ADDITIONAL TOPICS AS ADDITIONAL TOPICS AS TIME PERMITSTIME PERMITS

Mental Models

• Traditional Mental Models (Not based on Principles)– Standard Costing– Managers/Engineers make all improvements– Keep moving even if we are going in the

wrong direction– Empowering workers is giving up control– Cost control systems control costs

Application of the model — Application of the model — like real like real transformation transformation — is not a sequential, well-— is not a sequential, well-cadenced progression throughout a company.cadenced progression throughout a company.

II. The Shingo Prize ModelII. The Shingo Prize Model a. Levels of Transformation

LEADERSLEADERS

MANAGERSMANAGERS

EMPLOYEESEMPLOYEES TOOLSTOOLS

SSPP

SYSTEMSSYSTEMS

TTPP

PRINCIPLESPRINCIPLES

TTSS

THE PERFECT SYSTEM…THE PERFECT SYSTEM…

can not be designed into its work from the start…no brain trust could ever figure out in advance all the little things that could go wrong.

COMPLEXSYSTEMS