Entropy Busters® Series - The Rule of 1% = 50%

Article after article has been written about the advantages of complexity reduction and what should be done. However, too often there is little focus on the root cause of entropy creeping into the enterprise. A recent Forbes article outlines the seven steps to reduce complexity. Each step mentioned addresses the symptoms of the illness and not the disease. We are not doing a good enough job of asking, "Do we really need so many exceptions?" or "That's a really stupid rule". Rather, we need to be asking, "What's driving and creating such complexity?"

The Elegance of Simplicity

Why are there stupid rules, why do we need a multimillion dollar ERP, CRM, MRP...?

Looking at Southwest Airlines; They have 706 aircraft; 98.2% of those are two Boeing models, the 737-300 and 737-800. Both aircraft only use one engine type, the CFM56. They have open seating, which does not require a complex ticketing systems. We can all agree Southwest has addressed complexity head-on.

What if I were to tell you that every business I've completed the following analysis for had this outcome?

Class % Demand % Part Numbers

"A" 80% 5-15%

"B" 15% 10-20%

"C" 4% 10-25%

"D" 1% 40-55%

MYTH, "If you focus on the 80%: the results will come". In the short-term you can make the argument that this is correct. However, in the long-term the results are not sustainable, because the last 1% is draining the teams resources. We must shift the paradigm and focus on eliminating the drivers for the last 1% or 50% of the complexity.

We allow entropy to creep into our organizations. en · tro · py /ˈentrəpē/ noun. Lack of order or predictability; gradual decline into disorder.

What would your business look like if complexity was cut in half? Would you need a complex ERP, CRM, and MRP? My premise is that the reason we need such complex processes and operations that require exception after exception and tribal knowledge is the sheer scope of our product offerings and parts required to support.

Over the past 20-30 years much has been written and accomplished in all areas of business satisfying customer expectations. We keep adding more and more offerings, functionality and larger sizes, in many cases without the processes to support such variety. Let's take a hard look at ourselves and agree there is a tipping point and exceptions to this line of thought. Again, look at Southwest Airlines and Apple. One firm is a discount air carrier and the other is high-end consumer electronics manufacturer. Both are excellent examples of operating complex equipment with a simple business design, model and product offering. Surely your business can be designed without the last 1% of demand or 50% of complexity?

Stop thinking of a process, a committee or new initiative for complexity reduction. Tell the team and customer you're eliminating the last 1% of demand.

Blow up the current model.

The latest business buzz-word is "Disruptive".

Be disruptive!

Be an Entropy Busters®!

What would this mean to your business design, organization, supply and customer base?

Rule of 1% = 50%

Incrementalism is alive and well. - Art Koch's Profit Chain™

Often, I read that incrementalism is dead.  And the way forward is innovation.  I view the debate differently.

 Within organizations there is a diverse group of people.  I see incrementalism and innovation as different tools within a tool chest.  You would never think of using a wrench in place of a screw driver.  So why would you expect to have a kaizen to address getting the last 0.1% rework out of a bottleneck process?

I believe the biggest error made when working with innovation and incremental tools, is the misalignment assigning individuals to each tool and not understanding the shortcoming of each.

  • Some individuals are slower paced, plotter and even keeled or more methodical.  However, they can still very effective and impactful.  Assign them to incremental projects.

  • Some individuals are faster paced, more extrovert, ready to make the big splash and are not too concerned with the impact of the wave on the organization.  When this energy is used correctly it is very effective and impactful. Assign them to innovation projects.

 As practitioners of change, we should understand the capabilities and imperfections of our tools set.

  • Incrementalism:

    • Capabilities:

      • You slow down to see the fine details and the subtle changes required.

      • Has significant compounding impact to change over years.

    • Imperfections:

      • Can be stick in analysis paralysis

      • Risk never get anything implemented.

      • Only see the individual tree and the forest.  Myopic vision.

  • Innovation:

    • Capabilities:

      • Quick delivery of solutions.

      • Significant and rapid gains.

    • Imperfections:

      • Sustainability and missing root cause are consistent Achilles heels.

      • Miss the nuances, root causes and smaller problems that can plague companies for years and slowly erode profits.

      • Risk leaving behind key/critical members of the team.

The Incremental and Innovation Win-Win: - Use Both Tools

  • We need everyone as part of the solution if you want to compete long team internationally.

  • Two areas generating improvements to profitability is better than one.

Incrementalism vs.innovation

Incrementalism vs.innovation

Art Koch's Profit Chain™ - Cheap is Cheap - Buyer Beware!

A couple weeks ago I posted about Cheap is Cheap - Buyer Beware!

I discussed how buying cheap lets entropy into your organizations. We are seeing this play out in real time with the Boeing 737-MAX, DO NOT let this happen to your organization! It looks as though Boeing went with a low price contractor. Here are five things that can help you to avoid this type of error.

Do you have a buyers in a purchasing department or commodity specialist in a procurement departments?

Ask these five questions.

  1. What percent of the team are professionals with education and certification supply chain or procurement management.

  2. Who does procurement report into? If it’s finance, I can guarantee they are focused on the incorrect metrics.

  3. What percent of the time do you reward contact to the lowest price bid?

  4. Do you have a supplier score card and are the rankings credible?

  5. What percent of suppliers are jointly working with procurement, supplier quality engineering and design engineering to reduce total cost?

Lastly:

  • Staff a department with unskilled workers, you create a cost center.

  • Staff a department with skilled professionals, you create a profit center.

Below is my original post from July 8, 2019.

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A quick way of adding Entropy into your organization is via purchasing.

If you’re always buying from the lowest price vendor, you’re running a purchasing department.

If you’re working to understand the TOTAL cost of ownership and rewarding suppliers that support; excellent customer service, flexibility delivery, outstanding quality and jointly deliver ongoing cost reductions, you have a world class procurement function that builds supplier partnerships.

The best way of becoming an Entropy Busters™ zealot. Never open the door and let it in…

Ask yourself and the team these three questions.

  1. What percent do we reward contact to the lowest price bid?

  2. Do we have a supplier score card and are the rankings credible?

  3. What percent of suppliers are jointly working with procurement, supplier quality engineering and design engineering?

If you don’t readily have the answers to these questions, you’re letting entropy into the process

Cheap is Cheap - Buyer Beware!

Art Koch's Profit Chain™ - Service Parts Procurement Strategy

How much data do you use to analyze demand when quoting service parts?

If you’re not using at least three years of demand to quote service parts your leaving money on the table.

How are you consolidating the spend? Are you working the rationalize your supply base? Once again, you are likely leaving money on the table. Within in the service parts sector, do your partnership suppliers a favor, consolidate the spend, this will increase their long-term volume and improve total cost of ownership.

Entropy Busters™ - Cheap is Cheap - Buyer Beware!

A quick way of adding Entropy into your organization is via purchasing.

If you’re always buying from the lowest price vendor, you’re running a purchasing department.

If you’re working to understand the TOTAL cost of ownership and rewarding suppliers that support; excellent customer service, flexibility delivery, outstanding quality and jointly deliver ongoing cost reductions, you have a world class procurement function that builds supplier partnerships.

The best way of becoming an Entropy Busters™ zealot. Never open the door and let it in…

Ask yourself and the team these three questions.

  1. What percent do we reward contact to the lowest price bid?

  2. Do we have a supplier score card and are the rankings credible?

  3. What percent of suppliers are jointly working with procurement, supplier quality engineering and design engineering?

If you don’t readily have the answers to these questions, you’re letting entropy into the process.

Remember, Cheap is Cheap - Buyer Beware!

Cheap is Cheap - Buyer Beware!

Cheap is Cheap - Buyer Beware!

Art Koch's - Unlock the Art of Change™ - We're Not Building a Rocket Ship

We’ve all been there. The dreaded mandatory problem solving session.

The facilitator say’s we going to solve XYZ opportunity. There is a “brainstorming” mind dump of the issues, an excel file with filters and pivots, and to cap the meeting off, someone has a data visualization software they are eager to use. And before you know it you’re trying to Boil the Ocean or Solve World Hunger. Everyone forgets why we’re there in the first place…

This scenario occurs too often. Why? Because we like to think are problems are unique, difficult and we’re afraid someone will ask? If it was so easy why hasn’t it been fixed?

How can you avoid these pit falls?

  • Do the brainstorming and collect data.

  • Start with a manageable subset of tasks.

  • Keep it simple.

  • Set stretch yet, achieved goals.

Build knowledge and momentum.

  • Again, keep things simple. Remember, Rockets in their basic form are extremely simple.

  • Use incremental improvements

  • To build step functional innovation.

Lastly, remember; You’re usually Not Building a Rocket Ship!

Not+Building+a+Rocketship+450.jpg

Art Koch's Profit Chain™ - The Dream Team

Currently I’m working with a client to implement the Demand Planning, Inventory Optimization and Replenishment Planning solution, SO99+ from ToolsGroup.

After several months of hard work by the core team we successfully completed a significant milestone; Conference Room Pilot-CRP. I could not be prouder of a group of people

Looking back we could have not reached this point with out team work. But what’s team work? With this team I found three key elements they managed through.

  1. They respect one another. They might not alway agree with one another. However, they listened, tired to not make each other wrong and delivered joint solutions

  2. Worked to each others strengths and weaknesses.

  3. Individual Leadership. Several individuals stepped up to lead without being asked.

This past week someone started calling them, The Dream Team.

The Dream Team

The Dream Team

When I take a look at the core team we had members from by clients IT and Supply Chain Management and the solution providers implementation and IT teams. Additionally, team members are from eight different countries and four continents. Just think about this diversity!

It didn’t start perfect and it took several months for The Dream Team to “jell”. During early meetings people sat as departments, (the silo effect), and there was almost a “us” vs. “them” atmosphere.

Challenge was to make sure all team members felt included, without making a big deal of diversity.

At the first opportunity we arranged a team building activity, group dinner and the Chicago Lockout. At dinner and walking to the Lockout Rooms, individuals stayed with their respected departments. However, once at the lockout rooms, we made certain they were split into diverse groups. Afterward, people literally were walking arm and arm in diverse group. Success, we have the making of a team!

Team Building Events held in conjunction with significant milestones.

  • Lockout Room - required team problem solving

  • Bowling Night - required laughter and encouragement

  • Dinner and open bar celebration - required to mix and just enjoy the fellow team members.

As subtle as this is, it’s about being certain the environment is safe for team members to feel included and non threatening. Once the stage is set, they will deliver unexpected positive results.

If you let them they will become; The Solution!