A March 10, 2016 article in the Wall Street Journal was headlined, Americans Rank Last in Problem-Solving With Technology. The problem is not a lack of technology. The problem is that Americans don’t consider basic skills such as math and science as necessary to their success. This problem is especially acute in operations. We have been providing solutions to this problem for over 15 years, it’s why FPI exists. Here, we provide five fundamental concepts (The “Big Five”) needed to establish successful control in operations. These are specific, practical mathematical and scientific relationships that you can test in practice. No fluff.
The problem presents itself in many forms in industry:
- Managers introduce “new” continuous improvement efforts when the laws of science have been around forever, literally.
- Workers are intimidated by learning basic math and science concepts.
- Technology is promoted as the final solution–with a good computer and good data, you don’t have to think. More data faster is better.
From the WSJ article citing the US as last in problem-solving among 18 industrialized countries, “If the problem-solving deficit is bad, the reasons for it may be worse, said Stephen Provasnik, the U.S. technical adviser for the International Assessment for Adult Competency: flagging literacy and numeracy skills, which are the fundamental tools needed to score well on the survey.” Mr. Provasnik continues, “This is the only country in the world where it’s OK to say ‘I’m not good at math.’”
If you want to be successful as an operations leader, your people must have the skills and knowledge needed to address the challenges they face. Technology companies will always sell you more technology, that’s why they exist. Your problem as a leader is that many of your key people do not understand the basic behavior of the operations they are trying to control. Technology will not do that for you. There are five fundamental concepts ALL operations executives, managers, and workers should understand to successfully control their businesses. References to Factory Physics for Managers are provided for those looking to apply the concepts in practice. (Cycle time as used here means the time from the beginning of a routing to the end of a routing. Also known as flow time or throughput time.)
- The standard model for operations1: All operations attempt to synchronize demand and transformation (supply). The fundamental elements of any operation are stocks and flows. Demand and transformation can never be perfectly synchronized because of variability–there is always variability. Variability causes buffers and there are only three buffers: inventory, capacity and time.
- Little’s Law2: WIP = (Cycle Time)(Throughput). If you don’t understand how Little’s Law governs production flows and how it is affected by variability, you could be one of the frequent Lean implementers that gets WIP really low and cycle times really short but can’t understand why on-time delivery is poor.
- The VUT equation3: CTq = VUT. Cycle Time in queue is a function of variability, utilization and process time. If you have have variability and high utilization, you will have long cycle times.
- Variance of Replenishment Time Demand4: VRTD = (Replenishment time)(Variance of Demand) + (Demand2)(Variance of Replenishment Time). This drives finished goods and raw materials inventory requirements. When VRTD increases bad things happen, customer service gets worse and inventory increases.
- Performance curves5: There are performance curves for stocks and for flows. These provide visual, quantitative evaluation for your operations and enable practical, predictive control–like having Google Maps for your operations’ performance improvement efforts.
Recently at FPI we were working with a client’s buyers, the people in the organization that directly controlled purchases of millions of dollars of raw material—controlling over 60% of the company’s inventory. When discussing some very basic inventory relationships such as:
- Reorder Point = Replenishment Time Demand + Safety Stock,
the buyers’ reaction was a mix of blank incomprehension and controlled panic. This is like having accountants put together your company’s income statement and balance sheet with no understanding of the standard double entry accounting procedure and a high level of anxiety about learning it.
Again from the WSJ article, “In the 1970s, the U.S. had the most educated workforce in the world. Since 2000, the skills and knowledge of U.S. high-school graduates have stagnated while those of other countries have increased rapidly.”
This is a problem that will not be solved by one company or an individual. The solution for all operations managers lies in understanding and teaching basic operations science—the powerful, practical relationships between inventory, response time, capacity and variability. Education on the concepts and implementation in practice are not difficult. Don’t fall behind the rest of the world. – ESP
1 Pound, Bell, and Spearman, Factory Physics for Managers, (New York: McGraw-Hill, 2014), 37-53.
2 Ibid. 82-83.
5Ibid. 80-92 and 98-100.