-- Stop the (Periodic) Madness!
Writing this in September, Ive had three different conversations on the same predictable subject -- the good old "end-of-quarter syndrome." My mind has been boggled by this strange behavior ever since my first job at a cosmetics and fragrance plant 30 years ago. It always struck me as a silly practice, as orders were being pulled forward to meet one quarter's "needs," which obviously steals from the next quarter, which requires that the cycle perpetuate itself. Given all the extra expenses, errors, and exasperation that occur due to the crunch, I often wondered what the benefit would be if management had the guts to take "a hit" in one period, thereby relieving the pressures on subsequent periods.
There's a systemic conflict happening that drives an oscillation in behaviors -- a sort of multiple personality disorder -- in many organizations. It's derived from two very necessary conditions associated with successful management. On one hand, a business needs to control costs, and at the same time, it needs to maximize throughput (both physical and financial).
Costs are usually controlled at the local, departmental level. After all, incremental costs or savings associated with producing output can be directly attributed to an activity, resource, or practice -- hence departmental budgets. But the kind of throughput that comes into play at the end of a period -- the actual delivery of output that rings a cash register can really be managed only at the plant level. The same way it takes a village to raise a child, it takes the whole system known as the plant to deliver a sale. So costs are typically managed at the local level and throughput is promised and managed at the global (plant) level.
This dichotomy drives a conflict -- there are many things that are too often done locally to "control costs" that are antithetical to things necessary to protect or maximize throughput. And vice versa. For example, extreme lean and mean staffing in the name of cost control can result in the loss of protective capacity that is necessary to keep throughput flowing. On the versa side, our topic of end-of-period crunches is a perfect example of an effort to maximize throughput that tends to drive a range of cost contributors -- overtime, excess shipping costs, crunch-induced errors and scrap, and potentially ticked off customers (which is actually a threat not to cost control, but to future throughput) -- in the wrong direction.
In TOC, we look at these conflicts as symptoms of erroneous assumptions. Translating the generic conflict described above to the more specific end-of-period issue we get:
In order to. A) maximize profits, we must B) maximize throughput, We must also C) control costs. In order to B) maximize throughput, we must D) pull orders forward into the current period. But in order to C) control costs, we must D') not pull orders forward into the current period.
Using this description of the conflict, we need to address assumptions that connect the various pairs of actions. One assumption that I like to focus on in this situation is one associated with the B-D link of this conflict...
In order to B) maximize throughput,
We must D) pull orders forward into the current period, because...
Maximizing throughput for a particular period will not put pressures on throughput in subsequent periods.
Now, questioning this assumption leads to the recommendation of taking the hit in one period to take the pressures off of the future. Both TOC and Lean recognize this mistake and instead, attempt to drive processes to produce only what is being pulled by the market. If you think about it, the conflict I describe is really a special, temporal version of local (period) versus global (continuous) thinking and management.
This suggests that when designing operating measures, trends and rolling averages might drive better behaviors than period-based budgets and targets. Do you want to protect one period's sales or do you want to protect the ongoing contribution of sales/throughput to growth of profits? If you agree that the latter is more important, then stop the periodic madness and instead, use the freed up effort and energy to create more value in the throughput that the market demands.
Think about it . . .
©2002, Frank Patrick
|The reason lightning doesn't strike twice in the same place is that the same place isn't there the second time. - Willie Tyler
This is one of a series of columns on improvement, TOC, constraint management, change management, systems thinking, uncommon sense, and whatever else comes into my mind. Suggestions for topics are welcome. - FP, 908-874-8664 or via the contact page of this site.
If you are interested in using these 1/2-page columns for your APICS, ASQ, PMI, or IIE newsletter, let me know through the same channels, and I'll send you the more easily usable MS Word versions.
-- Frank Patrick
Unconstrained Thinking Index