CI DILEMMA JANUARY 2019
Sticking to targets
Aft er a history of setting targets that are either unachievable or add very little to the wider
business, a company is keen to develop a site-wide approach to generating clear, measurable targets
I t’s that time of the year again, where
we are preparing budgets, setting
targets and expecting commitments,
all requiring some improvement on last
However, our improvement activity
itself has historically been left to chance.
Someone has a good idea, which we
implement, but then it inevitably fails to
deliver the improvement we had hoped for
and is quiety dropped. I believe that part of
the problem is that we don’t have a specifi c
improvement strategy in place; only broad
targets and measures: for example, drive
down waste by 10%.
measures; when I look at last year’s sales
target to grow volume, it is clear that
people will always strive to deliver what
they are measured on. Yet I am concerned
that the wrong targets and measures will
result in the wrong behaviours and will
ultimately turn out to be detrimental to the
business; for example, selling volume at any
cost without considering the margin.
How do I go about setting a companywide
improvement strategy that generates
clear yet achievable targets and measures
that encourage the right behaviours,
rather than just relying on chance?
CI Solution Jeremy Praud, managing director, LI Europe
You’ve struck on a really important
question, particularly for this time of year.
Leaving targets and measures to chance
and simply ‘hoping for the best’ is not a
good strategy. The greatest results happen
when a factory puts their best people on
the biggest opportunities. Identifying
those biggest opportunities goes a long
way to remove the element of chance.
Unfortunately, this is often not as
straightforward as you may hope.
How do you quantify the diff erent
opportunities? Do you use your ERP
system and start with the biggest adverse
variance? Although we might not like to
admit it, standards are usually set with a
‘fi nger in the air’ approach at the NPD
stage. Unless there was a lot of care and
research that went into setting the
standards in the fi rst place, it is risky to
take that as your improvement guide.
Even if they were set with care, the
intention was likely to ensure the right
sales price, rather than the best achievable
benchmark of operational performance.
There are three main areas of spend in
a factory: Direct Labour, Raw Materials &
Packaging, and Manufacturing Overhead.
And within that, the signifi cant elements
of Overhead are typically Maintenance,
Energy and Salaries. That means fi ve areas
of top-level opportunity. For each area,
there is a current actual spend, but it is
also possible to work out a ‘perfection
spend’. If your capacity bottleneck ran as
fast as it could, not missing a beat and
making no waste, what would it cost to
make your product? How diff erent is this
from your actual cost?
Valuing perfection spend
isn’t entirely easy. Capacity
bottlenecks can change for
diff erent SKUs, even on the
same line. Working out how
to allocate overheads fairly
at SKU level frazzles the
mind – and if there are no
safety margins to hide
behind, it becomes scary.
People worry that the perfection
spend will suddenly become the new
target, and it won’t be achievable.
The thing to remember is that
perfection isn’t possible, so put it out
there, and work together to achieve what
Your objective for the year should be
to narrow the gap between your current
performance and achievable performance,
referred to as the 12-month realisable
plan. Benchmarks against perfection are
useful for understanding the achievable
I can see the benefi t of targets and
opportunity. Internal factors such as
management bandwidth, maturity
towards improvement, manufacturing
complexity, and foundation systems
should be the deciding factors for how
much of the gap it is possible to close
in 12 months.
Benchmarks can give a good indication
of the potential for capital and
Capital spend is typically
split into compliance,
capacity, and payback.
A capital application,
whether for capability,
capacity or payback,
should identify the future
perfection cost it will enable.
So, to answer your question
about setting a realistic improvement
strategy, you should calculate your
perfection cost against Direct Labour,
Materials, Energy, Maintenance, and
Salaries, and use benchmarks to estimate
your achievable opportunity. Then set
an improvement plan based on closing
the gap appropriate to site capability
and put your best people on the biggest
opportunities. That way, success will be
set for the year ahead!
HAVE YOUR SAY: Do you agree with our expert? How do you set targets that are manageable and meaningful, and then ensure they are stuck to?
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