In the previous episodes we have presented how to approach the initial conditions of the company’s external environment from the perspective of the MCPD system (respectively the Productivity Business Model (PBM) as the basis for supporting the MCPD system, sales scenarios and their impact on cost reduction needs for meeting target profit and the initial steps for cost improvement targets deployment). Now, slowly, we focus on the internal workload needed to be made for achieving and sustaining Operational Excellence by MCPD system. Specifically, it is time to answer the following question: How should we organize to have effective structures to implement a successful MCPD system in our company?
Continuous planning, maintenance and improvement of the cost policy (targets and means) deployment should be based on the recognition of the main systemic barriers that often stand in the way of harmonious transformation of a company, namely:
real managerial commitment;
resistance to change;
total and continuous involvement of all departments and beyond;
reactive managerial behaviour;
incorrect and/ or incomplete improvement projects implementation.
In this context, in order to meet the annual and multiannual targets of the general KPIs for business and those related to cost of losses and waste (CLW), there is a need to:
create an organizational structure to support the business expectations and especially those for cost improvement targets;
create an effective bottom-up communication system (to plan, maintain and continuously improve cost improvement targets) in order to respond quickly to top-down requirements (cost reduction needs imposed by current and future conditions of market and the need for profit);
establish attributions, competencies and responsibilities for each MCPD work-group and member, in a manner as independent as possible, to ensure that cost improvement targets are met and to continuously monitor their performance in line with agreed cost reduction targets.
So, the need for the MCPD system is closely related to meeting the company productivity vision and company productivity mission, and especially achieving the multiannual target profit with the help of multiannual internal profit (from cost improvement) and annual cost improvement goal.
The customer satisfaction needs are perennial: product number increase, cost reduction, quality increase and speed and agility increase. The cost reduction approach requires increased attention to all contamination related to the costs originating from the non-productivity, losses and waste at the level of manufacturing flow and beyond.
Manufacturing cost decrease can only aim the reduction in the costs behind losses and waste and not the costs perceived as having added value from the customers’ perspective, eventually by lowering the quality level. The only way to satisfy customers through the expected price level and shareholders through the expected ROI is to continually reduce the cost by increasing productivity.
The establishment and continued development of an effective and efficient organization of MCPD requires the following activities:
A. The Decision to Implement MCPD and Prediction of its Effects
The success of the MCPD system depends on the senior managers’ involvement degree, because any board of directors wants to maximize profits for their investments by minimizing inputs of resources and maximizing outputs of products and services.
Therefore, the person with the highest degree in the company should decide the company’s transformation by emphasizing the pro-cost and pro-productivity thinking. To help this decision, strategic positioning or repositioning of the company is required from the point of view of the need for strategic cost reduction.
B. The MCPD System Organization: Create Structures to Support Cost Improvement
Creating an organizational structure to support the MCPD system is necessary to exchange information on top-down and bottom-up costs with acceptable and timely accuracy to support the company’s objectives, mission and vision on a continuous basis.
So, the main purpose of the MCPD organization is to provide all the information that is needed to remove any obstacle that may stand in the way of developing the pro-cost culture and, implicitly, the pro-productivity culture. More exactly:
Commit to MCPD System
Following the decision to implement the MCPD system and setting the strategic expectations of continuous reduction of the manufacturing cost, we proceed to setting the annual cost improvement targets and means based on the annual cost improvement goals to achieve the annual target profit. For this purpose, the initial level of CLW is studied to determine the current state and to identify the necessary improvements. The organization and commitment to MCPD covers all factory departments: production, quality, maintenance, cost management, purchasing, material logistics, product development, production engineering, and human resources department. The managers and leaders of these departments are the ones who continuously support the MCPD system.
Steering Committee of MCPD
The value of a manager lies in his/ her ability to plan the actions and to perform the necessary activities to carry out these actions. In order to plan the actions for the implementation of the annual cost improvement means targets, it is necessary to identify the direction and the means to achieve the set targets. In order to plan strategic cost reduction directions, it is first necessary to establish scientifically the annual cost improvement targets for achieving the annual cost improvement goal and then to trigger the annual cost improvement means at the most appropriate times. Otherwise, the annual cost improvement triggering without planning directions leads to the failure of people’s confidence in the culture of continuous cost improvement and beyond.
Against this background, of the continued fight against the level of unit manufacturing cost, both frontal (Critical Costs of Losses and Waste or CCLW – the acute cost problems) and through “encirclement” (CLW – the chronic cost problems), a clear and identifiable direction of all the risks that may stand in the way of meeting the annual cost improvement goal is needed. For this purpose, it is necessary to designate a MCPD steering committee coordinated by a full-time task manager, which includes members at each Product Family Cost (PFC) level, as well as full-time tasks and other employees temporarily supporting certain MCPD activities and actions.
The MCPD steering committee meets daily and assesses the current status of the annual cost improvement targets and means planning for each PFC, evaluates daily cost management to identify the stage of problem solving for CLW and CCLW targets, and evaluates and re-plans the promotion of the MCPD system across the entire company. At the same time, every official or informal request from customers about the need for price reduction is captured on a daily basis (directly from customers or from the marketing department). The main goal is to capture any pressure on cost improvement as early as possible to have time to plan and meet the potential annual cost improvement targets in order to meet the annual cost improvement goal.
Forming an Implementation MCPD Teams
The creation of the implementation teams is required to carry out the annual cost improvement means targets. The cross-functional team is formed for annual cost improvement Means Deployment (kaizen and kaikaku) with the help of kaizen and kaikaku indicators. The size of a team varies between 3 and 7 members and a single leader. Each member of the team is assigned a clear role. Usually, a representative of the cost management department is part of the team to verify the accuracy of the initial CLW and/ or CCLW and to quantify the results. Each team should be as autonomous as possible and as objective as possible (based solely on actual data and facts gathered by it and managerially validated). Each team should be able to verify the performance achieved in meeting the cost improvement targets of the improvement project relative to the initial set level (knowing exactly what KPIs are targeted to be improved and the project’s cash stake – reducing / eliminating the current level of CLW and / or CCLW). All members of the cost improvement team must be able to add value during the improvement project.
The manager of the MCPD steering committee meets weekly with the leaders of the implementation teams to identify the state of progress of cost improvement projects in order to make possible any resource unblocking and to provide any additional information needed. This meeting is also typically attended by managers in the area of the improvement project. At the same time, once a month, the state of the ongoing improvement projects, the results of the completed projects, the projects that follow, possibly the delayed projects together with the causes of their delay (projects started or not) and plans for the horizontal extension of the solutions successfully implemented (using one point lesson – OPL) are displayed at the MCPD information centre.
C. Internal and External Communication of the MCPD System Purpose
This initial communication of introducing the MCPD system (kick-off) is beneficial to provide implementation teams and external partners (major customers, major suppliers, and local government officials; members of the families of employees) as much information and clarification as necessary. Therefore, this internal and external communication has the role of shifting the rows to the fight with the continuous manufacturing cost reduction in order to ensure the level of competitiveness required by price and by profit. The stake of this communication is to immediately begin implementing the MCPD master plan to expand and amplify this emotional momentum of a new beginning in the history of the company.
The constant and consistent application of the MCPD system involves the collection, monitoring and continuous interpretation of the results of the annual cost improvement and, implicitly, annual cost improvement targets and means. The types of data and information collected are for: (1) market-driven for annual cost improvement target, (2) profit-driven for cost improvement, (3) driven by annual cost improvement targets deployment and (4) driven by annual cost improvement means deployment. Continuous monitoring and improvement of the MCPD system involves the development of data collection, analysis and evaluation system at the shop floor level to support people’s interest in cost improvement. At the same time, the continuous reporting of the tangible and intangible results of the annual MCI targets and means takes place.
We remind you that, typically, CLW accounts for 30-40% (sometimes even around 50%) of the total cost of a manufacturing company and we seek to target productivity improvements as close to the ideal cost or zero cost of losses and waste (CLW) as possible for each Product Family Cost (PFC) and for all company.
Remember, the MCPD system warranty is to reduce annual manufacturing costs by minimum 6% for 5 consecutive years.
What elements are needed for business leaders to have a great MCPD system to support the MCPD Organization – Structures to Achieving and Sustaining Targets and Means of Cost Improvement Deployment?
In the following episode, we will present a topic related to the MCPD Steps to Begin, and we will present the way of organizing the Monitoring and Continuous Improvement of the MCPD System at the shop floor level to support a consistent culture of cost improvement.