Vision & Mission of Productivity

By Dr. Alin Posteucă

The real long-term competitiveness of companies is ensured by market share and acceptable profit levels to ensure business continuity and steady development.

1. Current Conditions and Challenge: a Real Competitiveness through Productivity

The main current and, above all, future challenges of ensuring the competitiveness of companies are:

  1. the uncertainty of volumes and customer demands rate;
  2. the need for a continuous growth of creativity and innovation at all the levels in the company and beyond;
  3. the increasing pressure on the normal capacity of equipment and/ or the people;
  4. the strict requirements on the quality of products and services;
  5. the need to launch new profitable products in a very short time;
  6. the need to ensure various deliveries and in a very short time;
  7. the continuous pressure to reduce unit costs.

All in all, often for many companies, the level of profit generated by sales does not meet the annual and especially multiannual target profit level, and there is a need to look for continuous solutions for cost improvement. In many cases, top management of companies has real concerns about the continuous monitoring of the market evolution for their products and services (clients, suppliers and competitors), but the real concerns for measuring, assuming and continuously improving non-productivity at each process of each family product are still a challenge. Moreover, companies sometimes seek to benefit from external productivity (acquisition of new equipment/ technologies) and less from internal productivity gained through real and continuous reduction of losses and waste from processes.

2. Our Approach: Productivity Business Model (PBM)

In order to ensure a reasonable level of long-term competitiveness, it is necessary to define and meet the level of external profit (from sales) and internal profit (from cost improvement) through maximizing outputs and through minimizing inputs. It requires the development of contextual productivity scenarios and strategies for each product family cost (PFC) to consistently transform the current business method.

These productivity scenarios and strategies need to be convergent with Corporate/Company Vision and Missions, which are often synonymous with Corporate/Company Productivity Vision and Mission and are aimed at:

  • external manufacturing profit through maximizing outputs (E) – the predominant need for productivity growth by improving effectiveness (reducing losses – not effectively used input);

  • internal manufacturing profit through minimizing inputs (I) – the predominant need for productivity increase through improving efficiency (waste reduction – excess amount of input).

In order to establish a clear direction for productivity to achieve, in particular, multiannual and annual manufacturing profit plans, top managers teams often develop their own business model aiming to achieve the required productivity, in particular to develop their own Productivity Business Model (PBM)

PBM starts from the development of the multiannual productivity vision and mission, and then sets related productivity core business goals (PCBG) and productivity strategies (PS). Based on PS, productivity policy deployment (PPD) is created, monitoring the implementation of the PS to achieve the overall management indicators (OMIs) and Key Performance Indicators (KPIs) and Cost of Losses and Waste (CLW) associated with the IMO with kaizen and kaikaku indicators (KKIs) and daily management indicators (DMIs). In order to achieve the annual and multiannual KPIs targets, through the support provided by KKIs and DMIs, an annual productivity master plan is developed and updated continuously to ensure the convergence and consistency of all productivity support activities in order to achieve productivity vision.

In fact, productivity goal basic thinking, the essence of PBM often represents the company goal-based thinking. Understanding the current situation of the need for competitiveness (including competitiveness through profit) through productivity is reflected in:

  • choosing and setting productivity improvement targets for each product family cost (PFC);

  • understanding in detail the phenomena, principles and restrictive parameters of process productivity for each product family cost (PFC);

  • establishing the goals of short- and medium- and long-term productivity of the processes and calculating the actual necessary effects (profit required for each PFC and per total company).

2.1 Productivity Vision

PBM construction starts from the company’s vision on profitability (operating profit and profit margin: net profits/ sales) and competitiveness or market share (sales volume) for the next 5-10 years or from productivity vision.

Meeting company’s productivity vision (CPV) is the main task of the Board of Directors to satisfy shareholders and to ensure acceptable existence and development of the company, it is reviewed at 3 months and three major concerns are addressed: (1) the main external and internal directions of achieving the multiannual profit; (2) manufacturing target capacity to ensure multiannual target sales volumes for each market/family of products in line with the quantitative competitiveness vision; and (3) multiannual targets profit.

The central quarterly question for the board of directors is: Where to go to make profits? To answer that question, targets are developed for the two key strategic indicators i.e. operating profit and the sales volume by developing targets for: growth rates, company value, customer satisfaction, employee moral reputation further in the market, etc.

Based on CPV are defined awareness and observance of the perennial values of productivity on: (1) respect for the environment (green company) and (2) respect for human beings and their happiness and creativity (carries responsibility and people’s morale, full understanding of current tasks and relieving these tasks through continuous improvements).

Therefore, the CPV aims both at establishing and assuming on a long-term basis (5-10 years) the volumes of sales of products and services and implicitly the external production profit through maximizing outputs (E) and the level of cost improvement and implicitly preponderant internal production profit through minimizing inputs (I).

2.2 Productivity Mission

Further on, the PBM construction continues with the second step: developing productivity mission. Based on productivity vision respectively from the sales volume and the need for manufacturing cost improvement, the company’s mission becomes a mission of productivity which focuses on ensuring production capacities to support a quality production and with acceptable costs  (both in terms of price and in terms of multiannual target profit). In this context, senior managers develop ways to ensure the production capacities to support the volume of quality sale for the next 5-10 years and directions of cost improvement for each product (if possible) for each product family cost (PFC) in part for the whole company.

Meeting company’s productivity mission (CPM) for 3-5 years associated with the CPV; is the top management task that is reviewed at 2-month intervals seeking to achieve target capacity and annual targets profit by continuously developing and monitoring profitability improvement projects (kaizen and kaikaku) through productivity improvement.

The central question of senior managers is: What is required to perform capacities vision? The answers to this question are reviewed at least once every two months, depending on the dynamics and customer demands and on the internal current capabilities.

Thus, a company may be located primarily in the following conditions:

  • Overcapacity (planned capacity utilization<practical production capacity): emphasizing the profit scenario mainly from external manufacturing profit through maximizing outputs (E) – the predominant need for productivity growth by improving effectiveness (reducing losses – not effectively used input);

  • Undercapacity (planned capacity utilization> practical production capacity): emphasizing the profit scenario mainly from internal manufacturing profit through minimizing inputs (I) – the predominant need for productivity increase through improving efficiency (waste reduction – excess amount of input).

3. Tangible and Intangible Results

The main tangible outcome of the continuous definition and implementation of the productivity vision and mission is to achieve the annual and multiannual profit target by continuously reconciling the internal and external profit margins.

In the following episodes, based on the vision and mission of productivity, we will determine: productivity core business goals, productivity strategies, Key Performance Indicators (KPIs) for Cost of Losses and Waste (CLW), Key Performance Indicators (KPIs) for Critical Cost of Losses and Waste (CCLW) and productivity master plan.

Among the intangible effects of setting up and implementing the productivity vision and mission, one can remember:

  • increasing long-term commitment and top management involvement in real growth in profitability through productivity;

  • increase the confidence and motivation of all employees in and beyond the company in the future by reducing resistance to change;

  • increasing work satisfaction by participating in the development of Kaizen and Kaikaku correct and complete improvement projects;

What Do You Think?

What elements are needed for business leaders to have a great vision and mission of productivity to support the continuous improvement culture at the shop floor level?

Dr. Alin Posteucă is a consultant in productivity and profitability, CEO of Exegens® and the author of Manufacturing Cost Policy Deployment (MCPD) and Speed-Based Target Profit (SBTP) concepts. His major research areas include manufacturing policy deployment, manufacturing cost improvement and visible profitability of operational excellence by improving productivity. His recent research includes the impact of Industry 4.0 on planning and developing synchronous profitable operations and on information systems of cost and budget in order to substantially improve the operational unit costs.

He has been actively involved in various industrial consulting and training projects for more than 20 years, delivering training/ workshop programs in Productivity, Innovation, Business Transformation and Leadership for over 5,000 participants.

He has a Ph.D. in Industrial Engineering and a Ph.D. in Managerial Accounting. He has an MBA Degree and a BA Degree in Accounting and Computer Science and he is certified Public Accountant in Romania. He has published in various research journals and presented papers at numerous conferences and congresses regarding Productivity, Profitability and Industrial Engineering.

Dr. Alin Posteucă is the author of Manufacturing Cost Policy Deployment (MCPD) and Speed-Based Target Profit (SBTP) concepts, published in four books at Productivity Press – Routledge/ CRC, New York (USA).