Proven Systems come with
New Perspectives →
New Questions →
New Choices →
These case studies about losses could have happened in many companies. Why? Because they are linked to what management teams think, accept, measure and fix… the management culture! A new kind of thinking, an expanded focus and new tactics for managing problems, projects and people helped eradicate these losses and helped each team discover other hidden losses not mentioned here.
NOTE: The amounts lost are specific to each scenario and may not reflect losses occurring in your company.
CASE STUDY #1: $17,000,000 LOST – Budgets/Recurring Problems
Meeting budget is a measure of success for all companies. When actual equals budget, the variance is zero and bonuses are often paid for meeting the plan. Management’s emphasis on meeting budget goals is one factor that shapes the management culture (i.e., the perspectives and choices of the management team). This case study shows how management’s mindset (not equipment and not the workforce) was linked to significant hidden losses that continued for years.
Several years ago I met with the management team of a large Canadian operation. The first day on site I asked questions that would tell me things about their focus, starting with their budget goals. When I asked about budgeted operating delays, I learned that management had been meeting their budget for several years. I also learned that there was a 10-minute loss that occurred multiple times per day. The loss had been budgeted for, so there was no variance that “flagged” its existence. The team told me that they were “satisfied with meeting budget”. They relied on large projects for most of their improvement, so they had STOPPED LOOKING for small opportunities to improve, assuming they were worth small dollars. This loss was valued at $17,000,000/year! They had been losing $17,000,000/year for several years and did not know it! When learning about this loss, this management team immediately starting questioning other assumptions they made that could be causing similar hidden losses. They would not go back to their old way of thinking about problems that seemed small.
CASE STUDY #2: $4,000,000 LOST – Cost Savings/Communications
Cost reduction programs are implemented with the best of intentions, but sometimes they create unintended results. Cost savings programs can change the culture of a company by driving decisions that save pennies in one area while sacrificing thousands (or millions) in another area. Savings are measured and reported, but related losses are seldom measured or acknowledged. This case study shows one example of a huge loss caused by a heavy cost savings focus.
A centralized procurement group changed to a foreign supplier of hydraulic parts to save $2,500/year. There was no communication with the end users about this change. Parts from the new supplier started failing, causing equipment damage and downtime. The site knew that this change in suppliers was causing losses, but did not know how to calculate them. Together we quantified the financial impact, which had several components. Given their margins and number of events, a conservative estimate for this loss was $4,000,000 per year for only this site (compared to $2,500 total savings reported by corporate). This loss was caused by cost savings plans with no cost/benefit attached and “silos” that prevented open communications between departments. Executives had no idea that decisions made by one department for another department could cause this kind of loss. Once the loss was known, quick action was taken to open communications between the two groups and find a new parts supplier.
CASE STUDY #3: $24,000,000 LOST – Silos/Communications
Silos are departments that work on their own… almost as if they were a separate company. Silos perform to meet their department goals without regard to the quality or quantity of products/services they provide to others. Silos do not know what other departments need or have been told to make decisions for other departments without knowing their requirements. Silos refuse to work with others to solve a problem. They decide whether to commit resources to change initiatives or comply with new ways of working together. In every case, each of these examples results in financial losses that are not measured or reported. This case study shows how a “silo” culture can cause huge losses.
A client asked me to meet with all their corporate departments to find hidden losses caused by corporate activities. Some losses were occurring between corporate and sites; others were occurring between corporate departments. All of the losses were ultimately tied to the corporate culture… how people were communicating or allowed to communicate, who was making decisions for other groups, the response to problems in other departments, etc. All of the problems we found were valued with the help and agreement of department managers. Total value of hidden losses identified in a first pass review was $24,000,000 per year, a loss that was NOT MEASURED OR REPORTED until we calculated it. This discovery shocked corporate leaders and created urgency to quickly change corporate expectations for interaction.
CASE STUDY #4: $5,000,000 and 5 MONTHS LOST – Projects/Start-Up Process
When more than one department must work together to solve a problem or tackle a project, corporate culture impacts the end result! Working relationships between departments play a huge role in the profitability of a company, but we seldom think of this as a factor in earnings shortfalls or lower than expected project ROI. What if the people involved in a problem or project knew that their choices were worth money… real money to the bottom line… maybe millions of dollars? Would it be easier for them to make a different choice? I have found that the answer to this question is always YES! This case study shows how interaction between departments can make or break a start-up process for a new operation.
A client asked me to lead a project team to create a repeatable start-up process for new operations because the process in use was disjointed and poorly designed. Departments that were the “players” in start-up participated in this effort. At the first meeting, team members said there was little hope shown of success by the team because the working relationships (the culture) between these departments were so weak… little communication and low commitment. We analyzed start-ups over the past two years and found that the average cost over-run was $5,000,000 and average time lost was 5 months. To prevent losses during future start-ups, we knew the process and the culture had to change, so we used a strategic inclusive roll-out plan to accomplish that goal. Company executives, division and site departments and outside agencies were all included in this roll-out, which changed their thinking and increased their level of commitment (a culture shift) to the process! Executives commented that they had never seen a roll-out strategy like this.
CASE STUDY #5: $3,000,000 LOST – Savings/Consumables
Problems happen more than once for one of four reasons: 1) people are afraid to tell management about them, 2) management’s response discourages future feedback, 3) there is no desire to spend money to fix problems, or 4) no one knows the loss caused by the problem. These reasons are all linked to corporate culture. Interestingly enough, when people know the loss caused by a problem, it is much easier to use that information to change the corporate culture. It is also easier to create urgency and justify spending money to fix a problem. So… knowing the loss caused by a problem is a catalyst for solving that problem and changing the culture SIMULTANEOUSLY! This case study shows how management’s view of expensive consumables with shorter than expected lives can be shifted and processes that extend consumable lives can be embraced when losses are known.
A large client was losing millions of dollars because heavy equipment tires were failing early. For years these losses had been accepted as normal or expected by management. This problem was so common that managers viewed it as a source for higher costs that had to be budgeted for, so they budgeted hundreds of thousands of extra dollars to buy even more tires to compensate for short tire lives. Each tire cost $50,000, so losing 20-50% of the projected life was a BIG DEAL and a BIG LOSS that was not being measured! The site had no effective way to track tire failures or the dollars lost. Once the dollars were known and failures were tracked in a new way, new procedures were put in place to prevent the root causes of early failures. There was NO COST to implementing these procedures which extended the lives of the tires and prevented future losses. A culture shift happened in real time as the management thinking and actions used to solve this problem were applied to solving other problems across this multi-plant site, leading to millions of dollars of additional savings in other departments.
Question for you:
How many HIDDEN LOSSES are you incurring because of the way people are thinking and working together? It’s time to find out!
SHIFT YOUR COMPANY’S PERFORMANCE into OVERDRIVE!
Talk to THE EXPERT in LOSS REDUCTION CULTURES…
OPPORTUNITY: The only element with an infinite atomic number and weight. An odorless invisible element defined as a hidden or substandard set of circumstances in business that, when not acted upon, creates invisible losses that reduce profit. These losses can be eliminated by management when linked to beliefs, behaviors and numbers that drive the corporate culture, yielding a desirable green substance found in financial institutions.