Working Capital Productivity, transaction costs and Demand chains

Jul 26, 2009 | Demand chains, OE, Operations

I recently wrote about the productivity of working capital, and my view that the productivity of the capital was a revised calculation that all businesses should consider.

Clearly, the best way to increase the productivity of the capital required to run the business, is to reduce the cycle time of processes in the business. Use inventory quicker, collect debts quicker, increase the throughput productivity of operational assets, reduce those activities that do not add to the customers experience.

All of those factors are internal to the business, and mostly we are pretty aware of them.

The emerging opportunity increasingly recognised by successful enterprises is the necessity to increase the collaboration between the sequential value adding points in a demand chain, by reducing the transaction costs that occur between firms in the chain. In effect, “Lean” for the supply chain, by reflecting the customers demand patterns back through the chain.

This is the core of the success of Toyota over 40 years, and as the world recession recedes, the enterprises tht emerge from the chaos will be different to those that went in, and there will be a far greater focus on transaction costs through the chain.

Conformance and change

Jun 10, 2009 | Management, OE, Operations

Most efforts to improve Operational Efficiency  (OE) have at their core the elimination of variation in a process. It starts by setting standards, measuring the variations, and then progressively eliminating the causes of the variations, until you have a repeatable process with minimum variation.

Terrific so far.

Change in an organisation, change of any sort, has at its core a dissatisfaction with the status quo, and a determination to change it, not necessarily by the CEO, or anybody with power, but by someone who is dissatisfied with the way things are.

How do these things sit together?

The value of process conformance leading to OE are undoubted, but in gaining the benefits, we eliminate, or at least minimise, the opportunity for change, which flourishes on diversity.

Change, or non conformance, brings risk and growth, high levels of conformance brings a death by boredom, but both are necessary for organisations to flourish.

This is another paradox that challenges the leadership of organisations, one not generally recognised by those who advocate “Lean” thinking, of which I am one, and its cousin “6 Sigma“, but something that leaders perhaps need to consider in the way they go about nurturing the culture of the organisations they run.