What is Operational Excellence?
Operational excellence (OpEx) is the goal of improved business performance. It usually means using lean manufacturing techniques, made popular by Toyota with its Toyota Production System (TPS). For many organizations, OpEx is the set of TPS “tools” that help eliminate waste – ‘Muda’ in Japanese terminology – and lower production time and costs.
Operational Excellence and Continuous Improvement
It is often assumed that operational excellence is equivalent to continuous improvement. Whilst the two are intrinsically linked, there is a subtle and important difference between these principles.
At Juran, we define continuous improvement as the need to continuously create ‘breakthroughs’. A breakthrough can either mean delivering high-quality products and services that generate greater revenue and customer satisfaction, or freeing an organization from failure to reduce customer dissatisfaction and non-value added waste.
Operational excellence looks beyond cost reduction and process improvements towards the achievement of long-term sustainable growth. It is a mindset that embraces certain principles and tools to create a culture of excellence within an organization. Operational excellence means every employee can see, deliver and improve the flow of value to a customer.
The Origins of Operational Excellence
In the early 1970s, Dr. Joseph M. Juran was one of the few experts at the time who was teaching Japanese business leaders how to improve quality. As more companies began to adopt the methods of Juran, W. Edwards Deming and others, Toyota’s OpEx movement grew. Today, many manufacturing companies use OpEx as its sole purpose to create lean operations.
OpEx began in the early 1980s as a United State response to the quality crisis. This “crisis” was created by Japanese organizations whose products were outperforming many US and European products, causing numerous organizations to lose market share and even go out of business.
The Core Principles of Operational Excellence
The basis of operational excellence is best articulated by the Juran and Shingo models.
The Juran Model
The core components principles of Juran’s model for operational excellence are as follows:
1. Grasp Juran’s guiding principles that lay the foundation for excellence.
2. Move your culture from thinking about quality as a product attribute (little q) to quality as a great customer experience (Big Q).
3. Understand when and how to engage leadership and the workforce to drive performance.
4. Build an effective and efficient change infrastructure using the appropriate tools and methods.
5. Drive business process effectiveness and agility.
The Shingo Model
Devised by Dr. Shigeo Shingo, the Shingo Model encompasses ten guiding principles for operational excellence:
1. Respect every individual – this applies to customers, employees, partners and suppliers. For example, involving all employees in improvement projects and coaching them on problem-solving will make them feel emotionally invested in their work.
2. Lead with humility – employees should be empowered to contribute ideas and feedback without any fear of repercussions. Leaders should be willing to seek input, listen and learn.
3. Seek perfection – perfection is an aspirational goal that is not likely to be achieved, but the pursuit of it creates a mindset and culture of both continuous and radical improvement.
4. Embrace scientific thinking – innovation and improvement are the consequence of repeated cycles of experimentation and learning.
5. Focus on process – it can be easy to blame other people for failure, but more often than not, the problem is the process. A process-led approach is key to operational excellence.
6. Assure quality at the source – perfect quality can only be achieved when every element of work is performed perfectly the first time and every time. When and if errors occur, they must be detected and corrected at the point and time of their creation.
7. Flow & pull value – value for customers is maximized when it is created in response to real demand and a continuous and uninterrupted flow. Anything that disrupts the continuous flow of value is waste.
8. Think systemically – understanding the relationship between all parts of a process will help you make better decisions and meaningful improvements. It’s important to remove any barriers that prevent the flow of ideas through an organization.
9. Create consistency of purpose – everyone in an organization should be aware of its goals and mission statement from day one, so they can align their own ideas, actions decisions accordingly. This strategic alignment is key for operational excellence.
10. Create value for the customer – value is defined as what a customer is willing to pay for. The best organizations continuously work to gain a deeper understanding of their customers’ needs and expectations, so they can keep adding value.
Operational Excellence Methodologies
Knowing the meaning and core principles of operational excellence is one thing, but the real challenge is achieving it. There are three key methodologies that an organization may adopt as means to achieving operational excellence.
The core focus of lean manufacturing is eliminating waste in a production system, thereby reducing costs. Inspired by the Toyota Production System (TPS), lean manufacturing identifies eight types of waste – or non value-added activities – that must be eliminated if an organization wishes to achieve operational excellence:
Long wait times
Variable processing methods
Too much motion
Too many defects
Unused human creativity
While lean manufacturing focuses on waste and cost reduction, Six Sigma aims to improve processes in order to create better products, services and value for customers. The two methodologies were traditionally independent of one another, but from the late 1980s they have been utilised in harmony as Lean Six Sigma, a methodology pioneered by Juran.
Founded on the universal principles of the Juran Trilogy, Lean Six Sigma provides a comprehensive set of methods and tools that help organizations reduce costs and improve quality, with the ultimate goal of continuous value creation for customers.
Lean Six Sigma improvement programs follow a methodology called DMAIC, which encompases five distinct phases:
Following DMAIC methodology enables organizations to create ‘breakthroughs’, which ultimately result in sustainable, long-term solutions to any problems identified in the production process.
Kaizen is a Japanese term that translates as “change for the better”, or “improvement” to put it simply. In a business context, kaizen is used to describe the incremental improvements that an organization makes on a daily basis to help them create a culture of continuous improvement and therefore achieve operational excellence.
Since the 1980s, kaizen has taken on a different meaning in the United States, evolving into a more structured and focused improvement activity known as a rapid improvement event (RIE). This structured approach to kaizen applies to quality, as well other parameters such as productivity, safety and cycle time. Sporadic problems are best addressed with a kaizen root cause corrective action.
A rapid improvement event typically takes between one and ten days to complete, depending on the base knowledge and training level of those involved. RIEs also require two to three weeks of intense planning prior to execution, encompassing the creation of an RIE team and charter, identification of key metrics, development of a value stream map, data collection, and waste identification.