Operational Excellence Is A Competitive Necessity
EP Editorial Staff | January 12, 2016
Here’s a master plan framework for success throughout all plant areas and functions, regardless of industry sector.
By John S. Mitchell
Operational Excellence (OE) describes the ideal state of an operating enterprise. It has great cachet at the highest executive levels and is being incorporated into their working culture by organizations committed to being the very best in all business, mission, and operating activities.
Whether yours is among those high-performing enterprises dedicated to remaining great, a good performer aspiring to become great, or one of the large number that know improvements are essential for continuing success and prosperity, an effective OE program is a must. The benefits are significant.
This article highlights a number of issues related to implementation. Keep in mind that there are many more details than can be covered here.
Operational Excellence includes and touches everyone in an enterprise. Beginning with visibly committed, success-oriented executives conveying ambitious, clearly stated organizational objectives to drive the initiative, it provides coordinating linkages and a laser focus on safely increasing business value/mission compliance, and risk reduction. Implementation of OE:
- demands robust, reliable, and effective control, management, and administrative systems (compliance with ISO55000, Asset Management, is essential)
- broadens horizons, consolidates, builds on, and enhances performance and effectiveness
- requires complete, accurate, efficient, and fully coordinated practices and procedures. It is based on and demands a working culture of honesty, integrity, commitment, initiative, ownership, and responsibility throughout the enterprise.
Operational Excellence also demands constant learning from activities, ongoing training, and a commitment to continuous improvement and sustainable success, i.e., how can tomorrow be made better than today? It may include step change when there are immediate, large opportunities for improvement.
Many functions within an operating enterprise conventionally focus on status quo: When challenges arise and problems occur, efforts are directed toward restoration and correction rather than elimination and improvement. An OE culture, however, identifies and eliminates cause, improves the process, practice, procedure, system, or asset and, thereby, increases delivered value. (Challenges, problems, inefficiencies, and waste are all viewed as opportunities for improvement.)
The importance, necessity, and benefits of OE—along with organizational and individual responsibilities—must be detailed, communicated, and totally understood by everybody in a plant. Success requires ownership for excellence at all levels in the organization.
Value (and, by association, creating/increasing value that’s delivered) is the basis for Operational Excellence. Most continuous industries, and many discrete ones, operate within a reasonably predictable environment (many in commodity markets). Differentiation is achieved by mission compliance, efficient operations, and excellence in areas such as quality, response, delivery, and service support. Virtually all levers of control and improvement to efficiency/effectiveness, availability, reliability, throughput, quality, and cost control, reside at operating levels and are part of OE.
There is another important consideration: concentrating on efficiency/effectiveness and bottom-line profitability produces solid results in good and bad economic conditions. When times are good, cash flow produces resources that can be invested in strategic initiatives, including capital improvements and expansion. When times are less than optimal, efficiency and effectiveness assure profitability and survival.
Safety avoids hazards and minimizes risk. Built on thoroughly defined practices and procedures, it demands a committed working culture, constant effort, vigilance, thought, and reminders to assure all activities are performed safely. Deviations aren’t tolerated. Awareness begins at employment with extensive training. Conformance is continually reinforced with reminders. There is learning from activities and mistakes, including follow-up training, to assure everyone clearly understands and takes ownership for their role and responsibilities. Compliance is imperative and continuous improvement a necessity.
Within any operating enterprise everyone recognizes that safety is much more than a program, much more than a system in terms of the working culture and organizational and individual commitment to compliance—similar to OE. In fact, OE is very much the operating equivalent to safety.
Reliability is the third cornerstone of OE. To many in an operating environment, reliability will be thought of in terms of process and production systems and equipment. Within Operational Excellence, reliability has a much broader meaning that is applied to:
- Performance—safely meeting requirements, and seeing predictable, minimal variation from best performance. The latter point is especially important in establishing objectives and identifying opportunities.
- Organization—roles and responsibilities completely defined and understood; consistent decision process.
- Working Culture—commitment to and ownership for excellence, highest-quality performance, and continuous improvement by empowered employees who accept responsibility and accountability for results.
- Processes, Practices, and Procedures—completely defined and accurately documented; totally repeatable, high-quality, consistent results; methods for maintaining currency and implementing, and documenting improvements.
- Systems and Equipment—fully capable of meeting all operational requirements safely, cost-effectively, and with minimal variation.
- Skills—requirements and qualifications totally defined and up to date; effective training and follow-up to assure proficiency.
- Data, Information, Documentation—accurate, secure, up to date, and accessible.
Risk, the fourth OE cornerstone, is fully utilized in the value equation that directs improvement initiatives, i.e., what are the probability and consequences of a yet-to-happen event that will initiate and justify actions and investment for early detection, avoidance, reduction, and mitigation?
Probability has a second, equally important application within OE: assurance that a given improvement activity or task will achieve expected results.
Maintenance and OE
Within a typical production/operations mindset, the basic idea of maintenance has remained unchanged since the industrial revolution: The physical plant is expected to perform; maintenance occurs when it doesn’t. In this model, maintenance is considered as a service—a budgeted cost to be controlled rather than an integral part of enterprise profitability/mission value delivery. Availability is typically treated as an evenly spread annual average rather than a potentially sudden, unexpected event that can (and often does) have an impact on production delivery in the worst possible way.
The most enlightened enterprises consider maintenance an essential component of the core business value-producing process, i.e., a fully empowered, equal partner of production operations. Operational Excellence solidifies this important relationship, adds support functions, and moves the enterprise working culture into an optimally effective partnership.
Operational Excellence is the master-improvement program that provides a single integrated charter to assure improvement efforts are optimally coordinated, build upon one another, and develop maximum results. OE programs identify and prioritize improvement opportunities and convert opportunities to actionable plans. Identification, prioritization, planning, and execution
are accomplished by working-level, multi-function action teams populated by people best able to recognize opportunities and develop the most effective improvement plans.
Everyone is aware of what everyone else is doing within the overall objective of safely and sustainably increasing value. Anticipated requirements within and across functional boundaries are identified early rather than becoming late-breaking surprises. Potential contributions and conflicts become quickly visible for discussion and cooperative resolution.
All of this requires time and a major commitment by personnel across the enterprise. A work culture concentrated on safety, value, excellence, ownership, integrity, and continuous improvement is crucial.
Every enterprise embarking on OE will have a different starting point, set of conditions, and objectives, strategy, and opportunities for improvement. At a high level, the most important element is to define business/mission objectives and scope of the journey. With those points determined, instilling a culture of excellence and continuous improvement, empowering people with decision rights, and providing all necessary information are the initial steps in the process. Ensuring alignment of business/mission and program strategies across objectives, actions, and metrics are major factors.
As an enterprise-wide program that includes every function from operations to administration, Operational Excellence can seem quite complex—even overwhelming. (A summary of elements involved in successfully categorizing and addressing all aspects of an OE program is contained in the sidebar on p. 20.).
An OE steering team is central to achieving the cooperative working relationship that is essential for efficiently creating greatest value. This team is composed of senior managers. All must be committed to success with the insight and power to oversee and coordinate improvement activities.
The steering team establishes overall objectives and sets the positive, supportive example for the program. It approves improvement initiatives and monitors results for compliance with objectives. Members must act to eliminate the friction that inevitably exists at the interfaces within a functional organization. The team normally functions best when chaired by a senior operations/production superintendent/manager. (Other arrangements will work depending on the commitment and strength of the individuals involved.)
Like all complex efforts, success demands dividing desired results into manageable segments. In the case of OE, segments that will be comfortable participating in an organization typically divide on functional lines. Multi-function improvement-action teams are necessary to bring diverse functions together to identify, address, and implement opportunities for improvement.
While all functional divisions in a plant will have their own champions and improvement initiatives, it is important to stress that within OE they will operate under a unified charter and objectives—in conformance with a common administrative management-and-control system coordinated by a steering team. This is the only way to assure that activities are mutually reinforcing and gain the benefits of cross-function participation and cooperation.
It’s clear that OE requires close cooperation between operations/production and maintenance. Developing and providing accurate, timely reports of gains and losses in business value, however, calls for participation and cooperation from additional functions—primarily IT and finance. Since IT and finance have supporting roles in essentially all functional areas in a plant, they must be heavily involved in activities requiring data and information from which opportunities for improvement can be identified and value-prioritized. The same applies to engineering and human-resource functions. MT
John Mitchell has served in a variety of leadership roles during his 40+ years in the maintenance and reliability field. Founder and past president of the Machinery Information Management Open Systems Alliance (MIMOSA), Tuscaloosa, AL, he’s the author of several books and a frequent speaker on asset-management topics. This article is based on information in his book Operational Excellence (© 2015 by John Wiley & Sons Inc., Hoboken, NJ). Mitchell is a graduate of the U.S. Naval Academy. Contact him directly at email@example.com.
Quick Look: The Benefits of Operational Excellence
- Operational Excellence and a fully executed OE program are competitive essentials with multiple benefits, including:
- Improved SHE/EHS (safety, health, environment/environment, health, safety) performance
- Reduced risk
- Improved production/mission operational effectiveness
- Improved reliability
- Improved capital effectiveness
- Greater predictability—reduced variation
10 Operational Excellence Program Elements
Operational Excellence (OE) is divided into logical elements—as is the OE program itself. Each element covers an array of requirements and best practices to provide a clear understanding of what’s required to gain maximum effectiveness, value, and success. Best practices include metrics and key performance indicators (KPIs) where applicable—preferably results metrics, as contrasted to activity metrics.
Not that the elements are designed to apply across varied operating enterprises. Best practices and results, however, can and should be modified to fit the specific enterprise, operating environment, and terminology.
Properly constructed and taken together, program elements ensure nothing is overlooked. Further, they assure full visibility throughout the enterprise and greatest integration of resources, effort, and contribution to mission/business value. These elements and their corresponding best practices drive formulation, organization, and implementation of the program; are mutually reinforcing; and form the basis for the improvement-oriented working culture that’s crucial to success.
The following summary of 10 logical elements reflects a methodology for categorizing and addressing aspects of an effective OE program:
- Program Performance, Results, Effectiveness—Compilation of top-level program objectives for “world class” performance, including SHE/EHS (safety, health, environment/environment, health, safety); overall operating performance, i.e., OEE (Overall Equipment Effectiveness); and outage hours/losses. All should be demonstrated by performance to KPIs.
- Leadership, Vision, Organization, and Administration—Visible, committed, and named executive leadership. Detailed, written executive vision, necessity, and benefits of OE. Defined, effective organizational structure and decision process. Detailed program organization to include steering, leadership and improvement action teams with responsible, accountable, support, consult, inform (RASCIs) for each. Mid- and working-level managers committed to success of the Operational Excellence program.
- Program Legal, Statutory, Regulatory, and Overall Enterprise Requirements—Comprehensive, auditable listing of all governing requirements: legal, statutory, regulatory and insurance; SHE/EHS; applicable international and national standards, local regulations, inspection, test, and calibration requirements by national and local governmental bodies and insurance carriers. Quality and organizational standards such as ISO9000, ISO55000 and others referenced as applicable.
- Risk Identification, Assessment, and Control—Enterprise risk identification, analysis, and mitigation methodology to include an application procedure detailing requirements for classifying systems, assets, instrumentation, and work requirements by risk.
- Business Model—An agreed-upon methodology for calculating the value of improvements in terms of business/mission value for prioritization and determining value contribution.
- Reliability Improvement Processes—Reliability-assurance programs applied to the broad definition discussed earlier to include detailed practices and procedures:
- Design in (including conducting reliability modeling) for all new construction.
- Asset Integrity, expanded within Operational Excellence to include all requirements for assured safely meeting all operating requirements.
- Reliability-improvement programs, i.e., Reliability Centered Maintenance (RCM), Failure Modes and Effects Analysis (FMEA), and Preventive, Condition Based, and Proactive Maintenance (PM, CBM).
- Failure and Incident Analysis—Provisions for identifying deviations from expectations; a procedure for reporting and documenting incidents, failures, and near misses; and action requirements to eliminate repetition and follow up.
- Program Charter—The program plan to include business and program strategy, program objectives, and improvement plans, each to include description, value return, prioritization, detailed implementing plan, schedule, risk, and a control (sustaining) plan.
- Sustainability, Continuous Improvement—Requirements for sustaining results and assuring continuous improvement.
- Information and Data Management—Includes security, accessibility, document management and control, and management of change.
- Personnel—Working culture requirements, skills management to include skills matrix, organization improvement, and transformation.
- Periodic Assessments, Audits—Comprehensive performance assessments establish initial conditions and performance at program initiation and as part of the improvement opportunity identification process. Conducted at regular periodic intervals to validate and document performance, identify additional opportunities for improvement, and assure gains are being sustained. Applicable elements repeated as improvement programs are implemented to assess interim progress and assure that improvements meet objectives. Include periodic reviews of the program mission, strategy, and performance of individual elements to assure that there is full alignment with the business/mission vision, objectives, and strategy, and maximum program performance and value. Detailed checklists or scorecards help assure consistency in making what are often subjective judgments.