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Akhilesh Gulati

Quality Insider

Effective Problem Solving Calls for Adaptable Detective Work

Finding the root cause vs. treating the symptom

Published: Tuesday, August 19, 2014 - 15:40

Editor’s note: This article continues the series exploring structured innovation using the TRIZ methodology, a problem solving, analysis, and forecasting tool derived from studying patterns of invention found in global patent data.

The TRIZ executive council group had taken a break during summer and were now meeting after almost three months. There were the usual exchanges about vacations and work challenges, but Joel was excited and wanted to share something he believed would be of benefit to every member of the council.

He said that his company had embarked on a lean initiative some months ago, and they had teams working on improvement projects as part of their training. One of these teams was given the task of looking at the company’s production lines. The company produced a large number of products over a relatively small number of production lines. Thus, it had to change production lines from making one product to another rather frequently. This was disruptive to the production flow and resulted in longer cycle times and higher costs. A number of orders were for low-volume products, and this meant a lot of time was consumed in equipment changeover and setup. There was actually less time spent on production, but overall costs were high.

The team’s goal was to cut production costs by reducing total setup time. Initial thoughts were to review scheduling so that products with similar setups could be batched together. So the team began to review order forecasts against production schedules. Analysis revealed that there was an opportunity for improving forecasting of future demand, which in turn would affect production scheduling and contribute to reduction in total setup time. Data collection and analysis further revealed that 20 percent of the products accounted for 80 percent of the sales. Further, most of the low-volume products were being sold at a loss.

Joel explained that although this was out of scope for the project, the team would bring it to the attention of their project champion. Presenting a Pareto chart of the least-to-most profitable products to company executives, the project champion suggested discontinuing the least profitable products. Not only did these low-volume products add significantly to production costs, they were being sold at a loss. Dropping them would reduce production costs by eliminating the associated setup times, and it would increase company profitability. However, the company’s executive team was already aware that these low-volume products were being sold at a loss; these products were purchased by some of their biggest customers, so dropping these unprofitable product lines would risk the loss of these large accounts. The lean team needed to refocus its efforts, cutting production costs through reducing total setup time, not by discontinuing production on certain products.

Joel commended his people for their commitment to his company and to their professional integrity. The project champion, he said, was not quite convinced and decided to work with his lean team to explore the issue further. He decided to dig deeper into product sales, talk to customers who bought these products, and get input from the associated salespeople. Additionally, after speaking with the financial department, he discovered that a large part of the salespeople’s compensation came from commission based on total sales; it didn’t matter whether the sales came from profitable or unprofitable products. The way the compensation structure was set up, a sale was a sale. And because it was easier to sell low-volume, low-cost products, especially when underpriced, these products received a disproportionate amount of attention from the sales group.

The problem was taking a different turn! The TRIZ councilmembers were all leaning forward, listening with interest to Joel’s story. Although there was certainly an opportunity for addressing setup time, the key driver behind high production costs and the high mix of low-volume products appeared to be the compensation structure for salespeople. One could feel Joel’s pride as he said that true to the PDCA cycle, the project champion, along with the marketing and finance VP, created a new compensation plan that would incentivize sales of products with higher profitability. A pilot was run on a limited basis to check its impact on customers and salespeople. It was a resounding success. Sales of profitable products increased, while a substantial number of the unprofitable products were not sold at all—and, to the surprise of the executive team, there was no exodus of customers. Salespeople were happy with their higher commissions, and company profitability increased. Production scheduling was not such a challenge anymore.

As he came to the end of his story, Joel also related that the lean team did find ways to reduce actual setup time, and the new compensation plan was being extended to cover all markets. However, he shared that his big lesson learned over the summer was to be careful about how a problem was defined because it could lead them in the wrong direction. Had they continued to stubbornly try to fix the setup times, they would not have achieved nearly as much as they did by keeping an open mind and willingness to change course, plan a new direction, pilot it, review results, and then work on extending the plan to the all product lines. His executive team also realized that getting to the root of an issue is often an iterative process, and that data analysis can point in the right direction. He hoped that this would be a good lesson for the TRIZ councilmembers as they worked on resolving issues, meeting customer needs, and seeking competitive advantage.

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About The Author

Akhilesh Gulati’s picture

Akhilesh Gulati

Akhilesh Gulati has 25 years of experience in operational excellence, process redesign, lean, Six Sigma, strategic planning, and TRIZ (structured innovation) training and consulting in a variety of industries. Gulati is the Principal consultant at PIVOT Management Consultants and the CEO of the analytics firm Pivot Adapt Inc. in S. California. Akhilesh holds an MS from the University of Michigan, Ann Arbor, and MBA from UCLA, is a Six Sigma Master Black Belt and a Balanced Scorecard Professional.