Early in my career, I was employed by a small company that wanted to grow but was not able to stabilize the company’s process; the financial results were like a yo-yo.
The owners hired a president, who was working at a major consulting firm. His five-year target was to grow the company 15% a year in both sales and profits. My job was to supply him with a monthly report on the operating results compared to the strategic plan. He took that data and maintained charts he would review with his management team. I did not know at the time that he was teaching me the value and use of the Law of Process Variation.
W. Edwards Deming, a statistician and famous management consultant who earned a doctorate from Yale University, made great use of the Law of Process Variation. Deming is credited with playing a major part in Japan’s economic regrowth after World War II and working with American companies to improve their competitive strength. The Law of Process Variation is defined as the difference between your desired results and what happens. The variations are broken into four areas with the understanding the company has a stable process in the supply chain.
Special causes — unusual happenings not part of the process. Requires special attention.
Common Causes — variations that are part of your operating process.
Tampering — When you try to improve the process and get increased variation.
Structural variation — this is basically a human error.
In practice, management and the team will focus on Common Causes and Tampering.
The keys to getting started are first and most important top management’s decision to practice the Law of Process Variation within the company. Secondly, establish the key goals to be monitored and controlled, the results must be based on facts that are believed by the team. Next, the leader must set acceptable variances above the target. It is these variances that get special attention from the team. Finally, take the fear out of the employees from using the program.
The plan worked. The company sales were $6 million when I joined and it has grown to become a major international corporation. The technique was not the cause of the wonderful growth but was a very useful tool. The five owners became very wealthy. The takeaways for me were:
The system works. If a company has developed a stable process, you can set goals and chart the variances (plus or minus) from the target line.
Communications are simplified. You are using data that is verifiable.
Your employees will focus on what caused the results over the target line and how the operating process can be “tweaked” to get results lower than set as acceptable.
The process will work in every department.
Let me share some experiences
We had a major project using .0028” thick rolled aluminum. There was a cost penalty for overrunning the forecasted material usage. The supplier reported the rolling process could only be controlled plus/minus 10% of the .0028”. The quality control team leader decided to check the thickness of each roll received and to our surprise every roll measured above .0028”. That led to a fun meeting and a renegotiated target. Easy to see and hard to defend.
In a plant turnaround program, the plant manager started weighing the material waste at each workstation. The waste was well over expected and the cause was tracked back to a press used in the process. That problem was corrected, and the plant was profitable.
Cash flow is always important. We set targets and monitored inventory turns, outstanding days in accounts receivable and accounts payable. Monthly results were annualized.
As business leaders, we all know what we watch the employees watch. In addition, we Americans are competitive and love to beat the system. Charting the variances from plan and posting the charts gives them targets to beat. Having learned and practiced the Law of Process variation has led to many great results for me. It is a great team builder. It has led to increased sales and profits in every company I worked for, including my own. Hopefully, the Law of Process Variation is working for you. If not, I recommend you give it a try.
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