Why targeting your production output at planning standards results in underperformance?

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Vincent Gerdes Published at

When increasing production capacity without investment, one of our important challenges is to deeply understand the use, or not, of production standards at our clients.

Often, I receive the standards that the planning department uses to create a realistic work order plan to deliver the sales orders. Production itself usually targets to deliver this plan, which is a good thing!

However, to deliver this plan, production should aim to run their processes at higher standards. If not, every hiccup will immediately result in not meeting the plan, and will potentially lead to late deliveries to your customers

Here is why. Planning standards are usually an average of actual, and ideally recent, historical performance over a certain mix of product. There are good reasons for this: Planning outputs are used in the supply chain for ordering raw materials, scheduling labour and equipment, and for creating a delivery promise to customers.  You want this to be as realistic as possible!

The best predictor for an uncertain future is the data-based result of your recent past. Similarly, as the future precise product mix is unknown, we tend to use an average of the historical mix as our indicator.

Side-note:  Trusting the human mind for such predictors is misleading due to their tendency to be too optimistic (or occasionally too pessimistic), creating a guestimate of what they want the predictor to be, rather than what it really is.

Planning standards are not targets, but indicators for performance.

Why do we run into underperformance if we use planning standards as our production targets? This stems from basic human behaviour.  If we run an easy product and we see that we will overshoot the target for that day, the natural tendency is to take it easy; not pushing it to the limit. By doing so we can undershoot the actual realistic target for this easy product. If, however, we run a difficult product, we will quickly see that the target might not be attainable and can even stop trying to achieve it.  The excuse for not meeting the target is focussed on the product that was manufactured, which masks all the other (real) reasons why we missed the target.

Another reason is that if we do have a hiccup in our performance, we often claim that we still have the capability to “catch up later”, right up until the last moment when in reality, it is too late.  This human tendency of being too optimistic is good to keep us going, but bad to deliver on time.

Things may even get worse once Planning needs to update their standards to align with the latest actual performance, because the standards can go down! If these become the new targets for production, we are in a Continuous Deterioration cycle!

Therefore, an operational standard needs to match its purpose and these are different for production, scheduling, and planning. At R&G we know how to develop and apply such standards to ensure you get into Continuous Improvement modus and boost your delivery-to-promise performance. We are cognisant of the pitfalls of using averages. We have the experience, tools, and methodologies to handle granular and specific data, which enables us to pull valuable insights from this information-rich (big) data.

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