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Policy Deployment:
“Hoshin Kanri” process
Gert Haar-Jorgensen

13 April 2012
CONTENTS

 Introduction

 Hoshin Kanri

 KPI and Targetsetting

 Summary

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Gemba Kanri vs Hoshin Kanri

Problem: Gap between current target and current performance


Improvement: Lifting (and then achieving) target

New Target

Target (standard) KAIZEN

Problem
LEVEL

**

Gemba Kanri Hoshin Kanri

First achieve Target (Standard) with Gemba Kanri and then


improve Target with Hoshin Kanri

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CONTENTS

 Introduction

 Hoshin Kanri

 KPI and Targetsetting

 Summary

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Hoshin Kanri literally means “managing the direction”
(of the company)…
N
N N N

N
N
N

Marketing Purchasing
Operations R&D
N N
N

Finance
R&D Sales
Finance

Sales Operations Marketing


Purchasing

Hoshin Kanri

Hoshin = Compass Needle Kanri = Management

Ho = Direction Shin = Needle Kan = Control ri = Logic


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Hoshin Kanri’s core process cascades vision to KPIs and then
actions using rigorous PDCA feedback cycles

Adjust Plan
Vision

Check Do
Strategy
KPI – Key
Performance Indicator
Blue Sky

Objectives & Key


Performance Indicators

Business Problem
BPS – Business Solving “A3“
Problem Solving
Value-stream Analysis

Tactical Implementation
TIP – Tactical Plans
Implementation Plan
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Hoshin Kanri’s core process cascades vision to KPIs and then
actions using rigorous PDCA feedback cycles

Adjust Plan
Vision

Check Do
Strategy

Blue Sky

Objectives & Key


Performance Indicators

Business Problem
Solving “A3“

Value-stream Analysis

Tactical Implementation
Plans
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Toyota imbeds philosophy in daily activities

Toyota Motor Manufacturing North America Mission 1

1. As an American company, contribute to the economic growth


of the community and the United States.

2. As an independent company, contribute to the stability and


well-being of team members.

3. As a Toyota group company, contribute to the overall growth


of Toyota by adding value to our customers.

1 The Toyota Way, by Jeffery K. Liker, page 80.

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Blue Sky

Process: Blue Sky Workshop Result: Blue Sky

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Hoshin Kanri’s core process cascades vision to KPIs and then
actions using rigorous PDCA feedback cycles

Adjust Plan
Vision

Check Do
Strategy

Blue Sky

Objectives & Key


Performance Indicators

Business Problem
Solving “A3“

Value-stream Analysis

Tactical Implementation
Plans
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A common problem is translating the financial metrics of the
ROCE tree into Process KPIs

Executive Vision
Strategy

Division Blue Sky


KPIs
Strategy
Factory Blue Sky
KPIs
Production A3
Area / Line
Blue Sky
VSM
KPIs
TIP
A3
VSM
KPIs
TIP
A3
VSM

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TIP
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From each “Blue Sky”, KPIs define what needs to be
measured, and specific targets can be cascaded to all levels

Business
Objectives
Human Factory Targets Department* Targets
Development
Product A -10% Std. Time -8%
Quality Product A

Product A
Production

Improvement
Costs

Product B -14% Downtime -25% Area/Line Targets


Lead Time
Std. Time Part A14 -7%
Reduction Overhead -12%

Machining
Product C -15%
Cost Costs Std. Time Part A16 -9%
Reduction Std. Time -10% Line Availability +25%
Product A - 8%
Product B

Product B
Energy Costs -14%
Material
Costs

Product B -11% Downtime -15%


Std. Time Product X -7%

Assembly
Product C -12% Overhead -12%
Std. Time Product Y -14%
Costs

Sub
Std. Time -9% OEE Assembly Eqpt -15%
Product C
Product C

Transport Costs -14%


Downtime -17%
Std. Assembly Time -18%

Assembly
Final
Overhead -11% Line Availability +14%
Costs
Labor Costs -12%
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* Organised by Value stream
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Hoshin Kanri’s core process cascades vision to KPIs and then
actions using rigorous PDCA feedback cycles

Adjust Plan
Vision

Check Do
Strategy

Blue Sky

Objectives & Key


Performance Indicators

Business Problem
Solving “A3“

Value-stream Analysis

Tactical Implementation
Plans
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Business Problem Solving A3’s analyse objectives to develop
a high level action plan for each unit or area
Std. Assembly Time -18%
Assembly
Final

Line Availability +14%


Labor Costs -12%
Business Problem Solving A3
Factory Department A3 Title Sheet # Date Author Signatures

1 Wimbledon Assembly Example 5 1 28 Oct 2010 John Smith

Performance, Gaps & Targets Action Plan

Key metric and current target: Theme Activity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Dealer quote turnaround within 48 hours
Policy Clarify delegated authority limits
Should consistently be at 95% or higherr
Reason: Publish decision tree for approved
Competitor response: 100% within 48 hours, 95% within 24 hours Policy
product options
Municipal fleets bids are time critical for dealer to respond to gov’t RFP
Metric Verify current turnaround data
2 accuracy
Business Objectives and Goals Identify and address barriers to
Process
PreQuote
What? How much and by when?
Process Complete appropriate segment
Dealer Quote turnaround time Consistent 95% within 48 hours by YE 2010 (this process maps
year) Process Develop capacity plans and resource
Consistent 95% within 24 hours by YE 2011 (next allocation
year)
Process Improve ability to quickly detect
request for quote
3 Reflection People Get appropriate resources to work

Past Activities Results and Lessons Learned

• Reduced SP21 compatibility discrepancies • Saw improvement in # quotes requiring


• Short Order Board research; minimal impact on time 6 Check
• Surveyed Sterling dealers on time • Current process creates shortages and errors
expectations • 90% response; 24 hours turnaround expected War room visual display of individual TIP plans and progress; key metrics and supporting metrics
• Tried to increase applicability of standard by majority of dealers Weekly project reviews and monthly steering committee reviews initiated by Bob
mode • Fewer requests required evaluation time but Include monthly turnaround time in monthly Scorecard reviews
dealers didn’t like limits Bob send Market issues to Jane, Product Issues to Christoph
Engage in best practice review with Sales and Trucks 2

Analysis & Rationale


Unresolved Issues
7
4 Examples of tools used and information displayed here:
Value Stream Map, Swimlane map Unclear on who has authority to decide the allowed options
Graphs (eg from market studies) Resources needed for training teams on TOS tools may not be easy to schedule
SWOT Analysis IT solution on synchronization may depend on test systems vs. production systems
Rationale: How to identify and resolve contention for critical experts among competing initiatives
(Conclusions – selected countermeasures to pursue; prioritised items for action focus)
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Hoshin Kanri’s core process cascades vision to KPIs and then
actions using rigorous PDCA feedback cycles

Adjust Plan
Vision

Check Do
Strategy

Blue Sky

Objectives & Key


Performance Indicators

Business Problem
Solving “A3“

Value-stream Analysis

Tactical Implementation
Plans
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Value Stream Analysis forms the backbone for assessing the
process capability and potential

Analyse Current Design


State Future
State
Company

Factory

Loss Lever
Line / Cell

Identify Define
Quantify
Process Lean
Potential
Drivers Levers
• 5S
• Standard Work
• Line balance
• Pull
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Hoshin Kanri’s core process cascades vision to KPIs and then
actions using rigorous PDCA feedback cycles

Adjust Plan
Vision

Check Do
Strategy

Blue Sky

Objectives & Key


Performance Indicators

Business Problem
Solving “A3“

Value-stream Analysis

Tactical Implementation
Plans
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Tactical Implementation Plans (TIP)

PLANT
Use of TIPs in the project

 High level project TIP created early


in project
 High level TIP (Plant) broken down
into specific Area TIP’s
 Area TIP cascaded to and
Supervisor TIP’s
 AreaTIP’s and LPL TIP’s displayed
in the information centre
 TIPs designed to introduce tools in
a structured way after a ‘need’ has
been created
Area A
Area B
Area C
Early development,
agreement and signing of
TIP crucial to setting clear
direction

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CONTENTS

 Introduction

 Hoshin Kanri

 KPI and Targetsetting

 Summary

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A common problem is translating the financial metrics of the
ROCE tree into Process KPIs

Executive Vision
Strategy

Division Blue Sky


KPIs
Strategy
Factory Blue Sky
KPIs
Production A3
Area / Line
Blue Sky
VSM
KPIs
TIP
A3
VSM
KPIs
TIP
A3
VSM

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TIP
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Building a ROCE tree will help develop a full understanding of
company financials

ROCE TREES

Example Application
Labour
COGS
Cost of Goods Sold
Revenue Materials
• The tree creates financial
Revenue – Cost COGS linkage for production
Revenue
Operating Expenses Overhead improvements to performance
Revenue COGS
“how effectively the
company converts
of the organisation
R.O.C.E revenue into profits” Operating Cash
Depreciation
Revenue Revenues
Revenue – Cost
• It highlights which levers need
Capital Employed Accounts Receivable
Revenue per day
to pulled
Net P.P. & E.
Return On Capital Revenue Inventory
Capital turnover
Employed COGS per day • It can be used to show a
Revenue . Net Working Capital
Capital Employed Revenue per day Other net current Assets before and after effect.
Revenues
“how effectively the Other net assets
company employs its Accounts Payable
average invested capital”
Revenue
COGS per day
• It helps to prioritise
Other current Liabilities
implementation actions
Revenues

*sometimes called ROIC (Return on Invested Capital), when using a financing approach
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Actually, the problem is linking operational KPIs to
improvement levers
Financial KPI Operational KPI Lean Levers

Workplace
Revenue Organization
Manpower
Gross Labor Productivity Standardized Work
Profit (min/pc)

Line / Cell Layout


Costs

Flow and Leveling


Materials Lead time
RoCE
(hrs)
“Pull” Production

Property Root Cause


& Eqpt Problem Solving
Defects
Capital Eqpt. (dpm)
Employed Team organization

Working Statistical Process


Capital Control
OEE
Inventory (%) Quick changeover

090125_LC_PresentationTemplate_V6_DH … & many more


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KPI targets will be ineffective unless determined with an
understanding of process limits and improvement potential

Arbitrary improvement targets Specific improvement targets

20% 20% 20% 20% 40% 15% 36% 33%


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Target Setting using Half-Life

BASIC CONCEPT

KPI’s have a Half-Life typically of 1 to 2 years, hence 50% of the gap between the current situation and limit
can be closed in, on average 1-2 years.

Typically:
50% of the potential can be achieved in 1-2 years

50
40

Current Potential Achievable Limit Physical / Hard limit


eg within 3-5 years
Current performance Current - limit Only improvements with - eg 100% Value Added
imposed by short payback (3-5 years*) - no Losses / 0 Defects
continuous are taken into account
improvement No technological or
organizational breakthroughs

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First, the potential of each lever is evaluated in one of three
ways – loss, value added or benchmark

Loss Analysis
100

50

Value Added
Analysis

Benchmarking

Current Potential Limit


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CONTENTS

 Introduction

 Hoshin Kanri

 KPI and Targetsetting

 Summary

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Hoshin Kanri will allow you to set and manage the strategic
direction with aligned KPIs and SMART targets

Classic planning weaknesses Hoshin Kanri countermeasures

 Strategy = analysis  Strategy = a process of hypothesis, analysis,


feedback and adjustment

 Process:  Process
- Event-driven - Process-driven
- Single process - Iterative cycles
- Analysis / decision making focus - Consensus focus
- Interim reviews often weak, missing or punitive - Interim reviews repeat the iterative cycle

 Breadth of application  Breadth of application


- Time-horizons often unsynchronized between levels - Clear time-horizons between levels
- Limited cross-functional integration - Cross-functional workshops
- Horizontal and vertical disconnects - Extensive horizontal and vertical communications
and linked plans to align organization

 Target setting  Target setting


- Too many objectives - Objectives and priorities derived from strategy
- Unrealistic targets - Targets based on capability
- Hidden assumptions and safety buffers at each level - Assumptions clarified
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© LeanCoaching *Catch ball = exchange of information about best means to accomplish goal until consensus is reached 27
Timely, rigorous feedback cycles are hypothesis driven, using
cross-functional workshops to ensure consensus

Cross- Hypothesis-driven
functional iterations
workshops

Hoshin
Vision Kanri
Strategy

Blue Sky

KPIs
Strategy

Blue Sky

KPIs

A3
Blue Sky
VSM
KPIs
TIP
A3

VSM
Defined
KPIs
Multi-level A3
TIP
time
Cascades VSM

TIP
horizons
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