Does your business have a POOGI?
I’ll admit it; it sounds funny. Like a new Pokemon, perhaps, or something on an upscale sushi menu.
But it’s not an adorable animal or haute cuisine. It’s an acronym that stands for “Process Of Ongoing Improvement,” and developing one for your business is crucial to its future prosperity.
Everyone wants a POOGI, but few businesses truly develop one. Instead, we have a cycle of ups and downs, trending towards a steady status quo. That’s no way to grow.
Supply Chain Consultant Richard Cushing is an expert at helping businesses develop their own unique, customized POOGI. We asked him to explain how to devote resources to ongoing improvement, what obstacles to avoid, and how to make the changes stick.
How to Develop a Process Of Ongoing Improvement in Your Supply Chain
It’s tricky to think in terms of ongoing improvement versus simply “more revenue.” But the right mindset can help your organization head towards sustainable, continuous growth through optimization in the supply chain and beyond.
1. Set Longer-Term Goals
The goals that management sets will determine the direction of the company. That may seem like a simple concept, but it bears repeating. Goal-setting can be a major factor in developing your POOGI:
“One of the problems in many organizations and supply chains is that they are focused on achieving management-established short-term or long-term goals. Many times, these goals are very short-term, like OTIF (on-time in-full) order fulfillment, which may be measured by the day, the week, the month, or the quarter. And, when the target number is hit, everyone is happy. When the target number is not achieved, everybody says, ‘Okay. We’ll do better next time,’” Richard says. “All too frequently, no one in management of operations or the supply chain has an eye firmly fixed on the matter of ongoing improvement.”
In other words, there’s an important distinction to be made between “growth” and “ongoing improvement,” and most companies are only aiming at the former.
“You need a change in thoughtware before you make any further attempts to improve by changing your hardware or software.”
“Sure, companies want to grow. They want to sell more (read: increase revenues), they want to increase their market share, and accomplish other things. But, in the midst of all of that, even when there is an improvement in revenues or market share, it is not at all unusual for profitability to remain stagnant,” he says.
If your business is currently POOGI-less, you’re not alone.
“Look at the vast majority of Fortune 1,000 companies today,” Richard says. “Despite reporting ‘growth,’ their bottom-line results are stagnant. The numbers are better some years and falling in other years, simply oscillating, and for reasons leadership might not even be able to articulate.”
It’s not a problem that’s confined to the Fortune 1,000, either. Richard says. “The same is true of most privately held companies in almost any industry that requires a supply chain. Clearly, these firms have not found the key to creating a POOGI for themselves.”
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2. Break Free from Calcified Processes
Creating a process of improvement means walking away from processes and policies that aren’t working. That can be a major obstacle for change-averse companies. But changing the way leadership approaches the problem is crucial, for obvious reasons:
“Kickstarting a POOGI must begin with a change in thinking,” Richard says. “Because if management’s present way of thinking could produce a POOGI, then a POOGI would already be underway.”
“If any company’s bottom-line has been stagnant or oscillating for three, five, ten or even 20 years, this is a clear indicator that managers and executives do not yet have a grasp on how to create a POOGI that is effective,” he says.
Rather than taking bold steps forward, it’s easy to get hung up on incremental improvements in forecasting and efficiency. These efforts are ultimately fruitless: “Every incremental improvement in forecast accuracy ends up being offset by uncountable and unknowable changes in the marketplace, so the improvement doesn’t even move the needle on actually improving supply chain performance and profits.”
As a consultant, Richard has seen this scenario play out over and over.
“Usually we find [companies] have spent lots of additional time, energy and money trying to improve efficiencies and reduce costs,” Richard says. “Still, the effect on the bottom line is minimal. Frequently, if a company does achieve significant gains, the improvement isn’t durable; it evaporates rapidly over months or years.”
The solution? “For supply chains (and every other kind of management), the way out of this trap is to find new ways of thinking,” Richard says. “We like to say: ‘You need a change in thoughtware before you make any further attempts to improve by changing your hardware or software.’”
3. Reconfigure the Supply Chain to Build Buffers
Before you can build a process of ongoing improvement in your supply chain, Richard says, you first must accept two crucial facts:
“No. 1: Forecasts are always wrong, and the further out you attempt to forecast, or the more detailed the forecast (e.g., at the SKU level, versus product families), the less accurate the forecast will be,” Richard says. “No. 2: Variability is inevitable—both on the demand side and on the supply side. While some changes can be made to reduce variability, it is impossible to eliminate it. As a result of these factors, some things have to change related to how management handles forecasts and variability.”
With these two factors in mind, you can start to more strategically plan your supply chain execution. The first step: rethink your Material Requirements Planning (MRP). “Since traditional MRP drives execution by using forecasts directly, supply chain executives need to modernize,” Richard says. “Second, recognize that variability is a fact of life. Efforts to reduce variability are helpful and frequently worthwhile, but no supply chain will ever be free of variability.”
The solution, then, is not to seek to eliminate variability, but to plan for it: “Therefore, executives and managers must take steps to strategically position and size buffers within their supply chain to perform as ‘shock absorbers’ against the inevitable variability,” Richard says.
The key phrase in the previous sentence? It’s “strategically position.”
“Too many attempts to buffer against variability end up in putting buffers—especially stock buffers—everywhere (or, at least, in far too many places),” he says. “This merely bloats the supply chain and leads to additional problems, sometimes even reducing effective supply chain performance.”
With buffers in the right places, your organization will be better equipped to achieve POOGI in your supply chain.
“Learning the proper approach to choosing the proper (strategic) placement and sizing of buffers should actually lead to lower inventories in the supply chain while increasing the flow of relevant materials (things actually being demanded by customers),” Richard says. “This is essential for achieving a POOGI.”
Put Your Business on the Path to POOGI
If your business is stuck in a cycle of minor improvements and setbacks, it can seem daunting to achieve continual ongoing improvement. But with more more relevant goal-setting, POOGI is possible. It starts with breaking free of legacy processes and outdated tech — and with developing a mindset that embraces positive change.
