Strategic Perspective to Fleet’s Total Cost of Ownership

Most Organizations Struggle to Stay Competitive While a few seem to find ways to become truly exceptional!

The DIFFERENCE? Becoming Principle Focused –Correct Principles! –Traditional wisdom is frequently based on: Incorrect or outdated principles Only one principle at a time

Becoming PRINCIPLES Driven

Example If it’s not broke, don’t fix it.If it’s not broke, don’t fix it. –Traditional ‘common sense,’ that doesn’t make any sense at all

Shigeo Shingo

IF IT ’ S NOT BROKE, BREAK IT CHALLENGING THE STATUS QUO – PRINCIPLE FOCUSED Shigeo Shingo

Cost Management/Control –How is it that so many organizations focused on lower costs, never achieve greatness (or real significant cost reduction, for that matter)?

Cost Management/Control Narrow focus? Wrong focus?

What is the Correct Principle? Accelerate the FLOW of VALUE And its converse – Identify and Eliminate Waste

Focus on Flow of Value What is value? What is waste? What is flow? Flowing Value – Principle based Focus! Identify and Eliminate Waste – –Everyone can contribute – every day

7 Wastes 1.Over-Production 2.Inventory 3.Waiting 4.Defects 5.Motion 6.Transportation 7.Over-Processing

Economies of Flow Reduced Lead Time –Increased reliability and predictability of results –Reduces Flow Time –Matches supply to demand and sustains pricing levels –Improves responsiveness to demand and product changes –Reduces overall customer inventory –Reduces customer time to market (or similar)

Economies of Flow Cost –Quality Reduced costs of poor quality – inspection, rework, scrap, etc. –Quality must improve as flow velocity increases –Less inventory makes defects more obvious –Productivity Decreases work time that is non-value added Reduced overhead functions like: –Purchasing –Planning & Control –All accounting for these Reduced inventory control points and complexity Decreases needless movement of product

Economies of Flow Cost (cont.) –Lower capital investment Less space Smaller equipment & less complexity Lower inventory costs Significantly improved operational equipment availability Increased Value –Less Feedback Delay speeds improvement rate –Closer positioning improves communication and feedback –Complex systems improve rapidly –Clear determination of value added and non-value added

Necessary but NOT Sufficient The principle - Flowing Value - is absolutely necessary There are other principles that are also required to achieve greatness The other principles magnify the impact of Flowing Value

WHAT ARE THE PRINCIPLES OF OPERATIONAL EXCELLENCE?

10 Principles Nurture humility and respect for the individual. All value is created through processes. Maintain constancy of purpose. Seek perfection. See complex systems holistically, dynamically, and as closed loops. Seek to understand value from the customer’s point of view. Value can only be created with demand. Accelerate the flow of value. Embrace Jidoka: Separate people from machines and Stop and Fix Ingrain scientific methods throughout the organization. (Everyone is a scientist)

High Velocity Organizations Imbed all of the principles of ‘operational excellence’ Recognize the interdependence of the of the principles Nurture a culture of total employee involvement in rapid continuous improvement Achieve incredible results consistently

Management Planning Quality Management Delivery Management Cost Management FinancialManagement Human Resource Management Information Management AdministrativeManagement Product/Service Development Supply Operations Customer Relations Concepts derived from Hino's book, "Inside the Mind of Toyota" MIDDLE MANAGERS: Develop systems in accordance with top management's direction Internal Support Systems Exerts leadership through principle based paradigms and culture, Business Systems EVERYONE: Quietly engages in work system improvement (kaizen) Principles Apply Everywhere

ADDITIONAL TOPICS AS TIME PERMITS

Mental Models Traditional Mental Models (Not based on Principles) –Standard Costing –Managers/Engineers make all improvements –Keep moving even if we are going in the wrong direction –Empowering workers is giving up control –Cost control systems control costs

Application of the model — like real transformation — is not a sequential, well- cadenced progression throughout a company. II. The Shingo Prize Model a. Levels of Transformation

LEADERSMANAGERSEMPLOYEES TOOLS S P SYSTEMS T P PRINCIPLES T S

THE PERFECT SYSTEM… can not be designed into its work from the start…no brain trust could ever figure out in advance all the little things that could go wrong.

COMPLEXSYSTEMS