Thursday, September 21, 2006

Root Cause Analysis

I have received some questions from students about the concept of efficiency. Efficiency involves finding alternative ways to produce a good that result in using fewer resources to produce the same or greater quantity of a good without reducing quality.

A couple of days ago I attended the bi-monthly meeting of a group of local quality managers. The members of the group are quality auditors and engineers who work in manufacturing. Interestingly, I find that with my economics background I easily fit in with this group despite the fact that my career has been entirely in banking and education. This is not really surprising considering that Adam Smith, who is often referred to as the Father of Modern Economics, and was a college professor himself (his subject was moral philosophy), devoted a whole section of his book, The Wealth of Nations, to a discussion of the steps involved in the manufacture of pins. It was Smith who pointed out that by dividing the job of making a pin among a very large number of people, each specializing in one tiny part of the process, the total number of pins produced was many times greater than if each of the workers had spent their work day making complete pins.

One of the discussions at the workshop involved describing a problem solving process called Root Cause Analysis. When a production problem arises or when management feels that costs are too high or quality too low, it is important to investigate to find the real reason why the problem exists instead of blaming it on worker incompetence, laziness, etc. Ninety percent or more of the time, workers are dedicated and trying to do their jobs well. The problem is generally not the worker but it is the process or system used in production that is the source of the problem. After the facilitator gave a textbook example of root cause analysis one of the participants, who was the President and owner of a small, 25 employee, manufacturing company in Tucson, gave a real life example of the process.

This company manufactures parts which are then sold to other companies who use the parts in other products that they sell to consumers. This is much like the way Firestone Tire Co. manufactures tires which it sells to Ford and GM who, in turn, add the tires to the cars which they then sell to consumers. As part of the quality system used by both this company and the companies that it sells the parts it produces to, a work order is drawn up which describes what is to be produced and the specifications to which it is to be built. At each step of the production process the worker responsible for that part of the production is required to sign off on the work order when the worker finishes her part of the process and moves it down the line to the next worker. This provides both accountability for the work and provides a history of how it was built which can be used later to trace the source of quality problems with the product. When the product reached the end of the line and the work completed, it was sent to shipping where the part and its work order were packaged and shipped to the buyer.

The problem this company experiencing was that the completed product and work order were arriving in shipping with signatures missing from the work order. Since the process required a signature on the work order for each step of the production process, the shipping people had to constantly stop their work and run around the factory floor getting signatures on the work orders. This, of course, delayed shipping, wasted the time of the shipping people and made customers - who were waiting impatiently for their product - upset.

The problem obviously lay with the assembly line workers who were neglecting to sign the work orders. So, management took time away from their work, shut down the assembly line for a half hour or so, and lectured the workers on the need to sign the work orders. Simple solution, except that work orders continued to arrive unsigned in shipping. More time was diverted from productive work as managers called the workers together again, and again, and again..., to lecture them on the proper procedures.

The problem was not only NOT being solved, but the company was paying management to spend time lecturing workers and paying workers to listen to the lectures all the while that product was not being produced during these lecture sessions. This was not an efficient use of resources (time is a resource and, since workers and management are paid for their time, it is an expensive resource).

At this point one of the members of the management team decided to find out WHY the workers were not signing the work orders despite having been clearly and frequently told to do this and why it had to be done. So, at the next session with workers, instead of lecturing on the need to have work orders signed, the workers were asked "Why don't you sign the work orders?" And the answer was, "We do sign them when they accompany the product, but most of the time the product comes without the work order attached". The problem (root cause) was not the workers ignoring the command to sign the work order but rather the lack of a work order to sign. This was a problem with the document control process and NOT a problem with the production process. Attempts to fix the production process were futile because that was not the process that was broken. Once the document flow process was fixed things ran smoothly.

Modern American manufacturing has become obsessed with continually studying work processes and continually seeking the root cause of problems. As a result of this continual tweaking of processes and fixing of minor problems is that literally millions of hours of work time have been freed up for workers to produce what they are paid to produce rather than wasting time fixing problems and struggling with inefficient processes. Thus, while American manufacturing workers are the highest paid in the world, their superior productivity is such that when you divide the output of an American worker per hour by what they are paid per hour the labor cost per unit is among the lowest in the world.

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