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The case for (and against) predictive analytics

November 14, 2014
tags:
telescope

It’s been a busy couple of months, and I’ve been learning quite a bit about business intelligence, big data and the opportunities and challenges in this space.

One area that has been a frequent topic is predictive analytics. As a lean guy, anything that promises improved business results by predicting the future immediately makes me suspect. I’ve been indoctrinated by the Lean philosophy to depend less on forecasts and more on the ability to observe and react to current demand and disruptions in a process.

That being said, I really depend on weather forecasts to get my kids dressed in the morning, so maybe I need to keep an open mind.

Predictive analytics is the next evolution in a long history of forecasting solutions that technology providers offer. For example, Kronos provides a labor forecast for retailers to help them in creating a labor schedule for the next week. This can be really helpful in supporting store managers in that it is really difficult to aggregate all the different patterns and unique events that are significant in scheduling a store. For example, day of the week is a fairly repeatable pattern and can be predicted fairly easily. Black Friday is also consistent. So rather than force the store manager to figure it out on her own, why not automate that in a forecast.

But ask a store manage if they completely rely on that forecast (or any other vendors forecast for that matter) and they will tell you that they use it for guidance. The reason for this is that there are many factors that affect a local store that aren’t used as drivers in creating the forecast. For example, if there is construction in the area that makes it more difficult for customers to get to the store or if a product is out of stock that week, the local manager will know that sales will not meet the forecast. This is why it’s so important to have someone knowledgeable about the local practice with the ability to react quickly to changing conditions.

Predicting levels of absence at a store or plant level is significantly easier that predicting individual absence. Make sure you understand the probability of success in a prediction. If you are providing guidance at the individual level, and the probability of a correct prediction is 60% then that means you are wrong 40% of the time. What actions are you asking managers to take based on this prediction and what’s the impact financially and in terms of system trust if it’s wrong?

A slight improvement over the status quo is good enough if a manager is already making the same decision frequently at an individual level. Hiring guidance for a similar job that has high turnover is a great example of an area where this works. Infrequent decisions are or if you are asking someone to take an action based on a predictive result is a different story. If it’s only a couple of percent better than the current method, internal customers are going to not understand the nuance of improvement and the project will be difficult to sustain.

When someone is having difficulty at home, it is likely their work will suffer. How is this behavior measured? While there are some outcomes that are measured like increases in absenteeism, these can also be attributed to difficulty with a supervisor or co-worker or a health issue.

Behavior is an area where correlation and causation can easily be confused. While we sense through data that something is wrong, it’s still going to take personal discussion to find out what the cause is. If you try and let software predict what the cause is and the manager takes a wrong action, it won’t be too long before the software isn’t trusted.

It’s very tempting to look for patterns in the data we already have. And no doubt there is lots of value hidden away in there that we have yet to mine. But we need to be careful to not try and solve every problem we have with existing data. In many cases, new data will be required to capture the true drivers of an event or behavior. This is a much more difficult endeavor.

So is there a future for predictive analytics? Absolutely. We just need to treat it like any other tool in our bag and not go around thinking that every employee problem we face is now a nail for predictive analytics to hammer.

Where are areas where predictive analytics excels?

Are there significant consequences for missing something?

Safety is something that comes to mind. If we can improve our ability to predict an increase in safety risk by even a few percent, the savings can be significant both in life, limb and dollars. This is a great area for exploring. Part of the solution needs to include understanding the drivers required to reduce the risk once an increase is predicted.

Will improvements in processing power or improved algorithms provide better insight than before?

This is the case for weather prediction. The data and algorithms were overwhelming the processing capabilities. As capacity to process improved, outcomes improved. This is also the case for customer behavior analysis. With lots of new data and increased granularity lower costs for processing have changed the game. Do you see similar opportunities with respect to labor analytics in your company? This could be a rich area to explore.

Predictive analytics is an interesting area, but let’s balance these efforts with the basics of making information more available and easier to use. Only then will we truly empower our employees’ decision making capabilities.

Optimized Labor Scheduling for Quality Control Labs

June 23, 2014

Brazil is no doubt the best place to enjoy the World Cup this year, but Belgium is definitely celebrating the event with colors, team gear and soccer centric activity everywhere. I had the opportunity to be in Antwerp the night Belgium beat Algeria last week and spirits were running high.

World Cup Enthusiasts in Antwerp

But of course that was not the main reason for my visit last week. Among other things I was there to spend time with a very smart group of folks at BlueGrass Consulting. BlueGrass has a strong legacy in supply chain consulting focused often on inventory, processes and logistics. Over the last couple of years, it has recognized the opportunities for improving the effectiveness of the workforce. I haven’t seen the BlueGrass team in almost a year and they were excited to share with me their work on process improvement within the Quality Control labs at several pharmaceutical companies. These labs face a couple of workforce related challenges. First is that they have several streams of work that flow through their labs. Checking the quality of products throughout the production process, mixing reagents in order to support the testing procedures and running experiments on new products are some of the major ones. Some of these streams are dependent on each other. For example, running more production tests requires more reagents. The second challenge is that they can’t predict with certainty when work will come into the lab. They can generally narrow it down to a thirty day window, but for many types of work that’s about as precise as they can get. Also challenging is that there are certain competencies required to perform certain tasks. So if a critical person is missing or already busy, production is delayed. Additionally, competencies of the employees are constantly changing as people leave the organization and as others complete training.

There are some opportunities to improve throughput as well; Often the same kind of testing will come through in multiples during the same time period. When this happens, the work can be grouped, reducing the number of set-ups required.

The flow of work can be predicted from demand drivers such as the production schedule created in ERP, which has a rough cut version planned out over the next year.

Through their software application BINOCS (Binoculars) BlueGrass has linked the production schedule to the employee schedule and through a heuristic process, optimized the employee schedule around production. This schedule ensures that the work can be processed without delay. As the production schedule is refined, the application can be re-run to ensure the appropriate people with the right skills continue to be available.

Geert VanHove, a principal at BlueGrass, was understandably very happy during my visit when he received the first employee schedule that their customer had created on their own through BINOCS.

Branded pharmaceutical manufacturers continue to become more demand driven and shrink finish good inventories. The ability to remove one more potential production bottleneck without creating excess capacity is obviously extremely valuable. Goooal!

 

India poised for a new age

June 3, 2014

I just returned from Kronos’ first customer conference in Mumbai. It’s an exciting time for the Kronos India team as they now have over 100 customers locally.

During the week Narendra Modi took office as the new Prime Minister. The media and citizens have an optimistic vibe. Modi’s messages include increased transparency, eliminating nepotism and other forms of corruption and improved economic conditions. He has a history of welcoming foreign investment and a take charge attitude. Already there are examples of families of government officials who are now rejecting long time government perks saying to the media that they want to be treated the same as everyone else people. Indians are ready and hopeful for some good news.

Indian RetailA traditional and common view of retail in India

I’ve been visiting India for the last seven years. Over that time, economically, there have been significant ups and downs. For many of the companies I’ve been visiting there has been tremendous progress in terms of how they operate including managing their workforce. For retailers, there is an increasing appreciation for larger chain stores as compared to the small stalls that line the streets each specializing in just a handful of products. While retail chains and larger grocers are still in the minority they are leaping forward in their thinking. Last week I spoke with the Head of Operations, Hemant, for a retailer of electronic and electrical consumer products that has over 100 locations across India. It has just completed the transformation from a push to a pull strategy with respect to moving their inventory from DC’s to the store. As a result of this strategy they are experiencing increases in revenue as stock-outs are reduced. Margins are improving due to the reduction of discounts of excess inventory. The return trips of unsold inventory to the DC has more than paid for the incremental expense of smaller, more frequent shipments. Hemant is now moving his sights onto the workforce. He recognizes that pursuing a low-cost labor strategy won’t work. “How do we differentiate our stores when our competitors have the same products with the same types of employees? We need to pay more for highly skilled employees to guide our customers to the product that is right for them.” To pay for this increase in skill, Hemant is looking to make sure the staff is scheduled when the customers are there. This is more difficult than for most retailers in the U.S. as its employees are all full-time. Increased utilization isn’t even the main priority. Hemant continues…”During slow periods when employees have completed some training and refreshed inventory and still have time on their hands they become bored and sluggish. It’s tough for them to get their energy back when customers begin entering the store again. It’s important to make sure they stay busy and energized throughout the day.”

retail storeModern retail chain in India

I visited with a number of manufacturers and there is a widening gap in their approach to labor. The head of HR at one large exporter of textiles felt very strongly that there is no place for technology in managing people. Their supervisors manage the 17,000 people at one plant just fine according to this executive. If there is a problem, adding a couple of extra people is no issue because their wages are low. He did however acknowledge a machine utilization problem. This is being addressed by adding sensors to the machine to let management know when it the machine goes down. I’m looking forward to visiting him in the future to see if his perspective changes.

Diametrically opposed to that perspective is a manufacturer of cellular phones who uses technology to analyze the behaviors of supervisors to understand if they are favoring one gender over the other in scheduling overtime or if they are showing favoritism in granting leave requests. This company has also identified 250 out of 20,000 employees who are critical to keeping the lines moving and know instantly if they are late for work so management can begin reacting right away.

There is no shortage of talent in India, let’s hope Prime Minister Modi is successful in his efforts so that India’s talent can be converted to economic success.

Government employees are making good labor decisions, they just don’t see the whole picture

April 24, 2014

I was pleasantly surprised during my time at the Governing Leadership conference in Maryland held last week.

First was the energy and diligence expended by the elected and appointed officials in attendance to continue to work through the challenges they face. It was a refreshing change from the articles frequently found in the media about less than stellar government performance.

Secondly, I was impressed by the prevalence of Lean methodology in place within different areas of government. As I told the attendees during my panel discussion on performance budgeting; the good news is that organizations in the private sector have been through this transformation and survived. Examples of how to use Lean are readily available, it continues to get easier to implement Lean as the number of successes grow and are publicized.

What struck me during the day was the complexity of planning and operations. While there are several examples, the one that hit home for me was the impact many small decisions  have on a government’s finances. For example, a simple choice between who works an overtime shift and who doesn’t can have a decades long financial implication that far outweighs any wage difference or even premium pay difference. But this cost implication is hidden from the decision makers and is often never connected.

It becomes easy to see how governments can get a poor reputation for managing its finances over the years because of what in hindsight look like obviously poor financial decisions.

When labor makes up to 90% of a municipal government’s labor budget (their stat not mine). It would seem like there would be more visibility and control over the decision-making process. The challenge for governments is that an hour worked today is impacted by benefit rules that take into account many years previously worked and then generates many years of commitment ahead. The supervisor making the daily decision has no visibility to this and therefore cannot take it into account.

If we could provide the information that shows the real cost of an hour of labor, supervisors would be enabled to make better decisions and I would bet that government would see immediate benefits from improved use of tax dollars without having to resort to tax increases or layoffs.

Consider these easily measurable areas of influence on the cost of an incremental hour :

  1. First is the cost of the wage paid. This is the easiest to measure and is often what is used in labor reporting and decision-making.
  2. Will this have an impact on benefit costs? (If the employee is classified as part-time, will they now be eligible for benefits under the Affordable Care Act? Do they generate any additional vacation, comp time or paid sick/personal time?)
  3. Are they now eligible for overtime? It could be 1.5 or higher based on negotiated contracts
  4. Will this hour impact their pension? Depending on pension rules, this incremental hour of work could increase their pension. Depending on the contract, it’s not just the last couple of years of a person’s wages that are used, but, for example, the highest average pay during a continuous 60 month span, whenever that occurs in a person’s career. This incremental hour of time could have an impact on government cost that lasts for 20 or more years!
  5. Is this work occurring due to a State or Federal grant? Has the amount from the grant already been used up? If so the department is now responsible for paying the overage must now find those funds from another area of the budget.

 

Every day the result of these calculations change for each individual, they can even change from one hour to the next!

It’s no wonder that supervisors can unwittingly rack up expensive labor bills at the end of the week when they are doing their best to apply resources to the work at hand. Even worse the may never realize what they have done because some of these costs never show up in their daily or monthly cost reports.

What’s the answer? This same problem is faced by supply chain managers all over the world. The cost of a good is impacted by many different factors during its life from raw material to delivered good. Rather than looking at the cost to manufacture the good (Raw Material + Production Labor + overhead) which often produces an incorrect cost, manufacturers look at the large drivers of cost across the entire supply chain and calculate a “Cost to Serve”. The cost to serve is a very useful calculation when making decisions (e.g. We could get cheaper labor in Vietnam but the lead time, shipping and warehousing costs go up too much.)

This same principle can be applied to an hour of labor. With benefit costs and regulatory compliance becoming a significant part of total wages, it’s time to provide the total labor cost to supervisors so that they can make better decisions about how they use labor or who is assigned the next shift.

The best part of this opportunity is that unlike manufacturing Cost to Serve where data collection costs are high but calculation requirements are low, the total cost of the next hour of government labor is already available, it’s a matter of aggregating that cost into a one simple dollar figure on a daily basis so that a supervisor understands the impact their decisions are having on their organization.

If your organization is having trouble containing its labor costs then it’s time to understand what the next hour of labor is really costing your organization. You have the data, you have the rules, it simply a matter of sharing them with the people who are deciding how much to spend in the next hour.

Is it worth the effort? Considering the 2103 PEW Trusts report found that 39 of 40 of the cities it analyzed do not have fully funded pensions and the amounts are measured in 10′s of millions and even billions, I would say this is an area worth looking into.

pensiongap

Adding more labor can be beneficial to your bottom line

January 20, 2014

It’s been about eight years since I stepped into the manufacturing vertical in Kronos and I’m excited to announce that Kronos has asked me to take what I’ve learned here and apply it to a new initiative. This is a project to demonstrate that labor is not just a cost and compliance burden, but rather a strategic resource that is responsible for differentiating a company.

For those of you who have had a chance to read my book, Lean Labor, you know that I have espoused this proposition for many years. The challenge when I wrote that book is for many companies it is easy to measure the cost and compliance risk of an employee. What’s more challenging is to equate an individual’s effort to more positive outcomes such as higher quality, increased revenue or improved conformance to policies and procedures. The reason is that measuring cost can be recorded easily and accurately down to the minute. Labor’s impact to other factors can often take days or months. Additionally a single or group of employee’s impact is often mingled in with other factors such as weather, sales promotions or the performance of other downstream operations.

As any Lean follower knows, this is very similar to the Lean philosophy and I’m looking forward to sharing what I discover in the future here as well.

This initiative goes outside of Manufacturing. Healthcare organizations are evolving from measuring by activity to improving outcomes. Retailers are working to differentiate by providing the right types and levels of service to their customers just when they need it.

This is potentially valuable work for a company because when the only data driven linkage to labor is around cost, compliance and immediate output, the so called “war on labor” will continue. Once we can link the more positive outcomes experienced by a company to labor, companies will have another option to use in achieving their strategic goals. I would predict that this increases their use of labor because executives will have the metric and proof they need to feel confident in the outcomes.

Why do I have confidence in saying that? Today the only role whose performance is easily measured to a strategic goal, in this case revenue, is sales. Broadly speaking sales is always the role that is first to be grown and last to be cut. They are often the highest paid as well.

Fortunately, I’m not alone in this effort. There are examples already occurring in the market and academics who have already been proposing these ideas. A recent article in the New York Times Thinking Outside the (Big) Box provides some more specifics around the idea.

I look forward to communicating our findings and what others are doing in this area in the near future.

Those office workers have it made

December 13, 2013

How frustrating to walk off the production floor after a grueling variance meeting and see office workers surfing the web or standing around having a cup of coffee. Even worse, urgent engineering change or variance requests disappear into the ether unless they are constantly expedited. How about customers waiting for weeks to obtain an answer to why a product failed in the field? Should they change their installation practices? Was it a material problem?

Increasingly I’m being asked about back office processes. If it was just a few people causing inefficiency in a department, that’s an easy fix. But it is never quite that simple. It seems like there are waves of busy times and then periods of slow times. Depending on who does the work (we all have our goto people at corporate), the outcomes and response times can be very different.

These are typical scenarios:

Recently I was taking a plant tour with a large Auto OEM and the managing director felt that their production process was in pretty good shape. He then opened a door to a large room full of QC engineers and stated that he wasn’t sure if he had too many, too few or just the right number of engineers working.

A couple of weeks ago I was speaking at a workforce management seminar in Belgium and a manager from a large pharma manufacturer asked about improving the productivity of their QC department whose employees work in a lab environment.

I always ask the same questions. How volatile is their work? Is it slow sometimes and busy others? Are there small jobs and big jobs that flow through the department? Does work get re-prioritized based on production or customer demand? Are the people working in the department reasonably happy and skilled employees?

The answer is generally yes to all four. What I then draw is the curve described by the Kingman formula. What it shows is the relation between utilization and wait time. The drivers of the function are the variability in arrival times and variability in the cycle time.

A good introduction to the formula is available on Wikipedia.

An example of the curve is shown below. What is immediately obvious is that wait times increase dramatically as utilization approaches 100%. The result of this is that departments with little control over the variability of demand and cycle times must run at lower utilization rates in order to maintain acceptable service levels.

kingmans formula

And just because a process is documented and looks efficient doesn’t mean that the variability has been driven out of it. Just like the routing on a production floor, an office process is generally documented assuming perfect conditions…open capacity, consistent workload, fully skilled employees and no interruptions. In other words, it assumes perfect standardization.

We are all familiar where high variability in the process and the financial pressure for high utilization causes long wait times. The doctor’s office is a familiar one. For those with appointments at the end of the day, patients can be waiting for 30 minutes or more after their scheduled appointment. It’s tough for the office to schedule the right amount of time for each patient because it’s difficult to know what care each patient will require. It also has to deal with patients arriving late. But if the office doesn’t book the schedule pretty full, the office can’t be run profitably. A doctor’s office is a relatively simple example and many have implemented fixes to ensure higher levels of service while maintaining high levels of utilization. Canceling appointments for patients who arrive late, increasing flexible capacity by adding Nurse Practitioners and scheduling different amounts of time based on the predicted effort for a scheduled patient are a few examples that increase utilization and maintain service levels.

Knowing that standardizing the process and shaping the arrival times of the work will help maintain service levels while allowing for the increase in utilization, the next challenge is identifying where the variability is the greatest. I’ll assume that the first place to look for that answer is with the employees themselves. This is a good start and take what improvements can be identified. The next level gets a little harder. Workflows often cross departments where priorities change and individuals don’t have knowledge of the entire process. This is where some data is going to be required. Often this is also where the improvement efforts slow down. Collecting data around office processes can be challenging. From employee resistance to complex flows it becomes difficult to know what to track. One change in environment that seems to be going underutilized is that office employees are moving to electronic records. From Engineering Changes, to electronic lab notebooks to CAD systems to document management, employees are logging on to applications, doing their work and logging off or checking into another piece of work. As compliance around every aspect of our lives continues to increase, technology producers are tracking our every move to produce a record of what we have done and when. Often this information goes unused unless it is needed for some type of inquiry.

This information is an untapped goldmine for understanding workflow in the office. This electronic trail reconciles work and employee and time. With this you can generate metrics to understand when it is busy, when it is slow, and how long do different types of work take to traverse through a process. When this information is connected to a workforce management system you go from understanding what happened to predicting issues and being able to address them immediately by shifting capacity to where it’s needed and prioritizing work before it is late.

As with production, the idea is not to work the office staff harder. It’s to improve and standardize the workflow through the office so service levels improve without increasing capacity. Imagine lab results returning faster. Engineering requests approved on time without follow-up. Customer inquiries and complaints responded to more quickly. How would this impact your production lead times and competitive stance in the market? All with no increase in labor cost. Kingman has done the hard part by showing you how to improve utilization and service times and what the ROI will be. Now it’s your turn to drive variability out of the office.

 

There’s no skill shortage at these companies and the temps are happy too.

September 6, 2013

Two frequent challenges I hear about from manufacturers is the skills gap and the need to become more agile in an increasingly demand driven world.

These challenges are often approached as separate problems within a company. HR is working on improving the company’s recruiting and retention efforts. Operations is focused on process changes such as shrinking batch sizes and reducing changeover times to increase agility.

Recently I noticed a pattern in my customers who were experiencing above average results in both of these areas. These companies are in a perfect storm of HR and operational challenges and their only way out was to dramatically redefine how they manage their workforce.

This perfect storm of challenges consists of a customer base composed of retailers who are driving smaller, more frequent shipments to reduce their own inventory costs and risks. Secondly, these manufacturers’ products are seasonal so they have significant volume variations at different times of the year. Third, the demand for their products is driven by the weather and therefore completely unpredictable from year to year. Finally, they each face significant foreign competition keeping prices and margins low.

Let me share with you two of the many techniques they employ to stay competitive and profitable in spite of this tough environment:

One difference I noticed from the typical manufacturer was that there is an overt effort to design the process around the skills of the people rather than just production efficiency. They separate higher skill operations and lower skill operations. They do this to manage their skilled workforce challenge. The skilled employees are difficult to replace and as a result must be kept employed permanently. During the slow season these skilled employees staff both high skill and low skill positions. During the busy season the skilled lines have the ability to ramp up capacity based on the number of people on the line. The skilled employees then move to this line as required and temporary employees backfill the low skill lines. The operations on the low skill lines are designed so each can be learned in just a few hours.

But even with this ability to flex up and down, the delta in product demand is such that the company doesn’t need 40 hours a week from the skilled employees during the slow season. How does the company retain the skilled employees when there’s only 32 hours of work for months on end? One company employs banked hours. This allows the company to use overtime during the busy season without incurring increased costs. During the slow season employees take the banked overtime off. The benefit to the employees is that the company employs them full-time and pays them a steady paycheck year round. Rather than feasting during the busy season and then fasting during the slow season, the employees are paid regularly which has helped with their personal budgeting.

A second technique one company employs is to look beyond traditional temporary workers. While some companies have filled their temporary ranks with employees that have no better option, others have found a better way. One company has a plant in the Midwest. Their busy season occurs in the fall and winter. This turns out to be the same time that local farmers have some time on their hands. I don’t think anyone can argue that there are harder working and more innovative employees than farmers. The farmers also enjoy the change of pace in terms of regular hours and the ability to work indoors. This symbiotic solution has benefitted both employees and employer while controlling labor costs and inventories.

In these companies, HR and Operations work very closely together to create a blended workforce that provides for the agility to ramp up and down as demand requires but also provides a desirable workplace for both skilled and temporary employees. Manufacturing pays some of the highest wages of any industry. If you are having trouble hiring and retaining skilled or temporary employees, it might be time to rethink who you are hiring and how you are managing them.

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