Analytical Problem Solving Gemini Skills Workshop August 1998

Learning objectives • Understand the key steps in the problem solving process. • Learn tools and techniques that are available for each step of the process. -2 Anal Prob ol v 5. ppt

Analytical Problem Solving “The significant problems we face cannot be solved at the same level of thinking we were at when we created them” - Albert Einstein “The difficult is what takes a little time; the impossible is what takes a little longer” - Fridtjof Nansen -3 Anal Prob ol v 5. ppt

As consultants we need to have a structured approach to problem-solving • We work in groups. • We work with complex problems. • Other consultants or clients may have to continue our work (e. g. in later phases of the project or when implementing the solution). – Need to know “where we are” and what has been done – Need to understand the process that leaded to the result/recommendation • A structured approach helps the client follow “where we are” • Our solution will be shared with people that did not take part in the problem solving process. • It is easy to miss a step. • Current steps often seem less important than future steps. -4 Anal Prob ol v 5. ppt

Key steps in the problem solving process Clarify Problem 1. Determine what we know and what we don’t 2. Gather information 3. Identify constraints 4. Determine if you should proceed Investigate Causes 1. Identify possible causes 2. Design tests 3. Perform tests 4. Determine causes or retest Determine Decision Criteria 1. Determine criteria 2. Determine decision process Identify Solutions Evaluate Solutions Implement Solution 1. Prepare action plans Follow-up and Measure 1. Determine solution approach 1. Compare with decision criteria 1. Measure expected benefits 2. Develop solutions 2. Decide on solution(s) 2. Prepare followup plan and 2. Collect measures feedback 3. Validate 3. Implement 3. Incorporate feedback into ongoing work 5. Determine to proceed There are many variations of this process, but these are the basic steps you should follow. -5 Anal Prob ol v 5. ppt

STEP 1: CLARIFY PROBLEM Clarify the problem Clarify Problem Investigate Causes Determine Decision Criteria Steps 1. Determine what we know and what we don’t 2. Gather information 3. Identify constraints 4. Determine if you should proceed Identify Solutions Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) • What we know/What we don’t • 5 W`s and 1 H (What, Where, When, Who, Why and How) • 5 Whys • SWOT (strengths, weaknesses, opportunities, threats) -6 Anal Prob ol v 5. ppt

STEP 1: CLARIFY PROBLEM Clarifying the problem is the most important step in this process • A problem can be defined as a gap between where we are and where we want to be. This gap should be measurable. • Be aware that “perception is reality”. Although some client problems we encounter are very logical and factual, such as machine breakdowns, most client issues are based on people’s perceptions of problems, such as poor customer service. • Because of this, most problems will no require an optimal solution, but will have many adequate solutions. • Ensure that the problem statement accurately depicts the client situation. It will determine your entire course of action. -7 Anal Prob ol v 5. ppt

STEP 1: CLARIFY PROBLEM - EXAMPLE These are the steps involved in clarifying the problem 1. Determine what we know and what we don’t. Using a table with What, Who, When, Where, How, and Why can help define what information needs to be gathered. Example: Urgent customer requests are not being addressed. What We Know What We Don’t Know What or not Customers are complaining about lack of responsiveness Are requests being lost, forgotten, answered initially? Who Only customers with urgent requests or rush orders E-mail, voicemail, or telephone communications? Where Headquarters Customer place of origin When Problem only in last two months Why service No documentation of requests or orders System error? Not recorded by agent? Message not received? How -8 Anal Prob ol v 5. ppt

STEP 1: CLARIFY PROBLEM Steps to clarify problem (continued) 2. Gather the information you need in order to define the problem statement. You may begin to identify possible causes, but that should really be done at a later step. 3. Identify constraints - Who is the client for this problem and what is important to that client? Consider time frame (short-term vs long-term), costs, resources required, level of effort vs value-added, etc. 4. Define the problem statement. Validate the problem with the client. Do we agree that this is really the problem at hand? 5. Determine how to proceed. Seriously consider if the time and effort involved creates enough benefit or if this problem will disappear as the result of other activities. Most importantly, this step frames the investigation before we begin tackling the causes. -9 Anal Prob ol v 5. ppt

STEP 2: INVESTIGATE CAUSES - EXAMPLE One very easy way to understand define a problem is to ask “Why? ” 5 times (5 Whys) Real Client Example: • Why are we shipping orders late? Because we can’t meet our production schedule. • Why can’t we meet our production schedule? Because we are constantly changing it. • Why do we change it? To accommodate late orders from our customers. • Why do we have late orders? Because many of our customers don’t know what their orders are by the order cut-off date. • Why do we have a cut-off date? So we can create a production schedule and meet our shipping dates. Client problems may require several iterations of the 5 Whys. - 10 Anal Prob ol v 5. ppt

Strengths, Weaknesses, Opportunities, and Threats (S. W. O. T. ) can clarify complex issues and define direction – S. W. O. T. analysis is a general tool that can be used across key areas: • Product mix • Profit/pricing • Promotions • Space management • Supply chain – Definitions: Strengths Weaknesses Exploited strategic capabilities and/or market positioning providing a competitive advantage in the market place. Exploited strategic capabilities and/or market positioning possessed by competitors creating a competitive disadvantage in the market place. Opportunities Unexploited strategic capabilities and/or market positioning which could provide a competitive advantage in the market place. Threats Unexploited strategic capabilities and/or market positioning which could provide a competitor a competitive advantage in the market place. - 11 Anal Prob ol v 5. ppt

STEP 2: INVESTIGATE CAUSES Investigate causes ( or perform analysis) Clarify Problem Investigate Causes Determine Decision Criteria Steps 1. Identify possible causes Identify Solutions Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) • Hypothesis • Surveys and interviews 2. Design test • Fishbone (cause and effect) 3. Perform test • Pareto 4. Determine causes or retest • Root cause analysis tools 5. Determine to proceed • Financial, statistical, database analyses • Du. Pont tree We use two general methods to approach problems - using analogies to previous experience and breaking the problem down into smaller pieces. - 12 Anal Prob ol v 5. ppt

STEP 2: INVESTIGATE CAUSES Step 2 is to investigate causes of the problem 1. Identify possible causes. We need to do this in order to carve out a manageable piece of work by narrowing the scope of the problem to the most probably causes. There are many tools we can use to investigate causes. The two basic ways to analyse problems for causes are: – Use analogies. We naturally relate the current problem to our previous experiences. As experts, we should be able to develop plausible hypotheses to explain the problem. – Break the problem into smaller subsets of problems (chunking). In conjunction with our hypotheses we can also dissect the problem into its variable components and determine which of these components is most likely to be causing the problem. - 13 Anal Prob ol v 5. ppt

STEP 2: INVESTIGATE CAUSES Now we are ready to test our possible causes 2. Design tests or analytics. Tests can include surveys, interviews, process flows, pareto analyses, control charts, etc. it is unlikely that you will have to create an entirely new analytic because so many already exist, in Gemini and externally. Well-designed tests should directly prove or disprove hypotheses and should consider one problem variable at a time. 3. Perform tests. Ensure that the test will not be a burden for the client and that they want to do it. Otherwise, the results may not be accurate. 4. Determine causes based on test results. (Or re-test, if necessary) 5. Determine how to proceed. Is the cause within our sphere of influence? How does it compare with our constraints? It seems logical that the next stop would be to develop solutions. but to make our time more effective, we should plan ahead to determine what a “good” solution looks like. - 14 Anal Prob ol v 5. ppt

STEP 2: INVESTIGATE CAUSES - EXAMPLE The Fishbone or Cause and Effect Diagram is simple tool for investigating causes CAUSES FOR A CAR NOT TO START: People No gas Lost keys Wrong fuel No oil Machine Dead battery Bad choke Worn out Lemon Vapor Lock • Left lights on • Bad Switch • Electrical Car will not start Don't know how to start Out of tune Too cold • Rental No antifreeze Parts Stolen Repo'd Gets wet in the rain Material Methods Milieu (Environment) “ 5“ M fishbone - Man, Machine, Materials, Methods and Milieu (Environment) Anal Prob ol v 5. ppt - 15 -

STEP 2: INVESTIGATE CAUSES - EXAMPLE The Fishbone or Cause and Effect Diagram is simple tool for investigating causes CAUSES FOR A CAR NOT TO START: Man Machine No gas Lost keys Wrong fuel No oil Dead battery Bad choke Worn out Lemon Vapor Lock • Left lights on • Bad Switch • Electrical Car will not start Don't know how to start Out of tune Too cold • Rental No antifreeze Parts Stolen Repo'd Gets wet in the rain Material Methods Milieu (Environment) “ 5“ M fishbone - Man, Machine, Materials, Methods and Milieu (Environment) Anal Prob ol v 5. ppt - 16 -

STEP 2: INVESTIGATE CAUSES - EXAMPLE Supply Chain fishbone is an ‘mental model’ for looking at a business Purchasing & Vendor Mtg. Supplier Partnership selection Performance EDI Production Control, Inventory Capacity measures Sourcing terms Information Mgt. Vendor alliances Certification Supplier base Auditing reduction Contractor Lead Newtime product management MRO TQM JIT All-in-one cost Forming consortiums Transportation Procurement Cycle time Raw material packaging Order size Frequency Bar coding Segmentation Verification Order processing Payment terms Distribution/logistics Order error rate Discounts Vendor mgt. Customer Order Fulfilment Order Vehicle maintenance Pricing Network/routing Driver training Driver tracking Accounts receivables Credit control Order status record LTL vs. FTL KPI’s SOP’s ABM Cost of quality Break-even time Sales & op. planning Customer loyalty End-to-end measures Quality & availability of Intermodel networks. Compensation rewards measures Scheduling Electronic tracking Budget variances Tracking & reporting Goods in transit Insurance Continuous Total consumption Sourcing Inventory management improvement systems HVOV’s Cross-docking Connectivity to other Outsourcing Promotions Inventories Regulations Corporate scorecard Supply Chain Effectiveness CSF’s Planning MTBF/MTTF & objective OEE setting Warehousing Know your customer DRP optimisation Modes Labour climate& of freight Cost of fuel packing ECR Data accuracy Cycle time Return logistics Perfect orders Transportation costs Real time Standardised coding Labour climate Data capture Management reports Consumption rate Transportation Cost order Stock accuracy Reliability Modes & lead times EDI Labour training Scheduling Trust in the system Measurements Complexity Monitoring turns Cycle time Data accuracy Quality Forecasting User training Timing of processing Cycle time BOM Bar coding Aligned with operations Reliability Change over Transparenting Real time Maintenance Lead time Networking Accessibility development Quality material Lead time on orders Common databases Reliability Safety stock Service point Damaged goods Distribution Logistics core processes Performance Measures - 17 Anal Prob ol v 5. ppt

STEP 2: INVESTIGATE CAUSES - EXAMPLE A “Du. Pont” tree is a structured way to look at causes Price Revenue Volume Sales Earnings Materials Production Costs Overheads Risk-free rate EVA Marketing Beta Cost of equity Risk premium Total equity Capital employed Cost of capital Ave cost of capital Cost of debt Total debt - 18 Anal Prob ol v 5. ppt

We rely heavily on surveys and interviews to gain information quickly - Example Culture Survey Please complete the following questions by circling the appropriate number on a scale from 1 to 6, where 1=strongly disagree and 6=strongly agree. Answer the statements according to the ‘way it is’ in your organisation at the moment on the left column. Then move to the right-hand column and respond according to ‘the way it should be’ in your opinion. There are no right or wrong answers. Please answer all questions from your own perspective. Strongly disagree Disagree 1 2 3 Please circle The way it is 1 2 3 4 5 6 Agree 4 Strongly Agree 5 6 Please circle The way it should be 1. People here act when they see things that need to be done 1 2 3 4 5 6 2. People in this organisation try to resolve their differences constructively 1 2 3 4 5 6 3. People here readily accept responsibility for their actions and decisions 4. Cost is one of the most important factors taken into account before decisions are made here 1 2 3 4 5 6 5. Inconsistencies exist between what is said and done. Managers don’t ‘walk the talk’ 1 2 3 4 5 6 6. People here constantly explore new and better ways of doing things 1 2 3 4 5 6 7. People here listen to customers and respond to their needs 1 2 3 4 5 6 8. There is a concerted effort to perform better than the competition 1 2 3 4 5 6 - 19 Anal Prob ol v 5. ppt

We use focus interviews on every Analysis and Design project General Information 1) 2) Focus Interview Guide Years with Company: : ________________ Years in current position: ________________ Number of reports: ________________ a) What is your understanding of your company’s top three business objectives? b) What is your company’s vision? 3) a) What are your group’s top three business objectives? b) How are they (or will they be) measured? Overall Your Group efer back to the scope graphic on page 1 if the concept of GTS is not clear. ) 4) What do you consider to be your group’s three greatest strengths? - 20 Anal Prob ol v 5. ppt

Pareto’s Law states that 20% of the sources cause 80% of the problem Customer Service Complaints Pareto Analysis $35 M Number of Occurrences/month 30 25 20 15 10 5 2 2 1 1 1 0 No one Answers Phone Routed to Don’t Unhelpful Don’t Hard to wrong know the return underst person answer calls and Gum chewing Discourteous Customer Complaints about our Customer Service We can use this principle to determine where to focus our improvement efforts - 21 Anal Prob ol v 5. ppt

STEP 3: DETERMINE DECISION CRITERIA Determine Decision Criteria Clarify Problem Investigate Causes Determine Decision Criteria Steps Identify Solutions Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) 1. Determine criteria • Decision modelling 2. Determine decision process • RACI charting • Criteria weighing • Quadrant analysis - 22 Anal Prob ol v 5. ppt

STEP 3: DETERMINE DECISION CRITERIA The third step is to determine our decision criteria • Determine the decision criteria. Refer back to the constraints. Consider: – Needs vs. wants – Long-term vs. short-term – Interim steps – Risks – Costs – Timing – Desired benefits – Ranking or prioritizing the decision criteria (most important to least important) • Determine decision process. Who needs to be involved in the decision? Who has final say? What method will we use - voting, client chooses, numerical rankings, a dart board? Doing this now avoids looking foolish later. - 23 Anal Prob ol v 5. ppt

Quadrant Analysis provides a framework for making decisions – Quadrant analysis is a general tool that can be used across different levels of analysis: • Corporate portfolios • Customers • Products – You can compare any two axes relevant to your problem: • Quality vs. cost • Market share vs. market potential • Volume vs. margin Market Share Sleepers Winners Questionables Opportunity Gaps Market Growth - 24 Anal Prob ol v 5. ppt

And then helps determine possible actions based on your findings - Example Quadrant Decision Matrix Quadrant Possible Category Roles Opportunity gaps (Higher growth/low share) Profit contributor Variety image • • Winners (High share/higher growth) Traffic draw Cash generator Price image • • • Sleepers (Good share/lower growth) Profit contributor Transaction builder • Review product mix versus Questionables (Low share/lower growth) Profit contributor Variety image • • • Possible Actions Review planograms - are category and fastest movers underspaced? Review pricing mix - is pricing of key items too high versus market? Review promotions - are category and key items under-promoted versus market? Review product mix - is mix wrong for target customer segments? Any new, fastermoving items not being carried? • Tie-in promotions with higher margin consumption items Continue current programs Increase promotional support Review space management to ensure minimal out-of-stock potential Add good performing items not carried but available in market Be first with new items Review pricing and gross margins to see if selected price reductions can enhance image and increase growth and share Review product mix versus market (variety index) Delete poorest performance items (brands, flavors, sizes) Raise prices if appropriate Promote category to meet market Minimize space allocated - 25 Anal Prob ol v 5. ppt

Key steps in the problem solving process Clarify Problem Investigate Causes Determine Decision Criteria Identify Solutions Steps Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) 1. Determine solution approach • Various Gemini methodologies 2. Determine solutions - 26 Anal Prob ol v 5. ppt

STEP 4: IDENTIFY SOLUTIONS Finally, we can develop solutions 1. Determine solution approach. This can be almost anything, like: – Brainstorming – Benchmarking – Best practices – Modelling techniques, e. g. , decision modelling, business modelling, process modelling – Vision engineering – Organisation design – Any number of Gemini methodologies 2. Develop solutions. It is good practice to develop alternative scenarios, if applicable. - 27 Anal Prob ol v 5. ppt

Benchmarking can provide a gauge of “what good looks like” - Purchasing KPI Benchmarks Key Performance Indicator Average Benchmark Range • Purchasing function expense as a percentage of sales 0. 3 % 0. 06% -> 3. 0% • Purchasing function expense as a percentage of purchase value 1. 2 % 0. 7% -> 7. 0% • Purchasing headcount as a percentage of total company headcount 1. 1% 0. 3% -> 4. 5% • Active suppliers per purchasing employee 50 6 -> 182 • Percentage of all active suppliers that account for 90% of total purchase value 20% 5% -> 75% 2 • Average actual time to develop/negotiate a contract 9 wks 2 -> 26 wks • Percent of deliverables received on-time within the most recent 12 month period 88% 63% -> 98% 1 1: Median = 39 2: Median = 91 Source: Center for Advanced Purchasing Status - 28 Anal Prob ol v 5. ppt

We can also benchmark best practices - Purchasing Best Practices Company Best Practice/Strength • Outboard Marine Corporation • Partnering: establishes 3 -5 year contracts with suppliers • Ford Motor Company • Partnering: 70% of North American Automotive Operations’ contracts are long term (3 -5 years) • New product development: with preferred suppliers, Ford uses “black box” design responsibility. Ford specifies a parts function and lets suppliers figure out the best way to manufacture it • Motorola • Partnering: suppliers participate in developing design guidelines for new products • Supplier management: communications sector trimmed its supplier base from 4, 200 in 1985 to 1, 155 in 1989 • Technology: supports a common global database for critical material purchases • Supplier management: has created “Motorola University”, an education and training center in Schaumburg, Illinois where suppliers and its own employees brush up on basic quality concepts as well as learn the more advanced techniques in quality control Source: Purchasing - 29 Anal Prob ol v 5. ppt

STEP 5: EVALUATE SOLUTIONS Key steps in the problem solving process Clarify Problem Investigate Causes Determine Decision Criteria Identify Solutions Steps Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) 1. Compare with decision criteria • Impact/Effort matrix 2. Decide on solution(s) 3. Validate - 30 Anal Prob ol v 5. ppt

STEP 5: EVALUATE SOLUTIONS Evaluating solutions becomes easy because we have already laid the groundwork 1. Follow the decision process and compare with decision criteria 2. Decide on solution(s) 3. Validate solutions with initial constraints and your sphere of influence - 31 Anal Prob ol v 5. ppt

An Impact/Effort Matrix is a useful tool for prioritizing work and identifying “early wins” High Level of impact (results) Actio n 4 Actio n 3 Actio n 1 Actio n 5 Actio n 6 Actio n 2 Low Level of effort required High - 32 Anal Prob ol v 5. ppt

Key steps in the problem solving process Clarify Problem Investigate Causes Determine Decision Criteria Identify Solutions Steps Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) 1. Prepare actionj plans • Workplans 2. Prepare followup plan and measures) • RACI charting 3. Implement - 33 Anal Prob ol v 5. ppt

STEP 6: IMPLEMENT SOLUTIONS Step 6 is to implement the solution(s) 1. Prepare action/implementation plans. Include responsibilities and time frames 2. Prepare follow-up plan and measures 3. Do it! - 34 Anal Prob ol v 5. ppt

Key steps in the problem solving process Clarify Problem Investigate Causes Determine Decision Criteria Identify Solutions Steps Evaluate Solutions Implement Solution Follow-up and Measure Tools (examples) 1. Measure expected benefits • Key performance indicators 2. Collect feedback • Balanced Scorecard 3. Incorporate feedback into ongoing work • Benefits dashboard - 35 Anal Prob ol v 5. ppt

STEP 7: MEASURE AND FOLLOW UP Don’t forget to measure and follow-up! 1. Measure improvements and compare with expected benefits 2. Collect feedback 3. Incorporate feedback into on-going work You will learn more about performance measurement in later sessions - 36 Anal Prob ol v 5. ppt

In everything we do, Plan (think) - Do - Review Clarify Problem THINK Investigate Causes DO Determine Decision Criteria THINK Identify Solutions DO Evaluate Solutions THINK Implement Solution DO Follow-up and Measure REVIEW - 37 Anal Prob ol v 5. ppt