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Executives can’t lead effective organizational change just by sitting in their offices. As busy as they are, leaders need to find ways to observe fundamental work processes in their organizations. When they do, they usually discover that there are gaps between concept and reality in how work gets done. Michael Morales’ experience — in which identifying and addressing such gaps led to his company saving $50,000 in just 60 days — is a case in point.
Mike is the president of Corporación Industrial S.A. (CISA), a company based in Panama City, Panama, that makes corrugated boxes. Conceptually, making corrugated boxes is relatively straightforward. Wood is first turned into pulp, which is then treated, pressed, and dried to form large sheets of paper. Those sheets are then glued together to create flat pieces of corrugated cardboard. Finally, the cardboard is cut to size, folded, and glued to make a finished box.
That’s the process — in theory. In practice, however, it entails moving heavy loads among large, complex machines and executing a series of precision operations. As with most complex industrial processes, the box production process at CISA was designed carefully at the outset. Nonetheless, it was never as efficient as the company’s managers had hoped.
Prior to the project, Mike and his team had concluded that the biggest problem in their manufacturing process was unplanned paper losses — in other words, paper that was damaged during movement between operations or lost due to incorrect cutting. Paper represented over 80% of the company’s production costs and over 60% of its total costs, so any losses could have a significant effect on the bottom line. Prior to 2012, paper losses had been as high as 18% of the total paper put into production. In 2012, the company undertook a significant change initiative focused on reducing paper losses that included spending $3.5 million on new equipment and another $500,000 on training. Despite the effort and expense, paper losses hit a record high of 21.1% in 2012.
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In the summer of 2014, Mike decided to apply structured problem-solving techniques to his plant’s paper loss problem. (Note: The structured problem-solving techniques Mike used are described in detail in our related article, “The Most Underrated Skill in Management.”)
The first step was to define a clear problem statement.