A Good Root Cause Analysis Starting Point
July 6th, 2009A manufacturer of electrical component assemblies supplying the auto industry found that they were paying about R500 000 per month for the air-freight of parts that were being delivered to them. Everybody that I interviewed in the company told me that this was caused by the dramatic variation in the forecast from their main customer.
But when we visited the stores, we found that there was more inventory than they needed, and more than they had ever recorded before. And when the parts that had so hastily been delivered at great cost were received, the people working in the stores more often than not would find that there was already ample stock of these parts.
We retrieved and inspected the forecasting data over two years, and compared it to the orders received. The quantities on the forecast and order quantities varied by less than ten percent - a variation that would easily have been absorbed by the safety stock that they carried.
In the end we found that incorrect transactions were being used to record stock movements on their MRP system.
But they had been living with the problem for more than a year, and during that time forecast variation had been fingered as the cause. In fact it had become a conventional wisdom within the company. And our biggest hurdle on this assignment was trying to convince them that variation from forecast was not the cause of the exorbitant transport costs.
In his book “Predictably Irrational”, Dan Ariely writes about the high price of ownership, which also applies to points of view. Once we take ownership of an idea - whether it’s about politics or sports - what do we do? We have trouble letting go of it because we can’t stand the idea of its loss. What are we left with then: a position - on which people remain rigid and unyielding. Forecast variation had become just that within this company.
One of the most interesting aspects of Root Cause Analysis is uncovering conventional wisdoms and the effect that they have on the company. And as humans, we often don’t realise that we are accepting these without questioning their validity.
To overcome this, it would be wise to observe these words from Sir Francis Bacon, the British philosopher, scientist and statesman who also served as Lord Chancellor in the 17th century:
“If a man will begin with certainties, he shall end in doubts. But if he will be content to begin with doubts, he shall end in certainties.”
A good starting point for a Root Cause Analysis investigation…
