Driving performance improvements through exception management

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Who doesn’t embrace the concept of management by exception? This is one of those universal concepts that suggest we should build processes that handle normal variations virtually automatically, and reserve our precious human capital to address the variances that have significant business impact.

Like most great concepts, the real challenge lies in the application of the concept. First you have to decide where the concept can be applied. This suggests that you examine your existing processes to determine where you can address a significant portion of the normal variation with a minimum of organizational effort. That alone can be a major stumbling block and too often I’ve heard the comment “everything is an exception around here”.

So the challenge is identifying what constitutes a meaningful exception, and in my book, a sign of a good process is where something is an exception less than 10% of the time. The next step is to identify who needs to act, how they will be notified, and what tools they will need to address the exception. Not a trivial job, but well worth the effort.

Let’s use a common administrative process as an example, committing to a sales order delivery date. For this example, your business uses either a traditional ATP process, or perhaps product lead time to automatically establish a proposed commit date. If in 90% of the cases this results in a date that is in alignment with the customer need date, then you have the basis for implementing an exception based process.

In this case, only those orders that do not meet the customer requested date would be identified as an exception and flagged for special consideration. All other orders would be automatically committed and confirmed with the customer. This might be refined further to establish tolerances where the exception is only in cases where the delivery date is more than 3 days later than the customer request. Once the exception condition is defined, an effective process for dealing with them requires timely notification (alerts) to the people who must collaborate to establish an acceptable outcome.

In today’s largely outsourced supply chain, that can be both technologically and logistically challenging. Not only do they need to be notified of the business condition requiring their attention, but given access to the tools and information that can lead to a rapid and reliable decision. Using the order commit process as a further example, the ability to meet the customer request date might take one of several paths;

  1. Product substitution (if availability exists)
  2. Production acceleration (if capacity and material availability exist)
  3. Order split (if a partial order can be delivered when the customer needs it)
  4. Order prioritization

A well defined exception management process would consider options in a logical sequence and within a time frame that meets customer expectations for responsiveness. Applying the concepts of exception management to ERP action messages is an area ripe with opportunity.

I’ve known organizations that get 30,000 or more action messages following an ERP regeneration. In those organizations it is readily acknowledged that planners will never get through the action list. Therefore, the real question is, “Are they working on the right actions?” In one organization, a second level analysis was performed on the action queue to evaluate the messages and prioritize them with regards to their importance and impact. This had a huge impact on planner productivity and overall business performance.

A well designed exception management system should have that effect where ever it is applied. The bottom line is that I strongly recommend examining if your organization has the tools to effectively implement exception management processes. This requires the ability to generate alerts, identify the right participants, provide the right views of information, and facilitate collaboration where needed. The investment to put this in place will typically yield returns that are often 10X within the first year. With the economy now on the rebound, the time is right to better leverage your organizations human capital through the implementation of effective exception management processes.

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