Member Blog: Operational Excellence In Cannabis

by Dr. Jon Thompson, Ph.D., CEO of extraktLAB

What is Operational Excellence?

Operational Excellence is basically having a goal that looks far ahead to the future of what ultimate business plans should be while analyzing every aspect of the business itself. This is accomplished by using evidence-based results to achieve a higher level of function than any other company in the same market. Whether issues are found in lean supply chain, revenue control, processes that may be unnecessary or serve a lower function than what is needed, or other areas in which money is getting tied up, Operational Excellence is a management philosophy based on a constant method of refinement. It is taking all of the thinking, ethics, and ideology of Lean Thinking, Six Sigma, and Scientific Management, and putting them into one category to cover a broad range of improvements. In this article, we will delve into how Operational Excellence ties in the cannabis and hemp industry.

Why Is Operational Excellence Important?

A company that is employing Operational Excellence will outperform its competitors in many ways, even if they are using a similar business strategy. How resources are being used will often decide which company is going to perform better. The superior company will have much lower operational risks because it will have done a proper and thorough analysis. It will have a lower operating cost because of constant improvements to enhance the information and material flow. And, it will likely have more revenue because of efforts made in the interest of saving money, which will create a higher value for customers and the business itself. Companies utilizing Operational Excellence develop the right culture for their industry while managing their processes and business in a systematic, analytical fashion.

Applications In The Industry

There are several ways this can be applied to the cannabis industry. We could speak at length about any of these topics, so we will try to stick to the most important points to watch for and ways to operate. This is much more of a state of mind than a list of ways to improve the overall success of a company. And the whole team should have this same method of thinking when operating in their respective departments because this is something that should cover the business as a whole. 

Lean Supply Chain

Controlling how much inventory you have on hand is important, not only fulfill orders but keep operations moving forward while minimizing waste. As an example, farmers often want to be paid for their material immediately. If they want to sell their whole yield, you would then have to store their entire crop in your warehouse. At the end of the day, this costs money and could possibly interfere with production while trying to process the material. A better solution would be to take the entire 500,000 lb processing deal but split it up into ten 50,000 lb shipments, or five 100,000 lb shipments. In this model, the farmer is paid sooner and you do not have an oversupply of product cluttering the warehouse and workspace. 

Value Stream

A value stream map is a visual tool that displays all critical steps in a specific process and easily quantifies the time and volume taken at each stage. Value stream maps show the flow of both materials and information as they progress through the process. Within that value stream is the value-added processes and non-value added processes. For example, all machines need maintenance in one form or another; however, particular circumstances will determine whether or not maintenance on a given machine will be considered value-added, or non-value-added processes. If the maintenance required is a routine scheduled maintenance, then it is considered to be a value-added process. If it breaks down because the scheduled maintenance was subpar, however, that would likely deem the maintenance a non-value process. As a rule, it is beneficial to eliminate all non-value processes in your value stream. 

The Invisible Killer

You can grow yourself out of business easily. In fact, this almost happened to our company. Because we were unable to wait 24 weeks for materials to arrive before we started manufacturing, we were pre-ordering to build up our inventory. As more orders start coming in, it is still necessary to have cash available to continue manufacturing – otherwise, it is not feasible to have a surplus of inventory. Bankers told us that we might have strangled ourselves with inventory. Fortunately for us, that did not happen, and since we have been using Operational Excellence to enhance the business, growth has never been greater. 

As a business owner you should always have an insight into how the operations are running. This takes it a step further by recording and analyzing the information of your cannabis operation and making decisions that are going to have the most benefit for continuous growth. Operational Excellence means you should be using a Business Execution System that efficiently and harmoniously incorporates the following components: Process Excellence, Performance Management, and Strategy Deployment. 

Dr. Jon Thompson, Ph.D., Chief Executive Officer of extraktLAB is a separations scientist, entrepreneur, and inventor. As a scientist, he has a strong technical background and industry experience in analytical instrumentation, in-vitro diagnostics, biotech, mining, and homeland security markets. During his cannabis industry career, Dr. Thompson has earned a strong track record of winning and implementing medical cannabis licenses in well-regulated, medically-modeled states. Dr. Thompson has assisted numerous companies to attain their goals in cannabis and hemp manufacturing, as well as market development, strategic marketing, and worldwide business-to-business alliance formation (including international markets). He received a Bachelor of Science degree in Biochemistry, Master of Science degree in Chemistry and a Doctor of Chemistry degree–all from the University of Minnesota.