HISTORY OF QUANTUM PROFIT SYSTEM
APPLIED OPERATIONAL FINANCE
PROFIT ASSURANCE SYSTEM “PAS”

Since 1963 we have been on a remarkable journey.  One that began with a tool and die apprenticeship and has culminated in the development of the most remarkable manufacturing and service sector management tool to have hit the business sector in decades. A tool that has been dreamed about but thought not possible, that has been sought after but not realized – until now.

The tools offered by Quantum Profit System (QPS) puts profit/pricing control into the hands of operation and all stakeholders and promise to solve the fundamental problem that has plagued the business world for decades. Until now thought impossible to solve:  The inherent disconnect between operations and finance that results in one hand not knowing what the other is doing. Renders profit nothing more than an intangible and “left over” variable and creates distrust and dissension within management and staff. All leading to the typical “rear window” accounting approach embraced by most companies:  Attempting to go forward by looking into the past.

The story of these discoveries and the creation of QPS began in 1963 with a 12,000-hour journeyman tool and die apprenticeship at Continental Can Company.  Back then Continental that was considered the Harvard of manufacturing, and to our good fortune was also one of the few companies that embraced Dr. Edward Deming’s Statistical Process Control.  Continental had it right then.  They had embraced Deming’s message to Japanese manufacturing and business and realized the value of statistical methodology in reducing expenses while increasing productivity and market share.  The process at the time was referred to as industrial accounting and if you think about it, one realizes that the road to profit essentially begins with the engineering work statement. The precision of which in terms of defining qualitative and quantitative design and performance requirements sets the stage for either profit or loss by directly impacting quality and productivity before the fact.

Therefore, the critical path down the road to profit begins at the beginning:  On the design table or with the bid work statement but somehow, we have landed in the wrong room – Accounting – when we should have stayed on the path of operational information, which we call “The World of Applied Operational Profit/Pricing”. For this is the only path that allows us to directly examine and manage profit where and when it is being produced. Where wealth is created not counted wrong.

This particular philosophy formed the backdrop against which approached subsequent studies took place at the University of Washington.  During this time, I was asked to stay on at the UW to perform research in Applied Physics and Geophysics. It was there that I witnessed most people don’t spend the time to understand what is in the box including most new ideas reside on old principles which don’t change. If you don’t understand inside the box, you certainly can’t work outside the box no reference starting point. The short version is QPS has turned profit upside right. Current standard GAAP top down extractive culture aims at sales minus costs and profit is not known until after the fact, in fact it is a trailing fiction.

The ensuing work in the academic arena and previous shop experience as a journeyman tool and die maker, solidified the shop knowledge (where the rubber meets the road). This prepared me well for the adventures ahead, and after ten years was eager to return to the private sector.

Landing in the aerospace industry, which places high demands on the embracing of process control and emphasizes the notion that there is a root cause for everything and if you invest in the process you will discover that cause.  Then found myself working as the plant superintendent of a major Boeing subcontractor. It was there that my senior mentor informed me that I had reached the pinnacle of my upward mobility within his company.

He explained that his company was run by, existed by, and survived by money, and as I knew nothing about money, had thus reached the limits of my usefulness within his organization.  Although well-versed in the arena of engineering and manufacturing, including the practical floor experience of my journeyman tool and die experience, I was admittedly unable to efficiently and skillfully apply that knowledge to the business of making money.  Temporarily knocked off balance but not dissuaded, I returned to the University of Washington and two years later completed their executive management program in the Graduate School of Business.

As Paul Harvey says, now comes the best part – the rest of the story and the beginnings of QPS.  My newfound business knowledge had widened my horizons and dissolved the boundaries that had formally limited my ability to see the “big picture.”  With an expanded financial understanding, it became clear to me that the then-current financial reporting system, GAAP, was not sufficient in terms of allowing me to accomplish what seemed obvious as the critical objective of leadership:  Planning, Scheduling, Measuring, and Rewarding for profit – real-actionable-time.

In 1983, I was propelled to begin working on a program that finally turned the first part of this goal from dream to reality. After two years I had completed what is now the Profit Model: A financial roadmap that functions as the engine for profit by defining what a company must look like every minute of every day, in order to maintain a desired profit level represented in Equivalent Dollars.  I began to apply this program in a variety of settings, including the jet engine group at General Electric, where I was invited to attend their prestigious Leadership Development Program at the Crotenville Learning Center.  At Crotenville I found that Six Sigma practices were not specifically addressing profit, so was inspired to combine the GE philosophy, including Six Sigma tools, with my Profit Modeling Program.

But the story does not end there.  In 1997 while sitting in a customer’s office I suddenly had one of those light bulb “aha” experiences where I instantly realized that one could design a program which would integrate the Profit Model with a shop floor operational system in a manner that would allow for the exchange of Profit/Pricing, Quality and on-time delivery information “real-actionable-time.”

Thus, was the birth of the Profit Scheduling, which like a production control system, can inform you of all information pertinent to the financial health of an organization. Which allows for profit/pricing to be the only number fixed, embedded into the schedule, and available instantly, “real-actionable-time.”  The good news is that it comes directly from the activities to the decision makers, all the stakeholders on the Lean Value Stream who can impact change. The best news of all is that it does not go through accounting and become another history lesson of tenuous allocations and adjustments that don’t represent the current performance of the profit/pricing operations.

Over the next ten years I successfully used this model many times in the turnaround industry to significantly enhance productivity and achieve management’s desired profit/pricing level.  It is finally possible to determine the amount of equivalent sales dollars required to produce the profit/pricing made “real-actionable-time” on every job before it starts and manage one’s business remotely through the Cloud platform. This is accomplished by viewing real time production (profit/pricing) figures instantly. Attack waste by identifying delays and rework using the Theory of Constraint and manage workflow to achieve maximum results and daily profit/pricing goals. We call it the future company-wide profit/pricing puzzle picture.

As noted by Peter Drucker in Managing in the Next Society: The Information Society, the major challenge of business over the next two decades involves dealing with a 500-year-old accounting system which turns out traditional but non-functional financial statements which are totally inadequate for the industrial and service sector in our changing world.  This traditional reporting of goals in yesterday’s dollar terms only, (“if all you see is money you don’t see much at all”) provides no information on the nuts and bolts of operations as it relates to profit/pricing, information. That is critical for the successful performance of those responsible for producing long-term results the wealth and prosperity of the company.  Profit Scheduling eliminates the fundamental fracturing of context between accounting, operations, and other finance functions caused by ineffectual financial statements by providing “real-actionable-time” objective data on factors directly bearing on the reality of operations.  A “common language” among company players of multiple disciplines is thus generated which has the net effect of:

1. Dissolving the vicious cycles of distrust and fear invisibly generated by financial statements which are operationally useless and destructive to a self-running and self-improving business system;
2. Increasing individual awareness of one’s role as it directly relates to profit/pricing goals;
3. Keeping players alert and thinking on how to do things better;
4. Significantly improving individual responsibility and ownership for contributions made;
5. Dramatically reducing the need for Production Control meetings, as you know where every order is and how it pertains to your planned profit/pricing;
6. Allows for Accounting to do its intended job address external reporting such as your tax requirements, banking and investor reporting; QPS doesn’t impede the creation, publication and the distribution of external reporting.
7. For the first time, matching the order on the floor with the current financial analytic conditions and it address the equivalent sales requirements to maintain the on-demand contribution margin to ensure protection of the planned profit/pricing, not an old estimate, pricing that has no bearing on the current financial conditions.

The product has come full circle to what Continental Can called Industrial Accounting and has gone a huge step beyond traditional accounting practices, including the application of Dr. Eliyahu Goldratt’s Theory of Constraint.  Again, the good news is that this information comes directly from the activity to the decision makers and does not go through Accounting. Allowing the decision makers to accomplish the tasks in the World of Applied Operations Profit/Pricing Continuous Improvement Wheel.

With our Profit Modeling Program and Profit Scheduling tool and using Dr. Eliyahu Goldratt’s “Theory of Constraints,” measuring constraint in equivalent sales dollar profit, by activity and by order.  We begin by producing a financial profit/pricing road map of the company using Profit Modeling, and then follow it with our Profit Scheduling tool supported by Tomorrow Today and Profit Assurance System. Then profit/pricing is embedded into the schedule and is the first step toward turning planning into profit/pricing reality.  We move to scheduling profit/pricing t0 fill the company to jobs and activities capacity for the desired level of planned profit/pricing. Measuring those jobs and activities for the desired level of planned profit and identify constraints that threaten to have a negative impact on the desired level of planned profit/pricing before the fact. After relieving those constraints, the Profit Model Program is reset to the new speed limit for the company’s planned profit/pricing, and the process repeats.  Hence, leadership is able to assume a true pilot position within one’s company and for the life of one’s company, with a continually functioning program that provides full command of the process. This is necessary to increase speed and efficiency, satisfy customers, cut costs, and enhance margins to the maximum degree and ensure quality.  The last step is to reward your most valuable asset your employees for their participation in that end. Without their support and participation your planned profit is just a pipe dream.

Far more than a tool, our Profit Modeling, Profit Scheduling Tomorrow Today and Profit/Pricing Assurance System was produced in the heart and soul of business and not in some think tank or consulting firm.  Tried and tested, it has surpassed our expectations, that in 2004 we put the entire program on the Internet, so it would be available for public consumption.  Now it is a cloud platform. With this wonderful tool managing one’s company, with caution and fear, go the way of the dinosaur. Leadership is provided with the ultimate weapon allowing for the effective management of business with a heightened state of urgency so necessary to succeed in the highly competitive global world in which we now live, and ALL must face.