The Theory of Constraints provides deep insights into why it is difficult to manage production and what to do to get rapid and lasting breakthroughs in performance.
Does it bother you that profitability, cash flow and ROI are too low, costs too high, customers complain and work is stressful? Do you spend more time working in the business than working on the business?
Are you witnessing the following symptoms?
- Poor due date performance
- Too many customer complaints
- Long lead times
- Payback on investments is too long
- Inventory is too high
- Poor people relations
- Stressed out workforce
Many companies have put in huge time, money and effort to try to eliminate these issues and the problems persist.
So why do these problems persist?
They persist because we are looking in the wrong place(s) to solve them.
If it is true that as a business we are trying to maximise shareholder wealth by providing great products/services and customer satisfaction at minimum cost, and we believe that if we can be efficient at every point in the process (maximising output at the least cost), then we must surely achieve our goals. So why is it we still struggle? Yes we may fix one area of the business but then another needs propping up. Whilst we continue to struggle to achieve our goals to guarantee success we create many policies, procedures, practicies and measurements that reinforce this belief in keeping costs down and being efficient. Everyone else does so it must be the norm!
We have indeed institutionalised efficiency thinking and all the measures and behaviours that go with it to the extent that we are not even aware of it.
Our behaviours are to keep workers and machines fully utilised. Make as much as possible as fast as possible at least cost (of course without compromise to safety). We believe that idle resources are a major waste and waste is a cost to be avoided. So keep them busy (at all costs!). What can be wrong with that? Well lots in fact!
The problem is that this universal belief in efficiency focuses on optimising performance at the local level. Each department or resource has to perform with near maximum efficiency. Any improvement in any department, resource or process is believed to add up to a good global system improvement and superior performance overall. We keep applying this approach and we continue to get problems. How come?
The main reason is we do not appreciate that in any system there has to be a point which limits the overall performance of the system in achieving its goal. If the goal of business is to make money then why is there no business that is making infinite amounts of money? There has to be a constraint.
When we try to improve business performance the quickest, safest and least cost way to deliver a breakthrough in performance is by knowing how to manage the constraint.
So when we look closely at our planning and execution behaviours what do we see? They are driven by optimising local efficiencies and ignore the concept of a system constraint. The behaviours are not aligned to and unwittingly thwart the overall goal of the business. And when we experience uncertainty and variability in the system such as:
- machines/tool breakdowns
- customers changing their minds
- customers demanding unrealistic lead times suppliers are not always reliable
- raw materials are faulty
- absenteeism is high
- information is not always accurate or timely
......... the system steadily decays into states of chaos. Scarce capacity is consumed fighting fires, there is constant overproduction and costs go up consequently harming the bottom line.
So, is there a solution to these complex and persistent problems?
Yes there is. We need to start thinking differently.
We need to redefine what we mean by efficiency by moving from the local level to the system level, from individual workers and operations to the whole system of production. This means having an understanding of the interdependencies between operations within a system, their finite capacity relative to the demand placed upon them and the cause and effect nature of variability throughout the system. In short focus on the "flow" of the entire system. In this way we are better able to focus on the throughput of the system, protecting it against inevitable uncertainty and variability, and allow us to remain focussed on the goal rather than be distracted by constant fire fighting.
When we do think globally rather than locally we can clearly see that we have not been attacking the core problem of production. Instead we have been inadvertantly inflating the problems and all our efforts have been toward treating the symptoms.
Recap. Viewing an organization from the operating expense world perspective causes one to believe that almost everything is important, that the organization is composed of independent variables. But viewing the organization from the throughput world perspective forces the realisation that the organization is a collection of dependent variables and that the artificial barriers between these variables, or functions, must be eliminated. Managing the parts of an organization as if they were independent silo's is not possible in the throughput world where Throughput is the dominant measurement. In the Throughput world, constraints become the main tools of management and the previous tool, product cost, can be discarded.
By implementing systems developed on the scientific principles of the Theory of Constraints (TOC) you can quickly and safely eliminate or significantly reduce the severity of these problems permanently. Understanding the cause and effect relationships of dependent variables within a system; that is, looking at the entire system holistically as opposed to the individual components, is the key.
To advance your understanding of this we strongly recommend reading "The Goal - a process of ongoing improvement" by Dr Eliyahu M. Goldratt.
TOC3 clients are recording record profits, abundant cash flow and high ROI ratios. The majority witness lead times reduced by 50%, capacity increased by 30%, near 100% due date performance with half the inventory and happier customers and employees is the norm. All this is done in a matter of days and weeks using existing resources, at less cost with minimum fuss and minimum effort.
TOC3 practitioners specialise in helping manufacturers and service operations to rapidly and systematically apply the TOC operations solution Drum Buffer Rope and Buffer Management to generate increased Throughput with less Inventory and reduced Operating Expenses.
The result is a stable and reliable system that your people understand and run generating increased profitability and cash flow with shorter lead times, improved due date performance and minimal work in progress.
The Theory of Constraints is systems thinking applied to business and other endeavours. It is about focus and leverage to systematically achieve rapid step change improvement in the performance of the system as a whole.
Typical results you can expect:
- 95%-100% orders ship on time,
- Lead times cut by 50%,
- Profitability up by 50% or more,
- Inventory safely reduced by 50%,
- More available cash,
- Capacity increased by 30%,
- Happy customers & employees,
- Less stress,
- More certainty and more time
The Theory of Constraints principal solution for operational environments is known as Drum Buffer Rope (DBR) and Buffer Management (BM). Simplified DBR has also been developed to handle specific cases and can be applied successfully in a majority of settings.
The DBR logistical system is a finite planning and scheduling mechanism that maximises the throughput of the constraint operation to best meet market demand. The DBR system directs the workflow throughout the entire plant to protect the constraint and shipping dates with minimum lead times, inventory and operating expenses. The same principles apply in service operations.
Buffer Management is the method to protect the schedules once released to the floor maintaining smooth running of the system and ensuring on time delivery. It is an early warning system that shop floor supervisors and operators use to apply appropriate action to rectify potential problems before the problems do damage.
Buffer Management is also the method for ongoing continuous improvement. By logging the penetration of jobs into the “Red Zone” we can identify and analyse the cause of system unreliability that result in disruptions to throughput and due date performance.
Lean and Six Sigma
The application of Lean (reducing waste) and Six Sigma (reducing variability) techniques is introduced after TOC has done its work to stabilise and maximise the flow of the system. TOC provides crystal clear focus on where to use these powerful tools to best effect.
Find out about Systems Thinking and Theory of Constraints here. Read how TOC, Lean and Six Sigma can work effectively together here Read more... Apics May 2006 article
TOC3 can show you the logic of how the Theory of Constraints operates in such a way as to bring about a massive breakthrough in operational performance that hits the bottom line within days or weeks. Our practitioners have completed more than 60 successful implementations of production solutions in Australia and New Zealand.
Contact Us now to discuss how we can help you quickly and decisively transform your operations success.
Implement Theory of Constraints and watch your business take flight
