Focus and Leverage Part 290

As 2013 draws rapidly to a close, I thought the best thing I could post would be the most popular one of all.  The most popular post of all since I began writing this blog is Focus and Leverage Part 227.  This posting is how I present the Theory of Constraints to people not familiar with it.  And since # 228 is the second part of how I do this, I thought I'd finish out the year by posting these two postings.  I want to thank everyone for a very remarkable year for my blog.  Back in 2010 when I first started posting here, I averaged roughly 1000 page views per month.  This month I fully expect the monthly total to be approaching 19,000!!  So here are postings 227 and 228 and thank you to everyone.  Happy New Year!!!!!

 

The best way I have found to help people understand just what a constraint is and how it impacts the flow or throughput through a process is by using a simple piping system diagram with each pipe having a different diameter.

In this first slide I simply explain that this is a drawing of a cross section of pipes used to transport water through each section of pipe and into a collection receptacle at the bottom. I then tell them that we need more water flowing and that they have been chosen to fix this system.   I emphasize that this system is fed via gravity, so they can’t simply increase the water pressure.

 

In my next slide, I pose the question that if enough water isn’t flowing through this system, what must they do to make more water flow?  Someone in the group will automatically state that in order to have more water flowing through the system, we have to increase the diameter of Section E.

 

I ask everyone if they understand why they must increase Section E’s diameter and most will answer that they do.  For anyone who doesn’t, I simply explain that because of the constricted nature of Section E, water flow is limited at this point. Since they all now have an understanding of this basic concept, I then move to the next slide.

This slide reinforces what I just explained, but then I ask another important question about how large the new diameter should be.  In other words, what would this depend upon?  What this is supposed to demonstrate is that demand requirements play a role in determining the level of improvement needed to satisfy demand requirements.

 

In the next slide, I demonstrate the new diameter of Section E and how water is now flowing at a much faster rate than before the diameter change.  The important point I emphasize is that the system constraint controls the throughput of water through every section of pipe and if we don't subordinate the rest of the system to the same throughput rate as the constraint, we will automatically have a WIP build-up in front of the constraint.

 

I then ask the class to identify other physical changes to this system have occurred as a result of our exploitation of the constraint (i.e. increasing the diameter of Section E).

I give them time to answer this question, and most of the time the group will answer correctly.  I then post the next slide to reinforce that changes to the system.

I point out that, first and foremost, the system constraint has moved from Section E to Section B. I next explain that the new throughput of water is now governed by the rate that Section B will permit.   And finally, I point to the queue of water stacked-up in front of Section B.  I now make the point that if the amount of water is still not enough, then we must decide how to exploit the new system constraint and that the process of on-going improvement is continuous.

In my next slide I ask the question, “Would increasing the diameter of any or all other sections have resulted in any more throughput of water through this system?”  This question is intended to demonstrate that since the system constraint controls the throughput of a system, focusing improvement anywhere else in the system is usually wasted effort.  What I finish with is a before and after slide just to reinforce how things have changed by focusing on the constraint.

Focus and Leverage Part 228

This posting is the second and final piece on how I present the concept of the system constraint in my training material.  You will recall in my last posting, we discussed a simple piping diagram with different diameter pipes and that the smallest diameter controlled the throughput of water through the system.  In this posting we will expand that thinking to a simple 4-Step process used to make some kind of product.  But for anyone new to this blog or the Theory of Constraints, here are Goldratt's 5 Focusing Steps:

 

1.  Identify the system constraint

2.  Decide how to exploit the system constraint

3.  Subordinate everything else to the system constraint

4.  If necessary, elevate the system constraint

5.  Return to Step 1, but don't let inertia create a new system constraint

 

Because I want the class to get the connection from the piping system to the real world, my next slide is the aforementioned simple 4-step process with cycle times for each step listed.  I ask the audience to tell me which step is constraining Throughput.  It's been my experience that only about 40 % of the class makes the connection between the flow of water through the pipes and the flow of product through this process.  What I have found to be very effective is to select someone who does understand the connection explain his or her reasoning.  It's important that we don't move on until everyone understands this connection..



I use my next slide to reinforce what their fellow classmates or team members have just explained.  I also relate Step 3 of this process to Section E of the piping diagram.

 

In my next slide, I have the class become consultants who are told that the company who owns this process needs more Throughput.  I ask them what would they do and ask them to explain their answers.  I usually break the class up into teams and let them discuss this question and that seems to work well.

 

After the team(s) have explained their plan to improve throughput, I then show them this next slide to reinforce each team's answer on what they would do to increase Throughput. 

 



Because I want the class to understand the negative implications of running each step of this process at maximum capacity, I then ask the class what would happen to the WIP levels if they did.

 

In the next slide, I demonstrate the impact of trying to maximize the performance metric, efficiency, in each step in the process.  The key point here is that the only place where maximizing efficiency makes sense, is in the system constraint.  The excessive WIP build-up encumbers the process and extends the cycle time of the process.

 

 



I then ask the class, "How fast should each step in this process be running to prevent this excessive build-up of WIP?"  This is intended to demonstrate Goldratt's 3rd step, subordination.  That is, why it's so important to subordinate every other part of the process to the constraint.  This next slide explains, in more detail, the concept of subordination.  Steps 1 and 2 must be forced to not outpace the constraint, but must also assure that the constraint is never starved.  This slide usually creates an epiphany of sorts for the team or class.

 

 



My final slide is one that lists Goldratt's 5 Focusing steps.  We talk through each step and relate both the piping diagram and the 4-step process to each of Goldratt's 5 steps.

 

I have been using this simple method of teaching the concept of the constraint for quite a few years now and it has worked quite well for me.  I strongly suggest that you try it yourself.

Bob Sproull

Happy Holidays to Everyone

I wanted to wish everyone a very happy holiday season and to thank all of my readers for the best year ever for my blog.  I will be leaving tomorrow morning for visits with my 6 adorable grandchildren in 3 different locations.  Four of my granddaughters live in Alabama and my two grandsons live in Florida.  These six children make my holidays joyful!

Bob Sproull

Focus and Leverage Part 289

For the past two days I have been performing an assessment of a company located in the deep South and I’d like to share some of my experiences with you.  One of my “blog readers” had contacted me about coming to his company to take a look at how they are running their business and I agreed.  When I asked this man what kind of business he was in, he told me it was a saw mill.  I have never had the opportunity to assess a business of this kind before, so I was very excited to do so.  I had no preconceived notions about what to expect at this sawmill, but I knew that everything that I knew about processes and systems would apply.  As always, I will not provide the name of the business or the names of any individuals that I met with.

 My assessment of this saw mill was to encompass two days of on-site observations culminating with a report of what I saw, plus recommendations for this company going forward.  I will tell you in advance, that in all of my years of doing this kind of work, I have never been more pleasantly surprised with what I observed.  One of the things I was most impressed with was the relationship between the owners and the entire work force.  For those of you who follow my blog on a regular basis, you know the level of importance I place on how the executive teams views and interacts with their work force.  So my posting today will focus on the relationships I observed plus another area that I feel is a business imperative for all companies......the recognition of constraints within a company.

Let me start by saying that when a company fails to understand the value of their people and recognize them as true assets, they will always fail to capitalize on the collective power of the entire organization.  In many companies I have been exposed to, the workforce is treated as a commodity rather than one of its most valuable assets.  This is a huge mistake for these companies because it is the collective wisdom of the workforce that determines their overall level of success.  When companies, like this saw mill, do recognize and understand the value of their workforce, great things do happen!  When companies do understand their workforce’s value, they listen to and act on ideas coming from their workforce and this is many times the difference between success and failure.

This saw mill is a family-owned business and is a third-generation enterprise.  This company has gone through great times and not-so-great times in their past.  In fact several years ago, this company was under contract with a very large parent company and all was well in the world.  But quite recently (i.e. within the last several years), this company lost their contract and was forced to go through a significant headcount reduction.  It was quite evident from talking to the owners that this was a very painful experience because of the value they placed in their workforce.  Unfortunately, in order for the business as a whole to survive, it was a necessary evil.

 

One of the owners told me that at their low point, they had outstanding checks for nearly $250,000 with a zero balance in their checking accounts.  It forced the owners to sell-off a major chunk of the forest holdings, just to balance their books.  I will tell you that the good news is, their saw mill today has overcome their financial problems and is quite a viable business today with revenues and margins in the millions of dollars.  So how did this company make such a dramatic financial turn-around?  Part of how this was accomplished lies in the realization by the owners that the true subject matter experts (SME’s) are the workers that cut the trees (although most of the logs come from outside contractors), and the direct laborers that saw, trim, bake, etc. the logs into a very high quality end product.

The SME’s in any company always know how to improve their business, but it takes ownership listening to them to make improvements a reality and these saw mill owners do understand this concept.  It seems like such a simple concept and maybe even “common sense,” but as Mark Twain said, “Common Sense ain’t Common.”

Another thing that impressed me about this saw mill was their apparent understanding of the Theory of Constraints (TOC).  Several years ago, one of the owners read The Goal and according to him it changed his whole outlook on how to run a business.  And although this owner acknowledges that TOC is in its infancy within his company, his understanding of “constraints management” is clearly visible.  Before his introduction to TOC, he, like many other executives from many different industries, he viewed localized improvements as very important.  But after he read The Goal it became very apparent that the sum of all local improvements does not equal system improvements.  He and one of his production managers, who has also read the book, looked at their total process and began identifying constraints and focusing their improvements directly on them.  This realization, combined with the recognition that their workforce was their most valuable asset, was a clear game-changer for this saw mill.  And the rest, shall we say, is history.

In future blog postings I’ll write more about this wonderful company in more detail, but for now, my hat is off to the executive team for recognizing their true assets and for using TOC to effectuate improvements.  As I walked around this saw mill and met with the workers, it became apparent to me that the entire workforce had a very positive view of the leadership and rightfully so.  One of the most important lessons for any leadership team in any company is the recognition of just how important it is to see the true value of their human resources.

Bob Sproull

A great little video on Critical Chain Project Management!!!

In today's posting I want to share a link to a very short (3-4 minute) video on how one company successfully implemented and used Critical Chain Project Management (CCPM).  It's such a change from traditional Critical Path Project Management (CPM).  Thank you to my friend, Philip Marris, for bringing this video to the forefront on his LinkedIn Group:  TLS

http://www.youtube.com/watch?v=AabEPxVL4XA

Bob Sproull

Focus and Leverage Part 288

Every once in a while I come across another person's writing that sparks something inside of me!!  My posting today is such an example of this type of writing.  It's by a friend of mine named Jim Covington.  Jim writes a newsletter and I think he publishes it once a month, but this month his posting really hit homes for me.  Like Jim, I too am asked to assess companies probably like many of you do.  But in this posting, Jim ties it all together and makes everything seem so obvious.  Thanks Jim for allowing me to share your writing with my readers.....I know they will enjoy it!!  I want to add that Jim's work was much neater in appearance than I am posting here, but for some reason, I can't just import it in.  Sorry Jim, but your content is all there.

Bob Sproull

 

 

 

 

 

 

 

Operation Excellence       by Jim Covington  December 11, 2013

 

 

 

 

 

 

Optimizing Silos... what a waste!  Christmas Catalogs... how does it get here?  Where do we buy?  Where do we sell?... It makes a big difference!

In the past few months, I’ve been asked to review a couple of companies and their manufacturing processes... “Are we making stuff right?”  (A better question might have been, “Are we making the right stuff?”)  After several days touring multiple facilities, when I told them, “yes, you are in an industry with mature technology, and you are probably doing about as well as your peers... you all use identical raw materials and pay the same price for those.  Your equipment is not state of the art, but substantial upgrades would not be cost effective... it takes a heck of a long time to pay off a $500K machine with no appreciable improvement in quality, labor utilization, etc.”  In short, it wasn’t the answer that they wanted to hear.  I’m sure that my reports went into a drawer and the internal summary was, “that was a waste”.  Given the limited scope of the task... yes, I agree it probably was a waste!

Reflecting back on a couple of these situations ... it struck me... these firms still want to optimize the silos.  “Let’s fix manufacturing!”  As a silo, in these firms, these manufacturing operations weren’t broke.  Sure, you could “5S” the place... form a functioning safety committee, improve employee communications, reduce manufacturing lot sizes, form self-directed work teams, etc... and don’t get me wrong, those things SHOULD BE DONE... but in doing those you might find a penny here, or a penny there... however, it certainly won’t be a meaningful change to the financial results of the operations.

[Let me take a different tack here for a moment... I’ll tie this all together in a couple of minutes].

Christmas Catalogs.  I’m sure that your home mailboxes (and emails) are overflowing these past few weeks with promotional materials for gift ideas for the upcoming holiday season.  I picked one up yesterday and glanced at the cover...  the most prominent statement on the cover was “SAME DAY SHIPPING!”  Now, that banner might have been a real selling point in the late 1980s... but today, for that industry... that is a big yawn – everybody ships the same day!  Heck, Jeff Bezos made a splash on 60 minutes last weekend about how he sees the day when Amazon delivers goods with drones!  Imagine order on-line and have 30 MINUTE DELIVERY --- not “SAME DAY SHIPPING!”

[Let me take still yet another different tack – hold on, these all come together.]

Logistics and sales channels.  This country experienced its most rapid period of economic expansion in the post WWII period.  Transportation of goods was very difficult... no single source point to point logistic networks existed.  Neither UPS, nor FED-Ex, nor DHL were yet created.  You either shipped by regional carriers that had alliances or the USPS.  The ability to monitor and thus extend credit was impossible... you had to apply for an account, received and paid from statements, etc... direct withdrawal of funds, direct deposits, Pay-Pal, Visa, Master Charge, American Express... none of these channels/systems existed.  With the strong demand for goods, local distributors flourished in almost every market place.  These distributors’ strategies were simple (and very similar)... they provided local availability of goods --- they purchased in bulk to minimize transportation costs (either Truck Load or through shipping companies that specialized in LTL – that had many terminals – again, not point to point), and the distributors provided local credit and collection of funds.  They existed primarily for these two reasons... local availability of goods and local credit as the bigger firms had no idea who their customers were nor had the systems to deal directly with them.

Lumber yards, gas stations, drug stores, grocery stores, men’s and women’s clothing stores (clothing -- if you knew any local purveyors of these items the big event of the year was going to the Merchandise Mart on a buying trip), agricultural feeds, aftermarket auto parts  – All of these goods took a similar route to the eventual consumers.  Manufacturers ship to several smaller entities, that in turn ship to several smaller entities that then ship to local distributors and then are sold to the consumer.

The network would look like this:

[Forgive my elementary graphic skills (my graphics department is a very limited part time operation) – but I think you get the point!]

Now consider this typical supply network... if every level is feeling pretty good about perhaps a 45 day turn... “after all, we used to only turn our inventory 4x (90 days)...”, with 3 levels of intermediate stops in the supply chain... there is 180 day supply... (actually, I’ve seen much, much  worse in the past couple of years, but again, their management was silo oriented and didn’t want to know that.)

“Do the products have a shelf life?”  “Yes”.  “How long?”  “about 6 months!”, “... do you realize that you have 6 months in the supply chain?” “No, we only have about 45 days!”  That was an actual comment folks, you can’t make this stuff up!  (And remember the 6 months is an AVERAGE... some items are out of stock and some items are still saleable (?) after two years?)

Another one I indirectly heard lately... “If you can make this item in less than 15 seconds (3 operations 5 seconds each), why do you have 30 days of this product family on the shelf?” ... Reply from the company’s President, “because we have so many SKUs (of that product family)!”

[Consider that last paragraph again ... sorry I can’t help myself, quoting my friend Gene Yarussi, who once bluntly stated, “Does that sound as stupid to you as it does to me?”] 

The number of SKU’s has nothing at all to do with the level of FG inventory that should be held for sale.  It has everything to do with the time to replenish.  A 15 second manufacturing cycle time protected with 2,592,000 seconds of finished goods is NUTS!

So, let’s tie this together ... we have manufacturing companies that know that they have to improve.. financially, they are seeing less favorable results year after year.  They look at their income statement and see that the COGS is the biggest item on that page.  They then put on their special “silo” glasses and mount the cry, “Let’s fix manufacturing!”   Folks, there are some companies that have troubled manufacturing operations – I won’t deny that, but look again at the graphic above.  Remember the quote of Dr. Ohno, father of the Toyota Production System, “All we were trying to do was shorten the time required from when the consumer ordered the car until we collected the cash.”

How do you shorten the lead time?... you get it there quicker!  How do you get it there quicker, ... you eliminate one of the levels of distribution, (one of the speed bumps!)  Modern communication and transportation systems are still not being fully and effectively utilized by all manufacturers... those that don’t address this issue will most certainly fail!

There is far more margin improvement possible by eliminating one (or more) of the steps in the supply chain to your customers.  Each step adds a minimum of 20% to the previous level’s cost.  If you can install systems that eliminate a step and keep ½ of that amount as improved margin... you will have achieved far more than you can ever see as a result of “fixing manufacturing”.  Can’t do that because of inertia? (i.e. that is the way that we have always done it) – Look out!  You are headed for the ditch!  You must segment your market for the growing portions that will demand it.  If you don’t, your competitors will!

Modern communication systems, transportation systems, computer direct order entry systems... (forget orders... set your customers up on direct replenishment systems), modern banking systems... (I now deposit checks into my bank account with my Ipad/Iphone) have had a phenomenal effect on our economy.  Yes, the mom and pop distributors and retailers are being replaced and will continue to be eliminated... anyone seen an ice delivery man or a home milk delivery service lately? ... There are no guarantees of “forever”.

As a recent example, I have an Acura with 45K miles... it needed tires.  The local tire distributor that I have dealt with for over 20 years gave me a quote of $1,280 for a set of 4.  “Jim, I’ll need a week to get them here!”  I found them on-line for $854 (with free shipping) ordered on Tuesday and arrived on Thursday from South Bend, IN.  The firm that sold them to me “gets it”... there is no value added for a growing segment of the market to have the tires go through probably 2 more levels of distribution – therefore put in systems to eliminate them.  I got them mounted for $75.  Never spoke to a single person until I went to have them mounted.  Order entry was on line, a pay pal transaction was accomplished, they were picked, shipped and delivered – I saw the UPS truck leave pulling away.  It wasn’t worth it to me to pay almost $250 more for slower delivery based on a 1950’s distribution model/process.

Back to companies, contrast a couple of actual scenarios – granted one company is directly servicing the customer and the others are manufacturers.

So... Do YOU think that companies B & C are on the right strategic path?   They are run by smart people. While they are successful today, do you think that they will be as successful tomorrow?

Amazon isn’t the best at what they do... how many transactions do you think that Walmart does per minute? ... in most instances, goods purchased in their stores today are replenished from a distribution center tonight, without order entry, without credit and collection,  and the replenishment/distribution centers are run with no forecasts...

If you are intrigued... Walmart’s stats.

Founded: 1962.  Revenue: $469,000,000,000.  Employees: 2,000,000. Locations:  11,047 (US).  BTW the Walton’s still own more than 50% of the company.

Fixing the manufacturing “silo” isn’t the only path that needs to be explored.  We “manufacturing” folks have to look at the much broader supply chain.  The key is faster “flow”.

[I haven’t even opened the door on the supply chain coming to the manufacturers]

It is a New Year... do you need a fresh set of eyes to look at your entire operations   and supply chain?  We can help!  It won’t be a waste!

“Profound knowledge must come from outside the system – and it must be invited in.” 

--W. Edwards Deming

All the best!

Jim Covington

www.jpcovington.com

815-988-5404

Other:

I have a good friend John Covington (not related by blood, but certainly by spirit).  John runs Chesapeake Consulting Inc.  Chesapeake is a boutique firm that focuses on enterprise fitness.  http://chesapeakeconsultinginc.com/  He too has a mail list, and monthly he publishes a list of mental pearls that I find to be worthy of consideration.  Last week, his column was timely and stresses that Advent season is a time of year to consider personal planning for the year ahead.  I couldn’t find it on Chesapeake’s website... but there was a link that I’ll share here:  http://hosted.vresp.com/1042041/fde3f169f3/TEST/TEST/

The column talks about making a list of the “as-is” and another column of the “to-be” – if you find it worthy, I’m sure that he would gladly add you to the list, as his is a process with weekly assignments for the next three weeks that I’m certain will be worthwhile.  Thanks John!

One other note.  2013 has been a difficult year our family.  Some, but not all of you know that Jody had a major health issue early in the year that we were told was all clear, but reoccurred while we were in France in September.  After 23 days in the hospital there and a hospital to hospital transfer from France to UWHealth in Madison for an additional 9 days stay she was able to return home.  She is recovering... the prognosis is for a full recovery – but it will be a few more weeks before life becomes close to the “old normal”. 

The support of friends, family, and folks we didn’t even know has been overwhelming.  As John’s above article  states, these events have certainly brought a focus to our lives and an appreciation that “people are good”. 

Thank you and may god bless!

Jody and Jim Covington

Focus and Leverage Part 287.....

As I’ve written about before, here’s where I’ve departed from the traditional TP tools in that as Bill Dettmer recommends, the next step would be to use the Goal Tree to construct a Current Reality Tree.  And although I totally support Bill Dettmer’s approach when time is not a factor, and continue on with the Goal Tree in the way Bill recommends. But, when time is a factor, my immediate next step is to facilitate a critical discussion with the improvement team on the real-time status or current state of the Goal, CSFs and NCs.  I use a simple Green, Yellow and Red coding system to describe how each of the Goal Tree entities exists in our current reality.  With this new approach, the status of each entity becomes much easier.  I might add that the coding system I will now describe is a departure from the way I had been using the Goal Tree in the past.

Notice the key on the bottom right hand side of the Goal Tree and you’ll see that a box shaded in green indicates that the measure is at or above the target level.  Green can also be used to describe actions that we plan to take to drive the lead measures in a positive direction.  In this case, the required action is in place and functioning so no changes need to be made.  Likewise, a yellow box indicates that a lead measure is greater than 5 %, but less that 25% away from the defined target.  Or if it’s a required action, then it means that there is something in place, but that it needs improvement.  A box shaded in red means that the lead measure is greater than 25 % from its target or if it’s a required action, then the entity is either not in place or that something is in place, but it isn’t functioning.   (Note:  It should be obvious that any entity shaded in red has a higher priority than one shaded in yellow.)  Please understand that these guidelines that I’ve established are mine, so they are not hard and fast rules taken from some text book.  I encourage those using the Goal Tree in this manner to develop your own guidelines. Let’s look at our Goal Tree and see how this fictitious company made out.

 

The following were the values assigned to the current lag measure (i.e. the Goal) and all of the lead measures (i.e. all of the CSF’s and some of the NC’s):

Profit margin = 3 % (Lag Measure), Customer Satisfaction Index = 89%, Throughput Growth = 2 %, Workforce Attrition Rate = 10%, Operating Expenses = 13%, Raw Material Inventory = $1.1 M. On-Time Delivery = 75%, Customer Quality Rating = 97%, Schedule Compliance = 71%, Internal Quality System Audit = 99.2%

Starting with our lag measure for the Goal, we see that it is currently at 3% and because it is greater than 25 % away from our target, we shade it in red.  Since our Customer Satisfaction Index is at 89 %, which is between 5 and 25% away from our target, we shade it in yellow.  In fact, the only thing that seems to be working well is our Customer Quality Rating at 97% which is well inside the limit of 5 % from the target.  Because quality is not a problem, it is shaded in green, meaning that if this company continues with its current Quality System, they should continue doing well.  In like manner, we compare all of the remaining lead measures and color the boxes accordingly. 

As I previous stated, where we observe red boxes, it should be apparent that these are the areas we must focus on first because they offer the greatest potential source for improved results.  As we improve the lead measures in these areas, improvement in upper level lead measures will take place until ultimately, the lag measure (i.e. the Goal) of Profit Margins Above 15%) should also improve.  The key then, for creating a focused improvement plan, using the Goal Tree, is to first develop the required Lag and Lead Measures and then set realistic targets to achieve each one of them.  The key though is to make sure there is a correlatable relationship between the lead and lag measures.

So here it is, a different way to utilize a Goal Tree which is easy both to understand and construct and which permits the development of a very focused improvement plan.  In my experience using this approach, the team that develops it, will embrace it because it is their plan.  And the good news is, from start to finish it only takes less than a day, rather than days or weeks to develop.

When I started this series of postings, I introduced you to a book I have been reading called, The 4 Disciplines of Execution: Achieving Your Wildly Important Goals, by Chris McChesney, Sean Covey and Jim Huling.  I want to thank these authors for “enlightening” me with their book.  Once again, I encourage everyone to go get this book, read it and apply it….especially if you’re involved in improvement efforts.  The authors also describe why many improvement efforts fail and how to overcome barriers to success.

But before I move on, I want to add one additional change to the new Goal Tree.  In this new version, I have included Lead and Lag Measures, but one important fact is not in the equation……the “when” of these metrics.  That is, I will now add a “time piece” to the Lead and Lag measures.  In the figure below I have inserted completion dates into the Goal Tree and as you can see, each layer in the hierarchy displays an earlier date as you progress down the tree.  By adding dates to the Goal Tree, the improvement team now has a sense of timing so that priorities on what to work on is clearly visible to them.

This nested hierarchy of dates and actions provides the team with a roadmap, if you will, on what to work on first, then next and so on.  For example, if we look at “Schedule compliance greater than 96% by 12/15/2013,” it is clear to the team that DBR must be implemented well in advance of that date.  That is to say, in order to achieve the NC of “On Time Delivery Rate greater than 96% by 12/30/2013, then schedule compliance must be completed first.  In a sense, the upper level lead measures are both lead and lag measures.  Improvements to the upper level lead measures only occur when the lower level lead measures are achieved. In the case of action steps, these too should have completion dates associated with each one even though I haven’t depicted any dates in the Goal Tree below.  For example, in the case of “Throughput Growth greater greater than 20% by 1/15/2014, it is clear that the associated NC (Focus Improvement on the constraint) must be in place in advance of that date.

So now you have the complete list of changes I will be using on the Goal Tree going forward.  I want to make one point though as it applies to how I create the initial Goal Tree.  I will probably still create the initial Goal Tree as I always have prior to adding the lead and lag measures and completion dates.  I think it's important to do that prior to inserting the measures and dates.  I say this because I have found that the flow ideas should move forward in an unencumbered way and by waiting until later to introduce the lead and lag measures and the completion dates, this will happen.

Bob Sproull

Focus and Leverage Part 286....

In my last posting I indicated that I would lay out the first change I am making in how I will be developing and using the Goal Tree going forward.  I indicated that it is a subtle change, but one that is very important.  In one of my previous postings I discussed the difference between Lead and Lag Measures and this change is predicated on these two types of measures.

 

This change has to do with how the Goal and Critical Success Factors are worded (and some of the NC’s).  One of the key learnings in The 4 Disciplines of Execution: Achieving Your Wildly Important Goals, was the concept of Lead and Lag Measures.  The lag measure has to do with Goal achievement and should be written in such a way that there is a clear measurement of Goal units with a well-defined target.  So, for example, instead of the Goal being written as “A highly profitable company” like we have in our Goal Tree example, let’s word it as though it was a performance measure with a target.  Let’s say that this company’s current profit margins are around 3%.  What if we re-wrote the Goal as follows:  Profit Margins Above 15%?  Written this way, we can measure it and it has a clear target, just like a finish line in a race.  In this way everyone knows what the company wants to achieve and how to measure success.

Now let’s look at the Critical Success Factors (CSF’s).  The first CSF in our example is written as Highly Satisfied Customers.  Can you now see how vague this CSF was as it was originally written?  Written in this manner, it is neither measurable nor does it have a target for the improvement team to shoot for.  If we re-worded this CSF, an example might be something like, “Customer Satisfaction Index greater than 96%.”  By writing it this way, it becomes measurable and has a clear target or measure of success to attain.  What I’m suggesting is that the CSF’s should be written as Lead Measures that tie directly to the Lag Measure.  In other words, if we were able to move the lead measures in a positive direction, then the lag measure would eventually improve as well.  Let’s look at the original Goal Tree with the remaining CSF’s written using these simple guidelines.

As you can see, each of the CSF’s now are measurable and display a clear success target.  For example, one of the CSF’s is written as “Operating Expenses less than 6 % of Revenue.”  Clearly, Operating Expenses are measurable and the target to reach has been set as less than 6 %.  Now let’s look at the Necessary Conditions (NC’s).

 

As written in the Goal Tree above, some of the NC’s are written with the same clarity as the CSF’s.  I chose to do so because when they are measurable and have a target as some of them do, it becomes much easier for the improvement team to define activities that will move these lead measures.  And if these lower level lead measures move in a positive direction, they will move the upper level lead measures in like manner.  For example, one of the lower level NC’s is stated as “Schedule Compliance >96%.”  If this is achieved, then the assumption is that on-time delivery will also be met.  And if this CSF is met, then it should move the Goal, Profit Margin >15 %, closer to the targeted level.  As we know, each CSF contributes to achievement of the Goal.  The improvement team concluded that, if they implement Drum Buffer Rope, then there target of 96% schedule compliance would be achieved.  OK, so what’s next?

 

In my next posting, I will demonstrate how I intend to use this new version of the Goal Tree going forward.

Focus and Leverage Part 285

 

The Goal Tree – A New Way to Make and Use It
 

The Goal Tree is something I have written about numerous times on my blog and as a matter of fact, in the last 4-5 postings I introduced you to a book I have been reading, The 4 Disciplines of Execution: Achieving Your Wildly Important Goals, by Chris McChesney, Sean Covey and Jim Huling.  As I mentioned in a couple of these postings, I saw the teachings within this book as a way to enhance the Goal Tree.  So for the next series of postings, I want to share how I believe the Goal Tree can be improved upon by interjecting the teachings in this wonderful book.  For those of you who have never used a Goal Tree, I will start with a description of this tool and what a well-conceived Goal Tree can do for your organization.  As I am presenting the new version of the Goal Tree, I will include and describe how I plan to improve it using the teachings within this book.  So let me start with some background on the Goal Tree.

Many people who have gone through a TOC Jonah training session have come away overwhelmed and sometimes feeling like they are unable to apply what they’ve learned.  Let’s face it, the TOC Thinking Process tools are just not easy for some people to grasp and apply, so they kind of put them on the back-burner rather than taking a chance of doing something wrong.  Well, for everyone who fits into this category, I have hope for you and this hope is referred to as the Goal Tree.  The Goal Tree is a logic diagram that is actually simple to construct  and, unlike the TP’s, it is one that I think you would feel confident using.  So let’s review both the history and basics of the Goal Tree.

Bill Dettmer, who is generally credited as being the man who developed the Goal Tree, tells us of his first exposure to the Goal Tree back in 1995 during a management skills workshop conducted by Oded Cohen at the Goldratt Institute.  Back then, the Goal Tree was referred to as an Intermediate Objectives Map, but in recent years, Dettmer has recommended that the IO Map should now be referred to as a Goal Tree.  Bill now believes that it should be the first step in a full Thinking Process analysis.  He believes this because it defines the standard for goal attainment and its prerequisites in a much more efficient manner.  I believe that the Goal Tree is a great focusing tool to better demonstrate why an organization is not meeting its goal.  Bill tells us that other advantages of using a Goal Tree first, is that by including it, there is a better integration of the rest of the TP tools that will accelerate the completion of Current Reality Trees, Conflict Clouds and Future Reality Trees.  The other thing I like about Goal Trees is that they can be used as a stand-alone tool which results in a much faster analysis of the organization’s weak points.  In this posting we will discuss the Goal Tree as a stand-alone tool.

When using the logic based TOC Thinking Process tools there are two distinctly different types of logic at play, sufficiency type logic and necessity type logic.  Sufficiency type logic is quite simply a series of if-then statements.  If I have “this,” then I have “that.”  Necessity-based logic trees use the syntax, “in order to have “this”……I must have “that” The Goal Tree falls into the necessity-based category.  For example, in order to have a fire, I must have a fuel source, a spark and air. If the goal is to have a fire, I must have all three components.  The fuel source, spark and air are referred to as Critical Success Factors (CSF’s).  Take away even one of the CSFs and I won’t have a fire.

The hierarchical structure of the Goal Tree consists of a single Goal, several Critical Success Factors (CSFs) which must be in place to achieve the goal and a series of Necessary Conditions (NCs) which must be in place to achieve each CSF. The Goal and CSFs are written as terminal outcomes, as though they are already in place.  The NC’s are written more as activities that must be completed in order to achieve each of the CSF’s.  Let’s look at an example of what a completed Goal Tree might look like.

Suppose that you were working with an organization that is profitable, but wants to become a highly profitable one.  You assemble the CEO and key members of his staff to develop an effective plan to achieve this goal.  In the Goal Tree drawing below, after much discussion, you agree on your Goal as “Highly Profitable Company” and place it inside the Goal box. This goal statement, which is the desired end state, is written as a terminal outcome as though it’s already been achieved.  You think to yourself, “What must I have in place for our goal to be realized?” You think, “I know that we must have highly satisfied customers for sure and that our throughput must be high and growing,” so you place both of these in separate CSF boxes.  One-by-one you continue listing those things that must be in place to achieve your goal and place them into separate CSF boxes like the figure below.  In a Goal Tree you should have no more than 3 to 5 CSF’s.

Because the Goal Tree uses necessity–based logic, it is read in the following way: “In order to have a highly profitable company, I must have highly satisfied customers as well as the other four CSF’s.  Directly beneath the CSFs are Necessary Conditions (NC’s) that must also be in place to achieve each of the CSFs. So continuing to read downward, “In order to have highly satisfied customers, I must have two NC’s, high on-time delivery rates and excellent quality.  Remember, the CSF’s are written as terminal outcomes, as though they’re already in place.  You continue reading downward, in order to have, for example, a high on-time delivery rate, I must have a highly effective scheduling system in place and functioning.  The NC’s represent actions that must be completed to achieve each individual CSF, so they form the basis for your improvement plan.  In like manner, your team completes all of the NCs until you are satisfied that what you have in place on the Goal Tree will ultimately deliver the goal of the organization. Typically in a Goal Tree, there are three-to-five CSFs and no more than two-to-three layers of NCs.  OK, so what happens next?

In my next posting I'll introduce you to the first change in the way I will now be using the Goal Tree going forward.  It’s a subtle change, but it’s very important. 

Bob Sproull