I must say that I’ve been very fortunate in my career. Not because I have been successful financially, although I haven’t done badly. I’ve been fortunate because I’ve been able to be a part of so many different improvement initiatives over the years. I was around during the Deming years and was able to learn and apply his now famous 15 principles as well as his teachings regarding the significant impact variation has on processes and systems. I was around when Lean and Six Sigma came upon the scene and was fortunate enough to have worked for a great TPS consulting firm. All of these and more had a very profound impact on me as a professional.
Like
most consultants I was looking to remove waste and variation in every process I
touched. After all, waste and variation
exists everywhere right? If I could
reduce both of these harmful negatives from every process, surely the results
would flow directly to the bottom line.
And they did, but not in what I thought were significant enough
numbers! What was I doing wrong? I mean the companies I worked for certainly
looked better because of my 5S events and our changeovers were being done in
record time, but the bottom line was not growing enough to suit me. Our process layouts were better, we had
manufacturing cells in place, our inventory was lower, and there was much less
waiting, but the financial results just weren’t there, at least not enough to
satisfy me. We even reduced the time it
took to purchase supplies and materials.
And not only were we not seeing positive effects on the bottom line, our
orders were still late getting to our customers. Something had to change!
In
the late 1980’s, however, something more powerful and influential came to me as
a gift….a copy of The Goal by Eli Goldratt. As I read The
Goal I began to visualize how I could apply the many lessons I had read
about. I asked myself, “Could I actually
utilize Goldratt’s teachings in the real world?” After all, this was only a fictional setting
and there really wasn’t an Alex Rogo. It
wasn’t apparent how I would use this information until the early 90’s when I
had an epiphany or maybe some would say an out-of-body experience! Goldratt’s simple, yet elegant message of
identifying, deciding how to exploit the system constraint and subordinating
everything else to the constraint changed me forever.
In
addition, to the concept of constraints, Goldratt introduced me to what he
called Throughput Accounting.
Specifically, Throughput (T), Inventory (I) and Operating Expense (OE)
took on a whole new meaning for me. It
became apparent to me that reductions in inventory typically have a one-time
impact on cash flow and after that little can be gained. It was also evident that operating expense
had a functional lower limit and once you hit it, you could actually do more
harm than good to the organization by reducing it further. Throughput, on the other hand, theoretically has
no functional upper limit! But more
importantly, throughput was only throughput if money exchanged hands with the
customer. That is, producing products for
sale is just not the same as receiving cash for them because, in reality,
it’s simply inventory.
Learning
about constraints and throughput accounting transformed me back then. I came to the realization that everything I
do in the name of improvement would give us a better return on investment if we
focused our efforts on the operation that is limiting throughput. I decided then and there that constraints are
the company’s leverage points and if I wanted to maximize our profits, then our
primary improvement efforts should be focused on the constraints. So off I went and the results were immediate
and significant. Our on-time delivery
sky rocketed! Our profits rose at an
unprecedented rate and everything was good in the world. Good until the constraint moved that is! All of a sudden my world came crashing in on
me because I hadn’t anticipated this. I
should have, but I didn’t. It wasn’t
hard to find the new constraint since there was a pile of inventory sitting in
front of it. So we just moved our
improvement efforts to the new constraint.
I learned what Goldratt meant about “breaking the constraint.”So here's my message to everyone. Although I am a huge supporter of both Lean and Six Sigma, the profits realized from these two initiatives or even the hybrid Lean-Sigma, pale in comparison to what can happen from an integrated Lean, Six Sigma, TOC (or as I called it in my second book, The Ultimate Improvement Cycle (UIC)). These days this same integration is better known as TLS. In fact, one double blind study (1) of 21 electronics plants has confirmed that an integrated L-SS-TOC improved profits roughly 22 times that of Lean and 13 times more than Six Sigma if these were both singular initiatives. I know what many of you are thinking......I'm making this claim with a sample size of only one? All I can tell you is that this integration works and it works every time!!
In my next posting I'll discuss the "nuts and bolts" of how this methodology works and how it was use to solve a real time problem that actually happened to me years ago.
Bob Sproull
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