Thursday, February 27, 2014

Focus and Leverage Part 313

Continuing on with my series on The Ultimate Improvement Cycle, in this posting we're going to take a look at the recommended tools and actions need to successfully implement this integrated improvement methodology which is your first of 4 steps.
Accomplishing Each Step of the UIC

So just how do you accomplish each of the steps in the Ultimate Improvement Cycle? You do so by using all the tools and actions that you would use if you were implementing Lean and Six Sigma as stand-alone improvement initiatives, but this time, you focus most, if not all, of your efforts primarily on the constraint operation. In the figure below I have layed out the tools and actions you will use and perform at each step of the UIC. As you can see, there are no new or exotic tools that I am introducing. Instead, in creating the Ultimate Improvement Cycle, one of my objectives was to keep things simple, and I think you will agree that the tools I have laid out are all basic and time tested. For example, in step 1a, you are creating a simple current state value stream map (VSM) to analyze where the excess inventory is, what the individual processing times are, and what the cycle times and the overall lead times are within the process. You use this tool to identify both the current and next constraint.

You are also looking at the current process, information flow, and performance metrics to make certain that the metrics stimulate the right behaviors, and that they will in fact track the true impact of your improvement efforts.  Likewise, in steps 1b and 1c, you will be analyzing your process by using simple tools like Pareto charts, run charts, spaghetti diagrams, time and motion studies, cause-and-effect diagrams, causal chains, and so on. Keep in mind that these are by no means the only tools you can utilize, just a few of the more common ones. In each phase of the UIC, you will use tools to perform the tasks at hand; all the subsequent chapters of this book explore these tools and actions in a bit more detail.

 Step 1: Identify

In the first step of the Ultimate Improvement Cycle, I have combined identification of the value stream from the Lean cycle, identification of performance metrics from Six Sigma, identification of the current scheduling system used to schedule the plant, and identification of the current and next constraint from the TOC cycle. In some respects, this first step is the single most important one, because it forces you to view and evaluate the entire value stream to locate the area, policy, or process step (the system constraint) that is preventing you from reaching your full financial potential. The first step focuses resources where they will do the most good and is the basis for continuous improvement. In addition, you need to not only measure your progress toward improvement, but also reinforce your efforts. To this end, you need to select performance metrics that drive the right behaviors. The metrics you choose can actually motivate behaviors that are counter to what you are trying to accomplish.

Lean teaches you to first identify and map the value stream as it exists today.  A value stream is defined as all the actions, including both value-added and non-value-added ones, that are required to receive the order, schedule it, obtain necessary raw materials, produce it, and deliver it to the customer. A value stream map helps you to see and understand the flow of material and information as a product or service makes its way through the value stream. Included in the value stream map are methods for receiving orders, communicating information about production requirements (i.e., scheduling system), the locations and amount of inventory, the current processing and cycle times for all process steps, the distance traveled between process steps, and so on. All this information will be used to facilitate the identification of the current constraint, which will

become the focal point of your improvement activities.  Without this focusing step, it is possible to make improvements in both quality and productivity that end up having minimal impact on bottom-line profits because they may be in nonconstraint operations. It is important to understand that unless you improve the total system throughput, any improvement in a non-constraint is just really an illusion. It is an illusion because people mistakenly believe that improvements anywhere in the process will translate to system-wide improvements. If you are not careful, you may end up building excess or un-needed inventory somewhere in the process and inflating cycle times. At the end of the day, this excess inventory serves only to increase costs (i.e., holding or carrying costs, unneeded labor to produce it, and so on) and jeopardize due dates at the expense of revenue gains. This misplaced or misguided focus is one of the primary reasons why many improvement initiatives fail.

It should be said that there are other things to consider when attempting to identify the constraint operation or system constraint. According to Standard and Davis, “Often bottlenecks are not obvious.  Although the most straightforward way is to look for excessive WIP, there are many other reasons why WIP might accumulate between processes.” Standard and Davis give, as an example, that a performance measure, such as equipment utilization or manpower efficiency, might encourage production of items regardless of whether or not a downstream operation needs them. In this case, your constraint might be the performance metric itself!

Standard and Davis also tell you that bottlenecks tend to wander around the factory because of things like product mix and even managerial decisions.  An example of this is a decision to run large batches of product so as to avoid or minimize the perceived setup costs, when in reality reduction in setup times (and costs) can be minimized through the application of SMED or rapid changeover techniques. The point here is that when attempting to identify the constraint operation, you must also search for and analyze the real reasons why the constraints exist. If there is excessive inventory, you must determine why it exists before you take actions to reduce it. Keep in mind that simply reducing inventory without understanding the root cause for its existence could be disastrous.

Note: One of the primary reasons companies have excess inventory on hand is to compensate for hidden problems—a kind of safety net, if you will. For this reason, some people advocate a radical inventory reduction to force the problems to the surface, but I adamantly disagree. The reason I disagree with this strategy is because most organizations are not prepared to tackle the problems that have been covered up for so long. As inventory is reduced, these problems will surface, and if the organization is not prepared or capable of solving these problems, not only will improvements not happen, but chaos will reign. You will get there eventually, but for now, do not worry about excess inventory.

You will notice in this first step, step 1a, that I am recommending that you identify not only the current constraint, but also what you believe could or would be the next constraint, once the first constraint is broken. Why do I recommend identifying the next constraint in this first step? Because in too many instances, companies attempting to implement the Theory of Constraints and constraints management fail to look forward and predict where the next constraint will be.

As you identify the current constraint, ask yourself the following question: What will be the effect, or where will the next constraint be, when I break the current constraint? You must remember that when you break your current constraint, another will appear almost immediately, and unless you prepare in advance, you will spend needless time searching for something that you probably could have predicted in advance. In addition, the apparent gains in throughput when the current constraint is broken will be limited by the throughput of the next constraint. In so doing, you can begin planning and identifying resources that will be needed when the next constraint appears. You can use the value stream map that you created to assist with the identification of the next constraint you will be dealing with. You will usually be looking primarily at where the inventory is and how long it takes a part to pass through a process step (i.e., processing time).

Also included in step 1a is the need to review the current method that you employ to schedule production within the plant. Why is this an important thing to know? The fact is, there is a right way and a wrong way to schedule a production facility. If you schedule it the wrong way, you will see excessive amounts of inventory, extended lead times, and late delivery dates. If you schedule it the right way, your throughput, inventory, and operating expenses will be optimized, and you have a much better chance of delivering products on time.

In steps 1b and 1c of the improvement cycle, you are attempting to define, measure, and analyze non-value-added waste and variation in the current constraint.  It is important to understand that in this step, you are interested only in defining, measuring, and analyzing the waste and variation that exists, not removing it yet. Some will argue that unnecessary waste and variation should be removed immediately, but I disagree. In my opinion, it is this compulsion or urge to do everything right now that causes some companies’ improvement initiatives to fail. Effective waste elimination and variation reduction are not effective without a systematic plan that ties together both steps 1b and 1c. You want waste and variation to be attacked concurrently to ensure that any changes associated with reducing waste (i.e., Lean) are not interfering with changes related to variation and defect reduction (i.e., Six Sigma), and vice versa. Too many companies are engaged in the “fire, ready, aim” scenario that typically results is chaos, confusion, and sometimes even competition between the two initiatives.

Using the tools of Lean (e.g., waste walks, time studies, spaghetti diagrams, flow diagrams, and so on), you identify all existing forms of waste (e.g., downtime, unnecessary travel time, wasted motion, inventory, equipment changeover time, and so on), but for now, do so only within or in front of the constraint.  Waste in nonconstraint operations is certainly important, and you are not ignoring it forever, but remember, you are focusing your resources on improving only the constraint right now, because the constraint dictates the system’s throughput, and throughput, above all else, dictates profits. Notice in steps 1a to 1c that you are using the elements of the typical Six Sigma road map (DMAIC) to evaluate your improvement options.

It is my belief (and that of others like Goldratt and Dettmer) that improving throughput provides the opportunity for maximum return on your investment. The figure below is a graphical comparison of throughput, operating expense, and inventory as they relate to profitability contribution. I have not attempted to insert numbers into each piece of the profitability pie simply because it is situation dependent—that is, it is dependent upon the current state of the process, company, or organization you are improving. But generally speaking, the order in which these three profit components impact profitability is throughput (by a wide margin), inventory, and then operating expense. For any given company, however, depending on the circumstances, operating expense and inventory could be reversed, but it is clear that throughput is king.

In step 1c, your efforts are aimed at defining, measuring, and analyzing variation and defects in the current constraint. Like step 1b, you are interested only in defining, measuring, and analyzing the sources of variation and defects, but not acting upon them just yet, for the very same reason you are not yet acting on sources of waste. You want to maximize the utilization of your human resources, and you simply will not do that effectively without taking the time to develop an attack plan. So, in this step, you use the Six Sigma tools and techniques (e.g., Pareto charts, run charts, check sheets, cause-and-effect diagrams, causal chains) to identify the sources of variation and defects within the constraint operation.

In my next posting we will continue moving around the Ultimate Improvement Cycle and look at Step 2.

Bob Sproull

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