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.
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.
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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