In my last
posting I continued my discussion on systems thinking. I told you that Constraints Management is
based on four assumptions about how all systems function. But before presenting more material on
systems thinking, I want to start this posting by restating these four
assumptions. I’m doing so because these
four assumptions form the basis for an effective systems thinking analysis. A bit later on in this post, I want to
discuss Goldratt’s 5 Focusing Steps in detail because they are an extremely important
element of a systems thinking analysis and subsequent improvements to it.
The four assumptions are:
- Every
system has a goal and a finite set of necessary conditions that must be
satisfied in order to achieve that goal.
- The
sum of a system’s local optima does not
equal the global system optimum.
- Very
few variables limit the performance of every system at any one point
in time.
- All
systems are subject to logical cause-and-effect relationships.
This first
assumption is such an important one for everyone simply because that by defining
where you are going (the goal) and how you are going to get there (Critical
Success Factors (CSF’s) and Necessary Conditions (NC’s)), you have taken the
first step in revealing the right pathway to take. The bottom line is, if you
haven’t defined your pathway to your goal, then you will be lost along the way
and it will be very difficult to reach your destination. Unfortunately, many organizations don’t take
the time to define their goal.
The importance
of identifying a system’s (organization’s) goal, critical success factors and
necessary conditions is that they will become the new standard for both results
and decisions. In addition to the Goal,
CSF’s and NC’s, I always recommend complementary performance metrics. As I have written about many times on this
blog, performance metrics like operator efficiency or equipment utilization are
simply not effective metrics to measure how well and organization is
doing. If they are measured in the
constraint, they are effective metrics, but not in non-constraints. Trying to optimize a non-constraint’s efficiency,
for example, will only serve to pile up inventory and negatively impact on time
delivery. So my advice is to make
certain that whatever metrics are chosen that as they move in a positive
direction, the system benefits and not disparate parts of the system.
Once the Goal,
CSF’s and NC’s are in place, it is time to apply Goldratt’s Five Focusing
Steps. For those of you who are
unfamiliar with these steps, I’ve listed them below, along with the two
prerequisites that must be in place if they are to be successfully applied.
- Prerequisites
to Goldratt’s 5 Focusing Steps
- Identify
the Goal of the system plus the Critical Success Factors and Necessary Conditions
- Decide
on the performance metrics for the system
- Goldratt’s
5 Focusing Steps
1. Identify
the current and next system constraint
2. Decide
how to exploit the current system constraint
3. Subordinate
everything else to the system constraint
4. If
necessary, elevate the system constraint
5. When
the current constraint is broken (or no longer is the constraint), return to
Step 1, but don’t let inertia create a new constraint.
Let’s now take some
time to discuss each of these 5 focusing steps in more detail so that the true
meaning and intent of each step is better understood.
Step 1: Identify the current and next system constraint: What we’re looking for here is to locate that part of the system that
is currently limiting the system’s overall performance. Remember back to our previous posting when I
told you that we must first decide whether the constraint is located internally
or externally to the system. If it’s
inside the system, then it’s usually a resource or a policy of some kind. In other words, we don’t have the capacity to
satisfy the current market demand. On
the other hand, if
it’s external to the system, then we have more capacity than we have demand and
therefore need more orders for our product or service. Something important that many people seem to
ignore when using the focusing steps, is that once the system constraint has
been identified, if you think you know
how to break it without too much time, effort or investment, do so immediately
and go right back to Step 1 and identify the new constraint. What I also recommend is, in the process of
identifying the current constraint; think to yourself, where the next one would
be if you were able to break the current one. If it can be broken without much
investment, then immediately do so, and revert to the first step again. By
identifying the next constraint, in advance, the improvement process becomes much
faster. But if the current constraint can’t
be easily broken, then move on to Step 2.
Step 2: Decide how to exploit
the system constraint.
In this step, what we must do is decide how to exploit the current system
constraint. Exploiting the constraint simply means to consider ways get more out
of it without expending large amounts of time or spending large amounts of
money. In other words, how can you change the way the constraint is operating
so as to achieve the maximum throughput and financial benefit. For example, if the system constraint is
market demand (external, not enough sales), it simply means that you must make
your product or service more attractive to perspective buyers. You have excess capacity for more orders, so
you must make yourself more competitive to attract additional customers.
On
the other hand, if the constraint is an internal resource or policy, it means
deciding what you must change in order to increase the capacity to match or
exceed the demand being placed on it.
This might mean improving the quality of your product or service, improving
the flow through the constraint to achieve better on-time delivery, or some
other competitive edge factor. Exploitation of the constraint means that you must
develop ways of ensuring superior system performance to meet or exceed the
demand being placed on it.
Step 3: Subordinate
everything else to the system constraint. Goldratt’s original Step 3
stated that you must “subordinate everything else to the exploitation decision,
but for me it is not the decision, it is the constraint itself. So once the decision on how to exploit the
constraint has been made, subordinate everything else to that constraint. In my
opinion, this step is perhaps the most important one to apply, but it is also
the most difficult for organizations to apply and accomplish. Why do I say this? For me, the primary reason
this step is so difficult is because of the “death grip” traditional cost
accounting has on organizations. Many
companies still use manpower efficiency or equipment utilization as one of
their primary metrics. Both of these
metrics view excess capacity as a way of cutting costs, when in reality excess
capacity at non-constraints, should be viewed as favorable. Excess capacity in process steps in front of
the constraint is actually a safety net in the event there is downtime in one
of these steps. Subordination requires that
everyone within the organization put their local needs behind the constraint
for the good of the system. It requires everyone,
from top management on down, to accept the idea that excess capacity in the
system at most locations is not just acceptable, it is a desired state. The important thing to remember is that all
non-constraints are there to assure the constraint is never idled/ Often times
egos get in the way and managers have trouble accepting the idea that someone
else’s process is more important than their own. As a result of these damaged
egos, other people working at non-constraints will often struggle to do the
things necessary to subordinate the rest of the system to the constraint. As I
said, for me subordination is the most important of the five focusing steps and
the primary reason why organizations have difficulty implementing the 5
focusing steps.
Subordinating non-constraints to the system
constraint is intended to focus the efforts of the non-constraints so that the
constraint can be exploited in the best way possible. And even though the non-constraints could
produce more, every effort should be made to not do so. If the non-constraints produce to their
individual capacity, the net result is an excessive amount of work-in-process
inventory (WIP) which typically results in diminishing on time deliveries. It’s entirely possible that, once subordination
is fully in place, the system constraint might be broken and move to a new
location. If this happens, then go back to Step 1 and begin the Five Focusing
Steps again. But since you’ve already identified the most logical next
constraint, you will actually just move to Step 2 and begin the exploitation
step.
Step 4: If necessary, elevate the system constraint: It has been my experience that most of the time, after you have completed
your subordination step, the current constraint will have been broken, but
sometimes this is not the case. If this
is not the case, then in order for the system constraint to be broken, you may
have to make an investment. This is the
essence of the concept of elevation. If
you weren’t able to achieve enough of an increase in capacity to support the
demand being placed on it, quite simply you may have to spend some money. What this step requires is an evaluation of
alternative ways to raise the capacity of the current constraint. It
could be that if the constraint is equipment related, then you might have to
purchase more of it. Or if it’s resource
related, you may have to add more through additional shifts, overtime, adding
additional headcount or, as a last resort, outsourcing.
If, on the other hand, the constraint is
an external one (i.e. lack of sales), elevation might simply involve adding a
new product line, additional advertising, or improving the competitive edge
factors like reduced prices, better on-time delivery, or other factors needed
to entice customers to want more of your product or service. Unfortunately, many times elevating the
constraint typically means spending more money in order to make more money. My
advice is to evaluate multiple alternatives because some alternatives may offer
intangible advantages. For example, some
alternatives might cost more, but are much easier to manage, so consider the
entire package before deciding.
One last thought on elevation is that it
is entirely possible that the constraint-breaking alternative that you have chosen
might actually change the location of the new constraint from the one you
predicted in Step 1. Just be aware that
this might happen so you are prepared for it.
Step 5: When the current
constraint is broken (or no longer is the constraint), return to Step 1, but
don’t let inertia create a new constraint.
Once
again, my experience has shown that if, after the exploit and subordinate
steps don’t break the system constraint, then the elevation step most
likely will. Once this happens, you must return to Step 1 or 2 to begin either
identifying the new constraint or begin exploiting it, if you already
identified it.
So what does the warning about inertia mean for you? Quite simply, it’s a warning not to become
complacent. There are two distinct reasons
for this warning. First and foremost, sometimes the improvement actions we put
into place during the exploitation and subordination steps may no longer be
relevant to the new constraint. The second reason is that there is often a
tendency to relax after the first constraint is broken. Do not relax! An organization can easily become
complacent after the current constraint has been broken and that is simply the
wrong thing to do. I always advise
clients to put effective controls in place to guard against complacency. You must not let the actions or policies that
you’ve put in place to fall by the wayside.
Depending upon the actions taken to break the current constraint, maybe something
as simple as a process audit or even a control chart will work.
In my next posting, we’ll take a look at
some of the tools we can use to adequately perform a systems analysis. In particular, I want to discuss the Intermediate Objectives Map (a.k.a. The Goal Tree) as a way of establishing your Goal, Critical Success Factors and Necessary Conditions.
Bob Sproull
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