Monday, September 9, 2019

Another New Book Part 13

This post is, once again, taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology – Making the Case for Integration. Specifically, the material for this series is taken from Chapter 5 entitled, A Better Way to Measure a System’s Success. As I explained in my last post, readers that are totally familiar with the Theory of Constraints might find this series a bit basic, but I’m writing this series for those who are not totally familiar with the Theory of Constraints.

Let’s now look at this same company using Throughput Accounting (TA) and see if the results tell us the same things or not as described in the table below.  TA provides an entirely different perspective when looking at this business and its potential product mix.


TA ranks product profitability according to Throughput on the constraint per minute (T/CU/t).  In addition, it does not allocate Operating Expense (OE) to products.  So, based upon this, Product A yields $4 per minute on the constraint, Product B yields $4.17, and Product C yields $4.44.  TA says the priority should be to produce as much of Product C as capacity will allow, then Product B, then Product A (the exact opposite priority of CA).  Because Step 2 is the system constraint, producing 100 units of Product C, 100 of Product B, and 20 of Product A is all that can be done.  With this product mix from Throughput Accounting, instead of a $250 loss when using Cost Accounting, this business generates a net profit of $200.  The only difference being the product mix!

[1] Effective use of Throughput Accounting requires different information than from Cost Accounting, so new report formats must be implemented.  For example, a Throughput Accounting earnings statement shows T, I, and OE relative to the constraint, while conventional Cost Accounting reports are oblivious to the constraint.  Just as CA and TA rank product profitability differently, they may also rank customer profitability quite differently.  Several Throughput Accounting outcomes are noteworthy:
  •       Financial measures reverse management priorities from OE, T and I (for Cost Accounting) to T, I, and OE (for Throughput Accounting).

  •       Performance measures for Throughput Accounting are not distorted by cost allocations for Cost Accounting.

  •       Constraint measures eliminate conflict between local measures (machine utilization or operator efficiency) and global measures (performance of the business).

  •       Control measures remove the incentive to build excess inventory and replace it with the incentive to deliver products on time.

In my next post, we will review the primary components of Throughput Accounting, starting with Throughput.  As you will see, Throughput at your Company is achieved by processing parts, selling or delivering them to customers and receiving payment for all goods you sold.

Tuesday, September 3, 2019

Another New Book Part 12

This post is, once again, taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology – Making the Case for Integration. Specifically, the material for this series is taken from Chapter 5 entitled, A Better Way to Measure a System’s Success. As I explained in my last post, readers that are totally familiar with the Theory of Constraints might find this series a bit basic, but I’m writing this series for those who are not totally familiar with the Theory of Constraints.

TA is used to identify constraints, monitor performance, control production, and determine the impact of decisions.  The table below is a manufacturing situation consisting of just three parts with each part requiring the same three steps.  Each product requires a different number of minutes per step, but the total time required for each part is the same.  Labor costs per minute are the same across all steps.

Part A has the highest price and the lowest raw material cost per part while part C has the lowest price and highest raw material cost per part.  Because the same workers will be used to produce any product mix, the best mix would seem to be to produce as much of part A as demanded, then B, then C.  Following this priority, the factory will produce 100 units of A, 75 of B, and none of C.  Note that Step 2 limits enterprise production regardless of whether it’s actually recognized as the constraint.  Operating expense includes rent, energy and labor.  Let’s look at an example comparing CA to TA’s product mix decision as laid out in the table below.

When CA allocates operating expense to products based on their raw material costs, the resulting product costs confirm the expected priority:  Product A has a lower product cost than Product B. Unfortunately, with this product mix, this business generates a net loss of $250.  Because Part A appears to be profitable while Part B generates a loss, it’s tempting to conclude that producing none of B would stop the loss.  However, the Operating Expense covered by Product B would then have to be covered entirely by Product A, which would yield an even larger loss.  If additional work was started, in an effort to keep the workers at Steps 1 and 3 fully utilized (i.e. to maximize efficiency), work-in-process inventory would grow.  The inevitable conclusion, using Cost Accounting, this business is not profitable!

Bob Sproull

Sunday, August 25, 2019

Another New Book Part 11

As I stated in Post 10, one of the most important entities within any organization is how they attempt to measure success.  This post is, once again, taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology – Making the Case for Integration. Specifically, the material for this series is taken from Chapter 5 entitled, A Better Way to Measure a System’s Success. As I explained in my last post, readers that are totally familiar with the Theory of Constraints might find this series a bit basic, but I’m writing this series for those who are not totally familiar with the Theory of Constraints.  

As I explained in my last post, Throughput is maximized by selling goods or services with the largest difference between revenue and totally variable cost and by minimizing time between spending money to produce and receive money from sales.  It’s important to understand that TA does not use labor costs to allocate OE. Direct labor is not treated as a variable cost simply because businesses do not typically adjust their workforce every time demand for their product or service changes.  It’s also important to remember that Throughput is determined by both speed and magnitude.

From the three basic elements of Throughput Accounting, namely T, I and OE, we can calculate several other important metrics as follows:
  •        Net Profit = Throughput – Operating Expense or NP = T – OE
  •        Return on Investment = Net Profit ÷ Inventory or ROI = NP/I
  •        Productivity = Throughput ÷ Operating Expense or P = T/OE
  •       Inventory Turns = Throughput ÷ Inventory or i = T/I

[1] Ricketts explains that an ideal decision using TA would be one that increases T while decreasing or maintaining both I and OE.  A good decision increases NP, ROI, P, or i.  It’s important to remember that NP is net operating profit before interest and taxes.  Under TA there are no product costs, but instead there are constraint measures that should also be tracked as follows:
  •   Throughput per Constraint Unit: T/CU = (revenue – totally variable cost)/units
  •    Constraint Utilization: U = time spent producing/time available to produce

The best way to maximize Throughput (T) is to maximize these constraint measures.  Constraint utilization is important because every hour lost on the constraint is an hour lost for the entire business that can never be recovered.  On the other hand, utilization of non-constraints is not tracked because it encourages excess inventory.

Typical decisions based on the metric, T/CU include things like prioritizing use of the constraint (e.g. choosing the best product mix); deciding whether to increase the constraint’s capacity through investment; selecting products to introduce or discontinue and pricing products based on the opportunity cost of using the constraint.

[1] Ricketts eloquently explains that for normal product decisions, T/CU is used to determine the mix that best maximizes Throughput.  If producing less of one product in order to produce more of another product would increase Throughput, for example, then that is a good decision.  But for major decisions that might shift the constraint or forfeit some Throughput on current products, then TA uses the following decision-support measure:

  •   Change in Net Profit: ΔNP = ΔT – ΔOE (Note: The Δ symbol stands for difference or change in (a comparison between alternatives).  Likewise, to show the impact of these investment decisions, the metric Payback: PB = ΔNP/ ΔI should be used.

·       To minimize unfavorable deviations from plans, TA advocates these control measures that should be minimized:
  • Throughput Dollar Days: TDD = Selling price of late order x days late
  •  Inventory Dollar Days: IDD = Selling price of excess inventory x days unsold

TDD measures something that should have been done but was not (e.g. ship orders on time) while IDD measures something that should not have been done but was (e.g. create unnecessary inventory).

In my next post, we will dive into product mixes and explain why using Throughput Accounting results in better decisions.
Bob Sproull


Monday, August 19, 2019

Another New Book Part 10


As I stated in Post 9, one of the most important entities within any organization is how they attempt to measure success.  This post is, once again, taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology – Making the Case for Integration. Specifically, the material for this series is taken from Chapter 5 entitled, A Better Way to Measure a System’s Success. As I explained in my last post, readers that are totally familiar with the Theory of Constraints might find this series a bit basic, but I’m writing this series for those who are not totally familiar with the Theory of Constraints.

Throughput Accounting (TA) addresses all of the problems discussed in my last post with Cost Accounting (CA) by not using product costs, but rather by eliminating incentives for excess inventory and reversing typical management priorities.  It’s very important to understand that TA is not a substitute for conventional financial reporting simply because publicly traded companies are required by law to comply with Generally Accepted Accounting Principles (GAAP) requirements.  But having said this, TA does provide a way to make “real time” financial decisions.  Throughput Accounting will reveal which are the most profitable mix of products, and I promise you will be different than what traditional CA would give you. So let’s review the basics of Throughput Accounting.

Throughput Accounting uses three basic financial measures, namely Throughput (T), Inventory or Investment ( I ), and Operating Expense (OE).  So, let’s look at each of these measures in more detail.

·       Throughput (T) – the rate at which the system generates money through sales of products or services, or interest generated. If you produce something, but don’t sell it, it’s not throughput, it’s just inventory. Throughput is obtained after subtracting the totally variable costs (i.e. cost of raw materials, or those things that vary with the sale of a single unit of product or service) from revenue.

·       Inventory or Investment ( I ) – all the money that the business has invested in things it intends to sell.  Inventory ( I ) primarily includes the dollars (or whatever currency you use) tied up in WIP and Finished Product Inventory.

·       Operating Expense (OE) - all the money the system spends in order to turn inventory into Throughput including all labor costs. It also includes rent, plus selling, general and administrative (SG & A) costs.  Including all labor costs is a huge departure from traditional Cost Accounting.

Throughput is maximized by selling goods or services with the largest difference between revenue and totally variable cost and by minimizing time between spending money to produce and receive money from sales.  It’s important to understand that TA does not use labor costs to allocate OE. Direct labor is not treated as a variable cost simply because businesses do not typically adjust their workforce every time demand for their product or service changes.  It’s also important to remember that Throughput is determined by both speed and magnitude. In my next post, I will introduce several other metrics that can be calculated from Throughput Accounting.
Bob Sproull

Thursday, August 15, 2019

Another New Book Part 9

One of the most important entities within any organization is how they attempt to measure success.  In other words, exactly what type of performance metrics are they using to measure if what they are doing is successful or not.  This series of posts is, once again, taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology - Making the Case for Integration.  Specifically, the material for this series is taken from Chapter 5 entitled, A Better Way to Measure a System's Success.  While those readers who are totally familiar with the Theory of Constraints might find this series a bit basic, I'm actually writing this series for those who are not familiar with the Theory of Constraints.

A system’s constraint was defined by [1] Goldratt and Cox as anything that limits the system from achieving higher performance versus its goal.  So how should we measure and judge our performance?  Since the most common goal of organizations is to make money now, and in the future, doesn’t it make perfect sense that at least some of the performance measurements we choose should be monetary metrics?  For example, two metrics that we could use are net profit (NP) and return on investment (ROI).  Goldratt explained that in order to judge whether an organization is moving toward its goal, three questions must be answered. 

  1. “How much money is generated by our organization?”
  2. “How much money is invested by our company?”
  3. “How much money do we have to spend to operate it?”
In any improvement initiative, the person responsible for the financial well-being of your business should play a crucial role in assuring that the initiative stays focused on the primary goal of most companies—to make money now and in the future. Within the confines of our improvement methodology known as the Theory of Constraints (TOC), in this chapter I will present the details of an alternate form of accounting, known as Throughput Accounting (TA). Throughput Accounting is intended to be used for real-time financial decisions rather than basing decisions on what happened in the past like traditional Cost Accounting does. Many businesses will emphatically state that the primary goal of their business is to make money and yet they spend the largest portion of their time trying to save money.

The key to profitability is by identifying and focusing on that part of the system that controls and drives revenue higher and higher, rather than through cost-cutting efforts. It matters not if you are a service provider, a small business owner, a distributor or a manufacturer. What you need is a way to sell more product which increases revenue and, ultimately, profitability. In this chapter I will systematically compare two accounting methods and demonstrate the superiority of Throughput Accounting in terms of profitability improvement.
Because traditional Cost Accounting is so complicated, in this discussion, I won’t go into great detail, but I will cover the highlights of it so that a comparison to Throughput Accounting can be made.  The figure below illustrates selected elements of Cost Accounting (CA) which is taken from a brilliant book by [1] John Ricketts entitled, Reaching the Goal, as is much of what is to follow in this series.



In his book, Reaching the Goal, John Ricketts explains that when Cost Accounting began being used in the early 1900’s, labor costs were clearly dominated the scene in manufacturing and workers were typically paid by the piece.  That is, they were paid based upon how much they produced.  Back then, it made perfect sense to allocate overhead expenses to products on the basis of direct labor costs when preparing financial statements.  But since then, automation now dominates manufacturing, and workers are normally paid by the hour, allocation of large overhead expenses, on the basis of small labor costs, has created some very distinct distortions in accounting.

When observed at the enterprise level, product cost distortions do not affect financial statements much at all.  Yet if prices are computed as product cost plus standard gross margin, the predominant method in Cost Accounting, is that product cost distortions will carry into product pricing.  The resulting effect is that it is possible that some products will appear to be profitable when they are not and, conversely some products that appear to not be profitable, really are.

A second problem with Cost Accounting is that factories are encouraged to produce excess inventory. Why is this?  Producing excess inventory usually happens because of Cost Accounting’s impulse for higher levels of manpower efficiency and equipment utilization in non-constraints.  It is because of this that inventory accumulation can be driven by the counterintuitive effect it has on earnings.  So, what does this mean?  What happens as a result of this inventory accumulation is that rather than being expensed on the income statement in the accounting period they were incurred, the cost of inventory gets recorded on the balance sheet as an asset.  The resulting effect is that an inventory profit may be reported, and businesses can use this to enhance their reported earnings.  The problem is that it has absolutely nothing to do with real income and profitability. If inventory can’t be sold, guess what happens.  If it isn’t sold, then it becomes a depreciation expense on the income statement and an inventory loss will be the end result.

Ricketts explains that a third problem with Cost Accounting is concerned with management priorities.  This means that operating expense will be managed closely because it is well-known and under direct control.  Unlike operating expense, revenue is seen as less controllable because of the perception that it is dependent upon the markets and customers. Inventory is a distant third in management priorities because, as just stated, reducing it will have an adverse effect on a company’s reported income.

Even though most businesses practice it, the key to profitability is not through how much money a company can save, but rather through how much money a company can make! And believe me, these two concepts are drastically different.  Let’s now look at a different accounting method referred to as Throughput Accounting (TA), once again by looking at [1] John Rickett’s book, Reaching the Goal.


[1] John Arthur Ricketts, Reaching the Goal – How Managers Improve a Services Business Using Goldratt’s Theory of Constraints, 2008, IBM Press



Saturday, August 3, 2019

Another New Book Part 8

In my last post I explained that this series of posts was taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology - Making the Case for Integration, I will be discussing how I present the basics of TOC to those readers who may not be familiar with it.  In my last post I demonstrated the concept of the constraint by presenting a simple piping system used to transport water.  In this post I will lay out how these basic concepts apply to a simple manufacturing process.


The figure below is a simple four-step diagram of a manufacturing process used to produce some kind of product. Based upon what you have learned from seeing the piping system, ask yourself which step is limiting the production of this product through this process and why it is the limiting process step. Let’s look at some different scenarios to help answer this question in more depth.

The first question we should ask is, based upon the processing times of each step, how long does it take to process a single part through this process? For the first part of this process, the processing time for one part would be the sum total of each of the individual processing times as follows:

7 Days +14 Days + 21Days + 7 Days = 49 Days

The next question to answer is, once the production line is full, what is the output rate of this simple process? The answer to this question is that because Step C, at 21 days, limits the output rate, then the rate of this process, as it currently exists, is one part every 21 days. The figure below summarizes this process with the constraint highlighted. Let’s now look at some additional scenarios that will have an impact on this manufacturing process.

Suppose that Step A has problems and goes down for 7 days, what would happen to the output rate of this process? The simple answer is, nothing changes because it only takes 7 days to complete, so there are still 7 days of buffer time left over to supply Step B. Now suppose Step B goes down for 7 days. Again, nothing changes, because it only takes 14 days to complete, so it should still be able to supply Step C in time before it is starved. Finally, if Step D goes down for 7 days, throughput remains the same because it has a time buffer of 14 days due to Step C’s extended processing time.

Unfortunately, if Step C goes down for 7 days, you will have lost 7 days of throughput that is lost forever! Now let’s look at how to increase the throughput of this process.  If you are able to reduce the processing time on Step A from 7 days to 4 days, what would happen to the output of the process? The simple fact is that if you reduce the processing time on Step A from 7 days to 4 days, throughput remains the same because of Step C’s longer processing time. Likewise, if you reduce the processing time on Step B from 14 days to 7 days, what happens to the output of this process? If you reduce the processing time on Step B from 14 days to 7 days, no throughput improvement will occur, again because of Step C’s longer processing time. If you reduce the processing time on Step D from 7 days to 4 days, what happens to the output of the process?

Just like the other examples, if you reduce the processing time on Step D from 7 days to 4 days, not much happens, again because of Step C’s longer processing time. So, based on all of this, what is the only way to increase the throughput of this process? The simple answer to this question is that if you want to increase the throughput of this process, you must focus all improvements on the constraint operation and reduce its processing time!

For example, what happens to the throughput of this process if you reduce the processing time in the constraint from 21 days to 18 days as in the figure below? The immediate effect of this time reduction is that you improve the throughput of the process from one part every 21 Days to one part every 18 Days, or a 17 percent increase! Because of the impact of your constraining step on the output, doesn’t it make sense to focus most of your improvement efforts on the constraint? Exceptions to this would be if there are quality issues causing scrap or excessive rework with Step D or prolonged delays within Step B. This, of course, assumes that the demand for your product is high enough to be able to sell the additional product.

The next, most obvious question you might ask is, how do you reduce the processing time in the constraint? The answer to this question is the essence of this book. By reducing waste (through Lean tools and techniques) and variation (through Six Sigma tools and techniques), focusing primarily on the system constraint. In other words, by doing things like off-loading work from the constraint to non-constraints, or by eliminating scrap or rework conditions in the constraint and non-constraint process steps after the constraint. The key factor to remember is that if you want to maximize the output of your manufacturing process, you should never allow the constraining operation to sit idle because every minute lost on your constraining operation is lost forever!

In my next post, we will discuss a different subject.
Bob Sproull


Sunday, July 28, 2019

Another New Book Part 7

In my last post I explained that this series of posts was taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology - Making the Case for Integration, I will be discussing how I present the basics of TOC to those readers who may not be familiar with it.

I started the last post by saying that Goldratt and Cox analogized the concept of a chain to organizations and explained that failing to identify and strengthen the organization’s weakest link, or system constraint, will not strengthen the global system.

While Goldratt and Cox used a chain analogy to define what a constraint is, I use a different approach when explaining TOC to people who aren’t familiar with what it is. As I present this different approach, remember that the Theory of Constraints is a methodology for identifying the most important limiting factor (i.e. constraint) that stands in the way of achieving your goals and then systematically improving that constraint until it is no longer the limiting factor. So, let’s look at a different way of describing TOC.

The figure below is a simple piping system used to transport water. Water enters into Section A of this piping system, then flows into Section B and continues downward through all of the pipes until it collects in the receptacle at the base of the system. In this piping system, water flows via gravity, meaning that if you wanted more water, you could not increase the pressure to get more.



In every system, there is a point that limits throughput and this piping system is no different. Think for a minute what you would have to do to achieve an increase in the flow of water through this system? Because Section E’s diameter is the smallest, does it make sense to you that if you wanted to increase the flow of water through this system, the only way you could achieve this would be to increase the diameter of this limiting point? In other words, Section E is limiting the flow of water (i.e. throughput) through this piping system and because of this, it is designated as the system constraint (aka the bottleneck). Now ask yourself what would determine how much larger Section E’s diameter must be? The answer to this basic question is that it depends upon how much more water is needed. In other words, it’s dependent upon the new demand requirement.

In the figure below, we have now opened-up Section E’s diameter and as you can see, more water is now flowing through the system. When Section E’s diameter was increased, three distinct changes took place. First, the system constraint moved from Section E to Section B because it is now the smallest diameter pipe. Second, the throughput of water increased to the limit of the new constraint (Section B), and finally, water has now begun to accumulate in front of Section B.

Ask yourself, “Would increasing the diameter of any other section have resulted in any more throughput of water?” The answer is a resounding no! Only increasing the diameter of Section E would have resulted in more water flowing through this system. The inevitable conclusion is that the system constraint controls the system throughput and focusing improvement efforts anywhere else is typically wasted effort.

In my next post we will demonstrate how this might apply to a simple manufacturing process.
Bob Sproull

Monday, July 22, 2019

Another New Book Part 6

In this series of posts, again taken from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology - Making the Case for Integration, I will be discussing how I present the basics of TOC to those readers who may not be familiar with it.


In the 1980s, Dr. Eliyahu M. Goldratt and Jeff Cox introduced us to their Theory of Constraints (TOC) improvement methodology through their highly successful and widely read business novel, The Goal [1]. Goldratt and Cox explained to us that systems are comprised of interdependent processes and functions which they equated to a chain. They explained that every chain has a weakest link, and in order to strengthen the total chain, you must first identify this weakest link and then focus your improvements on it until it is “broken.” And when it does break, a new constraint will appear immediately. They further explained that any attempts to strengthen the other links in the chain will not result in a stronger chain because it will still break at the weakest link.

Goldratt and Cox analogized the concept of a chain to organizations and explained that failing to identify and strengthen the organization’s weakest link, or system constraint, will not strengthen the global system. Similarly, attempts to improve non-constraint operations will not necessarily translate into significant organizational improvement resulting in profitability improvement. It’s kind of like a professional baseball team signing free agent sluggers when the real constraint is relief or starting pitching. They can score lots of runs, but in the end, if they can’t hold the other team to fewer runs than they score, they’ll never win a pennant.

According to Dettmer [2] and Goldratt and Cox [1], the Theory of Constraints is based upon the fact that there is a common cause for many effects we observe at the systemic or organizational level. TOC envisions a company as a system, or a set of interdependent relationships, with each relationship being dependent on others in some way. The global system performance is dependent upon the combined efforts of all of the relationships within the organization. In addition, there are disruptions and statistical fluctuations (i.e. variability) that interfere with the production and delivery of products to the next process step that ultimately impact delivery to the customer. It’s important to understand that every for-profit organization has the same two goals, to make money now and to make money in the future. Therefore, every action or decision taken by an organization should be judged by its impact on “the organization’s goals.” This, of course, implies that before we can do this, we must first define the goal and, second, determine how we are going to measure or judge our decisions and actions.

In my next post I will lay out how I present the concept of what a constraint is and why it's so important to identify it.
Bob Sproull

Sunday, July 14, 2019

Another New Book Part 5

This blog post is the last in this series from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration, which was just released.  As I said in the beginning of this series, it is taken from the Preface of this new book and I hope you enjoy this series.  In my last post in this series, I continued discussing some of my early learnings gained throughout my career and in this post, I will continue along these lines.

For those of you who have not yet had the opportunity to learn about the Theory of Constraints (TOC), I will open this book with a chapter on what it is and why it will work so well in your own improvement efforts.  In addition, I will explain in detail, the method I use to teach newcomers what TOC is and what it will do for any company.  TOC is clearly the “missing link” in most improvement initiatives.

In the second chapter, I will lay out the important points related to Lean Manufacturing and demonstrate how to identify and remove waste to make value flow.  In Chapter 3, I will introduce the reader to Six Sigma and present key points related to variability and the significant impact it has on systems.  In chapter 4, I will demonstrate how I have effectively merged the Theory of Constraints with Lean and Six Sigma to achieve maximum improvement to your company’s profitability. As you will see, while TOC works well in isolation, its full power is not realized until it is combined with Lean and Six Sigma.  The same is true for Lean and Six Sigma in that their full value is not achieved until they are combined with the Theory of Constraints.

From that point forward, I will present various case studies where I have used this integrated improvement methodology, which I refer to as [1] The Ultimate Improvement Cycle.  The case studies will clearly demonstrate how this methodology applies to seemingly every industry type.  In one of the case studies, I will explain how it works in a manufacturing environment, while in another case study, I will demonstrate how well this same methodology works in a maintenance, repair and overhaul facility. And in yet another case study, I will demonstrate how it also applies to a healthcare environment.

In the final chapter in this book, I will present something referred to as a mafia offer, which is an offer to potential and existing customers that is so good, they couldn’t possible refuse it.  Closely related to this mafia offer is something referred to as a viable vision, which if used correctly will take your future profits to the level of sales that you have today.

[1] The Ultimate Improvement Cycle has served me well throughout my years in continuous improvement consulting, as well as my time spent in roles as a General Manager of a manufacturing facility and as a VP of Engineering.  I consider myself very “lucky” to have come across the Theory of Constraints as the “missing link” throughout my improvement journey. But as I always say in my books, I wish you much luck in your improvement journey.  But my definition of luck is Laboring Under Correct Knowledge…..you make your own LUCK!

In my next post, I will begin a new series of posts on a new subject.

Bob Sproull 

[1] Bob Sproull, The Ultimate Improvement Cycle – Maximizing Profits Through the Integration of Lean, Six Sigma and the Theory of Constraints, 2009, CRC Press, Taylor and Francis Group, Boca Raton, FL

Monday, July 8, 2019

Another New Book Part 4

In this blog post, I will be continuing to present highlights from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration, which was just released.  This series is taken from the Preface of this new book and I hope you enjoy this series.  In my last post in this series, I continued discussing some of my early learnings gained throughout my career and in this post I will continue along these lines.

As time passed, I felt like there was some kind of missing link in my arsenal of improvement tools, and then it happened.  Eventually, in addition to my basic Lean and Six Sigma training, I studied hard and eventually became a Lean Six Sigma Master Black Belt.  But then the epiphany happened when I learned about the Theory of Constraints (TOC).  I studied hard and eventually became what is referred to as a TOC Jonah.  I had discovered what this missing link was and that something was called the Theory of Constraints (TOC).  Once I learned the details of TOC, my ability to make fast, major improvements jettisoned upward to levels I had not experienced before.  I must say that I was shocked, in that I couldn’t imagine why I had not come across this missing link before.  And as the title of this book suggests, the Theory of Constraints played a pivotal role in how I approach improvement.  As you will see, an integrated TOC, Lean and Six Sigma is the common denominator in all of my case studies presented in this book.

Prior to learning about the Theory of Constraints, it was not uncommon for me to focus on individual parts of processes and improve them.  I assumed that the sum total of these isolated improvements would result in system-wide improvements.  After all, when you improve any part of a process, the system automatically improves. Right?  But as I discovered, after learning about the Theory of Constraints, my assumptions were clearly erroneous!  The sum total of improvements to isolated parts of a system, does not translate into system-wide improvement.  This fact dramatically changed my entire approach to improvement.  The fact is, the only way the system will be improved is by focusing your improvement efforts on that part of the system that is limiting it!

Years later, the same CEO that wanted me to close the plant in Kentucky, called me and asked me to join him at another manufacturing company which produced truck bodies.  This time, my role was to be in charge of their continuous improvement effort.  Needless to say, I accepted his offer, but soon after I arrived, he fired the VP of Engineering and asked me to absorb Engineering into my span of control.  I reluctantly agreed, and to my dismay, I found the Engineering group was in serious trouble.  In trouble because of the length of time in which they completed their engineering work so as to be able to bid on new jobs.  And to make matters worse, the morale in Engineering was in the tank.  In one of the later chapters, I will present what happened at this facility in a case study format.

In my next post, I will continue to present details about my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration.
Bob Sproull

Friday, July 5, 2019

Another New Book Part 3

In this blog post, I will be continuing to present highlights from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration, which was just released.  This series is taken from the Preface of this new book and I hope you enjoy this series.  In my last post in this series, I continued discussing some of my early learnings gained throughout my career and in this post I will continue along these lines.


During my earlier years I had held positions in Healthcare, Manufacturing, Maintenance, Quality, Engineering, and others, and in every position, I was able to take the existing processes and make what I thought were significant improvements to practically all of them.  Back then, I truly believed that the sum total of individual process improvements would translate into improvement to the system I was working in.  As time progressed, I continued my learning and eventually became a Six Sigma Black Belt and then a Lean Sensei, and my improvement effort results kept getting better and better.  I was on top of the world back then, but then a personal epiphany happened for me.

One day, one of my old bosses called me and asked me to come work for him at his new venture where he had assumed the role of the new CEO of a manufacturing company.  When I asked him what my role would be, he simply told me that he had a manufacturing plant in Kentucky that he wanted me to manage.  I was very excited because I had never been in a position where I was the “top dog” in a manufacturing facility.  I had worked for other GM’s in other manufacturing companies, but never had I had full responsibility for the facility’s success.  I immediately said yes to his request and agreed to meet him at this new location.

When I arrived at this new company, we had a closed-door meeting discussing things like this company’s product line, their customer and supplier base and its sorted history.  Things seemed to be going well until I asked him if he had a specific way that he wanted me to manage the facility.  He simply smiled, looked me in the eye and told me that all he wanted me to do was to shut the place down! I was shocked to say the least and at first, I thought he was joking.  But to my disappointment and displeasure, he was dead serious about closing the doors of this manufacturing plant.  When I asked him why he wanted to close this facility, he just smiled again and told me that it was losing way too much money to keep it open.

I immediately pushed back on him and told him that if he wanted me to stay at his company, then he would have to give me a chance to turn this facility around and make it profitable, rather than closing it down. He just laughed and told me that they had already put their company’s best plant manager in charge of this plant, and that he was unable to make a difference, so he doubted that I could make change happen for the better.  Because I insisted on trying to turn the plant around, he reluctantly agreed to let me at least make an effort, with one caveat.  This facility had to be profitable after only three months and if it wasn’t, then I had no choice but to close the doors. In Chapter 7, I will present a case study of what was done and what the ultimate outcome ended up being for this manufacturing plant.


In my next post, I will continue to present details about my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration.
Bob Sproull


Monday, July 1, 2019

Another New Book Part 2


In this blog post, I will be continuing to present highlights from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration, which was just released.  This series is taken from the Preface of this new book and I hope you enjoy this series.  In my first post in this series, I discussed some of my learnings gained throughout my career and in this post I will continue discussing my learnings.

I also discovered that excessive waste exists in every process and unless and until it is identified and removed, real process improvement will not happen.  But having said this, companies should not attack waste in every area within their systems.  The fact is, the focal point for waste reduction activities should be on that part of the system that is constraining throughput.  While there are many forms of waste the most obvious, and perhaps the two most debilitating types are the waste associated with waiting and over-producing.  Waiting and over-production both work to lengthen the overall cycle time.  Just like Six Sigma is at the heart of variation reduction and control, Lean is at the heart of waste reduction.

Another important learning is that how people and organizations are measured will significantly affect their behaviors.  For example, if a company measures operator efficiency and values high efficiency in every step in the operation, then predictably the organization can have very high levels of work-in-process inventory, low levels of quality, and a high incidence of late or missed shipments.  As a corollary to this, maximizing the efficiency of an operation that is limiting throughput is mandatory for maximizing on-time deliveries, revenue and profits!

Another conclusion I reached is that many companies don’t have a clue as to where to focus and leverage their improvement efforts.  While many companies have embraced both Lean or Six Sigma or a combination of the two, in doing so they have essentially attempted to solve world hunger by struggling to improve every operation.  When this occurs, the improvement efforts become prolonged and many times end in frustration. Don’t misunderstand, I am a huge proponent of both Lean and Six Sigma, but they are only one third of the improvement pie.

My final learning is that organizations that fail to involve their work-force, typically do not succeed in the long run.  Everyone within a company must know the goals of the company and how their individual and collective performance might be impacting these goals.  After all of these years, it is apparent to me that the shop floor workers have a vast array of information and ideas, both of which must be sought out, implemented, and harvested.

Unfortunately, many of the companies in the business world of today, don’t practice what I learned throughout my years.  Many companies still use unproductive performance metrics and outdated accounting systems.  Many companies don’t understand, recognize, and capitalize on the constraining operation that exists within their systems.  Add to this, many companies still don’t appreciate that waste and variability encumber their processes and that active involvement of the general workforce is required if they are to successfully identify and reduce it.

In my next post, I will continue to present details about my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration.
Bob Sproull

Tuesday, June 25, 2019

Another New Book Part 1


In this series of blog posts, I will be presenting highlights from my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration, which was just released.  This series is taken from the Preface of this new book and I hope you enjoy this series.


For quite a few years, I have been involved in improvement initiatives in a wide variety of different industry sectors. Back in the day when I started my improvement journey, I truly believed I had all of the tools in my improvement backpack that I needed in order to make significant improvements to processes and systems.  After all, I had become somewhat of an expert in improvement efforts using approaches like Total Quality Management, Total Preventive Maintenance, Statistical Process Control, Failure Mode and Effects Analysis, Design of Experiments and the list goes on and on.  And by using the tools from my backpack, I was able to make considerable improvements to many different kinds of processes in a wide array of industry segments. I was living the proverbial dream, so to speak.

As I continued learning, I began to realize that some of things I had taken as being the gospel were in fact, pretty much bogus!  I realized that maximizing the efficiency and utilization of each process step did not result in optimization of the total system at all.  In fact, I learned that maximizing the efficiency of all operations only served to create mountains of needless work-in-process inventory.  I learned that inventory was not an asset at all because it actually had a carrying cost associated with it.  But more importantly, excess inventory increased the effective cycle time of the process which decreased an organization’s ability to ship product on time.  I also learned that inventory tends to hide other problems.

I learned that cutting the cost of each individual operation did not result in the system cost being minimized.  In fact, many times in an attempt to minimize the cost of individual operations, companies made drastic cuts in operating expense and labor that were too deep, causing motivational, quality and delivery problems!  I also learned that in every organization there are only a few (and most of the time only one) operations that control the rate of revenue generation and subsequent profits.  All processes are comprised of constraining and non-constraining resources, so the key improvement consideration must always be to pinpoint and focus improvements on the operation that is constraining throughput.  Attempts to improve non-constraining resources generally result in very little improvement at all from a system perspective.

I continued learning and discovered that variability is clearly the root of all evil in a manufacturing process.  Variability in things like product characteristics or variability in process parameters or variability in processing times all degrade the performance of a process, an organization, and ultimately the total company.  Variability negatively impacts things like a company’s ability to effectively plan and execute their scheduled production plan. It also increases operational expense and decreases the chances of producing and delivering product to customers when they want them, and at the cost they are willing to pay.  Because variability is so devastating, every effort must be made to reduce it and then control it.  Six Sigma is the backbone of this part of the improvement effort.


In my next post, I will continue to present details about my newest book, Theory of Constraints, Lean, and Six Sigma Improvement Methodology: Making the Case for Integration.

Bob Sproull





Thursday, June 20, 2019

New Book Part 27

In my last post we demonstrated how to use the Goal Tree to assess the current state of your organization.  In this last post in this series we will demonstrate how to use this Goal Tree to create your improvement plan.  This series of posts was taken from my latest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative, published by Routledge/Productivity Press.

The Improvement Plan


“OK, let’s get started,” said the CEO.  “Today we’re going to plan on how turn our problem areas, those we defined in red, into hopefully strengths,” he said.  “Does anyone have any ideas on how we can turn our bottom three reds into either yellows or greens?”  “In other words what can we do that might positively impact delivery rates, customer service and synchronize production to the constraint and demand?” he asked.

The Plant Manager was the first to speak and said, “If we can come up with a way to schedule our production based upon the needs of the constraint, it seems to me that we could really have a positive result for on-time delivery rates and at the same time it would reduce our WIP and FG levels?” he said more in the form of a question.  The CFO then said, “Since you mentioned Drum Buffer Rope (DBR) yesterday, I’ve been reading more about it and it seems that this scheduling method is supposed to do exactly what you just described,” he said directly to the Plant Manager.


The CEO responded by saying, “He’s right, DBR limits the rate of new product starts because nothing enters the process until something exits the constraint.”  “So, let’s look at what happens to the reds and yellows if we were to implement DBR,” he added and pointed at the Goal Tree up on the screen.  “The way I see it is, if we implement DBR, we will minimize WIP.  If we minimize WIP, we automatically minimize FG’s which minimizes our investment dollars which positively impacts our profitability,” he explained enthusiastically.  “We should also see our on-time delivery rates jump up which should result in much higher levels of customer satisfaction,” he added.  “This should also allow us to be more competitive in our pricing and stimulate more demand and with our ability to increase throughput, we will positive impact profitability,” he explained.  The Junior Accountant then said, “Last night I read more about the Theory of Constraints and it seems to me that one thing we could do is stop tracking efficiency in our non-constraints and if we do that, we should also reduce our WIP.


The Quality Director spoke up and said, “I’m thinking that if we effectively slowdown in our non-constraints, we should see our scrap and rework levels improve significantly because our operators will have more time to make their products.  And I also believe that we should implement TLS.” “What is TLS?” asked the CFO.  “It’s an improvement method which combines the Theory of Constraints, Lean and Six Sigma,” the Quality Director explained.  “This improvement will reduce our scrap and rework levels and in conjunction with DBR will reduce both our operating expenses and TVC.  The combination of these improvements will both contribute to our profitability,” he added.

 “One other thing is that we should see our overtime levels drop which will also improve profitability,” said the CFO.  “I am just amazed that by making these three basic changes, we could see a dramatic financial improvement,” he added. 

The stage was set for major financial gains by first, developing their cause and effect relationships and by looking at their organization as a system rather than making improvements to parts of it and that’s an important message for everyone to glean from all of this.  Not all improvement efforts will happen rapidly like it did in this case study, but it is possible to make rapid and significant improvements to your organization by looking at it from a holistic point of view.  The fact is, isolated and localized improvements will not typically result in improvement to the system.  So, let’s get back to our case study where the subject of performance metrics is explained. The team continued working on their Goal Tree until it was complete.  The figure below is their completed Goal Tree with their improvement initiatives included.


The team thought they were finished, but the CEO explained that there was one more step to be completed and that was the creation of performance metrics used to measure how well their improvement plan was working.  And with that, they discussed and added their performance metrics as is demonstrated in the figure below.



This completes our discussion on how to construct a Goal Tree/IO Map, then use it to assess the current state of your organization, then develop your improvement plan, and last, but not least, how to develop performance metrics to track how well your improvement plan is working. In my next post I will begin a new series of posts.
Bob Sproull