New Book Part 19

In my last post I presented ten prerequisite beliefs that you must embrace if you are to successfully improve the system you are working in.  In today's post I want to discuss Goldratt's third step in his process of on-going improvement, subordination. As a reminder, this material is taken from my newest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative. published by Routledge/Productivity Press.

Of all the TOC focusing steps, subordination will be the most difficult one to apply. It simply means that every decision made, and every action taken by the entire organization, must be done so based on its impact on the constraining resource. And when we say the entire organization, we mean everyone!  Subordination also means that over-production must not occur, simply because we don’t want to clog the system with excess WIP.

Accounting must provide real time decision-making information to the organization, and not hold onto financial measures that are based on what happened last month or even last quarter. Accounting must also eliminate outdated performance metrics like utilization and efficiency in non-constraint operations, because they mean absolutely nothing.

Purchasing must order parts and materials based upon the rate of consumption, especially at the constraint, and stop ordering in large quantities or only on the basis of lowest cost to satisfy another outdated performance metric, purchase price variance. Sales and Marketing must understand that unless and until the current constraint is broken, they must not make hollow promises on delivery dates, in order to obtain more orders to supplement their sales commissions.

Engineering must respond quickly to the needs of production, to assure timely delivery and updates to specifications. Maintenance must always prioritize their work, based upon the needs of the constraining operation, including preventive and reactive maintenance activities. If there is an inspection station that impacts the constraint Throughput, then inspectors (if they exist) must always provide timely and accurate inspections so as to never cause delays that negatively impact the flow of materials into and out of the constraint. Finally, Production Control must stop scheduling the plant on the basis of forecasts, that we know are using the outdated algorithms contained within the MRP system.  DBR should be the scheduling system of choice.

As you identify the constraint, and subordinate the rest of the organization to the constraint, there will be idle time at the non-constraints. If you are like many organizations that use total system efficiency and/or utilization as key performance metrics, then you will see both of them, predictably decline. You are normally trying to drive efficiencies and utilizations higher and higher at each of the individual operations, under the mistaken assumption that the total efficiency of the system, is sum of the individual efficiencies. In a TOC environment, the only efficiencies or utilizations that really matter are those measured in the constraint operation. You may even be using work piece incentives, in an effort to get your operators to produce more and I’m sure many of you are using variances as a key performance metric. Efficiencies, utilizations, incentives and variances are all counterproductive!

Believe me, no matter how good you think your processes are, they are full of waste and variation. You must accept the premise that every process contains both excessive amounts of waste and variation, that are just waiting to be identified, removed, reduced and controlled. Your job will be to locate, reduce, and hopefully eliminate the major sources of both. Variation corrupts a process, rendering it inconsistent and unpredictable. Without consistency and control, you will not be able to plan and deliver products to your customers in the time frame you have promised. Waste drives up both operating expense and inventory, so improvements in both of these, will fall directly to the bottom line as you improve the Throughput of your process and more specifically your constraining operation. Yes, you will observe waste in your non-constraint operations, but for now focus your resources only on the constraint!

If your organization has truly accepted the ten prerequisite beliefs I presented in my last post, and all that goes with them, then you are ready to begin this exiting journey that has no destination. But simply saying you believe something can be hollow and empty. It is your day-to-day actions that matter most. Review the ten prerequisite beliefs as a group on a regular basis, and then hold your employees and yourself accountable to them. Post them for everyone to see. Utilizing the Ultimate Improvement Cycle, and true acceptance of and employment of these ten prerequisite beliefs, will set the stage for levels of success you never believed were possible!

In my next post, I will demonstrate how the Theory of Constraints, Lean and Six Sigma work together with the weaknesses of one methodology are off-set by the strengths of the others.

Bob Sproull

New Book Part 18

In my last post I explained that even if we were successful in reducing cycle time, we would not realize a single piece of Throughput, unless we reduced the processing time and non-value-added time of the operation that is constraining the Throughput, the constraint. Any attempts to reduce processing times in operations that are not constraining Throughput, are quite simply wasted effort. As a reminder, this material is taken from my newest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative. published by Routledge/Productivity Press.

I also explained that the key to making more money now and in the future, is tied to two single beliefs, focus and leverage. In TOC terminology, these two beliefs of focus and leverage are fundamental to the idea of exploiting the constraint. If you want to increase your Throughput, then there is only one effective way to accomplish it. You must leverage the operation that is limiting your Throughput, your constraint operation! And how do you leverage your constraining operation? You do so by focusing your available improvement resources on your constraint and reduce the non-value-added and value-added times within the current cycle time.  I closed the last post by telling you that in order to be successful, there are ten basic prerequisite beliefs that you must adhere to if you are to be successful.  So let's look at these prerequisite beliefs.

10 Prerequisite Beliefs

I told you not to just jump right into the UIC and begin the improvement process. In this post, we’re going to define the ten prerequisite beliefs that your organization must embrace before your organization will be able to successfully implement and navigate through the Ultimate Improvement Cycle:

• Believing that leveraging the constraint, and focusing your resources on the constraint, is the key to improved profitability. Because of this, the constraint can never sit idle.
• Believing that it is imperative to subordinate all non-constraints to the constraint. If you violate this key belief, your throughput will not improve and your WIP will grow to unacceptable levels, thus draining cash from your coffers.
• Believing that improving your process is a never-ending cycle. You must be ready to re-focus your resources when the constraint moves, and it will move eventually.
• Believing that involving and empowering your total workforce is critical to success. Your work force has the answers, if you will first listen to what they have to say and then engage them to design the solution.
• Believing that abandoning outdated performance metrics, like efficiency and utilization, reward or incentive programs, and variances is essential to moving forward. As Goldratt says in his book, The Goal, “Show me how you measure me, and I’ll show you how I’ll behave.” These outdated metrics and practices are archaic tools from the past, so you must let them go.
• Believing that excessive waste exists in your process, and that it must be reduced or removed. Studies have confirmed that typical processes have less than 10% value-added work, meaning that waste accounts for 90% of the available time.
• Believing that excessive variation is in your process and that it must be reduced and then controlled. One of the keys to growth in profitability, is consistent and reliable processes. Processes are full of variation and uncertainty, and unless and until variation is reduced, and then controlled, moving forward will be difficult.
• Believing that problems and conflicts must be addressed and solved. You can no longer afford to hide problems with inventory. When problems arise, you must stop the process and take the time to solve them. By solving them, we’re talking about finding and eliminating the root cause(s).
• Believing that constraints can be internal, external, physical or policy or any combination of the four. In the real world, over 90% of all constraints are policy related. Policies and procedures must be scrutinized, changed, and sometimes thrown in the garbage and replaced with policies that make sense.
• Believing that the organization is a chain of dependent functions, and that systems thinking must replace individual thinking. It is no longer acceptable to focus on improving single steps in the process, if it isn’t the weakest link. This focus on local optima, must be replaced with system optimization.

If your entire operation is ready to accept the prerequisite beliefs of constraint focus and leverage, then you have taken the first step, but it must include everyone and every department. Your entire organization must become focused on the leveraging power of the constraining operation. If you can’t do that, then there simply is no need to continue. Unless and until all functional groups within your organization, are singing from the same sheet of music, you simply will  not make any progress.

In my next post we will continue our discussion on how to use the Ultimate Improvement Cycle to make major gains in profitability.

Bob Sproull

New Book Part 17

In my last post we began a discussion on value-added versus non-value-added activities and made a list of some of the key areas of interest that might reduce the overall cycle time. In today's post, we will continue our discussion on non-value-added times and how we can capitalize them for cycle time reductions.  As a reminder, this material is taken from my newest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative. published by Routledge/Productivity Press.

Just to refresh your memory, here is the list we put together in my last post.

• Transport time – moving product from point A to point B.

• Set-up time – converting a process from one configuration to another.

• Queue time – time spent waiting to be processed.

• Process batch time – time waiting within a batch.

• Move batch time – time waiting to move a batch to the next operation, which could also include time in storage.

• Wait-to-match time – time waiting for another component to be ready for assembly.

• Drying time – time waiting for things like adhesives to become ready to be assembled.

• Inspection wait time – time waiting for products to be inspected.

We said in my last post that there might be others we could add to our list, but for now assume this is our list. Which of these items add value? Clearly none of them do, so they would all be classified as non-value-added. There obviously are things we could do to reduce each one of these. For example, process batch time, is driven by the process batch size, so we could do two things that would reduce this time. We could optimize the batch size that we produce, and in conjunction with this, we could reduce the time required for set-up. In doing these two things, we would probably also reduce the move batch time, and maybe even the wait-to-match time. Clearly these actions would reduce the overall cycle time.

But even if we were successful in reducing cycle time, we would not realize a single piece of Throughput, unless we reduced the processing time and non-value-added time of the operation that is constraining the Throughput, the constraint. Any attempts to reduce processing times in operations that are not constraining Throughput, are quite simply wasted effort.

The key to making more money now and in the future, is tied to two single beliefs, focus and leverage. In TOC terminology, these two beliefs of focus and leverage are fundamental to the idea of exploiting the constraint. If you want to increase your Throughput, then there is only one effective way to accomplish it. You must leverage the operation that is limiting your Throughput, your constraint operation! And how do you leverage your constraining operation? You do so by focusing your available improvement resources on your constraint and reduce the non-value-added and value-added times within the current cycle time. It’s really that simple!

So, are you ready to begin your own cycle of improvement now? Not quite.  There are other important things that you must consider, before beginning your own cycle of on-going improvement. There are 10 prerequisite beliefs that apply to your organization that, I believe must be considered before you begin your journey.

In my next post, we will discuss these prerequisite beliefs in detail and then move on.
Bob Sproull

New Book Part 16

In my last post we completed our first pass through the entire Ultimate Improvement Cycle by explaining the basics of steps 3a, 3b, 3c, 4a, 4b, and 4c.  As a refresher, the figure below is a graphic of the UIC.

In today's post I will begin to explain the methodology for implementing this improvement cycle.  As a reminder, this material is taken from my newest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative. published by Routledge/Productivity Press.

How to Implement the UIC

In our last post, we completed the first rotation of the Ultimate Improvement Cycle, so now it’s time to get started with your own cycle of improvement. I have hopefully convinced you of its value for your company. If I have convinced you, then you probably are wondering about the best way to get started. “Do I go out and just start at Step 1a of the Ultimate Improvement Cycle?” The answer is no, because if you did that, you would almost immediately begin hitting barriers and obstacles that would limit your success or maybe even question the validity of this cycle of improvement. So, if not Step 1a, then what?

Let’s first consider the question of what we are attempting to do. You need to start by accepting that the basic goal of all “for profit” organizations, is to make money now and in the future. If you’re already making money, perhaps your goal might be better stated as, “to make more money now and more money in the future.” If this is your goal, then the question you would ask yourself, “What is preventing me from making more money now and more money in the future?” My experience tells me that there are a host of things that prevent companies from making more money.

In its most basic form, making money involves generating revenue that is greater than what it costs to generate it. So, obviously if operating expenses are too high, and you aren’t generating enough revenue, then you won’t be making money. So, the question is, just how do you generate more revenue? Assume for a moment that you have more orders than you have capacity to fill them. Since you are unable to satisfy market demand, it follows that your throughput is too low. If your throughput is too low, it must also mean that your cycle times are too long. It follows then that the key to generating more revenue, must be reducing cycle times. How do we reduce cycle times? Let’s first look at something called Little’s Law.

Little’s Law states that, Cycle time equals WIP divided by Throughput (i.e. CT = WIP/T). It should be clear that reducing cycle time implies reducing WIP, as long as Throughput remains constant. So, if you have large amounts of WIP, then clearly you have an opportunity to reduce cycle time. But what if you don’t have large amounts of WIP in your plant (I’m betting you do though)? How else might we reduce cycle times?

We know that cycle time is equal to the sum of all processing times for each process step. We also know that cycle time is the sum of all value-added time, plus all non-value-added time in the total process. So, if we want to decrease cycle time, then we have three choices:

1. We can reduce value-added time
2. Reduce non-value-added time
3. Do some of both.

Just think about which activities add value, versus those that do not. Let’s make a list.

• Transport time – moving product from point A to point B.

• Set-up time – converting a process from one configuration to another.

• Queue time – time spent waiting to be processed.

• Process batch time – time waiting within a batch.

• Move batch time – time waiting to move a batch to the next operation, which could also include time in storage.

• Wait-to-match time – time waiting for another component to be ready for assembly.

• Drying time – time waiting for things like adhesives to become ready to be assembled.

• Inspection wait time – time waiting for products to be inspected

There might be others we could add to our list, but for now assume this is our list. Which of these items add value? Clearly none of them do, so they would all be classified as non-value-added. There obviously are things we could do to reduce each one of these. For example, process batch time, is driven by the process batch size, so we could do two things that would reduce this time. We could optimize the batch size that we produce, and in conjunction with this, we could reduce the time required for set-up. In doing these two things, we would probably also reduce the move batch time, and maybe even the wait-to-match time. Clearly these actions would reduce the overall cycle time.

Clearly, non-value-added time by far and away accounts for the largest percentage of total cycle time in all processes. This would imply that, if we significantly reduce non-value-added time in our process, then we could significantly reduce cycle time, which would in turn, significantly improves our on-time delivery, Throughput, and revenue. So, what are these non-value-added times that we have referred to? Just think about which activities add value, versus those that do not. Let’s make a list.

In my next post, we will continue our discussion on non-value-added times and how we can capitalize them for cycle time reductions.

New Book Part 15

In my last post we completed our discussion on TOC's scheduling method, Drum Buffer Rope (DBR) by presenting a graphic of what DBR looks like.  As a reminder, the figure below is that graphic.

We also discussed the impact of buffers on the flow of products through the system.  In today's post we will discuss the next steps in the Ultimate Improvement Cycle (UIC). As a reminder, this material is taken from my newest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative. published by Routledge/Productivity Press.

Steps 3a, 3b, and 3c

Just as a reminder, here is the layout of the Ultimate Improvement Cycle and as you can see, step 3a instructs you to develop a plan on how to subordinate non-constraints to the current constraint.  In step 3b you are instructed to execute the plan you just developed while in step 3c you are instructed to implement your Drum Buffer Rope management system.

In Step 3a, which is a very important step, we must put together and document a coherent plan on how we are going to synchronize flow through the system.  This will include our DBR plus Buffer Management.  In Step 3b and 3c, we must come away with a well-functioning and optimized safety buffer that results in WIP being minimized throughout the total system, in order to optimize the flow of parts through our processes and system.

Steps 4a, 4b, and 4c

Step 4a states that we must develop a plan for elevating the current constraint if necessary and then define protective controls using Throughput Accounting.  In Steps 4a, our deliverable is the development of a coherent sustainment plan that optimizes our process capability and control.  Goldratt’s fourth step tells us, if necessary, we must elevate the constraint. Increasing the capacity of the constraint can be done in a variety of ways like, using overtime, adding resources, purchasing additional equipment, etc. One thing you must keep in mind when you are elevating the constraint, is what will happen when you are successful with this elevation. Remember back in Step 1, we said that you should identify both the current and next constraint? We did this for a reason.

Suppose you have decided that in order to elevate the constraint, you must purchase a new piece of equipment. Your justification should only demonstrate the throughput improvement up to the limit of the next constraint. That is, if your current constraint is currently producing 5 parts per hour, and you are purchasing a new machine that will double that to 10 parts per hour, then this improvement is only correct, if the next slowest resource is at 10 parts (or above) per hour. If, for example, the next constraint in the process is only producing 7 parts per hour, then you really can only claim a gain in throughput of 2 parts per hour for the new equipment.  All we are saying is that you must make sure you consider the total process, when making you decision on how to elevate the current constraint.

What we should end up with from Step 4b is a complete understanding of our new capacities and financial gains from using Throughput Accounting.  Finally, in Step 4c, we should have our sustainment actions in place and functioning well, with sound financial decisions being made.  The final step, Step 4c, in the UIC, is to Implement controls to sustain the gains. Sustaining the gains is the hallmark of great organizations, so how do we do this.

Of course, if you have chosen the right performance metrics, and you’re tracking them religiously, this is one way, but is it the best way? One of the most effective tools to protect and preserve your accomplishments is by using a simple process audit. A typical process audit is a series of questions asked to the line leader and/or supervisor to demonstrate the status of the process. These questions should be focused upon how elements of your new process are working and to demonstrate that they are being used as intended. 

With any luck, by following the steps I’ve presented, you will have increased the capacity of your constraint to meet the demands of the marketplace. If this is not the case, then other more extreme actions must be taken which usually involve spending some money. You have eliminated much of the waste and reduced variation, both of which have had a positive impact on cycle time and throughput, but you’re not quite there yet as far as producing enough product. 

You have just completed one revolution of the Ultimate Improvement Cycle and things should be greatly improved. Your throughput has increased, your cycle times are reduced, your quality is better, there is less variation and uncertainty, your on-time deliveries are much better, and your bottom line is much healthier. Don’t stop here!  Move on to your next revolution and start the process all over again. This is your new Process of On-Going Improvement…your POOGI. Good luck!

In this series of posts, I have laid out the foundation of the Ultimate Improvement Cycle. In my next post I will begin a discussion on how to implement the UIC.

Bob Sproull