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

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

New Book Part 26

In my last post we demonstrated how, as a team, the Goal Tree was constructed.  In today's post we will briefly discuss how this team used the completed Goal Tree to assess the current state of their organization. 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.

As a refresher, here is the completed Goal Tree.

Using the Goal Tree as an Assessment Tool

Bright and early the next morning, the executive team began filing into their conference room, full of anticipation on just what they would do with their completed Goal Tree.  The CEO hadn’t given them any instructions on how to prepare for today’s work, so they were all eager to have the events of the day unfold.  When everyone was seated, the CEO welcomed them and offered his congratulations again on the great job they had done the day before.  “Good morning everyone,” he said as everyone responded with a “good morning” back to him.  As he scanned the room, he noticed that there was one person missing, the Junior Accountant.  When he asked the CFO where she was, he explained that she was working on the monthly report and wouldn’t be joining them today.  The CEO looked the CFO square in his eyes and told him that nothing was more important than what they were going to do today.  “Go get her!” he stated emphatically.  The CFO left and returned minutes later with the Junior Accountant and the CEO welcomed her.  He then said, “We created this as a complete team and we’re going to finish it as a complete team.”

The CEO explained, “When the Goal Tree was originally created by [2] Bill Dettmer, it was to be used as a precursor to the creation of a Current Reality Tree (CRT).  That is, he used it as the first logic tree in TOC’s Thinking Processes to help create the CRT.”  He continued, “And although I fully support this approach, I have found a way to use it to accelerate the development of an improvement plan.”  The CEO passed out copies of the completed Goal Tree and began.

“I want everyone to study our logic tree, focusing on the lower level NC’s first,” he explained.  “As we look at these NC’s, I want everyone to think about how we are doing with each of these,” he continued.  “By that I mean, is what we said needed to satisfy a CSF or upper level NC, in place and functioning as it should be.”  “We’re going to use a color-code scheme to actually evaluate where we stand on each one,” he said.  “If you believe that what we have in place is good and that it doesn’t need to be improved, I want you to color it green.  Likewise, if we have something in place, but it needs to be improved, color it yellow.  And finally, if each NC is either not in place or is not “working” in its current configuration, color it red,” he explained.  “Does everyone understand?” he asked, and everyone nodded in agreement.  “It’s important that we do this honestly so be truthful or this exercise will all be for not."

The CFO raised his hand and asked, “How will we use our color-coded tree?”  “Good question,” said the CEO.  Once we have reviewed our Goal, CSF’s and NC’s we will start with the red entities first and develop plans to turn them into either yellows or greens.  Likewise, we’ll then look at the yellows and develop plans to turn them into green ones,” he explained.  As he was explaining his method the CEO could see heads nodding in the affirmative meaning that everyone understood his instructions.  With that, the CEO passed out green, yellow and red pencils.  “I want everyone to do this individually first and then we’ll discuss each one openly until we arrive at a consensus,” he explained.  “While you’re considering the state of each entity, I also want everyone to also think about a way we can measure the status of many of these in the future,” he said.  “I’ll be back in a couple of hours, so please feel free to discuss your color selections as a group,” he added. With the instructions complete, the team began reviewing their Goal Tree and applying the appropriate colors to each entity.

Right on schedule, the CEO returned and asked how the session was coming.  The Plant Manager spoke first, “I was amazed at how much disagreement we had initially, but after we discussed each item, we eventually came to an agreement on how we believe we’re doing.”  The CFO jumped into the conversation and added, “I was amazed at how we came together as a team just by creating our Goal Tree.”  “I have to admit that when you told me to go get our Junior Accountant, I was a bit taken back.  But at the end of the day, she was a very important addition to this team,” he added.  And with that, the Junior Accountant was somewhat embarrassed, but thanked the CFO for recognizing her contribution to the effort.

“So, where is it?” asked the CEO. “Where is your finished product….your Goal Tree?” The CFO went to the flip chart and there it was. The CEO then asked, “Did you also discuss what kind of metrics we might use to measure how we’re doing?”  “Yes, we did,” said the CFO.  “And?” the CEO asked.  “We need to do more work on that,” he answered.  “So, what’s next?” asked the CFO.  After studying the finished product, the CEO thanked everyone for their effort and then said, “Let’s take a break and come back later and I’ll explain how we can use this tree to develop our final improvement plan,” said the CEO.

The team reassembled later that day to discuss their next steps.  Everyone seemed enthusiastic about what they would be doing going forward.  When everyone was seated, the CEO turned to the group and asked, “So how does everyone feel about this process so far?”  The Plant Manager was the first to respond, “I can’t speak for anyone else, but the development of the Goal Tree was a real eye-opener for me.  I never imagined that we could have analyzed our organization so thoroughly in such a short amount of time.  I mean think about it, when you add up the total amount of time we’ve spent so far, it’s not even been a full day’s work!”  As he spoke, everyone was nodding their heads in agreement.

The CFO was next to speak and said, “I can absolutely see the benefit from using this tool and one of the things that impressed me the most is that everyone contributed. But what really captivated me is that for the first time since I started working here, we actually are looking at the system rather than isolated parts of it.  One of the things that I will take away from this is that the total sum of the localized improvements does not necessarily result in an improvement to the system.  The Goal Tree forces us to look at and analyze all of the components of our organization as one entity.”  The figure below is their Goal Tree after completing their assessment on how each entity was functioning.

In my next post we will complete our discussion on how to use the completed Goal Tree to create an improvement plan.

Bob Sproull

New Book Part 25

In my last post we began our discussion on how to create an IO Map/Goal Tree.  In this post we will complete the construction of our IO Map/Goal Tree and then begin a discussion on how to use it to assess the organization's current state. 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.

As a refresher, the figure below is the Goal and three CSF's that the team had decided upon:

The CEO started, “So, in order to maximize profitability now and in the future, we must have maximum Throughput, minimum Operating Expense and minimum Investment which is mostly inventory.”  “Are there any others?” he asked.  His staff looked at each other and agreed that these are the three main CSF’s.  The CEO knew that what was needed next were the corresponding Necessary Conditions (NCs) so he started with Maximum Throughput. “In order to have maximum Throughput, what do we need?”  His CFO put his hand up and said, “We need to maximize our revenue stream.”  Everyone agreed, but the Junior Accountant immediately raised her hand and said, “That’s only half of it!”  The CEO and CFO looked at her and said, “Tell us more.”  She explained, “Well you explained that Throughput was revenue minus Totally Variable Costs, so minimal Totally Variable Costs has to be a Necessary Condition too.”  The CEO smiled and said, “So, let me read what we have so far.”  “In order to have maximum Throughput, we must have maximum Revenue and minimal TVC’s” and everyone agreed.

The CEO continued, “In order to maximize Revenue, what must we do?”  The Operation’s Manager said, “We must have satisfied customers,” and before he could say another word, the Marketing Director added, “We must also have sufficient market demand.”  The CEO smiled, scanned the room for acceptance again and added these two NC’s to the Goal Tree. The CEO thought to himself, I am so happy that I chose to use the Goal Tree rather than the full Thinking Process analysis.

The CEO then said, “Let’s stay with the satisfied customer’s NC…….in order to have satisfied customers, we must have what?”  The Quality Director raised his hand and said, “We must have the highest quality product.”  The Logistics Manager added, “We must also have high, on-time delivery rates.”  And before the CEO could add them to the tree, the Customer Service Manager added, “We must also have a high level of customer service.”  The CEO smiled again and said, “Slow down so I don’t miss any of these everyone.”  Everyone laughed.  The CEO looked at the lower level NC’s for satisfied customers and asked if they needed anything else.  Everyone agreed that if they had the highest quality product with high on-time delivery rates and a high level of customer service, then the customers should be highly satisfied.

The CEO decided to continue on beneath the CSF for Maximum Throughput and asked, “So what do we need to supplement or support sufficient market demand?”  The CFO said, “We need a competitive price point and by the way, I think that would also help satisfy our customers.”  The CEO added both NC’s and connected both of them to the upper level NC of sufficient market demand.  The CEO stepped back and admired the work they had done so far, but before he could say anything, the Sales Manager said, “If we’re going to have sufficient market demand, don’t you think we also need effective sales and marketing?”  Again, everyone nodded their heads in agreement, so the CEO added that NC as well.

Before the CEO could say anything more, the Junior Accountant raised her hand and added, “I was thinking that three of the ways we could have effective sales and marketing would be related to the three lower level NC’s assigned to satisfied customers.  I mean, can we do that in a Goal Tree?”  The CFO was the first person to speak and he added, “I think that’s a fantastic idea!” The CEO thanked her and added the connecting arrows.  The figure below is their semi-finished Goal Tree.

The CEO then said, “Great job so far, but what’s a good way for us to minimize TVC?”  Without hesitation, the Quality Manager said, “That’s easy, we need to minimize our scrap and rework.”  The Quality Manager then said, “I think that would also be an NC for one of our other CSFs, minimum operating expense.”  Everyone agreed, so the CEO added both the NC and the second connecting arrow.  Once again, the Junior Accountant raised her hand and added, “I think that we should add another NC to the CSF, minimum operating expense, and that we should say something like optimum manpower levels and maybe also minimized overtime.”  The CEO smiled and added both of the NC’s to the tree.

“So, what about our CSF, Minimum Investment?” asked the CEO.  The Plant Manager raised his hand and said, “How about minimized WIP and Finished Goods inventory?”  The CEO looked for objections, but when nobody objected, he added it to the tree.  He then asked, “What about an NC underneath that one?”  The Plant Manager looked at him and said, “We need to synchronize our production around the constraint and demand.” “What do you mean?” asked the CEO.  “I mean we need to stop producing parts on speculation and start building based on actual orders.  I’ve been reading about TOC’s version of scheduling referred to as Drum Buffer Rope and I think we need to move in that direction,” he added.  And with that, the CEO added his comments to the now completed Goal Tree/IO Map.

In my next post we will discuss how to use the Goal Tree as an assessment tool to determine this organizations current state.

Bob Sproull

New Book Part 24

In my last post we laid out the basic structure of the IO Map/Goal Tree and what each part is intended to deliver.  In this post we will present the basics of how to construct one. 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.

Constructing a Goal Tree/Intermediate Objectives Map

A Goal Tree could very quickly and easily be constructed by a single person, but if the system it represents is larger than the span of control of the individual person, then using a group setting is always better.  So, with this in mind, the first step in constructing a Goal Tree/IO Map is to clearly define the system in which it operates and its associated boundaries.  The second consideration is, whether or not it falls within your span of control or your sphere-of-influence.  Defining your span of control and sphere of influence lets you know the level of assistance you might need from others, if you are to successfully change and improve your current reality.

Once you have defined the boundaries of the system and your span of control and sphere of influence you are attempting to improve, your next step is to define the goal of the system.  Remember, we said that the true owner(s) of the system is/are responsible for defining the goal.  If the true owner or owners aren’t available, it is possible to articulate it by way of a “straw man,” but even then, you need to get concurrence on the goal from the owner(s) before beginning to construct your Goal Tree.  Don’t lose sight of the fact that the purpose of the Goal Tree is to identify the ultimate destination you are trying to reach.

Dettmer tells us that the Goal Tree’s most important function, from a problem-solving perspective, is that it constitutes a standard of system performance that allows problem-solvers to decide how far off-course their system truly is. So, with this in mind, your goal statement must reflect the final outcome and not the activities to get you there.  In other words, the goal is specified as an outcome of activities and not the activity itself.

Once the goal has been defined and fully agreed upon, your next order of business is to develop three to five Critical Success Factors (CSFs) that must be firmly in place before your goal can be achieved.  As I explained earlier, the CSF’s are high-level milestones that result from specific, detailed actions.  The important point to remember is that if you don’t achieve every one of the CSF’s, you will not accomplish your goal.

Finally, once our CSF’s have been clearly defined, your next step is to develop your Necessary Conditions (NCs) which are the simple building blocks for your Goal Tree.  The NC’s are specific to the CSF they support, but because they are hierarchical in nature, there are typically multiple layers of them below each of the CSF’s.  As already stated, Dettmer recommends no more than three layers for the NC’s, but on numerous occasions I have observed as many as five layers working quite well.  With the three components in view, you are now ready to construct your Goal Tree.  Let’s demonstrate this through a case study where a company constructed their own Goal Tree.

The Case Study Example

The company in question here is one that manufactures a variety of different products for diverse industry segments.  Some orders are build-to-order, while others would be considered orders for mass production parts.  This company had plenty of orders to fill, but unfortunately, they were having trouble not only filling them, but filling them on time.  As a result, this company’s profitability was fluctuating between making money one month and losing money the next.  Because of this, the board of directors decided to make a leadership change and hired a new CEO to effectively “right the ship.”

The new CEO had a diverse manufacturing background, meaning that in his career he had split his time between job shop environments and high-volume manufacturing companies.  When the new CEO arrived, he called a meeting of his direct reports to not only meet them, but to assess their proficiencies and capabilities.  He soon realized that most of the existing management team had been working for this company for many years and that their skills appeared to be limited.  Before arriving, the new CEO had concluded that the best approach to turning this company’s profitability around and stabilizing it would be to use the Theory of Constraints Logical Thinking Processes (LTP’s).  But after meeting his new team and evaluating their capabilities, and since time was of the essence, he decided instead to use the Goal Tree to assess his new company and lay out an improvement strategy.

The CEO’s first order of business was to provide a brief training session on how to construct a Goal Tree for his new staff.  The first step was to define the boundaries of their system which included receipt of raw materials from suppliers to shipping of their products to their customers.  Within these boundaries, the team concluded that they clearly had defined their span of control because they had unilateral change authority.  They also decided that they could influence their suppliers and somewhat the same with their customers, so their sphere of influence was also defined.

In advance of this first meeting with his staff, the CEO had met with the board of directors to determine what the goal of this company actually was.  After all, he concluded, it’s the owner or owner’s responsibility to define the goal of the system which was “Maximum Profitability.”  After discussing his meeting with the board of directors to his team and the goal they had decided upon, the CEO posted the goal on the top of a flip chart as follows in the figure below:

The CEO knew that the board of directors wanted maximum profitability, both now and in the future, so he added the future reference to the Goal box.  But before moving on to the Critical Success Factors (CSFs), the CEO decided that it would be helpful if he explained the basic principles of both the concept of the system constraint and Throughput Accounting.  His staff needed to understand why focusing on the constraint would result in maximum throughput, but equally important, his staff needed to understand how the three components of profitability, Throughput (T), Operating Expense (OE) and Investment/Inventory ( I ) worked together to maximize profitability.

After much discussion, his staff offered three Critical Success Factors which the CEO inserted beneath the Goal in the Goal Tree.  After learning the basics of TOC’s concept of the constraint and basic Throughput Accounting (TA), his staff knew that because they needed to increase Net Profit (T – OE), then maximizing throughput had to be one of the CSF’s.  They also concluded that in order to maximize net profit, minimizing OE had to be another CSF.  And finally, because Return on Investment (ROI) was equal to Net Profit divided by their Investment (i.e. NP = (T ÷ I), they needed to include minimum investment as one of the CSF’s.  

In my next post we will complete the construction of this company's Goal Tree and then begin a discussion on how to use it to assess the organization's current state.

Bob Sproull