In my last post in this series on my new book, The Secret to Maximizing Profitability - A Business Novel on How to Successfully Combine the Theory of Constraints, Lean, and Six Sigma to Drive Profit Margins to New Levels, I discussed Chapters 7 through 11. In this post I will discuss Chapters 12 through 16.
In Chapter 12, I introduce the reader to another side of the Theory of Constraints known as Logical Thinking Processes (LTPs). I explain that the Theory of Constraints is systemic in nature and strives to identify those few constraints that limit the organization’s success in terms of moving in the direction of its goal. I also let the audience know that it’s very important to keep in mind that most organizations function as systems, rather than as a collection of processes. Tires for All is then presented the methodology used to create several of the LTPs.
In Chapter 13, I present a relatively new tool known as the Goal Tree. The Goal Tree is used to assess your organization’s current state and then used to develop a strategic improvement plan. Tires for All learns about this new tool, which is used to create their own strategic improvement plan. This tool, above all others they have learned so far, is a true game changer for Tires for All because it lays the foundation for significant improvements to all areas of the company.
In Chapter 14, I explain the details of how to use the Goal Tree and then present how Tires for All creates their own Goal Tree and how they use it to assess their organization for strengths and weaknesses. This effort, which takes very little time, lays the foundation for the development of their very own strategic improvement plan.
In Chapter 15, the key learning is why the performance metric efficiency, if measured in non-constraints, will tie up cash needlessly and seriously erode on-time delivery, Mark is instructed to come to the Corporate Office to explain why his company’s efficiency had declined so rapidly. Because, for the most part, Tom has led Tires for All’s improvement effort, Mark convinces Tom to go with him and make a presentation to the Board. Tom had prepared a series of graphs that demonstrate what has happened to Tires for All’s key performance metrics, including things like on-time delivery, efficiency, and profit margins. Tom does an excellent job of convincing the board that the direction and pathway Tires for All has taken is the right one. The Board is so impressed with what Tom has presented that the Chairman of the Board offers Tom a new role, which is to work directly for the Board of Directors and teach the rest of the other companies in their portfolio what he had done at Tires for All. Tom accepts the offer, but with one significant caveat.
In Chapter 16, Tom begins his new role, responsible for improvement efforts at all the portfolio of companies and he is very successful. The remainder of the book, Chapters 17 through 20, summarizes all the actions taken at the other companies in the Board’s portfolio. Part of the agreement Tom made with the board had to do with how he would be compensated, and if you’re a fan of the TV show, Shark Tank, you will relate to his deal, especially if you are a fan of Kevin O’Leary.
The genesis behind the Ultimate Improvement Cycle is based upon my many years of analysis of both failures and successes using Lean, Six Sigma, and the Theory of Constraints as stand-alone improvement initiatives. My analysis revealed a common thread between successful initiatives no matter whether they were based on Lean, Six Sigma, or TOC models. The key to success is the leverage point or where the improvement efforts were focused. While eliminating waste, using Lean, and reducing variation using Six Sigma are both critical components of all successful improvement initiatives, where these efforts are focused will determine the ultimate impact on a company’s bottom line. By integrating Lean, Six Sigma, and the Theory of Constraints into a single improvement cycle, I have developed a recipe that will maximize your return on investment, cash flow, and net profit.
I think you will find The Secret to Maximizing Profitability to be both stimulating and thought provoking, but more importantly, it will provide your organization with a road map for maximizing the use of your resources to achieve more bottom-line improvement than you ever imagined possible. I’m convinced that this book lays out the definitive improvement strategy going forward and I’m confident that, if you follow the guidelines I’ve developed, your company will not only survive in this new global economy, it will flourish, just like Tires for All did.
And as I finish all of 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
In my next post I will begin a new series of posts on a new subject.
Bob Sproull
Saturday, November 30, 2019
Monday, November 25, 2019
New Book Part 3
In my last post of this series on my new book, The Secret to Maximizing Profitability - A Business Novel on How to Successfully Combine the Theory of Constraints, Lean, and Six Sigma to Drive Profit Margins to New Levels, I discussed Chapters 3 through 6. In this post I will discuss Chapters 7 through 11.
In Chapter 7, I present several key learnings for Tires for All, one of which is the importance of selecting and using the right performance metrics. They also learn that the performance metric efficiency, if measured in non-constraints and pushed higher, will do more harm than good. Tom Mahanan becomes even more involved in Tires for All’s improvement effort and begins training the staff on the Theory of Constraints and the new accounting system. Chris Samuels, the head of the local union, is convinced that Tires for All’s new direction will result in a better place for his fellow union employees and even volunteers to lead one of the improvement teams. In this chapter, I explain why it’s so important to have the total involvement of all employees.
In Chapter 8, I present a Theory of Constraints parts replenishment solution that typically results in a 50 percent reduction in parts inventory while virtually eliminating stock-outs. Tires for All learns all about the Theory of Constraints Replenishment Solution, which is a much different way of ordering raw materials and parts necessary to produce their tires and rubber articles. Learning this replenishment method is a real eyeopener for Tires for All, but especially Tom. In this chapter, I present how this solution can be implemented in any type of manufacturing company.
In Chapter 9, I present a different type of planning and scheduling system that is based upon the teachings of the Theory of Constraints. If your company uses an Enterprise Resource Planning (ERP) system, you will see that this method can be integrated with it. Tires for All learns about a new methodology used to manage and use their existing planning and scheduling system. They learn that in a Theory of Constraints environment, production planning and scheduling is done with a tool known as the Drum Buffer Rope, coupled with Buffer Management. They learn that Drum Buffer Rope is designed to regulate the flow of work-in-process through a production line based upon the pace of the slowest resource, the constraint operation. Tires for All also learns that this method contains a shipping schedule, a constraint schedule, and a material release schedule which are all tied to the constraint schedule. Here you will learn how these components all work together to maximize your company’s ability to ship products on time, while minimizing your work-in-process inventory.
In Chapter 10, Bob Nelson, Tires for All’s improvement consultant, explains in detail, how to combine the best of Theory of Constraints, Lean Manufacturing, and Six Sigma. He first introduces what he has christened the Ultimate Improvement Cycle (UIC) as three, interactive concentric circles, one for TOC, one for Lean Manufacturing, and one for Six Sigma. Bob does a masterful job of presenting the first element of the UIC by presenting the basic requirements taken from each improvement method and how best to combine them into a single improvement methodology. He then presents the specific tools and techniques needed for success in implementing the Ultimate Improvement Cycle. In this chapter, I present the details of how these three methodologies can be combined and then present the basic tools to do so effectively.
In Chapter 11, I lay out all the deliverables you should end up with when you successfully implement the Ultimate Improvement Cycle. Bob Nelson continues his explanation of the Ultimate Improvement Cycle by presenting the expected deliverables when this integrated methodology is implemented at Tires for All.
In my next post I will begin with Chapter 12 and continue on through the remainder of my new book.
Bob Sproull
In Chapter 7, I present several key learnings for Tires for All, one of which is the importance of selecting and using the right performance metrics. They also learn that the performance metric efficiency, if measured in non-constraints and pushed higher, will do more harm than good. Tom Mahanan becomes even more involved in Tires for All’s improvement effort and begins training the staff on the Theory of Constraints and the new accounting system. Chris Samuels, the head of the local union, is convinced that Tires for All’s new direction will result in a better place for his fellow union employees and even volunteers to lead one of the improvement teams. In this chapter, I explain why it’s so important to have the total involvement of all employees.
In Chapter 8, I present a Theory of Constraints parts replenishment solution that typically results in a 50 percent reduction in parts inventory while virtually eliminating stock-outs. Tires for All learns all about the Theory of Constraints Replenishment Solution, which is a much different way of ordering raw materials and parts necessary to produce their tires and rubber articles. Learning this replenishment method is a real eyeopener for Tires for All, but especially Tom. In this chapter, I present how this solution can be implemented in any type of manufacturing company.
In Chapter 9, I present a different type of planning and scheduling system that is based upon the teachings of the Theory of Constraints. If your company uses an Enterprise Resource Planning (ERP) system, you will see that this method can be integrated with it. Tires for All learns about a new methodology used to manage and use their existing planning and scheduling system. They learn that in a Theory of Constraints environment, production planning and scheduling is done with a tool known as the Drum Buffer Rope, coupled with Buffer Management. They learn that Drum Buffer Rope is designed to regulate the flow of work-in-process through a production line based upon the pace of the slowest resource, the constraint operation. Tires for All also learns that this method contains a shipping schedule, a constraint schedule, and a material release schedule which are all tied to the constraint schedule. Here you will learn how these components all work together to maximize your company’s ability to ship products on time, while minimizing your work-in-process inventory.
In Chapter 10, Bob Nelson, Tires for All’s improvement consultant, explains in detail, how to combine the best of Theory of Constraints, Lean Manufacturing, and Six Sigma. He first introduces what he has christened the Ultimate Improvement Cycle (UIC) as three, interactive concentric circles, one for TOC, one for Lean Manufacturing, and one for Six Sigma. Bob does a masterful job of presenting the first element of the UIC by presenting the basic requirements taken from each improvement method and how best to combine them into a single improvement methodology. He then presents the specific tools and techniques needed for success in implementing the Ultimate Improvement Cycle. In this chapter, I present the details of how these three methodologies can be combined and then present the basic tools to do so effectively.
In Chapter 11, I lay out all the deliverables you should end up with when you successfully implement the Ultimate Improvement Cycle. Bob Nelson continues his explanation of the Ultimate Improvement Cycle by presenting the expected deliverables when this integrated methodology is implemented at Tires for All.
In my next post I will begin with Chapter 12 and continue on through the remainder of my new book.
Bob Sproull
Friday, November 22, 2019
My New Book Part 2
In my first post in this series on my new book, The Secret to Maximizing Profitability - A Business Novel on How to Successfully Combine the Theory of Constraints, Lean, and Six Sigma to Drive Profit Margins to New Levels, I discussed the contents of Chapters 1 and 2. In this post, I will continue with Chapters 3, 4, 5, and 6.
In Chapter 3, I lay out the basics of Lean Manufacturing, again in simple terms. Mark is very excited about pursuing this as a way to realize much better improvements to his bottom line. He orders books, reads them, and then sends his Six Sigma Master Black Belt to a week-long training session on Lean. He also has Lean taught to all the employees at his plant. He’s excited because he learned that Lean is all about identifying and removing excessive waste within his processes and he is convinced that this is the method that will significantly improve his bottom line. And again, as with Six Sigma, bottom-line improvements are realized using Lean, but they’re not at the level he wanted to see. At the end of this chapter, Mark is at a restaurant and overhears a group celebrating their recent success using a different improvement initiative which took their profit levels very high. Upon discussions with them, he is given the name and a business card of the consultant that helped the company make their improvements.
Chapter 4 begins with a call to the consultant he learned about from the group celebrating their achievements. After a brief discussion with Bob Nelson, the improvement consultant, Mark invites him to come to Tires for All to have a discussion with him about his apparently different improvement methodology. Mark looked online and found Bob’s website, Focus and Leverage Consulting, which stated, I fix broken companies and make good companies great! Mark continued reading and another comment caught his eye which read, I change the way you think, so you can change the way you operate… In this chapter, the concept of focus and leverage is learned and grasped by Mark as he learns about the Theory of Constraints. In any improvement initiative, knowing where to focus improvements is critical, and in this chapter, I will present the “how to” of
this approach.
In Chapter 5, Mark learns about the Theory of Constraint’s Five Focusing Steps and how they can be used to make dramatic improvements to manufacturing systems. In this chapter, Mark also becomes familiar with the various types of constraints that can exist within companies and within their systems. For those not familiar with the different types of constraints that can exist, this chapter provides a basic description of each type. After all that Bob Nelson taught Mark, Bob is offered a contract to come consult at Tires for All, which he accepts. And with this, Tires for All’s improvement effort kicks off.
In Chapter 6, I present how by combining TOC with Lean and Six Sigma, major improvements will be achieved. This is the beginning of Tires for All’s improvement journey where they learn about the absolute power of combining the Theory of Constraints with their already learned Six Sigma and Lean Manufacturing knowledge and experience. Tires for All also learns about a different type of Accounting that will change their course of history going forward. Their Director of Finance, Tom Mahanan, is one of the first to fully grasp and understand the potential future benefits of using Throughput Accounting to make real-time financial decisions. In this chapter, I will demonstrate how Throughput Accounting differs from traditional Cost Accounting and why it is the best method for making financial decisions.
As a result of his learning, Tom Mahanan becomes deeply involved in Tires for All’s improvement journey. Tom realizes the problems associated with making financial decisions using traditional Cost Accounting as the basis for these decisions. Perhaps the most important learning in this chapter is that the real key to profitability should be based on how much money can be made, rather than how much money can be saved, and as you will see in this chapter, the methodology for these two approaches are vastly different.
In my next post I will continue on with more chapter descriptions.
Bob Sproull
In Chapter 3, I lay out the basics of Lean Manufacturing, again in simple terms. Mark is very excited about pursuing this as a way to realize much better improvements to his bottom line. He orders books, reads them, and then sends his Six Sigma Master Black Belt to a week-long training session on Lean. He also has Lean taught to all the employees at his plant. He’s excited because he learned that Lean is all about identifying and removing excessive waste within his processes and he is convinced that this is the method that will significantly improve his bottom line. And again, as with Six Sigma, bottom-line improvements are realized using Lean, but they’re not at the level he wanted to see. At the end of this chapter, Mark is at a restaurant and overhears a group celebrating their recent success using a different improvement initiative which took their profit levels very high. Upon discussions with them, he is given the name and a business card of the consultant that helped the company make their improvements.
Chapter 4 begins with a call to the consultant he learned about from the group celebrating their achievements. After a brief discussion with Bob Nelson, the improvement consultant, Mark invites him to come to Tires for All to have a discussion with him about his apparently different improvement methodology. Mark looked online and found Bob’s website, Focus and Leverage Consulting, which stated, I fix broken companies and make good companies great! Mark continued reading and another comment caught his eye which read, I change the way you think, so you can change the way you operate… In this chapter, the concept of focus and leverage is learned and grasped by Mark as he learns about the Theory of Constraints. In any improvement initiative, knowing where to focus improvements is critical, and in this chapter, I will present the “how to” of
this approach.
In Chapter 5, Mark learns about the Theory of Constraint’s Five Focusing Steps and how they can be used to make dramatic improvements to manufacturing systems. In this chapter, Mark also becomes familiar with the various types of constraints that can exist within companies and within their systems. For those not familiar with the different types of constraints that can exist, this chapter provides a basic description of each type. After all that Bob Nelson taught Mark, Bob is offered a contract to come consult at Tires for All, which he accepts. And with this, Tires for All’s improvement effort kicks off.
In Chapter 6, I present how by combining TOC with Lean and Six Sigma, major improvements will be achieved. This is the beginning of Tires for All’s improvement journey where they learn about the absolute power of combining the Theory of Constraints with their already learned Six Sigma and Lean Manufacturing knowledge and experience. Tires for All also learns about a different type of Accounting that will change their course of history going forward. Their Director of Finance, Tom Mahanan, is one of the first to fully grasp and understand the potential future benefits of using Throughput Accounting to make real-time financial decisions. In this chapter, I will demonstrate how Throughput Accounting differs from traditional Cost Accounting and why it is the best method for making financial decisions.
As a result of his learning, Tom Mahanan becomes deeply involved in Tires for All’s improvement journey. Tom realizes the problems associated with making financial decisions using traditional Cost Accounting as the basis for these decisions. Perhaps the most important learning in this chapter is that the real key to profitability should be based on how much money can be made, rather than how much money can be saved, and as you will see in this chapter, the methodology for these two approaches are vastly different.
In my next post I will continue on with more chapter descriptions.
Bob Sproull
Saturday, November 16, 2019
My New Book Part 1
This series of posts is all about my new book scheduled for publication on December 21st. The title of the book is The Secret to Maximizing Profitability - A Business Novel on How to Successfully Combine the Theory of Constraints, Lean, and Six Sigma to Drive Profit Margins to New Levels. The underlying reason I decided to write this book was because of all the emails I have received asking me to please write another book, but this time please use a business novel format. Apparently, Bruce Nelson and my books, Epiphanized and its sequel, Focus and Leverage were very popular with our audience. And while this book is not a sequel to Focus and Leverage, it is written in the same style as both of its predecessors. So, I’m hoping that The Secret to Maximizing Profitability is an enjoyable read for everyone reading it.
This book lays out, as the title suggests, the real secret to maximizing your company’s profitability. While many companies have implemented improvement initiatives like Six Sigma and Lean Manufacturing, there is a missing link which when discovered and implemented, will take these same companies to profit levels not seen before. This missing link is the Theory of Constraints (TOC) and when it’s combined with Lean and Six Sigma, amazing things will be sure to follow.
In this book I walk you through the step-by-step method on how to combine these three methodologies with the result being significant improvements to flow, major improvements in variation, substantial reductions in waste, superior on-time delivery, and ultimately, maximized profitability. I have been using this integrated methodology for years, and each time the results realized were well beyond what the leadership teams had experienced before.
In Chapter 1, I lay the foundation for a company struggling to be profitable enough to satisfy their Board of Directors. Their story begins with a man named Mark Roder, who has just left a meeting with the Board of Directors of a portfolio of companies, including his own company, Tires for All. Mark is the General Manager of Tires for All, a company that manufactures tires and rubber articles for the automotive and trucking industry. Mark’s meeting with the Board did not go well as his reported profit margins were not high enough to satisfy the Board of Directors. Because of his low profit margins, Mark is given an ultimatum by the Board to either improve his profitability, or else! And the “or else” is the potential for Mark to lose his job.
In Chapter 2, I lay out the basics of Six Sigma in very simple terms. Mark has been reading about this improvement methodology and decides that he wants to try this method at Tires for All, to “right the ship” before drastic action is taken by the Board of Directors. Weeks of training take place at Tires for All to a plethora of employees on Six Sigma, and they even hire a Six Sigma Master Black Belt to help with their improvement effort. Although improvements to their profit margins are the result of Six Sigma, the level of profitability is not enough to satisfy the Board of Directors. Although the Board recognizes that improvements have been made at Tires for All, Mark is given another ultimatum by the Board, so he begins looking elsewhere for another potential improvement methodology. What he finds is Lean Manufacturing.
In my next post, I will continue on with Chapter 3.
Bob Sproull
This book lays out, as the title suggests, the real secret to maximizing your company’s profitability. While many companies have implemented improvement initiatives like Six Sigma and Lean Manufacturing, there is a missing link which when discovered and implemented, will take these same companies to profit levels not seen before. This missing link is the Theory of Constraints (TOC) and when it’s combined with Lean and Six Sigma, amazing things will be sure to follow.
In this book I walk you through the step-by-step method on how to combine these three methodologies with the result being significant improvements to flow, major improvements in variation, substantial reductions in waste, superior on-time delivery, and ultimately, maximized profitability. I have been using this integrated methodology for years, and each time the results realized were well beyond what the leadership teams had experienced before.
In Chapter 1, I lay the foundation for a company struggling to be profitable enough to satisfy their Board of Directors. Their story begins with a man named Mark Roder, who has just left a meeting with the Board of Directors of a portfolio of companies, including his own company, Tires for All. Mark is the General Manager of Tires for All, a company that manufactures tires and rubber articles for the automotive and trucking industry. Mark’s meeting with the Board did not go well as his reported profit margins were not high enough to satisfy the Board of Directors. Because of his low profit margins, Mark is given an ultimatum by the Board to either improve his profitability, or else! And the “or else” is the potential for Mark to lose his job.
In Chapter 2, I lay out the basics of Six Sigma in very simple terms. Mark has been reading about this improvement methodology and decides that he wants to try this method at Tires for All, to “right the ship” before drastic action is taken by the Board of Directors. Weeks of training take place at Tires for All to a plethora of employees on Six Sigma, and they even hire a Six Sigma Master Black Belt to help with their improvement effort. Although improvements to their profit margins are the result of Six Sigma, the level of profitability is not enough to satisfy the Board of Directors. Although the Board recognizes that improvements have been made at Tires for All, Mark is given another ultimatum by the Board, so he begins looking elsewhere for another potential improvement methodology. What he finds is Lean Manufacturing.
In my next post, I will continue on with Chapter 3.
Bob Sproull
Wednesday, November 13, 2019
Systems Improvement Part 5
In today's post, I want to discuss Goldratt's third step, subordination. Just to refresh your minds, here are Goldratt's five focusing steps:
- Step 1: Identify the system constraint.
- Step 2: Decide how to exploit the system constraint.
- Step 3: Subordinate everything else to the system constraint.
- Step 4: If necessary, elevate the system constraint.
- Step 5:When the current system constraint has been broken, return to Step 1, but don’t let inertia create a new system constraint.
Subordination
If you were to look up the definition of subordination, it would say something like being subservient to something. As it applies to the Theory of Constraints, it simply means that the non-constraint components of any system must be adjusted to a setting so that it will enable the constraint to operate at its maximum effectiveness without loading the system with excess work-in-process inventory.
In Step 3 of the five focusing steps we are instructed to subordinate. So, what does subordinate actually mean? Remember when you correctly answered the question about how fast Steps 1 and 2 should be running? By definition, any non-constraint has more capacity to produce than
the constraint does. And if you attempt to drive efficiencies higher and higher, this will result in swollen WIP inventory, prolonged lead times, and frequent expediting or firefighting. It is absolutely critical to avoid outproducing the constraint. In any manufacturing environment this is accomplished by choking the release of raw material in line with the capacity of the constraint.
Equally important is making sure that the rest of the system supports the work of the constraint at all times. This means that the constraint must never be starved for inputs or fed poor quality materials. This can easily be achieved by maintaining a practical buffer of safety stock. By the same token, other established policies can actually hinder productivity at the constraint and must be methodically aligned to achieve maximum performance. The total output of the constraint controls the output of the total system. This is why it is so important that we work to squeeze as much as possible out of it. In terms of maximizing efficiency, it only makes sense to do this in the constraint and not in the non-constraints.
Step four of the five focusing steps tells us that it might be necessary to elevate the constraint. This means that rather than immediately rushing out to purchase more things that increase the output of the constraint, by doing things like buying more equipment or hiring more workers, or even increasing the advertising budget, we should first learn to better utilize the existing resources that we already have. Many times, I have seen companies spend excessive amounts of money needlessly because they haven’t focused their improvement efforts on the system constraint to reduce waste and variation.
Step five tells us that when the constraint is elevated, it will move to a new location within the system. And when it does move, we must be prepared to immediately move our improvement effort to the new constraint, if we are to keep the improvement effort moving in the right direction. So, these are the five focusing steps that Goldratt and Cox wrote about in their book, The Goal. This then is the essence of system improvement.
In my next post, I'm going to lay out the foundation of my new book, The Secret to Maximizing Profitability, which is written as a business novel much like Bruce Nelson's and my other two business novels, Epiphanized and Focus and Leverage.
Bob Sproull
If you were to look up the definition of subordination, it would say something like being subservient to something. As it applies to the Theory of Constraints, it simply means that the non-constraint components of any system must be adjusted to a setting so that it will enable the constraint to operate at its maximum effectiveness without loading the system with excess work-in-process inventory.
In Step 3 of the five focusing steps we are instructed to subordinate. So, what does subordinate actually mean? Remember when you correctly answered the question about how fast Steps 1 and 2 should be running? By definition, any non-constraint has more capacity to produce than
the constraint does. And if you attempt to drive efficiencies higher and higher, this will result in swollen WIP inventory, prolonged lead times, and frequent expediting or firefighting. It is absolutely critical to avoid outproducing the constraint. In any manufacturing environment this is accomplished by choking the release of raw material in line with the capacity of the constraint.
Equally important is making sure that the rest of the system supports the work of the constraint at all times. This means that the constraint must never be starved for inputs or fed poor quality materials. This can easily be achieved by maintaining a practical buffer of safety stock. By the same token, other established policies can actually hinder productivity at the constraint and must be methodically aligned to achieve maximum performance. The total output of the constraint controls the output of the total system. This is why it is so important that we work to squeeze as much as possible out of it. In terms of maximizing efficiency, it only makes sense to do this in the constraint and not in the non-constraints.
Step four of the five focusing steps tells us that it might be necessary to elevate the constraint. This means that rather than immediately rushing out to purchase more things that increase the output of the constraint, by doing things like buying more equipment or hiring more workers, or even increasing the advertising budget, we should first learn to better utilize the existing resources that we already have. Many times, I have seen companies spend excessive amounts of money needlessly because they haven’t focused their improvement efforts on the system constraint to reduce waste and variation.
Step five tells us that when the constraint is elevated, it will move to a new location within the system. And when it does move, we must be prepared to immediately move our improvement effort to the new constraint, if we are to keep the improvement effort moving in the right direction. So, these are the five focusing steps that Goldratt and Cox wrote about in their book, The Goal. This then is the essence of system improvement.
In my next post, I'm going to lay out the foundation of my new book, The Secret to Maximizing Profitability, which is written as a business novel much like Bruce Nelson's and my other two business novels, Epiphanized and Focus and Leverage.
Bob Sproull
Systems Improvement Part 4
In my last post we determined how fast the non-constraint steps should be running to avoid and explosion of work-in-process inventory. We also identified potential sources of waste that are typically found in manufacturing systems. In today's post we will explore sources of variation which must be identified and significantly reduced to further improve our manufacturing system.
Variability burdens a manufacturing system because it simply leads to congestion, excessive inventory, extended lead times, quality problems and a host of other operational problems. There are two prominent theories on variation and how to treat it. Walter Shewart’s idea was to “minimize variation so that it will be so insignificant, that it does not in any way, affect the performance of your product.” Taguchi, on the other hand, tells us to “construct (design) the product in such a way, that it will be robust to any type of variation.” They’re both right, of course. So, what are your options when dealing with the negative effects of variation? There are three ways to handle variation, namely, eliminate it, reduce it or adapt to it. Because it’s impossible to totally eliminate variability, you must reduce it as much as possible, and then adapt to the remaining variation.
There are two types of variability, that you are
interested in. No, we’re not talking
about special cause and common cause. We’re talking about processing time
variability (PTV) and process and product variability (PPV), which are very
different from each other. Sources of PTV are those things that prolong the
time required for parts to progress through each of the individual process
steps, while PPV are those variables that cause part’s quality characteristics
to vary. PPV has a profound impact on PTV, simply because PPV negatively
interrupts the process flow. There are many examples of situations that disrupt
processes and therefore, create variation. Some of the more common examples include
unreliable equipment (PTV and PPV), lack of standardized work procedures (PTV
and PPV), defective product (PPV and PTV), late deliveries from external and
internal supplier (PTV) and many others.
Variability burdens a manufacturing system because it simply leads to congestion, excessive inventory, extended lead times, quality problems and a host of other operational problems. There are two prominent theories on variation and how to treat it. Walter Shewart’s idea was to “minimize variation so that it will be so insignificant, that it does not in any way, affect the performance of your product.” Taguchi, on the other hand, tells us to “construct (design) the product in such a way, that it will be robust to any type of variation.” They’re both right, of course. So, what are your options when dealing with the negative effects of variation? There are three ways to handle variation, namely, eliminate it, reduce it or adapt to it. Because it’s impossible to totally eliminate variability, you must reduce it as much as possible, and then adapt to the remaining variation.
Performance
Metrics
In describing the characteristics of a manufacturing
system, I stated that, in order for manufacturing systems to maintain
stability, there must be a feedback mechanism in place to transmit
information. Without a mechanism to
provide feedback, systems will not function to achieve its intended
purpose. Selecting the right performance
metrics, for example, is critical for systems to operate effectively. So, just what are the key performance metrics
we should be using?
In order to better understand which performance
metrics we should be using, let’s first take a look at what the creator of the
Theory of Constraints, Dr. Eliyahu Goldratt told us about the Theory of Constraints (TOC). Dr. Goldratt presented what he referred to as
“The Five Focusing Step” which were:
Step
1: Identify the system constraint
Step 2: Decide how to exploit the system constraint
Step 3: Subordinate everything else to the system constraint
Step 2: Decide how to exploit the system constraint
Step 3: Subordinate everything else to the system constraint
Step
4: If necessary, elevate the system constraint
Step 5: When the current system constraint has been broken, return to Step 1, but don’t let inertia create a new system constraint.
Step 5: When the current system constraint has been broken, return to Step 1, but don’t let inertia create a new system constraint.
Throughout my career I’ve been asked many times, which of Goldratt’s Five
focusing steps is the most difficult for companies to embrace. From my perspective and experience, it’s Step
3 which deals with subordinating everything to the constraint. One of the major reasons for this is based in
Cost Accounting (CA), or even more specifically, the performance metrics that CA
embraces and mandates. In particular,
the performance metrics Operator Efficiency and Equipment Utilization, in
places other than the constraint is in my mind, the most difficult mindset to
overcome for many companies.
In my next post I will discuss step 3,subordination, in more detail to demonstrate just why executing this step is so important.
In my next post I will discuss step 3,subordination, in more detail to demonstrate just why executing this step is so important.
Sunday, November 3, 2019
Systems Improvement Part 3
In my last post in this series on systems improvement, I presented a simple piping system to demonstrate what a system constraint looks like and why it's so important to identify it as a focal point for your improvement efforts. I then translated that same context to a simple 4-step manufacturing process and demonstrated how the constraint controls the output rate of the system being improved. I finished my last post by asking a simple question, which was, "In its current state, how fast should Steps 1 and 2 be running?" In this post we will answer that question and then continue our discussion on systems improvement. As a reminder, here is the simple 4-step process I presented in my last post.
If steps 1 and 2 continue to produce semi-finished product according to their
current capacities, then clearly an accumulation of work-in-process inventory
(WIP) will be the result as is demonstrated in Figure 1. Figure 1 represents
the state of this system after one 8-hour day, and if Steps 1 and 2 continue to
produce product at their current capacities, then work-in-process inventory
will simply continue to accumulate within this process.
Figure 1
Figure 2 represents the state of this system after 3,
8-hour work shifts with all steps producing to their current capacities. It makes no sense for this system to continue
producing product at these rates because the net result is increased
work-in-process inventory (WIP), which needlessly ties up cash, causes delayed
deliveries to customers, and a host of other negative effects. Again, I ask, how fast should each step be
running to avoid this explosion of WIP?
Figure 2
In my first post in this series, I introduced the characteristics of a system and
explained that every system contains elements and has at least one constraining
factor that controls its output. In our manufacturing system we identified Step
3 as our constraining factor. The fact
is, in order to avoid the explosion of WIP and all of the other negative
consequences associated with it, Steps 1 and 2 should be producing product at
the same rate as the constraining factor which in our example is 1 part every
90 minutes. Again, if we want to
increase the output of this manufacturing system, we must reduce the time
required to process material in Step 3.
The most effective way to reduce the cycle time of our
system constraint is by looking at it through the lens of both waste and
variation. There are many different forms of
waste that exist within all manufacturing systems. Table 1 is a tool I have successfully used
many times to search for sources of waste within manufacturing systems. You
will notice that I have listed ten different sources of waste, and symptoms of
their existence, instead of the traditional eight forms of waste. I do this to
be as specific as possible in our search for waste. For example, I have listed
over-production and inventory separately, because the negative impact of
over-production exhibits completely different symptoms than waste of inventory
and will require different actions to correct. It helps us focus better.
Waste Description
|
Symptoms to Look For
|
Waste of Transportation
|
1. Too many forklifts
2. Product has to be moved, stacked and
moved again
3. Process steps are far apart
|
Waste of Waiting
|
1. Frequent/chronic equipment breakdowns
2. Equipment changeovers taking hours rather
than minutes
3. Operators waiting for inspectors to
inspect product
|
Waste of Organization and Space
|
1. Operators looking for tools, materials,
supplies, parts, etc.
2. Large distances between process steps
3. Not able to determine process status in
15 seconds
4. Many different work methods for same
process
5. Poor lighting or dirty environment
|
Waste of Over-processing
|
1. Rework levels are high
2. Trying to produce perfect quality that
isn’t required by customer
3. No documented quality standards
|
Waste of Motion
|
1. Process steps located as functional
islands with no uniform flow
2. Excessive turning, walking, bending,
stooping, etc. within the process
|
Waste of inventory
|
1. Product being made without orders
2. Obsolete inventory
3. Racks full of product.
|
Waste of Defective Product
|
1. Problems never seem to get solved and
just keep coming back
2. Independent rework areas have become just
another step in the process
3. Excessive repairs
|
Waste of Overproduction
|
1. Long production runs of the same part to
avoid changeovers and set-up time
2. Pockets of excess inventory around the
plant
3. Making excess or products earlier or in
greater quantities than the customer wants or needs.
|
Waste of Under-utilization
|
1. No operator involvement on
problem-solving teams
2. No regular stand-up meetings with operators
to get new ideas
3. No suggestion system in place to collect
improvement ideas
4. Not recording delays and reasons for the
delays
|
Waste of Storage and Handling
|
1. Many storage racks full of product
2. Damaged parts in inventory
3. Storing product away from the point of
use
|
Table 1
Waste and variation reduction efforts are not effective if they aren’t
done so with a systematic plan that ties both steps together. You want waste
and variation to be attacked simultaneously, to ensure that any changes made in
the name of waste reduction, aren’t negatively impacting variation and
vice-versa. Remember that for now, because the constraint dictates throughout,
and increasing throughput yields the highest potential for significant
profitability improvement, you are focusing your waste and variation reduction
efforts only on the constraint. The exceptions to this would be, upstream
process steps causing the constraint to be starved, or downstream process steps
are scrapping product or causing excessive rework. You cannot ignore these two
exceptions, but primarily, you will be focusing your improvement efforts on the
system constraint.
Now that we have discussed waste in our system, let’s now want to turn
our attention to variation. In my next post in this series, we will do just that.
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