Saturday, March 27, 2021

The Goal Tree Part 6

 Review

In my last post the new CEO, with the assistance from his staff, began constructing their company’s Goal Tree/IO Map and the session was actually going very well.  When we left off, here is what the team had completed.  We will now continue the dialogue between the CEO and his team.

The Case Study Continued

The CEO then said, “Let’s stay with the satisfied customers 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 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/IO Map?”  The CFO was the first person to speak and he added, “I think that’s a fantastic idea!”  The Junior Accountant put her hand over her mouth to hide her smile, but she was obviously in the midst of a proud moment.  The CEO thanked her and added the connecting arrows.

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 CSF’s, 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 on?”  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 Goal Tree/IO Map.

When he was finished adding the new items to the Goal Tree/IO Map, he turned to the group and began clapping his hands in appreciation for their effort.  He explained, “I’ve been doing this for quite some time now, but I have never seen a group come together more than you have today.”  He added, “I was a bit apprehensive when we began today that maybe some of you would push back and not contribute, but I was totally wrong.”  The CFO raised his hand and said, “For me, I have never seen this tool before, but going forward I will be using it a lot. I’m very happy to have been here today to complete this exercise.”  Everyone else agreed with him.  The CEO then said, “Ladies and gentlemen, this exercise is not over yet.”  “What else is there to do?” came a question from the CFO.  “We’ll get back together tomorrow morning and I’ll explain the next steps,” he explained.

So there it was, a completed Goal Tree/IO Map that everyone was proud of.  “But what will we do next?” everyone thought.

Next Time

In my next posting we will take the completed Goal Tree/IO Map and show you how to turn it into an improvement plan.  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull

References:

[1] Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007





Saturday, March 20, 2021

The Goal Tree Part 5

 Review

In my last post the new CEO, with the assistance from his staff, began constructing their company’s Goal Tree/IO Map.  The CEO felt it was very important for his staff to understand Throughput Accounting, so he presented the basics of TOC and TA.  It was important for his staff to understand the concept of the system constraint as well as the basics of TA before beginning to build the Goal Tree/IO Map.  The team established the following Goal and three Critical Success Factors before breaking for lunch.

The Case Study Continued

When his staff returned from lunch, they reviewed what the CEO had presented on Throughput Accounting (TA), just so it was fresh in their minds as they began again to review and construct their Goal Tree/IO Map.  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, “In order to have maximum throughput, what do we need?”  His CFO put his hand up and said, “We need to maximize our revenue.”  Everyone agreed, but the Junior Accountant immediately raised her hand and said, “That’s only half of it!”  The CEO looked at her and said, “Tell us more.”  She said, “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.” Everyone nodded their heads in agreement as the Junior Accountant swelled with pride.

The CEO continued, “In order to maximize revenue, what must we do?”  The Operation’s Manager said, “We must have satisfied customer,” and before he could say another word, the Marketing Director added, “We must also have sufficient market demand.”  The CEO smiled again and added these two NC’s to the Goal Tree/IO Map.


Next time

In my next posting we will complete the construction of this team’s Goal Tree/IO Map by completing the formulation of the Necessary Conditions (NCs).  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull

References:

[1] Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007



Friday, March 12, 2021

The Goal Tree Part 4

Review

In my last post I expanded on the purpose of each component and presented some tips on how I go about constructing this logic diagram.  I also presented a visual representation of the Goal Tree’s structure to be used as a reference diagram which I have also included in today’s post.  In today’s post we will begin constructing a Goal Tree/IO Map in conjunction with the case study details I presented at the end of my last post.

The Case Study Refresher

 

In my last post I described a company that manufactures a variety of different products for diverse industry segments.  I explained that some orders are build-to-order while others would be considered orders for mass production parts and although this company had plenty of orders to fill, they were having trouble not only filling them, but filling them on time.  Because of not being able to fill the orders on time, this company’s profitability was fluctuating between making money one month and losing money the next.  The board of directors decided to make a leadership change and hired a new CEO to “right the ship.”

 

When the new CEO arrived, he had called a meeting of his direct reports to meet them and assess their capabilities.  Before arriving, the new CEO had decided that the best approach to turning this company’s profitability around and stabilizing it would be to use the Theory of Constraints Thinking Processes.  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/IO Map to lay out an improvement strategy.

The First Meeting

The CEO’s first order of business was to provide a brief training session on how to construct a Goal Tree/IO Map to 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 would be.  After all, he concluded, it’s the 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:


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.

The CEO explained that Throughput was equal to Revenue minus Totally Variable Costs (TVC) and that Net Profit was equal to T – OE.  Finally he explained that Return on Investment (ROI) was equal to NP/I.  With this brief training behind them, he then challenged his staff to tell him what they needed to have in place to satisfy this profitability goal both today and tomorrow.  That is, what must be in place to maximize net profit now and in the future?

After much discussion, his staff offered three Critical Success Factors which the CEO inserted beneath the Goal.  After learning the basics of TOC’s concept of the constraint and 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 one.  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.  The CEO felt very good about the progress they had made with their first Goal Tree/IO Map, but it was time for lunch so they decided to break and come back later to complete the Goal Tree/IO Map.

Next time

In my next posting we will continue with the construction of this team’s Goal Tree/IO Map by developing the Necessary Conditions (NCs).  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull



Saturday, March 6, 2021

The Goal Tree Part 3

Review

In my last post I introduced you to the basic structure of the Goal Tree (a.k.a. The Intermediate Objectives Map).  I also expanded on the purpose of each component and presented some tips on how I go about constructing this logic diagram.  And finally, I presented a visual representation of the Goal Tree’s structure.  The figure below is what I presented and I am inserting it as a frame of reference for today’s post as we begin to construct a Goal Tree by way of an actual company’s case study.


As we proceed, it’s important to understand that the real value of a Goal Tree/IO Map is its capability to keep the analysis focused on what’s really important to system success.  Dettmer [1] tells us that a “Goal Tree/Intermediate Objectives Map will be unique to that system and the environment in which it operates.”  This is an extremely important concept because “one size does not fit all.”  Even two manufacturing companies, producing the same kind of part will probably have very dissimilar Goal Trees. 

Constructing a Goal Tree/Intermediate Objectives Map

A Goal Tree/IO Map 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.  Another important 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 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 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/IO Map.  Don’t lose sight of the fact that the purpose of the Goal Tree/IO Map is to identify the ultimate destination you are trying to reach.  The Goal Tree/IO Map’s most important function, from a problem-solving standpoint, 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 in a previous post, 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/IO Map.  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 mentioned in my last post, 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 place, you are now ready to construct your Goal Tree/IO Map.  Let’s now look at a case study where a company constructed their own Goal Tree/IO Map.

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 “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 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 Thinking Processes.  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/IO Map to lay out an improvement strategy.

Next time

In my next posting we will discuss how this new CEO and his team developed their Goal Tree/IO Map. The next series of posts will be written as though you were actually leading the construction of the Goal Tree/IO Map in your own company.  I’m presenting it this way to add a flavor of realism to the discussion.  As always, if you have any questions or comments about any of my posts, leave me a message and I will respond. 

Until next time.

Bob Sproull

References:

[1] Dettmer, H. William. The Logical Thinking Process: A Systems Approach to Complex Problem Solving. Milwaukee, WI: ASQ Quality Press, 2007