Maximizing Profitability Part 2

In my last blog post, one of the things I wanted to demonstrate is where to focus your improvement efforts.  But before I do this, I want to explain to those of you that don’t have much experience with or exposure to the Theory Of Constraints (TOC), as well as some of the basic concepts of TOC. One of the best ways to demonstrate these concepts is through the use of simple graphics.

The figure above a simple piping system used to transport water via gravity. As you can see, the pipes all have different diameters. What if you were asked to increase the amount of water passing through this system.  Think for a minute about how you would answer this question? And remember, unlike most piping systems, since water flow is based upon gravity, you could not simply increase the flow by increasing the pressure.  So again, if you wanted to increase the flow of water through this process, what would you do and where would you focus your efforts? If you said you would increase the diameter of Section E, you would be right. You would focus your efforts on Section E to improve the throughput of this piping system because Section E is limiting or constraining the flow.

Ok, so let’s assume most of you got this correct. Ask yourself this question.  "Would focusing on any other section increase the flow of water?" The correct answer is, no it wouldn’t. Now let’s look at the figure below.  This is the same piping system, only in this figure we have opened up Section E's diameter to permit more water to flow through this system.  So, my next question is, "If you needed more water, what must you do?"  Just like Section E's diameter controlled the flow of water in our original diagram, the constraint has now moved to Section B.  So, you next step would be to enlarge the diameter of Section B.  So, how does this simple piping system apply to a manufacturing process?

The figure below is a simple 4-step manufacturing process with each of the step’s processing times listed. Using our piping analogy just discussed, which step prevents more parts from being produced? Or another way of saying this is which step is preventing us from achieving more throughput? If you answered Step 2, at 17 days, you were correct. Because Step 2 requires 17 days to process the product, this process cannot produce product any faster than 1 parts every 17 days. If you reduced the processing time of Step 1 from 2 days to 1 day, have you increased the throughput of this manufacturing process?  The answer is a definitive no, you’re still limited by Step 2 at 17 days per part. So like the piping system, you would have to focus your improvement efforts on Step 2 to improve the throughput of this process.

So why am I so worried about improving throughput? In my next blog, I’m going to explain why focusing your improvement efforts on increasing throughput, rather than the typical cost reduction is the best way to make more money.