What Is the Theory of Constraints? A Basic Workshop

Transcription

1 What Is the Theory of Constraints? A Basic Workshop Presented By: Christoph Lenhartz, MBA, TOCICO certified, Jonah General Manager Europe, Middle East & Africa, Pinnacle Strategies Past Chairman of the Board of TOCICO Date: June 8,

2 Topics 1 Origins and History of TOC 2 Basic Concepts and Principles 3 Generic Solutions 2

3 Theory of Constraints Management philosophy Systems thinking Body of knowledge Tool box Process of continuous improvement Change management Eli Goldratt ( ) at the TOCICO Regional Conference in Tacoma, WA

4 The Goal: Introduction» I view science as nothing more than an understanding of the way the world is and why it works that way. At any given time our scientific knowledge is simply the current state of the art of our understanding. I do not believe in absolute truths. I fear such beliefs because they block the search for better understanding. Whenever we think we have final answers progress, science, and better understanding ceases. Understanding of our world is not something to be pursued for its own sake, however. Knowledge should be pursued, I believe, to make our world better to make life more fulfilling.* «*Introduction to the first edition, 1984 Eliyahu M. Goldratt ( ) 4

5 A Systems View Any organization is a system (yes, yours as well) Goal maximize Necessary Conditions satisfy A system is subject to cause-effect relationships A system is more than the sum of its parts The success of the system is not the sum of successes of the parts. It is essential to study, understand and exploit these relationships D B C A E 5

6 Traditional vs. TOC Focus Which system is more complex 1? A or B? System A System B 1 Modified from Goldratt, 1999, Satellite program, Session 6 Sales. 6

7 The Constraint Limits Performance» There really is no choice in the matter. Either YOU manage the constraints or THEY manage you. The constraints will determine the output of the system whether they are acknowledged and managed or not. «Source: Noreen, Smith, and Mackey, The Theory of Constraints and its Implications for Management Accounting 7

8 The Four Pillars of TOC INHERENT SIMPLICITY 8 NEVER SAY I KNOW REALITY IS SIMPLE AND HARMONIOUS DON T ACCEPT CONFLICTS AS GIVEN THERE IS ALWAYS AWIN-WIN SOLUTION THE HIGHER THE BASE THE HIGHER THE JUMP EVERY CONFLICT CAN BE RESOLVED PEOPLE ARE GOOD

9 The Traditional Approach A cent plus a cent makes a fortune The realist Global improvement = Local improvements 9

10 The Systems Approach Give me a leverage point and a lever and I can move the world. Archimedes Global improvement Local improvements Leverage Point

11 1978: The Origines 1 Chicken house production Application of principles from physics to the management of production systems ( manybodied problem ) Finite capacity planning OPT software: (Optimized Production Timetable/ Technology) 1 de Wet

12 TOC in One Word FOCUS Doing what should be done Not doing what should not be done 12

13 The Five Focusing Steps 1. IDENTIFY the system constraint 2. DECIDE how to exploit the constraint. 3. SUBORDINATE everything else to the above decision. 4. ELEVATE the constraint. 5. Warning!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system s constraint. 13

14 FOCUS + Assumptions = TOC Derivatives» We simply need to look at reality and think logically and precisely about what we see. The key ingredient is to have the courage to face inconsistencies between what we see and deduce and the way things are done. This challenging of basic assumptions is essential to breakthroughs «Goldratt and Cox. 1984, The Goal: Introduction 14

15 Generic Applications Operations (production, logistics, distribution) Drum-Buffer-Rope (MTA, MTO) Replenishment/Supply Chain Project Management (Critical Chain) Single projects Multiprojects (project portfolios) Finance & measures (Throughput accounting) Performance measurement & management Decision making Change management Marketing and sales Strategy General approach to problem analysis to and solution (Thinking Processes) 15 15

16 Traditional Rules & Effects President VP-R&D VP-Operations VP-Distribution VP-Human resources VP-Marketing VP-Sales VP-Finance/ accounting Divisions Departments People Divisions Departments People Divisions Departments People Divisions Departments People Divisions Departments People Divisions Departments People Divisions Departments People SYSTEM A PERSPECTIVE/ASSUMPTION: If each person / department / division works as efficiently as possible in their area / specialty, then the organization will be as efficient as possible at achieving its goal. Policies, measures and behaviors focus on local improvements everywhere. ACTION: Measure local efficiencies. Focus on making everyone everywhere as efficient as possible. Keep busy! Find work. 16

17 Operations 17

18 Operations Core Conflict Objective A The operations manager manages well. Goldratt,1999. Session 1 Operations. Requirements B Constantly fight to reduce waste. & C Constantly fight to increase flow. Prerequisites D Use efficiencies as prime measurement. XOR D Don t use efficiencies as a measurement. 18

19 Breakthrough Injection: Flow B Constantly fight to reduce waste. A The operations manager manages well. Use efficiency measures at constraint and flows measure at non-constraints. Use 5 focusing steps & a holistic scheduling / control system (DBR / BM, SDBR / BM, CC / BM, distribution / BM, etc.) & throughput accounting Goldratt,1999. Session 1 Operations. C Constantly fight to increase flow. 19

20 To What to Change? TOC Production Solutions Five Focusing Steps (5FS) Drum Buffer Rope (DBR) scheduling Simplified DBR scheduling (S-DBR) Buffer Management (BM) for prioritizing execution BM for prioritizing improvement efforts Throughput Accounting 20 For a definition of each solution see: TOCICO Dictionary nd Ed.

21 To What to Change? Example R&D Operations Distribution Human Resources Marketing Sales Finance/ accounting Consumers Where? Raw Mat. WC 1 12u/day Green WC 2 12u/day White WC 3 12u/day Blue WC 4 8 u/day Red WC 5 12u/day Yellow WC 6 12u/day Black Finished Goods The constraint determines actual output 21

22 To What to Change? Global Rules of Flow (2009) 1. Improving flow (or equivalently lead time) is a primary objective of operations. 2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (to prevent overproduction). 3. Local efficiencies must be abolished. 4. A focusing process to balance flow must be in place. 22

23 Finance / Measures 23

24 Finance/Measures Core Conflict B Control costs. D Judge according to local impact. A Manage well (according to measures). C Protect throughput. D Do not judge according to local impact. Goldratt,1999. Session 2 Finance and Measurements. 24

25 To What to Change? Rules for Daily Decision Making 1. What is the impact on Throughput (T)? T = Selling price - Truly variable costs = SP - TVC 2. What is the impact on Investment (I, formally Inventory)? 3. What is the impact on Operating Expenses (OE)? Net profit = T OE Return on Investment = Net Profit / Investment Productivity = T / OE Throughput Dollar Days and Inventory Dollar Days 25

26 Breakthrough Injection: Throughput Accounting B Control costs. A Manage well (according to measures). Goldratt,1999. Session 2 Finance and Measurements. Use throughput accounting to link local decisions to global financial results. Use holistic applications (drum buffer rope, simplified drum buffer rope, critical chain, distribution / replenishment and buffer management) and measures that also causally link local actions to global results (e.g. throughput and inventory dollar days). C Protect throughput. 26

27 Projects 27

28 Project Management Core Conflict B Do whatever it takes to meet the endangered original commitment. D Compensate for early mis-estimations / mis-commitments. A We meet our original commitment. C Do not jeopardize any other original commitment. D Do not compensate for early mis-estimations / mis-commitments. Goldratt,1999. Session 3 Project Management Engineering 28

29 Breakthrough Injection: Critical Chain Project Management B Do whatever it takes to meet the endangered original commitment. A We meet our original commitment. Use critical chain project management / buffer management (CCPM / BM) and throughput accounting (TA). C Do not jeopardize any other original commitments. Goldratt,1999. Session 3 Project Management Engineering 29

30 Distribution / Supply Chain 30

31 The Supply Chain Challenge» As long as the end consumer has not bought, nobody has sold! «Eliyahu M. Goldratt ( ) 31

32 Distribution Core Conflict B Control costs. D Hold less inventory. A Manage well. C Protect throughput. D Hold more inventory. Goldratt,1999. Session 4 Distribution and supply chain. 32

33 Breakthrough Injection: Distribution / Replenishment B Control costs. A Manage well. Have the right inventory at the right place at the right time. C Protect throughput. Goldratt,1999. Session 4 Distribution and supply chain. 33

34 Marketing and Sales 34

35 Marketing and Sales Marketing Spread corn to attract many ducks. Marketing s task: Entice the market to buy our products or services Sales Shoot the ducks one by one. Sales task: Close the deal. 35

36 Marketing Core Conflict A Marketing arrives at good pricing decisions. B The company has enough sales volume. C The company has reasonable product profit margins. D Marketing acts upon the clients perception of value. D Marketing acts upon the supplier s perception of value. Modified from Goldratt,1999. Session 5 Marketing. 36

37 Breakthrough Injection: Unrefusable Offer/Market Segmentation A Marketing arrives at good pricing decisions. B The company has enough sales volume. C The company covers its OE and Investment In total the company must cover operating expense and investment. Segment and prioritize the markets. Maintain a presence in all market segments. Ensure markets are selected such that all markets should not suffer a downturn at the same time. Move to the more lucrative markets in good times. Modified from Goldratt,1999. Session 5 Marketing. 37

38 Sales 38

39 Sales Core Conflict A We bring the buyer to see the product as the best value. B Sales person shows value to the buyer. C Sales person doesn t cause the buyer to object. D Sales person presents the product. D Sales person doesn t present the product. Cox, et al., 2012, p. 159, 39

40 Breakthrough Injection: Unrefusable Offer/Buy-in Processes A We bring the buyer to see the product as the best value. B Sales person shows value to the buyer. C Sales person doesn t cause the buyer to object. Create an unrefusable (mafia) offer (URO): A combined marketing and sales initiative that addresses the customer's core problem and creates a win-win solution for the supplier & customer. The buy-in processes are designed to overcome resistance to change. Goldratt,1999. Session 6 Sales. 40

41 Managing People Respect» I smile and start to count on my fingers: One, people are good. Two, every conflict can be removed. Three, every situation, no matter how complex it initially looks, is exceedingly simple. Four, every situation can be substantially improved; even the sky is not the limit. Five, every person can reach a full life. Six, there is always a win-win solution. Shall I continue to count? «Goldratt: The Choice 41

42 Managing People Core Conflict A COMMON OBJECTIVE A What is the lowest common objective both needs are trying to satisfy? B SYSTEM NEED B What system need is jeopardized by the fire? Lieutenant s responsibility C SYSTEM NEED C What system need is protected by the rule? The reason for the rule D THE ACTION D Lieutenant breaks the rule (check if by doing so the corresponding need will be met). D THE SYSTEM RULE D What rule prevents the lieutenant from putting out the fire? Lieutenant s lack of authority Goldratt,1999. Session 7 Managing people - Respect. 42

43 Breakthrough Injection: Respect and Empowerment A Common objective of both needs B Meet the system need in jeopardy. C Protect other system need. Employee empowerment by aligning responsibility & authority, respect for others. Implement the Engines of Harmony. Goldratt,1999. Session 7 Managing people - Respect. 43

44 Strategy 44

45 Strategy Core Conflict A Top management put the company on a process of ongoing improvement. B Induce people to improve. C Convert local improvements into bottom line results. D Do not lay off people. D Lay off people in the departments that have improved the most. Goldratt,1999. Session 8 Strategy. 45

46 Breakthrough Injection: Strategy and Tactics Tree A Top management put the company on a process of ongoing improvement. B Induce people to improve. C Convert local improvements into bottom line results. Construct a strategy and tactics tree (S&T) based on a decisive competitive edge; focusing on both organization stability and exponential growth. The S&T tree synchronizes actions within and across functions to the organization goal. Goldratt,1999. Session 8 Strategy. 46

47 Breakthrough Injection: Strategy and Tactics Tree Strategy & Tactics Tree Decisive Competitive Edge R&D Operations Distribution Human Resources Marketing Sales Finance/ accounting Consumers Build Capitalize Sustain Present Synchronized Actions Future 47

48 One Last Word 48

49 Questions & Answers 49

50 References Cox III, James F., Lynn H. Boyd, Timothy T. Sullivan, Richard A. Reid, and Brad Cartier, 2012, The Theory of Constraints International Certification Organization Dictionary, Second Edition. New York: McGraw-Hill Publisher. URL = de Wet, Phillip The physicist and the amazingly stupid business people. Maverick, Volume 2 Issue 4, February 22, pp , 70, 72. Fry, Timothy D., James F. Cox, and John H. Blackstone, An Analysis and Discussion of the OPT Software and Its Use, Production and Operations Management Journal, Vol. 1, No.2, Spring 1992, pp Goldratt, E. M Computerized shop floor scheduling, International Journal of Production Research 26(3): Goldratt, E. M The Haystack Syndrome. Sifting Information out of the Data Ocean. Croton-on-Hudson, NY: North River Press. Goldratt, E. M It s not Luck. Great Barrington, MA: North River Press. Goldratt, E. M Critical Chain. Great Barrington, MA: North River Press. Goldratt, E. M Goldratt Satellite Program Sessions 1 8. (Video series: 8 DVDs) Broadcast from Brummen, The Netherlands: Goldratt Satellite Program. Session 8: Strategy & Tactics. Goldratt, E. M The Choice. Great Barrington, MA: North River Press. Goldratt, E. M. 2009a. Isn t it Obvious? Great Barrington, MA: North River Press. Goldratt, E. M. 2009b. Standing on the Shoulders of Giants. The Manufacturer, June. Goldratt, E. M Never say: I Know. Chicago, ILL: TOCICO International Conference. Presented by Lisa Scheinkopf. Goldratt, E. M. and Cox, J The Goal: Excellence in Manufacturing. Croton-on-Hudson, NY: North River Press. Goldratt, E. M. and Fox, R. E The Race. Croton-on-Hudson, NY: North River Press. For a comprehensive listing of Goldratt s works, visit : 50

51 Acknowledgements TOC is not and has never been a journey of single persons. This presentation is an updated version of a similar presentation given at the 2013 TOCICO International Conference that was initially developed by James F. Cox III and Christoph Lenhartz Several TOC experts have provided valuable insights to this earlier version. 51

52 About the Presenter Christoph Lenhartz, MBA, Jonah, TOCICO-certified, Certified Consultant (bdvb) is a Board Member and Past Chairman of TOCICO. In over 20 years he has acquired a wide-ranging, international experience in industry, as a successful entrepreneur and also a leader of management consulting teams in high complexity TOC implementations. He has lead strategic, business transformation, supply chain management and IT projects and his expertise also includes post-merger integration of supply chain operations for major international groups. As one of the leading TOC and management experts in Europe he is the General Manager Europe, Middle East and Africa for Pinnacle Strategies, a pioneer in operational excellence consulting based on TOC principles. He has published articles on TOC and management topics in journals such as Quality Progress and has translated and written TOC-books in German. He is an appreciated speaker and teacher of TOC and related topics. Christoph holds an MBA from Clemson University (USA), he graduated from the University Essen (Germany) as a Diplom-Kaufmann and has pursued postgraduate studies at Washington State University (USA). 52