Creating a Continuous Process Improvement (CPI) Culture using TOC, Lean and Six-Sigma

Transcription

1 Dale T. Houle Chief Technology Officer North America group Avraham Y. Goldratt Institute Creating a Continuous Process Improvement (CPI) Culture using TOC, Lean and Six-Sigma Maximizing the Return on Your Improvement Dollars

2 Intellectual Property Notice This material (written, handouts, games and exercises) contains intellectual property of the Avraham Y. Goldratt Institute, A Limited Partnership and may not be used, reprinted, or distributed in any way without prior written permission. A registered mark of The Avraham Y. Goldratt Institute, a Limited Partnership

3 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focus Requires CPI be Driven by Leadership Top Down Leadership must lead and direct the change to a CPI Culture Change Policies, Rules, Measurements, etc. to enable CPI and Know where, when and why CPI efforts are successful Business Strategy that provides CPI with direction aligned with Enterprise Goals Understanding the needs of the Customer enables alignment of Strategy with Enterprise Goals 3

4 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focus Requires (cont.) Tactics aligned with Business Strategy Enables Customer needs to be addressed (i.e., form, fit, function and availability) Provides the targeting and sequencing of CPI efforts at all levels and within all functions across the Enterprise Measurements that Reinforce Alignment of Tactics with Strategy Documentation of Best Practices to provide New Standard Operating Procedures (SOP) CPI Tools and Methods that are Integrated to Support Enterprise Focused CPI efforts 4

5 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide: A clear understanding of the Current State (AS-IS) that includes: Identification and verification of the policies, rules, measurements and SOPs that must be changed, including: The problems they cause, and The benefits they produce A documented understanding of what parts of the physical environment need to be reconfigured, including: Repositioning of equipment, new equipment needed, point of use tools/inventory, kitting, etc. An initial cost/benefit analysis related to the proposed changes as defined by the Current State 5

6 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide (cont.): A clear understanding of the Future State (TO-BE) that includes: A definition of the new policies, rules, measurements and SOPs that will replace the existing ones, including: The expected outcomes How the benefits, if any, of the policies, rules, measurements and SOPs they will replace are to be maintained Any new problems these changes would create and a proposal for preventing or mitigating them 6

7 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide (cont.): A clear understanding of the Future State (TO-BE) that includes (cont.): A documented understanding of what the reconfigured physical environment will look like, including: Repositioning of equipment, new equipment needed, point of use tools/inventory, kitting, etc.), and Any new problems these changes would create and a proposal for preventing or mitigating them A refined cost/benefit analysis related to the proposed changes as defined by the Future State 7

8 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts Develop Future States based on: Simple, Uniform, Scalable Concepts e.g., Pull means Production/Repair and Replenish processes are only activated by Customer Demand Concepts which are Replicable and Maintainable across the Enterprise Training and Facilitation that Provides Customization of Concepts without Compromise Local is always aligned with Global 8

9 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide (cont.): Training and Customization without compromise Local is always aligned with Global Team Owns the Vision Enterprise Owns the Vision Education and Orientation Document AS-IS Construct TO-BE Wave One Deploy Wave Two Deploy Wave n Deploy Sustain End State: Enterprise-level Integration Design Iteration Continuous Improvement 9

10 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide (cont.): Training and Customization without compromise Local is always aligned with Global Team Owns the Vision Enterprise Owns the Vision Education and Orientation Document AS-IS Construct TO-BE Wave One Deploy Wave Two Deploy Wave n Deploy Sustain End State: Enterprise-level Integration Design Iteration Continuous Improvement Layer The 6 Layers of Resistance to Change Has the right problem (i.e., my problem) been identified? Step The 6 Steps to Buy-In Get consensus on the core problem. Layer Are we looking in the right direction for a solution? Step Get agreement on the direction the solution is heading. Layer 3 Will the solution really solve the problems? Step 3 Get consensus that the complete solution solves the problems and achieves the Desired Effects and Strategic Objectives. Layer 4 What could go wrong with the solution? Are there any negative side-effects? Step 4 Ensure that all significant negative side-effects have been surfaced and addressed. Layer 5 Is this solution implementable? Step 5 Ensure that all significant obstacles to implementation have been surfaced and addressed. Layer 6 Are we all really up to this? Step 6 Ensure the commitment of all leadership to the successful implementation of the solution. Creating Culture Change - Overcoming Resistance and Getting Buy-In 0

11 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide (cont.): Training and Customization without compromise Local is always aligned with Global Team Owns the Vision Enterprise Owns the Vision Education and Orientation Document AS-IS Construct TO-BE Wave One Deploy Wave Two Deploy Wave n Deploy Sustain End State: Enterprise-level Integration Design Iteration Continuous Improvement Layer The 6 Layers of Resistance to Change Has the right problem (i.e., my problem) been identified? Step The 6 Steps to Buy-In Get consensus on the core problem. Layer Are we looking in the right direction for a solution? Step Get agreement on the direction the solution is heading. Layer 3 Will the solution really solve the problems? Step 3 Get consensus that the complete solution solves the problems and achieves the Desired Effects and Strategic Objectives. Layer 4 What could go wrong with the solution? Are there any negative side-effects? Step 4 Ensure that all significant negative side-effects have been surfaced and addressed. Layer 5 Is this solution implementable? Step 5 Ensure that all significant obstacles to implementation have been surfaced and addressed. Layer Are we all really up to this? Step Ensure the commitment of all leadership to the 6 6 successful implementation of the solution. Creating Culture Change - Overcoming Resistance and Getting Buy-In

12 Creating a CPI Culture Requires an Enterprise Focus Enterprise Focused CPI efforts provide (cont.): A plan to manage the Transition from Current State to Future State that includes: Resources required to implement A time line to reach the Future State A process for achieving buy-in to the changes needed to establish the Future State Documentation of Best Practices and Lessons Learned

13 What is Theory of Constraints? A high level overview 3

14 The Theory of Constraints (TOC) in 00 words or less A management science based on the hard sciences, i.e., rigorous cause-and-effect TOC views organizations as systems: Made up of different parts, resources, processes, etc That must work interdependently To achieve a common purpose, or goal An organization achieving infinite performance has no constraint(s) Knowing where an organization s constraint is enables focused improvements to maximize overall performance 4

15 Creating a CPI Culture Requires an Enterprise Focus Despite their apparent differences, all organizations are basically the same. Purpose, or Goal. Global Performance Measurements 3. Business Processes 4. Local Process Measurements 5. Resource Rewards and Incentives

16 Every organization was created for a Purpose, or Goal $$ Goal Necessary Conditions Employees (& Unions) Customer Satisfaction 6

17 What if the Goal of the organization isn t to make money? $$ Mission Goal Necessary Conditions Personnel Employees (& Unions) $$ Customer Budget Satisfaction 7

18 Purpose (Goal)-Driven Machine Cost-Wise Performance Money Spent Operating Expense ($OE) Manpower Insurance Utilities Telephone etc. Inventory ($I)( Investment ($I) Facilities Equipment etc. Money Captured RM WIP FG s Units of the Goal Throughput (T) $$$ Readiness Health Education etc. 8

19 Purpose (Goal)-Driven Machine Cost-Wise Performance Money Spent Operating Expense ($OE) Inventory ($I)( Money Captured Units of the Goal Throughput (T) Investment ($I)( T/$I and T/$OE 9

20 Purpose (Goal)-Driven Machine Cost-Wise Performance Money Spent Operating Expense ($OE) Inventory ($I)( Money Captured Investment ($I)( Units of the Goal Throughput (T) $$$ Net Profit (NP( NP) ) = $T - $OE Return on Investment (ROI( ROI) ) = $NP / $I 0

21 Business Processes Every organization achieves its Goal via a chain(s) of interdependent resources/activities, commonly referred to as a Business Process(es). Vendor Sales Design Purch Engr Prod QC Ship Cust The more flow increases consistent with demand, the more successful the organization will be in achieving it s Goal.

22 For example Logistics Process(es) where the chain of resources / interdependencies looks more like User Recover Retrogr Induct Repair Store Transp Deliver Ready For Use (RFU) The more flow increases consistent with demand, the more successful the organization will be in achieving it s Goal.

23 As simple as it sounds Why is it so challenging in reality? Three things can significantly impact flow:. Interdependencies. Variability 3. Constraints (Bottlenecks) 3

24 Supply Chain & Manufacturing Processes Interdependencies Product/Service Flow RM MFG Parts ASSY Singapore Finished Goods Demand Asian Japan European East Coast West Coast USA 4

25 Supply Chain & Manufacturing Processes Additional Interdependencies-Product/Service Flow RM MFG Parts ASSY Singapore Finished Goods Demand Asian Japan European East Coast West Coast USA 5

26 Supply Chain & Manufacturing Processes Interdependencies Information Flow RM MFG Parts ASSY Singapore Finished Goods Demand Asian Japan European East Coast West Coast USA 6

27 Supply Chain & Manufacturing Processes Interdependencies Maintenance, Repair and Overhaul (MRO) Retrograde Flow RM MFG Parts ASSY Singapore Finished Goods Demand Asian Japan European East Coast West Coast USA 7

28 Supply Chain & Manufacturing Processes Interdependencies Detailed Product/Service Flow RM MFG Parts ASSY Singapore Finished Goods Demand Asian Japan W 9 C European East Coast B 4 West Coast USA 8

29 Supply Chain & Manufacturing Processes Interdependencies Detailed Product/Service Flow RM MFG Parts ASSY Singapore W 9 C B 4 Finished Goods Demand Asian Japan W 9 C B 4 W 9 C B 4 European East Coast W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4 9

30 Supply Chain & Manufacturing Processes Interdependencies Spaghetti Chart Shows the physical area layout, flow of product through a series of process steps, or maps where a person walks to complete their process Work Bench Tool Box Computer Printer Test Bench B Bench Parts Locker Locker Computer Pallet To GSE to Clean Parts To Hazmat Locker Computer Sink Work Bench Source: Dynamics Research Corporation People distance: 9 feet Parts distance: 33 feet 30

31 As simple as it sounds Why is it so challenging in reality? Three things can significantly impact flow:. Interdependencies. Variability 3. Constraints (Bottlenecks) 3

32 Supply Chain & Manufacturing Processes Understanding the effects of Variability? RM MFG Parts ASSY Singapore W 9 C B 4 Finished Goods Demand Asian Japan W 9 C B 4 W 9 C B 4 European East Coast W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4 3

33 Supply Chain & Manufacturing Processes What do organizations tend to do with excess capacity? RM MFG Parts ASSY Singapore C W 9 B 4 Finished Goods Demand Asian Japan W 9 C B 4 W 9 C B 4 European East Coast W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4 33

34 Supply Chain & Manufacturing Processes What do organizations tend to do with excess capacity? RM MFG Parts ASSY Singapore C W 9 B 4 Finished Goods Demand Asian Japan They cut it! W 9 W 9 C C B 4 B 4 European East Coast W 9 W 9 C C B 4 B 4 Balanced Capacity West Coast USA W 9 W 9 C C B 4 B 4 (In fact, many organizations design their operations to be balanced.) 34

35 Supply Chain & Manufacturing Processes Is there any variability in the processes? RM MFG Parts ASSY Singapore Japan C B 4 W 9 Finished Goods W 9 W 9 How well will this Supply C C B 4 B 4 Demand Asian Never! European East Coast Chain Perform? W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4 35

36 Supply Chain & Manufacturing Processes Sources of Variability Unreliable Lead RM Times MFG Seasonality Parts ASSY Finished Demand Singapore Goods Unreliable Deliveries Customer Needs Are Not Well Understood Asian Unreliable Transportation Customer Needs Are Not Well Addressed Poor Quality A Poor Value Delivery Process Unrealistic Schedules Japan Customer Finds It Difficult To Do Business Local Efficiency With The Suppliers European Large Batches Unreliable Sales Process East Coast West Coast C C W 9 W 9 C B 4 Supply Chain B 4 W 9 C B 4 B 4 W 9 Unreliable Processes Unreliable Transportation Unreliable Setups Equipment Breakdowns Absenteeism Scrap Tools Not Readily available Unrealistic Schedules Local Efficiency Large Batches USA C W 9 W 9 C C B 4 B 4 W 9 B 4 36

37 As simple as it sounds Why is it so challenging in reality? Three things can significantly impact flow:. Interdependencies. Variability 3. Constraints (Bottlenecks) 37

38 Supply Chain & Manufacturing Processes What Determines Overall Performance? RM MFG Parts ASSY Singapore Finished Goods What dictates Japan the performance of the organization as a whole? W 9 C B 4 C W 9 B 4 C W 9 B 4 Demand Asian European East Coast What dictates the strength of a chain? W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4 The weakest link. 38

39 Supply Chain & Manufacturing Processes What Determines Overall Performance? RM MFG Parts ASSY Singapore Maximize the performance of the weakest link. Finished Goods Asian W 9 C B 4 If we want Japan to maximize the performance of a chain, what must we do? W 9 W 9 C C B 4 European What should East Coast all of the other links do? Subordinate/Synchronize their activities around the activities W 9 W 9 C C of the weakest link. B 4 B 4 USA If we want West to Coast improve the performance of the chain B 4 as a whole, what must we do? W 9 W 9 C C B 4 B 4 Elevate the performance of the weakest 5 link. 0 Demand

40 Theory of Constraints The 5 Focusing Steps of TOC. Identify the system s constraint.. Decide how to exploit it. 3. Subordinate/Synchronize everything else to the above decisions. 4. Elevate the system s constraint. 5. If in the above steps the constraint has shifted, go back to Step. WARNING Do not allow inertia to become the system s constraint! A Process Of OnGoing Improvement

41 Supply Chain & Manufacturing Processes How Do Organizations Manage Their Business Process(es)? RM MFG Parts ASSY Singapore C W 9 B 4 Finished Goods Demand Asian Japan They put a manager in charge of each and W 9 W 9 C C every link and tell them to do what? B 4 B 4 East Coast Do as much as you possibly can (and W 9 W 9 then some!) C C B 4 B 4 West Coast With the fewest resources possible (and then less!) W 9 C B 4 W 9 C B 4 European USA 4

42 Supply Chain & Manufacturing Processes How do they measure, reward and incen their people? RM MFG Parts ASSY Singapore C W 9 B 4 Finished Goods Demand Asian Japan W 9 C B 4 W 9 C B 4 European East Coast Local Efficiency/Productivity Local Return On Investment (ROI) W 9 W 9 C C B 4 B 4 West Coast USA W 9 Local Costs/Budget in isolation. W 9 C B 4 B 4 Tell me 5 how 0 you measure me and I ll tell you how I ll behave! C 4

43 The battle for results in virtually every organization comes from a single conflict A Be Successful. B Ensure the organization s success. C Satisfy our local measurements. D Focus on overall/global performance. D Focus on local performance. Conflict! 43

44 Supply Chain & Manufacturing Processes Constraints Determine Overall Performance? RM MFG Parts ASSY Singapore Japan Constraints W 9 C East Coast Policy Constraints W 9 Supplier Constraints C B 4 B 4 C W 9 B 4 Finished Goods Demand Asian European W 9 W 9 Physical Constraints C C B 4 B 4 West Coast Bottleneck W 9 W 9 C C Capacity B 4 Constrained G Resource B 4 (CCR) USA 44

45 Supply Chain & Manufacturing Processes Maximizing the Return on our Improvement Dollars So, how do we maximize the return on our improvement dollars? Where should we focus our improvement efforts? Interdependencies Variability Constraints Waste 45

46 Enterprise Focused CPI Tools and Methods TOC-Lean-Six Sigma Integration (TLS) Theory of Constraints (TOC) is a body of knowledge on the effective management of organizations as systems. Lean Manufacturing is a management philosophy focusing on reduction of the 7 wastes in manufactured products. By eliminating waste, quality is improved, production time is reduced, and cost is reduced. Six Sigma can be defined as a methodology to manage process variations that cause defects, defined as unacceptable deviation from the mean or target; and to systematically work towards managing variation to eliminate those defects. Source: Wikipedia Encyclopedia LEAN Waste Reduction Rapid Change Increase Speed Reduce Variation Continuous Improvement SIX SIGMA Defect Reduction Process Predictability Integrated Application of TOC, Lean and Six Sigma Methodologies Aligns doctrine, policy, decision rules, measurements and behavioral changes with the physical reconfiguration of space, resources and assets TOC Interdependencies Constraints Focus IN ORDER IN TO ORDER ACHIEVE TO ENTERPRISE ACHIEVE ENTERPRISE LEVEL RESULTS LEVEL RESULTS Increased Throughput Increased Throughput Reduced Operating Reduced Expense Operating Expense Reduced Investment/Inventory Reduced Investment/Inventory 46

47 Supply Chain & Manufacturing Processes Maximizing The Return On Our Improvement Dollars Applying TOC, Lean and Six Sigma as an Integrated Demand Approach to Continuous Process Improvement starts with: W 9 C B 4 RM MFG Parts ASSY Singapore Finished Goods Asian Japan ) Defining, to an appropriate level of detail, the decision rules W 9 W 9 (i.e., doctrine, policy, measurements and instructions) that C C B 4 B 4 will be East used Coastto guide and direct the required actions, and ) Reconfiguring W 9 the environment (i.e., W 9 buffers, buffer C C B 4 B 4 management, information systems, physical layout, tool West Coast location, supplies, kitting, etc.) to support the effective execution W 9 of those required W 9 actions C C B 4 B 4 European USA 47

48 Supply Chain & Manufacturing Processes Maximizing The Return On Our Improvement Dollars Demand ) Defining, to an appropriate level of detail, the decision rules (i.e., doctrine, policy, measurements and instructions) W 9 that will be used to guide and direct the required actions, C B 4 RM MFG Parts ASSY Singapore Japan Finished Goods East Understanding Coast the key Interdependencies West Coast Asian European W 9 W 9 C C B 4 B 4 ) Deciding How 5 to 0 Manage the Value 5 Delivery 0 Process Resource to Product/Service Interactions W 9 C B 4 C W 9 B 4 USA W 9 W 9 C C B 4 B 4 48

49 Deciding How to Manage the Value Delivery Process Key Interdependencies Resource to Product/Service Interactions RM MFG Parts ASSY Singapore W 9 C B 4 Finished Goods Demand Asian Japan W 9 C B 4 W 9 C B 4 European East Coast W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4 49

50 Deciding How to Manage the Value Delivery Process Defining the Decision Rules Pull means Production/Repair and Replenish processes are only activated by Customer Demand RM MFG Parts ASSY Singapore C B 4 W 9 Make To Stock (MTS) Finished Goods Demand Customer Asian Delivery Order Japan W 9 C B 4 W 9 C B 4 European East Coast W 9 W 9 C C B 4 B 4 West Coast USA W 9 W 9 C C B 4 B 4

51 Supply Chain & Manufacturing Processes Maximizing The Return On Our Improvement Dollars ) Reconfiguring the environment (i.e., buffers, buffer Demand management, information systems, physical layout, tool location, supplies, kitting, etc.) to support the effective W 9 C B 4 execution of those required actions RM MFG Parts ASSY Singapore Japan East Coast West Coast Finished Goods Asian European W 9 W 9 ) Deciding How to Reduce Waste in the Value Delivery C C B 4 B 4 Process Understanding the key Interdependencies Resource and Product Movements C W 9 B 4 C W 9 B 4 USA W 9 W 9 C C B 4 B 4 5

52 Supply Chain & Manufacturing Processes Interdependencies Spaghetti Chart Shows the physical area layout, flow of product through a series of process steps, or maps where a person walks to complete their process Work Bench Tool Box Computer Printer Test Bench B Bench Parts Locker Locker Computer Pallet To GSE to Clean Parts To Hazmat Locker Computer Sink Work Bench Source: Dynamics Research Corporation People distance: 9 feet Parts distance: 33 feet 5

53 Deciding How to Manage the Value Delivery Process Reconfiguring the Environment to Support the Required Actions and to Reduce Waste in terms of Distance Traveled Work Bench Tool Box nd Stage Disassembly Computer Printer kanban st Stage Disassembly Parts Locker Locker Computer Pallet Parts Washer Computer Sink nd Stage Re-assembly Final Assembly and Test Locker Source: Dynamics Research Corporation People distance: 86 feet Parts distance: 64 feet 53

54 Deciding How to Manage the Value Delivery Process Reconfiguring the Environment to Support the Required Actions - Buffer Management to Manage the Effects of Variability RM MFG Parts ASSY Singapore C W 9 B 4 Make To Stock (MTS) Finished Goods Demand Customer Asian Delivery Order Japan W 9 C B 4 W 9 C B 4 European OK Plan Act East Coast OK Plan Act West Coast W 9 C B 4 W 9 OK Plan Act C B 4 USA W 9 W 9 C C B 4 B 4 54

55 How to Manage the Value Delivery Process Defining the Decision Rules Pull means Production/Repair and Replenish processes are only activated by Customer Demand RM MFG Parts ASSY Singapore C B 4 W 9 Make To Order (MTO) Demand Customer Asian Delivery Order Japan W 9 C B 4 W 9 C B 4 European OK Plan Act East Coast OK Plan Act West Coast W 9 C B 4 W 9 OK Plan Act USA C B 4 W 9 W 9 C C B 4 B 4 55

56 Using Trend Information from Buffer Management to Focus Continuous Process Improvement Events For a given time period: What resources and activities caused Yellow and Red Buffer Zone Consumption? R R OK WATCH & PLAN ACT R R We use Buffer Consumption Analysis to direct where other improvement efforts should be focused to increase T, and reduce I and OE. 56

57 How do we maximize performance in the face of interdependencies, variability and constraints? The TOC Approach 57

58 Theory of Constraints The 5 Focusing Steps of TOC. Identify the system s constraint.. Decide how to exploit it. 3. Subordinate/Synchronize everything else to the above decisions. 4. Elevate the system s constraint. 5. If in the above steps the constraint has shifted, go back to Step. WARNING Do not allow inertia to become the system s constraint! A Process Of OnGoing Improvement 58

59 Theory of Constraints The 5 Focusing Steps of TOC. Identify the system s constraint.. Decide how to exploit it. 3. Subordinate/Synchronize everything else to the above decisions. 4. Elevate the system s constraint. 5. If in the above steps the constraint has shifted, go back to Step. WARNING Do not allow inertia to become the system s constraint! A Process Of OnGoing Improvement How are these steps applied in a very simple environment? 59

60 First, we must understand the system, i.e., its Goal, Necessary Conditions and the relevant interdependencies. Raw materials PLANT PLANT REGIONAL WAREHOUSE DISTRIBUTION WAREHOUSE W/h Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Mktg HR Trng. MIS Finance Budgeting 60

61 Step : Identify the system s constraint (e.g., bottleneck). BN Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust 6

62 A bottleneck is but one example of a type of constraint: Physical Constraints Bottleneck Capacity Constrained Resource (CCR) Constraints Supplier Constraints Policy Constraints 6

63 Step : Decide how to exploit the system s constraint. Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Substantial in T 63

64 Step 3: Subordinate/Synchronize everything else to the above decisions. Protect BN from starvation Honor customer commitments Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Strategically place buffers only where needed to protect T from variation.. 64

65 Step 3: Subordinate/Synchronize everything else to the above decisions. Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Gate Strategically the release place of work buffers to be only in line where with the needed consumption to protect rate Tof from the constraint. variation.. 65

66 Step 3: Subordinate/Synchronize everything else to the above decisions. Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Gate the release of work to be in line with the consumption rate of the constraint. Road Runner Work Ethic for all non-constraints: Work as fast as possible when you have material available, otherwise, don t produce! Beep! Beep! 66

67 By:. Identifying the system s constraint;. Exploiting the system s constraint; 3. Subordinating/synchronizing everything else to the above decisions; 4. Gating the release of work to be in line with the consumption rate of the constraint; and 5. Roadrunner work ethic for all non-constraints Expect: Substantial in T & in $I and $OE 67

68 Buffers Used Correctly can Provide Focus and an Early Warning System to Protect $T Vendor Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust BUFFER MANAGEMENT Remaining Buffer: OK Zone 3 WATCH & PLAN Zone ACT Zone 00% 67% 66% 34% 33% 0% Planning Threshold Action Threshold 68

69 Step 4: Elevate the system s constraints. Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Substantial in T 69

70 Step 5: If in the above steps the constraint has shifted, go back to Step. Sales Design 8 Purch 0 Engr 8 Prod 4 QC 7 Ship 3 Cust Process of Ongoing Improvement 70

71 TOC s 5 Focusing Steps enable Organizations to Break this Core Conflict A Be Successful. B Ensure the organization s success. C Satisfy our local measurements. D Focus on overall/global performance. D Focus on local performance. Conflict! by Aligning Local Performance with Global Performance 7

72 Resulting in a system that is significantly more manageable, easier to navigate, more responsive to important opportunities W/H W/h User Sales Design Purch Engr Prod QC Ship Cust Maint HR Trng. MIS PC Finance Budgeting OK Zone 3 WATCH & PLAN Zone ACT Zone 7

73 And resolving its many resulting effects... Unpredictable, unreliable delivery performance Unpredictable, erratic queue times, cycle times and lead times Bottlenecks jumping all over the place depending upon product mix, material release policies, batching policies, etc. Constantly shuffling priorities Inventory blockages and hold-ups Escalating costs Chronic resource insufficiencies T $I $OE 73

74 Re-applying TOC s 5 Steps to a Different System Step : Identify the system s constraint(s). Recover Retrogr Induct Repair Store Transp Deliver Customer RM RFU Resource Least capacity resource Slowest run-rate Longest process time Etc. Demand (Pattern) 74

75 Re-applying TOC s 5 Steps to a Different System Step : Identify the system s constraint(s). Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU Resource Least capacity resource Slowest run-rate Longest process time Etc. Demand (Pattern) 75

76 Re-applying TOC s 5 Steps to a Different System Step : Identify the system s constraint(s). Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU Can the constraint resource meet system demand? In what time frame? without becoming a BOTTLENECK! That time frame is the Time to Reliably Replenish. 76

77 Sizing Inventory Buffers Using TOC Demand Demand Time Maintenance and Repair Time to Reliably Replenish (TRR) Demand Demand Demand Demand Time Demand Time RFU Buffer Demand Time Hold enough stock to cover maximum demand during the TRR 77

78 Average demand shouldn t be the primary factor in setting inventory levels Demand Demand Time Time Demand Demand Time Time actual customer demand patterns should be. 78

79 Sizing Inventory Buffers Using TOC Demand Time Demand Maintenance and Repair Time to Reliably Replenish (TRR) Demand Time RFU Buffer Demand Time Buffer Size = Maximum expected demand during the Time to Reliably Replenish (TRR) Time 79

80 What should the buffer size be? Demand Time Demand TRR = 7 days Time Demand Time Demand Time TRR=7 TRR=7 TRR=7 Buffer Size = 7 ( ) 80

81 Re-applying TOC s 5 Steps to a Different System Step : Decide how to exploit the system s constraint(s). Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU Determine how to schedule the resource constraint to meet system demand, i.e. consistently meet the TRR to maintain the Buffer. 8

82 Re-applying TOC s 5 Steps to a Different System Step 3: Subordinate/Synchronize everything else to the above decision. Induct Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU TRR=7 Buffer=7 Align the Entire Supply Chain to Replenish Inventory within the TRR 8

83 Re-applying TOC s 5 Steps to a Different System Step 3: Subordinate/synchronize everything else. Induct Customer Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM TRR= which, in this case, means doing things such as: Ensuring the production facility produces only what s needed to replenish the buffer, Sizing all other buffers based on their actual demand and the TRRs feeding them, Contracting transportation to support the defined TRRs and quantities, Putting the triggers in place to initiate replenishment at each link, Instituting local measures and rewards that induce behaviors supporting global performance, i.e., $T, $I and $OE RFU BSz=6 Align the Entire Supply Chain to Replenish Inventory within the TRR 83

84 Re-applying TOC s 5 Steps to a Different System Step 3: Subordinate/synchronize everything else. Induct Customer Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM TRR= A cultural change, requiring the re-evaluation of: Policies Procedures Practices Measurements Communications and Handshakes Decision-Making Planning RFU BSz=6 Align the Entire Supply Chain to Replenish Inventory within the TRR 84

85 Re-applying TOC s 5 Steps to a Different System Step 3: Subordinate/Synchronize everything else to the above decision. Induct Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU TRR=7 Buffer=7 The system operation is then monitored using Buffer Management 85

86 Buffer Management The primary difference between Inventory Management and Buffer Management is the FOCUS. Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU TRR=7 Buffer=7 86

87 Buffer Management Buffer Management s primary focus is the movement of inventory in time, not on parts on the shelf. Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU TRR=7 Buffer=7 Time Buffer OK WATCH & PLAN ACT d d 3d 87

88 Re-applying TOC s 5 Steps to a Different System Step 4: Elevate the system s constraint(s). Recover 6 Retrograde 9 Induct 5 Repair 4 Store 7 Transport 9 Deliver 7 Customer RM RFU TRR=7 Buffer=7 How do we elevate the system s s constraint? What outcomes are we working to achieve? 88

89 Re-applying TOC s 5 Steps to a Different System How do we elevate the system s s constraint? Elevate means to get more Throughput from the system s constraint(s). There are several possibilities: Reduce the time to get to and through - the resource constraint and back to the shelf Ensure that the resource constraint is working only on what is needed to satisfy Demand Reduce variability in the system on the TRR side Reduce variability in the system on the Demand side Reposition or get more of the resource constraint 89

90 Re-applying TOC s 5 Steps to a Different System What outcomes are we working to achieve? T/$I and T/$OE More Throughput per $ Invested and per $ of Operating Expense Net Profit (NP( NP) ) = $T - $OE Return on Investment (ROI( ROI) ) = $NP/$I More Throughput per $ Invested and per $ of Operating Expense $OE+$I $Budget Operate within or below Budget 90

91 Re-applying TOC s 5 Steps to a Different System How do we elevate the system s s constraint? Reduction of time (resources) - $$ Reduction of inventory (investment) $$ while increasing or maintaining Throughput 9

92 Buffer Size = 7 ( ) TRR=7 TRR=7 TRR=7 Impact of reducing time Our Baseline

93 93 Impact of reducing time TRR=4 TRR=4 TRR=4 Buffer Size = (+4++5)

94 Impact of reducing variability of demand TRR=4 TRR=4 TRR=4 Buffer Size = 0 (+3++3) or (+4++3)

95 How Does Enterprise Focused CPI Achieve Improved Results? Lean Waste Reduction Rapid Change TOC Interdependencies Constraints Focus Six Sigma Defect Reduction Process Predictability Eliminate waste and reduce cycle time where the impact increases Throughput and decreases Operational Expense and Investment. Design and establish a stable operational system to maximize Throughput and link it to time - considering the interdependencies, variability and constraints of the system. Reduce variation and defects and increase process predictability where the impact increases Throughput and decreases Operational Expense and Investment. 95

96 Why the Operational System First? Causes?? STABILITY!! Causes?? Improve 96

97 Combining TOC, Lean, Six Sigma Diagram Historical System Results TIME 97

98 Combining TOC, Lean, Six Sigma Diagram Historical System Results Evaluate and Design the operational system to improve and stabilize the production/repair rate by synchronizing the systems constraints 98

99 Combining TOC, Lean, Six Sigma Diagram Begin operating the synchronized system as designed - removing unnecessary interdependencies and identifying additional sources of variation 99

100 Combining TOC, Lean, Six Sigma Diagram Use analysis of the improved, stabilized operational system to direct future Six Sigma projects and Lean events. 00

101 Creating a Continuous Process Improvement (CPI) Culture using TOC, Lean and Six-Sigma Maximizing the Return on Your Improvement Dollars 0