Tuesday, March 10, 2009

A Process Of On-Going Improvement (POOGI) - Part 37

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

The PQ quiz below is deterministic, with one correct answer. You have only ten minutes to take the quiz once you have familiarized yourself with the data provided. This quiz has been given to CEO’s worldwide for over 20 years. Over that time span, less than one percent of CEO’s get the correct answer. Will you?

The Simple Company makes just 2 products: Pens and Quills. The goal of the company is to maximize profitability. The company has 4 resources that are not interchangeable: Abby, Bobby, Christi and David. The work week is 40 hours (meaning each resource is available for 2,400 minutes per week).

Unlike reality, the environment of the Simple Company has perfect information. Everything is fixed, and every piece of data is precisely known. There is no scrap, no set-up, no worker breaks or absenteeism, no downtime; this is just an idyllic company. We have removed all the uncertainties. Our marketing department is the best, and we know the exact weekly demand for each Pen and Quill.

Operating expenses are $6,000 per week. These are all the fixed costs which include labor, benefits, utilities, interest, SG&A expenses, etc. Labor is paid at the rate of $10 per hour for all resources but remember that labor is included in the $6,000 of operating expense. The raw material (RM) costs and processing times are shown in the diagram of the production process of the Simple Company below.

What is the maximum net profit (or minimum net loss) the Simple Company can earn in 1 week with the current demand?

Please email your answer at any time. You will receive back an email with the correct answer, as well as the methodology for arriving at the correct answer for more complicated real-life scenarios.
...to be continued.Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.
The pens and quills problem was adapted from the Haystack Syndrome.

Tuesday, March 3, 2009

A Process Of On-Going Improvement (POOGI) - Part 36

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

The good news is that improved R-I-T “Ready-to-be-Implemented Technological Advance” processes are available.

The bad news is that the Western World is implementing these processes slowly, and much slower than some other parts of the world.

Here is a warning from Dr. Goldratt, developer of the Theory of Constraints, in an introduction to his book “The Race” in 1986:

“The Race is about our standard of living and how we can increase it. Today, we are facing a real threat in the Western World that the opposite will happen. The threat is not just to us. If our living standard declines, everyone else on this globe is adversely affected. Both the source and the solution to the problem lie in the same place—manufacturing. Manufacturing has been the major wealth generator of our industrialized world. This ability to generate wealth has mad our standard of living the envy of the rest of the world. If we continue to lose our manufacturing base, and we are losing it rapidly, we and everyone else will certainly live less well.”

Of course, Dr. Goldratt’s warning was also prophetic. The rest of the world has outpaced the Western World since 1986. It is winning the race.

For years, Dr. Goldratt refused to have his books translated into Japanese. He thought and felt that Japan was so far advanced that if it applied the improved processes of the Theory of Constraints, that the trade imbalance would further increase, threatening to destabilize the world economy. Six years ago, when the U.S. and European economies had closed the gap, and Japan had stagnated, he relented. In the first month of its release, “The Goal” sold a half-million copies. Since then, its sales are equal to the sales in the rest of the world.

Japan is adopting TOC at a much faster rate than the Western World. For example, last year Japan announced the requirement that all companies supplying infrastructure projects must use Critical Chain project management, the TOC methodology for managing projects (and delivering them in half the time).

The TOC body of knowledge continues to grow. TOC is very compatible with Lean and Six Sigma. Combined, they lead to even better results than implementing any one. The technology is there, and it is growing at a faster rate than companies are implementing it.

If your company is not implementing TOC, Lean, and Six Sigma—Ready to Implement Technology—then your company is not achieving results that are possible. These results can be achieved in a remarkably short time. These results include 100% due date performance, decreased inventory (freeing up cash), and increased sales.

You have a Technology Gap. What are you going to do about it?

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.