The Toilet Paper Roll--Does It Change Itself? (A Theory of Constraints Lesson)

The answer is no, not yet, at least that I have seen. So we need a process ...



I have a process for making sure that we are never without toilet paper in any bathroom. Yes, it is a process. Toilet paper rolls do not just magically appear under the sink.


I use a 2 bin system.


Whenever the last roll is taken from the cabinet underneath the sink, leaving just the roll on the holder – that is the signal to retrieve 2 more rolls from storage and put them in the cabinet.


And, here’s the really complicated part. When you remove the last rolls from storage, this is the indication to put “toilet paper” on the shopping list. And the shopping list, of course, is in its standard location with pen for easy, quick additions. (So don’t move it or take the pen.)


Now this process is simple and elegant BUT despite that, it still does not work 100% of the time.


So what does a Theory of Constraints expert do when a process is not working? We collect the reasons why. We then use the biggest occurrence of why’s to improve the process.


The most frequently occurring why I’ve collected so far is “I’m too busy to go replenish toilet paper at the time I pull the last from under the sink.”


So to continue down the process improvement path we have to figure out how to deal with this biggest disruption to our toilet paper supply. 


What are your ideas?


This is an example of a Theory of Constraints POOGI process, a Process of On-Going Improvement. And it is a critical part of any system. We use it in the Velocity Scheduling System (our scheduling program for custom job shops).


How can you apply this to one of YOUR processes?

Share your comments, feedback and suggestions by leaving a comment on this post.  Really -- I want to hear from you!

Wishing you success,
Dr Lisa
President, Science of Business

P.S. FOR CUSTOM JOB SHOPS ONLY: The next Velocity Scheduling System Coaching Program for custom job shop scheduling and machine shop scheduling starts on Monday June 6.



P.P.S. Ready to increase sales? Need a Mafia Offer? The ON-LINE Mafia Offer Boot Camp is open for registration!

2011 Copyright, Science of Business.  All rights reserved.

Theory of Constraints POOGI Part 64 Getting Jobs Through Engineering cont.

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.}


Brad: Aren’t customers the real problem? Supplying incomplete information to the engineers, late?
Dr. Lisa: Blaming customers won’t solve the problem, although what you say is often true and they are a large source of variability.

Brad: So what is the real problem, and what is the solution?
Dr. Lisa: The real problem is how engineers do what they do. (It’s typically NOT that we need more engineers.) But it isn’t just the engineers, it is all of us. It is how projects are managed. We allow some bad assumptions about the best way to manage projects significantly deteriorate our project performance. It is true everywhere around the world.

Brad: For example?
Dr. Lisa: For example, the idea that there is good multi-tasking. Multi-tasking has a terrible effect on engineering. Engineers must finish projects, and that means they need to 1) know which projects to focus on and 2) work on finishing those, rather than starting all of them. Projects need to flow quickly through engineering. But that is just one example. I have a white paper on the subject called Information Overload Destroyer that can be downloaded at http://www.informationoverloaddestroyer.com/ for additional examples.
Brad: So what is Project Velocity System, and how does it help?
Dr. Lisa: In Project Velocity System Coaching Program, I will take the people involved with managing and doing projects through 10 sessions followed by 10 coaching sessions aimed at getting immediate improvement in project delivery: On time, in scope, and within budget. In other words, we will focus on getting a job ready for manufacturing BEFORE they need it.
Brad: I thought that in project management, if you’re lucky, you only got to pick two of the three. Of course, with a lot of projects, you get one or none. It’s not unusual for projects to be late, with scope sacrificed, and way over budget.
Dr. Lisa: That’s reality without a process, but with the right process, you can ensure that engineering is not and will not starve manufacturing. And this can be accomplished by the end of the Project Velocity System Coaching Program and most often without hiring a single additional engineer.
-------------------------------
Want to improve your engineering and project management performance? Go to http://www.projectvelocitysystem.com/ to learn more and sign-up for the next available program. Want to talk about it? Just give us a call or send an email.

What are the challenges YOU face getting jobs through engineering? Tell me your 2 biggest challenges in the the comment box!

Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI Part 63 Getting Jobs Through Engineering

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.}


Brad: It’s been three years since we joined NTMA as National Associate Members. Shortly after we joined, after seeing the benefits Theory of Constraints (TOC) could have for NTMA members, you developed the “Velocity Scheduling System.” It is for scheduling machine shops (and job shops) to help them improve lead times, due date performance, and to reduce the ensuing chaos that results from the 9 Challenges of Scheduling A Machine Shop* they contend with daily. You’ve had 35 small, medium, and very large shops attend—online—with a 100% success rate. Why create a program for engineering?
*You can download that free report here: www.VelocitySchedulingSystem.com/ebook

Dr. Lisa: Many machine shops also cope with problems in engineering. A job comes in, and it goes into the queue. It can be feast or famine. When it is feast, engineers are multi-tasking between hot and red hot jobs, and put the shop under real time pressure when they are late with their designs and prints. They need a good solution, too, so I developed the Project Velocity System, and there is a software package to support it.

Brad: Engineering is like graphic design in printing. When new orders start coming, it is easy to have them pile up, starving the shop. It can be a real bottleneck. And when it is slow, that’s an expensive resource to have idled. Very few other people know how to do their job, and engineers don’t seem to do other jobs well, either.

Dr. Lisa: Yes, that’s exactly what happens. Engineering or design starves manufacturing. And, many of the companies that participated in Velocity Scheduling System went on to create a Mafia Offer with our on-line Mafia Offer Boot Camp. This put even more pressure on engineering because with an outstanding market offer shops started bringing in more NEW business which means more load on engineering.

In addition, even without a Mafia Offer, you typically do not want engineering to be your constraint. Engineering needs the capacity to feed the shop, so the company can meet its sales goals, and maintain short, responsive lead-times with 100% due date performance all of the time.


... to be continued.  Part 64 will continue with Getting Jobs Through Engineering
 
What are the challenges YOU face getting jobs through engineering?  Tell me your 2 biggest challenges in the the comment box!
 
Here's to maximizing YOUR profits (and selling price of YOUR business)!


Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 38

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.}

Recent economic events have changed the relationship many companies have with their markets.

Not recognizing this change is dangerous. You may need the change the way you are managing, and quickly.

Goldratt's Theory of Constraints (TOC) asks four fundamental questions related to the process of ongoing improvement:
1. Why Change?
2. What to Change?
3. What to Change to?
4. How to Cause the Change?

Let’s approach this at global level: your total company in relationship to its markets. Let’s ask some basic questions to determine quickly what global problem your company needs to address. This self-diagnosis will help you understand “What to Change?”

Are you internally constrained? Yes or no?

You company is internally constrained when it cannot meet market demands placed on it. Symptoms of being internally constrained include:
1. Less than 100% due date performance, and/or
2. Lead times in excess of your competitors, the industry standard, or what the customer should reasonably expect (evidenced by your large backlog).

Sometimes, you are not internally constrained even when these symptoms exist because you know the company is not as productive as it could or should be. A quick check is to ask whether the company could now sell an additional 20 to 30% more, and meet the commitment within normal delivery lead time. If you cannot, your company is internally constrained.

Very recently, many companies were internally constrained.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 30

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

Measurements (Not Incentives)

“Tell me how you measure me, and I will tell you how I will behave. If you measure me in an illogical way…do not complain about illogical behavior”.

This quote by Dr. Eli Goldratt, the father of the Theory of Constraints (TOC), speaks directly to the cause and effect power of measurements, and to the general misuse of measurements.

We business managers often struggle to determine what to measure and control, and how to motivate employees. Some of us measure many, many things, while others of us don’t measure much at all.

Think about these questions:
· What problems are we trying to solve by using measurements?
· What and how are we measuring now?
· What problems do we cause by the way we measure now?
· Is there a better way? That is, what should we be measuring and how?

First, let’s set a context for our discussion of measurements by agreeing on the overall objectives of our organization:

1. Make more money now as well as in the future,
2. Provide a secure and satisfying environment for employees now as well as in the future, and
3. Provide satisfaction to the market now as well as in the future.

The challenge is to accomplish all three objectives simultaneously.

One approach to doing so is called “balanced scorecard”. This proposed solution falls into the trap of trying to measure many, many things. It violates the second objective above in that when we measure many things, there will be some things that will look good and others that look bad. Depending upon the management style of the people involved, management can always find something to find fault with employees.

With TOC, we’re interested in ongoing improvement. We aren’t interested in measuring what is going well as much as we are interested in measuring what can be improved.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

Next Maximizing Profitability Events:

• January 20, 2009 from 1 pm to 5 pm
• February 3, 2009 from 1 pm to 5 pm

We now have 2 viewing options:

1. On-site in Denver
2. Live streaming video -- watch from you desk

Are you a Vistage/TEC member who would like your team to hear my Maximizing Profitability speech? You and/or you empolyees can attend in Denver at no charge or the LIVE STREAMING VIDEO is only $147 per company. More information at http://theoryofconstraints.eventbrite.com/

First GROUP Boot Camp of the year: February 4, 5, 6, 2009 in Denver. More information at www.MafiaOffers.com. Limited to the first 5 companies!

PRIVATE and On-line Mafia Offer Boot Camps are also available. On-line boot camps are done at YOUR time schedule and PRIVATEs are scheduled at a mutally agreed time.

A Process Of On-Going Improvement (POOGI) - Part 29

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

How will we know if we have a good solution before we try to implement it?

As business leaders, we’re smart people and fancy ourselves as problem-solvers. So, not only do we skip the step of developing a deep understanding of the problem, we jump to our favorite direction of the solution. Usually, we propose the solution and are surprised by the resistance we encounter. If we have enough power and stamina, we impose the solution. If we require the consensus of other people, we often get stuck arguing about the pros and cons of alternative solutions. Other people are very good at seeing what is wrong with our idea!

A useful way out is to identify the few criteria that would be associated with any good solution to the problem. And then list as many alternative solutions that meet the criteria in whole or part as possible.

For each alternative, also predict the negative effects and the implementation obstacles. These are what are normally referred to as the “problems” with a proposed solution. In the example above, the recently imposed no-overtime policy was an attempt to control costs in the face of declining productivity. Could you have predicted the negative reaction to such a policy? When the incentive system was initially implemented, do you think management expected it to de-motivate the workforce at the end of every quarter in which it was not earned? Probably not, but it was a predictable negative effect that should have been thought through before the incentive plan was implemented.

In this example, criteria for a good solution might include:

• Immediately improve the morale of the plant
• Immediately support increased productivity
• Be sustainable.

As for alternative solutions with our example company, one is to do nothing differently. This, in fact, is what is normally done. Remember Einstein’s definition of insanity: “doing the same thing over and over but expecting different results”. Inertia is powerful. Better to live with the devil we know…

Another direction is to address directly the conflict between the current company policies and the employees’ security and satisfaction. Notice that this does not require an employee survey. We all have enough intuition about causes of security and satisfaction. The difficulty is in removing bad policies and replacing them with better policies.

So what happened? The owner took charge, realizing that the company was lax in keeping current with employee reviews. While to every employee his or her review was very important, the company had not prioritized doing them, especially since that would require delivering bad news and having to talk about pay rates. The management had also allowed a few bad attitudes to affect everyone. The bad attitudes were addressed; there was a company meeting acknowledging the importance of employee security and satisfaction, and brief reviews were held emphasizing the importance of skills, cross-training, and attitude. The company committed to paying its most skilled people better than they could make anywhere, but needed their help with increased productivity. The feedback was positive and that “something really changed” this time.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

NEW -- Seattle Group Mafia Offer Boot Camp. October 20 (all day), October 21 (pm), October 22 (pm), and October 23 (pm). If you're interested please contact me by email.

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/. You can register by fax or on-line.

A Process Of On-Going Improvement (POOGI) - Part 27

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

The detailed buy-in process is:
1. Agree on the problem(s)
2. Agree on the direction of the solution
3. Agree that the solution solves the problem and brings the benefits
4. Agree on predicted negative side effects and prevent them
5. Agree on implementation obstacles and objectives to overcome them
6. Agree to implement the solution.

The step most often missed in the buy-in process is step one, agreeing on the problem.

Let’s use an example from a machine shop. See if you can apply the process. First, the background story:

This machine shop has sales of about $300,000 per month. Sales and the backlog have been declining slightly over the past three months, although a new large order of about $1 million is expected at any time.

This new order is on top of normal orders, so it represents growth. Morale of the workforce has been low recently, following the end of a quarter when no profit incentive was paid out and a new no-overtime policy was announced. Pay rates for the most skilled workers have been frozen for some time.

Supervisors in the plant are trying to implement a change in the work process to cope with the increased sales without adding additional people and have been getting resistance. In fact, productivity has decreased.

What is the problem?

...to be continued.

Here's to maximizing YOUR profits!

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

NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at http://www.mafiaoffers.com/. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/. You can register by fax or on-line.

A Process Of On-Going Improvement (POOGI) - Part 24

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

To describe sales as a process, we must define the steps of the process. Of course, these may vary somewhat between industries and companies, and may be described in more or less detail. One such list of steps for a sales process is:




Often not considered are the capacity of the sales process and the flow of work through the sales process. In the example above, the capacity of the organization is greater than where work is (snapshot 1) except in one place: engineering at 20. Is it the case that in your company you may have one or bottlenecks that slows your responsiveness when trying to win new customers? As in the example above, will such a bottleneck serve to further reduce the rate at which you win new business?

In snapshot 2, we’ve assumed we’ve doubled the capacity of engineering. Now the rate of sales through the sales funnel is limited by the capacity of Production prototype at 35.

No, sales funnel management is not rocket science. But few organizations—including machine shops—are managing their sales process.

To manage your sales funnel, you must (1) define the steps in your sales process, (2) determine the capacity of your organization to perform each step in a time period, and (3) measure how many prospects are in each step a particular point in time.


...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

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

The steps to implement Drum Buffer Rope (DBR) are not that hard to understand or explain. The difficulity lies in applying it to YOUR specific situation. If you don't know how to do that or do it incorreclty, it could lead to the conclusion that -- TOC doesn't work.

We are going to take 5 companies through the process of implementing DBR remotely. We will explain each step and discuss any questions or concerns specific to your situation. This will be a 12 week program with one session per week. Each session is 90 minutes in length. All 5 companies will be on the same call to take advantage of learning from the other companies. During this 12 week program you will learn:
to read the rest, click here

NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at http://www.mafiaoffers.com/. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/. You can register by fax or on-line.

A Process Of On-Going Improvement (POOGI) - Part 23

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

Last time, we discussed how having a "Mafia Offer", an offer so good that (1) your customers can’t refuse it and (2) your competition can’t or won’t match it -- had the potential to dramatically increase sales.

A Mafia Offer is another “technology” that is part of the Theory of Constraints (TOC), a holistic business process improvement body of knowledge developed by Dr. Goldratt, author of The Goal.

TOC is especially effective in machine shops. In fact, it is usually possible to develop an excellent Mafia Offer for a machine shop, especially if your competitors have long lead-times and poor due-date performance.

Here’s a test: do you and your competitors’ quote lead-times that you know have a low probability of being met just to get the order? If so, you have an excellent Mafia Offer. Would you like to find out what it is?

The process of implementing the internal changes a Mafia Offer requires is not trivial, but doing so improves sales closing rates from less than 5% to as high as 80%. Typically, additional sales people aren’t required, but sales funnel management is.

Why? Because having a Mafia Offer doesn’t address the following issues with your sales process:

• Prospects aren’t aware of you
• You aren’t aware of enough prospects
• You have difficulty getting in to see your prospect
• You have a long sales cycle
• You have difficulty quoting as many jobs as you would like
• Quote turnaround is too long
• There are peaks and valleys of booking sales.

Sales funnel management begins with realizing that sales is a process. As Dr. Deming said, “If you can’t describe what you are doing as a process, you don’t know what you’re doing”. Many companies abdicate selling activities to individual sales people, and then have understandable difficulty managing and measuring sales performance and effectiveness.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at http://www.mafiaoffers.com/. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/. You can register by fax or on-line.

A Process Of On-Going Improvement (POOGI) - Part 18

We are continuing our series based on The Goal by Eliyahu M Goldratt.

You can also perform a sensitivity analysis to determine the breakeven level of T/CU. In this example, it would be the Operating Expense level of $615,000 divided by 2,912 which is $211.20.

Pricing with Throughput Accounting is much easier and potentially much more dangerous. It is easier because there is no such thing as “product cost” to calculate. Instead, each product is evaluated for its Throughput per Constraint Unit. And overall, for the business, the average T/CU must be enough to achieve the Net Profit goal. It’s dangerous because any amount of Throughput does contribute to the bottom-line, but there must be the discipline to maintain the T/CU average needed to achieve the Net Profit goal. Pricing to achieve incremental business is not for novices.

For example, say you are quoting a new job. You estimate it will take 50 hours of milling. The Truly Variable Costs are estimated to be $5,000. Here is your estimate:

Hours of milling 50
T/CU desired $258
Throughput desired $12,900
Truly Variable Costs $5,000
Total Estimate $17,900

We understand that this method is much different and you may have many questions. If so, and/or you would like help calculating T/CU for your business, please feel free to contact us.

If you’d like to learn more about Throughput Accounting, we recommend the following materials (which were also used in developing the discussion above):

• “The Haystack Syndrome” by Dr. Goldratt,
• “Throughput Accounting” by Corbett.
• "Maximizing Profitability" by Dr Lisa (hit the ground running w/ 3 hr audio and workbook)

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang

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

Next GROUP Mafia Offer Boot Camp is July 30, 31, Aug 1 2008!Also check out our FREE Theory of Constraints videos. New videos added very week! http://www.scienceofbusiness.com/free-stuff/free-videos-audios.aspx

A Process Of On-Going Improvement (POOGI) - Part 17

We are continuing our series based on The Goal by Eliyahu M Goldratt.

Let’s apply this to your business. In order to do so, you’ll need to make some calculations. First, write down your annual sales. Second, subtract the Truly Variable Costs (these include raw materials, outsourcing, freight in and out, and sales commissions). The difference between the two is your dollar Throughput.

From throughput subtract all of your fixed costs which we call Operating Expense. The difference is your Net Profit.

For example:

Sales $1,400,000
Truly Variable Costs -$650,000
Throughput =$750,000
Operating Expense -$615,000
Net Profit =$135,000

Let’s further assume that you have lathes and mills in your machine shop. You have identified that milling is your constraint resource. You have only two milling machines operating one shift. You have calculated the available capacity as:

Number of mills 2
Hours per year 2,080
Percent available 70%
Available hours 2,912

The 2,912 hours is how many “Constraint Units” you have available.

The Throughput of $750,000 divided by 2,912 hours is $257.55. That is your “Throughput per Constraint Unit” (T/CU).

What is the meaning of this number? The Throughput per Constraint Unit is the amount of margin needed per operating hour of your limiting resource to cover Operating Expense and achieve your Net Profit. It is the rate at which you make money.
...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.
Next GROUP Mafia Offer Boot Camp is June 25, 26, 27 2008!
Also check out our FREE Theory of Constraints videos. New videos added very week! http://www.scienceofbusiness.com/free-stuff/free-videos-audios.aspx

A Process Of On-Going Improvement (POOGI) - Part 16

We are continuing our series based on The Goal by Eliyahu M Goldratt.

Dr. Goldratt says it this way: “If a process of ongoing improvement is what we are after, which of the three avenues of Throughput, Inventory, or Operating Expense is more promising? If we just think for a minute the answer becomes crystal clear. Both Inventory and Operating Expense we strive to decrease. Thus, both of them offer limited opportunity for ongoing improvement. Both of them offer only limited opportunity for ongoing improvement. They are both limited by zero. This is not the case with the third measurement, Throughput. We strive to increase Throughput. Throughput does not have any intrinsic limitation; Throughput must be the cornerstone of any Process Of On-Going Improvement (POOGI). It must be first on the scale of importance.”

Therefore, to make decisions according to Theory of Constraints (TOC) and Throughput Accounting, we need to quantify a decision’s impact on these three measurements and then we will be able to determine the change in net profit and return on investment.

The role of the company’s constraint is fundamental for quantifying the decision’s impact on the three measurements. Thus, to identify which products contribute the most to the company’s net profit, TOC also advocates the use of the measurement of “Throughput per time of the constraint (T/CU)”. This method is much simpler than the product costing and it allows for fast decisions that are directly linked to the bottom line.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

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

Next GROUP Mafia Offer Boot Camp is June 25, 26, 27 2008!

A Process Of On-Going Improvement (POOGI) - Part 13

We are continuing our series based on The Goal by Eliyahu M Goldratt.

The core idea in the Theory of Constraints (TOC) is that every real system, such as a for-profit business, must have at least one constraint. If it were not true, then the system would produce an infinite amount of net profit. Because a constraint is a factor that limits the system from getting more net profit, then a business manager who wants more net profit must manage constraints. The constraints will determine the output of the system whether they are acknowledged and managed or not.

Dr. Goldratt says it this way: “Before we can deal with the improvement of any section of a system, we must first define the system’s global goal; and the measurements that will enable us to judge the impact of any subsystem and any local decision on this global goal”.

It is impossible to disentangle using TOC in operations (DBR) from TOC accounting (known as “Throughput Accounting”). Any attempt to run TOC in operations while using traditional management accounting measures and controls is doomed to failure. TOC is a radically different way to control operations and does not work with conventional cost accounting systems.

As an alternative, TOC and Throughput Accounting introduce three measurements for increasing net profit:
1. increase Throughput (Sales minus truly variable costs such as raw materials),
2. decrease Operating Expenses (that is, fixed costs), or
3. decrease Investment, particularly in inventories.

To make decisions according to TOC, we need to quantify the decision’s impact on these three measurements and then we will be able to determine the change in net profit and return on investment.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang

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

A Process Of On-Going Improvement (POOGI) - Part 8

Once the lower level of WIP is achieved (using Theory of Constraints) which takes about two weeks, as a job is processed through milling, this triggers the release of another job to the floor to begin processing.

What is the effect?

Do you realize that the amount of work-in-process on the shop floor is directly related to production lead-time? In this example, within just a couple of weeks, lead-time dropped in half, from 4 to 2 weeks. WIP inventory dropped in half as well.

Of course, in this simple example and in the real world, dropping WIP levels will cause some work centers to go idle from time-to-time. Before, with higher WIP levels, we were just masking the reality that different work centers had different capacities. With lower WIP levels, that reality is now exposed and there is an opportunity for further process improvement.

We still haven’t addressed how Goldratt's Drum-Buffer-Rope yields additional available capacity. It does so by revealing hidden capacity on the constraint. The time a job spends waiting is reduced. With focus on the constraint resource, actions are taken that cause better utilization. When everyone knows that the constraint is what limits the net profit of the company as a whole, focus is provided that is unavailable when the shop floor is flooded with work and everything is a priority.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.