Your constraint is ...

I spent this last week with Dr Eliyahu Goldratt. As many of you know I used to work for him as his Global Marketing Director. He invited me to come and check out what he’s been working on. So, here’s my take on it …

One of the key differences in his thinking is that management attention is the constraint.


While your bottleneck may move around, the only reason it moves or that you even have an internal bottleneck is because either 1) you’re not paying attention; and/or 2) you’re not focused on dealing with it; and/or 3) you’re not taking the right actions.


So the issue is one of focus (at least initially). Most management teams are not working on the right things and waste a lot of time doing what really doesn’t make a difference, most of which doesn’t need to be done.


A management team will be effective if they do the things that need to be done and don’t waste time doing what doesn’t need to be done, shouldn’t be done or multi-tasking between too many things. Doing the latter is what consumes all your time and leaves you little or no time to do what should be and needs to be done.

That is all really easy to say, but harder to execute.

Let’s say that we ARE paying attention and that we ARE focused. Now all we have to do is to take the right actions. Piece of cake, right?

No.

… because the action that you think is the right action typically is not. If you’ve been studying Theory of Constraints for a while or reading my stuff for a while you know that our intuition about what specifically to go and do is often WRONG.

Here are just 4 examples:

So, here’s my advice.


1. Understand what you need to be focused on to meet your goals. I’m assuming that you ARE clear on your goal.


2. Focus on that and nothing else (stop multi-tasking and stop your people from multi-tasking).


3. Get’er done, one tactic at time.


If you are not sure of any or all of these – get yourself one of those TOC consultant types. A good TOC expert can get you focused, help you figure out how to stay focused, and get you set up with the right strategy and tactics (specific actions to take) to achieve the results you’re after.


And the return on this investment should be fast and substantial. If you are not sure what your next step should be, contact me for a free 1 hour strategy session. There’s no charge, we’ll see if we can get you pointed in the right direction.



Wishing you success,


Dr Lisa


President, Science of Business, and your favorite TOC Consultant type!

P.S. FOR CUSTOM JOB SHOPS ONLY: The next Velocity Scheduling System Coaching Program starting soon!


P.P.S. Ready to increase sales? You need a Mafia Offer? The ON-LINE Mafia Offer Boot Camp is open for registration!
 
2011 Copyright, Science of Business.  All rights reserved.

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 7

Let’s take a simple environment as an example. Say that there are seven operations in this environment:

1. customer service receives and enters the order,
2. engineering programs the part, and when released the order processes through
3. lathes,
4. mills,
5. outside heat treat,
6. inspection, and
7. packaging/shipping.

Let’s assume the starting condition is a quoted lead-time of 4 weeks with due-date performance of 80%. Work-in-process (WIP) inventory is $100,000.

After an initial Goldratt Theory of Constraints analysis, we determine that milling is the constraint resource. In order to protect the mills from running out of work, we decide we always want a buffer of ready-to-process material in front of milling. And we want to release new work to the floor only at the rate milling is processing.

Since there is more WIP on the floor than desired, our first action is to not allow any new work to be released to the floor! We have a rule of thumb to reduce WIP to about half the level of WIP we started with. The focus is not starting new jobs, but finishing the jobs that have been started.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

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

99/1 Rule vs 80/20 Rule

Question: You mention in your speech that TOC (Goldratt's Theory of Constraints) is about the 99/1 Rule, not the 80/20 Rule. Can you explain that?

Answer: Let’s start by talking about the 80/20 Rule. The 80/20 Rule, also called the Pareto Principle was made universal by Juran and refers to the “vital few and trivial many”. According to Juran:

“It is a shorthand name for the phenomenon that in any population which contributes to a common effect, a relative few of the contributors account for the bulk of the effect.”

This principal is universal. It applies to your customer base – 20% of your customers account for 80% of your revenue. Your customers are independent or unrelated contributors to your revenue.

When we are talking about maximizing profitability, and the contributors of profitability (various elements in your system) are related, then the 80/20 Rule still applies, but it is too broad. Because the contributors of profitability are related, the largest contributor will have a much greater impact than all the remaining contributors. This is due to the statistical fact that dependent contributors add up as the sum of their squares. By squaring each contributor, the largest one ends up being closer to 99% of the sum of the squares. This largest contributor is your constraint – it’s the thing that limits your profitability most.

Most companies have one or few constraints. The number depends on the number of independent processes. If all your processes are in some way dependent on each other, then you will have one and only one constraint. If you have 2 completely independent processes for 2 different products or services, then you will have 2 constraints in your system. Since your system is limited by the amount of work that the constraint can process, your constraint is the BIGGEST contributor to your profitability. Hence, focusing on your constraint(s) is where you will have the greatest leverage on your profitability – the 99/1 Rule.

In summary, when you are trying to identify where to focus your efforts (quality or otherwise) and the contributors are related or dependent, then determine your constraint (your 99/1) first. Then, use the 80/20 Rule to determine the main contributors of an effect or problem within the constraint or constraint process.

Here's to maximizing YOUR profits!
"Dr Lisa" Lang