The biggest constraint we Theory of Constraints consultants find is ... (part 3)

This is Part 3 of a multi-part series that will be posted on the Velocity Scheduling System Coaching Program blog. We covered the biggest constraints we find as Theory of Constraints consultants.

Read Part 3 here: http://velocityschedulingsystem.wordpress.com/2010/05/10/the-biggest-constraint-we-theory-of-constraints-consultants-find-is-%e2%80%a6-part-3/
 
The Velocity Scheduling System Coaching Program is a guided implementation of the Theory of Constraints Drum Buffer Rope. 

Theory of Constraints POOGI Part 66 You Want Me To Do WHAT? (conclusion)

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.}


So how do we get the key people in a highly custom job shop to do the totally counter intuitive steps of the Velocity Scheduling System (based on Theory of Constraints Simplified Drum Buffer Rope)? Well, instead of pushing the steps of a system they don’t understand, don’t agree with, and have no intuition around - we build on a previous success.


What success? Ask any custom job shop if they have ever pulled out all the stops for a customer and turned a job really quickly. Most (probably all) will say yes. Ask them to tell you the story. You will find that they were able to do a job in a fraction of their typical quoted lead-time. For example, one client did a job in 3 days that they would normally quote a 6 week lead-time for.

When they are telling the story ask about what they had to do to get that job done. And what did they had to stop doing or what jobs did they have to stop working on to make it happen. Listen very closely, take notes and ask questions to draw out the story.

Typically they will explain how they had to stop working on a several jobs that they had already started. Then they will talk about how they "crashed" the job. "Crashing a job" is our terminology for bringing multiple resources to bear on a job. They might have used 2 lathes to run operation 1. And as soon as one piece was done it immediately went to operation 2 on a mill instead of waiting for all it sister parts to complete operation 1. In this way, the job just zipped through the shop.

They were able to complete this job so quickly because they 1) reduced work in process by stopping work on other jobs; 2) By focusing on finishing this one job and 3) by "crashing the job" and bringing multiple resources to work on it.

These 3 actions are some of the key components of the Velocity Scheduling System (VSS). The problem you would discover is that they think that they cannot continue to take these actions on an on-going basis. And if they did, they would be inefficient and the company would lose money.

So what we now explain, is that the VSS is a system that will help them find the balance between what they did on that rush job and efficiency. Then we simply ask - would you be willing to try it and to help customize VSS for their plant. We will explain everything, but knowledge does not change behavior, what we need from you is a commitment to try what we ask.

Who would say no to that? Particularly in the group environment we have for our VSS Coaching Program.

If we can get the biggest detractor for each company to agree to try it, to really do the program, they are unlikely to go back on their word. (Law of Consistency) Then, the crystal clear step by step instructions of VSS, in combination with their story and experiences will help the new process (VSS) to stick.

This process of building on a success can be used in any number of circumstances. We’ve also used it to help companies with their sales and marketing, project completion, and distribution solutions. How can you use it? Drop us a line and let us know your thoughts.

What's your experience with buy-in? Please add your comments to this post  (really, I want to know).

Here's to maximizing YOUR profits!

Dr Lisa

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

Theory of Constraints POOGI - Part 55: Yes, but… The Value of Concerns and Objections 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.}

Dr. Lisa: Back to the process for handling a “yes, BUT”. We are saying “yes” to the solution, and the “BUT” is a negative we anticipate if we go forward with the solution. So the first step is to identify which part of the solution your concern stems from. State this explicitly. Next, indicate what your concern is, what negative could occur (called Negative Branch Reservation). Now together you can figure out that (1) either that you misunderstood the solution or (2) that you are correct that the negative could happen. If so, how could we modify the solution to eliminate completely or substantially the possibility of the negative?

Brad: That sounds a little theoretical. Do you have an example?

Dr. Lisa: Sure. When we are doing the Velocity Scheduling System with a machine shop, someone in the management team will often have the idea to do preventative maintenance. In this example, this is the “part of the solution the concern stems from”. Someone will respond that there isn’t enough capacity to do preventative maintenance without being late on orders. This is the concern, the negative that could occur.

Brad: What’s the solution to trim the negative branch?

Dr. Lisa: To do both -- to complete ALL the orders on-time AND do the necessary preventative maintenance. The Detailed Planning portion of the Velocity Scheduling System is what we use to see and plan for opportunities for preventative maintenance while maintaining 100% due date performance.

“Dealing with yes, BUT’s” is one of the bonus videos included in the Velocity Scheduling System which is based on Goldratt's Theory of Constraints and Drum Buffer Rope.

Get a daily TOC Tip on Twitter, just follow http://twitter.com/TOCExpert.

Here's to maximizing YOUR profits!

Dr Lisa Lang

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

Theory of Constraints POOGI - Part 48

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.}

Do-it- yourself 'Viable Vision'

Brad: "If a business owner wanted to grow the bottom-line of their company at the fastest rate possible, what would he or she have to do?"

Dr. Lisa: "Get operations 'perfect', and increase sales without a proportionate increase in fixed costs."

Brad: "And what kind of improvement is possible, say for a machine shop?"

Dr. Lisa: "We call what is possible 'Viable Vision'. It varies for different types of businesses, but the results that are possible are bigger than most business owners dare imagine. One definition of Viable Vision is to 'turn your sales level into your profit level in four years or less'."

Dr. Lisa: "Another definition is to increase the percent return-on-sales to a level that the owner, at the outset, would definitely agree is unrealistic. For example, a business that has hovered around breakeven can easily have a 20% return-on-sales, but the owner probably thinks this is unbelievable. And it doesn't matter how small or large the company is; it's possible. The amount of TVCs a company has, as a percent of sales, will have an impact on how long it will take. But it is possible."

Brad: "So what you're saying is a business with $2 million in sales could have $2 million profit by the middle of 2013. Or $10 million sales into $10 million profit. Have you forgotten about the recession?"

Dr. Lisa: "The recession just highlights the importance of sales. A business with an offer 'too good to refuse', what I call a 'Mafia Offer', will grow sales in any economic conditions. We have experience with companies that traditionally had a 'hit rate' of less than five percent, increasing that to well over 50%, while reducing their sales cycle time."

Brad: "What do you mean by 'perfect' operations?"

Dr. Lisa: "When we develop a Mafia Offer, there is a need for operations to be very reliable. By 'perfect', I mean it must be a rare occurrence for the company to miss a due-date commitment or whatever the offer promises. A Mafia Offer is backed up with a solid guarantee, in the form of a self-imposed penalty for non-performance of the offer, so if we're late, for example, we might be giving the customer the order for free."

Dr. Lisa: "No matter how unreliable a machine shop might be now, they can become 100% on-time in a very short period of time, like two months."

... to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

P.S. If you have an internal constraint (not 100% on time), check out www.VelocitySchedulingSystem.com (based on Golratt Drum Buffer Rope) Group 5 starts November 23, 2009! (for job shops only)

P.P.S. If you have an external constraint, check our our ON-LINE at www.MafiaOfferBootCamp.com ; GROUP and PRIVATE Mafia Offer Boot Camps at www.MafiaOffers.com

P.P.P.S. If you have a cash constraint ACT NOW! Free cash video, click here --> The Fastest Way to Increase Cash Flow.

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

Patterns: How we schedule our machine shop?

Our patterns affect what we can accomplish. We use patterns to schedule our machine shops and job shops. If you're not getting the results you want, you may need to change your patterns!

Check out this blog post on patterns and how they affect your scheduling: Machine Shop Scheduling

On that same post you will also find a video interview Dr Eliyahu M Goldratt (founder of Theory of Constraints Drum Buffer Rope) did on patterns at the bottom of the post.

Job Shop Scheduling and Machine Shop Scheduling

If you own or run a job shop or machine shop, check out this Special Report on the "9 Challenges to Scheduling Your Job Shop and Why Your Schedule is Dead on Arrival!"

I'm a lot like you. I read The Goal and loved it. I related to it, and thought it was common sense. It was so refreshing to read a business book like that.

I totally got the hike with the boy scouts and having Herbie lead, then off loading Herbie's backpack. The game they played with matches showed the impact of variability and why it is so hard to get things done.

All really good stuff and I read it in one sitting. I wanted the results they had in The Goal - I wanted to be 100% on-time, I wanted less chaos and less work in process, increased throughput and I wanted all this with the same or less overhead.

But then I really didn't know how to apply it to my situation. I didn't have the budget to hire a consultant to help, much less an expensive Theory of Constraints consultant.

So I did what I could, based on what I understood. I identified what I thought was our constraint, and I studied it. I determined what was keeping us from getting more through the constraint. I made a few changes.

And, we got some results. Nothing like what they had in the book mind you, but some results. But that is where I really got stuck.

I knew much more was possible, much bigger and better results. After I had read The Goal, I did some research and found some published success stories. These case studies showed that I should have achieved more.

But I rationalized -- we're different. We are in a different industry, a tougher industry. Maybe it just doesn't work in our type of business. Yeah, that's it - too bad, it just won't work for us.

Now fast forward a few years.

In the mid 90s Theory of Constraints became more available. There were annual conferences, training classes, and many more books on the subject.

I went to school on all of it.

I immersed myself in the theory. I read everything, I asked a ton of questions. And what's interesting is that I still didn't really know where to start. I still didn't know how to get beyond a few modifications around the constraint and I still didn't know how to get the kind of results I had read about.

And this was after I had been to the mountain. I had taken courses and studied at the Goldratt Averaham Institute founded by Eliyahu M Goldratt, the father of Theory of Constraints.

How can common sense be this hard?

I finally got it when I became a consultant and worked with several clients.

By the way, all my clients had read The Goal, and only achieved small results on their own or got no results because they simply did not know where to start and so had not tried.

My first client was a machine shop. And since then I've worked with a number of "metal benders" - custom machine shops making custom parts and job shops. Some of the shops I worked with had 80% of their parts/products repeat and some only had 20% repeat. But they all had terrible due date performance (on orginal dates), high work in process, and lots of chaos.

I needed to figure out how to make a difference in these highly complex environments where the constraint can move week to week depending on the mix of work that came in.

I discovered, in working with these clients, the secret -- the way to implement what we read in The Goal.

I figured out:

• the order to implement. What to do first, then second and so on.
• that the first steps we take need to provide BIG results to get the buy-in and support to continue.
• that the scheduling and priority of the shop needs to be visual.
• that the visual scheduling system facilitates eveyone's involvement and the desperately needed communication throughout the shop.
• how to create an effective scheduling system that does not require massive computing and manpower to run.
• how to accommodate a complex environment where the constraint moves frequently.
• how to implement the Theory of Constraints process of on-going improvement so that we continuously improve.
• and, how to coach managers and supervisors to get it done.

This approach lead to the big results that I had read about in the case studies and in most cases we achieved the results faster.

We also found that our visual scheduling system created faster buy-in and helped the changes to stick.

So my partner, Brad, and I sat down and documented what we did. We documented the process we used, we documented the differences between companies that can cause differences in the solution. We ended up with THE process to quickly implement what we read about in The Goal to get quick, substantial results.

So why am I telling you all this?

Well... this is something of an "open secret"... I have been working on a way for you to have the exact same system that my job shop and machine shop clients use without the burden and expense of an on-site consultant.

And we have now tested it with several clients and we have done 2 Velocity Scheduling System Coaching programs. So the program that starts on April 27th is our 3rd Velocity Scheduling System Coaching Program. We focus on job shop scheduling and machine shop scheduling.

Now is the right time for this. In fact, I would say that now is THE critical time. Implementing the system is particularly important in this economy for 2 main reasons. 1) With the system it will become clear where you can cut people and have the least effect on productivity; and 2) If you have a market constraint then it is paramount that you improve your due date performance and reduce your leadtimes so that you can capture more market share. This will be particularly effective as your competitors cut people, and get worse on due date performance and leadtimes.

This system has PROVEN to dramatically increase your due date performance, reduce your work in process and decrease your manufacturing lead-times without a consultant camped in your conference room. And of course, this will lead to improved cash flow and increase your profits!

Here's an update I got just received (April 15, 2009) from a client that participated in our VSS Coaching Program:

"Just to update you on our company status, I thought you'd be happy to know we
are still 100% on time and raking in some good profits. I've seen a higher frequency of penetration into the red zone, but no late jobs. We just shipped the mother of all jobs today (in excess of 4000 man-hours) on time! Furthermore, the price tag was $750K, of which final throughput MINUS LABOR was nearly $390K! (Don't tell the customer that)"

That's all for now...

Wishing you success,

"Dr Lisa" Lang

P.S. To sign up go to http://www.velocityschedulingsystem.com/ The next session start
on April 27 and will be limited to 10 companies to ensure you get all the
coaching you need!

If you're interested in learning how to run your shop according to the Theory
of Constraints and Drum Buffer Rope principles discussed in The
Goal by Eliyahu M Goldratt, then sign up for our next Velocity Scheduling System
Coaching Program.

A Process Of On-Going Improvement (POOGI) - Part 19

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

Up to this point, we have discussed how Drum-Buffer-Rope scheduling has the potential to double your capacity with little or no investment or expense. And Throughput Accounting has provided you visibility on the rate at which you make money.

Both of these “technologies” are 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 job shops. In fact, The Goal was about a turnaround of a job shop.

However, if you can’t sell more with your newly available capacity, there won’t be a bottom-line effect. And we find cutting the people—to save a little cost—who collaborated to increase the productivity of your organization unconscionable. It is management’s responsibility to have the marketing and sales processes in place to increase sales, utilize the capacity, and dramatically improve the bottom-line.

Unfortunately, the marketing and sales processes of most organizations are already getting the results they are designed to get. To get more, something has to change.

...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 weekly! http://www.scienceofbusiness.com/free-stuff/free-videos-audios.aspx

About the co-authors:

“Dr. Lisa” Lang is President of the Science of Business. Her TOC speech “Maximizing Profitability” is popular with Vistage/TEC groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement their own Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

Brad Stillahn is a business owner that has successfully implemented TOC methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals, is a new NTMA member. TOC Professionals works with companies implementing all aspects of TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

A Process Of On-Going Improvement (POOGI) - Part 11

Conventional cost accounting assumes that incremental and isolated cost improvements are productive and in support of an organization’s goals, and that global improvement equals the sum of local improvements.

Since a conventional cost accounting system relies on transaction data—each transaction is a separate event—it is incapable of a holistic or systems thinking perspective except when closing the books. In addition, conventional cost accounting is not capable of giving good information because it assumes that all the company’s resources are equally important.

So, how would cost accounting block you from implementing the Drum-Buffer-Rope scheduling methodology? In at least two ways:

• because of the way inventory is valued, and
• because of the impact on efficiency measurements.

Remember from the discussion of Drum-Buffer-Rope last month that we expected a reduction in Work-in-Process inventory to about half of its initial level. What is the effect on the monthly Profit and Loss statement from this?

...to be continued.

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

_____________________________________________
About the authors:
Brad Stillahn is a business owner that has successfully implemented Goldratt's Theory of Constraints (TOC) methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals engages in long-term relationships with companies implementing TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

“Dr. Lisa” Lang is President of the Science of Business. Her speech “Maximizing Profitability” is popular with Vistage groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement a Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

A Process Of On-Going Improvement (POOGI) - Part 10

“Cost Accounting: Public Enemy #1 of Productivity”

Way back in 1983, prior to writing his popular business novel “The Goal”, Dr. Eliyahu M Goldratt gave a speech by this controversial and confrontational title at a conference of Management Accountants. However, it was well received because the problems with cost accounting are well known to knowledgeable management accounting professionals. For them, agreeing that there are problems with cost accounting was not the issue. The question was “what is the alternative?”

That is where we left our discussion last month. We had provided an overview of Drum-Buffer-Rope (DBR) scheduling. We warned that cost accounting assumptions may block you from implementing this powerful scheduling methodology and promised to discuss both the issues with cost accounting and introduce the solution: Throughput Accounting.

Management Accounting’s objective is to make the connection between managers’ local actions and the company’s profitability so managers can know if their actions are leading the company toward its goal.

The problem with cost accounting is the focus on cost.

...to be continued.

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

___________________________________________________________
About the authors:

Brad Stillahn is a business owner that has successfully implemented TOC methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals engages in long-term relationships with companies implementing TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

“Dr. Lisa” Lang is President of the Science of Business. Her speech “Maximizing Profitability” is popular with Vistage groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement a Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

A Process Of On-Going Improvement (POOGI) - Part 9

Normally, Lean and Six Sigma tools provide additional benefits very quickly. For example, it is common that the constraint resource could benefit from set-up reduction. Focusing Lean tools—which cost little to implement—results in additional capacity where it is needed and that has an immediate bottom-line result.

Due-date performance improves because of the reduction in lead-time, the increased capacity, the predictability of the time to process an order has improved, and jobs are prioritized according to due date.

The “Drum” is the schedule for the constraint resource. It sets the pace for the entire operation. In Goldratt's Theory of Constraints, we assume there is one system constraint that is limiting the throughput of the entire business. The drum is the only resource that needs to be scheduled. All other operations have relative excess capacity, meaning that orders can flow through the plant until reaching the constraint resource, and after it.

The “Buffer” is what protects the constraint from going idle from lack of material to process. The buffer needs to be large enough to prevent starvation on the constraint resource. It is really a time buffer, not physical materials, but we’ll explain that at another time.

The “Rope” is the mechanism for release of new material into the operations.

There are conventional cost accounting assumptions that may block you from implementing Drum-Buffer-Rope. Next time, we’ll address those issues, and describe how TOC’s Throughput Accounting concepts will free you to take the needed actions.

...to be continued.

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

______________________________________________________________________ About About the co-authors:

Brad Stillahn is a business owner that has successfully implemented TOC methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals engages in long-term relationships with companies implementing TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

“Dr. Lisa” Lang is President of the Science of Business. Her speech “Maximizing Profitability” is popular with Vistage groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement a Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

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.

A Process Of On-Going Improvement (POOGI) - Part 6

Of course, doubling available capacity must mean that we aren’t managing our current capacity as well as we would like, despite our best efforts to do so. Is this a reasonable possibility? Let’s check some “facts”:

Does your mix vary widely from week-to-week, as is typical of most job shops?
Do most jobs spend more time waiting than being worked on?
Is the touch-time for a job less than 10% of the quoted lead-time?
Are your lead-times relatively long, for example, are they measured in weeks instead of days?
Is your due-date performance less than 99%, as measured by your original promise date?

If you answered “yes” to some of the above questions, then there is a good possibility you can reveal substantial capacity with Goldratt's Theory of Constraints Drum-Buffer-Rope (DBR) scheduling.

But first let’s see if your like most traditionally managed job shops. If you are, you have excess work-in-process. In an effort to keep resources—machines and people—busy, jobs are released to the floor as soon as possible. Queues of work are in front of many machines. Once a worker has finished the job they were working on, the next job is available to get started on. This is done in the name of high efficiencies.

What are the problems associated with this traditional approach?
First, having too many orders on the shop floor masks priorities, promotes local optima behavior and therefore prolongs lead-time and significantly disrupts due-date performance. Second, hectic priorities (hot, red-hot, and do-it-NOW) cause chaos on the floor; not having a priority system can cause some orders to still be late. Finally, in many plants, there are bottlenecks that prevent attainment of 99% due-date performance.

...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 5

Up to this point, we provided an overview of Goldratt's TOC (Theory of Constraints), the business improvement process methodology described in the popular business novel “The Goal”. Perhaps you’ve had the opportunity to take our recommendation from last month and read or re-read it.

“The Goal” refers to the goal of most for-profit organizations, which is to make more money now and in the future. If an organization is not making an infinite net profit, and of course no organization does, then something is limiting the system. TOC calls this the “system constraint”. If the constraint is external, the company does not have enough sales to fully utilize its available resources. If the constraint is internal, the company cannot sell all that is demanded from the company. Let’s consider the case when the constraint is internal.

We claimed that if a company implemented the scheduling methodology described in The Goal, that it just might be possible to double available capacity with little or no investment or added expense. The scheduling methodology is known as “Drum-Buffer-Rope” and we will discuss it in more detail this month.

...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 3

TOC is holistic, meaning that there is a complete set of tools available to support “A Process of Ongoing Improvement”:

· For operations, there is Drum-Buffer-Rope scheduling
· For projects, there is Critical Chain Project Management
· For finance and measures, there is Throughput Accounting
· For marketing, there is the compelling, un-refusable “Mafia Offer”
· For sales, there is the Buy-In Process
· For people, there are Management Skills
· For distribution and supply chain, there is Replenishment
· For anything else, there are the Thinking Processes.

Drum-Buffer-Rope (DBR) scheduling embraces the concept that there is one constraint for the entire organization. If the constraint is internal, the company cannot sell all that is demanded from the company. Due-date performance is probably less than 99%, and lead-times may be longer than desired. On the other hand if the constraint is external, the company does not have enough sales to fully utilize its available resources. More sales are desired. Implementing DBR brings a company to 99+% due-date performance (DDP) and maintains that level even with rapid sales growth. It can be implemented in a very short time. Typically, 50% capacity can be freed up to sell with little or no investment or added expense.

Check out the results from one of our clients in this video: http://www.scienceofbusiness.com/tmi-on-time-video.aspx

and here's more results: http://www.scienceofbusiness.com/Portals/0/Richard%20Pettibone%20DREWCO%20testimonial.pdf

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

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

Theory of Constraints next topic?

I would like your feedback on which topic you would like me to address next, here are the options I’m considering:

1. Theory of Constraints on Incentive Plans
2. Most Common Issues when Implementing DBR (Drum-Buffer-Rope)
3. Theory of Constraints on Sales Commissions

As a thank you for replying you can purchase Achieving a Viable Vision for 50% off. Just send me an email and let me know your vote and if you want to purchase the 3 hour audio plus workbook (recorded from a live workshop) for only $99 with free shipping worldwide.

Feel free to ask any questions or suggest alternative topics.

Here's to Maximizing YOUR Profits!

Dr Lisa Lang

Increasing Throughput -- Other Considerations

Continuing our cash velocity discussion started on March 16, 2007

Increasing Throughput -- Other Considerations

In previous sections we have covered raw materials and how to reduce them. We also need to cover WIP (Work In Process) and finished goods inventory. DBR Scheduling* reduces WIP by releasing raw materials at the rate at which the constraint can consume the raw materials. Demand Pull* can also be used to reduce finished goods inventory. If we make to stock, or use a replenishment system to supply our customers, then we can minimize the amount of finished goods we carry while at the same time increasing the probability that we will have on hand what is needed. When DBR Scheduling and Demand Pull are implemented, we see a mean reduction in all inventories of about 50%. All of this, of course, helps us to further reduce cash-to-cash cycle time.

* DBR Scheduling and Demand Pull as defined in Goldratt's Theory of Constraints

... to be continued ...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Factoring Receivables Reduces Cash to Cash Cycle Time

Continuing our cash velocity discussion started on March 16, 2007
Yesterday we discussed how offering a discount can reduce cash to cash cycle time and today we will discuss an alternative.

Another approach, which leads to similar results is receivables factoring. Factoring receivables, however, takes about a month to set up in order to provide all the necessary information. They charge based on how long it takes your customers to pay. This is typically in the range of 1 to 5% which is a much better deal than the 20% discount. However they typically pay you 80% of the invoice within 2 days but hold 20% of the funds back until your customer has paid. We usually start with the discount offer then switch to factoring once we can get it set up.

In addition to the above ideas, with DBR Scheduling we can also give preference to customers who pay quickly. Customers who pay quickly are certainly better, as demonstrated above, to our cash-to-cash cycle time.

The shorter lead-times that result from implementing DBR can also allow us to offer shorter lead-times for higher prices depending on our industry. This would be determined during your mafia offer development[1].

... to be continued ...

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

[1] We typically do a Mafia Offer Boot Camp over 3 days. For more information see http://www.mafiaoffers.com/

Goldratt's Theory of Constraints Demand Pull

Reduce Material On-Hand to Reduce Cash-to-Cash Cycle Time

To reduce the number of days we have material on hand, be can implement Goldratt's Theory of Constraints Demand Pull[1] solution. We know from Demand Pull that historically we compensated for not having a good scheduling system and for our customers providing ever moving but always wrong forecasts by holding more raw material than we actually need. And still there would be situations when we had too much of some raw material, but not enough of what we needed. By implementing DBR Scheduling and Demand Pull, there will be an overall reduction in the amount of raw material we need to carry, and a higher probability that we will have what we need, when we need it. We also know that our ability to reduce the amounts of raw materials we carry is directly related to the time it takes us to reliably replenish.

Continuing our example from yesterday:
Our vendors have not implemented DBR Scheduling, so it takes them about 21 days to replenish us. So, for our example, let’s say that the mean time we have raw material on hand goes from 90 days to 30[2] days. Now our cash-to-cash cycle time is down 60 days to 55 days (115 less 90 days plus 30 days).

[1] To learn more about Demand Pull see the interactive program, The Insights by Goldratt
[2] We are allowing 3 days of transportation time and 6 days of buffer in addition to the 21 days to replenish.

(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Drum Buffer Rope / Simplified Drum Buffer Rope

Reduce Process Time to Reduce Cash-to-Cash Cyle Time

To reduce the number of days to make and ship the product from the time the order is received; implement DBR[1] Scheduling which results in a mean reduction of lead-times of 70%[2]. For the example we started yesterday, let’s say the 4 week lead-time would shrink to 9 days. That gives us a new cash-to-cash cycle time of 115 days (134 days less 28 days lead, plus the new 9 days lead).


[1] We actually implement S-DBR, Simplified DBR (also known as DBR II) in most cases. You can learn more about S-DBR in the book Manufacturing at Warp Speed by Eli Schragenheim.
[2] The World of the Theory of Constraints, Mabin and Balderstone

(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.