Question: Last time we ended the conversation with the fact that the essence of TOC is to find the company’s basic problem, but a “normal” company has so many different problems! I would not say that any of them is the only and the main one – usually several have to be addressed at once.
Georgs: Do you agree that every business (system) exists only because it buys (or receives) a “raw material” and transforms it, giving it an added value for which the customer is willing to pay money?
Q: Please explain what you think?
G: Okay, let’s start with examples:(a) The furniture manufacturer purchases timber and produces shelves or chairs from it, preferably those for which the customer is willing to pay more than the raw materials. b) The shop where I shop buys exactly the cheese and bread I like, as well as Pinot Grigio from my favorite winemaker, brings it to me in a convenient place, and I pay him much more for it than I paid for the raw materials. ”.c) Your hairdresser picks you up in his chair and cuts your hair in a very strange way. It doesn’t seem quite clear to me, but it looks like you’re paying him good money for this “added value” to your head.
Q: Okay, okay! I agree with the statement that the ‘raw material’ has been transformed by adding value. But now, please tell me about the main problem.
G: Here is another important conclusion in your phrase about the transformation of raw materials: you can always define the main direction of the business process – from cheaper raw materials to higher added value. Let’s call it a business or process flow. Flow is also a specific physical concept – there are air, water, electron, magnetic and other flows in different systems. Look below the piping drawing (Figure 3) for the direction of water flow. Tell me, please, what prevents you from getting more water at the right (higher value-added) end of the pipeline?
Q: Probably it’s stage C, the smallest diameter pipe.
G: So if we have built such a water supply system, then its ability to supply us with more added value is limited by the C-stage throughput?
Q: Yes!
G: Suppose our system actually has a lot of problems, for example, stage A has a small leak somewhere, stage B has thinner walls than other stages, and stage D should be repainted. As you can see, the system has many problems and all of them need to be addressed. Where do you start?
Q: Well don’t be fooled – of course with C!
G: Here, you’ve found the main problem with the system – what limits the system from creating the highest throughput or added value. By the way, at the same time, you refute your initial statement today that it is imperative to solve several problems in the system (company) at the same time.
Q: Your example is for a simple technical system, but what about a company or organization?
G: Okay, let’s start with the manufacturing company. In drawing no. 4.1. I outlined a company’s internal flow (process). Each column is one workstation that can process a certain number of parts per hour (this is indicated on each column) and pass it on for further processing. Do you see a bottleneck in this system or a major problem limiting flow or system throughput? What maximum results can be expected from this system? How many finished products will the company be able to sell to its customers?
Q: An operation with a capacity of 10 parts per hour limits the throughput of the entire system, so the company will not be able to produce more and consequently will not be able to sell more than 10 parts per hour.
G: You are absolutely right! (See Figure 4.2.) By the way, thank you for using the word “throughput”.This is one of the official TOC terms that we will continue to use. In English, it reads as “Throughput” (T) and its official definition is as follows: “Throughput” (T) is the rate at which the system generates money through sales. In our example, 10 parts per hour is not exactly a pass, but just a measure of potential sales. However, if we knew that the added value of a product is, for example, 100 euros, then the pass, in this case, would be 100 × 10 = 1000 euros/hour.
J: Sales rate, throughput…
G: You have successfully found System Constraints. To increase the system throughput (T), which means getting more added value at the same time as a result of the whole system operation, we will make improvements and increase the system reduction capacity (for a phase that produces 10 parts per hour) to 20 parts per hour. How will the sales rate of the whole system change in this case?
Q: Well, how? Of course, it will increase from 10 to 20 parts per hour! Although not, looking at your drawing, only up to 15 parts per hour, because now we have a new systems constraint with a throughput of 15 parts per hour.
G: Exactly! In drawing no. 4.3. you see the new state of the system, in which we increased the throughput of the constraints resource by 100%, but as a result, we will only be able to get a 50% increase in sales rate. Tell me, if we invested more in improving the system and increasing the throughput of the last stage (25 parts per hour) to 50 parts per hour, how much would the overall throughput or sales rate of the whole system increase?
Q: I don’t think it would increase at all, because the last stage is not a systems constraint at all.
G: Wait, what did you say now? Is it very likely that we are throwing money into the wind by making process improvements, investing in ‘innovation’ and similar activities at a stage or process that is not a bottleneck?
Q: Strange, but it looks exactly like that. At least now I have begun to understand what has happened in my practice. There has been a case where we took out a loan and bought a modern machine with twice the productivity of the old one. All calculations showed that this equipment would pay off in a reasonably short time and would start to make a profit. But it turned out that we did not notice an increase in profits at all! Of course, there has been a lot of discussion and explanation – someone has said that the machine should be loaded in three shifts instead of two, someone has cursed the sales staff for not being able to find customers with orders for this particular machine – you already know-how. Now I began to understand how it was possible to work even with the old machine with twice the lowest productivity. At the time, it was not a bottleneck at all!
G: Your case is very classic, such examples can be found in many companies. At least I’ve seen so many expensive pieces of equipment (boys like new toys) that didn’t live up to their expectations at best, but at worst, they were loaded 24 hours a day, turning a lot of money into unnecessary stocks of semi-finished products. It is even more tragic with the most modern software that is purchased because the existing one is outdated and cannot provide the company with a sharp increase in turnover and, as a result, higher profits. After implementation, you can hear that the new system is much faster, more user-friendly, has many options and many new ways to get the information you need in different sections, and so on. Unfortunately, sometimes you don’t see any increase in profits, but instead, see an increase in administrative procedures and the rise of different document piles.
After the implementation of the new investment project, try to ask the entrepreneur Goldratt’s classic question from the book “The Goal”: “Has your company now had a sharp increase in turnover and profit?” You will see a strange confusion in the eyes of the defendant: “Not quite, but now we work much more efficiently!”
This is followed by a second question with the risk of losing the interlocutor: “You work much more efficiently, but the turnover and profit did not increase due to the implementation of the new system. So you reduced the number of employees? ”
At this point, it is better to end this discussion (Goldrat’s hero starts to rush to the plane at this point), because the businessman suddenly begins to analyze what happened: “We invested to increase profits, but we got something completely different. Why did it happen? ” In the second case, the interlocutor begins to look desperately for arguments to defend his position, which will cause him internal unrest.
Q: Are you really against new technologies and equipment?
G: Of course not! However, investments should be made only when you have formulated the main goal of the system (company), found the limitation of the system, and have exhausted the simplest methods of extending the constraints. In case the present action does not eliminate the systems constraints, it is then necessary to make the next step and invest in to eliminating the systems constraints, moving towards the main goal of the system.
Q: It sounds like some method or recipe.
G: Yes, we have finally come to one of the cornerstones of the large “building” of TOC solutions, named:
Five focusing steps (5FS):
1. Identify the system’s constraint(s).
2. Decide how to exploit the system’s constraint(s).
3. Subordinate everything else to the above decision(s).
4. Alleviate the system’s constraint(s).
5. Warning! If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system’s constraint.
Q: Sounds pretty serious. Can you explain it?
G: Yes, these are the five focused steps developed by Goldratt, and every word in this formula makes sense. To make it simpler, we can look again at our pipeline (Figure 3) or our production system (Figure 4.1), which looks very similar to a system perspective.
Q: Yes, it is the same: Stages A, B, C, and D with a similar passage structure.
G: Exactly! Now let’s look at the first step: find the system constraint. You’ve already done that, it’s stage C. The second step is to decide how to make the most of the system limitation. What are your offers for maximum use of Phase C?
Q: In the case of a pipe with this diameter… Maybe it can be cleaned so that there is no sediment?
G: Good idea! But what about stage C of the production system?
Q: Also clean. No, there is nothing to do with purity.
G: You think? What flows through the pipe and to which does the sediment cause resistance?
Q: Sediment slows down water flow. Yes, there is flow in the production process, but who can slow it down? Additional work may be performed by operators, including administrative, transportation, etc., equipment breaks, equipment stops during lunch breaks, or other.
G: You are on the right track. If you study the process carefully, you will find a lot of “sediment” that has accumulated over time. Therefore, the third step follows – to subordinate everything else. What is the “rest” in this process that can reduce throughput in stage C?
Q: If someone puts a plugin in our pipeline before stage C or turns off the water at all, but in the production system it could be something that stops or stops the flow, right?
G: Exactly, the operation of all other states must be subordinated in such a way that sufficient flow is always maintained before and after the narrowing of the system. In production, this means that the materials and semi-finished products used in stage C must always be of sufficient quantity and good quality. If there is a risk that stage C may ever need to be repaired, this must be done immediately and at maximum speed, interrupting all work on other stages, etc., if necessary.
Q: The fourth step is to increase the system throughput.
G: This means that despite the increase in throughput we have made, stage C is still a system bottleneck. Therefore, it is time to take radical steps (new or additional equipment, stage splitting, and other techniques that we will not talk about today) and to increase the stage throughput so that it is no longer a bottleneck.
The fifth step is that after all, we have done, the system has a higher throughput, which increases the company’s revenue and/or profit. Now is the time to look for a new bottleneck, because we can certainly achieve much more.
I could highlight today’s conclusions:
4. EACH PROCESS (BUSINESS) FLOW IS BASED ON INCREASE OF VALUE ADDED FROM RECEIVING OF RAW MATERIAL TILL SATISFACTION OF CUSTOMER NEED.
5. EACH PROCESS FLOW HAS A CONSTRAINTS (WHICH?) LIMITS SYSTEMS THROUGHPUT.
6. THE TOTAL SYSTEM THROUGHPUT CANNOT BE GREATER THAN THE THROUGHPUT THRUE SYSTEMS CONSTRAINTS.
7. IMPROVING ANY STAGE (other than a system bottleneck) OR INCREASING ITS THROUGHPUT DOES NOT INCREASE THE THROUGHPUT OF THE ENTIRE SYSTEM.
We’ve looked at how Goldratt’s Five Focusing Steps (5FS) work today.
P.S. Reader, if you do not agree with any of these conclusions, or something is unclear, write your comments or questions in the “Contacts” section.
In the next “Dialogue“: Practical recommendations for using 5FS (how to find, use, and subordinate).
Photo by Waldemar Brandt on Unsplash