Q: So – to provide more “Throughput” (T), which also brings better results to the company, it is necessary to constantly monitor the state of the system constraints and to use for that reason the “Five Focusing Steps (5FS)”?
G: Exactly!
Q: All entrepreneurs are interested in the result, so they are also always looking for what bothers – the constraint.
G: Okay, can you tell me exactly what is preventing you from achieving better results in the company?
Q: Probably a lack of free money. I have also noticed that the motivation of employees is gradually disappearing, and competitors have started to live on their heels…
G: Stop! Please name the constraint of your system!
Q: Wait, you asked what’s bothering you. If I understand correctly, you actually asked about the constraint, but it is difficult for me to name the main one right away.
G: But you said a moment ago that entrepreneurs (and you are one of them) are constantly looking at the constraint. So you look and don’t see, right? Don’t you remember that in the past we agreed that there is a constraint in each system and only that determines the amount of “Throughput” (T) through the system (fifth and sixth conclusions)?
Instead of identifying a constraint, you intuitively refer to the Managers External Reasons page! I’m sorry to provoke you specifically, but it’s important to give up the manager’s ego in such an analysis, which blocks the ability to think clearly about the nature of the problem.
Q: Yes, you are rude sometimes, but OK, explain the ego about it.
G: This is best analyzed using TOC Thinking Process tools, which we will probably talk about later, but now all I can say is that usually, an “normal” manager has from two to three to 20 external reasons on the External Reasons page. , why everything doesn’t turn out the way he wants. There is nothing wrong with such a list, except that it blocks the manager’s, entrepreneur’s ability to find the right, internal constraint and solve the main problem of his company.
Okay, let’s get back to you. Let’s look at the big blocks – design, procurement, production, marketing, sales. Which of them has the most painful problems that do not allow you to achieve a better result – to generate the most profit?
Q: I clearly know that it has definitely been a sale for a long time, but in the last year, unfortunately, we do not always fulfill orders on time and therefore happen to pay fines. There was even a time when we lost a large order. So our constraint is in production, but how do I know exactly where?
G: There are several tools for finding a system constraint. Let’s try the simplest, so please answer the following questions:
– What is the “Throughput” (T) rate in the system? Where is it the slowest – where do the materials spend the longest time?
– Where in the “Throughput” (T) is the most congestion? You can also find out by looking at the site.
– Which unit is most heavily loaded and why?
– What “Throughput” (T) problems does the administration have to deal with the most? Which problem do you hear most often?
– Talk to workers about why they cannot produce more and how they are affected by the production phase before their operation. Do this starting with the last operation and continuing to the first (upstream).
When you feel that a candidate for constraint has been found, look at the process in more detail, break it down into sub-stages, and similarly analyze each of them.
Q: What do you mean?
G: For example, you, or better yet, your entire management team, concluded that the constraint of your system is the painting department (welding department, warehouse, design department, etc.). See how the “Throughput” (T) goes through this section, which section is the busiest, and whether it is being used to the maximum.
Q: Sometimes it happens, that management even pushes an operator to artificially load an installation to achieve better results in the use of the installation (OEE or some other factor), even though this is not a constraint of the system?
G: Such situations can often be seen in companies that are inventing KPIs (Key Performance Indicators) to control everything and try to improve a result. However, this usually leads to the opposite.
Mr. Goldrat has said that focusing on everything means not focusing on anything.
In such cases, it is very valuable to take a company stress test. By warning about the readiness to talk about the company’s capacity, gather your team and ask to raise the hand of those who will have problems (whose lead will not stand) to increase the volume by 10%, 20%, 30%, 50%, 100%. At some point, you will start getting answers that, for example, you will need two, three, or five additional employees. Be careful when starting notes on the necessary additional equipment, areas, electrical capacity – resources that require significant investment. Such allegations must be verified. Colleagues often ignore the fact that they can work three shifts seven days a week and believe that the company works in one shift and it is company policy, or say that although a particular machine can produce 1000 parts in one shift, for various reasons has never produced more than 500 parts.
These statements are from a list of reservations you already know, but there is some good news. In case you can manage this analysis without offending any employee and his / her department, without analyzing it on the spot (possible insults and emotions), you will immediately have a good list of stages where opportunities for improvement can be found very quickly. Interestingly, there are likely to be stages that can withstand more than doubling volumes without large investments. It’s good to know because these are potential opportunities for structuring your business.
At such a meeting, you may receive an indication of the constraint and a possible future constraint from another point of view. By using these two methods, you can identify the constraint with sufficient certainty, and it does not take long, because people have good intuition and, together with the right questions, it gives a good enough result.
There are several other methods of identifying a constraint, but these will suffice to begin with.
J: Interesting! Until the next meeting, I will answer these questions and take a stress test. But in answering these questions, I have the opportunity to make a mistake in setting a constraint, right?
G: This possibility exists because, for the first time, no one has the experience to perform such an analysis, but on the other hand, the business situation is dynamic and, in your example, the constraint in your company has at some point changed from sales to production. However, we are only talking about the first step of 5FS – to identify the constraint. In the next steps, we can both change and specify the location of the constraint.
The fifth step of 5FS is directly focused on the analysis of a new constraint and its identification.
Now let’s talk about the second step of 5FS. Where do you feel it is?
Q: I look at our second dialogue – deciding how to make the most of the system constraint.
G: Yes! And if you find that, for example, the constraint of your system is a device, how will you make the most of it? We have talked about this a bit from the beginning.
Q: Yes, you mentioned an example with a pipeline and that its throughput can be increased by cleaning it. In the case of a production plant, this means making the plant run at full capacity and passing as much output as possible. For this to happen, you should:
– organize work in three shifts, if necessary on weekends,
– ensure that the installation always has an operator,
– ensure that the equipment operates without interruption, for that there is a shift operator.
G: Okay, but as a second step, I would recommend performing the steps in a sequence that requires a lower increase in operating costs with an increase in the “Throughput” (T) of the system in question. Operation Expenses (OE) is one of the TOC accounting terms. We will not go into this section of the TOC today, you can also read more in T. Corbett’s book “TOC in Accounting“, but to understand the essence – OE is all costs related to the operation of the company and not directly and unambiguously related to the unit sold. In our case, they are various additional services, possibly electricity, gas, etc. costs as well as additional salary.
Thus, it is possible that attracting a shift operator (apprentice, assistant) to the workplace would create the least additional OE. This would be followed by work in three shifts (payment at night, additional lighting, etc.) and later – work on holidays. It is possible that in one of these steps the system constraint would be extended so far that it would no longer be a constraint.
Q: Okay, we will immediately move on to the third step – to subordinate everything else to the decision made. Can you offer a list of your subordination activities?
G: In this case, the priority of all services is to ensure subordination, regardless of any other “important matters” or their own KPIs. Of course, the condition of the system should always be assessed on-site, but the following could be done:
– Ensure that there is always a working reserve from the previous operation before the constraint (in TOC we call this a buffer, and in fact, this is the first and mandatory condition).
– As the downtime or use of any constraint in the production of low-quality products jeopardizes the real increase in system throughput, ensure that the buffer (working reserves) before the constraint contains only high-quality parts / semi-finished products.
– Provide a clear list of priorities (principles/schemes) for the constraint to allow the operator not to waste time making decisions and to carry out work one by one at the most important stage for the company and in a way that is understandable to the operator.
– Ensure that all necessary tools and consumables are placed at the required amount.
– Ensure the best possible technical condition of the equipment and ensure that the technical service is involved in the process so that no time is lost to resolve the problem when receiving a signal to stop the equipment. The technical service must be prepared to replace all rapidly deteriorating and high-risk parts and must have all the necessary tools close to the constraint.
– Carry out an analysis of the work of the constraint operator and release it from all functions (transfer to another workplace) that are not directly related to the effective use of the constraint.
– Include a regular constraint visit in your personal (and possibly other professionals’) daily schedule.
– Organize (without the involvement of the operator) constraint accounting and daily analysis of results.
Of course, this list can go on, but here are the most popular techniques.
Q: Good list, but I have a question about the fourth step – Increase the constraint throughput. I don’t really understand how this differs from the second step – Deciding how to make the most of the system constraint.
G: In short, in the second step, we decide how to maximize the capacity of the constraint, exactly as it is at the moment without any investment and with the lowest possible increase in operating costs (OE). This is what we can do literally immediately after the third step of subordination – get a positive result. Sometimes it is enough, but if all the possibilities of maximum use are exhausted and the throughput of the constraint is not increased enough (it is still a constraint of the system) – it is time to make investments. Of course, smaller investments, such as additional equipment, equipment upgrades, or larger purchases of new or second equipment, may be sufficient.
Q: I have heard that there are successful examples in your factory of quickly increasing the constraint throughput without a large investment.
G: Yes, some time ago we had an interesting case – one product we had recently started to produce had a high seasonal demand. We identified a constraint of our system – it was an operation performed on very complex machines specially designed for us. We decided to use these machines without interruptions in three shifts, well-subsidized everything else for this decision, and achieved a good increase in production. However, market demand still exceeded our capabilities. Then, when discussing the possible fourth step in the team, we remembered that before starting to use the new, modern machines, a similar operation was performed on old and less productive semi-automatic machines, which are dusty but still in a warehouse. By quickly installing and commissioning the “old” equipment, we were able to increase sales (increase throughput in the cap) by almost 40%, which was also enough to meet market demand.
Q: In this case, your products became more expensive over time because, as I understand it, you had to use more labor per unit or employee to do the job because the equipment had lower productivity?
G: You touch the principles of TOC accounting again, and it just seems like we need to find time to discuss the details of this real business decision-making miracle! We will probably do it soon.
But going back to our case, if the productivity of old machines was twice as low, which means that we spend relatively more money on labor than if we had done the same on new machines. But the new machines had reached maximum capacity! The time of production of a new, similar device did not leave any opportunity to save anything this season. As for the price of the car, the necessary investment could shock a well-prepared financing party.
As a result of our decision:
1) Customer orders were delivered on time and in full, which means their satisfaction with our service, in other words – we have not “sent” them to competitors.
2) Sales increased by almost 40% from the peak at the beginning of the season, and the increase in sales gave us a much larger increase in profits.
Q: I don’t understand that! Productivity is 50% lower, so all costs are twice as high. Where, then, is the extra profit?
G: From a classic cost accounting standpoint, your arguments are logical. Fortunately, at the time of the decision, we already knew this about TOC accounting.
As a result, looking at the financial results for the period, we find that at the same sales and purchased material prices, the only operating expense item that has increased is wages (which is logical). No other costs increased. From a TOC point of view, this is understandable – all the other activities have not been a constraint of our system, which means that there has been spare capacity everywhere.
Due to the 40% increase in production of this product, we have not hired any other employees, except for a few who started working on ‘old’ machines (constraint), but this increase in wages was not comparable to the increase in profits. There may have been an increase in electricity consumption for the plant as a whole, but this was difficult to see in the monthly bills, as the production of other products requires much more electricity. We do not pay more for premises, heating, security, our cars, stationery, telephones, etc. These are items that are allocated to product costs in classical accounting, thus ‘proving’ that ‘reducing productivity and efficiency’ is completely wrong.
Classical accounting, when calculating or allocating the cost of a product, transfers some imaginary part of the fixed costs to each unit of the product.
For example, the cost of each product allocates EUR 0.01 for fuel for the manager’s car. If we plan to produce a X quantity of present products, it would be enough fuel for a whole year, but suddenly company managed to produce twice as much, there is an “unexpected” profit because the manager does not need twice as much gasoline. This situation arises because classical accounting does not assess the impact, but mechanically transfers or allocates costs to highly theoretical potential costs per unit of output and forces business decisions based on such calculations.
Let me ask you what interests you more – a “methodologically correct” accounting calculation that says – don’t do it! or a real profit in the form of money in your account because you did it anyway?
Q: I hope you still think of me as a common-sense man. Although… I myself have some doubts.
G: I have no doubt – people have so much common sense and intuition that they can do unimaginable things. The problem is that it’s all covered with a thick layer of paradigms, and not everyone makes sense through it.
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