Decision Making

INDUSTRIAL DECISION MAKING & ANALYSIS: THE IMPLEMENTATION OF THE THEORY OF

CONSTRAINTS

WRITTEN BY: Dr. MILTIADIS BOBOULOS

R&D SECTION, ALMA LTD, INDUSTRIAL CONSTRUCTIONS

What to change?To what to change?

How to cause the change?Don't people already have the capacity to answer all these questions?Does this mean that through TOC we'll be able to generate an infinite

amount of output?You make it sound almost too easy. Is it?

THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS

TABLE OF CONTENTS Introduction to the Theory of Constraints __________1 Fundamental Analysis of the Theory of Constraints _2

About Chain Analogy______________________________ 4 About the Process of On Going Improvement _________ 7 About Thinking Processes (TP) _____________________ 10

The Fundamentals of the Thinking Processes________________ 11 Thinking Process Tools __________________________________ 12

Current Reality Tree (CRT)_____________________________ 12 Evaporating Cloud (EC) _______________________________ 13 Future Reality Tree (FRT)______________________________ 14 Negative Branch (NBR) _______________________________ 15 Prerequisite Tree (PRT) _______________________________ 16 Transition Tree (TrT)__________________________________ 18

Epilogue ________________________________________ 19 TOC Resources _______________________________21

Books, Writings by Goldratt ________________________ 21 TOC Books, Writings by Other Authors_______________ 28 Other ___________________________________________ 37 Published Articles in Magazines & Newspapers________ 38 Conferences and Symposiums______________________ 42 Videos __________________________________________ 43

TOC Case Studies _____________________________44 Brief Overview of Some Case Studies ________________ 44 Conceptual Analysis of Selected Case Studies ________ 46

Itemised Conclusions __________________________58 Introduction to the Theory of Constraints

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The Theory of Constraints (TOC) is a portfolio of management philosophies,

management disciplines, and industry-specific "best practices" developed and

popularised over the past 20 years by physicist Dr. Eliyahu M. Goldratt and his

associates. Most people are first exposed to the concepts through his book The

Goal, (North River Press, 1984).

Dr. Goldratt has been described by Fortune Magazine as a guru to industry and by

Business Week as a genius. His books The Goal, It's Not Luck, and Critical Chain,

gripping fast paced business novels, are transforming management thinking

throughout the world.

Goldratt's Theory of Constraints is being used by thousands of corporations, and is

taught in over 200 colleges, universities and business schools. His books have

sold over 3 million copies and have been translated into 23 languages.

The Theory of Constraints is an overall philosophy, usually applied to running and

improving an organisation. TOC consists of Problem Solving and

Management/Decision-Making Tools called the Thinking Processes (TP). TOC is

applied to logically and systematically answer these three questions essential to

any process of ongoing improvement: "What to change?" "To what to change?"

"How to cause the change?"

More specific uses of the Thinking Processes can be used to significantly enhance

vital management skills, such as: win-win conflict resolution effective

communication team building skills delegation empowerment

Famous for spectacular results, the use of TOC has resulted in Proven Solutions

created by applying the Thinking Processes (TP) in specific functional areas such

as Sales, Marketing, Logistics, Finance, Accounting, Engineering and Project

Management. Many of these solutions are discussed in detail in the books: The

Goal, The Race, It's Not Luck and Critical Chain.

TOC recognises that the output of any system that consists of multiple steps

where the output of one step depends on the output of one or more previous steps

will be limited (or constrained) by the least productive steps. In other words, as

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paraphrased in The Goal, the strength of any chain is dependant upon its weakest

link.

Where manufacturing is concerned, TOC postulates that the goal is to make

(more) money. It describes three avenues to this goal:

Increase Throughput, Reduce Inventory, Reduce Operating Expense

As Dr. Goldratt notes, the opportunities to make more money through reductions in

inventory and operating expense are limited by zero. The opportunities to make

more money by increasing Throughput, on the other hand, are not limited.

More than that, though, TOC challenges us to define a goal and re-examine all of

our actions and measurements based on how well or how poorly they serve it.

This is done through a set of tools that help us identify and resolve bottlenecks.

Fundamental Analysis of the Theory of Constraints

The Theory of Constraints, as it is commonly called, recognises that organisations

exist to achieve a goal. A factor that limits a company’s ability to achieve more of

its goal is referred to as a "constraint." In The Goal, the demand for parts produced

by a computer-controlled piece of equipment known as the NCX10 exceeded the

machine’s capacity. Since the factory could only assemble and sell as many

products as they had parts from the machine, the capacity of the factory to make

money was tied directly to the output of the NCX10. The NCX10, therefore, was

the constraint.

It is imperative for businesses to identify and manage constraints. "Because a

constraint is a factor that limits the system from getting more of whatever it strives

for, then a business manager who wants more profits must manage the

constraints. There really is no choice in the matter. Either you manage constraints

or they manage you." Noreen, Smith, and Mackey in The Theory of Constraints

and its Implications for Management Accounting (North River Press, 1995).

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4

The Theory of Constraints, then, is a management philosophy that focuses the

organisations scarce resources on improving the performance of the true

constraint, and therefore the bottom line of the organisation. Goldratt uses a Chain

Analogy1 to help illustrate why this is the most effective way to get immediate

results.

It may be relatively easy intellectually to recognise that an organisation must

have a constraint, but it may be quite another thing to positively identify it. In

situations when the constraint can be easily identified (which is usually because it

is a physical constraint such as the machine known as the "NCX10" in the book

The Goal), the five step Process Of On Going Improvement2 will provide the

steps necessary to deal with the constraint. In situations when the constraint is not

as easily sited (which is often because it has to do with the inter-relationships

between the various "links" in the organisational "chain"), the Thinking

Processes3 will provide the tools necessary to identify the core problem or core

conflict and the tools needed to deal with it effectively.

About Chain Analogy

A manufacturing company can

be thought of as a chain of

dependent events that are linked

together like a chain. The

activities that go on in one "link"

are dependent upon the activities

that occur in the preceding "link."

The manufacturer in the example

above fabricates products to order. First they market their services. If the

marketing is successful they will get some requests for proposals, and create

1 More information in the section About Chain Analogy 2 More information in the section About Process Of On Going Improvement 3 More information in the section About Thinking Processes


some bids. If some bids are successful they will procure the necessary materials.

Once the materials are on hand they will manufacture the product. Once

manufacturing is complete packaging prepares the product to be sent to the

customer. Finally, once packaged, the product can be shipped to the customer.

We notice that each step is dependent on the preceding step. That is, the product

cannot be shipped until after it is packaged; the product can not be packaged until

it is manufactured; the product cannot be manufactured until the necessary

materials are procured; etc. It is this dependency that explains why the Theory of

Constraints is so powerful when compared with "conventional wisdom."

The chain pictured above is for a very simple company. Even so, it doesn’t really

picture all the operations in the company. For example, billing and collection are

not included. The typical company has a much more complex chain than is

pictured here. To handle this complexity, management typically splits the chain up

into links and endeavors to manage each link so as to "maximize" its performance.

As a result, conventional wisdom is as follows:

• An improvement to any link in the chain is considered to be an improvement

to the chain.

• System wide or "global" improvement is believed to be the sum of all the

"local" improvement made within each link.

• This is analogous to saying the primary measurement of success in

managing the chain is the weight of the chain, i.e. if one manager beefs up

her/his link that makes the chain heavier and better.

As a result, all managers compete for scarce resources all the time. They all want

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to reach their goal of maximising the weight of their link, because they believe that

is the way to maximise the effectiveness of the organisation.

By considering the following true story from a printing company, we’ll see another

view. A team from a press operation in the middle of their system came to

management with a proposal for continuous improvement. (We should think of

them as being located in the manufacturing link above.) They had discovered an

improvement that could be made to their press that would increase productivity

25%! It would cost the company only $20,000. Conventional analysis showed the

payback period on this was relatively short. Would you authorise the investment?

Senior managers were about to sign the check when someone asked, "Where

does the output of this press go? And, what is the status of work-in-process at that

next operation?" It turned out that work was already queued up at the next

operation. In other words, the company almost spent $20,000 so that the output of

the press in question could wait 25% longer at the next operation! Had they made

the expenditure they may have had a false sense of success when viewing the

25% increase in the "productivity" figures of the press, but the actual bottom line

impact would have been a negative $20,000 because that money was spent

without actually bringing any more money into the plant!

TOC Wisdom

TOC says that management needs to find the weak link in the chain. In the

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example above it turned out that manufacturing was the weak link. That is to say

that marketing was attracting sufficient requests for proposals, and bidding was

winning a sufficient number of bids to keep the plant busy, and procurement was

able to get the necessary parts on time, and packaging could handle everything

that was manufactured, and shipping could keep up with packaging, BUT

chain is only as strong as its weakest link.

"global" improvement, then is NOT the sum of the local

not link weight) by

line impact can be gotten by channelling those resources to the

constraint.

ses a

Of On Going Improvement. The steps in this process are:

manufacturing could not keep up with the schedule.

In this case, what would be the bottom line impact of "beefing up" or improving the

packaging link? Some cost savings may be produced, but the long term impact on

the bottom line will probably not be great because it did not enable the company to

fill any more orders than they are currently. (We remember that it is manufacturing

that is limiting the rate at which orders are fulfilled.) The same holds true for

shipping, procurement, marketing, and bidding. The one place where a significant

impact can be made on the bottom line is at the constraint – in manufacturing in

this example. The old saying applies: a

As a result, TOC wisdom is as follows:

• Most improvements to most links do NOT improve the chain.

• System wide, or

improvements.

• Thus a company should focus on "chain strength" (

working to strengthen the weakest link – the constraint!

The result is that when using the Theory Of Constraints, managers do not fight

over scarce resources. They all understand that once the constraint is known, the

most bottom

About the Process Of On Going Improvement

To manage constraints (rather than be managed by them), Goldratt propo

five-step Process

1. Identify


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2. Exploit 3. Subordinate 4. Elevate, and

ut if that material ends up waiting longer somewhere else, there will be

no global benefit. To increase throughput, flow through the constraint must be

d.

e could be producing during times it previously sat idle. This added

significantly to the output of the NCX10, and therefore to the output of the entire

vent this from

happening. This usually involves significant changes to current (and generally long

5. Go back to Step 1 Identify

In order to manage a constraint, it is first necessary to identify it. In Eli Goldratt's

book The Goal (North River Press, 1984), a machine known as the NCX10 was

identified as the constraint. This knowledge helped the company determine where

an increase in "productivity" would lead to increased profits. Concentrating on a

non-constraint resource would not increase the throughput (the rate at which

money comes into the system through sales) because there would not be an

increase in the number of orders fulfilled. There might be local gains, such as a

reduction or elimination of the queue of work-in-process waiting in front of the

resource, b

increase

Exploit

Once the constraint is identified, the next step is to focus on how to get more

production within the existing capacity limitations. Goldratt refers to this as

exploiting the constraint. One example from The Goal was when the company and

the labour union agreed to stagger lunches, breaks, and shift changes so the

machin

plant.

Subordinate

Exploiting the constraint does not insure that the materials needed next by the

constraint will always show up on time. This is often because these materials are

waiting in queue at a non-constraint resource that is running a job that the

constraint doesn’t need yet. Subordination is necessary to pre


9

established) ways of doing things at the non-constraint resources.

ctivate the resource that was the constraint and produce

greatest

more money-now and in the future.

constraint – because there always is one. The five step process is

rocess – a kind of tool to assist in more perfectly balancing

production system.

Elevate

After the constraint is identified, the available capacity is exploited, and the non-

constraint resources have been subordinated, the next step is to determine if the

output of the constraint is enough to supply market demand. If so, there is no need

at this time to "elevate" because this process is no longer the constraint of the

system. In that case the market would be the constraint, and the TOC Thinking

Process should be used to develop a marketing solution. However, we should be

careful not to over a

unneeded inventory.

If, on the other hand, after fully Exploiting this process it still cannot produce

enough product to meet market demand, it is necessary to find more capacity by

"elevating" the constraint. In The Goal, schedulers were able to remove some of

the load from the constraint by rerouting it across two other machines. They also

outsourced some work and brought in an older machine that could process some

of the parts made by the NCX10. These were all ways of adding capacity, or

elevating the constraint. It is important to note that to "elevate" comes after

"exploit" and "subordinate." Following this sequence ensures the

movement toward the goal of making

Go back to step 1

Once the output of the constraint is no longer the factor that limits the rate of

fulfilling orders, it is no longer the constraint. Step 5 is to go back to Step 1 and

identify the new

then repeated.

It may appear that implementing TOC involves a never-ending series of trips

through the five-step p

a

This is not the case. A fundamental principle of the Theory Of Constraints is that


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the combination of dependent events (such as the steps in a production system)

and normal variation (which is always present) makes it literally impossible to ever

fully balance a line. There will always be a constraint in the system. What creates

chaos is allowing the constraint to move around – and a so-called "balanced"

system will always experience a moving constraint due to normal variation. For

that reason, companies that get the greatest financial benefit from TOC are those

that make a strategic choice of where they want the constraint to be. They then

manage their entire operation (product design, marketing, capital investment,

hiring, etc.) accordingly. This allows the company to manage the constraint to their

advantage rather than allowing the constraint to manage them.

s that exist regarding how we manage

k the constraint fairly quickly. Therefore, it is mastery of the Thinking

rther, we will have to examine the

ndamentals.

Processes involve the rigorous application of effect-

cause-effect logic to answer the following three questions:

1. What to Change?

About Thinking Processes (TP)

The Thinking Processes can be used when the constraint of the system is not

obvious. This is generally the case when the constraint is not a physical resource,

but instead is in the market or in the policie

our organisation. (The Thinking Processes stand alone and as such can be used

individually in appropriate circumstances.)

Goldratt believes that most organisations do not have a true physical constraint, or

if they do, correct application of the 5 step Process Of On Going Improvement will

usually brea

Processes that is necessary for most organisations to break through their

constraint.

To explore the Thinking Process fu

fu

The Fundamentals of the Thinking Processes

Simply stated, the Thinking


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2. What to Change to?

3. How to Cause the Change?

The first question is the equivalent to the first step of the five step Process Of On

Going Improvement: "Identify the Constraint?" Since these processes are

generally used when the constraint is not a physical resource, there is usually no

physical evidence (such as work-in-process inventory) to point you to the

constraint. Instead you have to "map out" what is currently going on in your

system. The logical mapping structure that is used at this point, is the "Current

Reality Tree." This is not a simple task, but when it is completed successfully, we

ile this question is

ure the cure will not be worse than the

d when answering question 3: the

will know what to change.

That will bring us to the question, "What to change to?" Wh

intuitively obvious, there are two distinct steps to answering it.

1. Identify the breakthrough idea that will overcome the current constraint

2. Ensure that the "cure" that is derived will not be worse than the "disease."

The "Evaporating Cloud" is used to break through the core conflict that is currently

constraining the organization. Then the "Future Reality Tree" is used to ensure

that the undesirable effects we now are experiencing will, indeed, be changed to

desirable effects by this breakthrough idea. The unintended negative

consequences of the proposed solution are usually identified at this point using

what are called Negative Branches. If these bad things that result from a good

action can be prevented, then we can be s

disease. Now we know what to change to.

That brings us to question 3, "How to cause the change?" The simple answer is:

get the people who are going to have to live with the change to create the action

plan that is needed for implementation. The Thinking Process pro-actively involves

those who are most effected by the change. These people are solicited for their

vision of what obstacles might prevent the organisation from moving forward on

this breakthrough solution. The workers are used to generate all the additional

ideas that are necessary to implement the original injection. Once these are

known, a plan is mapped out. The tools use


12

"Prerequisite Tree," and the "Transition Tree."

hinking Process Tools:

rocesses, the first of 3 questions we should ask is:

s of negative effects would be things such as

;

Tree." Once properly constructed, we are

the position to know what to change.

T

Current Reality Tree (CRT)

When using the Thinking P

• "What to change?"

It is the equivalent of the first step of the five step Process Of On Going

Improvement: "Identify the Constraint?" However, since the Thinking Processes

are usually used when the constraint is not a physical resource, we can rarely use

physical evidence like work in process (WIP) to identify the constraint.

Instead, we start with the evidence that is available: the negative effects that are

apparent within the system. Example

- frequently shipping orders late;

- excessive amounts of inventory

- lead times that are increasing;

- poor human relations within the organisation.

Goldratt calls these "Undesirable Effects" or UDEs. The key is to realise that the

UDEs are not the "real" problem -- they are only the visible effects of the real or

"core" problem. The challenge is to map out the interrelated web of cause-and-

effect that links the undesirable effects together. Once completed, one is generally

able to identify the "core problem" near the bottom of the logical map.

This map is known as a "Current Reality

in

Evaporating Cloud (EC)


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When using the Thinking Processes, the second of 3 questions we should ask

our system. That is,

would implementing the injection change the undesirable effects (UDEs) we are

able effects (DEs)?

oblem using the mapping tool called the Evaporating

ourselves is:

• "What to change to?"

The first step in determining the answer to this question is to understand why the

core problem exists. (We should remember that the core problem was found at the

base of the logical structure -- known as the Current Reality Tree -- that was

formed to find the constraint of the system.) It is assumed that managers are not

stupid. If there was an easy solution to this core problem, it would have been

solved long ago. No, there must be some conflict that underlies the core problem.

Once this core conflict is identified, it is necessary to develop a breakthrough idea

(referred to as an "injection") that will resolve the conflict. This is accomplished

using a tool known as the "Evaporating Cloud."

The second step in determining "what to change to" is to test our breakthrough

idea, our injection, to see if it will have the desired impact on y

now experiencing into desir

Future Reality Tree (FRT)

When using the Thinking Processes, the second of 3 questions we should ask is:

• "What to change to?"

The first step in determining the answer to this question is to determine the conflict

that underlies the core pr

Cloud. The main output of the Evaporating Cloud is a breakthrough idea, called an

injection.

Once the injection is determined, we will have one necessary part of the solution.

However, the injection is not sufficient to resolve the core problem. In fact, to be

sure the proposed injection is indeed a "good" idea, it is important to check what

the effect of implementing that idea would be.

Thus the second step in determining "what to change to" is to test your


14

breakthrough injection, to see if it will have the desired impact on our system. That

is, would implementing the injection change the undesirable effects (UDEs) we are

now experiencing into desirable effects (DEs)? This is done by returning to the

original map of undesirable effects (the Current Reality Tree) and inserting the

xt to impossible to implement -- that it will happen only when "pigs can fly."

g Injections." If this is the case for us,

we should not be in despair. There are effective techniques for grounding a flying

deed change the

r some time, and that

there is a significant conflict underlying the current behaviour. Thus, the proposed

injection at the appropriate place. Then, redraw the logical connections and see

whether implementing this idea would, indeed, reverse the undesirable effects into

desirable effects. If it works, we now know to what to change.

This mapping tool used in this step is the "Future Reality Tree" because it gives us

a good picture of what the future can look like if we can figure out how to

implement the injection. Notice that at this point, it is not necessary to know how

we can implement our injection. In fact, sometimes it will appear that the injection

is ne

Such injections are referred to as "Flying Pi

pig.

Negative Branch (NBR)

After we have used the Current Reality Tree to map a clear picture of the core

problem that is causing your current pain. After we have from the Evaporating

Cloud, a breakthrough idea that can significantly improve our situation; we have

from the Future Reality Tree, some assurance that this idea will in

undesirable effects. We are currently experiencing into desirable effects in the

future, we will need the input of the people who will be most affected by the

proposed changes in order to ensure successful implementation.

The Thinking Processes are used in a very open and participatory fashion. We’ll

work closely with the people who are going to be asked to change. Their

involvement is absolutely vital to the long-term success of the implementation. As

they view the proposed change that come with the "injection" and rosy "future

reality" that accompanies it, they will tend to be resistant. We should always

remember, that the core problem has probably existed fo


15

injection will usually be counter to the culture of the organisation (or the sub-

culture of a department or sub-group of the organisation).

People will usually look at the idea and say, "Yes, I see where your solution might

result of the change. For example:

are involved in the affected process(es) will best

the concern forward in figuring out how to prevent that

negative consequence from actually occurring. Goldratt calls this "trimming the

ince

work, but...." They complete the sentence with any number of unintended negative

consequences that they fear will happen as a

• "If we make that much improvement in output, our department won't need

as many people."

• "If we take the master schedule away from all the departments, we won't

know what is coming down the pipe."

The Thinking Process intentionally seeks out these 'Yes, but there is a negative

consequence' statements! They are important to preventing a failed

implementation. The people who

know what these unintended negative consequences (Goldratt calls them

"Negative Branches") will be.

So the Thinking process seeks proactively to identify them and then assists the

person who brought

Negative Branches."

Prerequisite Tree (PRT)

When using the Thinking Processes, the third of 3 questions we should ask is:

• "How to cause the change?"

The wording here is very important! We should note here, that it does not ask 'how

to change things?' The emphasis is on causing the change to happen. S

people tend to be less resistant to changes that they helped design, the key is to

involve the people who will have to execute the changes in a meaningful way.

This portion of the Thinking Process is perhaps its greatest strength -- that which

sets it apart from many other processes of continuous improvement. Once a

group/team/manager determines what to change to, the implementation "team" too


16

often goes into full operation: set dates, take names, and don't let anything get in

the way. Not so with the Thinking Process. At this point all we have is a clear

picture of the core problem that is causing our current pain (from the Current

Reality Tree), the breakthrough idea that can significantly improve our condition

(from the Evaporating Cloud) and assurance that this idea will indeed change the

undesirable effects we are currently experiencing into desirable effects in the

current behaviour. Thus, the proposed injection will usually be

y these people complete this sentence is by

, but it requires that marketing and engineering

ay work, but before we could implement it we would have

at.

future (from the Future Reality Tree). We have not considered at all how to get

from our undesirable current reality to our desired future reality.

The next step is to work closely with the people who are going to be asked to

change. Their involvement is absolutely vital to the long term success of the

implementation. As they view the proposed change, the "injection" and rosy "future

reality" that accompanies it, they will tend to be resistant. Remember that the core

problem has probably existed for some time, and that there is a significant conflict

underlying the

counter to the culture of the organisation (or the department or sub-group of the

organisation).

People will usually look at the proposed solution and say, "Yes, I see where your

idea might work, but...." One wa

identifying obstacles that seem to make the chances of successfully implementing

the idea very small. For example:

• Yes, your solution is good

must communicate closely with each other, and in our company they aren't

even on speaking terms.

• Yes, your idea m

to train everybody in the organisation and we don't have any money in the

budget for th

• Great, but the manager will have to give her approval first, and you can

forget that!

These obstacles are pro-actively sought, and the person who originally pointed out

the obstacle is asked to identify the conditions that would be necessary to


17

overcome it. By helping the originator to solve the problem, not only do we develop

effective solutions, but buy-in from the participants is very high. The mapping tool

at people can complete the sentence, "Yes, but...." It is by

identifying unintended negative consequences; these are discussed in the section

on Negative Branches.

Transition Tree (TrT)

When using the Thinking Processes, the third of 3 questions we should ask is:

ince people

vaporating cloud. All three of these mapping tools produce ideas, called

will:

that has the organisation constrained

es that might have been the result

plementation and shows the interrelationships so that the

is clear. The tool used to accomplish this is called

that is used to logically show what is necessary to overcome these obstacles is

called the "Prerequisite Tree."

There is another way th

• "How to cause the change?"

The wording here is very important! We note here, that it does not ask 'how to

change things?' The emphasis is on causing the change to happen. S

tend to be less resistant to changes that they helped design, the key is to involve

the people who will have to execute the changes in a meaningful way.

Negative branches and the prerequisite tree are discussed on other pages, as was

the e

injections, about what conditions need to exist in order to produce a solution that

1. Resolve the core conflict

2. Prevent unintended negative consequenc

of the proposed change

3. Overcome obstacles to implementation

Once all the additional injections that are necessary to implement the original

injection are known, a plan is mapped out. It shows all the actions necessary to

achieve successful im

proper sequence of the actions

the "Transition Tree."


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Epilogue

The Theory of Constraints is an overall management philosophy that enables

ke money now and in the

future, TOC will enable the managers of the company to do so.

anagement philosophy will enable our company to make

uce defective inputs, our

the managers of a system to get more of the goal that the system is designed to

produce. If, for example, the goal of a business is to ma

How does it accomplish this? By enabling management to make better decisions,

by considering the decision making process map below.

Let us think about the really important decisions, the "strategic" decisions.

Decisions makers will, consciously and/or subconsciously, consider some or all of

the inputs above. They then process this inputs and produce their decisions. So

the question is, "How does TOC impact this process map?" That is, if adopting

TOC as an overall m

better decisions, it must somehow change the inputs to the process (because if we

don't change the inputs we will get the same outputs), or change the Decision

Making process itself.

The answer is that adopting TOC as overall management philosophy will do both:

it changes the fundamental decision making process and makes significant

changes to the inputs to that process. And it is absolutely necessary to change

both. If we change the process but continue to introd

Circumstances

DataOutputs...

Decisionsthat Drive

the Company

Inputs...

Intuition

Past Experience

Policies

Theory


19

outputs may improve, but they still won't be the best. Likewise, we can improve the

e process.

ple, set-ups in Drill Room are increasing, but

performance to customer due dates is increasing too.);

easurements;

others.

You must always question your assumptions -- and the assumptions of

• Past Experience: TOC examines the cause-and-effect relationships;

• Policies: TOC identifies and challenges the current validity of existing

policies.

• Theory: TOC sharpens the focus of how to get more of the system's goal.

quality of the inputs and get in improvement in the outputs; but if the process itself

is of low quality, then the outputs still won't be the best.

The following points identify how TOC changes the inputs to th

• Circumstances: TOC always puts the current circumstances into a global

perspective. (For exam

• Data: TOC dramatically reduces the data considered and redefines the

critical m

• Intuition: TOC forces us to make our intuition explicit and visible to

others;


TOC Resources

Books, Writings by Goldratt:

Eliyahu M. Goldratt: Eli Goldratt is an educator, scientist, philosopher and

business leader. But first and foremost he is a thinker who provokes others to

think. Often characterised as being unconventional and stimulating, Dr. Goldratt

exhorts his readers to examine and reassess their business practices.

The Goal

by Eliyahu M. Goldratt (North River Press, 1984)

Over 3 million copies sold! Used by thousands of

companies and taught in hundreds of business schools!

This book, which introduces the Theory of Constraints,

has changed business thinking. The Goal is a gripping,

fast-paced business novel about overcoming the barriers

to making money. We learn the fundamentals of

identifying and solving the problems created by

constraints.

The book helps to start successfully addressing chronic productivity and quality

problems.

"Like Mrs. Fields and her cookies, The Goal was too tasty to remain obscure.

Companies began buying big batches and management schools included it in their

curriculums. It was eventually translated into 13 languages and sold over 1.2

million copies." —Fortune Magazine

"A survey of the reading habits of managers found that though they buy books by

the likes of Tom Peters for display purposes, the one management book they have

actually read from cover to cover is The Goal." —The Economist

" Goal readers are now doing the best work of their lives." —Success Magazine

20


"A factory may be an unlikely setting for a novel, but the book has been wildly

effective." —Tom Peters

It's Not Luck

by Eliyahu M. Goldratt (North River Press, 1994)

THE SEQUEL TO THE GOAL

We learn more about the powerful techniques first

presented in the best-selling business novel, The Goal. In

this book, Dr. Goldratt, through examples in a variety of

industries, shows how to apply TOC to sales and marketing,

inventory control, and production distribution. In addition,

techniques in conflict resolution are introduced on both a

business and personal level.

The Book

Alex Rogo has had a great year. He was promoted to Executive vice-president of

UniCo with the responsibility for three recently acquired companies. His team of

former and new associates is in place and the future looks secure and exciting.

But there has been a shift of policy at the board level. Cash is needed and Alex's

companies are to be put on the auction block. Alex faces a cruel dilemma. If he

successfully completes the turnaround of his companies they can be sold for

maximum return. If he fails, the companies will be closed down. Either way, Alex

and his team will be out of work. It looks like a lose-lose situation. And as if he

doesn't have enough to deal with, his two children have

become teenagers!

Critical Chain

by Eliyahu M. Goldratt (North River Press, 1997).

Powerful yet simple techniques to solve project

21


management's toughest problems.

This book teaches companies how to drastically cut project development times

resulting in early completion within budget and without compromising quality or

specifications.

Project Managers and their teams will benefit from Goldratt's techniques of how to

remain focused on the few critical areas and how to prevent your attention from

being divided among all of the projects tasks and resources.

Especially useful for dealing with one of the most difficult and pressing

management challenges: developing highly innovative new products.

"Anyone who doesn't snap up a copy is missing a wonderful opportunity for

professional and personal development." —Assembly

"This book is valuable to two main audiences: project managers and senior

managers…useful for dealing with one of the most difficult and pressing

management challenges: developing highly innovated new

products."<PALIGN=LEFT

"Eli Goldratt's first novel, The Goal, shook up the factory floor… Goldratt

essentially adds a discipline for understanding what drives project performance

and therefore what the focus of a project manager's attention should be." —

Harvard Business Review

"Critical Chain will revolutionise project management." —World Aero-Engine

Review

The Race

by Goldratt and Fox (North River Press, 1986)

The graphics and accompanying text reveal the implications

that stem from the shop floor to our standard of living.

The Race allows us to derive a superior system, Drum-

Buffer-Rope, for generating logistical improvements. It also

22


23

shows us how to focus these improvements so they are optimal and not just local.

The epilogue and appendix quizzes will give the thoughtful reader insight in how to

initiate and extend a process of ongoing improvement into other areas-like

marketing and financial control.

Necessary but not Sufficient: A Theory of Constraints Business

Novel

by Eliyahu M. Goldratt with Eli Shragenheim and Carol A.

Ptak

After reading the newspapers and following the oscillations

of the stock market, it becomes apparent that hi-tech

companies are of a different breed. Never before have the

chances of making a fortune been so realistic and never

before have large companies been so fragile. What is really

going on inside these hi-tech companies? What types of

pressures and challenges are they facing? And how do they

cope?

Computer software providers, especially the ones that specialise in handling the

data needs of organisations, are prime examples of these volatile companies. In

the nineties we witnessed their growth from small business into multi-billion dollar

re impo

traints

giants. No wonder investors were attracted.

In 1998 it was easy for such companies to raise as much money as they wanted.

But now, investment funds have dried up. Why? And mo rtantly, is there a

way to reverse the trend? This book gives the answers.

The Theory of Cons

by Eliyahu M. Goldratt

The Theory of Constraints walks us through the crucial stages


24

of a continuous program: the five steps of focusing; the process of change; how to

prove effect-cause effect; and how to invent simple solutions to complex problems.

Equally important, the author reveals the devastating impact that an organisation’s

psychology can have on the process of improvements. Theory of Constraints is a

crucial document for understanding what it takes to achieve manufacturing

reakthroughs.

rome

ct to have

sly improve

e-buffer concept, directing

tem and the manager, resolving

ll conflicts, considering capacity and protection.

ry of Constraints

ally published in The

ment — The Inherent Conflict

b

The Haystack Synd


This maddening dilemma of our technological age is a factor

in every important decision, and an issue we expe

addressed by modern-day information systems.

Part One: Formalising the Decision Process - Defining the

goal, the measurements, and how to continuou

the whole system - The Theory of Constraints.

Part Two: The Architecture of an Information System - Dealing with information as

it relates to the real world; quantifying Murphy, the tim

process improvements, measuring local performance.

Part Three: Scheduling - How to implement a real process of ongoing

improvement requiring interplay between the sys

a

Essays on the Theo


This collection of essays was origin

Journal on the Theory of Constraints.

Chapter 1 Hierarchical Manage

Modine — The McHenry Plant


25

Chapter 2 Laying the Foundation APOLOGIA or In The Move Toward The Third

The Fundamental Measurements When Quoted Lead Times Are The

nts Looking Beyond The First

How Complex Are Our Systems Looking Beyond The First Stage; Just

ions

appeared

tribution channels, a discussion on

olution into a disaster, a discussion

rom one ditch into another, a discussion on

results expected and who has

ct devastating and long term lead times a discussion on project

Stage

Chapter 3

Problem

Chapter 4 The Importance of a System’s Constrai

Stage; Just In Time (Fictional Visit — Real Plants)

Chapter 5

In Time

Chapter 6 The Paradigm Shift Looking Beyond The First Stage; Just In Time

Late Night Discuss


This collection of Late Night Discussions originally

as a monthly column in Industry Week magazine.

How to block our own dis

the automotive industry.

How to turn an excellent s

on single source vendor.

How to go f

automation.

How to throw out the baby with the bath water a discussion on automation.

How to run from one excuse to another a discussion on Japanese success.

A discussion on why TQM is not producing the

devastating inertia, the "troops" or the inventors?

How to perfe

engineering.

The paradigm shift in material management.


26

How companies behave in a market downturn a discussion on market

rements can kill a friendship a discussion on

here did product cost and profit come from a discussion on cost accounting.

TOC Books, Writings by Other Authors:

ing

event organisations from achieving better

refined for nearly three

gement, it is now accepted as a mainstream

and

hroughput dollars, not cost-plus accounting." Accounting Today

ial accounting and shows an

segmentation, part 1.

How the notion of product price kills companies market segmentation, part 2.

How erroneous policies and measu

human behaviour in organisations.

W

Throughput Account

Author: Thomas Corbett

We learn how to apply the theory of constraints to

management accounting. The Theory of Constraints, a

management philosophy derived from physics, assumes that

constraints pr

performance.

The Theory of Constraints (TOC) is based on a scientific

method that has been developed and

decades by Dr. Eliyahu M. Goldratt.

As a tool for business mana

alternative to cost accounting.

"TOC is radically different from traditional accounting methods taught in

universities, the focus is on finding the highest price that the market will bear

maximising t

This book:

Reveals a new management tool for manager

alternative path for other management practices.

Enables managers to quickly see if their decisions increase profitability.


27

Demonstrates some of cost accounting's flaws, and shows how these errors will

demonstrates a

t.

ductivity’s public enemy number one."

ahu M. Goldratt

e Theory of Constraints and the System

have devoted their

nd

t

process brings the work of these two great

ecisions.

lead to bad decision making.

Compares the paradigm of TOC-based throughput accounting with more

conventional cost accounting methodologies and in the process,

new way to solve the complex problems of modern managemen

"Cost Accounting is pro

Eliy

Deming and Goldratt Th

of Profound Knowledge

by Domenico Lepore and Oded Cohen

Domenico Lepore and Oded Cohen: These authors'

professional lives to understanding and implementing the

processes presented in their book, Deming and Goldratt:

The Theory of Constraints and the System of Profound

Knowledge - Domenico Lepore as a Deming Scholar a

Oded Cohen as Eli Goldratt's collaborator and partner.

A step by step guide to implementing the managemen

systems of w. Edwards Deming and Eliyahu M. Goldratt

Dr.'s Deming and Goldratt are recognised as two of the

foremost geniuses of modern management. The

integration of the Theory of Constraints and the System of

Profound Knowledge into one cohesive

thinkers to a new level of accessibility.

The ten steps of the decalogue reflect the basic concept that in order to manage

effectively we must be able to predict the outcome of our management d

This seemingly simple statement is the core of successful management.

the tools presented in this book will enable any organisation to: > manage


28

effectively > develop focused business strategies > create an atmosphere of

tion and focus you

as a

ldratt’s collaborator and partner.

book

rifying the implications on one of

nt aspects-the measurements.

, and other methods, including

M techniques.

continuous improvement

You will not find a quick fix in these pages, but with determina

will be able to control and radically improve your organisation.

The authors have devoted their professional lives to understanding and

implementing the processes presented in this book; Domenico Lepore

Deming scholar and Oded Cohen as Eli Go

The Constraints Management Hand

by James F. Cox and Michael S. Spencer

A new approach to improving the production of goods and

services, Constraints Management (CM), recognises the

powerful role of the constraint (the limiting resource) in

determining the output of the entire production system. By

learning about and mastering CM concepts, managers can

improve their companies' present output and plan for future

growth as well. This book is an excellent attempt to unify the

pieces in production: sorting through the fog of classification,

the overlap between MRP, JIT and TOC, and cla

the most importa

Key Features:

Explains the five-step process to continuous improvement. Covers VAT analysis,

drum-buffer-rope scheduling, buffer management

methods that can be used with existing systems.

Includes in-depth case studies demonstrating successful C

Defines important terms and explains CM thinking tools.


The Theory of Constraints and Its Implications for Management

Accounting

by Noreen, Smith and Mackey

Sponsored by: The Institute Of Management Accountants

(Usa), and Price Waterhouse (France)

This book demonstrates how throughput accounting rather

than traditional cost accounting is the measurement tool

required for business decisions.

This information is presented as an in-depth and impartial

evaluation of the implementation of the Theory of Constraints

at over 20 companies. Seven of the case studies are described in detail, including

the original thinking process with diagrams as constructed by the companies'

managers. Fascinating and enlightening reading.

Goldratt's Theory of Constraints

by H. William Dettmer

Dettmer describes the action steps that follow this theory and

shows, step-by- step, how to effectively manage change in an

organisational system, at any level.

Much of the content in this book focuses on the author's

understanding and interpretation of Goldratt's logical Thinking

Process. He clarifies the five focusing steps of the theory and

teaches the mechanics of all the thinking tools. Using this book, you can determine

what to change, what to change to, and how to make change happen.

Benefits:

Understand how to use the great power and versatility of the thinking tools.

Construct logic trees with ease, guided by illustrations that show virtually every

aspect of the tools' use. Use as a text for training or graduate management

courses.

29


Securing the Future

by Gerald I. Kendal

Today's managers encounter tremendous resistance in

getting others to buy into change. The ongoing rounds of

downsizing and upheaval have taken their toll, leaving a

legacy of scepticism. Therefore, managers must not only

have ideas, but must be experts at "selling" the correct

answers, information, and measurements to address issues

of change.

Securing the Future uses the Theory of Constraints to

provide solutions to today's management problems. This book documents the

step-by-step approach to achieving a strategic vision of long-term competitive

advantage, employment security, and customer satisfaction. Using a combination

of parable, methodology, and case studies. This book presents an in-depth

management road map to exponential improvement in any organisation

Key Features:

Shows how to align all parts of an organisation to drastically improve performance.

Illustrates through examples and methodology how to win the kind of employee

collaboration and commitment that drives bottom line results. Provides

measurements to be used as an executive tool to navigate the organisation to

long-term safety and success for employees, shareholders, and customers.

Teaches how to use five integrated Thinking Processes to build a competitive,

customer oriented, and value-driven organisation. Includes seven case studies

that illustrate winning strategies and a full set of TOC trees.

The Constraints Management Handbook

by James F. Cox and Michael S. Spencer

A new approach to improving the production of goods and

services, Constraints Management (CM), recognizes the

30


powerful role of the constraint (the limiting resource) in determining the output of

the entire production system. By learning about and mastering CM concepts,

managers can improve their companies' present output and plan for future growth

as well. This book is an excellent attempt to unify the pieces in production: sorting

through the fog of classification, the overlap between MRP, JIT and TOC, and

clarifying the implications on one of the most important aspects-the

measurements.

Key Features:

Explains the five-step process to continuous improvement. Covers VAT analysis,

drum-buffer-rope scheduling, buffer management, and other methods, including

methods that can be used with existing systems.

Includes in-depth case studies demonstrating successful CM techniques.

Defines important terms and explains CM thinking tools.

Introduction to the TOC Management System

by Thomas B. McMullen, JR.

This book helps busy executives and professionals quickly

learn and implement TOC principles.

Introduction to the Theory of Constraints (TOC) Management

System organises several proven TOC principles, processes,

and solutions into a TOC management system that has been

successfully applied to everything from manufacturing

industries to health care.

Introduction to the Theory of Constraints (TOC) Management System tells what

TOC is, where it came from, who uses it, and how to get started with it.

Key Features:

Provides a compact source of information and "how to" instructions for those who

are beginning their study and initial use of TOC.

31


Enables directors and executives of corporations, not-for profits, and other

institutions to initiate and guide applications of TOC and its management system.

Organises proven TOC principles, processes, and solutions ("TOC Best

Practices") into a TOC Management System.

Highlights the TOC Management System's suitability for generating superior

degrees of short-and long-term profitability, employment stability, and stakeholder

loyalty.

Describes the TOC "Throughput" Value Added (TVA) financial management

system, including its important new operational definition.

Project Management in the Fast Lane

by Robert C. Newbold

This "how to" manual details proven methods for turning

around chronically late, over budget, and under performing

projects.

Project Management in the Fast Lane explains how Theory of

Constraints tools can be applied to achieve effective,

breakthrough solutions in virtually any environment. It includes

a complete discussion of the Critical Chain scheduling

approach pioneered by Eli Goldratt - the most significant new

development in project scheduling in the last 40 years. The project management

tools described in Project Management in the Fast Lane are clearly outlined and

will help project managers in manufacturing construction, and new product

development in any field find efficient, practical, and sound solutions to

management issues. Common problems related to deadlines, budgets, project

performance, and more are thoroughly treated, providing a solid basis for applying

tools to familiar problems.

Key Features

Clear guidance on making practical, powerful changes to the way you manage

projects. Description of basic approaches to analysing and fixing common

32


33

management problems.

A discussion of Critical Chain scheduling. Practical ways to dramatically improve

on-time completion of projects and simultaneously decrease the time it takes to

complete them, while not significantly increasing expenses.

Common sense solutions to real significant problems. Coverage of how an

organisation can work together to improve production.

Thinking For A Change: Putting the TOC Processes to Use

by Lisa J. Scheinkopf

After an overview of the Theory of Constraints (TOC) and the

types of constraints that exist in any organisation, the reader is

led through the step-by-step process of the two foundational

thinking methods on which the Thinking Processes are based.

The reader can then use the book as a field guide, learning the

five processes as needed, based on his or her own particular

issues.

"Explaining the Thinking Processes accurately in writing is a

very challenging task. To choose examples that make this technical subject alive

to a broad spectrum of people is even more difficult. In this book Lisa succeeds in

these two daunting tasks. She actually succeeds in doing it in a particularly

enticing style. My hat’s off to her. I’m recommending this book to anyone who

wants to learn more about the Thinking Processes. I even recommend it to veteran

t for anyone facing change and new frontiers. You will refer to

‘Jonahs.’"

--Eliyahu M. Goldratt

"Thinking for a Change is a book that provides the detailed tutoring required to

learn TOC tools and can be simultaneously used as a reference by the experts. A

well-written, easy-to-understand book with real-life examples to which everyone

can relate! A mus

this book often."


34

--Carol A. Ptak President Eagle Enterprises

"If you are in need of state-of-the-art problem solving tools, this is the book to

Peter Sacreas Operations Manager Sycron, The Netherlands

aints to World-Class Performance by Dettmer (ASQ

ints (TOC) Management System

tification and Solutions by Schragenheim (The St. Lucie

pplying the Theory of

Using the

ronous Manufacturing by Srikanth and Umble (Spectrum Pub.,

ment

OC Thinking Processes to Use by

Sheinkopf (The St. Lucie Press, 1999)

have. I’ll buy it and give it a very special place on my desk."

--

Other:

• Breaking the Constr

Quality Press, 1998)

• Introduction to the Theory of Constra

by McMullen (The St. Lucie Press, 1998)

• Management Dilemmas, The Theory of Constraints Approach to

Problem Iden

Press, 1999)

• Re-Engineering the Manufacturing System, A

Constraints by Stein (Marcel Dekker, Inc., 1996)

• Securing the Future, Strategies for Exponential Growth

Theory of Constraints by Kendall (The St. Lucie Press, 1998)

• Synch

1995)

• The Theory of Constraints and Its Implications for Manage

Accounting by Noreen, Smith, and Mackey (North River Press, 1995)

• Thinking for a Change, Putting the T


Published Articles in Magazines & Newspapers:

"You Can't Spot Serious Shareholder Value? Check Your Paradigms!"

This article was written by Rudolf G. Burkhard, and won the 1999 Pricewaterhouse

Coopers European Shareholder Value Award.

This article won the 1999 PricewaterhouseCoopers European Shareholder Value

Award.

…Executives are under too much pressure to spend time looking for and

developing new and better solutions to running their business. They are aware of

the need to manage their business as a system but on the whole do not do so,

because they are lacking the tools to do so. Goldratt's five focusing steps are a

way to solve this missing capability by focusing on the very few constraints any

(business) system can have. Policies (the way things are done) are key

constraints to better profits and improved SVA and many need to be changed.

Some examples show how policies from the past are blocking businesses from

earning much better SVAs…

"Program Management - Turning Many Projects into Few Priorities with TOC"

This article was written by AGI Certified Associate Frank Patrick of Focused

Performance and was presented at the Project Management Institute Symposium

in October 1999 magazine.

…In PMI's A Guide to the Project Management Body of Knowledge, a program is

defined as ". . . a group of projects managed in a coordinated way to obtain

benefits not available from managing them individually." Most organisations that

depend on the accomplishment of projects as a source of products, profits, or

process improvements do so with shared resources that must be "managed in a

coordinated way." In such a system, proficiency at managing single projects

individually without proactively dealing with the interactions between them is not

35


sufficient to assure the attainment of the goals of the organisation. The system that

really needs to be managed in most cases is greater than the sum of the single

projects. It is a larger, complex system of projects, priorities, policies, and

practices that guide the behaviours of managers and resources and requires

consistent and coherent coordination for maximum effectiveness.

By applying the TOC prescription for multi-project/program management, an

organisation honours its priorities by scheduling its program through the

strategically defined precedence of the synchronisation schedule.

Project managers avoid unnecessary changes in priority by relying on buffers to

absorb most of the normal, expected variability in the execution of tasks and

projects.

Resource managers find clear direction and priority for assignment of tasks in the

status of the buffers, which indicate the best use for available resources to support

the promises made by the organisation.

And resources have a single priority -- the current task to which they are assigned.

Without the distraction of pressures to multitask or to meet false priorities of task

due dates, they can concentrate on the task at and "just do it," do just it, and do it

justice to assure a quality handoff, successful projects, and maximum throughput

for the organisation…

"Critical Chain Scheduling and Buffer Management - Getting Out From Between

Parkinson's Rock and Murphy's Hard Place"

This article was written by AGI Certified Associate Frank Patrick of Focused

Performance and appeared in the April 1999 issue of the Project Management

Institute's PM Network magazine

"Work expands to fill (and often exceed) the time allowed." -- Parkinson's Law

"Whatever can go wrong, will." -- Murphy's Law

…Uncertainty is why we need project management. How we manage for

uncertainty is at the core of improvement of project performance--getting projects

done both faster and with better reliability of the promised deliverable dates.

36


The approach to project management known as "Critical Chain Scheduling and

Buffer Management" provides mechanisms to allow a "whole system" view of

projects. It identifies and protects what's critical from inevitable uncertainty, and as

a result, avoids major impact of Parkinson's Law at the task level while accounting

for Murphy's Law at the project level.

Project managers and teams need to shift their attention from assuring the

achievement of task estimates and intermediate milestones to assuring the only

date that matters--the final promised due date. Safety that is typically built into

tasks to cover Murphy's Law is inefficient, leading to longer than necessary (or

acceptable) schedules, and apparently ineffective, given the impact of Parkinson's

Law from which many projects suffer...

Learning from Experience

by Eli Schragenheim and Avner Passal

…This paper touches upon some of the main points of the methodology. Teaching

the basics of the methodology takes two full days of workshop. Then, there is still

a considerable benefit to assist the first learning teams by having a consultant join

the team and supervise the process. <O:P</O:P

The actual experience we have in implementing the process for structured learning

from experience shows huge benefits to the organisations. The learning teams

testify that they have revealed thinking paradigms that badly need updating. In no

case the regular unstructured way some individuals learn would have produced

such a clear identification of the source of the problem. We have seen in all the

actual inquiries led by us that by encouraging people to challenge current

paradigms new insights emerge and much better understanding of the surrounding

reality is achieved.<O:P</O:P

Another matter is the maturity of the organisation to implement organisational

learning in general and the learning from experience in particular. In a culture

where people “have to pay for their mistakes” no true learning has any chance.

<O:P</O:P

37


Learning from experience seems to us as relatively easier to implement as other

form of organisational learning. At times where the organisation is going through a

substantial change, there is a special benefit for implementing a formal procedure

for learning from experience. Noting the cases where a gap is observed and going

through the structured learning can reveal a number of old paradigms that fit the

reality before the change and didn’t change with the organisational change. Such a

quick identification of wrong paradigms should be of great impact in the success of

the implementation of the organisational change…

The Theory Of Constraints

By Tony Rizzo

…The Theory of Constraints and the Thinking Process tools are already being

used to great effect in many companies throughout the world. These companies

manage change, rather than letting change manage them. Many of them already

have reported astounding results. For example, Avery Dennison reported a 20%

increase in market share only 18 months after adopting the Theory of Constraints.

One Vice President of Texas Instruments recently reported that that company

improved operations to the extent that it could defer a $600 million investment in

new plants. Results such as these suggest that the Theory of Constraints will soon

sweep not the nation but the world. Last year, Toyota expressed an interest in the

subject…

Other TOC Articles

• Atwater, Brian and Margaret L. Gagne, "The Theory of Constraints Versus

Contribution Margin Analysis for Product Mix Decisions", Journal of Cost

Management, January/February 1997, Vol 11 No. 1

• Campbell, Robert, Peter Brewer, and Tina Mills, "Designing an Information

System Using Activity-Based Costing and the Theory of Constraints",

Journal of Cost Management, Journal of Cost Management, January/February

1997, Vol 11 No. 1

38


• Gupta, Mahesh, Sid Baxendale, and Kathy McNamara, "Integrating TOC and

ABCM in a Health Care Company", Journal of Cost Management,

July/August 1997, Vol 11 No. 4

• Hall, Robert, Nicholas P. Galambos, and Margaret Karlsson, "Constraint-

Based Profitability Analysis: Stepping Beyond the Theory of Constraints",

Journal of Cost Management, July/August 1997, Vol 11 No.4

• Ruhl, Jack M., "An Introduction to the Theory of Constraints", Journal of

Cost Management, Summer 1996, Vol 10 No. 2, p. 43.

• Salifatinos, Chris, "Integrating the Theory of Constraints and Activity-

Based Costing", Journal of Cost Management, Fall 1995, Vol 9 No.3, p.58.

Conferences and Symposiums:

• September 1995: Philadelphia, PA

• March 1996: Washington, DC

• October 1996: Colorado Springs

• March 1997: San Antonio, Texas

• November 1997: Ft. Lauderdale, FL

• May 1998: London, England

• November 1998: Memphis, Tennessee

• July 1999: Chicago, Illinois

• July 2000: Saint Paul, Minnesota

Videos:

• The Goal: The How-To Version (American Media, West Des Moines, IA,

39


• TOC For Industry (Goldratt Institute, 1995)

• Introduction to TOC - Featuring AGI General Partner Dale Houle at the

May 1998 JUW/TOC Symposium in London.

• Persuading the Customer to Buy - Part One - Featuring AGI General

Partner Dale Houle at the May 1998 JUW/TOC Symposium in London.

• Persuading the Customer to Buy - Part Two - Featuring AGI General

Partner Dale Houle at the May 1998 JUW/TOC Symposium in London.

40


41

TOC Case Studies

Brief Overview of Some Case Studies:

The Clowes Group4

Using TOC, this UK printing company addressed its sales constraint, won back

lost clients and is exceeding revenue expectations.

United States Air Force Healthcare System5

The USAF is using the TOC Thinking Processes to deal with downsizing & cost-

cutting without compromising on quality of service and meeting patients' needs.

Alphamet (UK) Ltd.6

This success story describes how Alphamet, a UK trading company, moved from a

position of barely keeping its head above water to generating a pre-tax profit

improvement in excess of 3500% using the TOC Thinking Processes and tools

and presenting Unrefusable Offers to its vendors and customers.

Antarctic Support Associates7

ASA has used Critical Chain for several projects with excellent results. This

write-up discusses a project that was already underway - and already behind

schedule - when the project team switched to Critical Chain scheduling.

Brickman Group8

This landscaping company applied TOC for Production to its operations and

made its already successful organisation even more so. Schedules are now

being met, customer satisfaction is up dramatically, and the bottom line has

increased by more than 50%.

Lucent Technologies

Using Critical Chain, Lucent's Outside Plant Fiber Optic Cable Business Unit

reduced its product introduction interval by 50%, improved on-time delivery,

4,5,6,7,8 These are Characteristic Case Studies, which are discussed analytically below.


and increased the organisation’s capacity to develop products.

Lord Corporation

After applying TOC/Critical Chain in their multi-project environment,

capacity has increased, cycle time improved, and operating expense

remained the same.

Cartiva, Inc./Rydell Group

Using TOC to identify and address constraints, this group of car dealerships

has realised results which include net profit up by more than 300% in a year

and annual inventory turns up from 4 to 12.

Cryovac

Implementing the TOC Replenishment/Distribution Solution on its entire supply

chain has yielded very promising early results for Cryovac and its distributors.

Synergis Technologies Group

Synergis has successfully implemented Critical Chain to manage more than 200

concurrent projects in nine locations, making on-time delivery their top priority.

Kreisler Manufacturing Corporation

In 1996, Kreisler was in its fifth straight year of losses. The company turned itself

around after implementing TOC for Production.

Media Automotive

This South African auto parts distributor achieved success using the TOC Thinking

Processes to make an Unrefusable Offer to a parts manufacturer and meet the

needs of its market.

Bal Seal Engineering

Shortly after implementing Drum-Buffer-Rope, net profit doubled, inventory

decreased by 50%, OE was down, lead times shortened, customer satisfaction

increased, and employee quality of life was enhanced considerably.

Habitat For Humanity

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Using Critical Chain scheduling, a project team for Habitat For Humanity in New

Zealand built a 4 bedroom home in just 3 hours, 44 minutes, and 59 seconds --

setting a new world record.

Conceptual Analysis of Selected Case Studies:

The Clowes Group

Addressing a Sales Constraint

The Clowes Group is a 200-year-old printing company in Northeast England. From

the start its owners were entrepreneurial and successful. In the 1800s the

company was 600 employees strong, had international clients, and boasted that

there wasn't a written language they couldn't produce. The company was the

original printer of the entire Charles Dickens portfolio.

By the 1980s they had been acquired several times over. In the mid 1990s they

suffered what current Chief Executive Alex Evans calls the "Big Crisis." Clowes

was owned ("swallowed") by a company that had diverse ("unfocused") holdings.

This parent company decided that the labour costs at Clowes were much too high.

Morale took a nosedive as the printers' union saw this as a direct attack.

In 1993 and 1994 Clowes saw its net profit plummet. The company brought in Mr.

Evans, then a consultant, as its managing director. The first obvious problem he

saw was low morale. The next was very high inventory. He immediately made a

plan to change the way things were being managed at Clowes. Within three

months, the company was out of the red.

In 1996, Mr. Evans was named Chief Executive and decided the company would

focus on addressing its constraints in production and strategy. Shortly there after

he led a management buyout of Clowes.

In 1998, Mr. Evans read The Goal, and felt it made sense and reflected what he

had been trying to accomplish. He and others from Clowes attended an AGI-

sponsored TOC Symposium in London to learn more about dealing with the sales

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constraint that had presented itself.

They felt they had been dealing with their production problems, but now were not

generating enough revenue. Their conversion of leads to sales was very low

(almost one in fifteen). And they were experiencing idle time in the workforce and

on their web printer - the printer they identified as their constraint and the printer

which generated the most income.

This created an environment where the workforce blamed the sales people for the

lack of work. The sale people were frustrated by this, as well as the pressure from

what they perceived to be unrealistic targets. This left management frustrated that

the company could not achieve the desired level of performance.

After meeting at the TOC Symposium, Mr. Evans brought in AGI's UK partner,

Oded Cohen, to help address the sales constraint and construct the direction of

the solution. They started by doing a standard TOC recommendation.

It was decided to get away from simple order taking and move to value selling -

selling not just a printing service, but a solution to the customers' problems. This

meant they had to develop a better understanding of their customers, which

started with listening and developing their TOC analytical tools.

The process used

A combined group of the company's directors and sales team got together to work

on this new direction. When the sales team was asked for the problems

(undesirable effects - UDEs) of the customers, what they gave instead was a list of

their complaints about Clowes and its customers.

What surfaced was an internal chronic conflict, caused by the fact that the sales

people had not yet bought into the change process that was being forced on them.

They were quite bitter.

Mr. Cohen met with the sales force collectively and individually to achieve the buy-

in necessary to move forward with the solution.

The sales people were then asked to give case studies of their current customer

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problems as well as the corresponding Clowes offering. A communication system

was established so each sales person was able to see the UDEs of each client,

the solutions used/proposed, and comments about how they were working.

This created an enthusiastic team environment - members of the sales force

began working with each other, making suggestions on issues based on their own

experience.

Results

Many of the problem accounts that Clowes had lost during this time period came

back. Some even brought affiliate business as well.

The coveted web printers were fully booked three months in advance - during the

quarter which historically had been the worst.

At the end of the first quarter of 1999, Clowes' revenue was 150% ahead of where

they wanted it to be by the end of the second quarter.

Clowes is working to evolve its market offer into full project management -

handling the details of the client's job from data collection and manipulation

through to worldwide distribution.

United States Air Force

TOC Thinking Processes

The thinking processes can be applied in many environment and situations as

illustrated in previous case studies; people have applied this methodology to

resolve family problems, personal conflicts, and other non-business needs. This

case looks at the application of the thinking processes to a much larger and more

complex situation.

The U.S. Air Force healthcare system, with 120 medical facilities and a patient

base of around 3 million people (active military, retirees, dependents) is continually

being squeezed to do more with less. (Sound familiar?) But when it comes to

healthcare, there is an overriding need to insure that the services provided remain

45


at the highest quality and continue to serve the needs of the patients. The basic

problems involve a mismatch between changing demand and the availability of

specific resources, conflict between the need for flexibility and the desire for

standardisation (to insure quality), and the push-pull between local control and

centralisation. When you think about it, it's not that different from what most

manufacturers face - only on a larger scale.

When forced to downsize and cut costs, where do you begin?

For the Air Force, the first step was to assemble a team of about 15 people, under

the direction of a TOC "Jonah", to identify the goals, conflicts, and impacts of a

redesign of the healthcare delivery system. The team members represented Air

Force headquarters, the command level and individual hospitals. None of the

participants were top-level officers - the team members really understood the

details and the challenges from a working level.

The primary objective during the redesign was to preserve the surgeons and the

operating rooms, the highest-cost and highest-value portions of the system. All

other considerations were subordinated to those key resources.

The most surprising thing about this workshop, perhaps, is that the attendees were

able to come together with a plan (current reality tree, prerequisites, future reality

tree) in just 14 days of effort. And each group within the team (sub-teams worked

on different aspect of the problem, then the individual plans were brought together)

was able to clearly outline the current situation, the conflicting objectives and the

resolution of those conflicts for its assigned portion of the healthcare delivery

system. More surprisingly, the separately developed segments of the plan fit

together into an overall plan with very little adjustment needed.

This is obviously a very large, long-term project which will roll out over an

extended period of time. It is remarkable, however, to note that the thinking

processes are extremely scaleable (as the systems people would say), applying to

husband-wife and family problems, to typical plant and enterprise situations, to

something as large as a 120-facility comprehensive (and bureaucratic) medical

care system.

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Alphamet (UK) Ltd.

TOC Thinking Processes and Unrefusable Offers

From Bust (Nearly) to Boom

Alphamet (UK) Ltd. began trading in 1988 as a multi-metal broker. Its industry

went through changes due to the recession of the late 80s and early 90s. Many of

the poor performers in the industry went under and excellent service became a

prerequisite to staying in business. Alphamet had to change to make a profit.

The company's TOC journey began in 1995 when Managing Director Alf Wheeler

attended an "Overview of TOC for Industry" facilitated by Eli Goldratt. During the

program, the way Alf thought about doing business changed. A month later he

went through a Management Skills Workshop, followed by the Jonah Program

during which he realised that he himself was Alphamet's core problem.

Alf realised that he struggled between an autocratic and democratic leadership

style and the result was chaos. He saw that a deep conflict with his co-director

needed to be resolved. And he begrudgingly accepted that possible negative

outcomes of actions and ideas must be acknowledged and addressed - a lesson

he learned only after the company had suffered losses.

In order to address internal conflicts and constraints, the entire Alphamet staff

went through the Management Skills Workshop in September 1996. At the time

they were a group of bitter, unhappy and unmotivated people. Some then used the

tools they had learned to challenge Alf's authority and position. About one third of

the Alphamet staff left - unfortunate, but necessary if Alphamet was going to move

forward.

Alphamet now prepared to use the TOC Thinking Processes to construct and

present Unrefusable Offers to its vendors and customers. The company did a

survey via fax of current and potential customers to determine their problems and

needs. The majority of those surveyed responded within 48 hours - an indication

that Alphamet had something that the market wanted.

In order to meet the needs of its customers, Alphamet would need the support of

its vendors. The company made Unrefusable Offers to its three vendors - two

47


refused and one accepted. That one is now the only major player left in the

market.

Alphamet then began making Unrefusable Offers to potential customers. The

offers addressed the issues identified in the customer survey. Some issues raised

were considered "trivial" - such as packaging, others were policy constraints. All

were "so simple" to deal with, thus giving the customers what they wanted.

Other actions taken during this time included:

• Alphamet prepared to upgrade the plant in order to offer a complete product

range to the market

• Slow moving inventory was reduced at a loss in order to generate

necessary resources (cash and warehouse space)

• Declining markets were dropped in order to free resources to focus on the

new targeted markets

• The company tried very, very hard to stay on course and not be distracted

by other obstacles

The results two years into Alphamet's TOC Journey:

• Alphamet now supplies 80% of the UK market (up from just 15%)

• Pretax profits have increased from Ј2,700 to Ј146,000 and are still growing

• Gross margin is up from 29% to 41%

• Projected 1998-1999 pretax profit is upwards of Ј250,000

• A much happier team earning better wages, receiving larger profit sharing,

empowered, with a higher level of self-respect than two years ago.

• To deal with current growth - and prepare for future growth as well -

Alphamet is moving to larger, more comfortable premises

• The company is investing in additional capacity as well (systems, people,

equipment, etc.).

• Alphamet's computer systems are being overhauled for Y2K compliance.

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• The company will now return its attention to formerly profitable areas of

business it had neglected during this tremendous boom.

Alphamet is not becoming complacent, though. The company recognizes that its

competitors will be breathing down its neck and is preparing additional strategy -

and Unrefusable Offers - to stay ahead. Internal conflicts and constraints are

addressed on an ongoing basis, and Alf Wheeler is still struggling with his own

"sales versus managing" conflict. The TOC tools will be used to guide Alphamet as

it continues to lead the UK market and forges into the global arena.

Antarctic Support Associates

TOC for Project Management/Critical Chain

"The NSF is most impressed with ASA's continued management training for

existing project teams. ASA is apparently committed to the success of these teams

and the projects that they are working on by providing added tools to enhance

their output. The use of Theory of Constraints project management methodology

appears to have been successful with several projects." - quote from one of the

National Science Foundation's performance evaluations of ASA

Antarctic Support Associates (ASA) is a $100 million government service provider.

Its purpose is to support work sponsored by the National Science Foundation

(NSF) to expand the horizons of science in one of the most extreme environments

on earth.

The research conducted in and on Antarctica is done under a 42-nation treaty

signed to allow research to be performed in a peaceful way. There are three types

of research done on this icy continent:

• On the continent of Antarctica itself

• What effect systems in Antarctica have on the global process of the world

• Astronomy and space

ASA supports three research stations in Antarctica (including one at the South

49


Pole) and two floating stations - the Research Vessel (R/V) Laurence W. Gould

and the R/V Nathaniel B. Palmer - which circumnavigate the continent.

In 1997 ASA was introduced to Theory of Constraints. Core employees took the

Management Skills Workshop and Project Management program. Upon returning

from the Project Management program in October 1997, the challenge of bringing

in on-time a project that was at that stage four months behind schedule was

undertaken.

The R/V Laurence M. Gould was scheduled to begin its maiden science support

voyage no later than January 15, 1998. In October 1997 the project was already

several months behind schedule. ASA was going to put TOC Project

Management/Critical Chain to work.

The initial challenge was to assemble several key staff members to create a

network and schedule for getting the science support equipment on-board the

Gould and operational in time for its first mission.

It took six people four days to develop the network. Initially, more than 400 tasks

were identified. Those tasks were reduced to less than 200 for the schedule. The

Critical Chain was less than 100 tasks. It was determined that the equivalent of 20

full-time people would be necessary for this project. The project buffer was 15

days, the feeding buffers 12 days. The tools used to schedule and manage the

project were MS Project and ProChain. A due date for this phase of the project

was set for December 15, 1997.

On October 20, 1997 new challenges were identified. The team had to create and

fill five additional temporary job openings in less than a week. Procurements,

which numbered more than 100, had to be centralised and assigned to the task

leader for monitoring and tracking. ASA's logistics and purchasing divisions were

each required to assign one full-time person to support procurements from the

ASA offices in Denver. An on-site task leader and team were appointed and

deployed to Louisiana and had to operate within an extremely narrow time horizon

for this job.

The next set of challenges (November 2 - December 12, 1997) included

unplanned disruptions in ASA's schedule caused by contentions for space and

50


shipyard personnel to support science equipment and installation (e.g. the

shipyard installed flooring or cabinets when ASA scheduled installation of

instruments).

The Results

By using Critical Chain scheduling, the ASA project team enabled the R/V

Laurence M. Gould to pass the sea-trial tests and be ready to embark on its

voyage to Antarctica on December 11, 1997 - in time to arrive and prepare to take

its maiden science voyage in January 1998 - on schedule, rather than four months

late as had been anticipated in October.

The Benefits

The ASA team met its customer's requirements. Finishing on-time meant enabling

science throughput - the science cruise could sail - and several hundred thousand

dollars in profit were retained for ASA.

The Brickman Group

TOC for Production applied to a service industry

The Brickman Group is one of the largest landscaping companies in the United

States. Sixty percent of Brickman's business is landscape maintenance; the other

40 is landscape installation. It was a well-managed company whose management

knew could do better. In February 1996 the Brickman Group began its "refinement

process" using TOC.

The TOC journey started with about 90 middle- and upper-management personnel

reading The Goal. Most agreed that the TOC concepts made sense, but they didn't

know how to translate them from the production environment to their landscaping

business.

In March 1996 Brickman managers went through a Production Application

program, where they learned how to apply TOC for Production to landscaping.

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They began to understand that the constraint was not necessarily something

negative that should be avoided, but that it may be the most profitable part of the

business - and if they could control the constraint they could then control

profitability. It was realised that work was being done in batches and that local

optimum was the focus.

Mowing was identified as the constraint. That task was then pulled out of the batch

of work, which included the detail-work of fertilising, weeding, watering, and

trimming. Making mowing a stand-alone task revealed excess capacity, improved

efficiency, and enabled Brickman to make and meet schedules - something it had

trouble with in the past. Customer satisfaction increased.

The next step in the TOC journey involved 12 members of upper management

going through the Jonah Program. This pointed out the need to outline the

processes that occur within Brickman in order to establish consistency and

standardisation throughout the company, to identify and address the conflicts

which occur, and to work on scheduling and the misalignment of resources.

The ongoing TOC journey at Brickman has taught them some valuable lessons:

• Don't change too many processes too quickly - people need to adjust

• Everyone doesn't learn and accept change at the same speed

• Document the existing processes and share the planned changes with the

staff - involving them in the creation of the Current Reality Trees and Future

Reality Trees provides everyone with a sense of involvement,

understanding and ownership

• For Brickman, TOC was a "refinement process" - this made it easier for

personnel to accept the change as something more than a fad, especially

as a company which was doing well prior to TOC

• Measure and share results with other departments and divisions - all can

learn from each other's experience

• Appeal to all the senses - different people respond to learning and changing

in different ways, provide the information in different formats - video, books,

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simulators, etc.

The results at Brickman since implementing TOC:

• Dramatic increase in customer satisfaction due to factors which include

being able to make and meet scheduling commitments.

• 20% increase in client base with only a 12-13% increase in staff.

• Minimum 50% increase in the bottom line.

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Itemised Conclusions

…Thus, what is the Goal?

Many for-profit companies believe their goal is related to money.

Some would argue that the Goal is related to customers.

And others would argue that the Goal is related to jobs and the workforce.

The Theory of Constraints does not disagree with any of these three groups of

people. In fact, Goldratt contends that the owners of an organisation are the only

ones who define the goal. Once the choice is made, however, the other two

become necessary conditions.

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For example, those companies who believe their goal is to make money now and

in the future find that it is not possible to do so unless they also satisfy customers

and employees now and in the future. If they seek money while abusing

employees, they will experience high employee defection that almost always leads

to high customer defection.

The company that chooses satisfying customers now and in the future for their

goal will find it necessary to make money and to satisfy employees now and in the

future.

And the company that regards satisfying employees as their goal will likewise find

it necessary to make money and to satisfy customers now and in the future.

Whenever TOC refers to the "goal" of a company, unless otherwise stated, that

goal will be to "make money now and in the future." If an organisation has a

different goal, they should remember that because making money now and in the

future is a necessary condition of reaching their goal, the information about

"making money" on these pages is still pertinent to their organisation.

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