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How to better exploit (not waste) a company’s scarcest resource
Management Attention
Dr. Alan Barnard
CEO, Goldratt Research Labs
23rd October, 2013
WHY?
Growth
Stability Harmony
TIME
PERFO
RM
AN
CE
Now Past Future
Constraint
What Next?
Decay
Pressure to Change
Pressure to Not Change
Maintain Stability / Harmony
Satisfy Growth in Demand Be
Successful
Stakeholder’s Conflict
TACTICS STRATEGIES
GOAL
Challenge 2: Ensuring every Local Change = System Improvement
Challenge 1: Achieving Growth AND Stability and Harmony
IMPROVEMENT CHALLENGES
What makes improving productivity so difficult…
How can Goldratt’s Theory of Constraints help overcome these challenges?
Disharmony
Slide 2 © Goldratt Research Labs, 2013
Presentation outline
1. What is Theory of Constraints (TOC)?
• TOC’s Five Focusing Steps (5FS)
• TOC’s Throughput Accounting (TA)
2. Using TOC to measure and improve
Management Productivity
3. Using TOC to measure and improve
Operational Productivity
4. Case Studies
5. Q&A
Slide 3 © Goldratt Research Labs, 2013
Part 1
What is
Theory of Constraints?
Knowing What to Change…and What NOT
Slide 4 © Goldratt Research Labs, 2013
What is Theory of Constraints?
Dr. Eli Goldratt (1947-2011) said that we can summarize
Theory of Constraints with a single word...
FOCUS
However, FOCUS do not only mean knowing what we should DO,
but as importantly, what we should NOT DO…
because…
Focusing on everything is synonymous with not focusing on anything.
1984 1999 1986 1994 1990 2010 2009 2010 1997 2000
Slide 5 © Goldratt Research Labs, 2013
“A chain is only as strong as its weakest link”
Step 0: Agree on the System GOAL
Step 1: IDENTIFY the System Constraint (WEAKEST LINK)
Step 2: Decide how to better EXPLOIT (not Waste) the System Constraint
Step 3: SUBORDINATE everything to the above decision (CHANGE only those RULES – policies & measurements in conflict with decision on how to better exploit/not waste system constraint)
Step 4: ELEVATE the Constraint (get more of it)
Step 5: WARNING!!!! If in a previous step the constraint has moved, GO BACK to Step 1, - do not let inertia become the constraint. (However, try not to reach Step 5 else you have to change rules)
10/hr 15/hr 12/hr 12/hr 13/hr Demand Supply
PROTECT current
level of Constraint
Exploitation
EXPLOIT potential
for more Goal Units
Step 1
IDENTIFY the
Constraint
Current level of
Constraint
Exploitation
Step 2
Decide How to
EXPLOIT the constraint
New Constraint
Exploitation Rules
Step 3
SUBORDINATE
everything to this decision
New level of
Constraint
Exploitation
↓ Starvation/Blockage
↓ Setups/Downtime
↓ Rework
↓ Overproduction / Multiitasking
Elevate
New Constraint
Elevation Rules
Step 5
If a constraint has been broken, Go back to Step 1
Step 4
Elevate the Constraint
Protective Capacity
WHAT IS THEORY OF CONSTRAINTS?
Knowing “WHAT TO CHANGE” - The 5 Focusing Steps of TOC…
NOT Change
+ VE + VE
GOAL
- VE - VE
GOAL
NOT Change
+ VE + VE
GOAL
- VE - VE
GOAL
10/hr
Slide 6 © Goldratt Research Labs, 2013
Expected = 70 upm
Actual = 35 upm
(around 50%)
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min ? U/hr
Avg ? U/hr
Max ? U/hr
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
The Dice Game – Insights
A B C D E
GOLDRATT’S DICE GAME
Why is the Throughput of systems well below their bottleneck capacity?
Important Lessons Learned:
1. System Output is normally significantly below Output of the Bottleneck
2. “Balancing Capacities” (to be efficient) creates a chaotic system – i.e. its impossible to reliably predict performance and very difficult to know where to focus…
3. We need to balance the FLOW …not Capacities…which requires Buffers + Protective Capacity in non-bottleneck processes…but will this not cost too much / take too long?
Slide 7 © Goldratt Research Labs, 2013
Expected = 60 upm
Actual = 58 upm
(around 97%)
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min 1 U/day
Avg 3 U/day
Max 5 U/day
Min ? U/hr
Avg ? U/hr
Max ? U/hr
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
Min 1 U/day
Avg 3.5 U/day
Max 6 U/day
The Dice Game – Insights
A B C D E
WHAT IS THEORY OF CONSTRAINTS?
Why is the Throughput of systems well below their bottleneck capacity?
Important Lessons Learned:
1. By slowing down the Bottleneck, we can create Protective Capacity in non-bottlenecks to reduce starvation and blockage of the Bottleneck.
2. If the Starvation and Blockage buffers work 100% effectively, the system performance will be equal to the bottleneck performance (and be very predictable).
3. Starvation and Blockage buffers should be dynamically adjusted based on actual supply reliability and demand variation (Too much Red = Too small Increase ; Too little Red = Too large Reduce) .
Slide 8 © Goldratt Research Labs, 2013
Slide 9 © Goldratt Research Labs, 2013
US$ % of SR US$ % of SR
Sales Revenue (SR) 10,000$ 100% 0.0% 0.0% 10,000$ 100%
Variable Cost (VC) 5,000$ 50% 0.0% 0.0% 5,000$ 50%
Throughput (T) 5,000$ 50% 5,000$ 50%
Operating Expenses (OE) 4,500$ 45% 4,500$ 45%
Net Profit (NP) 500$ 5% 500$ 5%
Investment (I) 2,500$ 25% 2,500$ 25%6
Return on Investment (NP/I)
0.0%
Now Future% Change
in Price
0.0%
0.0%
0%
% Change
in Qty
20% 20%0%
To determine the likely GLOBAL impact of any LOCAL Change,
Estimate the LOW, LIKELY and HIGH impact of each Change on ΔT, OE and I
Throughput (T)
The rate at which the system generates money through Sales or
T = Sales Revenue (SR) – Variable Cost (VC)
Operating Expenses (OE)
The rate at which the system spends money to generate Throughput (or other goal units)
i.e. OE = All non-variable costs (also called Fixed Costs)
Investment (I)
All the money tied up in the system (the money invested to generate Throughput).
WHAT IS THEORY OF CONSTRAINTS?
Quantifying the impact of CHANGES – TOC Throughput Accounting
Slide 10 © Goldratt Research Labs, 2013
Part 2
Using TOC to improve
Management Productivity
What is the bottleneck to improving
Management Productivity?
Slide 11 © Goldratt Research Labs, 2013
What is the Constraint or Bottleneck to
improving MANAGEMENT Productivity…
…needed to achieve more GROWTH, STABILITY and HARMONY?
The Bottleneck is always at the TOP of the bottle…
WHAT IS THEORY OF CONSTRAINTS?
Applying the 5 Focusing Steps to Management Productivity…
Slide 12 © Goldratt Research Labs, 2013
Required
Information to
make better
faster decisions
Available
data and
Information
Surplus
Management Attention = System Constraint
Management Information
Demand vs. Supply
MANY
Things that
demand OR
could benefit
from our
Attention Available
Attention
Shortage
Management Attention
Demand vs. Supply
Step 1: Identify the System Constraint …to
Achieving GROWTH, STABILITY AND HARMONY
(within Organizations)
Applying TOC’s 5 Focusing Steps to Improving
and Managing Organizations
Slide 13 © Goldratt Research Labs, 2013
How much of your limited MANAGEMENT ATTENTION do you
think you WASTE due to mistakes 1, 2 and 3?
FOCUS on FEW
Things that
could really
benefit from our
limited
Attention…and
DON’T MULTITASK
INCREASE
Better Exploiting Management Attention
Demand vs. Supply
Step 2: Decide how to EXPLOIT the System Constraint …
Identify the things that WASTE our Management Attention…
1. DOING what we should not
Productive use of
our
Attention
2. NOT DOING what we should
3. Repeating Mistakes – not
Learning from Experience
REDUCE
HOW? … STOP …
Error of Commission
Error of Omission
Error of Detection &
Correction
Applying TOC’s 5 Focusing Steps to Improving
Management Productivity
Slide 14 © Goldratt Research Labs, 2013
Quick Self-Assessment Check
Make a list of the things that cause you to WASTE your limited attention….
DOING WHAT YOU
SHOULD NOT
NOT DOING WHAT YOU
SHOULD
REPEATING AVOIDABLE
MISTAKES (REWORK)
Slide 15 © Goldratt Research Labs, 2013
There is a COST and a BENEFIT of PAYING Attention
1. COST – we GIVE UP the benefit of focusing our attention on something or
someone else…
2. BENEFIT – we GAIN the benefit of focusing our attention on this thing or
this person…
What is a common strategy to maximize BENEFIT and minimize COST…
We Multitask
…we try to give equal attention to the MANY things that demand or can
benefit from our attention…….but don’t realize the high PRICE we pay.…
WARNING
or pay the price
Why do we say “PAY” attention…?
Slide 16 © Goldratt Research Labs, 2013
So, are there any other ways that we
waste our limited Attention?
For example…
For the cases where we are
DOING WHAT WE SHOULD,
is “Multi-tasking”
the best way
to allocate our limited attention?
Checking Sufficiency…
Slide 17 © Goldratt Research Labs, 2013
Dr. Eli Goldratt’s real Legacy
Standing on the shoulders of Giants
“Finally, and most importantly, I wanted to show that we can all be
outstanding scientists. The secret of being a good scientist, I believe,
lies not in our brain power. We have enough. We simply need to look
at reality and think logically and precisely about what we see.”
Dr. Goldratt, the creator of Theory of Constraints, said the two key abilities to
“being an outstanding scientist” are simply:
(STEP1) Have the courage to face inconsistencies between what we (expect to)
see and the way things are… and then
(STEP 2) Have the wisdom to challenge basic assumption(s) to resolve these
inconsistencies.
Research Questions
• What are the inconsistency regarding how we invest our limited attention to
get work done?
• What “basic assumption(s)” can and should be challenged to resolve this
inconsistency….and how to do this especially if challenging the assumption
might be counter-intuitive?
Dr. Eliyahu M. Goldratt
1948 - 2011
Slide 18 © Goldratt Research Labs, 2013
Management Productivity Challenge
Facing an inconsistency and challenging basic assumption(s)
Research Problem
Inconsistency: Despite major advances in technology and know-how most
change initiatives are still completed late, over-budget and/or under-scope.
Research Question
Can changing the RULE we use in do work/ project tasks have a significant
impact on the lead time, costs and quality (or not)?
Research Method
• You are giving three projects to complete for your organization.
• These three projects together make up a Program but each project is for
a different “Customer” and each of these customers want you to finish
their project as soon as possible, want you to give them highest priority
but is also asking for a “reliable estimate of completion”.
• Which RULE should you use to do these projects:
RULE 1: Work on all of them at the same time (Multi-task), or
RULE 2: Do them one by one…(No Multi-tasking)?
Slide 19 © Goldratt Research Labs, 2013
1 2 3 4 5 6 7 8 9
10 11 12 13 14 15 16 17 18 19 20
58 sec
A B C D E F G H I J K L M N O P Q R S T
59 sec
Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο
60 sec
50-200% Longer 50-200% longer 50 - 200% longer 88 – 178 sec 89 – 179 sec 90 – 180 sec
Round #1
Complete Tasks by Multi-tasking …
Slide 20 © Goldratt Research Labs, 2013
1 2 3 4 5 6 7 8 9
10 11 12 13 14 15 16 17 18 19 20
20 sec
A B C D E F G H I J K L M N O P Q R S T
40 sec
Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο
60 sec
Early / On time Early / On time Early / On time
10 - 20sec 20 - 40sec 30 - 60 sec
Round #2
Complete Tasks without Multi-tasking
Slide 21 © Goldratt Research Labs, 2013
Can safely reduce Project buffer by 50%
SCENARIO #1: No Capacity Constraints
10 0 20
Project X
Project Y
Project Z
SCENARIO #2: PLAN - Multi-tasking
10 0 20 30 40 50 60 70 80
Project X
Project Y
Project Z
SCENARIO #2: ACTUAL - Multi-tasking with Distraction Delays
Project X
Project Y
Project Z 10 0 20 30 40 50 60 70 80
SCENARIO #3: PLAN - No Multitasking
10 0 20 30 40 50 60 70 80
Project X
Project Y
Project Z
Start Later
Finish Earlier
Start Earlier
End Earlier?
Finish Later
BASIC ASSUMPTION CHALLENGED “The earlier we start… the earlier we finish” / Its unfair to prioritize
VS. “The later we start... the earlier we finish” / Its unfair not to prioritize
SCENARIO #3: ACTUAL - No Multitasking Project X
Project Y
Project Z
10 0 20 30 40 50 60 70 80 90
EARLY FINISH
LATE
FINISH!
UNDERSTANDING WHY MULTI-TASKING IS SO BAD…
Multi-tasking delays project flow …and distracts our attention
Other Consequences…
Complexity, Uncertainty
and Resource Constraints
Multitasking
at all levels
Main Cause… Real Cause…
People at all levels are
stressed and overworked
Difficulty to Improve & sustain
higher Project Performance
Our Challenge
“Local Optima”
Rules…
TOC Solution Lower WIP +
Ensure Full Kit Schedules with Aggregated
Tasks + Buffers Global Priorities +
Buffer Management
Too High WIP
+ Not Full Kit Too Detailed Schedules
+ Local Safety
Local Priorities +
Measurements
CCPM Rule 1 CCPM Rule 2 CCPM Rule 3
Pipelining Planning Execution
Delays and Mistakes in prediction,
detection & correction
Really?
Lets check this
assumption with
Multitasking Game
Simple …but not easy…
Increased Project
Work + Wait Time
ANALYZING POOR PROJECT PERFORMANCE
Is it the Starting Conditions…or the Rules WE use…
Slide 23 © Goldratt Research Labs, 2013
Part 3
Using TOC to improve
Operational Productivity
Is TOC the same as Debottlenecking?
Slide 24 © Goldratt Research Labs, 2013
1. Improving Flow (specifically reducing Flow Time) is should be the #1 objective for Operations/Supply Chains
2. To reduce Flow Time, we need a Practical Mechanism to Stop Overproduction and maintain right priority
– Ford: Use Space and Sequence of Launch
– Ohno: Use Kanbans and Colors to show emergency Kanbans
– Goldratt: Use Time (Buffers) and Buffer Penetration to ensure same priority everywhere and to focus management attention
3. Abolish all Local Efficiencies / Local Optima
4. Put in place a Focusing Mechanism to continuously improve and re-balance Flow (e.g. Do Pareto on what is causing delays in flow?)
Yes, but….
How do we know that FLOWS are not balanced…
STANDING ON THE SHOULDERS OF GIANTS
THE Four Concepts of Flow
Slide 25 © Goldratt Research Labs, 2013
Growth in Queues & Decay in Reliability vs. Growth in Resource Utilization
Qu
eu
e L
en
gth
/Su
pp
ly L
ead
tim
e
Resource Utilization
Relia
bility
in m
eetin
g d
em
an
d
0% 100% 80%
Linear growth
until reaching
“Turning the
Corner” Point
at >80%
utilization
Resource
Arrivals Departures
How can we turn this insight into a GOOD MEASUREMENT SYSTEM…?
RISK: DEMAND GROWTH / INSUFFICENT CAPACITY
Growth in backlog vs. Decay in Reliability of Supply...
Slide 26 © Goldratt Research Labs, 2013
WIP
Supply
Lead Time
Higher
WIP
Longer
Supply LT
Time Time
Higher
WIP
Longer
Supply LT
Time
LITTLE’s LAW
Work-in-Process = Flow Rate x Flow Time
WIPavg = FRavg x FTavg
Cumulative Flow Diagrams
If either arrivals (demand) increase or departures (supply) reduce, it causes Supply
Lead Time and WIP to grow.
• Growth will be exponential if demand grows faster than supply.
• Growth will be permanent without sufficient catch-up (protective) capacity…
Balancing FLOWS … not balancing CAPACITY
Using Cumulative Flow Diagrams as Early Warnings of Scarcity
Slide 27 © Goldratt Research Labs, 2013
CRITERIA FOR DESIGNING A GOOD
MEASUREMENT SYSTEM
GOOD MEASUREMENT SYSTEM
1. Accurately measures the STATUS (Ok or not?) and TREND (Improving or Not?)
Know WHEN to act…and When NOT
Mistakes
Type 1 - Reporting we are OK when we are not…and
Type 2 - Reporting we are not OK when we are.
2. Accurately predicts likely CAUSE(S) of the status (i.e. Demand or Supply problem?)
Know WHERE to act …and Where NOT
Mistakes
Type 1 – Reporting something as a major cause when it is not…and
Type 2 – Not Reporting something as a major cause when it was
3. Drives desired / discourages undesired behaviors (what is best for the system)
Know HOW to act…and HOW not
Mistakes
Type 1 - Encouraging an undesirable behaviour (local optima)…and
Type 2 – Not encouraging a desired behavior
Slide 28 © Goldratt Research Labs, 2013
How well does your company’s measurement system meet these criteria?
IMPORTANT GLOBAL MEASUREMENTS
Measuring Productivity, Flow and Timeliness
5%
10%
15%
20% 15%
10%
0-5d 5-10d 10-15d 15-20d 20-25d 25-30d 30-35d 35-40d > 40d
QUALITY THROUGHPUT
75% of On-time / Coverage 25% Late /
Not served
GOOD MEASUREMENTS
• Cumulative Flow for System and Sub-
systems
• Operational Productivity = $T/$OE or
(for Service Depts) = QT/OE
• Capital Productivity = $T/$I
• Quality can be measured as:
% Coverage, % OnTime or % InSpec
• % Protective Capacity Available on CCRs
(Capacity Constraint Resource)
Arrivals
(Demand)
Throughput
(Supply)
Longer Flow Time
Flow Time
WIP
Cu
mu
lative
Flo
w
Time in Days
CUMULATIVE FLOW
Operational Productivity = $T/$OE or QT/OE
Capital Productivity = $T/$I
Pro
du
ctivity
Time in Days
PRODUCTIVITY
Slide 29 © Goldratt Research Labs, 2013
Part 4
Case Study
How can we apply the 4 Concepts of flow
and insights on the damaging
consequences of Multi-tasking to improve
Productivity of Managers at all levels?
Slide 30 © Goldratt Research Labs, 2013
Case Study:
Focusing on improving Flow & stopping multi-tasking
Every manager can improve the productivity of its department if
they can find ways to reduce flow delays and stop multi-tasking
The case studies shared will show the impact of improving flow
and stopping multi-tasking in different departments within two
different companies.
Company 1 – Applying it within Sales Department This case study will reveal how the company applied the 4 Concepts to
significantly reduce the Average Sales Cycle Time and increase the success
rate of their sales
Company 2 – Applying it within IT Department This case study will reveal how the company applied the 4 Concepts to
significantly improve due date performance and reduce the average Lead
time of IT Projects.
Slide 31 © Goldratt Research Labs, 2013
CASE STUDY 1 – LESS IS MORE
Applying four FLOW concepts to Sales Department
1. IMPROVING FLOW IS #1 - Faster Flow of “good” (higher Throughput margin and higher
probability of closing deal) sales opportunities through the sales channel should be the #1
objective because any flow delays cause longer sales cycles, lower hit rate & margins.
2. MECHANISM TO PREVENT OVERPRODUCTION & SYNCHRONIZE PRIORITIES - “Choke
the release” by ensuring whole Sales Teams focus on “well qualified sales opportunities”–
Less is More because too High WIP causes Multi-tasking that cause bottlenecks, longer
sales cycles and lower hit rate …so more pressure to go get even more(vicious cycle)
3. ABOLISH LOCAL OPTIMA – Abolish any incentives or measurements that drive behavior
that is in conflict with better flow (e.g. number of opportunities in pipeline)
4. FOCUSING MECHANISM – Identify and eliminate the most significant sources of low hit ratio
and or long sales cycles to focus continuous improvement efforts - check for build-up of
WIP in sales process steps and record and analyze reasons for delay.
Reference: Chapter 21 of Theory of Constraints Handbook, Less is more: Applying Flow concepts to Sales by Mauricio Herman and Rami Goldratt
30% 47%
263%
Slide 32 © Goldratt Research Labs, 2013
CASE STUDY 2 – LESS IS MORE
Applying four FLOW concepts to IT Department
1. IMPROVING FLOW IS #1 - Faster Flow of “good” (higher ROI) projects through the Project
Office should be the #1 objective because any flow delays cause longer lead times,
lower quality and throughput of projects, higher cost & risk and lower ROI
2. MECHANISM TO PREVENT MULTITASKING & SYNCHRONIZE PRIORITIES - “Choke the
release” by pipelining projects (prioritize, freeze and stop) as starting projects too soon causes
multi-tasking that causes longer wait and work time (longer flow time).
3. ABOLISH LOCAL OPTIMA – Abolish any incentives or measurements that drive behavior
that is in conflict with better flow (e.g. no. of projects in pipeline, reporting % complete etc.)
4. FOCUSING MECHANISM – Identify and eliminate the most significant sources of delays on
projects and resource bottlenecks to focus continuous improvement efforts check for
build-up of WIP at TASK Manager Level (for resource constraints) and record and analyze
reasons for most penetrating delays.
Slide 33 © Goldratt Research Labs, 2013
CLOSING REMARKS
Achieving FLOW in Personal productivity…
Slide 34
STOP Multi-tasking – get into FLOW
© Goldratt Research Labs, 2013
Productive
Time (Adding Value)
Actual
Utilization
Available
Wasted Time/Attention
Not doing the RIGHT
things
Doing the WRONG
things
Doing right things
wrong
Management Attention
Not doing the
Wrong Things (STOP/NOT START)
Doing the Right
Things (ACCELERATE/START)
Doing the right
things right (FOCUS/DONT MULTI-TASK)
Learn from
Experience (FAST FEEDBACK)
Key Take-Aways
Repeating mistakes
REMEMBER….THE BOTTLENECK IS ALWAYS AT THE TOP OF THE BOTTLE
Slide 35 © Goldratt Research Labs, 2013
THANK YOU FOR YOUR
ATTENTION…
….I KNOW IT IS YOUR SCARCEST
RESOURCE
GOOD LUCK!
© Goldratt Research Labs, 2013 Slide 36
Q&A
Slide 37 © Goldratt Research Labs, 2013
ABOUT THE PRESENTERS
Dr. Alan Barnard (PhD)
Dr. Alan Barnard is one of the leading experts in the world in Theory
of Constraints (TOC) frequently worked with Dr. Eli Goldratt, creator
of Theory of Constraints on large and complex projects around the
world. He is the CEO of Goldratt Research Labs (USA), Chairman of
Realization Africa (RSA), African Phosphates (RSA) and The
Odyssey Institute (USA). Alan is also a board member of TOCICO
and the Dr. Eliyahu M. Goldratt Foundation.
In 2009, Alan was awarded a PhD in Management of Technology &
Innovation, from the Da Vinci Institute in 2009 with a thesis titled
“How to identify and unlock inherent potential within organizations
(private & public) and individuals?”. Alan is also the author of 2
chapters in the McGraw Hill published Theory of Constraints
Handbook.
Alan is a past-President of SAPICS (2000 to 2002) and past-President of TOCICO (2003 to
2005) and serve on the judging panels of the Logistics Achiever Awards and Technology
Top 100.
He has worked with global companies such as ABB, BHP, Cisco, SAP, Random House
Publishing, Tata in the Private sector and also with UN DP, UN WFP and InWent in the
public sector on applying for example Theory of Constraints to City Councils in
Developing Countries in the Public Sector to help them identify and unlock inherent
potential to achieve more with the same resources in less time.
© Goldratt Research Labs, 2013