Theory of constraints or common sense

Theory of constraints (TOC): the title alone, with its apparent basis in academe rather than practice, is probably reason enough for what has been pitifully slow uptake over the last 25 years. One understands the protagonists’ desire to lend serious scientific foundation to its application, but to those that have done TOC and to many a casual onlooker, TOC would have been better named ‘Common Sense’ or ‘Structured Common Sense’ (SCS) for appropriate pretentiousness – almost anything but TOC. Because with TOC, more perhaps than with any other manufacturing business initiative, common sense, flexibility and pragmatism are clear recurring themes. And the results from the TOC-aligned reference sites, few as they are, seem so incontrovertibly outstanding that it’s little short of scandalous that TOC has spread so thinly. UK manufacturing could have looked very different today had there been a wholesale move to its tenets and methodologies – and the supporting IT – over the last quarter century. With this background, Manufacturing Computer Solutions’ bimonthly Forum chose TOC last month for its subject. We gathered together senior manufacturing users from across industry – some TOC users and converts, others sceptics – together with TOC consultants and IT vendors at Brands Hatch, and we tasked them with cutting through the myths and hearsay to the real issues, the barriers, the costs and the benefits. And by the close of play, we were unequivocal: TOC is aggressive common sense; you can start small and manual to prove it; but you absolutely have to challenge received wisdom and practices – and lead that from the top. The good news: you need not necessarily abandon your existing IT. First though, some definition. Goldratt associate and TOC consultant John Tripp gave us this. “Every organisation is dependent on its few weakest links, so TOC is about finding [those] and solutions that will enable them to improve. In manufacturing we use ‘drum’, ‘buffer’, ‘rope’ (DBR). The drum tells the company how fast it’s going to work. The buffer deals with all the things that go wrong – they’re time buffers inserted into the process to protect the critical resources that deliver to the customer. The rope is a mechanism to try and limit the inventory within the system – to keep it at a level to enable work with the current level of disruption.” Then, hand in hand with DBR goes ‘buffer management’ which focuses on what causes the buffers – the problems. Its value is in its long term direction for finding improvements. Nothing in TOC says you can’t make early to order to smooth out manufacturing and handle capacity limitations. There’s a preference to reduce lead times, build only what needs to be built and purchase only what needs to be bought, but the emphasis is on the word ‘need’ – and that’s a variable. So the way is open for improving on forecasting, sales and operations planning, product rationalisation, late configuration, lean manufacturing and all the rest. TOC in application is much less about dogma and much more about manufacturing and business pragmatism. As Goldratt Institute consultant Martin Powell repeated at various times in the meeting: “It depends; you know it always depends.” And the associated Critical Chain? Tripp: “This is a second tier solution for the logistics of manufacturers making more bespoke products. DBR works very well in industries where the process time is small versus the lead time. As you get longer process times and more variability, then you have to look at it being much more like a project, and then Critical Chain comes into play. Its for finding and managing the chain of events that’s the weak link.” So far so good. But theory, as ever, is one thing: practice can be quite another. So does it work? Dr Linda Bell, managing director of gas analysis instrumentation manufacturer Servomex, left us in no doubt. “We put DBR in our manufacturing for standard products last April when I took over the company. We had £1/2 million of overdues, on time delivery performance was 60% and we had high wastage and high inventories of things we didn’t need. By the end of June we’d got overdues down to £50,000 and on time delivery was 80%. It’s now 95% or above… Lead times, which were 12 to 16 weeks, are now less than four... So it had a very significant impact very quickly.” Achieving this, she said, on the IT side involved little more than getting the existing ERP to generate TOC-related reports, although the subsequent SAP implementation required customising and inhibiting on the manufacturing side “to incorporate TOC principles”. Her team’s focus of change was on the business processes. “If you haven’t got cultural issues, then I think you will get results of this magnitude within two or three months. It’s phenomenal.” Interestingly, vending machine electronics manufacturer MEI got similar excellent benefits (MCS, March 2002, page 54) – but it took considerably longer. Why? Two reasons. Serhat Sonkur, senior factory planner, agreed it was advanced planning and scheduling (APS) led, rather than TOC led. He also accepts that senior management buy-in was less than forthcoming and committed. Both are key. Do you need formal TOC and a TOC consultant? Not necessarily, said Mike Robinson, operations director for Loma Systems, which makes contamination protection systems. He advocated good old common sense. “We moved away from formal MRP systems – they’re in the background, but they were slowing the processes down. For us to reduce lead times (from 14 weeks now to two) we had to implement systems which rely on identifying the bottlenecks on a day-to-day basis – from the shop floor point of view and from a management and strategic point of view – and deal with them.” Robinson might be a rare creature: he achieved TOC results, he says, through intuitive common sense. That he managed what he did, however, was clearly a result of insight, personal conviction, persuasiveness and power – he sits on the board and made no bones about his willingness to use that influence. Again: the same message – leadership from the top and business processes first; IT integrated, but in support. If it was that simple, however, surely we’d have all done it by now? So what’s getting in the way? For most of us, it turns out to be a people and culture thing: ‘local’ departmental, often middle management ‘optima’ and measures – or at least perceived measures – and the behaviours they engender. Tripp gave the example of purchase price variance (PPV), citing a company that forced a corporate goal of saving $2 million. “$2m was saved from the budget by moving purchasing from Italy to Russia,” he said. “The costs went down dramatically; but lead time doubled from three months to six; products arrived, were scrapped and sent back to Russia. None of those costs were taken into account in the local measure… The company actually made a lot less profit.” We’ve all seen similar: purchasing buying extra stock, for example, to get discounts, but risking obsolescence, tying up warehouse space and committing cash. But to generalise, the consensus was that the biggest issues are all too common management measures like machine utilisation, standard hour efficiencies, costing products according to the units of time we put into them, and so forth. TOC does not at first look so good in these terms – and it’s management’s responsibility to recognise this and re-gear the measures to what matters: satisfying customers by delivering the right product on time in full at lowest cost, and to get that reflected right back through the business. The real barriers That’s not to deny there are old style shopfloor culture problems: there are. Consider the following. Fear of job losses: improving efficiency is bound to mean cutbacks. Or material isn’t being released to the factory floor; I don’t have work building up to do; so are we not doing so well? It’s just another initiative with an acronym to go through. How will we get the work out on time? What about my bonus scheme? And sometimes communication alone isn’t going to be enough. But, round the table, managers agreed that inhibited middle management is the major stumbling block, not so much the work force. Sonkur said it all: “At first the shop floor was a bit confused, but it didn’t take them long to understand what they needed to do. The problems came with the production manager, the middle management and the manufacturing manager … because they are being measured by the accounting department for the ‘efficiency’ of the plant.” Exactly. And Robinson buttonholed it: “I believe middle management stops a lot of this change. When I joined Loma, I was challenged by the guys on the shop floor who were desperate for change. I was challenged by my boss, but I wasn’t challenged by the production manager. Everywhere I’ve worked there’s been plenty of imaginative ideas, intuitive TOC, intuitive manufacturing, all the right things, from the guys who were right at the coal face – providing there is vision above.” We know what we know. You’ve got to kick over the traces of 20 or 30 years of accepted manufacturing, business, accounting practice before you can begin to move forward. And that means taking everyone with you, everyone – and cementing that in. Get this. Mike Haluska, a TOC consultant with enterprise IT vendor Western Data Systems, observed that managers being presented with TOC frequently ask: ‘OK, I understand scheduling the constraint with the drum, but how do we schedule all the other resources?’ “They have a great deal of difficulty understanding the idea that you don’t… One of the major reasons I don’t get a client is that it’s too simple, it can’t possibly work. But when you think about it, if you’re releasing work into the plant at the pace of the drum in the right order, the non constrained resources work on what they get first. You can’t make it any simpler.” Costs and benefits Do the improvements translate down to the bottom line in terms of actual growth as well as the clear cost savings from efficiency and inventory and lead time reductions? Kevin Owen, chief accountant with pressure instrumentation manufacturer Druck, wanted to know, for example, “has TOC actually increased sales, increased the number of orders coming in?” Haluska said absolutely yes – and not just from the obvious competitiveness and customer service improvements. “There are geographic, quality, delivery times – there’s literally hundreds of ways to segment the market.” It’s an important point. With production and progressively other departments getting streamlined in their own terms by focusing on their weakest links, all of this becomes doable. The trick is using TOC thinking across the business to help drive, even change, short and long term corporate goals. Haluska: “It might be that going from six weeks lead times to four isn’t going to do anything for you as far as market share is concerned. So TOC would say, go to the next weakest link and try to improve that... Don’t become so focused on one particular aspect of the business that you lose sight of the overall. It might be the initial gains are on the shop floor [but] over a period of time you definitely reach a point of diminishing returns – much more with TOC than with other systems. The perspective we have to take is what’s limiting us from making more money – and it may be marketing, it may be in engineering.” IT in all this? You don’t actually need IT for TOC – but it sure helps. John Tripp said that for him the best bet is to “do it manually first so you can generate the benefits, and then work with the software vendors to bring exactly the system you want to make it last for the long term.” But he specifically cautioned: “If you start with the software you’ll get distracted… You spend quite a lot of money on buying any system: there’s hardware, software and a lot of work with integration [and] people focus on it. Is the software ready yet? Is it live? It tends to divert people… You lose the mechanisms.” Manugistics’ David Blacklock agreed, but warned: “I’ve done it manually in some smallish, medium sized companies, [but] if you were to go into a big complicated factory, or series of factories, and do this manually first, I think you’re going to struggle. I certainly wouldn’t go into Boeing Aerospace and tell them, we’re going to do it manually.” And he added: “To make it stick you need something, you need a repeatable mechanism every day of every week, even in a medium sized company, and that’s where the software comes in.” And so consultant and vendor battled it out, with examples of huge achievements on the back of virtually zero IT – and the reverse. The bottom line: It depends a little on what your company is, how many components, how complicated, how it’s integrated. Once you get to a certain point it’s almost inevitable now, if you really want to drive a company to grow, to link it in to sales and anything else, that you will need some kind of software. Blacklock: “Certainly our best results are where the [Goldratt] Institute have given them a good dose of [TOC] philosophy, they’ve achieved the more obvious benefits and then we follow on and squeeze it and tune it up [with IT].” And more specifically: “You certainly need something if you have multiple inconsistent constraints where, for example, a good sequence for machine A is lousy for B, and vice versa, so there’s no obvious single drum beat. Then you need an optimising finite scheduler to sort out the conflict and come up with a least/worst solution. The second area is frankly where it’s too big to handle on a wall chart. In that case you need a computer system.” He’s right. Although Haluska warned of the dangers of taking APS too far with complex systems and organisations attempting to perfect planning and scheduling linked into supply chain capable-to-promise (“the world is not a linear determinate system… Lots of things are totally unpredictable; if you try to manage that … it’s a fool’s errand.”), the right IT – and that’s extremely unlikely to be conventional MRP II (indeed, at several levels it needs to be inhibited) – used sensibly is the way forward. That’s not to say that all APS or FCS systems are ‘TOC-aware’, as it were. They’re not. You need to check out their lineage, starting with Manugistics, Lilly Software, Mapics and Frontstep as good examples. And there’s power in spreadsheets and ‘business dashboard’ systems, workflow systems and the rest that tie people, machines, processes and TOC principles together – and provide the alerts to ensure they keep working. It’s all about optimisation around the key constraint, ensuring feedback and visibility where it matters and building and maintaining confidence. And be advised. As Graham Hackwell, technical director of British APS/FCS software vendor Preactor, said: “At the lowest level you might be scheduling individual resources on the shop floor, and typically you’re looking at short term horizons. If you go into APS, then ... you’re looking at what the cell is doing, the division, the plant. As you move away from low level scheduling you’re aggregating demand and capacity and it’s a question of how you set the data up.” And we’re back to the foundations of any implementation. All agreed that processes, people, commitment and understanding first, followed by IT second is the way forward. As Wayne Brazier, director of MRO at Sigma Aerospace, said of an implementation he was involved with in a former employment: “They purchased a complete ERP package and I was in there implementing the advanced scheduler. I spent eight months trying to put a model in the software, educating the guys. [But] after a while it became evident they didn’t really understand the logic, the events, consequences…” The result? “They’ve dumped it ... They’ve gone back to the chaos.” Process change, education and management: at the time his company wasn’t paid to do this – his task was IT implementation. But that’s another story. WDS - weblink Pantek - weblink