To break focus on
local optima the Theory of Constraints (TOC) has an methodology called "The
Five Steps", which should provide managers to learn and work to break constraints
instead of just accept their existence:
Step 1: Identify the system’s constraint
First of all,
managers should identify where is the constraint – or constraints – in the
system. No improvement would be possible if the weakest link in the chain is
not found. But sometimes this might be difficult and would request some guesses
and trials.
At several sites managers told us that they had been
unable to figure out where the bottleneck was because of the chaos that had
resulted from applying conventional shop control techniques over the years.
Rather than giving up, they picked a resource near the middle of the system to
be the "designated constrain" and then proceeded to install a DBR
[Drum-Buffer-Rope] system. This procedure permitted some progress in getting
the production process under control. If the initial guess at the location of
the constraint was incorrect, the system eventually would let them know by the
presence of unplanned work-in-process inventory accumulating in front of the
real constraint and perhaps by holes in the protective buffer in front of the
"designated constraint". (Noreen et al., 1995, p. 43)
But not
necessarily the constraint should be inside the system. In fact, the system
could be restrained by an outside issue like demand, infrastructure, and so on.
This does not necessarily means that it is not possible to manage the
limitation. Outside constraints can be related to policies and controls stated
in the past and have no application in current reality.
Goldratt believes that the physical constraints on the
shop floor usually can be dealt with very quickly once they have been
identified. As soon as the constraints
inside the factory have been broken, the constraint shifts elsewhere. Quite often it will appear
that the market is the constraint – there is insufficient demand for the
company’s products. In such a situation, it appears
that the constraint is outside of the company and therefore beyond its control.
However, Goldratt firmly believes that in the vast majority of cases, the real
constraint is some policy inside the company. “We very rarely find a company
with a real market constraint, but rather, with devastating marketing policy
constraints.” For example, a company may have a policy of never cutting its
prices below its fully allocated product costs. (Noreen et al., 1995, p.
43.)
Step 2: Decide how to exploit the system’s constraint
After
identification of the constraint, the next step is to make it's output as
effective as possible. Nothing should be wasted in the constrained resource,
since any problem that reduces it's output rate affects directly the system’s
performance and the sales level. Managers must seek opportunities to make
adaptations in order to improve the constraint’s capacity and solutions to
avoid any kind of disturbance in this resource (quality standards, staff
availability, maintenance, and so on).
Potential jobs also should be prioritized in terms of
how effectively they use the constrained resource. The constraint is wasted if
it is used to process one job when a different job could have produced more
profit. Such decisions can be made by prioritizing potential jobs according to
the amount of throughput they yield per unit of the constrained resource. (This
method is exactly the same as prioritizing products based on the contribution
margin per unit of the constraint, which has been included as a constraint
management technique in management accounting textbooks for decades). (Noreen et al., 1995,
p. 44)
Step 3: Subordinate everything else to the above
decision
Nonconstraint operations
should be ruled by the constraint resource. It means that every part of the
system needs to be aligned just to support the constraint, even if it implies
reducing the efficiency on noncostraint resources. This is a turnaround from
the culture of focus in cost reduction everywhere.
This is a major shift for management accounting.
Caspari stated it clearly when he wrote, “The question becomes: What must this
unconstrained area do to protect the exploitation decisions? rather than: What
can this area do by itself to
increase the bottom line?” The obvious conclusion is that nonconstraint should be measured on how well
they support the constraint and definitely not on local “cost” minimization
actions. Any decision regarding nonconstrained resources need to be answered in
light of how the actions will involve or impact the constraint. The focus is on
throughput maximization, not cost minimization. (Noreen et al., 1995, p. 45)
Step 4: Elevate the constraint
After doing
whatever is possible to exploit the constrained resource and subordinating
nonconstrained resources to balance the system according to the constraint’s
output, if the overall output is still inadequate then it might be necessary to
make some investment to acquire more capacity in the constrained resource
(elevate the constraint).
Elevating the constraint means getting more of it.
Some of the work that ordinarily would go through the bottleneck constraint
might be off-load to outside shops. If the bottleneck is a machine, another can
be acquired. At most of the sites we visited, recent equipment acquisitions had
focused on elevating the constraint. We found several examples in which very
inexpensive used equipment with limited capabilities was used to off-load some
of the work from a constraint. Ordinarily, this equipment would have been cast
off as too inefficient to use. Overtime, or even another shift, often was used
to add capacity to the constraint. At one site, the standard product used a
bottleneck, but the premium product did not. Managers decided to give free
upgrades to the premium product. The decision never would have been made under
their old operation rules, which emphasized "cost" minimization,
because the premium product requires more total machine time (but on the
nonbottlenecks) than the standard product and hence is more "expensive".
Almost every site we visited has been able to increase the overall capacity of
the plant by effective constraint management, to the point where throughput
ordinarily was no longer limited by the capacity of the plant. The constraint
had shifted outside of the plant to the market or to some other part of the
organization. (Noreen et al., 1995, p. 46)
Step 5: If a constraint has been broken, go back to
Step 1. Do not allow inertia to cause a system constraint
The Five Steps
methodology is an ongoing process. After a constraint is discovered and broken,
a new constraint will immediately appear. At this point it is necessary to go
back to the beginning and start over.
An optimal solution deteriorates over time, as the
system’s environment changes. As Goldratt says, "Yesterday solution
becomes today’s historical curiosity." (‘Isn’t that curious?! Why do you
suppose they ever did that?"). A process of ongoing improvement is
necessary to update and maintain the efficiency (and effectiveness) of a
solution. Inertia is the worst enemy of a process of ongoing improvement. The
attitude that "We’ve solved that problem – no need to revisit it"
hurts continuous improvement efforts. (Dettmer, 1997, p. 13)
Here is the great
risk in applying Theory of Constraints in an organization: it requires managers
with an open mind, capable to overview the system and point out the next
opportunity for improvement.
The story we are told at one site reinforces the
importance of overcoming inertia. The organization had substantial initial
successes with TOC, but stagnation set in because of a change in constraints.
Because of a dramatic shift in demand toward more complex products, the
constraint had shifted to product engineering. The shift created a number of
problems, including a tendency for jobs to be released by engineering in big
bursts that would overwhelm the productive capacity of the plant. There had
been no visible attempt to overcome this problem using TOC principles. It did
not even seem to occur to managers to use TOC principles to attack the problem.
Such a situation probably is a consequence of the tendency to view TOC as a set
of tools for production and not as more generalized tools that can be applied
to engineering, marketing, or other nomanufacturing functions. (Noreen et al.,
1995, p. 47)
This way TOC is a
continuous challenge to the status quo,
and emotional resistance can be an expected outcome in many situations.
Any improvement is a change.
Not very change is an improvement but certainly every
improvement is a change.
We cannot improve something unless we change it.
Anyone who has worked in an organization for even a few months knows that we
cannot escape the validity of the following step:
Any change is a perceived threat to security.
There will always be someone who will look at the
suggested change as a threat on their own security.
Now the door is wide open for the unpleasant
conclusion. What is the unavoidable result when you threaten somebody’s
security?
Emotional resistance!
Anybody who thinks we can overcome an emotional
resistance with logic, was probably never married. We can only overcome emotion
with a stronger emotion. (Goldratt, 1990, p. 10)
The Five Steps
process sets a technique to focus on problems and improve the system’s output. But
due to aspects related to change and the risk to be understood as a threat,
it’s necessary a deeper analysis of each situation in order to achieve
participation and support instead of resistance and inertia.
BIBLIOGRAPHY:
DETTMER, William
H. Goldratt’s Theory of Constraints: a
systems approach to continuous improvement. Milwaukee: ASQC Quality Press,
1997.
GOLDRATT, Eliyahu
M. What is This Thing Called Theory of
Constraints. New York: North River, 1990.
NOREEN, Eric;
SMITH, Debra, MACKEY, James T. The Theory
of Constraints And Its Implications For
Management Accounting. North River Press, 1995.
