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WRITTEN BY:
Dr. MILTIADIS BOBOULOS
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
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.
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.
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.
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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
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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:
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
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 chain is only as strong as its weakest link.
As a result, TOC wisdom is as follows:
• System wide, or "global" improvement, then is NOT the sum of the local
improvements.
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 line impact can be gotten by channelling those resources to the
constraint.
1. Identify
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2. Exploit
3. Subordinate
4. Elevate, and
5. Go back to Step 1
Identify
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
machine 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
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 prevent this from
happening. This usually involves significant changes to current (and generally long
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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 activate the resource that was the constraint and produce
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 greatest
movement toward the goal of making more money-now and in the future.
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 constraint – because there always is one. The five step process is
then repeated.
This is not the case. A fundamental principle of the Theory Of Constraints is that
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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 break the constraint fairly quickly. Therefore, it is mastery of the Thinking
Processes that is necessary for most organisations to break through their
constraint.
1. What to Change?
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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
will know what to change.
That will bring us to the question, "What to change to?" While this question is
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 sure the cure will not be worse than the
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 used when answering question 3: the
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When using the Thinking Processes, the first of 3 questions we should ask is:
• "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. Examples of negative effects would be things such as
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 Tree." Once properly constructed, we are
in the position to know what to change.
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When using the Thinking Processes, the second of 3 questions we should ask
ourselves is:
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 your system. That is,
would implementing the injection change the undesirable effects (UDEs) we are
now experiencing into desirable effects (DEs)?
When using the Thinking Processes, the second of 3 questions we should ask is:
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
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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
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 next to impossible to implement -- that it will happen only when "pigs can fly."
Such injections are referred to as "Flying Pig Injections." If this is the case for us,
we should not be in despair. There are effective techniques for grounding a flying
pig.
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 indeed change the
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 for some time, and that
there is a significant conflict underlying the current behaviour. Thus, the proposed
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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
work, but...." They complete the sentence with any number of unintended negative
consequences that they fear will happen as a result of the change. For example:
• "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 are involved in the affected process(es) will best
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 the concern forward in figuring out how to prevent that
negative consequence from actually occurring. Goldratt calls this "trimming the
Negative Branches."
When using the Thinking Processes, the third of 3 questions we should ask is:
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. Since
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
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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
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 current behaviour. Thus, the proposed injection will usually be
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 way these people complete this sentence is by
identifying obstacles that seem to make the chances of successfully implementing
the idea very small. For example:
• Yes, your solution is good, but it requires that marketing and engineering
must communicate closely with each other, and in our company they aren't
even on speaking terms.
• Yes, your idea may work, but before we could implement it we would have
to train everybody in the organisation and we don't have any money in the
budget for that.
• 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
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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
that is used to logically show what is necessary to overcome these obstacles is
called the "Prerequisite Tree."
There is another way that people can complete the sentence, "Yes, but...." It is by
identifying unintended negative consequences; these are discussed in the section
on Negative Branches.
When using the Thinking Processes, the third of 3 questions we should ask is:
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. Since 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.
Negative branches and the prerequisite tree are discussed on other pages, as was
the evaporating cloud. All three of these mapping tools produce ideas, called
injections, about what conditions need to exist in order to produce a solution that
will:
2. Prevent unintended negative consequences that might have been the result
of the proposed change
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Epilogue
Inputs...
Circumstances
Outputs...
Data
Intuition Decisions
that Drive
Past Experience the Company
Policies
Theory
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 management philosophy will enable our company to make
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 introduce defective inputs, our
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outputs may improve, but they still won't be the best. Likewise, we can improve the
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 the process.
• Data: TOC dramatically reduces the data considered and redefines the
critical measurements;
• Intuition: TOC forces us to make our intuition explicit and visible to others.
You must always question your assumptions -- and the assumptions of
others;
• Theory: TOC sharpens the focus of how to get more of the system's goal.
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TOC Resources
The Goal
by Eliyahu M. Goldratt (North River Press, 1984)
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
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"A factory may be an unlikely setting for a novel, but the book has been wildly
effective." —Tom Peters
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
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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.
"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
The Race
by Goldratt and Fox (North River Press, 1986)
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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.
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
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 more importantly, is there a
way to reverse the trend? This book gives the answers.
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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
breakthroughs.
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Chapter 2 Laying the Foundation APOLOGIA or In The Move Toward The Third
Stage
Chapter 3 The Fundamental Measurements When Quoted Lead Times Are The
Problem
Chapter 5 How Complex Are Our Systems Looking Beyond The First Stage; Just
In Time
Chapter 6 The Paradigm Shift Looking Beyond The First Stage; Just In Time
How to throw out the baby with the bath water a discussion on automation.
A discussion on why TQM is not producing the results expected and who has
devastating inertia, the "troops" or the inventors?
How to perfect devastating and long term lead times a discussion on project
engineering.
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How the notion of product price kills companies market segmentation, part 2.
Where did product cost and profit come from a discussion on cost accounting.
Throughput Accounting
Author: Thomas Corbett
This book:
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Demonstrates some of cost accounting's flaws, and shows how these errors will
lead to bad decision making.
Eliyahu M. Goldratt
Domenico Lepore and Oded Cohen: These authors' have devoted their
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 and
Oded Cohen as Eli Goldratt's collaborator and partner.
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 decisions.
This seemingly simple statement is the core of successful management.
the tools presented in this book will enable any organisation to: > manage
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You will not find a quick fix in these pages, but with determination and focus you
will be able to control and radically improve your organisation.
Key Features:
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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.
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.
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Key Features:
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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:
Key Features:
Provides a compact source of information and "how to" instructions for those who
are beginning their study and initial use of TOC.
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Key Features
Clear guidance on making practical, powerful changes to the way you manage
projects. Description of basic approaches to analysing and fixing common
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management problems.
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.
--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 must for anyone facing change and new frontiers. You will refer to
this book often."
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"If you are in need of state-of-the-art problem solving tools, this is the book to
have. I’ll buy it and give it a very special place on my desk."
Other:
• Breaking the Constraints to World-Class Performance by Dettmer (ASQ
Quality Press, 1998)
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This article was written by Rudolf G. Burkhard, and won the 1999 Pricewaterhouse
Coopers 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.
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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
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.
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
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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
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...
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
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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…
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• 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
Videos:
• The Goal: The How-To Version (American Media, West Des Moines, IA,
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Using TOC, this UK printing company addressed its sales constraint, won back
lost clients and is exceeding revenue expectations.
The USAF is using the TOC Thinking Processes to deal with downsizing & cost-
cutting without compromising on quality of service and meeting patients' needs.
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.
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.
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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
Lord Corporation
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
Synergis has successfully implemented Critical Chain to manage more than 200
concurrent projects in nine locations, making on-time delivery their top priority.
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.
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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
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.
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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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
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.
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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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.
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
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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
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.
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. 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.
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
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refused and one accepted. That one is now the only major player left in the
market.
• The company tried very, very hard to stay on course and not be distracted
by other obstacles
• 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
• 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
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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.
"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
• What effect systems in Antarctica have on the global process of the world
ASA supports three research stations in Antarctica (including one at the South
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THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
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.
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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 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.
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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
• 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.
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Itemised Conclusions
…Thus, what is the Goal?
Many for-profit companies believe their goal is related to money.
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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