Tag: theory of constraints

Time to Revisit Your Constraints

We talk a lot about constraints management in our work with customers who are implementing Demand-Driven Manufacturing (DDM) in their facilities. That’s because constraints management is fundamental for synchronizing the pace of production and keeping the demand (orders) flowing throughout the shop floor. But, our focus is naturally on physical constraints, e.g., that piece of equipment or workstation that is preventing you from delivering on time or offering shorter, more competitive lead times to your customers.

Not Everything is About Production

Those of you who have spent time studying the Theory of Constraints (TOC) in-depth understand that it’s not always all about the production process. Constraints can fall into one of four categories:

Physical – These are the constraints we focus on with technologies like CONLOAD™ that set the pace for production based on the capacity of the physical constraint.

Policy – These constraints dictate how work is performed. Sometimes you can do something about them (e.g., an old company policy that no longer makes sense), and sometimes you can’t (e.g., a regulation that still might not make sense but needs to be followed anyway).

Paradigm – This is a way of thinking that gets in the way of meeting commitments, such as the COO’s resistance to outsourcing processes to other companies even if they can do it faster, better or cheaper than you can.

Market – Put simply, capacity exceeds demand. Remember, TOC emphasizes throughput (The rate at which the system generates “goal units,” Goldratt) and not productivity.

For some manufacturers, the real constraint over the last decade has been their market. Manufacturing production has seen its share of ups and downs in the last ten years. It wasn’t that our facilities couldn’t produce more, many manufacturers just didn’t have the orders to warrant increased production.

Shifting Your Paradigms

Early indications are that many of the market constraints on US manufacturers may be melting away in 2018 through 2020. (Along with a few policy constraints.) Manufacturing GDP is expected to slightly outpace GDP for all industries (2.5%) and grow by 2.8%. (Some analysts are predicting even higher numbers, but like our customers, we prefer to focus on more conservative estimates when doing mid-term forecasting.) The stock market is also at an all-time high, indicating strong investor confidence and more money for investment. Oil prices are expected to remain low, keeping the cost of manufacturing and transportation of goods to market in check.

In other words, it’s time to take your focus off the market constraints you can’t do much about and place it on the constraints that are within your control. If you have outdated policy or paradigm constraints, it’s time to rethink your thinking. If you have physical constraints – leverage them to set the optimal pace for uninterrupted production flow.

Time flies and so do great economies. Don’t let the best market in a decade pass you by without taking advantage of it. If your constraints are physical, here are a few resources that may help:

Video: Manage Manufacturing Constraints and Optimize Production Flow with CONLOAD

White Paper: Metrics That Drive Action

Case Study: GIW Industries

February 5, 2018
FAQ: Can I Use Demand-Driven Manufacturing in a Make-to-Stock Environment?

Demand-Driven Manufacturing seems like it was made for Make/Assemble-to-Order and Engineer-to-Order environments. It’s true that Demand-Driven Manufacturing can be beneficial for manufacturers who already produce goods based on customer demand because it improves their responsiveness to customers and lowers lead and cycle times.

Demand-Driven Manufacturing is a method of manufacturing where production is based on actual customer orders (demand) rather than a forecast.

But what about Make-to-Stock environments? These manufacturers also produce goods based on customer demand, but instead of actual demand, production is typically based on forecasted demand. Considering our definition of Demand-Driven Manufacturing – a method of manufacturing where production is based on actual customer orders rather than a forecast – it seems like that would preclude the Make-to-Stock manufacturer from taking advantage of Demand-Driven Manufacturing principles, right?

Not at all.

The challenge in MTS environments is replenishment lead time.

That is, the lead time provided by the customer is less than the lead time needed to complete the finished good. Given this, MTS Demand-Driven Manufacturers use their forecast to establish a stock buffer. Production execution, however, is based on actual demand. The stock buffer provides just-in-time materials to complete the order, ensuring there are no delays in responding to the demand signal. Here’s how it looks:

MTS manufacturers apply Lean/Demand-Driven strategies to make the stock buffer as small as possible. This reduces carrying costs and the potential for waste. As we’ve covered other posts, eKanban software is a great way to not only reduce lead times, but inventory costs. If considering eKanban, you will want to check out Real-world Advice for Getting Started on eKanban.

Lower lead times are one of the primary benefits we see in manufacturers who implement components of the Synchrono Demand-Driven Manufacturing Platform (see the sidebar for other benefits). For example, Dynisco, an instrumentation manufacturer, reduced their lead times from 12 weeks to 2. Rex Materials Group reduced their lead times from 3-4 weeks to less than five days in some cases. You can read their case studies and those from several more customers on our website.

Other ways MTS manufacturers benefit

As noted in the graphic here, Demand-Driven Manufacturing adds tremendous value to MTS environments in a variety of ways.

For example, one of the strategies of Demand-Driven Manufacturing is constraints management – adapted from the Theory of Constraints (TOC). According to the TOC, there are a limited number of resources in any manufacturing environment that limits the manufacturer’s ability to meet demand (e.g., the constraint(s)). Scheduling production flow to the capacity of the constraint resource(s) improves overall production flow and on-time delivery rates.

To show how we work to manage constraints, we’ve posted a short video on YouTube – Manage Manufacturing Constraints and Optimize Production Flow with CONLOAD.

Here are some additional resources that can help you explore Demand-Driven Manufacturing and what it might mean for your organization. And, as always, reach out to us with any questions you have, or if you’d like to discuss a pilot project.

Website: Why Demand-Driven Manufacturing?

White paper: Demand-Driven Manufacturing—Metrics that Drive Action

Video: What is Demand-Driven Manufacturing?

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January 22, 2018
5 Keys to Manufacturing Transformation

Almost every manufacturer we talk to these days is in the process of implementing (or planning to implement) some sort of change in the way they approach operations: Theory of Constraints (TOC), Lean, Six Sigma, just to name a few. Our focus on demand-driven manufacturing tools and applications has given us a front-row seat to their efforts.

Related post: Is Demand Manufacturing Lean?

While the devil may be in the details, the most successful initiatives all have a few high-level elements in common:

#1 Strong Executive Sponsorship. Executive sponsorship needs to be more than simply signing the invoices. CEO, CFO, COO…everyone in the C-Suite needs to show an understanding of the goals of the effort and what it’s going to take to reach those goals. While they don’t necessarily have to paint a happy face on the change required, they must take a “no turning back” attitude when talking to the troops, some of whom might be in a position to sabotage the initiative either knowingly or unknowingly.

#2 Clear Objectives and Governance. Everyone in the organization must understand the goals of the project and why it is important to the organization. This is especially true of team leads and departmental heads who may not be executive sponsors, but who will be instrumental in ensuring change happens at the execution level. Having strong executive sponsors can help ensure that the objectives of the program are communicated clearly and that the initiative has that next level of support.

#3 Understandable KPIs. KPIs must be measurable and actionable. They must also be understandable. This is easier said than done as some long-time KPIs will need to be replaced with KPIs that may not make as much sense to someone who’s not yet been introduced to the new philosophy. For example, when implementing Theory of Constraints, efficiency no longer matters except at the constraint. To the individual who is always been measured by how much they produce, this can be a disconcerting concept.

Related Video: Manage Manufacturing Constraints and Optimize Production Flow

#4 Early Training. To head off misunderstandings and speed up the adoption of new concepts, project leads and those responsible for ensuring execution need to be trained early and thoroughly. This includes not only the what but also the why as they need to be prepared to provide full-throated support when the initiative is rolled out. Training should also be offered to individual workers, especially when new processes need to be followed, but that training should be targeted and focused.

#5 Change Management. Many of the elements we’ve covered so far are part of any successful change management program, so if you’ve covered these bases, you’ve made a good start. However, the most successful manufacturers understand that change is more a fact of life than it ever has been, and they make change management as much a “center of excellence” in their organization as whatever initiative they’re hoping to implement.

Now it’s your turn. I’d love to hear your stories about change and how you have worked to ensure the success of transformative initiatives in your organization. What challenges did you overcome? What best practices did you develop along the way? Add your thoughts below!

January 15, 2018
FAQ: Is Demand-Driven Manufacturing the Same Thing as Lean?

Many of our customers don’t start out looking to implement Demand-Driven Manufacturing per se. Often, they’re focused on Lean Manufacturing or at least some element of it. In fact, customers often find out about us as they search for an eKanban or production scheduling solution that will work with their current ERP system.

However, at some point in the conversation, they will inevitably ask, “Is Demand-Driven Manufacturing the same thing as Lean Manufacturing?”

Demand-Driven Manufacturing isn’t synonymous with Lean or other related initiatives such as Theory of Constraints. Instead, it supports and is supported by them. To understand that, let’s look at basic definitions of each of these philosophies, including Demand-Driven Manufacturing, to see how they are related.

Demand-Driven Manufacturing enables a synchronized, closed loop between customer orders, production scheduling and manufacturing execution.

Demand-Driven Manufacturing is a manufacturing method that enables a synchronized, closed loop between customer orders, production scheduling and manufacturing execution – all while synchronizing the flow of materials and resources across the supply chain.

Another term commonly used for Demand-Driven Manufacturing is pull-based or demand-pull manufacturing. Instead of producing to what you think will happen (forecasts) or to maximize an efficiency metric like asset utilization, the only variable is actual demand, and all production is synchronized to it.

Both Lean Manufacturing and Theory of Constraints emphasize managing variability as part of a continuous improvement effort.

Lean Manufacturing focuses on the removal of waste from the production system; waste being defined as anything the customer isn’t willing to pay for. Pull manufacturing isn’t the same thing as Lean, but it is one of the five principles of Lean as defined by Womack and Jones in their landmark book Lean Thinking. So, at some point in your Lean journey, you should be replacing your push-based production scheduling approach with one that is pull- or demand-based.

On a side note, going from push to pull is almost impossible to do when your schedule is reliant on the push-based logic found in most ERP systems. (Most notably MRP and APS.) That’s why we developed Synchrono software, including SyncManufacturing, as web-based applications that can be easily used with your existing systems. For a more thorough discussion on push vs. pull, download our white paper The Next Generation of Planning and Scheduling Solutions.

Demand-Driven manufacturing is also one of the easiest and quickest elements of Lean Manufacturing to implement. Even though it’s number four on the list of five principles of Lean, you don’t have to get through numbers one through three before you can start realizing benefits such as reduced lead times and lower inventory levels.

Theory of Constraints (TOC) emphasizes increasing throughput. Be careful though. In the vernacular of TOC, throughput does not refer to production. Instead, throughput is the rate at which the organization generates money by producing finished goods that are sold. Excess inventory sitting in the warehouse is not counted. That tightly matches Lean philosophy in that Lean defines waste as anything the customer is not willing to pay for. Excess inventory and the storage and handling of it certainly falls into that category.

A constraint is defined as anything that limits throughput. Inside the facility, that is often a work center. Instead of managing the production capacity of every work center, TOC focuses on synchronizing production to the constraint. This is a vital component of Demand-Driven Manufacturing as well, and you can see how this works in this excerpt from one of our recent webinars.

I hope this discussion not only helped clarify the differences between these common manufacturing philosophies, but also highlighted how Demand-Driven Manufacturing can help you reach your goals regardless of which philosophy drives your organizational thinking. As always, we welcome your comments – and I’d be happy to answer any specific questions you might have. Just submit them below.

November 6, 2017
Smooth the rough spots with TOC, then Lean – and fine-tune with Six Sigma
What Grade of Sandpaper Will You Use? Part Four

Here we are at the final installment of our four-part, Sandpaper blog series about when to use the tools of Lean Manufacturing, the Theory of Constraints (TOC) and Six Sigma to address constraints, drive flow and promote continuous improvement. With regard to sandpaper, I talked a lot about what level of grit you will need to smooth out your processes—and what could happen if you try to start with Six Sigma as a first step in creating continuous improvement momentum.

Refine with Six Sigma

Six Sigma is the fine grit sandpaper, best used on a relatively smooth board that you want to make like glass. After TOC has helped with global flow and directed you to the location of numerous 5s and Kaizen events, you are beyond the point of dealing with special-cause variation. You identified processes that are within statistical control, but now, you need to move the baseline for the process. To do this, you need the depth of understanding that Six Sigma lends.

I have seen countless presentations by companies that begin with Six Sigma. There seems to be this focus on how many hundreds or thousands of Six Sigma projects they performed as an indicator of the value of their continuous improvement dedication. For me, the number of projects you run in an organization that is not ready for the level of refinement that Six Sigma provides, only means doing more work, at more cost, to get fewer benefits.

There are some improvement metrics that in my opinion, are based on funny numbers. But if you start with TOC, you can really see what is changing. That’s because TOC only impacts financials if you move Throughput (T) up, Operating Expense (OE) down, or move Inventory (I) down. (It is important to note that OE includes both direct and indirect labor.) If you take 25 percent of the labor content out of a process but there is no actual reduction to the payroll expense, then you have not impacted the financials unless that 25 percent of freed-up time can be spent increasing throughput. Six Sigma is exceedingly effective, but it can be a costly, slow, and exhausting process if you are trying to apply its fine-grit approach on a very rough board.

The Right Tools at the Right Time

Let’s quickly go through the steps to using TOC and Lean Manufacturing—before you try to use Six Sigma to significantly move the needle.

1) Start with the coarse grit sandpaper – TOC – to point you toward critical constraints that when managed, will provide the greatest return.

As you maximize throughput through constraints and remove obstructions to flow, global throughput and flow goes up. This causes the next level of items impeding flow to come to light as you begin to see more global changes affected—and it creates momentum and visibility for “the next right thing” to do.

2) Use the medium grit tools of Kaizen events and Lean Manufacturing to refine further.

As you get rid of the more glaring impediments to flow, you begin to see where your Kaizen events should be staged. You have more data to make value stream mapping and other Lean tools smooth the process even further.

3) The fine grit of Six Sigma is a great way to finely-tune to your continuous improvement processes.

Six Sigma tools allow you to refine and adjust big picture items with laser-like focus. It allows you to understand common-cause and special-cause variation. So you can determine if you need to bring the process into control or overhaul the process to move to the next level of performance. These areas for improvement may have been hidden until you applied TOC and Lean tools that revealed the changes you need to make the most impact to both global improvement – and the bottom line.

If You Could See Me Now

When I was first working with Lean Manufacturing, TOC and Six Sigma, I made plenty of mistakes and I learned a lot about how to refine the continuous improvement journey. One of the last things I would like to say to help you— keep your eyes open.

A very wise man once said there is a vast difference between looking and really seeing something at depth. I found for myself that when I look at the surface of the issue, I don’t make as much progress as when I try to really see. If you keep these methodologies at hand and combine them with the ability to see (with context and clarity) what to do next to keep your continuous improvement ball rolling, you’re sure to experience great improvements for you, your processes and your people. Let me know what you are doing to keep the continuous improvement fire burning at your company.

-John Maher

This is part four of a four-part series. Here are the links to the earlier posts in this series:
- Part 1, What Sandpaper Will You Use?
- Part 2, Fast Results Using TOC for Demand-Driven Manufacturing
- Part 3, Using TOC, Lean and Six Sigma to Become More Demand-Driven
John’s passion for demand-driven manufacturing is equal to his interest in how this method improves the lives of employees within these environments. “I’m here to help, not to judge” comments John whose posts reflect why demand-driven matters and are based on his experience working in manufacturing environments and expertise in ERP, MRP, APS, supply chain, manufacturing planning and scheduling systems and constraints management.
August 4, 2015
Using TOC, Lean and Six Sigma to Become More Demand-Driven
What Tools to Use to Get the Most of Your Demand-Driven Changes
Last time, we looked at specific companies that I have worked with and how they became more demand-driven using the Theory of Constraints (TOC) as a first step. As you saw from these real-life examples, TOC works well as a pointer to see where you need to change – and what should be the first items on the list.

I have watched TOC solutions work exceedingly well in manufacturing, scheduling, replenishment, and project management for continuous improvements that truly revolutionize environments. Just as coarse-grade sandpaper can quickly address a rough surface, TOC quickly identifies global changes that can smooth flow and impact the bottom line. However, to get to that next level of improvement, we need to start using our Lean Tools.

Kaizen

Continuous improvement of an entire value stream or an individual process to create more value with less waste.

There are two levels of kaizen (Rother and Shook 1999, p. 8):
1. System or flow kaizen focusing on the overall value stream. This is kaizen for management.
2. Process kaizen focusing on individual processes. This is kaizen for work teams and team leaders.
Value-stream mapping is an excellent tool for identifying an entire value stream and determining where flow and process kaizen are appropriate.

– Lean Institute

Tools such as kaizen (after you understand the global system) delivers profound improvements to your production process—and, ultimately, high-quality business results.

A way of thinking

The TOC thinking processes allow you to build current and future reality trees that give you an excellent understanding of the environment, its core conflicts, and the root causes that are holding the company back. Its buffer management methodology lets you identify disruptions to flow and pare out disruptions to find the points in the organization that, if resolved, would have the largest impact on increasing global flow. Now you have a “board” that is smooth enough to let you switch over to medium sandpaper and start employing the tools of Lean to resolve the disruptions that TOC has pointed out.

Just as I have never seen a more effective tool than TOC when you’re first starting a company on the continuous improvement path, I have yet to see a methodology as effective at rapidly improving processes (once the focal point is known) as the process of Kaizen. Use Kaizen—along with the tool set that comes with the Lean methodology –and watch your improvements exponentially increase.

Costly mistakes

In order to get the largest global benefits, you need the pointer – TOC. This is another place where sandpaper comes into play. If you take a really rough board and use medium sandpaper (Lean tools) on it, you can still get it as smooth as you would if you started with coarse paper (TOC) and then moved to medium paper. The difference will be in the time, effort, and expense that it takes to reach the same point when compared to using the coarse first and then the medium. I have seen companies use only Lean tools to achieve phenomenal success. However, the kaizens were directed only from intuition; I have found over and over again that real leaps in global performance were not made until an enormous number of kaizens had been completed. If your management has enough patience, tenacity, time, and cash to wait until tens or hundreds of kaizens are completed, you can be successful. If not, the Lean transformation is doomed to fail – not because it doesn’t work, but because we started with the wrong methodology and focus.

I want to be clear here: When I say global improvement, I am talking about improvements that show up on the bottom line.

Numbers Game?

There is often a problem with how improvement results are measured. Too often, they are measuring local optima, with cost accounting principles that ignore whether or not actual bottom line or global flow gains are made. For example, if you cut the setup time in half on a specific machine – from one hour down to 30 minutes, and then you setup the machine 1,000 times each year with an overhead burden of $500 an hour, you do not get to say that you achieved $250,000 in cost savings. The cost/ depreciation does not change for that machine and the cost of your overhead does not go down due to this improvement, either. There are only two possible ways that actual impact to the bottom line occurs:

1) If you are able to ship more product because of the change. (It must leave your shipping dock and the customer needs to be invoiced for it to count.) Extra throughput through the resource does not count if the other resources in the chain cannot get it through at the same rate.

2) If you can send the operator home early or give them days off – but this certainly doesn’t get you $250k.

You need the pointer to make sure that the changes you make have the largest impact on the bottom line and for me, TOC is the best methodology for determining this. TOC will show you the areas that, if improved, have direct impact on global throughput.

Yes, I recognize that Lean has value stream maps. However, those are snapshots of the system at one point in time, and they are product-specific flows. They do NOT look at the aggregate and interconnected environment that most manufacturers live with every day.

A Smoother Board

It has been my experience that Lean produces the most refined, disciplined, and productive manufacturing process. If I walk into two environments, one that only used TOC and one that used only Lean, and they both made it five years into the journey with management staying committed, I would fully expect the Lean company to have had the most success in transforming their operation. If we looked at the same two companies one year in, the reverse would be true.

This is not about which methodology is better. The fortunate thing for companies is that TOC and Lean are pieces to the same puzzle and if used together, the results are formidable.

Next time we’ll talk about an even more fine-tuned refinement tool- Six Sigma. Until then, please let me know how you have used the tools of TOC, Lean and Six Sigma to refine your continuous improvement projects.

-John Maher

This is part three of a four-part series. Here are the links to the earlier posts in this series:
- Part 1, What Sandpaper Will You Use?
- Part 2, Fast Results Using TOC for Demand-Driven Manufacturing
John’s passion for demand-driven manufacturing is equal to his interest in how this method improves the lives of employees within these environments. “I’m here to help, not to judge” comments John whose posts reflect why demand-driven matters and are based on his experience working in manufacturing environments and expertise in ERP, MRP, APS, supply chain, manufacturing planning and scheduling systems and constraints management.
May 19, 2015

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