Tag: theory of constraints

  • When Manufacturing Improvements Have Too High a Price

    When Manufacturing Improvements Have Too High a Price

    key in door lock

     

     

     

     

     

     

     

     

     

     

    Engineering design fiascos – spending thousands to save pennies

    This is a true story. The names have been changed to protect the innocent. It’s meant to illustrate how using constraints-based thinking can uncover the hidden price of cost-cutting projects.

    Several years ago, a friend of mine was working in the quality group at a large automotive company.  We will call my friend Harry for the story.  Harry’s position was to use statistical analysis to determine design flaws from a large data warehouse containing warranty data, recall data and state-by-state accident information collected about the products the company manufactured. This data was used to identify areas where leading indicators could prevent major recalls and point out where engineering might improve products.  Although this effort was important to the organization, Harry thought that there were better ways to move the company ahead faster than looking at data from the past, which in many cases, was a byproduct of compromises in the design process.

    After many years of working in the quality group, Harry decided to contact the CEO of the company.  Harry felt that if they were to look at the issues and conflicts in new product development and in product design engineering, the company would be able to eliminate the design compromises, which led to the negative effects of recalls and warranty costs.

    To Harry’s surprise, he received a response from corporate leadership and from an engineer named Edwin.  Edwin was the Director of Engineering and Competitive Practices for the organization and was responsible for identifying methods or systems that competitors were using, and determine which should be adapted to benefit the company.  Edwin wanted to know if Harry’s recommendation was possible, and arranged a meeting.

    A fateful meeting

    Another colleague with the company and I were lucky enough to be invited to the meeting with Edwin and Harry. The conversation started with questions and answers about the current process for new vehicle design.   We were all interested in learning how new improvements to current models came about in the company.

    Edwin told us that during a new design, his group had little influence on the timeline, which would be handled by some other part of the organization.    So, we asked for an example of how engineers were introduced to this process. Since Harry and I are Theory of Constraints Jonahs (A Jonah is someone who uses the socratic approach to problem resolution), we wanted to understand the baseline for the process and find out what they considered to be a successful project.  We also wanted to learn how they chose products and measured performance.  Edwin told us that the number one measurement was cost savings on an assigned project.

    We were told that the group manager’s annual goal was to reduce component costs on each vehicle, for example, by $0.04/vehicle on a vehicle platform.  In one case, the engineer looked at reducing the cost of the door locking system by $0.01 to $0.02.  If the car is a 4-door, they would hit their cost-savings target over the total of vehicles they made that year.  These goals are typically in the $400,000 to $5,000,000 range across the entire vehicle line.

    An engineer redesigned the door-locking mechanism to reduce the cost of the components in the car — and sold the group’s idea to management.  After some back and forth between various levels of the organization, the project was approved, and design money and resources were budgeted.

    We asked several questions to determine if this was, indeed, a cost savings. Here’s what we learned from Edwin:

    Q: How many door locking mechanisms does the company currently use?

    A: Seven.

    Q: If there is a new design, is one taken out of service?

    A: Not usually; not until it is determined to be obsolete.  Warranty and Service have a large influence on the determination of obsolescence.

    Q: Since this is a door-locking mechanism, will the vehicles that use this new design have to be sent through crash testing to determine if the new device meets safety standards?

    A: Yes.

    Q: More than just the normal yearly testing?

    A: Yes, since it was a change to a safety device, extra testing will be required to ensure the design meets or exceeds standards.

    Q: Do the suppliers of the mechanisms need to fill the supply chain with parts so the new design can be used in production?

    A: Yes, the suppliers would have been working with the design team during the process, so they would know what the supply chain needs to be prepared for production. They are very good about keeping up with the design process.

    Q: With a new design, how often is it ready on time for assembly to begin the new model year?

    A: There are frequent delays for the new model year, and there will have to be some work to change over the new mechanism.

    “I’m sorry, but I do not see how there is any cost savings in the method you described,” I said.

    They answered, “Of course there is, the company saved $0.02 per vehicle!”

    I explained that because the process described added a new assembly, each step represented new inventory to support the new assembly.  Since the old design wasn’t discontinued, the inventory for the old design would not be removed from the system, so no savings there.  If the new design is not ready for the model year changeover, the delay to production can be quite costly, the old parts would have to be used until the new parts are available, and then the old inventory would need to be removed, new inventory added and the assembly line would need training. In addition, the dealership network would have to be notified about when the old style was changed and in which vehicles.  The dealership technicians would also need training on the new mechanism.

    Every step costs

    Every step they took added cost.  Their $0.02 savings was eaten up before they began. In reviewing the entire process, we quickly realized that no one at the company had a holistic view of the process.  Further, they didn’t have any comprehensive information to fully judge the impact of a change upon the system due to the silos and structure of the organization.

    Edwin maintained that because they were measured for the $0.02 cost savings, they only needed to concentrate on that– they did not have any knowledge or responsibility for what the rest of the company was doing.

    I simply said, “I think you are using the wrong measurements.”

    On my way back from the meeting, Harry said, “What do you think is the number one warranty cost for the company?”

    “I don’t know, please tell me,” I said.

    “Door locking mechanisms,” he answered.  “How about in the 1990s?”

    “The same?” I asked.

    “Yes,” he added. “In fact, the number one warranty item since the 1960s has been door locking mechanisms.”

    He went on to tell me that in the late 1980s, the company did a study between its door lock mechanisms and another car manufacturer’s design.  At that time, Harry’s company’s door lock had 13 parts in the design compared to 7 parts in the competitor’s lock mechanism.  Fewer parts are often more cost-effective—as there is less time to assembly them, fewer parts in the supply chain, and simplicity is its own form of effectiveness.

    The company they used for the study was well known for their impressive reputation for quality.  Keep in mind, he said– each new engineer goes through a required training course that uses this comparative study to show the differences between Harry’s company design and the premier competitor’s design.  The objective is to reduce complexity and still provide world class quality.  And, these engineers need to demonstrate that they understand the study and its implications for the company before they are allowed to do any design work.

    “We have been teaching this class for 15 years. Do you know how many parts our current design has?” Harry asked me.

    “I would guess eight or nine?” I looked at him hopefully.

    “No,” Harry sighed. “We have 12 parts in our design and the competitor’s mechanism is now using 6 parts.”

    I didn’t know what to say to that, other than shake my head in dismay.

    Epilogue

    That was 10 years ago.  Since then, there have been several senior leadership changes at the company. And even though that company, like many others, further fractured into a flatter organization, it maintains many of the traditional silos.

    This company eliminated or sold many vehicle lines to preserve cash to strengthen the parent company.  And, after a long and hard struggle, they are again profitable.  The company is making a better quality vehicle today, but the number of recalls is still higher than the global average for the same type of organization.

    Many organizations still focus on cost savings to the detriment of a holistic view of constraints. They base design and engineering decisions on what looks like it will save money rather than the costs of instituting these changes. Next time, we will talk a bit about why erroneous metrics make projects like the $0.02 -savings door lock look good.   Let me know about your experiences with constraints management—or share a story like this one. I’d love to hear from you.

    – Rick Denison

    6.0-Rick How TOC Can Move Your World – and World View                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

    Rick is the “Dr. Who” of manufacturing operations and logistics. And while Rick doesn’t travel through time, he is adept at leading change – and saving time – in a diverse range of manufacturing environments through Lean manufacturing, Six Sigma, and TOC techniques. Rick’s posts address how demand-driven matters and draws from his background in process improvement, change management, project management, information systems implementation, and profitability analysis.

  • Three Bottlenecks the Modern Marketer Must Overcome

    demand-driven

    How a manufacturing theory helps Jeff Bezos—and you—focus on what really matters

    The Week recently ran a story about Amazon CEO Jeff Bezos making all of his senior managers read, The Goal, by Dr. Eliyahu M. Goldratt and Jeff Cox. So why would Jeff Bezos – widely considered one of the most visionary CEOs today —want his team to buy into a business book’s philosophy that’s mostly concerned with manufacturing effectiveness?

    Bezos is one of the most influential marketing minds in the country. When thinking about your marketing strategy, what should you know that he knows about, The Goal?

    Theory into Practice

    I have been building marketing strategies for software manufacturing companies for many years. I’ve read The Goal and understand its philosophies because I have had to learn about its main topic, the Theory of Constraints (TOC), and how it can change the way manufacturers do business. If you want to know about this aspect of TOC, definitely see our resident guru, Rick Denison’s blog. However, to summarize from my perspective, TOC tells us to look at the limiting factor – or constraint – to understand a system’s output.

    In Bezos’ story, writer Pascal Emmanuel Gobry says: “The reason why this is so profound is that most managers spend their time trying to improve every part of the system they oversee, often with very mixed results. But if the output of the whole process — even an improved process — is still limited by the bottleneck, then any effort spent optimizing anything else is basically wasted (and can even be counterproductive).”

    If your marketing efforts feel unfocused, find your bottlenecks to get moving again in the right direction. Here are the top three bottlenecks that I have found empowering to overcome:

    1) Data Mashup – That’s my term for unsynchronized, or data without any context. You can have the best automation software out there, and the biggest of big data, but if you’re unable to synchronize that data so that it is transformed into meaningful information, what’s the point? When executing on Pull-based, or modern marketing methodologies, you’ll want to identify the specific constraints of the system(s) and/or marketing programs you’re running and whether you’re able to not only measure your desired KPIs, but influence them. Often, this means integrating your marketing automation, CRM and even financial systems to paint a complete picture.

    2) Taking Your Eyes off the Prize –Let’s face it—marketers are busy people. We’ve got multiple stakeholders all fighting for our attention. I have found that retaining customer focus is the hardest job of all—but remains the true “prize” in any marketer’s eyes. Find out where and why your teams are taking their eyes off customer needs and get them back on track.

    3) Getting Real- At Synchrono, we are all about meeting our customers where they live. We spend a lot of time and effort out there in the production environment, constantly refining our software to make manufacturers more consistently successful. We look for their pain points to find out how we can help. In “Lean speak”, our continuous improvement efforts helps customers with their continuous improvement projects.

    What are your marketing pain points and what are you doing about them? If you’ve got problems with your product, with your processes or with your people, don’t sugarcoat them or sweep them under the rug. Get real about the constraints you need to address in order to execute a marketing strategy that positively influences your desired KPIs. Is it your ability to access the right data? Your customer focus? Messaging and content that hits the mark – or something else? It takes courage to be objective and brutally honest, but if I were pressed to tell you one thing you can do to improve everything about your marketing, it would be this—be real about your issues and meet them head-on.

    Promote Continuous Improvement

    Our synchronized manufacturing software helps identify and manage constraints that inhibit the flow of production. At the same time, our systems provide meaningful information to guide continuous improvement efforts. The same principles hold true for effective marketing – identify issues, make informed adjustments and measure the results. And don’t settle – stay sharp and continuously refine.

    Certainly, Jeff Bezos has been pretty fearless in his career. . . I think he’s right on the money about looking for bottlenecks first to gain incredible insight into our business—but more importantly—our customers’ business. Pay attention, it will point you in the right direction!

    – Marketing

    6.0-Pam Using Big Data to Tell Your Story                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Big data, the Internet of Things, Industry 4.0, Factory of the Future, the Visual factory – what do you really need to pay attention to and what do these concepts mean to most manufacturers? A sceptic and trend-spotter, Pam’s posts leverage a background in technology marketing to apply these big concepts to the real world – and real work – of demand-driven manufacturers.
  • Which System is More Complex? The Answer is Simpler than You Think

    Which System is More Complex? The Answer is Simpler than You Think

    theory of constraints

    Using the Theory of Constraints to Become More Demand-Driven- Part 1

    In my last blog post on How TOC delivers powerful results, I talked about how every manufacturer that I worked for early in my career believed that their environment was completely unique. However, just like doctors are trained not to look for zebras when diagnosing horses, the Theory of Constraints (TOC) allows you to diagnose your environment in the simplest way to get the most immediate results.

    The concepts of TOC stem from some very simple, practical principles. These principles were developed by physicist Dr. Eliyahu M. Goldratt and stem from the fundamental differences that physicists apply to complexity and problem-solving.

    Although these principles are simple, they are also counter to the prevailing methods people use to manage organizations for achieving results. The main differences fall within three themes:

    • View of complexity
    • Effects of constraints on organizations
    • Core conflicts that govern decisions

    Today we will look at the first theme — the view of complexity — and see how Goldratt’s Theory of Constraints methodology was developed to tame environments of every stripe.

    Your organization may not be as complex as you think

    The prevailing thought is that most organizations are very complex – so complex that it takes a significant effort to describe the organization, how the organization conducts its affairs, and the factors that leadership must consider when making decisions.

    Theory of Constraints provides a very different definition of complexity. In order to compare the two definitions, we first need to look at the traditional view of complexity, and second, the TOC view of complexity:

    theory of constraints traditional view

    Under Control

    Most organizations deal with complexity by breaking the organization down into smaller subsystems in order to facilitate measurement, command and control. These departments, profit centers, cost centers, and divisions each have some degree of autonomy for decision-making. Each has incentives to improve by measurement or by reward. In this type of system, there are many data elements created to describe the structure and control mechanisms of the subsystem. The results of each subsystem are summarized and consolidated at the next level up the structure; this continues until there is one unified summary. Large bureaucracies are necessary to keep track of all the data and rules about the subsystems. These bureaucracies are the modern information systems.

    Both tradition and governance rules establish the measurements used to determine the actions each subsystem must take. These decisions are based upon the variables within the control of the managers of the subsystem. In these organizations, many elements need to be touched in order to impact the behavior of the system. If this statement is true, then it becomes more difficult to predict the behavior of the system using this type of approach. In other words, this system has many degrees of freedom.

    Since the prevailing strategy is to not look at organizations as a complete system, we have a tendency to believe that organizational improvements are incremental. That making many small improvements will add up to major improvements. TOC shows us that this is far from the reality of organizational behavior.

    “That is illogical, Captain”

    As a practitioner of Constraints Management, I have spent a great deal of time understanding that systems are linked through effect-cause-effect logic. From a single causality, there can be many resulting effects. theory of constraints focusing stepsThis causal relationship is used to describe the current reality of a system. The effect-cause-effect technique allows TOC Thinking Process experts to significantly reduce the number of elements that they must touch to influence the entire system. The degree of freedom in the system is defined as the number of items in the system that need to be touched to effect the overall system. In this way, an interconnected system is much simpler.

    By reducing the complexity of the system, this analysis can accurately identify the system’s constraint or core problem(s). Once the core problem(s) is/are defined, positive actions can be implemented which will have a significant effect upon the entire system.

    The TOC Thinking Process, and the Five Focusing Steps simplify the structure of the system being analyzed and find the point of maximum leverage. Some situations are easier to describe in this manner than others. theory of constraints thinking processHowever, all systems can be described by this process. Once completed, you’ve uncovered the inherent simplicity of the organization.

    When demand-driven manufacturers apply these techniques to their organizations they can see where they need to reduce touch points to decrease complexity. They then digitize the remaining touch points to achieve greater control and command of their production process. Next time, we’ll talk about what happens when manufacturers begin to focus on constraints to create increased flow and efficiency in the supply chain. Until then, if you hear hoof beats, it might be time to stop looking for a zebra.

     

    – Rick Denison

    Rick Denison                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

    Rick is the “Dr. Who” of manufacturing operations and logistics. And while Rick doesn’t travel through time, he is adept at leading change – and saving time – in a diverse range of manufacturing environments through Lean manufacturing, Six Sigma, and TOC techniques. Rick’s posts address how demand-driven matters and draws from his background in process improvement, change management, project management, information systems implementation, and profitability analysis.

  • Demand-Driven Matters

    Demand-Driven Matters

    Welcome to the Demand-Driven Matters blog. During our conversation in this space, I hope to bring you additional insights on demand-driven manufacturing and/or help in your quest to become a demand-driven, factory of the future. I call this blog a conversation for a reason—your input will enrich what we are trying to do here, which is provide ideas about how you can become more demand-driven, each and every day.

    When I first began instituting demand-driven practices in the late 90s, we were into creating pull, eliminating waste, and getting on a path of continuous improvement. Technology at the time was seen as an inhibitor rather than an enabler. Most people active in Constraints Management and Lean Manufacturing were abandoning their technology and going to purely manual solutions.  I always believed that technology was important to get the most out of the system and to make it scalable, however, in the late 90s, the lack of technologies that enabled pull made manual the only logical choice.

    Convergence

    One of the more fascinating developments in demand-driven enablement has been the shift of demand-driven manufacturing back to technology as an enabler rather than an inhibitor. There is recognition today that technology has to play a significant role in eliminating waste and synchronizing operations and extended supply chains.  Along with this trend, the creation of open ERP systems that are easily integrated with service-oriented architecture allows companies to leverage the system they already have and benefit from today’s best-of-breed, demand-driven solutions through seamless, real-time integration. Finally, the web-based, SaaS revolution has made this process more cost effective, with expensive internal services now “downloaded” to the software provider, freeing up IT and manufacturing teams to focus on what matters. The digitization of demand-driven practices has, in effect, opened up companies’ ability to manage inventory and constraints more effectively; free up capacity; control operating expenses; drive flow; dampen variability; and create innovations to meet customer demand.

    You will see me often weigh in on what’s valuable and not-so-valuable—and you can do the same by commenting or perhaps even writing a rebuttal, just to keep me on my toes! We’ll look at the classic hallmarks of a demand-driven culture and see what kinds of leadership, change management, and employee communications keep such systems alive.  We’ll delve into the challenges and benefits of a demand-driven environment as well as what really happens on the shop floor – for example: what happens when you “choke the release” of inventory. I’ll also invite people from my team to weigh in about their areas of expertise—from implementation to integration to constraints management to new sales and marketing opportunities for a demand-driven business— and I hope you will tune in to hear their proven and exciting ideas.

    Based on decades in this business, I have found that demand-driven manufacturers realize the most benefit when they keep their eyes on the prize: Each day, they stay focused on demand-driven behaviors and remain disciplined in their efforts. It can be a difficult road. But it is my hope that this conversation will validate why demand-driven matters and inspire you on your journey each day. Until next time, keep it Lean!

    – John Maher

     

    John Maher                                                                                                                                                                                                                                                                                                           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.
     
  • Never Stop Learning

    Never Stop Learning

    Theory of Constraints

    Necessary demand-driven components: How TOC delivers powerful results

    I grew up in a home where my family held daily quizzes around the dinner table about what we learned during the day at work or school. These topics ranged from Astronomy to current events – yet what this experience instilled in me was not so much knowledge in specific disciplines, but the idea that I could learn something new each day. And even if I was not directly exposed to new knowledge, these moments showed me that the people I associated with during each day were a rich source of knowledge by sharing what they learned with me.

    As I entered the workforce after college, I began another learning process. I found to my dismay that not all I learned in the university was directly applicable at the manufacturing companies where I worked. Each company seemed to have their own definitions for their processes and believed that their environments were completely unique. This attitude created production practices that seemed needlessly complex. I often thought, “There has to be a better way.”

    It wasn’t until my first management job that I finally found some answers. I was introduced to The Goal, by Dr. Eliyahu M. Goldratt and Jeff Cox. This book was a watershed moment for me, in that it shed light on some of the assumptions I had seen at play within all of the organizations I had known.

    Since that time, using principles of the Theory of Constraints (TOC) in The Goal, I have researched, taught, and applied many approaches to overcome the assumptions that prevent organizational growth, employee development and increased profitability.  Drum-Buffer-Rope scheduling, Thinking Process Jonah Training, Six Sigma Black Belt Training, extensive research on the Toyota Production System, Lean principles, and study in Deming’s Theory of Profound Knowledge all contribute my repertoire of improvement methods.

    During these blog discussions, I would like to share the insights that I have gathered across many manufacturing environments and over decades. I hope that similar to those dinner table discussions of my youth, you will bring your insights and share some of your knowledge here, as well.

    My expertise focuses on the Theory of Constraints; Lean manufacturing; and creating a culture of continuous improvement within a demand-driven manufacturing framework. I will be talking about how these theories can be put into practice to drive your production success. We’ll learn about:

    • The genesis of the Theory of Constraints and why it matters to your business
    • Using constraints management to drive practical change for profitable results
    • The kinds of constraints you will encounter and how to deal with them
    • What measurements drive the behavior for improvement
    • And more…

    My goal is to bring the valuable science inherent in these systems to you in an accessible way. Yet I will also make sure to deliver practical advice and examples of how I have seen a TOC focus make a world of difference at companies large and small. Just as gravity is an immutable law of nature, to me, the TOC is an immutable law of manufacturing success. And just like any laws, the best ones sort out complexity. I finally got my answer to, “There has to be a better way.” I hope I can help answer the same thing for you.

    – Rick Denison

     

    Rick Denison                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Rick is the “Dr. Who” of manufacturing operations and logistics. And while Rick doesn’t travel through time, he is adept at leading change – and saving time – in a diverse range of manufacturing environments through Lean manufacturing, Six Sigma, and TOC techniques. Rick’s posts address how demand-driven matters and draws from his background in process improvement, change management, project management, information systems implementation, and profitability analysis.

     

     

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