My blog’s third birthday

January 2014 – January 2017, my blog is now online for 3 years and counts 347 posts.

Thanks to all of you my audience is gently growing on this blog, as well as on my Youtube channel and on tweeter. All organic!

What is the most read here?

According to the stats, Constraint vs. bottleneck is the absolute winner, ahead of 3D Printing and Porter’s five forces ranking second.

Then comes a string of posts related to the Logical Thinking Process and the popular Goal Tree.

What’s on schedule for 2017?

Well I have a huge inventory of titles, topics, half-written posts on the various subjects I’d like to share: Lean Management, more about Logical Thinking Process and Theory of Constraints, my prospective survey about the future of manufacturing and much more.

I’ll try to post on a regular basis and bring some value-added content. You are welcome to give me feedback in the comments.

Hope to see you here!

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When enough is… enough

cho-in-azoneThis is a behavior I’ve noticed quite often in food industry, in chemical or pharmaceutical plants: cleaning and sanitation processes (mainly their duration) are extended beyond the standard procedures at the expense of costs and production capacity.

Fear of harming

In the regulatory-constraint industries like food, chemical or pharma, people on shopfloor are trained and qualified to perform cleaning and sanitation operations. They follow procedures and work instructions, based on standards.

They usually also have frequent training about the importance of sanitation or sterilization and the possible consequences if badly done. Working in food, healthcare or pharma is embracing the sacred mission to bring something good, to cure or relieve customers and/or patients and do everything to prevent hurting them in any way.

They are also reminded what consequences for the organization in case of problem beyond failing to: losing the customers’/patients trust, losing the licence to produce, being sued, being exposed to scandals…scary enough for shopfloor people to take things seriously.

Yet the people on shopfloor seldom have the scientific background to fully understand what is required for good sanitation or sterilization, when doing more is useless or even counterproductive. They also are often left on their own, without expert supervisors to reassure them, answer possible question or take decisions in case of doubt.

Furthermore, the results of sanitation/sterilization is most often only known after a sample of rinsing water or the swabbing of the tool/equipment has been analyzed by some remote lab.

Fearing to harm the organization, or worse the customers / patients or possibly to have to go over the whole lengthy sanitation process again if it is not satisfactory, the sanitation is performed longer than procedures require it. This is base on the belief the more the better.

This seemingly logical and well-intentioned assumption is never challenged, leading to waste detergents, acids, water… and time, simply because over-sanitation is not noticed by management.

Changeovers are even longer

Changeovers in such environments can be long and painstaking due to regulatory constraints and all the paperwork associated. Ignoring the over-sanitation habits can extend the changeover duration even more.

Besides adding costs for no additional value, the additional time spent on sanitation may be needed on critical equipment (bottlenecks) and the time lost will not only never be recovered but the true cost is to be counted in minutes of turnover. And this one can be skyrocketing!

Conclusion

When looking for additional productive capacity or a way to get more out of the current process, check the changeovers’ content and take a closer look on sanitation.

Give the shopfloor personnel clear indication when enough is enough, without risk to harm anybody nor to endanger quality. If necessary, have a real qualified subject matter expert attending these critical phases, ready to support the team and answer any question.

Not only will it take some concerns off the team, but may be a great payback in terms of additional yield.


Feel free to share your thoughts and experience in the comments and share the post if you liked it.

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My takeaways from throughput accounting, the book

I knew the author, Steven M. Bragg from his podcast series “Accounting Best Practices with Steven Bragg” before I came across his book “throughput accounting, a guide to constraint management” published by Wiley & sons, 2007.

Book presentation

The hard cover book has 178 pages, 10 chapters, easy to read in neat presentation and legible fonts, with numerous tables, graphs and illustrations to back up all the provided examples and case studies.
It claims to contain the tools needed to improve companies performance for accountants, financial analysts, production planners or production managers.

The book starts head on by introducing the basics of Theory of Constraints (ToC) in an uncommon, and for me daring way: explaining very briefly the Drum-Buffer-Rope (DBR) logic, in chapter 1 (page 1!).

It is daring because it’s a shortcut putting DBR upfront when it’s usually presented to newbies (long) after explaining the bottleneck concept and the differences between traditional manufacturing, trying to run every resource at full utilisation rate, versus the ToC approach where “only” the bottleneck matters (this is another shortcut, but of mine…).

It goes on with presentation about the different types of constraints, not all being bottlenecks, discussing the nature of the constraint (page 5). The Throughput Accounting (TA) KPIs are presented page 7 and 8 before diving into the financial aspects of TA.

Chapter 2 is about Constraint Management in the factory, starting with how to locate the constraint and how to manage the constrained resource. The various hints are clearly targeting managers or readers keeping some distance from shopfloor as they give enough insight without being too detailed. No people will go through and get bored, the various hints are condensed within few lines, without giving up anything important.

Four pages deal with policy constraints, again something of interest for managers and readers that may have influence within their own organization to educate their colleagues about the drawbacks of some policies and hopefully change them. The importance of constraint buffer comes page 25 followed by the importance of proper batch sizes and machine setups.

Chapter 3 is about throughput (TA) and traditional cost accounting concepts and starts with the emphasis on cost versus Throughput and goes on with all the consequences describing why traditional cost accounting – companies that means – is suffering from several problems.

This chapter is important for people not very familiar with accounting, especially in operations, because it explains some of the decisions that make no big sense when considered from operations point of view. It is also important for those familiar with traditional cost accounting for to understand the limitations and problems brought up by that approach.

Chapter 4 is about Throughput and Financial Analysis Scenarios and from page 59 to 86 take the readers through 14 different scenarios, from Low Price, High Volume Decision to Plant Closing Decision.

Chapter 5 is on Throughput in the Budgeting and Capital Budgeting Process, chapter 6 about  Throughput and Generally Accepted Accounting Principles and chapter 7 about Throughput and Control Systems.

Chapter 8 details Throughput and Performance Measurement and Reporting Systems, interesting because it links the operations’ reality to usable KPIs, e.g.

  • Ratio of Throughput to Constraint Time Consumption
  • Total Throughput Dollars Quoted in the Period
  • Constraint Utilization
  • Constraint Schedule Attainment
  • Manufacturing Productivity
  • Manufacturing Effectiveness
  • Order Cycle Time
  • Throughput Shipping Delay
    And more.

Chapter 9 is named Throughput and Accounting Management and addresses 12 decision areas among which: Throughput Analysis Priorities, The Inventory Build Concept, Investment Analysis, Price Formulation.

Finally chapter 10 presents 7 Throughput Case Studies each of them in a couple of pages.

My takeaways

The book is easy to read and to all concepts are easy to understand thanks to the simple ways the author puts them. Not being an accounting specialist at all, I always liked the simple, pragmatic and concise ways Steven Bragg explains accounting rules or practices. This book is not different.

Reading “throughput accounting, a guide to constraint management” reinforced both my knowledge and my interest in throughput accounting, as well as the conviction about throughput accounting being a powerful and crucial decision-making approach.

I’ve marked dozens of pages with sticky notes highlighting my points of interest and/or inspirations for posts on my blog, reinforcing my consulting approach, etc.

Throughput accounting

Almost all companies have their management heavily influenced by traditional cost accounting and most of them make ill-oriented decisions. With the book’s content help, it is easier to explain to CFOs and CEOs why their decisions are biased by false assumptions or outdated rules, something that can be quite shocking to them.

The book doesn’t come cheap, but as it explains, quit reasoning in terms of cost savings and consider how much (intellectual?) Throughput it can leverage.


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If making money is your goal, throughput is your obsession

In a for-profit organization making money is the goal and the limitation to making more money is called a constraint.

Conversely, a constraint is a limiting factor to get more out of the system. There is only one constraint which is the most limiting factor restricting the Throughput.

Throughput is the rate at which the organization is making money.

If the constraint is limiting Throughput, it means the constraint controls all the money-making.

From this point, making the maximum money given the constraint, there are two (cumulative) options:

  • Elevate the constraint, which means get over the limitation of the constraint to allow more Throughput.
  • Keep Throughput at its maximum by avoiding anything limiting it more.

Elevating the constraint might be difficult or even impossible to do, simply because if it wouldn’t, chances are it would already have been done. More seriously a constraint can be something very difficult to get or to change, like a very expensive equipment, something very rare or something very difficult to influence/change like regulation or policy.

Keeping Throughput at maximum in the given conditions is called exploiting the constraint. It requires constant attention to prevent anything to choke the Throughput.

That’s why once the constraint is identified, it becomes the center of all attention. If the constraint is a resource, like a machine, an equipment, a department or some talented person, this resource deserves a special treatment to protect it against anything limiting its Throughput further.

As the constraint controls all the money-making, it is a good spot where to literally sit and constantly monitor the Throughput. Every decision should be made with regards to its influence to the Throughput:

  • if it is reducing the Throughput, it must be challenged
  • If it is increasing or a least securing the Throughput without adding more Operational Expenses (Net Profit = Throughput – Operational Expenses), it must be considered.

Therefore, if making money is your goal, Throughput is your obsession.


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Schragenheim’s concise history of constraints

The definition of a constraint in Theory of Constraints (TOC) has varied as the corpus grew and matured. Still today it is confusing for newbies to sort out what is meant with “constraint”, depending how they got their basics in TOC.

Thanks to Eli Schragenheim, one of TOC’s founding fathers, and the related post on his blog, the reader can understand how and why the definition varied over time.

I strongly recommend to read Eli’s post: A concise history of constraints

Performance improvement: simple things can earn big results

Silly things can cost a lot in terms of productivity and output.  In this video interview, Philip Marris  asks me about lessons learnt while helping a pharmaceutical plant to improve productivity and deliver drugs to patients faster.

It is about how simple actions solve those silly small problems and bring big results at literally no cost.


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You are probably wrong when identifying your bottleneck

Things moved on since Eli Goldratt’s revealed Theory of Constraints through his business novel and bestseller “the Goal”. Most of today’s processes are more complex than 30 years ago: supply chains are stretched over the globe, new products are launched more frequently and batches are changed more often, among others. Thus identifying the bottleneck or capacity constraint is more difficult and must also be redone more often.

In this video, Philip Marris shares some “lessons from the road”, real case lessons learned from more than 30 cases in the last 10 years. Surprisingly, if companies were rather good identifying their bottleneck, it turned out that now, in 80% of cases companies are wrong about where their capacity constraint is.

Main learnings are:

  • companies are often confusing where the constraint should be with where it really is
  • ERP data is not a reliable way to identify constraints
  • companies tend to have an outdated / obsolete analysis of the situation
  • new quality requirements often create new capacity constraints
  • (bad) cost cutting decisions create new bad constraints

As a conclusion, he points out that being wrong about where a company’s constraints are is good news since it implies that there are significant opportunities remaining to improve performance drastically and rapidly.


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Be prepared for success!

Some improvements in operations can be so effective that management should better be prepared for success, otherwise it can ultimately turn out as a splendid blunder.

This post is a kind of sequel of “Your next bottleneck is elsewhere (and in the future)” and based on a true experience in pharma industry.

The story takes place in a primary and secondary packaging workshop in an European (big) pharma plant. This workshop’s poor performance is allegedly the cause of stock outs and delays on the market. Given the increasing competition for this drug – now no more patent protected – it is mandatory to restore on-time deliveries to resist the generic makers’ aggressive attacks.

The packaging is the last step before shipping and unblocking it suddenly means releasing a lot of goods as well as draining the queueing material before packaging.

Therefore the warnings to management as we begun our assignment: your next bottleneck is elsewhere and be prepared for success.

Management did not take it seriously. I assume first because in pharma nothing goes really fast, second because the silo mentality still prevails. The upstream process (called manufacturing) was another department with a different team struggling to improve. Off limits to us.

Our efforts on packaging paid off soon: +50% output within a few weeks, leading to restock the dispatch centers in various countries and… drain the huge buffer in front the packaging.

Now with the capacity recovered and high spirit of the team, we wanted more material to keep supplying the market and possibly regain lost market shares.

Alas, these results caught management totally unprepared for success and blind to the new bottleneck, which was not manufacturing but.. sales!

It turned out that manufacturing was not very good to supply packaging indeed, but could do. What was most shocking was that there were no more orders! Not only did the drastic packaging performance increase drain the buffer of raw material, but it drained the order book as well.

Being used to years-long delayed supplies, management (?) nor sales teams paid attention to the warning and did not anticipate the exploitation of the recovered capacity.

As a result, not only did the drastic performance increase in packaging remain only a local success, it did not yield the huge revenues it could have and disappointed all highly energized packaging team members, now waiting idle for occupation.


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Your next bottleneck is elsewhere (and in the future)

Theory of Constraints provides the five focusing steps, an iterative improvement process which aims to focus efforts on the sole system constraint (often a bottleneck).

These five steps are:

  1. Identify the constraint (bottleneck)
  2. Exploit the constraint; improve capacity utilization
  3. Subordinate all non-constraint resources to the constraint
  4. Increase the capacity of constraint if relevant
  5. Repeat step 1 if the constraint has changed

The final step is an invitation to continuous improvement, but also a warning: do not let inertia, passivity and acceptance of the status quo become the constraint.

Yet one other aspect of this warning remains mostly unknown.

While teams work hard to exploit the bottleneck resource and recover some wasted capacity, they do not anticipate that the next bottleneck is located elsewhere in the future.

Most teams working to elevate a capacity constraint do not imagine that the additional capacity that will be recovered requires immediate anticipated loading.

Indeed, most of the time, once the goal is reached and the bottleneck is no longer the constraint, they “expect” to see another bottleneck emerge in their area, as if they were playing whack-a-mole; hit one, wait for the next to pop-up.

Chance are that the next bottleneck will probably not be found within their perimeter. The next bottleneck can be upstreams, in another department or with some supplier.

The next bottleneck will instead most likely be found either in development, engineering, marketing or sales. And it will come as a surprise due to lack of anticipation.

The next bottleneck may be the order book, as sales nor marketing did not anticipate the loading of the recovered capacity. It may be development, unable to bring forward the launch of the next product.

It lies in the future is a warning about the necessity to anticipate it and the probable time lag before the anticipated efforts pay off.


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Introduction to Throughput Accounting

Throughput accounting comes early for all studying Theory of Constraints.  The simplest is about the 3 KPIs: Throughput (T), Operating Expenses (OE) and Inventory (I) – later changed to Investment – and their relationship for higher profits.

Later, Throughput accounting is used to make sound decisions to maximize profit despite limited means, favoring the products with highest “octane”, which is the Throughput per time unit of the constraint.

Here is a 18 minute ‘essentials’ about Throughput Accounting provided by the London School of Business and Finance (LSBF).


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