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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Beware of bottleneck hunting!

In the following video interview, Philip Marris (answering Clarke Ching‘s questions) states that the five focusing steps of Theory of Constraints are wrong!

Well it needs some more listening  to understand the wisdom behind the provocative statement.

First, the five focusing steps (5FS) are basically ok. What bothers Philip is the fifth step after the first iteration.

In his view, accepting to go through the 5FS over and over is just bottleneck hunting and accepting the fact that the organization’s “strategy” is defined by the newest or the next bottleneck.

Philip is advocating to select the most suitable bottleneck, in order to keep mastering it, and surround this bottleneck with excess capacity resources. In this way, the bottleneck remains in one’s span of control, instead of moving upstreams to a supplier or to market’s demand, and keeps at the same point for a longer period of time.

If the 5FS are taken literally, this could lead to an exhausting periodic rearrangement around a new bottleneck, reshuffling the cards regarding strategy, sales, operations and so on.

Organisations need stability, especially factories. Therefore, this approach works well in operations.


Check out Marris-Consulting Youtube Channel for more


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One hour of Theory of Constraints experience, first hand

I was fortunate to “participate” in Philip Marris’ interview by Clarke Ching for Clarke’s podcast series. While making sure all the video and sound was properly taped, I listened to the talk. Latter, editing the video, I had more listening. Now that Clarke made the video public, it’s time to share:

Clarke chats with Philip Marris: Advanced thinking & Back to TOC Basics from Clarke Ching


 

What is Theory of Constraints?

The very minimum to know about Theory of Constraints

In order to define Theory of Constraints (ToC), it is necessary to define what a constraint is. A constraint is anything that limits the system (organization, enterprise, group, process…) from achieving higher performance relative to its purpose.

  • A constraint does always exist, otherwise the system would be infinitely successful, constantly achieving higher performance.
  • A constraint can be part of the system or lying outside of it, e.g. supplies limit the transformation of material, dull market limits the sales, regulation limits operations, etc.

Theory of Constraints is a “business philosophy” or “management paradigm” that takes into account the existence of constraints, focuses on the one that limits the performance of the whole system and strives to achieve more of its goal (patients treatment, sales, throughput, sales, whatsoever).

The constraint is often referred to as the weakest link of the chain (metaphor for the whole process), which limits the performance of the chain. It is therefore useless to improve any other link as long as the weakest has not been strengthened. ToC claims to focus on the most critical factor (the weakest link), while Lean in comparison is often deployed in unfocused way, wasting resources to improve any link of the chain without really improving the whole chain.

The notion of constraint is generally easier to understand using the bottleneck metaphor or the piping system.

 

Click on pictures to go see

Once the constraint is identified, Theory of Constraints proposes consistent methods, tools and thinking processes to get the most out of the system, despite the constraint.

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Bottleneck explained with water pipes

Among the analogies used to explain the concept of bottleneck resource, core of the Theory of Constraints in operations and manufacturing, the pipes of a hydraulic system is a classic one.

>lisez cet article en français

Here is a hydraulic system made of a succession of pipes of different diameters.

The throughput of this hydraulic system is limited by the section with the thinnest diameter, which chokes the water flow.

If the water flow must increase, increasing the diameter of pipe before or after the bottleneck section is of no interest, the flow is still limited by the thinnest section. The only way to increase the flow is to work to increase the throughput at the bottleneck.

This rule applies for any system with a bottleneck, the system overall throughput is limited by the bottleneck’s throughput.


Recover wasted capacity with SMED

SMED is a systematic approach to quick changeovers in order to minimize machine downtime. It is welcome to recover wasted capacity on a bottleneck resource.

  • A bottleneck is a resource with a capacity, in average, lower or equal to customer’s demand. A true bottleneck runs 24 hours 7 days a week and still cannot supply what is required.
  • A bottleneck is usually very expensive and/or difficult to get. If this is not the case, the solution is obvious: buy additional capacity!

More about bottlenecks.

As a bottleneck is the limiting factor hindering getting more out of the process, hence making money in case of for-profit organizations, and as the bottleneck resource is not easy to duplicate, the best option is to get more through it.

Analyzing the capacity

Almost every resource has a maximum capacity that can seldom be utilized, because of some reasons that waste some of it. The resource’s capacity can be can be depicted by a lab beaker as shown below, with a maximum capacity of 100 (%).

Several events during production will hinder the utilization of the full capacity:

  • Machine downtime
  • Lack of supplies
  • Human rest time
  • Etc.

These events are wasting the precious capacity, just as if our beaker was leaking. Changeovers usually are an important cause of capacity loss.

Reducing drastically the changeover duration with SMED is like fixing the leak and recovering a part of the wasted capacity.

In case of a bottleneck this is very important because the recovered capacity is converted in additional sales without (or delaying) investment in scarce or highly expensive additional resource.


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Constraint vs. bottleneck

In Theory of Constraints lingo, there is a subtle difference between a constraint and a bottleneck.

A bottleneck (resource) is a resource with capacity less or equal to demand while a constraint is a limiting factor to organization’s performance, an obstacle to the organization achieving its goal.

A constraint can be called bottleneck but a bottleneck is not always a constraint.

Let’s take an example of a plant with a subassembly workshop gathering resources A, B and C. The whole process needs another resource D and final assembly consisting of resources E and F. The capacity of each resource is displayed under their letter.

The demand is 100 units per day.

According to definitions we’ll find two bottlenecks: resource B limited to 80 units/day and resource E limited to 60 units/day. Each of these two have a capacity less than daily demand.

Resource B is handicap to resource C and for the whole subassembly workshop, but has little influence on the throughput of the plant. Plant’s throughput is limited by resource E, which is both a bottleneck and the constraint. It is primarily E which hinders the plant to deliver 100 units/day.

Imagine The subassembly is led by a foreman named Hector. Hector’s realm encompasses The resources A,B and C. The final assembly process is his customer.

Hector has significant experience within this company and is well aware B is a bottleneck. Even so Hector may not know anything about Theory of Constraints, his common sense made him discover some good rules to better exploit the bottleneck resource.

For example, Hector organized breaks so that B is never left unmanned and not running, manages to minimize changeovers.

If he knew about Theory of Constraints, he would probably squeeze more throughput from B, for instance placing the quality check before the bottleneck in order to insure only OK parts will be processed by the very limited B. Actually quality check is after C, which sometimes causes B to waste valuable time processing parts that will not pass the quality check, something that could be foreseen before B.

As it is the case in many companies, top management set local productivity objectives and is expecting Hector’s subassembly to run with best productivity. Logically Hector will complain about B’s limitations and keep asking for another investment in a second B. Waiting for this investment, Hector manages to produce daily around 80 units, the best subassembly can do.

In Hector’s eyes B is the constraint, which is true if we consider subassembly alone.

Production manager Isadora has to take care about the whole plant and thus considers the whole process. She doesn’t know either about Theory of Constraints, but her analytical skills and common sense focused her attention onto E, the bottleneck and constraint to the whole process.

Having limited means, she’ll explain Hector that working to increase the capacity of B would have little interest as long as E is the limiting factor for the whole system (the plant). What Isodora did not notice is that as long the daily limit is 60 units/day, some costs could be saved in subassembly if its daily production would be aligned to the capacity of E, for instance overtime and excess inventory carry over costs. But she’s blinded by local productivity objectives set by top management.

Nevertheless, Isadora came close to self-discover the five focusing steps of Theory of Constraints:

  1. Identify the constraint (E)
  2. Exploit the constraint
  3. Subordinate everything to the constraint (e.g. subassembly)
  4. Elevate the constraint
  5. Prevent inertia to become the constraint

If Isadora succeeds to elevate the constraint E, chances are that the B will be the next constraint!


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