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

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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  • companies tend to have an outdated / obsolete analysis of the situation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 pharmaceutical 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 :

  • flushing a lot of goods that were waiting before the bottleneck, propagating a wave of workload downstreams,
  • draining the queueing material before packaging as its capacity is better utilized, and may be idle if the next supply does not follow the new pace.

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 solve their own problems. 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 internal 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 as anyone would logically assume, 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 sporadic and 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.

You may like to read my post Be prepared for success

The next bottleneck lies in the future. This is a warning about the necessity to anticipate it and about 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.

 

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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.

Chris HOHMANN

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