How to identify the constraint of a system? Part 4

Since the publishing of early books on Theory of Constraints, the world grew more complex and the system’s constraint got more and more elusive. Globalization and extended supply chains give a constraint opportunity to settle literally anywhere in the world and extend its nature. It can be a physical transformation process in a supplier’s facility, it can be the way cargo is shipped from distant suppliers to the company, it can be the custom clearance process somewhere along the supply chain.

Walking a factory door to door may not suffice anymore to find the system’s constraint. The examples given in the part 1, 2 and 3 of this series of posts are simplified with regard to the reality of most companies.

Another complexity is brought by the growing number of requirements of standards and regulations. A company wanting to count among the aeronautical industry makers has to comply to the AS 9100 (USA) / EN 9100 (Europe) / JISQ 9100 (Asia) standard. For the automotive industry the standard to comply to is ISO/TS 16949 (now IATF 16949). And those two examples are only standards for the quality management system.

Pharmaceutical industry, as some others, require a license to operate. In order to be awarded such a license and to keep it, the company must comply to all requirements, undergo periodic audits and keep record of anything happening along the manufacturing process. This industry is under constant scrutiny of government agencies, regulators, etc.

Therefore, the paperwork associated with products is impressive and requires a lot of resources in the dedicated processes, and as we will see, likely to host a system’s constraint!

Over time, layers of requirements accumulated. And what is a requirement if not a limitation of the way to execute, a constraint?

Quality assurance

Quality assurance (QA), according to wikipedia, comprises administrative and procedural activities implemented in a quality system so that requirements and goals for a product, service or activity will be fulfilled. It is the systematic measurement, comparison with a standard, monitoring of processes and an associated feedback loop that confers error prevention. This can be contrasted with quality control, which is focused on process output.

https://en.wikipedia.org/wiki/Quality_assurance

Anyone working with a Quality Assurance department soon realises that this department is more acting as a defense attorney for the company against regulatory or standardization agencies, and a watchdog internally than a support for improving quality by problem solving.

For obvious reasons, QA and Production must have a clear divide, as it would not be acceptable for the maker to assess and certify the quality of his own production. Their staff are also distinct. QA usually has a huge influence on decisions and can be very powerful, to the point that top executives have to accept QA decisions, especially when QA has to sign off the release of a batch or clear the allowance to ship.

QA activities are mainly administrative, with some lab testing. QA staff is “white collar”, working a typical 9 to 5, 5 days a week regardless of production. Some QA authorizations are mandatory for the physical batch to move to the next step in the process. Many productions run more than one shift, up to 24/7, while QA works 1 shift 5 days a week. As a result, the paperwork relative to production batches accumulate during the QA off-period and is later flushed during QA working time.

Now here comes the first problem. The difference of working time patterns send waves of workload through the system. It is not uncommon for some production batches to wait for QA clearance in front of a process or in a warehouse. This could give the impression that the bottleneck is in the next manufacturing processing step, but it is not.

In reality the bottleneck is in QA. It can be the plain process of reviewing of paperwork or some testing, measurement, analyses, etc. A trivial yet common bottleneck is the “qualified person”, the one or few ones entitled to sign off the documents. Those people, usually managers, are busy in meetings and other work and let the paperwork wait for them.

Note that QA activities are not always extensively described in the production task lists, do not always have allocated time and if they have, QA department is seldom challenged about the staff adhering to standard time neither to possibly reduce the duration by some improvements. This can lead to underestimate the impact of QA’s activities on the production lead time and “forget” to investigate this subject when searching for the bottleneck.

Dependence on third parties

With an ever growing number of requirements to fulfill and proofs, certificates and log files to keep ready in case of inspection, many specialized tests and measurements are farmed out to third parties. It makes sense, in particular if those activities are sporadic, the test equipment expensive and maintenance of skills and qualification for personnel mandatory.

Now this type of subcontracting bears the same risks than any other subcontracting: supplier’s reliability, capability, capacity, responsiveness, etc. and the relative loss of control of the flow as it is now dependent on a distinct organization. The system’s constraint may well be located then outside of the organization, and even beyond its sphere of influence!

Beware of the feeling of being in control when the third party operates in-house. I remember such a case where a specialized agency was doing penetrant inspection and magnetic crack detection in the company. While everything seemed under control, the external experts often failed to come as scheduled because they still were busy elsewhere or had sick leave. When they were in-house, they frequently lost a fair amount of their precious time moving parts around, a kind of activity not requiring their qualification but significantly reducing their availability for high-value added tasks. It turned out that this spot in the factory often was a bottleneck due to the lack of management’s attention.

Where Value Stream Mapping can help finding the constraint

These examples above show that the information flow or paperwork associated to the physical flow can have a significant influence on lead time and can even decide if the flow has to stop.

In such cases Value Stream Mapping (VSM) can help finding the constraint as it describes both physical and information flows on a single map. Note that some companies including Toyota refer to VSM as MIFA, the acronym of Material and Information Flow Analysis.

Without such a map to guide the investigations, people on shop floor may forget to mention (or are not even aware of) analyses, tests, approvals, paperwork review, etc. during interviews of gemba walks. Experienced practitioners will ask about these possibilities when inquiring in strong standard or regulation-constraint environments.

Where the Logical Thinking Process can help

When the system’s constraint remains elusive despite all the search with previously mentioned means, Theory of Constraints’ Thinking Processes or the Logical Thinking Process variant can help finding the culprit by analyzing the Undesirable Effects at system level.

This later approach is best suited for “complex problems” when the constraint is a managerial matter, conflicting objectives, inadequate policies, outdated rules or false assumptions, myths and beliefs.

To learn more about the Logical Thinking Process and the logic tools, see my dedicated pages, series and posts on this blog.

About the Author, Chris HOHMANN

About the Author, Chris HOHMANN

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Poor problem management: disregarding C customers

I see it quite often this poor problem management in B2B: instead of tackling the problems, companies prefer to serve their A and B customers first, at the expense of the C ones.

A, B and C customers refer to ABC portfolio analysis, a Pareto chart approach of customer base in which customers are sorted according to generated turnover, order quantities, strategic importance or any chosen parameter.

  • A class customers are those, usually few ones, accumulating 80% of the given parameter, let’s say turnover.
  • B class are the next 15%, a range of customers bringing all together 15% of turnover.
  • C class are the reminders, many customers with small orders accumulating 5% of turnover.

According to Pareto law, AKA 20/80, 20% of the customers will account for 80% of turnover and these essential fees are the favored category for obvious financial reasons.

On the other end, the “trivial many” of C category require more attention because of placing numerous small and often specific orders, for a tiny portion of the global turnover.

When companies face problems satisfying all demand, they usually “trim the tail” or ignore some of the least significant customers in order to favor the most significant ones.

Doing that, those companies:

  • Disregard their C customers
  • Make a gift to competition
  • Simplify their problem, not their solution

Disregard their C customers

There seems to be sound rationale behind the choice of trimming the Pareto’s tail, yet some of these sacrificed C customers may be new ones testing their potential new supplier. These Cs could have turned As if not sacrificed a bit hastily, based on (too?) simple, questionable selection process.

It may not hurt ethics beyond not keeping a sales promise when it is about widgets, commodities and the like, but what when the supplies are medical devices or drugs direly needed by every customer?

C customers may be emerging or poor countries with little choice of suppliers but people to treat.

Besides, these C customers have been acquired at some moment, could even have been welcome when sales were needed. It is a kind of unfair to disregard them when unable to supply all customers.

Make a gift to competition

Treating C customers with disdain may make them turn toward competitors, which is a free gift to the latter.

Given the costs of acquisitions, which is not only counted in money, companies in trouble supplying their customers should work out a solution to satisfy each and every one of them instead of just throwing a part into the arms of the opponents.

Simplify their problem, not their solution

Just cutting off supplies to C customers simplifies the supplier’s problem, not the solution.

In other words, it does not address the root cause, it just seem to alleviate the pain but at potential very high (future) cost: the loss of customers.

The only situation where this temporary solution – stopping supplying C customers – is “acceptable” is when it helps stabilizing a chaotic situation in order to work out a solution to supply ALL the customers. It has to be of short duration and preferably prepared and backed-up by adequate communication.

Turning off the tap without notice, hopping customers won’t claim is just unacceptable, unprofessional and unethical.

Yet all this being said, how many managers really care?


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Is 3D printing the ultimate postponement? Part two

In the previous post of this series, I used somewhat extreme examples to illustrate the benefits of postponement with additive manufacturing i.e. 3D printing (space exploration, ships amidst oceans and warfare). In this post I use more common examples about how the promises of these new techniques will disrupt existing businesses and bring new benefits to competitors and customers.

Spare parts for automotive industry, appliances, etc.

Spare parts are needed for mending cars or appliances for example. Until now, spare parts must be produced and kept in inventories in the eventuality someone needs a part. This happens eventually but it is hard guess to tell which parts, when and in which quantities parts will be required.

Therefore, spare parts production is launched according to complex and more or less scientific guessing, based on statistics. Once these parts are produced, they’ll go for various locations through the proprietary network or through  importers, distributors, retailers and repair stations.
Huge amounts of cash are kept frozen in inventories, scattered in many warehouses in various locations.

  • These inventories are likely to grow with each new specification change that affects a part, as the adequate replacement part must be provided
  • These inventories’ value will have to be depreciated when parts become obsolete and the probability of their sales diminishes

Storing and distributing spare parts is a business per se, but the value-added remains limited (which does not mean it is not profitable!), especially for the “players in the middle” who act more like cross-docking platforms taking their share of profits and risks.

Over time distributors and retailers slightly changed their business model and drift away from their original business: storage and retail.

In old days it was important to be the reliable parts provider and huge inventories were normality.

More and more those companies embrace a financial, more profit-driven purpose and keeping inventories is for them a necessary evil at best. Distributors and retailers try to get delivered at short notice in order to keep inventories – that is frozen capital and risk – low.

They push the problem upstream to manufacturers, the latter being required to reduce delivery lead time, which most often ironically means holding inventories to serve “off-the-shelf”. Distributors and retailers become a kind of post-office collecting orders, passing them over to manufacturers, who in some case have to deliver to the point of use, by-passing the distributor/retailer.

I worked in some industries facing this “problem” and the distributor / retailer channel in this way does not seem sustainable as manufacturers try to get rid of these “order collectors”.

Now with the rise of additive manufacturing techniques, new opportunities appear. Distributors and retailers may use them to become manufacturers themselves. What they need are competencies to use such equipments and managing CAD files from OEMs’ libraries, “print” spare parts at will: at the right moment, in the right version, without holding huge, costly and risky inventories of parts in huge warehouses, with high fixed costs.

Furthermore, customizing parts locally would yield additional revenue, as customers with specific and maybe urgent needs are willing to pay a premium.
So would scanning and redesigning no longer supported parts for which no CAD files are available.
This kind of service is an ultimate postponement because the manufacturing of parts is on hold until the very last moment, when the orders are confirmed or the parts paid!

This is one example about additive manufacturing (i.e. 3D printing) techniques can disrupt existing businesses and bring new benefits to (some) competitors and customers. The financial barriers to entry dropping significantly, OEMs could reconsider to re-integrate this kind of activity and keep the value creation all by themselves.

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Is 3D printing the ultimate postponement? – Part one

Imagine the first habitable base on mars. Your challenge is to pack the first cargo spaceship with all the necessary for the staff to face all maintenance issues, until the next cargo spaceship can lift up, say three months later.

Chances are you’ll include a 3D printer and enough of printer’s raw material, simply because it would be the most efficient way to provide many things needed despite tremendous logistics constraints.

Now quit outer space and consider a tanker, an aircraft carrier or container ship amidst the ocean. In some aspects, these vessels share common traits with our base on mars:

  • storage space for spare parts, raw material and machines for maintenance purpose is scarce
  • they are far from everything, can be supplied only after some delay
  • supplying them is not without some risk (weather, enemies, etc.)
  • supplying them is not only risky but comes at (very) high cost

In these cases too, 3D printing is a good option to consider as printing what is needed at the very moment it is needed is the optimum solution and ultimate postponement.

What is postponement?

In manufacturing and supply chain operations, postponement means delaying the completion of a product or packaging products until a signal assigns specific customer or destination. This is useful when many variants would lead to possible misallocation if the completion would be based on forecasts.

Put simpler, postponement delays a decision until what is expected is clearly specified. The reason is most of transformation step in a process modify the product in such manner that returning to previous state is impossible.

Example: if you cut a piece of fabric to make a handkerchief, it cannot be returned to a piece of fabric for a trousers’ leg. (except it was a huge handkerchief or tiny trousers)

Materials usually lose flexibility along the transformation process. Once transformed there is no stepping back.

Postponement is used to delay the completion or manufacturing until a differentiation point from which the item loses its flexibility (e.g. pack in white box and add customized label latter).

Because postponement and later completion is no realistic option for our vessels or space base, they must embark spare parts for all possible cases, but under constraint of volume and in some cases weight.

The embarked mix is a set of items based on forecasts and tradeoffs about what could possibly happen and what is most likely needed, still carrying the frightening risk that what will really be needed will not be included in the cargo.

Printing at will

Now if you can trade the same finite volume and mass of many different spare parts selected through complicated statistical computation for a 3D printer and raw printer material, the risk drops to almost none as any required part (as long as material is suitable) can be printed when required, and even customized to some unexpected specification change.

This is why NASA, the navy or some private companies consider to embark 3D printers and train staff in order for the unit to be independent from its supply base for a longer period.


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What is supplier development?

Since major companies subcontracted and outsourced significant part of the added-value in order to concentrate on their own core competencies, they increasingly depend on their suppliers.

In automotive and aerospace industry the rate of value creation is about 20% for the OEMs and 80% for suppliers. OEM here stands for a company that acquires systems, parts or components and incorporates them into a new product, with its own brand name.

The whole performance of the extended supply chain can be impaired by a single supplier not achieving the assigned targets.

I remember in my early consulting year the case of a railway rolling stock manufacturer whose carriages could not be delivered because windows and doors were late. The seemingly not strategic parts provider wasn’t monitored closely enough and his late deliveries came as a bad surprise.

Supplier development is a kind of help provided to some suppliers in order to settle issues and/or improve quality, delivery or costs. This assistance can be imposed upon the supplier by contract by the buyer if supplier doesn’t meet the objectives, or in a more friendly manner proposed to a supplier as a way to improve the partnership and overall supply chain performance.

>Lisez-moi en français

Supplier development programs are often part of a Lean or Excellence program that extends beyond the initiator’s (buyer) walls. It is also often a non-negotiable part of the contract.

Supplier development is most often a technical or methodological assistance provided by a special team from the OEM or consultants send by him. In some cases the supplier is required to act but the choice remains his, as long as the OEM agrees it.

Supplier development as a reaction to issues carries cost for both parties; costs of the issues and cost of the mitigation and solution. Therefore supplier development, as nice as it sounds is seldom a friendly option. Buyers use the case to press prices further down or impose some conditions the supplier can hardly refuse under the circumstances.

Yet these considerations set apart, supplier development looks very much like consulting on operations. It is made of problem analyzing and solving, process improvement, quality issues mitigation and so on.

In order to avoid surprises, send specialists for supplier development and secure the supply chain, most buyers will thoroughly check the candidate supplier’s capabilities before awarding him any contract. This is usually done via suppliers audits.

I published a book on the topic in 2004, combining quality and supply chain assessment in a single audit, in order to make the process less costly for both parties and more efficient.

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