Why can Theory of Constraints deliver these results?

In my previous posts I pointed out the risk of ignoring the results that TOC can deliver to you, or to your competition.  This led to asking the question – if it is this good, why isn’t everyone doing it?  Other questions that arise from this are questions like:  “So why does TOC deliver such astounding results?” and “How does TOC deliver these results?”

How can a theory of constraints approach come into an environment where a lot of improvements have already been done, and seemingly magically expose all this hidden capacity, when all the resources were already working pretty hard to start off with?

These questions are in some ways similar and in some ways different.  To answer them in a convincing way without writing a whole book is quite difficult.  If you really want the full answer, the best resource is probably to read the Theory of Constraints Handbook.  But that is a really big book.  So I will try to give some snippets of the parts of the answer that I have found most interesting.

To try and answer these questions in a structured way, I am going to focus in the next few posts on some concepts, or themes that seem to recur over and over in the TOC world, that stand out the most, for me.  These are fundamental concepts on which TOC seems to be built – and these concepts underlie the success of the applications.  In a later series of posts I will give a bit of an explanation of the actual applications of TOC that have already been developed.  So in a way I’m trying to first address the “why it works” and then I will address “how it works.”

The concepts I will address are:

  • Focus
  • Wisdom, insight, and understanding
  • Distinguishing concept from understanding
  • A full suite of disciplines to cover all core management disciplines
  • All disciplines built on a single set of thinking processes
  • Accepting and managing (instead of trying to control) variability
  • A powerful set of core beliefs

Today I will start with Focus.

TOC can be summarized in a single word:  Focus

In his book “Theory of Constraints,” Eli Goldratt summarizes all of the Theory of Constraints into a single word:  FOCUS.

That statement in itself is quite a feat of focus!

In my opinion this is the key that makes TOC work.  All the applications, all the thinking processes – all of it is about answering the question: “Where should we focus?”

The three core questions of TOC: “What to change?” “What to change to?”  and “How to cause the change?” are questions of focus.  They imply that once you’ve figure out what to change, then then next two questions must focus on this item that must change.  It implies that you must NOT change other things at the same time.  Focusing on many things at the same time, is the same as nog focusing on anything.

One of the easiest to understand, but also one of the most effective ways to see the power of focus, is when we compare the TOC continuous improvement approach with most of the conventional continuous improvement approaches.

When you read a lot of operations management literature, the apparent randomness of success vs. failure of continuous improvement implement is quite striking.  Many of the continuous improvement processes are built upon the concept of “Kaizen,” which is the idea that many small improvements over time add up to a big improvements.  If, e.g. every player in a sports team could improve his or her skill by 10%, then the overall effect on the team’s skill is massive, because of the way these improvements interact with each other.  E.g. in rugby, if one player gets 10% better at giving an accurate pass at high speed to a partner who is changing direction, and that partner is 10% better at catching the ball in the midst of an evasive manoeuvre, you are likely to get more than 20% less drops out of that process.

In certain business environments the same principle applies.

Most businesses are not like sports teams

However, most business environments are not sports teams where work is being passed to and fro at high speed between team members.  In most businesses work is passed on through a process from one work centre to the next, then the next – and so on.  At some places the work converges, and sometimes it diverges.  Therefore most business can better be compared with a series of queues that converge and diverge.

Try to imagine a picture of queues like we often see at theme parks – cordoned off with ropes or barriers.  But instead of just one queue going to the gate imagine that there are lots of these in series, some in parallel, that converge and diverge.  Imagine all of these queues filled with sheep.

Every two or three of these queues belong to one department, where there are a few gates in and a few gates out, that connect them to the queues of the other departments.  Inside the departments are also some gates that connect the department’s internal processes.  Staff members at the various gates are responsible for guiding and goading the sheep in the right direction to get them through the department as quickly as possible.

The design of these queues is not perfect.  In some places three sheep can walk side by side easily; in some places only one sheep at a time can get through; and in other places there is almost no limit – twenty or thirty sheep can run freely side by side, hardly touching each other.  Furthermore, the queues do not always start and end with the gates.  Over time some gates have been moved to make some of the queues shorter – but the rest of these queues had not always been blocked off – so that sheep sometimes can pass the gate, and then get stuck in these dead-end sections where there is no longer a gate out at the end.

This is more or less what our organisations look like.  More like this, and less like the slick, perfectly coordinated sports team.

A common conventional improvement approach – many improvements everywhere

In traditional continuous improvement programs, often everyone will be looking for ways to improve.  So every department is doing internal improvements.  Some of these improvements try to reduce the gates, because every gate needs a staff member.  Less gates – less staff – save costs.  Others try to see if they can get one person to look after more than one gate.  Or they try to move the gates so that the sheep can find their way through without needing any human intervention – and they call it automation.  The theory is that all these small improvements will eventually improve the overall success of the company.  Measurements measure each department on how many sheep they can get in and out the process.

There are a few problems with this approach.

You cannot go faster than the slowest point in your process

The first problem which TOC will point out very quickly, is that there is only ONE narrowest place in this whole process.  If only 40 sheep per minute can get through this narrowest place, then no matter how much you improve everywhere else, you are never going to get more than 40 sheep per minute through the whole system.  You may clog up everything else with sheep, and you may look very busy, but ultimately, 40 sheep per minute will walk out the other side.

Now let’s assume that this narrowest place is somewhere in the middle of a process in the middle of all the processes.  Five processes upstream is where work enters your organization.  Here your sales people are working very hard at continuous improvement, and they succeed in improving sales with 20%.  So they start pushing 20% more work into the system. (This is a make to order system – you start processing work as soon as a sale is made).  The processes downstream from sales quickly begin to note the increased work, so they increase capacity by making their queues longer, maybe installing new systems to keep better count of the sheep, and maybe some of them also make their gates bigger so they can get more work flowing through their departments quicker.

Some improvements can help you close your doors quicker

Very quickly this increased flow hits the 40 sheep per minute gate.  Maybe, or maybe not (depending how difficult it is), the business succeeds in getting the 40 sheep per minute gate upgraded to 44 sheep per minute.  That’s a 10% improvement.  How much more work can your system actually deliver to customers on the other side?  All in all, you will not deliver anything more than 10% more.

Sales people will become clogged down in managing broken customer expectations, and instead of setting your business on a continuous improvement path, you will begin to lose market share because of your bad reputation.

Too many improvements creates complexity and internal instability

The second problem with the traditional continuous improvement approach is that every change introduces more complexity into a system which generally is about as complex as what the managers in the current system can handle.  All these processes are not independent of each other.  There are handovers from one process to the other, information that has to move to and fro and so on.

Now imagine that Department A starts an improvement project, and they identify that they can move one of their gates five meters up, which would reduce their processing time.  This impacts on Department B who now also has to move their gate, to make sure the sheep don’t get lost between the processes.  But Department B as also been working on an improvement project, and they want to move their gate in the opposite direction.  While they are busy in meetings with department A to try and find a compromise, unbeknownst to them, Departments C and D, who are receiving output from both Departments A and B at different points in their processes, have been spending a lot of time carefully building an improvement plan, and they actually carefully considered the positioning of Departments A and B’s exit gates.  Just as Departments A and B finally are about to reach agreement, they get a meeting request to Departments C and D’s joint improvement project meeting.  In this meeting the proposed improvements are carefully described and laid out.

It’s very convincing, so department A and B decide to cancel the projects they are working on, in order to support Departments C and D.

All this time, and with all this effort, overall flow through the process has not changed.  The 44 sheep gate is still a 44 sheep gate.  To make it worse, often as these improvements are going on, the existing processes go out of synch, or resources get absorbed in the change efforts, so that their output falls even below the capacity of the constraint.  Suddenly the 44 sheep gate finds that sometimes only 30 sheep are actually there to go through in a given minute.  So instead of the improvements increasing the overall throughput of the system, it actually reduces it.  This is not a mere theoretical idea.  There are many case studies of improvement programs that led to performance going down, rather than up.  Of course there are also success stories.  The point is that success is not consistent.

Theory of Constraints Approach – Focus!

Improve the constraint

Theory of Constraints takes a different approach to all of this.  With TOC you start by finding that 40 sheep gate.  Once you’ve found it, you focus all your improvements, and even all your scheduling around that 40 sheep gate.  The whole business is focused on making the 40 sheep per minute gate to never run out of sheep.  All the other processes can produce more than 40 sheep per minute, so if they are not all focusing on internal improvements, just on making sure the 40 sheep gate is never empty they can guarantee a constant flow of 40 sheep per minute.  Then improvements are focused on getting that gate to go faster.  E.g. introduce QC before that gate to make sure no sheep that will not be fit for market, goes through that gate.  Some sheep might be able to go along longer paths – which may at first seem counter-productive, but because they are not clogging up the 40 sheep gate, the overall throughput of your system may be increased.

Focused improvements facilitate reduction of complexity

Furthermore, the entire system can be simplified by stopping the habit of just pushing more sheep into the start point, than what can go through the gate.  Reducing the number of sheep in the system makes everything simpler, makes everything flow easier – and makes the overall time from when a sheep enters, until it goes out the other side, much shorter.  A lot of the time the sheep currently just spend waiting, can be removed.

Once we know that this gate is running at maximum capacity consistently, never being wasted, THEN the next improvement may be to increase capacity at that gate.  Instead of all the money that has gone into improvements everywhere in the system, a single investment is made in a new gate.  This investment is accompanied by a single improvement project which is to reroute some of the current routes to the new gate, and made systematic adjustments until everything is flowing smoothly through both new gates.  Now the 40 sheep gate is an 80 sheep gate.

One improvement leads to improved flow everywhere

Try to clearly picture what this really means.  Previously, if the whole system was full of work in progress, then even though there was lots of work everywhere, the reality is that no-where did the work really flow any faster than 40 sheep per minute.  It was either blocked from flowing faster by the work before it, or it was simply starved from flowing faster because work, or pieces of work was stuck at the 40 sheep gate.    (Ok, the pieces don’t work so well with a sheep analogy – but in most processes you can have bits and pieces of the work and information stuck in your bottleneck.)  Even if some of the departments succeeded in recording flow through their department of more than 40 per minute, then their output would merely clog up the next process faster – it would not help the whole business to perform better.  In fact, it would build up inventory, tying up more cash, preventing that cash from being applied usefully elsewhere.

If you measured flow at any point in the system, the rate of work could not have been consistently more than 40 sheep per minute.  It could at times go faster, but only to be blocked or starved again.

BUT, because all the other processes have capacity of more than the 40 sheep per minute, the moment you increase the flow through this constraint, every department’s flow can accelerate.  By simply changing this one thing, you achieve what all the changes were trying to but failed to achieve – to increase flow at every point in the system.

Rapid continuous improvement achieved through focus

Quite possibly, as soon as you’ve increased the capacity to 80 sheep per minute by installing the new gate, this is no longer the constraint in the process.  With the increased flow through the system it quickly becomes apparent that there is now a new constraint.  There might be a place in one of the queues where only 60 sheep per minute can flow through.  Now the focus shifts to this point, and the process starts again.

This is the TOC approach to continuous improvement.  Find the single point in the system that is currently limiting the system’s throughput.  Focus all your efforts on this point – which typically means very quick improvement , until this is no longer the constraint.  Find the next constraint and repeat.

This is one example of how focus can improve your organisation.  It can greatly reduce the waste and complexity that often goes with improvement efforts, and make the return on investment in improvements much greater.

TOC provides the thinking processes and tools to help you find the bottleneck in your processes, and then provides processes for devising plans for improving these, that have a very high likelihood of success.

Focus.

Unless you have a structured way to create and maintain focus, the chances are very good that you are wasting a lot of energy and resources in improvement efforts that are not improving your business.

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