• Critical Chain Project Management
• Process Reengineering
• Supply Chain Management

The results were great.  So we made a presentation telling our story.  Here it is on slide share.

The Article is can be found on the website by clicking on the link below

Pit Crews cut final assembly time in half, giving FMC Technologies “The Racer’s Edge.”

Companies need to use financial tools that move them toward their goal. Throughput Accounting provides managers with a transparent and focused method to make decisions that consistently lead them in the right direction.  Through better managerial decision making, Throughput Accounting improves a company’s ability to make more money now and in the future because it approaches accounting from a cash management basis. It meets the need that companies have to meet management challenges, including outsourcing products, process improvement, and purchasing capital equipment.

Is Traditional Cost Accounting Bad for Decision Making?

It is often difficult to see how decisions made in a local area affect the organization as a whole.  This is particularly true of managers who are not able to see or affect every area of the organization.  The organizational view of most managers is typically limited to their own area of responsibility and those nearby. 

For a business leader in an enterprise, the issue is more troublesome, because he or she must concern themselves with the decision making of multiple managers involved in many aspects of the enterprise.  We know from experience that local managers often make decisions that are counter to the purpose of the enterprise.  A single person periodically making a bad decision is usually not significant, but if there is a systemic error in many managers’ understanding of the enterprise’s functioning, many poor decisions will be made, which could create significant, long lasting damage.

Larger, subdivided enterprises lose their system-wide perspective, and managers are forced to rely on decision rules that are typically based on Traditional Cost Accounting; the bigger the enterprise, the bigger the problem.

Download and read the rest of the Throughput Accounting Whitepaper

I have another relevant paper on the impact of cost accounting and productivity.  It’s a bit old, but I thought that as long as I was on this topic, you’d want to have it, too.

With all these smart people working on supply chain management initiatives, why are there so few examples of real successful SCM improvements? Why, if management spends millions of dollars on supply chain management technology, aren’t we seeing breakthrough improvements in supply chain efficiency?

There are three fundamental mistakes managers make in supply chain management:

Supply Chain improvement is about efficiency
Supply Chain improvement is about technology
Supply Chain design is best done by the supply chain experts

The key to improve supply chain performance is to treat the supply chain as a system, where efficiency is a by-product of system performance, not a precursor to system performance. The emphasis in supply chain management must be first on performance – delivering product (and components) reliably. Only when that objective is accomplished, can managers focus on driving cost from the system.

Read the complete article and see a diagram of  on the Demand-Pull Supply Chain

Click below for a listen!

All implementations of the Theory of Constraints will follow this general pattern: procedure development, education, implementation, [OH MY GOD! LOOK AT THE BOTTOM LINE!], procedure and policy refinement, re-education and re-implementation.  Implementations are fun and staggering in the bottom line results they achieve.  

What can you expect in your implementation?

It’s difficult to give a specific answer to that question, since every organization is different.  In general, the implementation goes like this:

• Enthusiastic changing of some policies
• Unbelievably positive improvement
• Less enthusiastic changing of more policies and procedures
• Positive improvement
• The constraint moves to an area not addressed by the initial implementation.
• Pretty good improvement
• Results level off
• Management looks elsewhere to improve

Most theory of constraints implementations in manufacturing are completed in less than 2 years.  The plant is now running like clockwork, costs are down, performance is up.  The constraint is no longer in manufacturing.  The focus of the business and the improvement projects must now shift to external issues.  So, rightfully so, the attention of the organization moves to other areas, not in manufacturing.

However in those 2 years you’ve implemented, your business will change in ways you can’t possibly imagine today.  Your performance will level off at a much higher level of performance you are enjoying today.  How about a 43% annual ROI?  Could you sit there awhile?  I know a company that did.  How about taking your order fulfillment cycle from 3 weeks to 3 hours and stalling there?  I know another company that did that.

The first stage of the implementation will be like housecleaning, with many constraints that you identify and then quickly break.  Each time you break one, results improve.  This period lasts about 90 days.  Eventually, you’ll find a constraint that will be difficult to break.  Might be the market.  Might be the product.  Might be a $2 million machine. 

Then comes the hard work.  Implementing the system to exploit and subordinate will take longer than the quick results you’ve been getting up until now.  If you don’t prepare for it, the implementation can get bogged down here.  This phase may take 30 days; it might take 6 months.  It’s at this time the commitment you’ve gained in the prior steps will pay off.  It’s not really that fun implementing a scheduling process and dealing with people that want to work on product early.  You’ll also encounter the “back to Egypt” crowd here.  (The “back to Egypt” crowd was the Israelites that thought they were better off being slaves in Egypt than being killed at the Red Sea – just before the Red Sea parted.)  They’re the ones who will insist that everything was better before the theory of constraints management concept came around.  They’ll resist changing.  Project deliverables will be missed.  People will be “reassigned” because they won’t change.  It will happen. 

The most difficult obstacle to continuing improvement is inertia.  Your implementation process must move people from working in the business to actively working on the business.  Anything you can do to remove the fear of change will help you achieve your goal.

A typical implementation of the theory of constraints gets positive bottom line results.  If you’re committed to managing the constraints and not letting them manage you, you’ll continue to see positive results on your bottom line.

Imagine if…

• Your plant ran on auto-pilot – people know what to do, and they do it!
• Every resource is synchronized to your customer’s need
• You deliver every order not only when you promised it, but sooner.
• Your team is engaged in more fire prevention than fire fighting

Every order is delivered on time, in less time, with minimal management intervention.
The Maximum Flow System is a set of tools and processes to schedule and manage your order fulfillment efforts that involve planning, management, and ongoing improvement that results in:

• 20% more throughput
• 25% shorter lead times
• 15% more sales
• 20% more cash flow every month
• Improved labor productivity of 15% or more

Despite the advances in information technology and systems, most plants manage the order fulfillment process of prioritizing and managing customer orders as if it were an art, using a craftsman approach, rather than treating order fulfillment as a system, requiring a process to manage and control. Rarely is the order fulfillment process treated as a process, with sequential steps and appropriate controls. Instead, order fulfillment is delegated to the resource owners (the plant) who have a bigger incentive to be “efficient” than deliver on time. As a result, the important task of customer satisfaction is an afterthought in process improvement. In the end, orders are thrown over the wall from sales to production, like hand grenades that might explode into a product that satisfies the customer.

The Maximum Flow System causes people to synchronize their day to day efforts towards the delivery requirements of the customer, which results in on time delivery of the customer’s order, with less effort and management intervention.

The Maximum Flow System Coaching Program

The Maximum Flow System Coaching Program will teach you not only what you need to do to improve performance, but the sequence of implementation steps and the obstacles to success.  Everything you need to consistently deliver on time while eliminating the firefighting and chaotic nature of the plant.  Enrolling the program will make you the beneficiary of the lessons I’ve learned in organizations from small to large, from simple to complex, from custom products to standard products, and more.

Click here to read more…

• Over-production; Making more than the customer (or the next step) requires. Usually manifested as batching behaviors and
• Releasing work too early into the system (allowing overproduction); resulting in high work in process inventory.

These two deeply embedded behaviors are the result of management’s beliefs about the proper way to deploy resources to the work. There are countless policies, procedures and measurements that reinforce the erroneous idea that in order to manage well means to keep workers and/or machines producing as much as possible, as fast as possible. We have been taught that idle resources are major waste. Those that have implemented ToC (and Lean) realize this thinking is fundamentally flawed.

Managers must change their processes, policies and measurements to reinforce behaviors that lead to more flow, not greater resource efficiency. The very nature of efficiency must be redefined, from the resource level to the system level, from individual production to system production.

How do you get managers to realize that this deeply held definition of efficiency (the sum of local improvements is equal to improving the system as a whole) is leading to shortages of capacity?  It’s  not a small task.  The thinking is institutional; managers are not even aware of this hidden assumption. Beyond the realization that the assumption is wrong, how do you get changes in behavior? Despite conventional wisdom, behavioral research demonstrates that people don’t necessarily act from the beliefs they have, but from the reinforcements they receive. Therefore, in order to get people to change behavior, you must not only find the erroneous assumption(s) and kill it, you must also identify the reinforcement mechanisms that drive the undesirable behaviors and change those, too.

Many companies think they at capacity because their delivery performance is suffering. This is a logical conclusion, but most organizations waste at least 20% (I think it’s really closer to 50%, but I’m being conservative) of their available capacity through synchronization mistakes and poor policy choices . Managers must remember that the output a system generates is a function of how resources are managed, not just the total number resources it owns.  To find this lost production capacity, managers often use lean manufacturing techniques to increase their output. However, when applying these techniques the results are uncertain. A recent study (see related article on this blog) demonstrated that only 2% of companies implementing lean techniques fully achieve their objectives and less than a quarter (24%) achieve significant results.

While Value Stream Mapping looks at behavior, it doesn’t look at the causes of the behavior.  It does not identify the root causes for organizations losing output from their capacity.  Without eliminating the causes for behaviors, you cannot eliminate them.  For example, you cannot stop people from eating unless you can eliminate the cause of it – hunger.  You can remove the food to prevent people from eating, but once food appears, they’ll eat again.  In the same way, we must address the behavioral causes for lost capacity and create new reinforcements for the correct behaviors.

With a few changes focused on identifying the causes of behavior, you can improve the results of your VSM efforts.

• Create a process map of the value creation process
• Identify excess and shortages of inventory
• Identify the behaviors that create the inventory, delay and shortages
• Identify the formal behavior reinforcement mechanisms
• Identify the informal reinforcement mechanisms
• Identify process activity errors that waste capacity
• Assess information quality for decision making
• Assess decision processes for downstream impact

To make the most of the system’s capacity one must ensure management is reinforcing behaviors that maximize flow. Flow behaviors are most often blocked by local efforts to achieve high efficiency, but there are deeper manifestations of the efficiency concept that must be identified and rooted out before a process can be transformed.

By modifying the existing tools of process mapping and value stream mapping, one can get an understanding of the main behaviors that hide system capacity. This can result in an early stage transition from efficiency behaviors to flow behaviors, providing a systems level guide to process capability and development of the “to-be” state of the value creation process. By increasing the understanding of current capacity utilization and finding the behaviors that block systems level improvement, one can reduce the capital risk associated with adding additional fulfillment infrastructure.

“Just because something is popular, doesn’t mean it’s working according to plan…” cites the author.

Managers seem to employing these techniques for the wrong reasons. The survey shows that market strategies are build around quality and service. Most of the lean tools are geared towards driving time from the system.

The Theory of Constraints continues to demonstrate superior performance in dimensions the customers care about; lead time and reliability. As a method of continuous improvement, it has no peer. A study by Mabin and Balderstone report that using ToC, organizations achieved a mean lead time reduction of 70% and an improvement to on time delivery performance by over 40%. Coupled with short implementation times, often less than 90 days, dramatic results are reported over and over and over.

Moreover, Theory of Constraints implementations actually improve the bottom line performance, doubling profitability in many implementations.

The article also cites that 14% of manufacturers are implementing ToC, up from 3% in 2007. Managers are starting to wake up to the power of the theory of constraints. Are those managers working for your competitor?