deciding goal goldratt

8/2/2019 Deciding Goal Goldratt

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1Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Deciding onDeciding onTheory ofTheory of

ConstraintsConstraints

(TOC)(TOC)Powerful SolutionsPowerful Solutions

Start with theStart with theRight QuestionsRight Questions

Focusing improvementFocusing improvementefforts for maximumefforts for maximumimpactimpact


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AGI is the birthplace of TOC. It was founded as an

educational institute in 1986 by Dr. Eli Goldratt,

author of the bestsellers The Goal,Its Not Luck, andCritical Chain. Today, AGI is home to the worlds

foremost TOC experts and practitioners, with 14

offices across 6 continents. AGI is the worlds largest

consulting firm specializing in the application of TOC

to achieve significant bottom-line results inorganizations as diverse as industry, services,

government, education, defence, and healthcare.

Avraham Y. Goldratt Institute (AGI)Avraham Y. Goldratt Institute (AGI)


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This presentation contains material that is the

intellectual property of the Avraham Y.Goldratt Institute and of Dr EM Goldratt and

may not be reproduced or distributed in any

form, in whole or in part, without the priorwritten consent of the Avraham Y. Goldratt

Institute.


4/574Copyright Dr EM Goldratt & Avraham Y. Goldratt Institute, 2000

Deciding on TOCDeciding on TOCDeciding on TOC

The holistic approach tobusiness.

Presenters: Kathryn A. Leishman

Dr Alex Klarman

Materials developed by Dr EM Goldratt and

modified by D Houle, KA Leishman and Dr A

Klarman.



Theory of ConstraintsTheory of Constraints

A toolset of logical Thinking Processes Generic solutions derived from applying

those thinking processes to a variety of

functional constraints

A focus on constraints



5 Focusing Steps of TOC5 Focusing Steps of TOC1. IDENTIFY the systems constraint(s).

2. Decide how to EXPLOIT the systemsconstraint(s).

3. SUBORDINATE everything else to the above

decision.4. ELEVATE the systems constraint(s).

5. If in a previous step a constraint has beenbroken, go back to step 1, but do not allowINERTIA to cause a systems constraint.



Typical TOC Results Are:Typical TOC Results Are:

Revenue / Throughput - UP 63% Revenue / Throughput / Profit UP 76%

Due Date Performance UP 44%

Inventory Levels DOWN 49%

Lead Times DOWN 70%

Usually within a few months to a year.

Data from The World of Theory of Constraints by V. Mabin and S. Balderstone, 2000.

Mean of published results excluding outliers eg. 600% improvement by Lucent



Todays Presentation IncludesTodays Presentation Includes

Examples of the use of the ThinkingProcesses in answering these 3 questionso What to change?

o To what to change?

o How to cause the change?

A reliable process for starting to implementTOC within the organisation



The only prudent way to manage aThe only prudent way to manage a

businessbusiness

is never to lose sight of the globalis never to lose sight of the global

picture.picture.

Two different perspectives are: A dollar + a dollar + a dollar accumulates a fortune

If you can find a leverage point you can move theearth. (Archimedes)

TOC follows the second approach.



Holistic approachHolistic approach--an example from the steel industryan example from the steel industry

Logistic - inventories are too high.

Service - too many customer complaints. Finance - too long pay-back periods.

People - bad internal human relationships.


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510

Most people behave in line

with the way they are measured.

520In most departments some

items require less time per

ton than others.

560

A V-plant produces items

through a process havingmany divergent points.

530Every additional set-up

reduces the measured

tons/hour.

525

Non-production results

in zero tons/hour.

515Departments try to

maximize their performance

as measured by tons/hour.

540

To maximize their performance

of tons/hour in a givenmeasurement period,

departments tend

to produce the fast items

at the expense of the

slow ones..

545

To maximize their

performance of tons/hour

departments tend toproduce for stock even

when there is no market

request for the short or

medium horizon.

550

To maximize their

performance of tons/hourdepartments tend to pull

ahead orders that enable

increasing a batch size.

570

To maximize their performance of

tons/hour departments tend to take

actions which result in stealing.

500

For a long time tons/hour has been the prime

operational measurement in the steel industry.

510


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510

Most people behave in line

with the way they are measured.

520In most departments some

items require less time per

ton than others.

560

A V-plant produces items

through a process havingmany divergent points.

530Every additional set-up

reduces the measured

tons/hour.

525

Non-production results

in zero tons/hour.

515Departments try to

maximize their performance

as measured by tons/hour.

540

To maximize their performance

of tons/hour in a givenmeasurement period,

departments tend

to produce the fast items

at the expense of the

slow ones..

540

To maximize their

performance of tons/hour

departments tend toproduce for stock even

when there is no market

request for the short or

medium horizon.

550

To maximize their

performance of tons/hourdepartments tend to pull

ahead orders that enable

increasing a batch size.

510

To maximize their performance of

tons/hour departments tend to take

actions which result in stealing.

500For a long time tons/hour has been the prime

operational measurement in the steel industry.


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The cloud of operations.The cloud of operations.

ABe a good

manager.

BConstantly

fight to reducewaste.

CConstantly fight

to increase

flow.

DUse efficiencies

as primemeasurement.

D'Don't use

efficiencies as a

measurement.

A resource standing idle is a major waste.Because...


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Dependent resourcesDependent resources

FLOW OF MATERIAL

X


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The holistic approachThe holistic approach

What to change - what is the core problem? To what to change - what is the solution?

How to cause the change?


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Session 1Session 1

OperationsOperations

What to change? Erroneous

assumption that a resourcestanding idle is a waste.

To what to change?

o Identify the constrainto Exploit the constraint

o Subordinate to the

constraint

How to cause the change?Drum Buffer Rope and

Buffer Management withconsensus on procedures.


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ResultsResults -- OperationsOperations

Allied Dunbar (insurance, UK) investigatedthe sales and telemarketing processeso Sales increased 67%

Oregon Freeze Dry, USA.o Late shipments due to out of stock 245 to 11

oSales up 20%

o On time shipments to 100%

o Market to order lead time down 50%


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Session 2Session 2

Finance and MeasurementsFinance and Measurements

What to change? Erroneousassumptions that the local impact

equals the global impact on the

organisation.

To what to change? T, I, OE and5 Focusing Steps.

How to cause the change? Re-

assessment of investments,products and services. Resolution

of conflicting measurements.


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ResultsResults Finance & MeasurementsFinance & Measurements

Delta, USA, collections (many different fareprices, charge back to travel agents forreductions over allowable, long queue for

processing one right off for US$98million)

o management tool for assessing contribution /constraint minute / error type

o $ up, time to process down


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3. Engineering, product development and3. Engineering, product development and

project management.project management. What to change? Erroneous assumption that in order to

finish a project on time we have to strive to finish every task

on time.

To what to change? Stagger projects. Concentrate safety inbuffers and use buffer management to set priorities.

How to cause the change? Consensus on Critical Chain andthe mechanism to create buffer management.


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ResultsResults -- Engineering, product developmentEngineering, product developmentand project management.and project management.

Antarctic Support Associates, USA / Antarcticao RV Laurence M Gould survey boat in October the

project was running 4 months late, would miss season

brought in on schedule 11th December.

Israeli Aircraft, Israelo F-16 airframe & structure upgrade from 8 to 5 months

per unito Number of F-16 upgraded up 50%, improved readiness

and saved $5 million.


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Session 4Session 4

DistributionDistribution What to change? Erroneous assumption that

the closer to the client inventory is held, the

better the service level.

To what to change? Pull versus push.

How to cause the change? Replenishmentand Buffer Management. Measurements ofThroughput $ day and Inventory $ day.


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ResultsResults DistributionDistribution

Orman Grubb, furniture manufacturer, USAo Improved to 25 inventory turns

o more timely receivables average 29 days

o top 50 dealers had 46% increase in sales and

dont want to change to other suppliers


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Session 5Session 5 -- MarketingMarketing

If all the improvements that were initiated by the previous sessions are not converted

into a decisive edge, the majority of the potential benefits will not be realized.

Rarely can a company devise effective marketing without the involvement and

contribution of managers from all functions. The challenge is to put the systematic

framework that enables everyone to contribute.

What to change? Erroneous assumption ofthe perception of value of a product or

service being based on the efforts of the

supplier to design, produce, distribute,market etc.

To what to change? Perception of value

determined by the benefits expected from

acquiring the product or service.

How to cause the change? Building Un-

Refusable offers.


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ResultsResults -- MarketingMarketing

Media Automotive, South Africao Un-Refusable Offer to Italian manufacturer of

auto brake hoses to place brake hoses in a

bonded warehouse, paid for as withdrawn,exclusive deal.

o Whats in it for Italians? Sales increased from

SAR 24,000 to SAR 2 million in one year.


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Session 6: BuySession 6: Buy--In and SalesIn and Sales

What to change? Erroneous assumption that the first step inthe sales process is to introduce or present your product or

service. To what to change? Overcoming each layer of resistance to

change or buy-in in turn.

How to cause the change? Preparation of the buy-in processand preparation of the sales team to follow the process.


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ResultsResults BuyBuy--In and SalesIn and Sales

Orman Grubb, furniture, USAo Dealer sales up 100%

o Opened 37 new dealerships

o Their distribution solution was a significant

change which has to be sold differently.


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Session 7Session 7Managing PeopleManaging People

What to change? Erroneous assumption that the way to manage

people is through authority and power. To what to change? Empowerment, consensus, conflict

resolution and team work.

How to cause the change? Use and give powerful day to daytools.


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ResultsResults Managing PeopleManaging People

Alliance Group, meat processing, NZo over 6 plants, no stop work situations

compared to several the previous year

o management, line foreman and operators allsaid atmosphere improved, suggestionsincreased and more implemented.

An individualo negotiated 50% pay rise and boss saw it as a

good deal.

S i 8S i 8


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Session 8Session 8

Strategy and tacticsStrategy and tactics What to change? Erroneous assumption that a good strategy is to

maximise net profit by reducing OE. To what to change? Create a decisive dominant edge.

How to cause the change? Immunising the future of the company,

coherent strategy and tactics supporting the direction chosen.


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ResultsResults Strategy and TacticsStrategy and Tactics

Valmont Industries, Light Pole division,USAo Sales up 40% per year

o OE up 10% per year

o Each year for the last 12 years


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Where should we start?Where should we start?

In the section which is the mostreceptive?

In the section which is the mostrepresentative?

In the section which is the constraint?


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What happens to a section which is managedWhat happens to a section which is managedaccording to a holistic approach while the restaccording to a holistic approach while the rest

of the organization is managedof the organization is managedconventionally?conventionally?


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Who will win?Who will win?

YX


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Requirements for X to succeedRequirements for X to succeed

How does X identify Y? How does X cause Y to move beforepressure builds?

How does X refrain from fighting with thesystem?


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Improve the

performance of

the company.

Move the company

on a

holistic approach.

Start with a

confined TOCapplication.

Dont start another

short-lived

program.

Dont start with a

confined TOC

application.

Where is the proper place to start?


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Improve the

performance of

the company.

Move the company

on a

holistic approach.

Dont start another

short-lived

program.

Start by devising

the companysstrategy.


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Alternatively use LinkAlternatively use Link--ChainChain

approachapproach

X understands the cause and effect relationshipwithin its link and between links in the chain

X identifies Y

X induces Y to understand the cause and effectrelationships within its link

X implements improvements within its linkmaking sure that Y is constantly updated

As soon as Z joins, X & Y & Z go up to top.


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Holistic approach

start with:

Devising a winning strategy

Backed up by prudent tactics

Laid out in a detailed action plan

All in Consensus


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True consensusTrue consensus

It is not enough that each top manager

agrees on the outcome

It is not enough that each top manager feelsthat his/her concerns have been adequately

addressed.


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True consensus, commitment andTrue consensus, commitment and

responsibilityresponsibility

To ensure that the resulting action plan will be

aggressively implemented each top manager

should rightfully feel that his/her contribution

was vital;

that the outcome is his/her baby,

both on an overall level and within his/her areaof responsibility.


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ObstaclesObstacles

The strategic direction concentrates only onone side of the existing conflict.

Obstacle: Th i di i


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Obstacle: The strategic direction concentrates

only on one side of the existing conflict.

For some people in the management group (the impatient

visionaries) addressing a particular core problem is such aburning issue, that they simply say lets move, lets DO the

improvement.

Consciously or subconsciously these people look at onlyone side of the conflict and ignore the other side, because

somehow they have learned that looking at both sides willslow them down.

Obstacle: The strategic direction concentrates


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So, why wont we build into their experience that the best way tocharge ahead is by looking at the other side of the conflict,

because it contains the erroneous assumption.

g

only on one side of the existing conflict.

Lets not forget that there are others on the same management

team that dont ignore the other side of the conflict.

What are the chances now of getting a consensus on the strategic

direction?


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ObstaclesObstacles

The strategic direction is nothing but polishingan existing compromise.

Obstacle: The strategic direction is nothing


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So, why wont we build into their experience that breaking the

conflict cloud is by far safer than polishing the compromise.

but polishing an existing compromise.

This is coming from other members of the management team

(the prudent conservatives) who have learned the hard way,

that if you go like a bull in a china shop, what you usually getis broken china.

There are two sides to this conflict and you better find your

way between them, otherwise youll just break the china. These are the people, who have learned to move slowly, even

when moving on the compromise, because they recognize that

this requires a trade off between problems.


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ObstaclesObstacles

The suggested tactics are based on prevailingerroneous assumptions.

Obstacle: The suggested tactics are based on


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What is happening here, is that as human beings we do learn

from our experience and we do extrapolate from our

experience, which is good.

When do we get into trouble?

When an assumption that we took for granted turns out to beinvalid and we continue to extrapolate from our past

experience, then we make mistakes.

prevailing erroneous assumptions.

Obstacle: The suggested tactics are based on


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prevailing erroneous assumptions.

So, what we have to do is to take all of the experience of topmanagement (operations, finance, engineering, distribution,

marketing, etc.) and to reshape it, to show them another way to

interpret their experience, one with the conflicts removed.

And then to let them extrapolate, because now they will

extrapolate from their reshaped experience and not from the oldtactics.

Overcoming the obstaclesOvercoming the obstacles


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Overcoming the obstaclesOvercoming the obstacles

The first four daysThe first four days

Gain a deep understanding of all the major cause and

effect relationships governing the organization. Expose the prevailing erroneous assumptions.

Become familiar with the common sense solutions

stemming from an holistic approach.

All of top management together. Remember, you judge your

peers according to your years of experience with them.Together, each sees how the other is changing.


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ObstaclesObstacles

The tendency to jump ahead.

The dominant person.

Lack of discipline in formal logic.


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The consensus processThe consensus process

The second four days

Consensus onConsensus on


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what to change?what to change? Each individual contributes the biggest

undesirable effect that exists in his/her area ofresponsibility.

Each individual presents the conflict diagram(cloud) that causes his/her undesirable effect.

The group reaches the generic conflict.



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to what to change?to what to change?

The group exposes the assumptions underlying thegeneric conflict.

The group identifies the direction of the solution.

Each individual applies the direction of thesolution to his/her conflict cloud to generate

specific injections.

The group adds the missing injections.



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how to cause the change?how to cause the change? Each individual contributes obstacles that might

block the implementation of the injections. Each individual turns his/hers obstacles into

intermediate objectives. The group builds the road map.

The group translates the road map into animplementation plan.

H d f h ?H t d f h ?


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How to proceed from here?How to proceed from here?

Gather all top management to devise the

strategy, tactic and implementation plan

- the 4 x 4.


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THANK YOUTHANK YOU

Lets discuss what can be done in your

organization.

deciding goal goldratt

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