deciding on toc the holistic approach to business. © 2000 goldratt’s marketing group

Deciding on TOCDeciding on TOC

The holistic approach to business.

© 2000 Goldratt’s Marketing Group

Is there a

silver bullet?



• A cent plus a cent plus a… accumulates to a fortune.

• If I’ll find a leverage point I can move the earth. Archimedes


The steel industry-an exampleThe steel industry-an example

• Inventories are too high.

• Lead-times are too long.• Due-dates performance are

appalling.

510Most people behave in line

with the way they are measured.

520In most departments someitems require less time per

ton than others.

560A V-plant produces itemsthrough a process havingmany divergent points.

530Every additional set-upreduces the measured

tons/hour.

525Non-production results

in zero tons/hour.

515Departments try to

maximize their performanceas measured by tons/hour.

540To maximize their performance

of tons/hour in a given measurement period,departments tend to

produce the fast items at theexpense of the slow ones.

545To maximize their

performance of tons/hourdepartments tend to produce

for stock even when there is no market request for the

short or medium horizon.

550To maximize their

performance of tons/hourdepartments tend to pullahead orders that enableincreasing a batch size.

500For a long time tons/hour has been the primeoperational measurement in the steel industry.

570To maximize their performance oftons/hour departments tend to take

actions which result in stealing.


The cloud of operations.The cloud of operations.

A Be a good manager

BConstantly fight to reduce waste.

CConstantly fight to increase flow.

DUse efficiencies

as prime measurement.

D’Don't use

efficiencies as a measurement.

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


Dependent resourcesDependent resources

FLOW OF MATERIAL

X


The TOC approachThe TOC approach

• What to change - what is the constraint?

• To what to change - what is the solution?

• How to cause the change?

OperationsOperations • What to change?

The erroneous assumption that a resource standing idle is a major waste.

• To what to change?– Identify the bottleneck

– Decide how to exploit it

– Subordinate the other resources to the above decision.


Consensus on:– Drum-Buffer-Rope

– Buffer Management


Ford Motor CompanyThe Electronics Division

Ford Motor CompanyThe Electronics Division

• LEAD TIME (from release of material until shipping) Average on all sites for all products:

– Before improvement project: 10.6 days

– After two years of implementing JIT: 8.5 days

– After one year of implementing TOC: 2.2 days

– After 2 years of implementing TOC: less than 2 shifts

• Customer satisfaction improved >75%

• 20% more floor space

• Facilities investment reduced 25%

• Scheduling process went from 16 days to 5 days to 1 day


Finance and MeasurementsFinance and Measurements

• What to change?

The erroneous assumption:

A local impact is equal to the impact on the organization.

• To what to change?– T, I, OE

– Five focusing steps

• How to cause the change?– Re-assessment of investment,

products and services

– Resolution of conflicting measurements


National SemiconductorNational Semiconductor

• “ At National, the results achieved have been outstanding.”

• “ Most of the savings have had a bottom line impact due to throughput gains, inventory and cost reductions and cycle time improvement”

• “Results have been achieved in a short time and gains started in one month”

• “Wafer fab throughput gains in excess of 39% have been realized in months.”


Engineering, IT - Multi-projects management.

Engineering, IT - Multi-projects management.

• What to change?

The erroneous assumption: In order for the project to finish on time we have to strive to finish every task on time.

• To what to change?

Focus on the projects as a whole. – Stagger the projects

– Concentrate the safety buffers

– Use buffer management to set priorities

• How to cause the change?– Consensus on Critical Chain

– Mechanism to enable Buffer management


Lucent - Bell Laboratoriesoptical fiber and cable

1998 Vs. 1999

Lucent - Bell Laboratoriesoptical fiber and cable

1998 Vs. 1999

• Tripled number of projects

• Lead time of projects cut by 50%

• Completion on time improved from 40% to 97%


DistributionDistribution• What to change?

The erroneous assumption: the closer the inventory to the client, the better the service level.


Pull Vs. Push


Measurements:– Throughput Dollar Day

– Inventory Dollar Day


General Motors - Cadillac(excerpts from the Wall Street Journal, February 8, 1995)

General Motors - Cadillac(excerpts from the Wall Street Journal, February 8, 1995)

• “ ... a special order can be filled in 14 days or less. Most orders, however, can be delivered in a day ...”

• “Florida test proved successful in getting cars from the regional distribution center to dealerships within 24 hours more than 95% of time..”


MarketingMarketing

• To what to change?The perception of value is determined by the benefits expected from acquiring the product/service.• How to cause the change?Building Un-Refusable Offers.

• What to change?The erroneous assumption: The perception of value of a product or a service is based on the efforts of the supplier to design, produce, distribute, market etc.


Avery Dennison(after 12-18 months into change process)

Avery Dennison(after 12-18 months into change process)

• Market share 17-25%

• Net Sales 23%

• New Product % of Sales 50%

• Manufacturing Capacity 50-300%

• Inventory Days on hand 50-75%

• Scrap reduction 32%

• Capital Deferment $MM through existing capacity increases


Buy-In and SalesBuy-In and Sales• What to change?

The erroneous assumption: The first step in the sales process is to introduce your product or service.


Overcoming each layer of resistance in turn.


Preparation of the buy-in process


Managing PeopleManaging People

• What to change?

The erroneous assumption: The key to manage people is authority and power.


Use/Give powerful day to day tools.• How to cause the change?

Conflict resolution, empowerment, team work.


Strategy and tacticsStrategy and tactics• What to change?

The erroneous assumption: A good strategy is to maximize net profit by reducing the operating expense.


Create decisive dominant edge.• How to cause the change?

Immunizing the future of the company.


Valmountthe light-pole division

Valmountthe light-pole division

• Sales increase per year 40%

• Operating Expense increase per year 10%

• For the last 12 years


THE WORLD OF TOCTHE WORLD OF TOC

• Lead times: mean reduction 70%

• Due-Date-performance: mean improvement 44%

• Inventory levels: mean reduction 49%

• Revenue: mean increase 63%


A Review of the International LiteratureSummary of the results of applying TOC

Is there a

silver bullet?


Where is the catch?

In the success

Where is the catch?

In the success


What happens to a section which is managed according to a holistic approach while the rest of the

organization is managed conventionally?


Who will win?Who will win?

X Y


Where should we start?Where should we start?

• In the section which is the most receptive?

• In the section which is the most representative?

• In the section which is the constraint?


Improve theperformance of

the company.

Move the companyon a

holistic approach.

Start with aconfined TOC

application.

Don’t start anothershort-livedprogram.

Don’t start with aconfined TOC

application.

Where is the proper place to start?Where is the proper place to start?

The best place is the most receptive, representative, constrained.

Local implementations do not become global.



the company.


holistic approach.


application.



application.

Where is the proper place to start?Where is the proper place to start?The best place is the most receptive, representative, constrained.


X


Why does the X-Y syndrome exist?Why does the X-Y syndrome exist?

X Y


The improvement is blocked!The improvement is blocked!

The significant improvement of “X” creates major pressure for “Y” (the one that blocks the Throughput of “X”)

In spite of "Y" efforts to improve, no results are achieved

“X”, feeling blocked, starts to fight the entire system/chain


• X understands the cause and effect relationships within its link and between the links in the chain.

• X identifies Y

• X induces Y to understand the cause and effect relationships within its link

• X implements improvements within its link, making sure that Y is constantly updated

• As soon as Z joins, X & Y&Z go up.

Link-Chain ApproachLink-Chain Approach



the company.


holistic approach.


application.



application.

Where is the proper place to start?Where is the proper place to start?The best place is the most receptive, representative, constrained.


X


•Devising a winning strategy•Backed up by prudent tactics•Laid out in a detailed action plan

All in Consensus


Holistic approach starts with:Holistic approach starts with:

ObstacleThe impatient visionary

ObstacleThe impatient visionary

• The strategic direction concentrates only on one

side of the existing conflict.


ObstacleThe conservative

ObstacleThe conservative

• The strategic direction is nothing but polishing an

existing compromise.


ObstacleExtrapolation from the past

ObstacleExtrapolation from the past

• The suggested tactics are based on prevailing

erroneous assumptions.


The consensus processThe consensus process

The second four days


Overcoming the obstacles

• Formulation of the holistic strategic plan of improvement:

• What to change?




The next step :The next step :


deciding on toc the holistic approach to business. © 2000 goldratt’s marketing group

Documents

long time tonshour

short time

time perton

performanceof tonshour

departments someitems

cycle time improvementresults

steel industry

local impact