toc operations general appreciation

Goldratt Group (Southern Africa) © 2004

Heuristic Flow © 2008

Heuristic

FLOW1

The Theory of Constraints approach to

Operational Excellence

TOC for Operations

General Appreciation

These Slides have been prepared and presented by Arrievan Niekerk and form part of a series of presentations

that were developed over several years. They represent a personal view of the subjects and are not to be

interpreted as official documents of any kind.



Heuristic

FLOW

TOC in Context

Suppliers PurchasingOwn

ProcessesDistribution

ChannelMarket

2



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FLOW3

The Impact of Our Ideologies

IDEOLOGY

WORDS ACTIONS

RESULTS

We very seldom take a step back and challenge our core beliefs as the reason why some things just do not work



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FLOW4

“The significant problems we face

today cannot be solved with the

same level of thinking we were at

when we created them.”

– Albert Einstein



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FLOW5

Basic Frame of Reference

Understanding the world of FLOW,

Variation and Interdependence



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FLOW

Managing a Complex Environment

• Complexity stems from the number of agents (21), number of linkages (35), time dependence, time delays, technical details, social considerations, cause and effect relationships, etc

12 1617

13

15

12

11 1819

2011

915 16 14 1310 12 OUTIN 11



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FLOW

Examples of sequential flow processes

Raw

Material ValveSawMachine

Station

Drilling

Station

Welding

StationAssembly Packaging

Hydraulic Valve Manufacturing

Sand

SourceProductLoader

Trucks

(x2)Screen

Wash

& DryLoad Transport

Sand Mining

Patients

arrive

Patients

Leave

Admin

Reception

BP &

Lung

Capacity

Chest

X-Ray

Hearing

Test

Eyes &

Urine

Certify

(Nurse)

Occupational Health Screening



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FLOW8

A Few Trivial Questions

• You are instructed to cut costs by 10% in order

to meet the challenge of a lower Sales Price

– How would you go about it?

– What process would you follow?

• Is there another, more meaningful way?

A B C ED F



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FLOW9

A Few Trivial Questions

• You are faced with the above efficiency report:

– Where will you focus most of your attention?

– Where will you not put any attention now?

• What is the most probable action you will

take in order to get quick results?

A B C ED F

92% 75% 80%72%60%65%



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FLOW10

What bothers you about this chain?

15 16 14 1310 12Mineral

Resource

A Very Basic Operation

A sequential flow line with processes of different average capacity

(e.g. Tons per Hour)

How will you go about improving it?

Expected output of this chain = ?

Product



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FLOW11

What are the deep rooted beliefs that

cause us to develop chains like these?

A Perfectly Balanced Chain?

Output of the chain = ?

16 16 16 1616 16Mineral

Resource Product


10 10 10 1010 10Mineral

ResourceProduct



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FLOW12

The World of

Local Efficiency



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FLOW13

What causes us to develop chains like these?

THE WORLD OF Local Efficiency

10 10 10 1010 10


Mineral

ResourceProduct

When we prepare our budgets, what is the governing mental model?



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FLOW14

For this system we believe that:

If every resource in the chain is optimised,

we will have an optimised chainB

We have to utilise all resources to their full capacityD

A The output of the chain will be 10 (or close to it)

C Balancing Capacity results in Optimised Flow

10 10 10 1010 10Mineral

ResourceProduct

The world of Local Efficiency:

A Perfectly Balanced Chain?



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FLOW15

10

12

0

Resource

Input Output

Perf

orm

an

ce

Time

Max

Ave

Min

Fact No1 in a Chain:

ALL RESOURCES VARY OVER TIME



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FLOW16

Fact No2 of a Chain:

RESOURCE DEPENDENCY IS HIGH

and works forwards and backwards

A B C ED FMineral

ResourceProduct

Upstream: STARVATION

Downstream: BLOCKAGE



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FLOW17

Time

Perf

orm

an

ce

12

10

0

5

In Combination: Variation and Interdependency

kills the synchronisation of FLOW

10 10 10 1010 10



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FLOW18

Context

“If a company tell me they have

moving bottlenecks, my response

is: You have no bottlenecks and

most of your resources have at

least 30% spare capacity”

– Dr Eli Goldratt



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How Much Will It Produce in Reality?

Availability

90%

?

(0.94)6 = 73% of design capacityAvailability

94%

Availability

80%

(0.90)6 = 58% of design capacity


10 10 10 1010 10



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FLOW20

10 10 10 1010 10Mineral

ResourceProduct

World of Local Efficiency

What will the resulting behaviours be?• Relentless cost control measures

• Adjustments of all input costs, downwards (easiest)

• Increased pressure on all levels to improve local efficiencies

• Focus on every link in the chain – cost and efficiency

• Undiscussable issues everywhere – “stop complaining and just do your job!” (We know better)

• ………………

Guaranteed Outcome: Performance well below standard, Costs per part go through the roof!



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FLOW21

How do we normally handle improvement?

We throw money at the problem

Or we Cut Costs

Output of this chain = 5

10 10 10 1010 10Mineral

ResourceProduct

Output of this chain = 8

16 16 16 1616 16Mineral

Resource Product

We start with … 6/7

15 16 14 1310 12Mineral

ResourceImprove!

These chains suffer from the same flaw!



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FLOW22

Another World,

The World of

OPTIMISED FLOW



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FLOW23

Every Chain has a Weakest Link and it

determines the FLOW of the total chain

10

• How well should it be run?

• What is the implication of standing time?

• What is required from Maintenance?

• What about operator availability and skill?

• What about quality control?

• What about product value?



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FLOW24

Next: Buffer the FLOW of the critical resource

from fluctuation in the rest of the chain

10

• We have to Protect the Constraint from the rest

of the chain by buffering

• We must effectively buffer the FLOW chain from

every possible negative effect



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FLOW25

10

10

Protective

Capacity

(Flexibility)

Protective

Capacity

(Flexibility)

Next: Ensure that the rest of the chain can support

the needs of the constraint

? ? ? 10 ? ?

We need 20% protective capacity in front and behind the constraint in order to maintain the FLOW



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FLOW26

5

Impact of Buffers on FLOW

? ? ? ?10 ?

Time

Perf

orm

an

ce

12

10

0

With buffers

Without buffers



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FLOW27

D

Buffers & Protective Capacity

• Establish and maintain a buffer of work in front of the constraint

• Establish and maintain a space buffer behind the constraint

• Without protective capacity, buffers cannot be managed

• Making sure that we will not stop

the FLOW

E FA B C

Protective Capacity



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FLOW28

COMPARING

Local Efficiencyand

Optimised FLOWin terms of ability to

MAKE MONEY



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FLOW29

10 10 10 10 10 10

A B C D E F D E FA B C

12 12 12 12 1210

D E FA B C

16 15 14 13 121010 10 10 10 10 10

A B C D E F

Comparing the Production Costs


94%

Availability

80%(0.80)6 = 31% of design capacity

Costs 6 x 10 = 60 (5x12) + 10 = 70

Output 7,3 Units 9,4 Units

Cost/Unit 60/7,3 = 8,2 70/9,4 = 7,5

Costs 6 x 10 = 60 (16+15+14)+10+(13+12)= 80


Cost/Unit 60/3,1 = 19,4 80/8,0 = 10



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FLOW30

10 10 10 10 10 10


13 13 13 12 1210

D E FA B C

16 15 14 13 121010 10 10 10 10 10

A B C D E F

Production Costs: Closer to REALITY


90%

Availability

80%, but

Constraint 85%


Costs 6 x 10 = 60 (3x13)+10+(2x12) = 73


Cost/Unit 60/5,8 = 10,3 73/9,0 = 8,1

Costs 6 x 10 = 60 (16+15+14)+10+(13+12)= 80


Cost/Unit 60/3,1 = 19,4 80/8,5 = 9,4



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FLOW31

D E FA B C

13 13 13 12 121010 10 10 10 10 10

A B C D E F

Comparing the Profit: 90% Availability

Income 5,8 x 15 = 87

Costs 60

Profit 87 - 60 = 27

(3x13)+10+(2x12)= 73

9 Units

73/9 = 8

Reducing the Cost/unit produced by 22%

Costs 6 x 10 = 60

Output 5,8 Units

Cost/Unit 60/5,8 = 10,3

9 x 15 = 135

73

135 - 73 = 62

Extra profit created through “additional costs”: 35Costs of lost opportunity is not even measured and it is the biggest cost to the

company- buffering pays for itself many times over



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FLOW32

D E FA B C

16 15 14 13 121010 10 10 10 10 10

A B C D E F

Comparing the Profit: 90%BC vs 80%Flow

Income 5,8 x 15 = 87

Costs 60

Profit 87 - 60 = 27

16+15+14+10+13+12= 80

8,5 Units

80/8,5 = 9,4

Reducing the Cost/unit produced by 9%

Costs 6 x 10 = 60

Output 5,8 Units

Cost/Unit 60/5,8 = 10,3

8,5 x 15 = 127

80

127 – 80 = 47

Extra profit created through “additional costs”: 20Costs of lost opportunity is not even measured and it is the biggest cost to the

company- buffering pays for itself many times over



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FLOW33

Context

“If you want to make money, ...

most of your resources MUST be

IDLE form time to time”

– Dr Eli Goldratt



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FLOW34

Comparing the Chains: Operation

Balanced Capacity Balanced FLOW

Murphy Exposed

Unstable Flow

Control Everything

Manage by Budget

Uncontrolled Idle Time

Higher Cost/Product

World of Scarcity

Murphy Protected

Stable Flow

Control Leverage Points

Manage by Constraint

Managed Idle Time

Lower Cost/Product

World of Abundance

10 10 10 10 10 10


16 15 14 13 1210



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FLOW35

Comparing the Chains: Mental Models

Balanced Capacity Balanced FLOW

Can we describe the

types of thinking

behind this type of

chain?

Can we try to describe

the mental models

behind this type of

chain?

10 10 10 10 10 10


16 15 14 13 1210



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FLOW36

IN SUMMARY



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IN SUMMARY

In the world of Local Efficiency:– The overall performance will inevitably be well

below expectation,

– Deliveries will almost always be late

– Product availability will be low

– You are guaranteed to have frustrated customers

– The costs will inevitably be higher than expected

– Company performance is bound to go down



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FLOW38

IN SUMMARY

In the world of Optimised Flow:– The overall performance will be better than

expected,

– Deliveries will almost always be on time

– Product availability will be exceptionally high

– You are guaranteed to have satisfied customers

– The costs will inevitably be lower than expected

– Company performance is bound to go up



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FLOW39

KEY FOCAL POINT / “Constraint”



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FLOW40

BUFFERING



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FLOW41

SUBORDINATION



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FLOW42

PROTECTIVE CAPACITY



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FLOW43

“The closer you are to a

balanced capacity chain, the

closer you are to bankruptcy”

– Dr Eli Goldratt



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FLOW44

The flow through the bottleneck

determines the output of the chain as a

whole!

Key question to ask:

HOW CAN WE HELP THE BOTTLENECK

TO PERFORM BETTER?

It is all about FLOW, not CAPACITY



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FLOW45

We must …

In order to …

16 16 16 16 16 16

A B C D E F

10 10 10 10 10 10

A B C D E F

In order to …

New Holistic Mechanism

DIRECTION: Mental frameworks that are aligned with the LAW that Governs Flow

Make More

Money(Now and in the

Future)

In order to …

Maximise

FLOW

We must …

Control

COSTSWe must …

D E FA B C

16 15 14 13 1210



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FLOW46

10 E FA B C

Protective Capacity

If every resource in the chain is optimised,

we will have an optimised chainB

We have to utilise all resources to their full capacityD

A The output of the chain will be 10 (or close to it)

C Balanced Capacity results in Optimised Flow

10 10 10 1010 10Mineral

ResourceProduct

Our ‘logic’ is indeed flawed!



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FLOW47

The Theory of Constraints?

The Power of Leverage

“Doing the right thing”

A DIFFERENT WORLD!



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FLOW48

Continuously improve

overall performance

Step 1:Identify

the

weakest

link

Step 2:Decide how

to exploit

the weakest

link

Step 3:Subordinate

everything

to the

previous

decisions

Step 4:Elevate the

weakest

link

Step 5:If you have

broken a weakest

link then go back

to step 1Remember: Old habits die

hard

A chain is only as strong as its weakest link

We followed the 5 focusing steps based on

the laws of FLOW



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FLOW49

Enhanced Management

• Key Focal point(s)

• Constraint Rate & Schedule

• Buffer Management

D E FA B C

Time

Buffer+

90100

807060

50



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FLOW50

Synchronized Flow The DRUM-BUFFER-ROPE way

D E FA B C

Raw Material Flow

“Rope” that ties the first process

to the Constraint operation

Time

BufferSpace

Buffer

Constraint or “DRUM”

that determines the

flow rate of the system

Finished

Goods



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FLOW51

Management for Complex Production

100 –

90 –

80 –

70 –

60 –

50 –

40 –

30 –

Ca

pa

city (

Ite

ms p

er

ho

ur)

Process / Line Number

1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 10 |

Internal Constraint

(Lowest Capacity)

Minimum Acceptable

Utilisation Level for Break Even

= Active Constraint

= Next Constraint

= Near Constraint

= Non Constraint

= Sprint Capacity



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FLOW52

TOC Breakthrough Thinking

1. Optimised flow and optimised capacity cannot be

achieved simultaneously (except on the constraint itself)

2. In order to optimise flow you MUST have buffers and

protective capacity (resilience)

3. For services, the customer becomes the “raw material”

and any bottleneck causes a queue (and customer

dissatisfaction)

4. Superior Flow and/or Customer Service necessitates

protective capacity at all times

5. Optimised Flow paves the way for significant reduction

on costs per part produced

toc operations general appreciation

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