Here’s why it’s hard to REALLY improve (Theory of Constraints Continuous Improvement)

by

By Dr Lisa Lang

It’s hard to improve because it’s difficult to get perspective on your own business.

Here’s a demonstration of perspective …

What’s this picture of:
fly eye
(Click the picture to see the answer.)

And what’s this a picture of?
walnet close up
(Click the picture to see the answer.)

That demonstration is from the movie Soul Surfer. And I think it shows the power of perspective and what will be missed if you don’t have perspective.

You not only need perspective to see WHAT needs to be changed in your company but also to know what to change to.

Most companies rely on cost accounting measures to run their business. This leads to an efficiency mentality in our operations. And, an efficiency mentality is typically the biggest issues I see in the well over 230 custom job shops we’ve worked with in our Velocity Scheduling System Coaching Program.

Let me explain with an excerpt from my chapter on Velocity Manufacturing in the just released book Trendsetters. (It reached the Amazon best seller list and I’ve received 2 awards for this work.)

{start excerpt} The definition of efficiency from Dictionary.com is “performing or functioning in the best possible manner with the least waste of time and effort.” I’d probably add money/cost to that.

One of the ways we typically apply efficiency in a job shop is by keeping all our equipment and/or people busy so that we don’t waste any capacity and have the highest possible utilization.

Now, to keep our key resources busy they all have to have a job to work on. And to increase the likelihood that all resources have work, we typically make all jobs in house available to be worked on.

“Available to be worked on” means included in our work-in-process or WIP.

This maxes out your WIP and increases the pile of work at every work center. That way ALL key resources have a very high probability of having something to work on.

This is particularly relevant in job shops where the mix of work can change from week to week.

That’s one of the things we do in the name of efficiency. Now let’s talk about the negative effect from the actions that result from just this one thing we do in the name of efficiency.

The Negatives from “Being Efficient”

According to Little’s Law there is a direct correlation between the amount of work-in-process we have and our lead-time. The higher our WIP, the longer our lead-times.

Here’s an illustration showing the relationship between WIP and lead-time:

High WIP = Long Lead-time
Job Shop Schedule*Graph from Incremental Improvement in Australia.

The more jobs that wait for their turn the longer the average queuing time, leading to longer production lead-times. Example 1 has the most WIP and longest lead-time. And, conversely Example 3 has the least WIP and the shortest lead-time.

So, as you increase WIP, you are also increasing your lead-time, not to mention the amount of cash you have tied up in raw materials.

But Wait, There’s More … On-Time Delivery Decreases

The diagram does NOT include the effect of variability. But if it did, it would show that the variability of production lead-time is increased as the queue grows.

So the effect of high WIP just gets more dramatic the more variability you have – the more you battle the 9 Challenges.

This directly reduces the on-time delivery because it is more difficult to predict the exact production lead-time and to confirm orders accordingly.

And … Quality Decreases

High WIP can also have an impact on quality. Many production failures occur early in the routing, but are detected much later in the production process (usually at final inspection).

If WIP is high, the average lead-time is also high causing a long lag time between the production steps and the final inspection. That means that the final inspection step occurs a long time after the step that caused the failure.

And because so much time has passed, it can be difficult to determine and correct the root cause of the quality problem, making improvement very difficult.

Thus, the higher the WIP, the harder it is to detect and correct quality problems.

All of this brings me to the conclusion that you must …

STOP Focusing on Efficiency

As you stop focusing on efficiency and reduce WIP (and focus on Velocity instead), here’s what happens:

Queue time reduces
Lead-time reduces
Lead-time predictability increases
On-time delivery increases
Quality increases
Cash flow increases

As a result of these improvements, your production lead-time becomes MUCH shorter (if you do it right) than your quoted lead-time. This difference can be used in 2 ways.

First, it creates a buffer allowing you to absorb a fair amount of variability and further enhancing your on-time delivery performance. You can also sell more with the same people and resources – increasing your profitability. And second, the difference is so big that you can also afford to reduce the quoted lead-time to customers.

The combination of these things – creates that competitive advantage I mentioned earlier. That competitive advantage will help you stay or become globally competitive, as well as, increase market share here at home. {end excerpt}

Efficiency isn’t something that most people would think is a problem. But that’s the benefit of perspective. As Theory of Constraints consultants, it’s our job to bring perspective so that you know what to change, and what to change to and how to cause the change.

If we can help you get some perspective, just let us know.

Comments? Questions? Suggestions on this topic? Just leave it below.
Wishing you success,

Dr Lisa
President, Science of Business

P.S. FOR CUSTOM JOB SHOPS ONLY: Velocity Scheduling System Coaching Program

P.P.S. Ready to increase sales? Need a Mafia Offer? The ON-LINE Mafia Offer Boot Camp is open for registration!

Copyright, Science of Business. All rights reserved.

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{ 6 comments… read them below or add one }

Girish J. Bhave

Dr.Lisa,
Yes i agree fully that focusing on Efficiency of parts actually reduces efficiency of the “whole”.
In an assembly line kind of environment ( purely assembly line )which are the wasteful areas? Can you recomend any book / article for me ?
Regards,
Girish

Reply

Veli-Pekka Närhi

Hi,
This makes very much sense. Good article.

Reply

ron meskis

Always enjoy reading your newsletters. Couldn’t agree with you more on the pitfalls of trying to be efficient. Within our company we have proven your theories work by the results we have realized by focusing on velocity.

Reply

Dennis Verstegen

In the high variety manufacturing realm, it is not economically viable to dedicate equipment to a cell with a limited number of routings. The whole facility may be the equivalent to one cell! Scheduling orders for maximum throughput requires a new perspective where all resources including materials, people, machines (work centers) and y material handling devices are all available before an order is started and as long as they are needed to complete each order. This perspective is readily available with Finite Capacity Scheduling software. Earliest solutions were offered by GE in 1983 as a time-share service. The service was functionally capable but too slow to be practical. Today, a laptop can schedule 60,000 operations/minute. (the sum of all operations in all open orders). The software is designed for easy set-up to model all of the operating characteristics of a facility. A feasible schedule, with start time and end time for each operation in each routing in each order, is produced. The scheduling system is buffered for variation at every operation. The current schedule can be revised within a minute whenever major disruptions (variations) occur. It is the right solution for any but the most simple high variety enterprises.

Reply

Girish J. Bhave

Dear Dr.Lisa,
Too much work released on the shopfloor also gives more opportunity to the shopfloor personnel to do cherry picking , which results in very high efficiencies / utilization of individual work centres , but increases the WIP and Lead time. Such cherry picking may even lead to Raw material stealing and it can happen that available Raw Material is consumed for working on a sub assembly which is not needed now , but the same RM is not available for another sub assembly which is required now !
Dear Dr., Whenever on shopfloor , people are paid on Piece rate basis , which is a system prevalent in many countries of South Asia , increasing batch size becomes their priority whereas improving flow may need smaller batches leading to more set ups. In such an environment what do you propose as a solution ?
Warm Regards,
Girish

Reply

Lisa

Focusing on flow should result in more pieces completed. The challenge will be to convince them to try it since their intuition will be the opposite. But this is also the challenge even when workers get paid by the hour.

You could guarantee a minimum piece rate for their wages while you change to focusing on flow and prove that it results in more pieces.

Reply

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