Theory of Constraints Continuous Improvement

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:

(Hover on the picture to see the answer.)

And what’s this a picture of?

(Hover on 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 500 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

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

1. know what to change;
2. what to change to; and
3. 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

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