Insights from Theory of Constraints by Vector Consulting Group

Restoring Harmony in Manufacturing Plants

2012-01-23T08:18:00.002+05:30

Does TOC bring harmony among people?

Let us first define harmony. It’s about getting consensus, agreement on a topic. There are no conflicts.

I am sure most of you must have observed and experienced the extent of disharmony that exists in any organization. There are almost daily fights/disagreements/arguments between people from various departments. It could be between Sales & Production over delivery of an order from an important customer or between Purchase & Production over supply of a critical component or within Production between different work centers over supply of missing parts or between Finance & Purchase/Production over make/buy decision.

Before we try to reason out why such disharmony exists among people in an organization, let us first understand where it is coming from. I mean the sources of disharmony. There are primarily three of them:
– Conflicts. People are operating under conflicts.

– Gaps between responsibility and authority. How frustrating it is to have something you are responsible for accomplishing, but you do not have the authority for some of the actions that must be taken.

– What is my contribution? Many people don’t really know (i.e. cannot clearly verbalize) how what they are doing is essential to the organization. Would you be motivated if you were in that position?

You can regularly see the conflict between Sales and Production people. Constantly there are arguments about orders which the Sales want production to deliver whereas production is busy doing orders (due to batch/efficiency considerations) which are not required now. Sales people always complain about manufacturing not delivering orders in time and therefore, they can’t meet their sales target. On the other hand production keeps saying why Sales people can’t sell what they have in hand. Similarly disharmony can be seen due to conflict between vendor and the Purchase person. What is being supplied by vendor is not required now whereas the ones that are required immediately are delivered late. For a distribution company the conflict whether to keep high inventory (to protect sales) or to keep low inventory (to control cost) is perennial. This leads to such companies juggling between high inventory (when sales start shouting that they are losing sales due to unavailability) and at times maintaining low inventory (when finance raises the alarm about high working capital).

Misalignment between responsibility and authority can be seen regularly in day to day operations. One such regular event is someone who is trying to resolve a fire. Since the person is responsible he seeks an action from his boss because he doesn’t have the authority to take the action which will resolve the fire. For example if one of the downstream work centers such as Assembly is desperately looking for missing parts of an urgent order from the feeding work centers often finds himself helpless though he is responsible for order completion but doesn’t have authority over other work centers so that they expedite the missing parts to the Assembly. This not only leaves the Assembly person frustrated but he also starts blaming the other work center in-charge for his incompetence/inability to help. Then the blame game starts and one thinks that others are not working in the interest of the company, they have hidden agendas, etc. Similarly the production line head responsible for order completion has to take approval for over time from manufacturing head (his supervisor) whenever there is such a need. Such gaps in authority and responsibility also lead to disharmony. Such examples are also seen in other areas such as dispatch. An urgent order that needs to be dispatched to the customer but the dispatch person doesn’t have the authority to send partial truck load.

People are also at a loss or feel de-motivated when they are not able to relate to the actions that they are taking at their local level, how is that helping the company as a whole. For example a work center head involved in reducing the set-up time in his area is not sure whether such an action will increase the output of the overall plant and therefore, benefit the company. Similarly a finance person is not sure whether an investment in a machine will really benefit the company as Production is claiming (because the past experience has been really bad – projected savings never materialized). Also lot of frustration/de-motivation sets in when people find themselves in helpless situation arising due to a conflict or gap between authority & responsibility and are unable to take the desired actions.

If you observe all the above sources of disharmony are actually linked with each other. For example – in the shop floor each work center is taking actions to improve its local efficiency. This leads to cherry picking, creates jams in the shop floor, increases the lead time and reliability goes for a toss. When reliability is poor then conflict between sales & production over delivery of orders keeps happening. Similarly downstream work centers (such as assembly) regularly fight with feeding departments for missing parts who are busy doing other things (to improve their local efficiency). The assembly person feels helpless since he does not have the authority over other work centers to expedite the missing parts nor able to take decision of over time when the missing parts are delivered. This leads to frustration/de-motivation and then people start blaming others about not doing their job properly, hidden agendas, etc.

As described above the disharmony is predominant across the organization. Any number of motivational programs or team building workshops will not help improve relationship or ensuring harmony among people from various departments. Unless the above sources of disharmony are resolved situation will not change.
That brings us to the question can TOC bring in harmony among people? Can it improve the quality of life of people?
Fortunately the answer is yes. Actually all these sources of disharmony are due to a single cause i.e. core conflict. The disharmony between different departments, gaps between authority & responsibility and frustration among people is all coming from the core conflict. For example in a manufacturing environment the core conflict is between actions taken to improve local efficiency (i.e. taking bigger batches, lesser set-ups, monitoring output/day) Vs actions taken to ensure flow (i.e. taking smaller batches, expediting, focus on order completion). TOC’s operations solution shows just by focusing on flow this conflict is resolved. The plant is allowed to work on fewer orders (visibility of orders in the shop floor is cut) at any point of time. Each work center subordinates to order completion rather than on its local efficiency. Due to this the reliability of the plant improves dramatically. The solution addresses all the sources of disharmony arising out of the core conflict. The below examples explain how it happens:

Conflicts: Actually there are no conflicts in nature. The conflicts arise because of our own assumptions and one of them (if not many) is erroneous. TOC solution in Operations, Distribution, Finance and Project Management shows the core conflict in each of these areas and the invalid assumption. This forms the basis for the solution. For example after deploying the TOC Operation solution the plant becomes highly reliable (Due Date performance is in the high 90s & output increases significantly). Then there are no disagreements over order priority or orders getting late. Production now produces to the real demand and on time. Therefore, orders that have been produced get billed in time. This resolves the conflict between Sales & production over order execution and FG stocks that cannot be billed. Similarly when the TOC Operations solution is deployed at vendor’s end, its capacity is released and supplies become highly reliable resolving the conflict between Purchase & Vendor over supplies.
Gaps between responsibility and authority: The misalignment between responsibility & authority is also corrected as part of the SOP (Standard Operating Procedure) that is deployed during TOC implementation. For example a work center supervisor is allowed to give over time if there is a Red order (in the earlier regime though he is responsible for order completion but does not have the authority to give over time whenever required for timely completion of order). Also now the feeding department expedites the missing part to the assembly because the work centers now subordinate to order completion rather than to local efficiency. Similarly in a company where TOC Distribution solution is implemented the dispatch person can now take the decision of even sending a partial truck load provided the SKU is in Red (i.e. stock at very low level) in the downstream supply chain link. Failure to take such an expediting action would affect availability or in other words sale loss which is far greater than compared to the expediting cost (partial truck load). Such decisions required for day today functioning are facilitated through the SOP which is part of the TOC solution deployment. This empowers people working at the ground level and help plug the gap between responsibility & authority.

This is not to say that all gaps are known upfront. However, during the implementation when such misalignments surface (typically known when a subordinate comes to his/her supervisor to handle a fire but doesn’t have the authority to take the action) TOC’s conflict resolution tool is used to resolve and plug the gaps.
My contribution: As part of the buy-in process during TOC implementation it is explained that how the action being taken at the local level connects to the global level i.e. how a local decision/action is linked to the overall objective of the company. For example the Strategic & Tactic tree logically explains how a local action such as Chocking the Release taken at the shop floor builds reliability in the plant. The tree also logically connects how this reliability will be capitalized in the market leading to sales increase and eventually overall profit of the company. So the person at the shop floor implementing chocking the release knows how this action is leading to the company’s goal of making more money. Also now the shop floor person knows whether reducing the set-up time at a machine will benefit the overall plant or not depending upon whether the machine is a bottleneck or not. If it’s a non-bottleneck machine then no such improvement initiative is taken because the local improvement does not translate into an improvement for the company as a whole. Whereas a set-up reduction time of few hrs at the bottleneck resource would translate into an output increase of the overall plant and thus, benefitting the company in terms of higher profit. Similarly a finance person taking a decision regarding investment in a machine knows whether such a decision will increase profit of the company or not using Throughput accounting principles (TOC’s finance solution). An investment in only a bottleneck resource will lead to real capacity addition and therefore, increase overall plant output (any investment in a non-bottleneck resource will not increase overall plant output. Any savings due to such an investment is mostly fictitious). The purpose of giving such examples is to show when people know the decisions they are taking how it will help achieve company’s overall objective, they feel proud/motivated about what they are doing rather than doing things (initiated by corporate/top management) for the heck of it.

As described above TOC implementation helps eliminate the sources of disharmony by resolving chronic conflicts, empowering people (by aligning mismatch between responsibility & authority) and brings in a sense of pride/motivation among people because now they know what actions they are taking, how it is helping the company at an overall level. This brings in harmony among people. There is consensus on actions, no heart burns, lesser fire fighting, peace of mind and lastly a better work life balance. Do we need a motivational program or team building exercise to bring harmony among people?
I am beginning to see TOC as an HR initiative!!!

Analyzing Mysteries of Implementing Replenishment

2010-06-22T05:14:00.002+05:30

I think, the best of internalizing new knowledge is by analyzing case studies. So instead of just posting insights on this blog, I would like to share a case with you and some questions to ponder at the end of it.

Of course the answer is also provided subsequently, but May I suggest that you spend time and formulate your response before reading on and understanding Vector’s Point of View.

A company sells its products (consumer goods) through a number of distributors who in turn supply to wholesalers and retailers. They started implementing the TOC Distribution solution about a year back and there have been significant challenges posed by the company's legacy of operating through wholesalers.

They have invested significant time in streamlining the supply side (The company has no manufacturing facilities, it buys its products from a principal). The inventory is down by about 50%, at the same time shortages are down significantly. You look at the company's PWH and Distributor Buffer Penetration Reports and will be glad to see mostly yellows, with some greens and a few reds and above greens. The promise of high availability at low inventory is coming true!

But the sales implementation is another story though. The distributors are all on offer and are enjoying high ROI, good inventory turns and increased absolute profits. However, a vast majority of distributor's sales still comes from the wholesalers. The retail reach of the company is not increasing at a fast enough pace and though up from the past, the direct sales to retailers account for roughly 30% of the sales of the distributor. (The other 70% is sold to wholesalers who serve the entire retail population)

Upon reviewing the numbers comes the shocker: The company's total annual sales (in the recession year) have declined by about 9% year-on-year. They are even more worried because the product mix seems to have suffered. OUt of the company's range of about 65 SKUs, traditionally, about 5 SKUs used to account for about 80% of the sales.

Now in the last year, even as the overall sales have reduced by 9%, the contribution of the top five products has plummeted and now no less than 9 SKUs account of 80% of the sales of the company! So the top 5 runners must have been the main reason for the sales of the company going down, right?

Undeterred by the seemingly bad picture and goaded by our unshakable conviction in TOC, we must answer these following questions:

1) Why did the sales of the company go down?
2) What is the single biggest Desired Effect that you expect to see for this company? Why should that happen?
3) How can the change in product mix be explained and what is its impact on the Desired Effect above?

Hope your own thinking has been stimulating, Now the Answers:

1) Why did the sales of the company go down?

The first reaction that one would expect is: When you implement replenishment, you do expect sales to go down in many environments where the push has been very high. You know the stuff - sales people have been pushing aggressively in the past, the inventory levels of customers would be high, when we fix norms as per the new RLT, the stocks of most SKUs would be above the norm and thus we will not be able to ship material to the customers as we wait for the excess stocks to flush out. So far so Good.

Even though this explanation seems logical, I have two problems with it:

a) One full year is not a good enough period to flush out and rebound? Was the sales team so good at pushing that they had pushed more than ONE YEAR worth of sales?

b) To me, the explanation of high stocks seems to be a justification put forward by a novice (or lazy?) implementation team

This is neither the ethos nor the philosophy with which Vector implements its projects.

Remember the sufficient assumption of block 3.1 of the SnT Tree?

“To ensure an outstanding start of a major initiative it is vital that the first substantial actions will result in immediate substantial benefits.”

So while the world expects that sales will go down based on the logic that you explained in your responses, it is simply not acceptable to us. Vector’s SOP of trimming that negative is three fold:

1) Immediately increase the range that the distributor is holding. (In a primary sales target plus push sales environment, it is well known that the range at the distributors will be extremely limited compared to the entire range that the company sells.) When we release the capital of the distributor (by not pushing him with stocks of items that are traditionally bought by him) we do not let it go astray but immediately redeploy it in the other SKUs that have a potential. This should arrest some loss in primary sale.

While this is what most text book implementations will do (if they are really done by the book!), it may not be enough. We may not be able to block all the capital of all the distributors to the extent that primary sales do not suffer.

The Vector Approach to implementing replenishment is:

2) Bring distributors on the offer in waves. Select one lot and while you are waiting for their excess stocks to flush out, the rest of the distributors can be used to recoup the sales (after all the sales team are experts at pushing, aren’t they?). Then as the sales of the first lot of distributors on offer, begin to rise as a result of replenishment, choose the next lot of distributors for the offer. And so on. In this phased manner, you can bring the entire universe of distributors on the offer without suffering any dip in sales. At any time, there will be one set of distributors enjoying the fruits of replenishment and ever increasing sales, there will be another who are still being treated traditionally and the small set currently being rolled out will not punch a big enough hole in primary sales to warrant an official statement to the analysts and stock exchanges!

3) The above may arrest the dip in overall primary sales of the company to a large extent but it may not result in a big enough increase in the sales of the distributors on replenishment to give comfort to the company and the distributor. If we want to truly realize Eli’s vision, we have to find ways to dramatically increase the sales of the distributor on offer in a short period of time. Vector insists that all clients invest time in preparation for the offer rollout. Even before they present the offer, a comprehensive market mapping of the distributor’s area is done to arrive at the detailed list of all the retail outlets in the distributor’s area. It is well known that the distributor’s reach is woefully inadequate under the normal circumstances. We will redeploy the released capital of the distributor to immediately increase reach, i.e. cover all potential outlets in the distributor’s area. This will involve hiring dedicated sales people and creating/expanding delivery infrastructure to cover each and every outlet that has the potential to stock and sell our product range. The money for this “added expense” comes from the released capital and the virtuous loop of this step is that as you redeploy the released money to create sales and delivery infrastructure, your sales rise further and you earn more money!

The combined effect of all the above injections is to not only arrest a decline in primary sales, but to ensure that the secondary sales take off on a trajectory leading to high primary sales. A true WIN-WIN.

So the sales of this company declined because it did not move fast enough on expanding its reach. (Remember that though the retail reach increased, the company is still selling 70% through wholesalers)

I also suspect that the company suffered a double whammy. When you implement replenishment and the market gets wind of it, the wholesale segment anticipates that it will be the biggest loser (and rightly so) so they will swiftly start limiting their exposure to the company’s products thus leading to a precipitous drop in the absolute sales through wholesale. If your retail sale expansion is not fast enough, the combined effect is a drop on overall sales of the company.

2) Assuming that the company took no initiative at reducing costs, what two factors could have taken the company from loss to profit?

Two things that led the company from loss to profits:

1) Elimination of discounts/schemes, and
2) A higher contribution of “slow movers” to the sales of the company.

Some people got the first reason easily. Not difficult, right? Because you are no longer pushing, you do not need to give discounts and schemes linked to quantity purchase. The company’s throughput goes up (as there is no erosion of throughput).

The second reason is actually the topic of the case and we discuss it under Question No.3 below.

3) How can a change in Product mix contribution (from the existing portfolio) improve the bottom line of the company?

To answer this question, we have to first grasp the “physics” of business.

In a multiproduct distribution company, there will be fast and slow movers. The “fast movers” are the high volume products where the company commands a decent market share and if you look at your own company (or any other company for that matter) these products traditionally give less throughput than the “average throughput” of the company.

The slow movers are actually those products whose volumes (absolute number of units sold in a month or year) are low. Normally in these product categories, one of the competitors is a leader - what is a low volume product for us is a high volume product for someone else. There may be exceptions to this, but more or less this phenomenon exists. It is also quite prevalent that these low volume products enjoy a high throughput (compared to the high volume ones and also when compared to the average throughput of the portfolio of the company.

(By the way, fast mover and slow mover itself is a myth and I encourage you to read the relevant article posted on the Vector website.)

So when the sales of low throughput items go down AND the sales of high throughput items go up in the same period, the average throughput of the portfolio of products, and also the company, improves. Now whether the profits will increase or decrease is purely a function of how much the sales of high runners dropped vis-à-vis the increase in sales of the low runners.

If the total gains are more than the drop, the company will report an improved bottom line. Very few companies are in control of this eclectic mix, indulging mostly in reactive knee jerk reactions AFTER their bottom line has been hit.

Added to this conundrum of low throughput from high runners and high throughput from low runners is the impact of schemes and discounts.

Companies do try and use prudent commercial sense and try to offer discounts only on the slow movers, but no matter how hard they try, they are mostly “maneuvered” into offering schemes on the high runners too by inclusion of these products also in the scheme/package.

It may be quite shocking to know and difficult to digest but the combined effect of quantity discounts, schemes and other trade promotions can lead to a negative throughput on the high runners!

Imagine: the company loses money on every unit of the high runner it sells! You never realize this during the year as the whole sales team is gung ho about beating the market and meeting the numbers.

Only when the bean counters publish the numbers, the realization dawns on everyone that they have working hard to lose money for the company!

Garnish this with the situation of the company in question, which was literally hostage in the hands of the wholesalers and now you can understand the dynamics, which led to the “turnaround” of the company’s fortunes.

So to answer the question: The combined effect of low throughput, high discounts and schemes were actually hurting the company on its sales of high runners (the five products that accounted to bulk of the sales) and thus the company reported losses in the previous year.

The focus on retail led to the sales of wholesale segment going down and since wholesalers deal mostly with high runners, the sales of the company dropped.

The positive effect of replenishment was to remove the discounts and schemes and increase the throughput of the high runners and bring it to the positive zone.

In addition, due to the rollout of replenishment in retail, the sales of the slow runners went up. Since the throughput of the low runners is quite high, this not only neutralized the drop in sales of the high runners and brought the company to profit.

But for the TOC distribution solution, the company would have continued bleeding by “buying” market share and limiting its range further and further.

Saved by the offer!

Organizing Knowledge

2010-06-20T19:17:00.005+05:30

When various ideas of a subject has to be shared with an audience,there is a chance of confusing the audience as it is difficult for human mind to assimilate many disconnected aspects of a subject. It is easier if there is a logic between the various aspects of the subject area. But just logic may not provide the structure , which is easier for human brain to accept without confusion.

We need good classification. Classification can provide a structure only when the classification is inherent to the subject and not forcefully imposed on the subject.

The best way to find an inherent classification is when logic "if then" is inherent to the classification. The if-then logic should not only be cause and effect but the effect should also be separated in time from the cause. ( the effect happens AFTER the cause).

The introduction to TOC in the new TOC handbook is written with the above principles. Not only there is a classification of various aspects of TOC but there is a clear logic of of how each new subject area got developed with a logical linkage to the previously developed knowledge area. For example the throughput accounting was developed to overcome the issues faced in implementation of TOC shopfloor solution.

The introduction provides the reader with a framework to assimilate the entire diverse body of knowledge of TOC without any confusion.

Thinking Clearly

2010-06-19T04:26:00.002+05:30

This Blog is inspired by Eli's speech in 2009 TOCICO Tokyo Conferance and Nassim Taleb's Black Swan

Let us see how "experts" in business conventionally analyze situations. They go around departments and ask people for problems, do a gap analysis ( with help of some benchmarking data)and then they arrive with solutions, almost one for each problem.

The inter-relationship between the problems is mostly ignored.

However people in organizations mostly verbalize the "pain" that they are experiencing from their point of view, which is mostly local and hence can be called as an "undesirable EFFECT". It is not the core problem. The core problem is at least 5 layers removed from the problem verbalized by the department manager. Understanding the core problem requires understanding of the interactions of all the undesirable effects.

At the same time there is another problem. Whenever one listens to a problem, there is an immediate temptation to arrive at a solution, more so in cases where the listener has a prior experience. For example on hearing about high logistics cost as a problem, the mind may immediately look at a cost reduction solution or on hearing about too many set ups as a problem,the mind could conclude on increasing batches. Different people would conclude on different solutions based on their prior experience.But the problem may just be symptomatic ( a undesirable EFFECT). The high logistics cost could be because of wrong inventory placement which in turn is leading to partial expediting shipment. The wrong inventory placement could be because of the practice of pushing sales down in supply chain based on a forecast.So the logistics cost cannot be looked in isolation to the entire sales and distribution planning.

The typical way of fast thinking, without a rigorous analysis is thinking by Heuristics, where the mind jumps to conclusions based on fixed mental models of the past experience. This way of thinking does not help us reach at the core problem which is at least 5 layers away from what has been verbalized by the department manager.

Then why do we as managers mostly use such heuristics based thinking? I got the answer to this question from "BLACK SWAN" by Taleb.Our human brain has two systems - system 1( the intuitional mind) and system 2 (cogitative or the thinking one).System 1 is super fast, effortless, emotional, intuitional and draws heavily from past. This is what people call "heuristics and biases". System 1 is prone to errors.
While system 2, the cogitative part is slow, logical, self aware, classroom oriented and is very less prone to errors.Then why do we have the error driven system 1 at all? System 1 is actually a fast defense mechanism provided for human beings to save themselves from danger. The mind triggers fears almost before the snake is actually seen. If instead of system 1, the system 2 is activated, the person might get into slow analysis of whether the snake will actually attack or not. This slow thinking might actually delay an action the person might get bitten. System 1 has a need - it helps us stay away from danger ASAP.

The problem starts when system 1 is used to analyze scenarios where system 2 level thinking is required.For decision making, we are not facing dangers every time.A bigger problem is people are not even aware that they are using system 1 when system 2 is required.The best example of using system 1 in wrong scenario is in business situations where people immediately jump to conclusions on hearing undesirable effects. Since system 1 is effortless, most of the time, we might end up using it in meetings or discussions. On the top of it people reinforce their thinking with further confirmation biases. They look around for confirmation of their hypothesis to prove their point and rigidly hold their "positions".

To use system 2 thinking, we need not only a disciplined process ( which will overcome the biases of system 1 thinking) but also lots of practice. We have to go slow and look at the WHY of the problem presented. The 5 WHY method does not provide a a good framework as after 3 WHYs, it becomes difficult, as we diverge to more and more causes.Like a fish bone diagram, the causes become many and many.This is not the right tool for analyzing systems with interactions.

The right tool for system 2 thinking is the thinking processes of the TOC.

To use the thinking processes, we need to practice the use of categories of legitimate reservations, particularly the predicted effect reservation. In a business system where every department is connected to other, a cause does not exist in isolation and always has multiple effects. The rule of predicted effect provides us with the ability to continuously use FALSIFICATION ( try and falsify with a predicted effect) as a way forward to seek truth.More number of effects fail in test of falsification, greater is acceptance of the hypothesis or existence of the cause.

Yes using the logical TOC thinking processes is a slow but it provides a way to do system 2 thinking and avoid the pitfalls of system 1 thinking.

2010-01-06T12:20:00.000+05:30

Battling the efficiency syndrome. Effortlessly!

With implementation of Theory of Constraints solution, it is expected that all plant managers align their thinking and decision making to the paradigm of flow rather than local efficiencies . While it is intuitively easy to understand and appreciate the flow paradigm, it is very difficult to GIVE UP the efficiency paradigm. Not many production managers can give up the efficiency paradigm easily even though they understand the causality of how the efficiency measures come in the way of flow. Many of them would agree to implement an effective flow system which prevents workers from working on things, which should not be worked upon at a point of time. But at the same time they present a valid obstacle, “how do we ensure resources are working efficiently on things they are supposed to work?”

They have a valid point.

It is important to ensure workers are working hard and are not slackening down, when they are working on the right things. We need people to be efficient. While the need is valid, but the mechanism of using efficiency measures to conclude on efficiency is not, particularly in environments with wide variety of SKUs, differing processing times and variability. In most of these environments, people have developed elaborate formulas to determine the productivity of each work centre. The complexity of the formula goes up when one tries to nullify the effects of production variables to arrive at a “fair” way of comparing work centres. But, it is almost impossible to put all possible production factors (particularly the variability) in the formula. So most of the time, the formula offers enough scope for people to “manage” it. These measures actually encourage “cherry picking” (selecting easier to manufacture at cost of others, batching, postponing setups). Every work centre worker and manger knows the way to manage these numbers by selecting some items over others. People can hide slackening of efforts on some SKUs by “cherry –picking” other SKUs to arrive at a better number for the period. Hence one can never know from these numbers, if there was any slackening of efforts in manufacturing. So one never knows if people were really efficient by just looking at the numbers. Not only managers have no clue about efficiency by just looking at these numbers, there is a further damage to flow which is caused by the "cherry picking" actions of the work center managers
We all know what “cherry picking” does to flow of orders. The cherry picking of items at various local work centres lead to de-synchronization at the convergent points (not all items available together for assembly) or material stealing in the divergent points. It leads to some items being produced ahead time; WIP goes up in the shop floor and so does the lead time, while on time delivery drops down.

It is difficult to conclude if these measures really prevent slackening of efforts (we can never know if numbers were achieved because of hard work, genuine improvement or mere cherry picking), but they do definitely lead to higher lead times and missed due dates. So in a way, one is paying worker incentives to actually mess up the deliveries.

Now we need a way to not only improve flow but also get the real efficiencies (prevent slackening of efforts). TOC approach calls for the Road Runner work ethics (If there is work do not slacken and move as fast as possible. However if there is nothing; sit idle but do not produce excess or ahead of time).Clearly there are two parts of the Road Runner behaviour – efficiency (doing fast what needs to be done) and effectiveness (not doing things which should not be done). Now do we need to have new measures to ensure these two parts of the behaviours? Like the (TRD) throughput rupee days for efficiency and (IRD) Inventory rupee days for effectiveness.

In my opinion, both these measures also have their own associated problems. Due to rupee value attached to orders, they can also lead to a cherry-picking. An importance of an order can never be judged by through-put value of the order. There can be so many different factors associated with long term importance of the order. Ideally, all the factors should be considered while taking in the order but once the order is in the shop floor, the due dates of all orders are equally important and hence the shop floor should only be managed with the buffer signals which provides the relative risk of missing dates of various orders (a priority system which treats all due dates as equally important).

If we cannot use TRD and IRD, how do we ensure the desired behaviours?

Do we always have to invent a new measure to get a desired behaviour?

Our experience shows that a “poka-yoke” process is much more powerful way of ensuring right behaviors, while preventing the wrong ones. The process of chocking the release prevents workers on working on unnecessary items – we got the effectiveness in place with this process. On the other hand, the visible colour signals in shopfloor and daily buffer management are a way to ensure “real efficiencies” in the shopfloor. With daily supervising of Reds and Yellows, any slackening is detected early and corrected. (In a conventional plant with a significant month end skew, the detection of delays and corresponding expediting is mostly towards the month end). The colour signals bring about increased sensitivity to reds and blacks. The entire plant suddenly looks “more visible” and “transparent” to everyone. The plant develops a self correcting system because no-one wants to be seen as the villain who created the reds and blacks in the plant (and in turn caused the failure of the team).

So we have a solution in place to replace the wrong measures
- Chocking the release for effectiveness
- Daily buffer management for efficiency

Now comes the next question. Do we fight to remove all the efficiency measures to start the implementation? We know wrong measures drive wrong behaviours. Then as a first step we need to remove them to “correct” the behaviour. Right?

To touch measurements as a starting point is a waste of time. Even though people would be convinced about the logic, sheer inertia is going to hold them back. The best way to overcome the inertia of old paradigm is to show significant results of using the new paradigm. So the best way forward is to get an agreement to implement the two important processes to a level where they become a routine.
So we implement the new processes, which in a way overcome the impact of wrong measures. But still the question remains, what do we do with the old measures?
It depends on the way the measure is being used. If along with the measure, there is a defined upper limit as a norm, we need to remove the upper limit as it becomes a self fulfilling prophecy and prevents release of capacity. In most plants, once the plant output goes up, the efficiency (even as per the old measures) of the work centres also goes up. Eventually the measures will become redundant - they do not drive any behaviour, positive or negative. Now is the time to remove them. You will hardly have any conceptual opposition provided one has worked out a way to compensate the workers.

____________________________________________________
Refer to the article “Standing on the Shoulder of Giants” by Eli Goldratt to understand the difference between flow and efficiency paradigms

TDD ( throughput dollar days) is measure for items done behind the schedule, measured as days delayed multiplied by throughput (sale value- material costs) of the order and IDD ( inventory dollar days) is measure for items done ahead of schedule and hence inventoried, measured as throughput value of the order multiplied by excess days in the finished goods

Chocking the release is the step 1 of Drum-Buffer-Rope implementation (TOC solution for improving flow in production) wherein, the material is released to shop floor only a stipulated time before the delivery date.

The time between order release and delivery, also called the production buffer, is divided into 3 colours zones based on elapsed time. The 3 zones green, yellow and red, provides easy guidelines to the shop floor on priorities and triggers for expediting