The Goal

1. The Goal A Process of Ongoing Improvement Eliyahu M. Goldratt and Jeff Cox

2. The Goal Back to the story: Q. Where does Alex and company find the bottleneck? • They find two bottlenecks, NCX-10 and Heat Treat Q. What is thier first approach to improving the flow through the bottlenecks and ultimately improving productivity. 1. Move QC in front of bottlenecks. 2. Make a list of all late jobs and what components from those jobs flow through the bottleneck machines. They then create a schedule/list in due date order and instruct the bottleneck operators to only work on those jobs in that order.

3. The Goal Back to the story: Q. Does this scheduling system work (e.g. get late jobs completed while always keeping bottleneck running)? A. No, because the late job components are not always waiting in front of the bottleneck machines. Q. What do they do to rectify this? A. Create a red tag (parts that travel through the bottleneck) / green tag system for all jobs throughout the plant such that any job with a red tag which arrives at a machine is given priority. If they are in the middle of a run, then if the run takes longer than 30 minutes to complete, stop that job and start the red tag job. If no red tags, then ok to process green tag jobs. If more than one red (or green tag), then process job with lower number on tag.

4. The Goal Back to the story: Q. What do they do next to further off-load the Herbies / bust the bottleneck? • Gold tags placed on parts that have traveled through the bottleneck everyone extra careful not to damage. • Dedicate personnel at NCX-10 and Heat Treat even though they are idle much of the time, just don’t let machine idle. • Send out some portion of heat treat parts to vendor in town. • Found old equipment (that is less efficient) to run in parallel to NCX-10. • Fully load furnace when possible (e.g. mix batches). • Reduce setup time with new fixtures. • Were able to process some parts differently so heat treat wasn’t required.

5. The Goal Back to the story: Q. What were the results of these bottleneck busting tactics? • New monthly shipping record from old record of 2 million to new record of 3 million. • 57 customer orders shipped versus old record of 31. • WIP Inventories reduced 12%.

6. The Goal What happens next? The bottlenecks are apparently expanding… material is backing up at the milling machines, and non-bottleneck parts (green tags) are not reaching assembly even though all bottleneck parts (red tags) are available at assembly.

7. The Goal What happens next? Jonah revisits plant and discusses relationship between bottleneck(X) and non-bottleneck(Y) machines. • Y X 3) Y A 4) Y Product A • X Y X S X Product B S E M B L Y

8. The Goal Jonah believes the “new bottlenecks” are not real bottlenecks, but self-created bottlenecks. Why? • Material is being “released” to the plant just to keep the non-bottleneck machines busy. This improves these machines efficiency measures, but does not help the goal. Jonah: “A system of local optimums is not an optimum system at all; it is a very inefficient system”. Lesson: Do not try to make non-bottlenecks work all the time. They should be idle some of the time!

9. The Goal So how do you go about fixing the problem of keeping the non-bottleneck machines working at the same rate as the bottleneck? Recall the boy scout hike: Herbie is in the middle of the line and cannot be moved, so how do you keep the kid in the front walking at the same pace as Herbie? Alex’s kids: use a rope and a drum. Rope: Attach a rope from Herbie (bottleneck machine) to the kid at the front (assembly). The length of rope represents inventory. Drum: Herbie tells the kid at the front to slow down or speed up (beats the drum). Need some kind of signaling or communication between assembly and the bottleneck.

10. The Goal How is the rope and drum concept implemented in the plant? • Identified it takes about 2 weeks from when parts are released to the floor until they get to bottleneck. • Setup system that monitors when inventory is processed at the bottleneck. Material required 2 weeks later is then released to the floor. • Non-bottleneck parts are released according using the same principle but tied to assembly. Communicate release Bottleneck Material Release 2 weeks lead time

11. The Goal What is the result of this new release system? • WIP is down. • Revenues are up. • Efficiencies dropped initially, but have come back up. • The backlog of orders is completely gone (satisfied customers). How does management respond? • Happy • Somewhat skeptical success will last • Wants 15% more revenue next month!!

12. The Goal In order to improve by another 15% what does Jonah suggest as the “next logical step”? • Cut batch sizes for non-bottleneck parts in half. What is the impact of reducing these batch sizes? • WIP for non-bottleneck parts reduced by half. • Significantly reduce time parts spend in plant. Leads to increased responsiveness (from 6-8 weeks to 3-4 weeks). What about the time to handle increased number of setup? Doesn’t matter if occurs on non-bottleneck operations. Process Time Setup Time Queue Time Wait for Assembly Time Time parts spend in the plant

13. The Goal Also to help get the 15%, Alex calls the marketing/sales manager and bets him he can reduce lead time to fill orders. What does Alex expect to gain by reducing lead times to ship from what used to be 4 months to 4 weeks? • Increased sales!! • The bottleneck had moved to customer demand. Quick response on promised due dates should translate to a competitive advantage.

14. The Goal Everything is going good now except it looks like part costs are going up. However, in reality all costs have gone down. How can this be? The accounting rules: • Cost per part = raw material + direct labor + burden cost • Burden cost is all the indirect labor costs. • Burden = direct labor x burden factor Cost per part has risen because more setups are occurring because of smaller batch sizes. However, workers were idle, so the increased number of setups didn’t really increase costs.

15. The Goal What other performance measure made them not look as good as they actually were. Answer: Inventory Inventory is counted as an asset on the balance sheet. When the plant worked hard to reduce inventories to improve their throughput and responsiveness, it looked as if their assets had fallen.

16. The Goal Sacred Cows Slaughtered: • Worker efficiency • Optimal batch size • Releasing work to the floor to keep people busy • Accounting rules

17. The Goal Why Alex’s plant was successful: Change in Focus from the “cost world” to the “throughput world” Throughput Cost Inventory Throughput Cost Inventory

18. The Goal What process did they use to shift their focus to the “throughput world”? The Theory of Constraints Step 1: Identify the system’s constraints (NCX10 and oven) Step 2: Decide how to exploit the system’s constraint (don’t take lunch break on bottleneck machines) Step 3: Subordinate everything else to the above decision (red tags and green tags) Step 4: Elevate the systems constraint (bring back old Zmegma machine, outsource heat treat) Step 5: Warning!! If in a previous step, a bottleneck has been broken, go back to step 1 (material release system, marketing), but do not allow inertia to cause a system’s constraint (red and green tags eventually caused problems).

19. The Goal Final words from Alex on “how to be an effective manager”: Help people to identify: • “what to change?” • “what to change to?” • “how to cause the change?”

20. The Goal Finally some Philosophy: What approach did Jonah use to help Alex and the plant succeed? Find the answers/solutions by asking questions, the Socratic approach. Let others convince themselves of the answers, don’t just give it to them. Also used a “common sense” approach which went against “common practice”. In other words, think!!