In this first-of-a-kind independent academic review , researchers surveyed 78 live TOC implementations from around the world to verify their impact and effectiveness.
This article goes on to describe the common conflicts and how to unlock the synergies that are possible when combining these powerful methodologies together. By Reza M. The previous Mount Everest example probably left you with a sour taste in your mouth, as it is too simplistic, unfair.
So maybe we should try to use this technique on the batch size problem. Let's remember that this problem is one in which more than 10, bright people have invested so much time trying to solve to the extent that they have published articles about it. Evaporating this problem certainly serves, in more than one way, as a good illustration of the validity of the Evapo- rating Clouds method. Examine, for example, the arrow connecting requirement "B" to the objective.
The influence of setup cost on cost per unit is the unstated assumption that was taken when we drew the batch size problem. It doesn't take long to realize that we have taken setup as a given. In other words, we assumed that the setup cost is fixed and cannot be reduced. What do we call the method that so viciously attacks this assumption?
We call it JIT. Sometimes from many hours to just a few minutes. But there are many ways to have our cake and eat it to. So, let's try to find out if there is another assumption hiding behind the same arrow. Just thinking about it probably sends flickers through your mind: "does setup really cost us money?
Remember, the Theory of Constraints shies away from the word cost, like it was fire. The word cost belongs to the But the word cost is most dangerous and confusing also used in a third category of words—the multi- meaning words.
We use this word way, that of "product as a synonym for purchase price, cost," which is just an like in the sentence, "the cost of a artificial, machine. You might become rich by prudent investments but certainly not by spending your money. But the word cost is also used in a third way, that of "product cost," which is just an artificial, mathematical phantom Theory of Constraints Journal, Volume 1, Number 4, Article 1.
After this long remark on the multiple meanings of the word cost, let's try to rephrase the question "does setup really cost us money? The lightbulb just went on. The equivalent is "will an additional setup increase the Operating Expense of the organization? Suppose that all the people who have tried to solve the batch size problem would have dealt with a situation, where at least one of the resources involved in the setup was a bottleneck.
So let's assume that the situation they have dealt with, is one in which none of the resources involved in the setup is a bottleneck. In such a case the impact of doing an additional setup on Operating Expense is basically zero.
What we see is that exposing the hidden assumption is suffi- cient for us to understand that the whole problem revolved around a distortion in terminology. What is our answer to the batch size now?
Where should we have large batches? On the bottlenecks and everywhere else? Let's have smaller batches. Small, to the extent that we can afford the additional setups, without turning the other resources into bottlenecks. What I would like to demonstrate is that every arrow can be challenged. But since I don't want to turn this into the 10, book on batch sizes, let me demonstrate it by concentrating on what is perceived to be the most solid arrow in the diagram— the arrow of the conflict itself.
What is the assumption behind "large batch is the opposite of small batch"? That large is the opposite of small? To challenge this means to challenge mathe- matics itself. So the only avenue left open is to challenge the assumption, that the word batch does not belong to that cate- gory of words having multiple meanings. Here, it seems that we are at a loss, where the only way out is to ask ourselves if we know of any environment, in which the concept of batch does not fit.
Yes, we all know of such environments—flow lines, con- tinuous production, assembly lines. It seems to reason that batch sizing is not applicable in such environments, because in those environments the distinction between the two meanings of the word batch is so big that we cannot possibly group them to- gether.
What is the batch size in a dedicated assembly line, dedicated to the assembly of one type of product? Of course it's one; we are moving the products along the assembly line in batches of one. A very large number, we don't ever reset a dedicated line. What are we going to do now? It seems as if we have two correct answers to the same question, where the first answer is one and the second is infinite. Rather then putting the whole thing aside, by saying that the batch size concept is not applica- ble to such situations, let's try to verbalize the lessons that we can extract from it.
We reached the answer one, when we looked on this situation from the point of view of the product. The unverbalized question was actually, "how many units do we batch together for the purpose of transferring them, from one resource to another along the line?
On the other hand, we reached the answer of infinite from the point of view of the resources in the line.
The question here was "how many units do we batch together for the purpose of processing them, one after the other"? The answer infinite was thus given to describe the size of the batch used for the purpose of processing—we call it the process batch. In every flow environment, we find very strong indications that the process batch and the transfer batch are totally differ- ent entities that can and do co-exist, even when we consider the same items, on the same resource, at the same time.
We move batches of one through a machine on the line, while at the same time the process batch, in which these parts are processed by the machine, is infinite.
Now let's return to our problem: why did we have the pre- requisite of a large batch? To save setup. In other words, the batch that we wanted to be large, was the process batch. Why did we have the pre-requisite of a small batch? Because we wanted to reduce the carrying cost of inventory—the time that we hold the inventory in our possession.
In other words, we wanted a small transfer batch. Why then do we claim that we have a conflict, when these two pre-requisites can be fully satis- fied, at the same time. We 50 years was due to should strive to maximize the the improper use of process batches on bottlenecks, while at the same the terminology.
The efforts to find the "best" batch size, should have been directed towards straightening out the paper work on the shop floor rather than finding some artificial optimum. Otherwise, "work-orders" will arbitrarily force the transfer batch to be equal to the process batch.
Read The Goal, if you have already read it read it again, and whenever you find Alex developing a simple, common sense solution, that's exactly where the Evaporating Clouds method was used. The Race, which is devoted to explaining why inven- tory is even more important than operating expenses, is actually a collection of examples that make extensive use of the Effect- Cause-Effect and Evaporating Clouds methods. Here, for exam- ple, is an arbitrary page from The Race.
Try to reconstruct the Effect-Cause-Effect tree and the Evaporating Clouds diagram that lead to the conclusions outline on these pages. What causes this universal phenomenon?
If all companies in an industry are providing delivery of a prod- uct within two months, then customers will not place orders and commit themselves to specific due dates a year in advance.
Even when they place an order for a whole year, they will feel free to change the quantity and ship date two months in advance without risk of jeopardizing deliveries or plac- ing their vendors in an impossible situation. Consequently, the plant's forecast for this product will be quite reliable for the first two months and quite unreliable for the period beyond three months.
If we operate with high inventory relative to our compet- itors, it means that our production lead time is longer than the valid forecast horizon of the industry. The length of the valid horizon will be dictated by our low inventory competitors. As a result, the high inventory company's production plans are based on pure guesses and not on a reliable forecast. It's no wonder that due-date performance is a problem where we have high inventories.
When we operate in a lower inventory mode than our competitors, we enjoy an enviable position that gives us an inherently more accurate forecast. Now when we start production, we have firm orders or a valid forecast which is much less likely to change. Our due-date performance will certainly be much improved. Our production plans are now driven by more reliable information and we are in a much better position to give reliable requirements to our vendors.
Remember, a prime reason that our vendors cannot deliver reliably is because we keep changing our requirements on them, the same way our customers are changing their requirements on us. How about the last competitive element, shorter quoted lead times? We will again find that inventory plays an unexpected role? In order to demonstrate that both The Goal and The Race cover only a small portion of the applications of the Theory of Constraints, even as far as production itself is concerned, the next example, I would like to present, is from the Theory of Constraints Journal.
But not less important is how these methods merge together to en- able the effective use of the Socratic method. Al has done a lot of work. Tom, one of our plant managers has made some physical changes on the floor that really made a nice, big difference. More than once we have broken bottlenecks and now we can ship things we were not going to ship before. In my opinion the problem is no longer in manufacturing!
I would estimate that we have cut our work-in- process inventory to about one half of its historical level. I'm afraid that we are once again stagnating. Accurate but not unusual. Al, can't you do something about it? My people do release all material's sched- ule promptly. Overall, I don't think that our systems are much worse than the rest of our industry. The accuracy of our data is quite good, even though I would like to get a little bit more cooperation from your produc- tion people in this area.
You must admit that the timeliness of re- porting transactions on the floor can be substantially improved. The superinten- dents and foremen are already complaining that the hassle to feed the computer is too much. If you want better and faster data from the floor, you need to provide updated feedback reports within a day, not a week. The computer is so loaded that it's a miracle that you get the response we are currently giving.
You know that almost every weekend my people have to stay to guaran- tee that everything will be ready on Monday morning. If you need faster response, and I agree on that point one hundred percent, we must go to an online system. No, I manufacturing has maintain that the problem is no longer in production. It is on the improved preparation side of the house. In this business everything is made to order and the engineering and paperwork functions needed to design and specify the furniture are a big part of the organization.
We must have more modern technology if we want to change things around here. Our CAD systems are simply not good enough. We must provide our people with new systems. I gave you my estimates of the cost involved.
It will take us quite some time to train our people properly to use these new systems. Every postponement in the decision just delays further when we can improve. I know that the payback is a little bit more than two years, but if we have to do it, let's do it. I doubt if today we are responding much faster than ten years ago. Chris and Al nod their heads in approval.
And then turning to me he says, "You see Jonah, it seems that we cannot even agree on where our constraints are. It's quite tempting to agree with Bert and to dive into the subject matter, to try and sort out the maze.
But it's obvious that this conversation, or a variation of it, has taken place more than once in the past. Thus, it seems reason- able to expect that an intuitive, underlying agreement of the prob- lem, has already been very well established. The best way to proceed is to expose this unverbalized agreement.
I'm still trying to figure out what's going on. Somehow I have the impression that while you don't agree on the tactics, at the same time, the strategy is agreed on to the extent that you already take it for granted. As I said, we have broken all our bottlenecks in production. We can easily handle more orders. You are right. We do agree on the most important thing—on our biggest business problem. I puff on my cigar waiting for Bert to pick up the conversation, which he does.
But this agreement doesn't preclude us from violently disagreeing on where the constraint is now. We just said that our current major constraint is the market. Verbalizing what we know in- Leaving things at the tuitively, is a foundation on which intuition level makes we can build our next steps. Leaving things at the intuition level communication makes communication almost almost impossible.
Thus when a team effort to find a solution is made, it is almost essential not to leave important steps unverbalized. I'm trying to be very careful not to fall into that trap myself. In the conversation they didn't even speculate about the reasons for insufficient sales, indicating that that is another thing that is totally agreed upon among them. Is it price, quality or something else?
It is cer- tainly our too long quoted delivery lead times. You see Jonah, our clients are almost always pressed for time. Maybe it's because furnishing a new facility is the last step in completing it. So if we quote 20 weeks from receipt of order until everything is mounted at the client site, it's always too long.
And if a competitor is quot- ing 10 weeks, he will get the order. Yes, there is a lot of cheating going around, but I insist on quoting reliable estimates. We get quite a few orders because of our reputation. Many times, when a competitor slips significantly on his promised date, the order is transferred to us. No, I will not allow false quotes. Our prices are good.
We have very high quality products. We have good designs. The problem is definitely in our long quoted lead times. In many cases, too many cases, the competition is quoting as low as half the time. To re- duce our estimates, is to squeeze the system even more and you see it's impossible. It's already tight as it is. We must use better and faster technology if we want to reduce the quoted times and still be reliable.
I do a quick assessment in my mind. The core of the disagree- ment between Bert and J. They simply differ in their basic assumptions.
Bert's intuition leads him to assume that the current long quoted lead times are unrelated to the speed at which each individual job is done, but related to the synchroniza- tion between the jobs. Chris' disagreement must stem He had already from a different source. He had proven to himself already proven to himself that drastic lead time reduction can be that drastic lead achieved without improving the time reduction can individual processes.
What is it? Can be achieved without itbiggest be that manufacturing is still the contributor to lead time or is improving the it just part of the political power individual processes. Something does not click since Chris didn't ask for any new investments. And what about Chris' remark on the widening gap between the floor and the computer system? I've too much respect for manage- ment intuition to ignore it.
How to peer into it? I decide to continue in the most obvious way. If they claim that their quoted lead times are the major cause of their marketing constraint, let's dig into this subject. Can you give me a rough breakdown of the components of this lead time? What are the activities, and estimates of their duration, that you take into account before quoting a delivery date to a prospect?
A typical breakdown will be something like four weeks for the design, then there's approval. Can you help me? After a very short while he raises his head. It takes one week to process the order, five weeks to draw the project, two weeks to approve the drawings with the customer, one week to enter the corrections to the drawings and then two weeks to prepare it for release to manufacturing. Then add ten weeks for manufacturing plus one week in shipping and five weeks for installation. The competition is quoting about 20 weeks, which means that we promise to ship our first truck when our competitor is promising to complete the entire order.
When the client is pressed for time, we can even offer it for free and it will not help us to get the order. That puzzles me. The numbers certainly support Chris' position that manufacturing is still the major area to focus on. Why doesn't Chris take this opportunity to clearly demonstrate his point? Conversation has stopped and "When the client is everybody is looking at me. Maybe pressed for time, we on-site construction, or as they call it can even offer it for 'installation,' does not report to Chris.
If this is the case, then he is free and it will not responsible for just 10 weeks out of help us to get the the This seems a remote possibility since Chris' title, "Vice order. Besides, if another person was responsible for installation, it is reasonable to expect that Bert would have invited him to this meeting. Since I cannot find any other plausible explanation, I turn to Chris. I wonder. Can it be each person, when that Chris does not believe in asked to evaluate the these numbers and thus hesitates to use them as a base for his time it will take to position?
This might be the complete a task, will answer. Certainly there is not a direct communication between instinctively add a safety Chris' production people and the factor. They report to J. From my experience I've learned that each person, when asked to evaluate the time it will take to complete a task, will instinctively add a safety factor. If the process involves a series of people, each will add an additional safety and the end result will be vastly exaggerated.
This phenomena takes on grotesque proportions when the people in marketing and product engineering don't exactly trust the production people, and thus will tend to protect themselves, against future complaints from clients, by inflating the time estimates.
So it is reasonable to assume that Chris does not agree at all with the numbers that J. But how to verify it? At Chris' and J. A direct question will just put Chris in a very embar- rassing situation and the only thing that will result, is a very vague "political" statement. If my hypothesis is right, the recent reduction in production lead time, will not be fully reflected in the estimates currently used in the quotations. The same overprotective mechanism will guarantee it.
The next now obvious question is, "What did you use as an estimate for the production lead time of such an order two years ago? The quoted production lead times have gone down by only 2 weeks even though the actual production lead time dropped by much more.
I make a fast calculation in my head. The level of work-in-process is proportional to production lead times see The Race pages The Goal : A Process of Ongoing. Author : Eliyahu M. Goldratt pDf books , none,. Goldratt pDf books , none, Eliyahu M. Goldratt pDf books. We have enough. We simply need to look at reality and think logically and precisely about what we see. The key ingredient is to have the courage to face inconsistencies between what we see and deduce and the way things are done.
This challenging of basic assumptions is essential to breakthroughs. Almost everyone who has worked in a plant is at least uneasy about the use of cost accounting efficiencies to control our actions.
Yet few have challenged this sacred cow directly. Progress in understanding requires that we challenge basic assumptions about how the world is and why it is that way. If we can better understand our world and the principles that govern it, I suspect all our lives will be better.
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