MA Insights #3

Jim Drennen, CPIM

If You Want a New Idea, Read an Old Book

The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt

Back in the mid-1980s, while working as a materials manager for a manufacturing company in Ohio, I had the opportunity to hear Eli Goldratt present at a Sheraton Hotel in Detroit. Over 200 people filled the old ballroom, with most of us deeply involved in what was then called “Just-In-Time” (JIT) manufacturing. (Lean would take place after James Womack and Daniel Jones published The Machine that Changed the World in 1990 and Lean Thinking in 1996.)

Dr. Goldratt walked in at 9:00 a.m. sharp and promptly lit a big cigar, declaring that the non-smoking zone extended 15’ beyond his person. At this point, we all knew we were in for a wild day. He accused us of perpetuating the myth of the hero. He shared with us that while in the U.S., he had been watching movies about cowboys and the wild west and he was irritated with our obsession about heroic efforts. He related this story, paraphrasing from a vivid memory:

    I was a private in the Israeli Army, as young people in my country serve in some form of civil service. After one action, I was selected to win a medal for my actions. As the general was pinning the medal to my uniform, he leaned over and whispered in my ear, “Who messed up so you bad for you to receive this?” Based on my experience, Goldratt appears to be correct in this observation.

In the late 1980s, The Goal: A Process of Ongoing Improvement was mandatory reading for manufacturers. In this unique book, told in the form of a mini-novel, readers were introduced to the Theory of Constraints (TOC). TOC is a process of continuous improvement that identifies and “fixes” a system’s constraints to increase throughput. After crashing or leveraging a critical bottleneck, the process of identification and crashing proceeds to the next constraint, and so on.

There are so many nuggets in this groundbreaking book. Here are a few that deserve consideration in your operations.

“What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks.”
Allocating resources to improve non-bottlenecks does nothing for the operation to increase throughput. Throughput is a major concept of The Goal. Goldratt uses this term in a broad sense. A firm’s cash flow and profitability are primarily determined by the pace of production set (or limited) by the bottlenecks in the critical path.

"I say an hour lost at a bottleneck is an hour out of the entire system. I say an hour saved at a non-bottleneck is worthless."  "Bottlenecks govern both throughput and inventory."
Here Goldratt is calling into question all the activity spent on non-bottleneck processes. Obviously, certain kaizen events that improve safety, quality, and workplace environment are desirable. But in Goldratt’s view, the major thrust of continuous improvement should be on eliminating each critical bottleneck in succession. Besides the financial impact of the firm, Goldratt points to improved customer service that fuels higher demand and keeps the business thriving.

“For the ability to answer three simple questions: ‘what to change?’, ‘what to change to?’, and ‘how to cause the change?’ Basically, what we are asking for is the most fundamental abilities one would expect from a manager.”
Goldratt is describing what he views as the central role of management. A leader is expected to ask and answer these three fundamental management questions. Everything else is everything else. 

STEP 1. Identify the system’s bottlenecks. 
STEP 2. Decide how to exploit the bottlenecks. (Fix/reduce/eliminate.)
STEP 3. Subordinate everything else to the above decision.
   (Make sure that everything marches to the tune of the constraints. Use visual tags to keep the focus on “red” constraints.)

STEP 4. Elevate the system’s bottlenecks. (Fix it through a kaizen event or procuring new resources. Shift the bottleneck to another constraint.)
STEP 5. If, in the previous step, a bottleneck has been broken (or “fixed”), go back to STEP 1.  

This is the continuous improvement process offered by Goldratt to increase throughput and realize of the all associated benefits. This is how operations managers decide what to work on next or at least prioritize resource allocation.

Finally, "Never let something important become urgent." Heroes charge in to do important things that have become urgent. Leaders focus and work on important things that are not urgent. Change these priorities and you can change everything.

Lessons Learned: Targeting bottlenecks for team kaizen events can produce more benefits than continuously improving non-bottleneck processes. In deciding what to work on next, consider adding the category of “constraints to throughput” to safety, quality, and work environment in the decision criteria.