TOC IN A NUTSHELL

November 2012

(March 31, 1947 – June 11, 2011

Eliyahu M. Goldratt

Ran Zadik rzadik@gmail.com

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Project Management & Software Dev.

Framework

• Philosophy

Statistical fluctuation & interdependent events

Three improvement areas (Throughput , Inventory , Operating Expense)

Five Focusing Steps

• Production

Drum-Buffer-Rope

• Accounting

Throughput Accounting

• Project Management

Critical Chain – single projects

TOC Multi-Project Management

• The Thinking Processes

Evaporative Clouds

Reality Trees

Prerequisite and Transition Trees

finite Unlimited finite

• Distribution

Synchronized pull replenishment

• Marketing

Un-refusable or “Mafia” Offers

• Sales

Buy in Process

• People / Leadership

Using the Thinking Processes for day to day management

• Strategy

Viable Vision 2

Basic Beliefs

• Any system (company) can perform better

• Exact science methods can be applied on management

• It’s possible to manage systems and people using logical principles

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Statistical fluctuation & interdependent events

• The activities of any company contain two basic phenomena:

1) statistical fluctuation

and

2) interdependent events

Anything you do will have

variable results

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Cause and Effect

To really understand TOC, you must believe that an infinite level of production is theoretically possible in your company

Then you find the cause and effect relationships that prevent this from happening and change them

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System Throughput

• Who uses the results (the output) of the System ?

• What do they value?

• Throughput = the amount of valuable output we produce

• Define metrics that measure the throughput

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Throughput Accounting

1. Throughput (T): The rate at which the system generates money (through sales). 2. Inventory (I): All of money the system invests in items it intends to resell 3. Operating Expense (OE): all the money the system spends to turn inventory into throughput 4. Net Profit (NP) = T- OE 5. Return on Investment (ROI) = NP / I

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Constraints and Focusing

• Constraint is anything that prevents the system from achieving more of its goal.

OR

• Constraint is the thing that is

preventing the organization

from getting more throughput

• Core principle within TOC : There is only one Constraint we should address in a single point of time

• Finding the Constraint is a mean of Focusing

• How can we find this constraint ?

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TOC Five Focusing Steps

• Step 0: Determine (and agree on) the goal of the system

- define the System Throughput

1. IDENTIFY the system's constraint

2. Decide how to best EXPLOIT the constraint

3. SUBORDINATE everything else to the above decision

4. ELEVATE the system's constraint

5. If, in a previous step, a constraint has been broken, go back to step 1 Prevent INERTIA from becoming the system's constraint

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Five Focusing Steps -Illustration

• What to change?

• What to change to?

• How to cause the change?

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Local Optima

• Local optima happens when parts of the chain elements optimize their output without looking at the system as a hole.

• The outcome is usually increase in WIP (or inventory) and the throughput of the organization is lower than possible.

• Example : Cost accounting

• Unless the consumer has bought no one in the supply chain has sold

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Project Management - TOC perspective

• Why do projects often fail to achieve their planned targets ?

• Murphy's law: Whatever can go wrong, will go wrong

• Parkinson's law: Work expands so as to fill the time available for its completion

Why?

• Student’s syndrome

• Multitasking

• Gold Plating

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Project Management - TOC perspective

• Delivery and estimation of tasks :

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Project Management – Critical Chain

What is a critical chain of a project ?

• A set of dependent tasks that define the expected lower limit of a project's possible lead time

• We take into account both logical dependencies and resource dependencies

• The network of tasks is

"resource leveled" against

a finite set of resources

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Project Management – Critical Chain

• Remove the buffer that we have allocated for each task

• Remove tasks due date

• Plan Early finish (not early start)

• Say No to Multi-tasking

• Project Buffer

• Feeding Buffer

Buffer Management

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Project Management – Critical Chain

Remove the buffer that we have allocated for each task:

Estimate should be done without buffers

It’s really a difficult task

because task buffering is

wired into our thinking

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Project Management – Critical Chain

Remove tasks due dates

• No task has planned finished date

• Each task will be planned to complete until the start date of following task (Plan Early finish ,not early start)

• Team members can freely express their views of task duration

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Project Management – Critical Chain

Say No to Multi-tasking

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Buffer Management

Buffer Management:

• Buffers are a mean protect against Murphy’s Law

• Buffers consumption (or expected consumption) can be indicators that something might be amiss

Use “time to complete” task estimates to evaluate buffer consumption

BUFFER

OK PLAN ACT

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Project Buffers

• Do not use task level buffers

• Use project buffer to protect the critical chain

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Feeding Buffers

• The critical chain is the project constraint

• According to TOC we have to protect the constraint

• But what if non-critical tasks take longer than expected?

• We use feeding buffer to protect the critical chain tasks

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What’s in it for the Managers?

• handling Parkinson’s and Murphy’s Law effectively

(Better decisions by taking away the risk factors by some extent)

• Greater chances that project will not consume the entire buffer that is padded at the end. This is because the buffer will be consumed only when something wrong happens

• Multi-tasking awareness

• Team spirit

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What’s in it for the Team Members?

• integrated view of the entire project

• The role of each team member is clearer

• Avoid multi-tasking advantages

• Prioritization is easier

• No due dates for individual tasks

• Team members knows they will not be blamed for inaccurate estimation

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TOC and LEAN

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Goldratt's books • The Goal (1984) TOC improving organizations , accounting aspects.

(manufacturing company) continuous improvement • The Race (1986) logistical system ,drum-buffer-rope (DBR) • The Haystack Syndrome (1990) performance measurements, data vs.

information • What is This Thing Called Theory of Constraints and How Should it be

Implemented? (1990) -five focusing steps of on-going improvement and fundamentals of the Thinking processes

• It's Not Luck (1994) marketing, distribution and Business Strategy • Critical Chain (1997) project management ,The Critical Chain method • Necessary But Not Sufficient (2000) Enterprise resource planning (ERP)

and operations software • The Choice (2008) • Isn't it Obvious (2009) Retail

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TOC

Thank you

26 Ran Zadik rzadik@gmail.com Many thanks to Goldratt Consulting