Theory ofConstraints

HandbookEdited by

James F. Cox IIIJohn G. Schleier, Jr.

MeGrauuHill

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o ContentsPrefaceAcknowledgments

XXXlll

xxxv

Section! WhatlsTGfC?

1 Introduction to TOC—My Perspective Eliyahu M. Goldratt . . . 3Focus 3Constraints and Non-Constraints 4Measurements 4The Goal and The Race 5Other Environments 5The Thinking Processes 5The Market Constraint 6Capitalize and Sustain 6Ever Flourishing 7Strategy and Tactic Trees 8New Frontiers 8References 9About the Author 9

Section DD Critical Chain Project Management

2 The Problems with Project Management Ed Walker 13Introduction .. /'. 13Purpose and Organization of the Chapter 13Traditional Planning and Control Mechanisms

in Project Management 14Gantt Charts 14PERT/CPM in the Single Project Environment 15

Brief Review of Project Management Literature 16Origins of PERT and CPM 16Project Failures 17Single Project Management Literature 18Multiple Project Management Literature 19

Development of Guidelines 19Macro Issues 21Micro Issues 25

A Brief Overview of Critical Chain Project Management 36Critical Chain in the Single Project Environment 36

VJ C o n t e n t s

Brief Review of Critical Chain Literature 38Summary and Conclusions 39References 41About the Author 44

3 A Critical Chain Project Management PrimerCharlene Spoede Budd and Janice Cerveny 45Introduction 45

Why These Widespread Project-RelatedProblems Persist 45

Task Duration Uncertainty 46Traditional Survivor Behaviors 47

Key Elements of Critical Chain 48Issues in Creating a Project Plan 48Issues in Managing Project Execution 50

Scheduling a Single Project 50Modifying Task Duration Estimates 50A Bit of Statistics 52

Critical Chain Scheduling 53Critical Chain Scheduling—Steps 1 through 4 53Merging Paths—Step 5 55Communications—Step 6 56Three Sources of Critical Chain Project Protection 58

Scheduling Projects in Multi-Project Environments 58Establishing Project Priorities 59Selecting a Scheduling Resource and Establishing

Scheduling Buffers 59Project Control: The Power of Buffer Management 62

Tracking Buffer Consumption 62Knowing When to Act 63Adjusting Buffers 64Using Buffer Consumption Information to

Continuously Improve 66Project Budgeting 66

Components of a Project Budget 66Assigning Total Project Costs to Project Tasks 68Implementing a New Project Budgeting Process 69

Project Reporting 69Internal Reporting 69External Reporting 70

Causing the Change: Behavioral Issues, ManagementTactics, and Implementation 71

Managerial Actions to Support CriticalChain Project Management 72

Importance of Trust 73Implementing a Critical Chain Project

Management System 73Summary 75

C o n t e n t s yjj

References 76About the Authors 77

Getting Durable Results with CriticalChain—A Field Report Realization Technologies, Inc 79Background 79Purpose and Organization 79Recap of Critical Chain 81

Rule 1 Pipelining: Limit the Number of Projects inExecution at One Time 82

Rule 2 Buffering: Discard Local Schedules andMeasurements, and Use Aggregate Buffers 82

Rule 3 Buffer Management: Use Buffers to MeasureExecution, and Drive Execution Prioritiesand Managerial Interventions 83

Practical Challenges in Implementing Critical Chain 83Challenge 1: Gaining Managerial Commitment for

Implementing the Three Rules 84Challenge 2: Translating Concepts into Practical

Procedures and Instructions 84Challenge 3: Sustaining the Critical Chain

Rules and Results 84Step-By-Step Process for Implementing Critical Chain 85

Step 1: Achieve Management Buy-In 86Step 2: Reduce WIP and Implement

"Full Kitting" 87Step 3: Build Buffered Project Plans 88Step 4: Establish Task Management 90Step 5: Implement Surrounding Processes 91Step 6: Identify Opportunities for Continuous

Improvement.(POOGI) 92Step 7: (When Applicable) Use Superior Delivery as a

Competitive Advantage to Win More Business 93Lessons Learned 93

Performance Gains Come from Managing Differently,Not Better Planning and Visibility 93

Implement All of the Three Rules 93Top Managers Must Play an Active Role 94Actively Manage the Buffers 94

Frequently Asked Questions 95Can Critical Chain be implemented without basic

project management in place first? 95Should a pilot be run before a full rollout of

Critical Chain? 95What about cultural and behavioral changes? 96What is the role of software in Critical Chain? 96Is a Project Management Office (PMO) needed with

Critical Chain? 96

vijj C o n t e n t s

How is non-project work handled withCritical Chain? 96

Should the scope of a Critical Chain implementationinclude vendors and subcontractors? 97

How does Critical Chain improve quality? 97Critical Chain seems to be all about timelines;

what about controlling costs? 97Do we need project-level budgets in multi-project

operations? 98Doe,s Critical Chain work with Earned Value

Reporting? 98How does Critical Chain work with Lean? 98What are the likely causes of failure in implementing

Critical Chain? 99Summary 99References 100About the Author 100

5 Making Change Stick Rob Newbold 101Introduction 101The Uptake Problem 102

No Urgency to Change 103The Silver Bullet 105Negative Branches 106Root Causes 108

The Cycle of Results (CORE) 108Basic Principles 109Simple Example: Cleaning the Room 112Simple Example: TOC Practitioners Group 112Other Processes 113

Implementation Planning 116Planning with the Cycle of Results 116Traps 118

Summary 119References 120About the Author 121

6 Project Management in a Lean World—Translating LeanSix Sigma (LSS) into the Project EnvironmentAGI-Goldratt Institute 123Introduction: It's a Lean World 123What Is the Project Environment's Point of View

to Being Leaned? 124Project Environment System of Systems 125

What Do We Improve? 127Translating Lean into the Project System of Systems for

Improvement 127

C o n t e n t s

Addressing the Disconnects in Lean Techniquesfor Project Environments 130

The Five Principles of Lean Applied to the ProjectEnvironment 131

Specifying Value 131Identify Steps in the Value Stream 131Make Value-Creating Steps Flow towards

the Customer 131Let Customers Pull Value from the Next

Upstream Activity 132Pursuing Perfection 136

Leaning Traditional Project Management 139References 140About the Author 141

Section 111 Drum-Buffer-Rope, Buffer Management and Distribution

7 A Review of Literature on Drum-Buffer-Rope, BufferManagement and Distribution John H. Blackstone Jr. 145Introduction 145Literature on Precursors of TOC and DBR 146

Historical Developments Preceding TOC 146Derivation of DBR Using the Five Focusing Steps 149

Literature on DBR Scheduling 151Overviews 151Applying DBR to Different Types of Facilities:

VATI Analysis 153Special Cases 159

Free Goods 159What if the Market Is the Constraint? 159Re-Entrant Flows 160Recoverable Manufacturing and

Remanufacturing 160Buffer Management Literature 160

Buffer Sizing 161Buffer Sizing and Lead Time 162

TOC and Distribution 162Supply Chain Management ~ 163Service Environment 163TOC and Other Modern Philosophies 164

Problems with DBR 164Floating or Multiple Bottlenecks 165

Summary and. Conclusions 165References 166About the Author 173

C o n t e n t s

8 DBR, Buffer Management, and VATI FlowClassification Mokshagundam (Shri) Srikanth 175Introduction 175Managing Flow—Planning and DBR 176

The Need for a Focus on Flow 176Ford and Toyota Production Systems—

A New Perspective 178Production Operations and the Five Focusing

Steps of TOC 180Characteristics of Production Operations 181Applying the Five Focusing Steps to Production

Operations 183The DBR System 185

The Drum 185The Buffer 186The Rope 189

Managing Flow with DBR—An Example 190Managing Flow—Controlling Execution and Buffer

Management " 195The Need for Control and the Need for Corrective

Actions 195Understanding Buffers: The Buffer as the Source of

Information for Controlling Execution 196Buffer Management—The Process 198

Complex Production Environments and a ClassificationScheme 199

The Fundamental Elements of the ClassificationScheme 199

V, A, T, and I Flows—Descriptions and Examples 201V-Plants 201DBRinV-Plants 203A-Plants 204DBR in A-Plants 205T-Plants 206DBR in T-Plants 208I-Plants 208DBR in I-Plants 209

Summary 209References - 209About the Author 210

9 From DBR to Simplified-DBR for Make-to-OrderEli Schragenheim 211Introduction 211A Historical Background and Perspective 212

Conten ts xi

Three Views on Operations Planning and Execution 213The Five-Focusing Steps (5FS) 213The Critical Distinction between Planning

and Execution 214Concentrating on the Flow 216

Challenging the Traditional DBR Methodology 217What Should the Strategic Constraint Be? 217How Is the Planning and Execution Viewpoint

Addressing the Issue of Scheduling andBuffering the CCR? 218

How-TJoes Refraining From a Detailed Schedule of theCCR Affect the Execution? 219

What Does the Emphasis on Flow Add to theChallenge to Traditional DBR? 219

Outlining the Direction of the Solution 219The Main Ingredients of the Solution 220The Time Buffer 221Xoad Control 222Determining the Safe Dates 224Capacity Reservation 228Buffer Management 229Short-Term Planned Load 231The Notion of "Slack" 232

Where S-DBR Fits Nicely 232The Cases Where S-DBR Does Not Fit 234

Implementation Issues and Processes 236Looking Ahead to MTS 237Suggested Reading 237References 237About the Author 238

10 Managing Make-to-Stock and the Concept ofMake-to-Availability Eli Schragenheim 239Introduction 239Why Is a Special Methodology for MTS Required? 240

The Current Confusion in Managing Stock 241The Common Misunderstanding of Forecasts 241The Current Undesirable Effects in MTS 243

What to Do? The Direction of the Solution 244The Basic Principle of Flow 244From MTS to MTA 244Determining the Appropriate Inventory 245Buffer Management in MTA 246Generating Production Orders and the

State of Capacity 248Peak and Off-Peak Behaviors 250

C o n t e n t s

Monitoring the Target Level Size—Dynamic BufferManagement 251

Too Much Green—the Target Is Too High 251Too Much Red—the Target Is Too Low 251Discussion: Issues with DBM and By How Much

to Increase/Decrease the Targets 252The Role of Protective Capacity and the Usefulness of

Maintaining a Capacity Buffer 253The Process of Ongoing Improvement

(POOGI) 255Generic Issues in MTA 256

MTA for Components 256Which Items Fit MTA and Which Fit MTO? 256Vendor-Managed Inventory (VMI) 258Mixed (MTA and MTO) Environments 258Dealing with Seasonality 259Problematic Environments for MTA 260

. MTS That Is Not MTA 261Implementation Issues 262

Moving from MTS or MTO to MTA 262Software Considerations 262

References 264Suggested Reading 264About the Author 264

11 Supply Chain Management Amir Schragenheim 265Introduction: The Current Practice of Managing

Supply Chains 265Problems with the Current System 266

The Natural Tendency for Push Behavior 266Why Is It Impossible to Find a Good Forecasting

Model? .'. 266The TOC Way—The Distribution/Replenishment

Solution 269Aggregate Stock at the Highest Level in the

Supply Chain:The Plant/Central Warehouse (PWH/CWH) 270

Determine Stock Buffer Sizes for All ChainLocations Based on Demand, Supply, andReplenishment Lead Time 271

Increase the Frequency of Replenishment 274Manage the Flow of Inventories Using Buffers

and Buffer Penetration 275Use Dynamic Buffer Management 279Set Manufacturing Priorities According to Urgency '

in the PWH Stock Buffers 280Why Does a Pull Supply Chain Work Better? 281

Contents xiii

Some of the Finer Points in Managing the TOC Distribution/Replenishment Solution 283

Managing Product Portfolios 283Rules for Setting up Initial Buffer Sizes 286

Managing Seasonality in the TOC Distribution/Replenishment Model 287

Known Patterns for Sudden Changes inConsumption 287

Two Different Changes 288Resolving the Forecasting versus DBM Dilemma

to-Provide Excellent Consumption before,during, and after an SDC 288

Identifying When an SDC Is Meaningful 289Handling of an SDC 290

Implementing the TOC Distribution/Replenishment Model—How Can Software Help and Is It Really Needed? 292

Testing the Solution on a Smaller Scale 294Simulation 294Pilot Project 296

Managing the TOC Buy-in Process 297Actual Results of the TOC Distribution/Replenishment

Solution 299Summary 299References 300Recommended Reading 300About the Author 301

12 Integrated Supply Chain Chad Smith and Carol Ptak 303Introduction 303Identifying the Real Problem—Rethinking the Scope of

Supply Chain Management 305A Brief History of MRP 306Can MRP Meet Today's Challenge? 308The MRP Conflict Today 310The MRP Compromises 310Actively Synchronized Replenishment—the Way Out

of MRP Compromises 3121. Strategic Inventory Positioning 3132. Dynamic Buffer Level Profiling

and Maintenance 3153. Dynamic Buffers 3174. Pull-Based Demand Generation 3185. Highly Visible and Collaborative Execution 322

Case Studies 329Case Study 1: Oregon Freeze Dry 329Case Study 2: LeTourneau Technologies, Inc 329

XJy C o n t e n t s

Summary 331References 331About the Authors 332

Section IV Performance Measures

13 Traditional Measures in Finance and Accounting, Problems,Literature Review, and TOC MeasuresCharlene Spoede Budd 335Introduction 335Traditional Cost Accounting and Business

Environment 336Development of Cost Accounting 336Business Environment, First Half of the

20th Century 337Business Environment, Second Half of the

20th Century 337Accounting's Response to a 20th Century Changing

Environment 338Direct or Variable Costing Income Statement 338Activity-Based Cost Accounting 339Balanced Scorecard 340Lean Accounting 342Traditional Budgeting, Capital Budgets, and Control

Mechanisms 343TOC Approach to Planning, Control, and Sensitivity

Analysis 346Planning 346Throughput Control 349Sensitivity Analysis 363Throughput Accounting Approach to Performance

Evaluation 364Possible Explanations for the Lack of TOC Literature in

Accounting and Finance 364Future TOC Accounting /Finance Research Needs 365

Case Studies and Simulations 365Information and Decision Making 365

Summary and Introduction of Remaining Chapters inThis Section 366

Chapter Summary 366Other Chapters Dealing with Performance

Measures 366References 367

• About the Author 371

C o n t e n t s XV

14 Resolving Measurement/Performance DilemmasDebra Smith and Jeff Herman 373Introduction 373

Do We Measure Too Much? 374Why Do We Have Measurements? 375

Global Metrics 376The Constraint Is the Primary Relevant Factor 378Profit Maximizing in TOC 380

Local Metrics 383Metric 1: Reliability 383MeJric 2: Stability 387Metric 3: Speed/Velocity 388Metric 4: Strategic Contribution 389Metric 5: Local Operating Expense 389Metric 6: Local Improvement/Waste 390

Feedback and Accountability Systems 391So, How Is the Operational System Performing? 392Focusing on Improvement 392

ACase Study 396Summary 397References 399About the Authors 401

15 Continuous Improvement and AuditingDr. Alan Barnard 403Introduction 403

The Goal—Achieving Continuous or OngoingImprovement 403

Purpose and Organization of This Chapter 404Key Concepts and Definitions 404A Historical Perspective—Standing on the Shoulders

of Giants 405Why Change? 406

Introduction 406The Improvement Gap and Challenges 406The Types of Management Mistakes When under

Pressure to Change 408The Extent and Consequences of the Failure

Rate of Change 408The Vicious Cycle Related to the High Failure

Rate of Change 410Summary of Why Change? 411

What to Change? 412Introduction 412Finding the Core Conflicts within Continuous

Improvement and Auditing 412

Conten ts .

Finding a Simple and Systematic Way to BreakConflicts 414

Identifying Limiting versus Enabling Paradigms inContinuous Improvement 415

Summary of What to Change 416To What to Change? 418

Introduction 418Criteria to Evaluate a New Solution 418Direction of Solution to Breaking the Continuous

Improvement Conflicts 419Lessons from CI Methods Developed by Ford

and Ohno and Other Giants 428Importance (and Risks) of Measurements

and Incentives 429Ensuring the New Direction Addresses

All Major UDEs 431Potential Negative Branches and How to

Prevent Them 438Summary of "What to Change to?" 439

How to Cause the Change? 440Typical Implementation Obstacles and How to

Overcome These 440Using TOC to Focus and Accelerate Lean and

Six Sigma Initiatives 441Using TOC's S&T as a CI and

Auditing Tool 443Summary of How to Cause the Change 447

Summary of Continuous Improvement and Auditing theTOC Way 447

References 453About the Author 454Appendix A—Continuous Improvement Opportunity

Templates 454

16 Holistic TOC Implementation Case StudiesDr. Alan Barnard and Raimond E. Immelman 455Introduction 455

Historical Perspective to Holistic TOCImplementations 455

The Goldratt Satellite Program 456The X-Y Syndrome of Local TOC

Implementations 457The "4 x 4"—First Attempt at a Process to Launch a

Holistic TOC Implementation 458The Viable Vision Initiative 460Using TOC's Strategy and Tactic Tree to Guide

Holistic Implementations 460

C o n t e n t s

Catering for Differences within the Privateand Public Sector 461

Holistic Implementation of TOC in the Public Sector 461Background 462Designing the Five-Day TOC Workshop

and Implementation Process 463Proposed Changes to the Traditional TOC

TP Analysis Roadmap 464Detailed Case Study: Analysis on Solid Waste

Management in City A 466Current Status of Pilot Projects

(by the End of 2009) 478Future Application of TOC within

the Public Sector 480Specific Lessons Learned from All the Public

Sector Pilots 481Future Research 483

Holistic TOC Implementation in the Private Sector 483The Birth of First Solar Inc 485Theory of Constraints Contribution to First

Solar's Success 488Building the Foundation 488Unbolting the Existing Systems and Measures 490Building on Early Success 490Implementing the Proven TOC Toolset 491The Role of TOC's "Thinking Processes" at

First Solar 492What Has Made TOC Work at First Solar? 492

Recommendations and Summary 493Recommended Good Practices for Implementing

TOC Holistically 493Summary 496

References 497About the Authors 498

Section ¥ Strategy, Marketing, and Sales

17 Traditional Strategy Models and Theory of ConstraintsMarjorie J. Cooper 501Introduction 501

What Is a Business Strategy? 501Factors That Comprise Strategy 502Criteria for a Good Strategy 503

Theories of Business Strategy 503Ansoff's Matrix of Four Strategies 504Porter's List 504

Xviii C o n t e n t s

The Resource-Based View 505Learning/Emergent Strategies 506A Summary of Schools of Strategy 506

Marketing and Strategy 508What Is Marketing Strategy? 509

Sales and Strategy 510Challenges for Strategy and Execution 510

Inadequate Planning 510Inability to Analyze the System 511No Theory of Implementation 511Conflicts within the System 512Conflicting Standards of Performance 513Dysfunctional Compensation and Reward

Policies 513TOC Contributions 514Future Research Opportunities 514References 515About the Author 518

18 Theory of Constraints Strategy Gerald Kendall 519Introduction—What Differentiates a TOC Strategy? 519Chapter Overview 519Definitions and Foundations of TOC Strategy 520

Three Goals or Necessary Conditions ofAny Strategy 520

The Five Focusing Steps 522Example—The Five Focusing Steps 522The Role of Throughput Accounting and Other

Metrics in Strategy 524Overview of TOC Strategy Applications in Manufacturing,

Projects, and Consumer Goods Distribution/RetailOrganizations 525

Introduction to Strategy Applications 525Generic Content of S&T Structures 525Manufacturing 529Projects 531Distribution/Retail 535Six Ways That the Holistic Distribution

System Increases Throughput 540Four Generic Prerequisites/"Injections" for a Lasting

Competitive Edge 541INJ. 1: Increase Customer Perception of Value that

Competitors Have Difficulty Copying 542INJ. 2: Implement Practical Segmentation 542INJ. 3: Identify and Build the Decisive Competitive

Edge Factor 543INJ. 4: Strategic Segmentation 543

C o n t e n t s xJX

Desirable Effects of a Good Strategy 544Two Forms of Strategy and Tactics—TP and

S&T Trees 545Integrating Other Methodologies Such as Lean

and Six Sigma 546Dealing with Human Behavior in a Strategy 547Summary 548References 548About the Author 549

19 Strategy H. William Dettmer 551The Popular Conception of Strategy 551The System Concept 552A Vertical Hierarchy 552A Common Denominator 554A Whole-System View 554The OODA Loop 554Strategy as a Journey 555Orientation and Observation 556Decision and Action 557"Pro-Acting" Rather than Reacting 557Fast OODA Loop Cycles 558Summarizing Boyd 558The Logical Thinking Process 559The Intermediate Objectives Map 560Constraint Management Model: A Synthesis of TOC

and the OODA Loop 563The Role of the LTP in the CMM 566What about Steps 6 and 7? 568Summary and Conclusion 568References / 569About the Author ' 570

20 The Layers of Resistance—The Buy-In ProcessAccording to TOC Efrat Goldratt-Ashlag 571Introduction 571The Layers of Resistance to Change 572Disagreement on the Problem 574

Layer 0. There is no problem 574Layer 1. Disagreeing on the problem 576Layer 2. The problem is out of my control 577

Disagreement on the Solution 578Layer 3. Disagreeing on the direction for

the solution 578Layer 4. Disagreeing on the details of the solution . . . . 579Layer 5. "Yes, but... " The solution has negative

ramifications 580

XX C o n t e n t s

Disagreement on the Implementation 581Layer 6: Yes, but... we can't implement

the solution 581Layer 7: Disagreement on the details of the

implementation 581Layer 8: You know the solution holds risk 582Layer 9: "I don't think so"—Social and psychological

barriers 582Sense of Ownership: The Key to True Buy-In 583Bottom Line 584References -*" 584About the Author 585

21 Less Is More—Applying the Flow Concepts to SalesMauricio Herman and Rami Goldratt 587Introduction 587Improving Flow 588Preventing Overproduction 589Local Efficiencies Must Be Abolished 595A Focusing Process Must Be in Place 597Summary 598Addendum 599References 600About the Authors 601

22 Mafia Offers: Dealing With a Market ConstraintDr. Lisa Lang 603Introduction: What Is a Mafia Offer? 603Do You Have a Market Constraint? 604Developing a Mafia Offer 606Custom Label Printer—An Example 607The Test—Is It a Mafia Offer? 610What Did It Take to Make the Offer? 611AMafia Offer Is NOT 612Where to Start? 612Sustaining the Advantage and the Offer 613It's a Business Deal 614The Psychology of Delivering a Mafia Offer 615

Agree on the Problem 616Agree on the Direction of the Solution 616Agree the Solution Solves the Problem 616Agree on the Problem 617Agree on the Direction of the Solution 618Agree Our Solution Solves Their Problem 618Close 618For Whom Can You Develop Offers? 619

C o n t e n t s

Can You Create a Mafia Offer? 620The Templates 621

Vendor Managed Inventory 621Reliable Rapid Response 622Consumer Goods 623Projects 624Pay Per Click 625Gain Sharing (My Mafia Offer) 626

Summary 627References 627About the Author 628

Section VI Thinking Processes23 The TOC Thinking Processes

Victoria J. Mabin and John Davies 631Introduction 631

Preface to Chapter 631Purpose of the Chapter 632Outline of Chapter 632

The Nature, Development, and Use of the TOC TP 632Overview of TP and Their History and

Development 633The TP Tools 634The TOC TP Literature 636

The Nature of Other Approaches to Problem-Solvingand Decision Making 641

The Relationship of Problem-Solving Methods toProblem-Solving Activity 641

Unstructured Approaches—Managementon the Hoof 641

Formal or Structured Approaches 643Lessons for TOC from the Literature 650

Issues Emerging from the TOC Literature 650The Nature of the TOC Literature Vis-a-Vis Other

Literatures 650Suggested Topics for a Self-Audit of TOC 651

The Nature and Use of the TOC ThinkingProcesses Revisited 653

Understanding the Relationship of the TOC TP toProblem-Solving Activity 653

The Philosophical Basis of the TOC TP 655Summary Insights from Classificatory Mapping> of the TOC TP 658

xxii C o n t e n t s

Summary 660What Has Been Covered in This Chapter 660Findings and Recommendations 660Links to Other Chapters in the TP Section 663

References 664About the Authors 669

24 Daily Management with TOC Oded Cohen 671Introduction—Purpose of the Chapter 671Solving Daily Problems 672

Problem Investigation and SolutionDevelopment—the Cloud 672

Inner Dilemmas 676Day-to-Day Conflicts 685Reducing Fire Fighting 691Dealing with the Undesirable Effects

(UDEs)—the UDE Cloud 697Example of a System UDE Cloud-Production 698Example of a System UDE Cloud-Retail 701Addressing Multiple Problems—the

Consolidated Cloud 704From a Problem to the Solution Implementation 711

The TOC Methodology for Problem Solving—the U-Shape 712

Strengthening the Solutions—Dealing with NBRs 715The Intermediate Objective (1O) Map and

Implementation Plans 718Conclusion—Problem Solving the TOC Way 723References 726About the Author 727

25 Thinking Processes Including S&T TreesLisa J. Scheinkopf 729Introduction: Anybody Can Be a Jonah! 729The Basic Building Block—Cause-and-Effect Logic 730Basic Terms and Mapping Protocol 733Tools for Daily Decision Making and Problem Solving 736Negative Branch Reservation (NBR) 737Evaporating Cloud (EC) 739The Integrated TOC Thinking Processes 746

Reinforcing the Mentality of a Scientist—Jonah'sApproach 749

What to Change? 751Current Reality Tree (CRT) 751Evaporating Cloud (EC) 751The "Snowflake Method" 752

The Bank Case: What to Change, Snowflake Approach 753The "Three-Cloud Method" 755

C o n t e n t s XXIH

To What to Change 757Evaporating Cloud 760Future Reality Tree and Negative Branch

Reservation 760How to Cause the Change 763

Prerequisite Tree 763Transition Tree 765

The Strategy & Tactic Tree 769The First Step: The Goal 769Communication, Alignment, and

Synchronization 774Implementing an S&T 775Using the TPs to Implement an S&T 776The Knowledge Organizer 781

Chapter Wrap-Up 781References 782About the Author 783Appendix B: Categories of Legitimate Reservation1 783

26 TOC for Education Kathy Suerken 787Why Change? 787What to Change? 789What to Change to? 790How to Cause the Change? 791

The Cloud 791The Logic Branch 796The Ambitious Target Tree 800

A Process of Ongoing Improvement 803References : 810About the Author 812

27 Theory of Constraints in Prisons Christina Cheng 813Introduction 813What To Change? 814

Preliminary Study 814Stigmatization 815Negative Peer Pressure 817Importance of Face 818

What to Change to? 820Self-Regulation 820Why TOC? 820

How to Effect the Change? 823Marketing 823Course Materials 826Delivery 834

'For Appendices A and C to G see http://www.mhprofessional.com/TOCHandbook.

xxiv C o n t e n t s

Results 836Quantitative 836Qualitative 836

Follow-on Implementations 839Future Recommendations 839Summary and Conclusion 840About the Author 841

Section WSB TOC in Services

28 Services Management Boaz Ronen and Shimeon Pass 845Introduction 845

Challenges in Service Management 846Why the Need for Change? 846

Survey of Service Organizations TOC Literature 847Literature Mapping and Observations 847Limitations of Current Research 848

Brief Assessment of Service Management 849What to Change? 849Why Is TOC Not Yet Popular Among Service

Organizations' Managers? 849What Do TOC and Focused Management

Have To Offer? 850TOC Concepts and Tools for Service Organizations 850

The Seven Focusing Steps of TOC 850Bottleneck Management 851Exploiting Permanent Bottlenecks 851Subordinating Everybody Else to the Permanent

Bottlenecks 852Elevating the Permanent Bottlenecks 853Response Time Reduction 853Performance Measures 854Costing, Pricing and Decision-Making 854Quality Enhancement 854

How to Implement the Change? 855The Remaining Chapters in This Section 855References 856About the Authors 858

29 Theory of Constraints in Professional, Scientific, andTechnical Services John Arthur Ricketts 859Introduction 859Background 860

Barriers to Adoption 860Challenges in the PSTS Sector 862What TOC Has to Offer 862

C o n t e n t s XXV

What to Change 863Expertise and Assets 864Service Delivery 864Measurement 865Marketing and Sales 866Strategy 867

What to Change to 867Replenishment for Services 868Critical Chain for Services 869Drum-Buffer-Rope for Services 870Throughput Accounting for Services 872Nonstandard TOC Applications 873

How to Cause the Change 873Buy-in 874How Practitioners Can Get Started 874How Researchers Can Contribute 875What Students Should Know 875

Summary 877References 877About the Author 878

30 Customer Support Services According to TOCAlex Klarman and Richard Klapholz 879Introduction—The Need for Change 879

What Is Customer Support (Also Known asTechnical Support)? 880

Steady Erosion of Income in the CS Area 881The Warranty Trap 882

What to Change 887What to Change to \ 888

A—B .. , ' 889A—C .." 889B—D 889C—D' 889D—D' 890Differential Pricing 890

The Array of Service Offerings 891Basic Services 891Extended Basic Services 891Limited FSE Visits 891Extended FSE Visits 892Complementing FSE Visits 892Complementing Extended FSE Visits 892Parts Services 892Important Notes 892

Other Service Offerings 893Value-Added Services 893

XXVi C o n t e n t s

Launching of Expert Systems 893Third-Party Maintenance (or TPM) 893Installations, Implementations, and Projects 894

How to Implement the Change 895Key Decisions 895Policies and Measurements 895

Summary 896References 897About the Authors

31 Viable Vision for Health Care Systems Gary Wadhwa 899Introduction 899The Tools for Improvement 900

Theory of Constraints 900Lean 900Six Sigma 902

Undesirable Effects of the Current Health Care System 902Patients' Perspective 902Doctors' Perspective 902Insurers' Perspective 903Hospitals' Perspective 903Business Owners' Perspective 904Governments' Perspective 904

Defining the Goal of the Health Care System 904Improving Quality and Quantity of Patient Flow through

Health Systems 906Elaborating on the 5FS 906

Thinking Processes for Identifying Root Cause of PhysicalConstraints to the Flow of Patients 915

Throughput Accounting for Performance Measurementand Decision Making in Health Care 917

Strategy and Tactic Tree to Implement and Achieve theViable Vision 919

Parallel Assumptions 919Necessary Assumptions 920Sufficiency Assumptions 921An Example 921

ACase Study of VV Success 926General Discussion 926References 927About the Author 927Appendix A: Strategy and Tactic Tree for Viable Vision 928Addendum: Excerpt from the Book Vision for Successful

Dental Practice by Gerry Kendall and Gary Wadhwa 951Steps to success for a private, academic, or

government-run dental practice 951

Contents xxvii

32 TOC for Large-Scale Healthcare Systems Julie Wright 955Introduction 955Why Change 956

Why Healthcare Systems Need to Improve 956The Goal of Healthcare 957

What to Change 958Where to Start: Government or Facility? 958The Organic Nature of Healthcare Facilities 960The Human "Engine of Healthcare" 960The Constantly Evolving Workforce 961The"Reality of Healthcare 961Current Problem Solving Techniques 963Adapting Industry's Solutions for Healthcare 963

What to Change to 965Where Should the Constraint Reside in Healthcare? 965Starting an Organization on a Process of Ongoing

Improvement 965Providing a Safe Platform and an Effective

Mechanism 967Building the Current Reality Tree (CRT)

of a Facility 968How to Cause the Change 970

Training the Process Units 970The Process of Ongoing Improvement 970

Providing a Knowledge Base for Achieving theGoal Now 970

Providing the Knowledge Base for Achievingthe Goal in the Future 974

Addressing the New Core Problem 975Leaving a TOC Legacy 976

Summary . . . . ' . 976Proof of Concept 978References 978About the Author 979

Section VIII TOC in Complex Environments

33 Theory of Constraints in Complex OrganizationsJames R. Holt and Lynn H. Boyd 983Overview 983Definition of Complexity 983Major Problems with Complex Organizations 985

Undesirable Effects of ComplexOrganizations 985

The Core Conflict for ComplexOrganizations 986

XXViii C o n t e n t s

The Direction of the Solution 987What the Market Expects (A<-B) 987Adding Capabilities (B<-D) 987Predictable Response to Customers (A<—C) 987Avoiding Disruptions (C<-D') 988Doing Both (D<—>D') 988

Additional Understanding of Complex Organizations 988Finding an Injection 991Breakthrough Injection 992

Concepts in Organization Complexity 992Categories of Activities 993Flows in Complex Organizations 993Flow Control with Critical Chain 995

A Breakthrough Injection 998The Definition of the Common Simple Measure 999Using TDD: An Example 1000A Closer Look at the Distribution Department 1002Units to Which TDD Applies: Degree of Impact on

_ Throughput 1003Alternatives for When TDD Does Not Seem to Fit 1004Inventory Dollar Days 1005Summary of Measures 1007Focusing for Balance (and Changing the Culture

of the Company) 1008The Usefulness of Dollar Day Measures

in General 1008A Breakthrough Injection Is Critical, but It Is Rarely

Sufficient 1009Tools for Resolution 1009Controlled Resource Allocation 1010

Challenge of the Future 1010The Value of Everyone Measured by the

Same Simple Measures 1011Leadership Certification 1011

Summary 1012References 1012About the Authors 1013

34 Applications of Strategy and Tactics Trees inOrganizations Lisa A. Ferguson, PhD 1015Introduction 1015On Becoming an Ever-Flourishing Organization 1016The Basic Structure of an S&T Tree 1017

The Top of the W S&T Trees 1019The Retailer S&T Tree 1022

Level 2 of the Retailer S&T Tree 1022Overview of Level 2 of VV S&T Trees 1026

C o n t e n t s XXJX

Level 3 of the Retailer S&T Tree 1026General Overview of the VV S&T Tree Structure 1027Levels 4 and 5 of the Retailer S&T Tree 1028Need for Lower Levels of an S&T Tree 1029

Details Regarding the Structure of an S&T Tree 1030Key Concepts Regarding Creation of S&T Trees 1033

How the S&T Tree Relates to Other ThinkingProcess Tools of TOC 1036

The Other Four Generic W S&T Trees 1036Consumer Goods (CG) S&T Tree 1036Reliable Rapid Response S&T Tree 1037Projects S&T Tree 1038Comparison of RRR and Project S&T Trees 1039Pay per Click S&T Tree 1039

Comparison of S&T Tree to Key Literature on Strategy 1039Execution of the S&T Tree 1042Summary and Discussion 1043References 1044About the Author 1044

35 Complex Environments Daniel P. Walsh 1045Introduction 1045Brief Background 1046Guiding Strategies 1047Throughput Accounting 1049AHolistic View 1050

Categories of Variability 1051Tools Selection 1051

A Closer Look at Variability 1052Different Tools for Different Types of Variability 1054

Defining the System 1055The TOC Approach 1055

Applications 1060Summary and Discussion 1063References 1063About the Author 1065

36 Combining Lean, Six Sigma, and the Theory of Constraintsto Achieve Breakthrough PerformanceAGI-Goldratt Institute 1067Introduction 1067Lean 1068Six Sigma 1069Theory of Constraints (TOC) 1071Discords that can Block the Effective Integration of TOC

and Lean Six Sigma (LSS) 1072Work Behaviors 1073

XXX C o n t e n t s

Material Release 1075Replenishment System 1076TOCLSS—Fully Integrated TOC, Lean, and Six Sigma 1078References 1080About the Author 1080

37 Using TOC in Complex Systems John Covington 1081Introduction 1081We Need More Sucker Rods! 1082

Introduction 1082Some History and What We Learned 1083What Change was Needed 1084How to Cause the Change 1085What We Did to Implement the Change 1085"Oh Canada" 1087Results after Six Months 1087

Have You Really Defined the System? 1087Introduction 1087What Do We Need To Change? 1088What Do We Change To? 1088How Do We Cause the Change? 1089Results 1089

Where is the Constraint in Disciple Making? 1089Introduction 1089The Analysis 1090Results after Two Years 1094

Summary 1094Reference 1095About the Author 1095

38 Theory of Constraints for PersonalProductivity/DilemmasJames F. Cox III and John G. Schleier, Jr. 1097Introduction: A Status Report 1097Resolving Chronic Conflicts and Developing

Win-Win Solutions 1098Background: Father-Son Dilemmas 1099

Personal Productivity Dilemma—Where to SpendYour Time? 1105

A Review of Constructing the EvaporatingClouds 1105

College Student Dilemma (Undergraduate) 1105EC of the Classic Dilemma of White-Collar

Burnout 1105Personal Productivity—Establishing Goals, Strategies,

Objectives, Action Plans, and PerformanceMeasures 1108

C o n t e n t s XXXI

What to Change—How Do You CurrentlyUse Your Time? 1111

Developing a Detailed Implementation Plan to AccomplishYour Goals and Objectives 1113

Using Buffer Management to Increase YourEffectiveness 1117

Using the Thought Processes to Achieve Life Goals 1119Sheila's Story 1120Personal Productivity 1121Sheila's Epilogue 1129Our Epilogue on Sheila 1133

Summary 1134References 1135About the Authors 1136

Selected Bibliography of Eliyahu M. GoldrattJames F. Cox III and John G. Schleier, Jr 1139Books 1139Theory of Constraints Journal Articles 1140Journal/Magazine Articles 1141Industry Week Late Night Discussion Series 1141Management Skills Workshop Series (Workbooks) 1142Video Movie/Presentations 1142Goldratt Program Series (Video/DVD) 1142Self-Learning Computer Education Software Programs 1143Necessary and Sufficient Series 1143TOC Insights Series. 4 Self-learning Computer Software 1144Chapters in Books 1144Conference Proceedings/Video Proceedings/

Presentations 1144Keynote Presentations/Video Conference Presentation 1145The Goldratt Webcast Series 1145Strategy and Tactic Trees 1145POOGI Forum Letter Series 1146Plays 1146Commercial Software 1146

Index 1147