A BOOK REVIEW

INDEX CONTENT

1

2

3

4

5

6

7

8

KEY CONCEPTS

PROBLEM AREAS

CONTROL SYSTEMS

MANAGEMENT AUDIT

THE TRANSFORMATION

THE IMPLEMENTATION

KEY LEARNINGS

BRIEF INTRODUCTION

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Brief Introduction

Alex Rogo (Plant

Manager)

Julie Rogo (Alex’s wife)

Bill Peach (Division

Head)

Bob Donovan

(Production Manager)

Stacey(Head

Inventory Control)

Jonah(Physicist / Consultant)

Ralph Nakamura (Planning)

Lou (Accountant)

BRIEF INTRODUCTION

BRIEF INTRODUCTION

Alex’s Bearington plant is losing money.

He is given 3 months ultimatum to either make plant make money or plant will be closed.

He implements a few concepts suggested by Jonah.

He, with his team consisting of Stacey, Lou, Bob and Ralph improve the processes and culture at the plant.

As a result, Alex gets promoted as Divisional Manager.

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Key Concepts

KEY CONCEPTS

THROUGHPUT INVENTORY

OPERATIONAL EXPENSES

BOTTLENECK

Rate at which system generates money

through sales

All the money system spends to convert

inventory to throughput

All the money system has invested in purchasing things it intends to sell

Any resource whose capacity is equal to or less than the demand

placed upon it

TOC CONCEPT

Identify the Constraint

Exploit the Constraint

Subordinate and Synchronize to the

Constraint

Elevate performance of the Constraint

Repeat the process

The throughput of any system is determined by the Bottleneck Constraint. Hence to increase the throughput one must focus on identifying and improving this constraint.

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Problem Areas

ROBOTS

BOTTLENECK’S CAPACITY

THE INVENTORY

ORDERS

theproblemareas

PROBLEM AREAS

THE INVENTORY

Every machine was used with 100% capacity which in turn increased Inventories due to capacity mismatch between adjacent machines/resources

Inventory was high.

Inventory turnover period increase.

Cash conversion cycle increase.

Low Cash Inflow.

BOTTLENECK’S CAPACITY

Capacity is less than or equal to the demand.

Bottlenecks decided throughput of the system as a whole.

Bottleneck capacity could not be increased due to Capital Expenditure Constraint.

THE ROBOTS

Robots were used, but production didn’t increase.

Labour wasn’t laid off.

Cost of materials didn’t go down.

So, there was no tangible effect of using Robots.

THE ORDERS

Most of the orders were getting late.

Expediting was a norm in the plants.

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Control Systems

Y X

X Y

Y ASSEMBLY & X ASSEMBLY

Y PART-A but X PART-B

BASIC MODELS OF MANUFACTURING

The four basic models of manufacturing, shown as follows: Where X represents a Bottleneck and Y represents a Non-Bottleneck

• To make money by increasing net profit, while simultaneously increasing ROI and Cash Flow. SET GOALS

• Plant was making losses (Bill Peach’s revelation)MEASURE

ACHIEVEMENT

• Division was also making losses.CALCULATE VARIANCE

• Losses were not quantified thoughREPORT VARIANCE

• Less throughput due to bottleneck constraintsDERIVE CAUSE OF THE

VARIANCE

CONTROL SYSTEMS

CONTROL SYSTEMS

TAKE NECESSARY ACTIONS TO MINIMIZE

THE VARIANCES

Prioritized material coming to bottlenecks over other material.

Bottlenecks utilized to 100 % of time

Quality Check shifted before the bottleneck to let bottleneck process non-defective WIP

Consume the inventory to decrease levels of inventory and free money locked up in inventory

Production Planning and Material Sourcing Planning to avoid Interactive Bottleneck Situation.

Use of alternate resources to increase capacity of Bottleneck

Process Re-engineering

REPEAT THE STEPS UNTIL GOALS ARE MET

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Management Audit

APPRAISAL OF

CONTROL

Process re-engineering

Information gathered from shop floor and list of backlog orders

Ralph created system to efficiently predict time to engineer a sale.

Materials were sourced as per the demand and capacity constraint Resources to efficiently use bottlenecks

APPRAISAL OF CONTROL

PRODUCTION

Production Planning and Control

Inventory Planning

Capacity Utilization of Bottlenecks

Production Inspection (QC moved to before bottleneck)

APPRAISAL OF ORGANIZATION STRUCTURE

APPRAISAL OF ORGANIZATION STRUCTURE

MARKETING

Differentiation Strategy

New Marketing Campaign for 4 week delivery

Heightened brand image

Long term / Yearly contracts with French Customer.

BALANCED SCORECARD

INTERNAL BUSINESS PERSPECTIVE

• Production planning control

• Material sourcing• 4 week delivery

FINANCIAL PERSPECTIVE

• Cash Flow• Net Profit• ROI Increase• Sales backlog

CUSTOMER PERSPECTIVE

Increase in Orders:• New customer Burnside• Contract made with

French customer for 1 year INNOVATION &

LEARNING PERSPECTIVE

• Revenue per employee• Culture change from cost

world to throughput world

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The Transformation

REACTIVE

PROACTIVE

PREDICTIVE

THE TRANSFORMATION

REACTIVE

• In Bearington plant, expediting was a norm.

• Efficiency of the plant was down.

• Plant was making losses.

PROACTIVE

• Alex and team identified system constraints i.e. the bottlenecks.

• Gave high priority to parts that were to be fed to Bottlenecks over parts that were not going to be processed by bottlenecks.

• Bottlenecks time was not lost and it increased throughput.

PREDICTIVE

• Red tag and green tag priority system caused starvation of resources for green tagged parts.

• Increased QUEUE TIME for green tagged parts & increased WAIT TIME for Red Tagged parts.

• By analyzing the capacity of bottlenecks, the amount of production of green tagged parts could be calculated.

• This helped in material sourcing planning and predicting the Out Time of the order.

THE TRANSFORMATION

HOW DO THE MEASURES RELATE TO DECISIONS?

NP ROI CF

TP I OE

OPERATIONAL FINANCIAL

THROUGHPUT (TP) NP ROI CF

INVENTORY (I) NP ROI CF

OPERATIONAL EXPENSE (OE)

NP ROI CF

An effective decision simultaneously increases TP, decreases I, and decreases OE.

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The Implementations

What?

Increase in bottleneck

capacity

Efficiently use the

bottleneck capacity

THE IMPLEMENTATIONS

WHAT TO IMPLEMENT?

THE IMPLEMENTATIONS

HOW TO IMPLEMENT?

Realigning Quality Control

Prioritization (Tagging)

Recall some of the Old Machines

Dedicated Personnel

Material Release System

Reduce the Batch Size

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Key Learnings

KEY LEARNINGS

Balance the flow with demand, not capacity.

The level of activity of the system is determined by constraints in the system.

Activating a resource and utilizing it are not the same.

An hour lost at a bottleneck is an hour lost by the entire system.

An hour saved at a non-bottleneck is worthless.

Performance of an operation should be evaluated by its bottom line.

How to cause the

change

What to change to

Knowing what to change

KEY LEARNINGS

Alex and Lou identify three fundamental decision issues as critical to the success of any manager

THANK YOU