how to better exploit (not waste) a company’s scarcest resource management attention

How to better exploit (not waste) a company’s scarcest resource

Management Attention

Dr. Alan Barnard

CEO, Goldratt Research Labs

23rd October, 2013

WHY?

Growth

Stability Harmony

TIME

PERFO

RM

AN

CE

Now Past Future

Constraint

What Next?

Decay

Pressure to Change

Pressure to Not Change

Maintain Stability / Harmony

Satisfy Growth in Demand Be

Successful

Stakeholder’s Conflict

TACTICS STRATEGIES

GOAL

Challenge 2: Ensuring every Local Change = System Improvement

Challenge 1: Achieving Growth AND Stability and Harmony

IMPROVEMENT CHALLENGES

What makes improving productivity so difficult…

How can Goldratt’s Theory of Constraints help overcome these challenges?

Disharmony

Slide 2 © Goldratt Research Labs, 2013

Presentation outline

1. What is Theory of Constraints (TOC)?

• TOC’s Five Focusing Steps (5FS)

• TOC’s Throughput Accounting (TA)

2. Using TOC to measure and improve

Management Productivity

3. Using TOC to measure and improve

Operational Productivity

4. Case Studies

5. Q&A


Part 1

What is

Theory of Constraints?

Knowing What to Change…and What NOT


What is Theory of Constraints?

Dr. Eli Goldratt (1947-2011) said that we can summarize

Theory of Constraints with a single word...

FOCUS

However, FOCUS do not only mean knowing what we should DO,

but as importantly, what we should NOT DO…

because…

Focusing on everything is synonymous with not focusing on anything.

1984 1999 1986 1994 1990 2010 2009 2010 1997 2000


“A chain is only as strong as its weakest link”

Step 0: Agree on the System GOAL

Step 1: IDENTIFY the System Constraint (WEAKEST LINK)

Step 2: Decide how to better EXPLOIT (not Waste) the System Constraint

Step 3: SUBORDINATE everything to the above decision (CHANGE only those RULES – policies & measurements in conflict with decision on how to better exploit/not waste system constraint)

Step 4: ELEVATE the Constraint (get more of it)

Step 5: WARNING!!!! If in a previous step the constraint has moved, GO BACK to Step 1, - do not let inertia become the constraint. (However, try not to reach Step 5 else you have to change rules)

10/hr 15/hr 12/hr 12/hr 13/hr Demand Supply

PROTECT current

level of Constraint

Exploitation

EXPLOIT potential

for more Goal Units

Step 1

IDENTIFY the

Constraint

Current level of

Constraint

Exploitation

Step 2

Decide How to

EXPLOIT the constraint

New Constraint

Exploitation Rules

Step 3

SUBORDINATE

everything to this decision

New level of

Constraint

Exploitation

↓ Starvation/Blockage

↓ Setups/Downtime

↓ Rework

↓ Overproduction / Multiitasking

Elevate

New Constraint

Elevation Rules

Step 5

If a constraint has been broken, Go back to Step 1

Step 4

Elevate the Constraint

Protective Capacity

WHAT IS THEORY OF CONSTRAINTS?

Knowing “WHAT TO CHANGE” - The 5 Focusing Steps of TOC…

NOT Change

+ VE + VE

GOAL

- VE - VE

GOAL

NOT Change

+ VE + VE

GOAL

- VE - VE

GOAL

10/hr


Expected = 70 upm

Actual = 35 upm

(around 50%)

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min ? U/hr

Avg ? U/hr

Max ? U/hr

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

The Dice Game – Insights

A B C D E

GOLDRATT’S DICE GAME

Why is the Throughput of systems well below their bottleneck capacity?

Important Lessons Learned:

1. System Output is normally significantly below Output of the Bottleneck

2. “Balancing Capacities” (to be efficient) creates a chaotic system – i.e. its impossible to reliably predict performance and very difficult to know where to focus…

3. We need to balance the FLOW …not Capacities…which requires Buffers + Protective Capacity in non-bottleneck processes…but will this not cost too much / take too long?


Expected = 60 upm

Actual = 58 upm

(around 97%)

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min 1 U/day

Avg 3 U/day

Max 5 U/day

Min ? U/hr

Avg ? U/hr

Max ? U/hr

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

Min 1 U/day

Avg 3.5 U/day

Max 6 U/day

The Dice Game – Insights

A B C D E


Why is the Throughput of systems well below their bottleneck capacity?

Important Lessons Learned:

1. By slowing down the Bottleneck, we can create Protective Capacity in non-bottlenecks to reduce starvation and blockage of the Bottleneck.

2. If the Starvation and Blockage buffers work 100% effectively, the system performance will be equal to the bottleneck performance (and be very predictable).

3. Starvation and Blockage buffers should be dynamically adjusted based on actual supply reliability and demand variation (Too much Red = Too small Increase ; Too little Red = Too large Reduce) .


US$ % of SR US$ % of SR

Sales Revenue (SR) 10,000$ 100% 0.0% 0.0% 10,000$ 100%

Variable Cost (VC) 5,000$ 50% 0.0% 0.0% 5,000$ 50%

Throughput (T) 5,000$ 50% 5,000$ 50%

Operating Expenses (OE) 4,500$ 45% 4,500$ 45%

Net Profit (NP) 500$ 5% 500$ 5%

Investment (I) 2,500$ 25% 2,500$ 25%6

Return on Investment (NP/I)

0.0%

Now Future% Change

in Price

0.0%

0.0%

0%

% Change

in Qty

20% 20%0%

To determine the likely GLOBAL impact of any LOCAL Change,

Estimate the LOW, LIKELY and HIGH impact of each Change on ΔT, OE and I

Throughput (T)

The rate at which the system generates money through Sales or

T = Sales Revenue (SR) – Variable Cost (VC)

Operating Expenses (OE)

The rate at which the system spends money to generate Throughput (or other goal units)

i.e. OE = All non-variable costs (also called Fixed Costs)

Investment (I)

All the money tied up in the system (the money invested to generate Throughput).


Quantifying the impact of CHANGES – TOC Throughput Accounting


Part 2

Using TOC to improve


What is the bottleneck to improving

Management Productivity?


What is the Constraint or Bottleneck to

improving MANAGEMENT Productivity…

…needed to achieve more GROWTH, STABILITY and HARMONY?

The Bottleneck is always at the TOP of the bottle…


Applying the 5 Focusing Steps to Management Productivity…


Required

Information to

make better

faster decisions

Available

data and

Information

Surplus

Management Attention = System Constraint

Management Information

Demand vs. Supply

MANY

Things that

demand OR

could benefit

from our

Attention Available

Attention

Shortage


Demand vs. Supply

Step 1: Identify the System Constraint …to

Achieving GROWTH, STABILITY AND HARMONY

(within Organizations)

Applying TOC’s 5 Focusing Steps to Improving

and Managing Organizations


How much of your limited MANAGEMENT ATTENTION do you

think you WASTE due to mistakes 1, 2 and 3?

FOCUS on FEW

Things that

could really

benefit from our

limited

Attention…and

DON’T MULTITASK

INCREASE

Better Exploiting Management Attention

Demand vs. Supply

Step 2: Decide how to EXPLOIT the System Constraint …

Identify the things that WASTE our Management Attention…

1. DOING what we should not

Productive use of

our

Attention

2. NOT DOING what we should

3. Repeating Mistakes – not

Learning from Experience

REDUCE

HOW? … STOP …

Error of Commission

Error of Omission

Error of Detection &

Correction

Applying TOC’s 5 Focusing Steps to Improving



Quick Self-Assessment Check

Make a list of the things that cause you to WASTE your limited attention….

DOING WHAT YOU

SHOULD NOT

NOT DOING WHAT YOU

SHOULD

REPEATING AVOIDABLE

MISTAKES (REWORK)


There is a COST and a BENEFIT of PAYING Attention

1. COST – we GIVE UP the benefit of focusing our attention on something or

someone else…

2. BENEFIT – we GAIN the benefit of focusing our attention on this thing or

this person…

What is a common strategy to maximize BENEFIT and minimize COST…

We Multitask

…we try to give equal attention to the MANY things that demand or can

benefit from our attention…….but don’t realize the high PRICE we pay.…

WARNING

or pay the price

Why do we say “PAY” attention…?


So, are there any other ways that we

waste our limited Attention?

For example…

For the cases where we are

DOING WHAT WE SHOULD,

is “Multi-tasking”

the best way

to allocate our limited attention?

Checking Sufficiency…


Dr. Eli Goldratt’s real Legacy

Standing on the shoulders of Giants

“Finally, and most importantly, I wanted to show that we can all be

outstanding scientists. The secret of being a good scientist, I believe,

lies not in our brain power. We have enough. We simply need to look

at reality and think logically and precisely about what we see.”

Dr. Goldratt, the creator of Theory of Constraints, said the two key abilities to

“being an outstanding scientist” are simply:

(STEP1) Have the courage to face inconsistencies between what we (expect to)

see and the way things are… and then

(STEP 2) Have the wisdom to challenge basic assumption(s) to resolve these

inconsistencies.

Research Questions

• What are the inconsistency regarding how we invest our limited attention to

get work done?

• What “basic assumption(s)” can and should be challenged to resolve this

inconsistency….and how to do this especially if challenging the assumption

might be counter-intuitive?

Dr. Eliyahu M. Goldratt

1948 - 2011


Management Productivity Challenge

Facing an inconsistency and challenging basic assumption(s)

Research Problem

Inconsistency: Despite major advances in technology and know-how most

change initiatives are still completed late, over-budget and/or under-scope.

Research Question

Can changing the RULE we use in do work/ project tasks have a significant

impact on the lead time, costs and quality (or not)?

Research Method

• You are giving three projects to complete for your organization.

• These three projects together make up a Program but each project is for

a different “Customer” and each of these customers want you to finish

their project as soon as possible, want you to give them highest priority

but is also asking for a “reliable estimate of completion”.

• Which RULE should you use to do these projects:

RULE 1: Work on all of them at the same time (Multi-task), or

RULE 2: Do them one by one…(No Multi-tasking)?


1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18 19 20

58 sec

A B C D E F G H I J K L M N O P Q R S T

59 sec

Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο

60 sec

50-200% Longer 50-200% longer 50 - 200% longer 88 – 178 sec 89 – 179 sec 90 – 180 sec

Round #1

Complete Tasks by Multi-tasking …


1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18 19 20

20 sec

A B C D E F G H I J K L M N O P Q R S T

40 sec

Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο ☐ Δ Ο

60 sec

Early / On time Early / On time Early / On time

10 - 20sec 20 - 40sec 30 - 60 sec

Round #2

Complete Tasks without Multi-tasking


Can safely reduce Project buffer by 50%

SCENARIO #1: No Capacity Constraints

10 0 20

Project X

Project Y

Project Z

SCENARIO #2: PLAN - Multi-tasking

10 0 20 30 40 50 60 70 80

Project X

Project Y

Project Z

SCENARIO #2: ACTUAL - Multi-tasking with Distraction Delays

Project X

Project Y

Project Z 10 0 20 30 40 50 60 70 80

SCENARIO #3: PLAN - No Multitasking

10 0 20 30 40 50 60 70 80

Project X

Project Y

Project Z

Start Later

Finish Earlier

Start Earlier

End Earlier?

Finish Later

BASIC ASSUMPTION CHALLENGED “The earlier we start… the earlier we finish” / Its unfair to prioritize

VS. “The later we start... the earlier we finish” / Its unfair not to prioritize

SCENARIO #3: ACTUAL - No Multitasking Project X

Project Y

Project Z

10 0 20 30 40 50 60 70 80 90

EARLY FINISH

LATE

FINISH!

UNDERSTANDING WHY MULTI-TASKING IS SO BAD…

Multi-tasking delays project flow …and distracts our attention

Other Consequences…

Complexity, Uncertainty

and Resource Constraints

Multitasking

at all levels

Main Cause… Real Cause…

People at all levels are

stressed and overworked

Difficulty to Improve & sustain

higher Project Performance

Our Challenge

“Local Optima”

Rules…

TOC Solution Lower WIP +

Ensure Full Kit Schedules with Aggregated

Tasks + Buffers Global Priorities +

Buffer Management

Too High WIP

+ Not Full Kit Too Detailed Schedules

+ Local Safety

Local Priorities +

Measurements

CCPM Rule 1 CCPM Rule 2 CCPM Rule 3

Pipelining Planning Execution

Delays and Mistakes in prediction,

detection & correction

Really?

Lets check this

assumption with

Multitasking Game

Simple …but not easy…

Increased Project

Work + Wait Time

ANALYZING POOR PROJECT PERFORMANCE

Is it the Starting Conditions…or the Rules WE use…


Part 3

Using TOC to improve

Operational Productivity

Is TOC the same as Debottlenecking?


1. Improving Flow (specifically reducing Flow Time) is should be the #1 objective for Operations/Supply Chains

2. To reduce Flow Time, we need a Practical Mechanism to Stop Overproduction and maintain right priority

– Ford: Use Space and Sequence of Launch

– Ohno: Use Kanbans and Colors to show emergency Kanbans

– Goldratt: Use Time (Buffers) and Buffer Penetration to ensure same priority everywhere and to focus management attention

3. Abolish all Local Efficiencies / Local Optima

4. Put in place a Focusing Mechanism to continuously improve and re-balance Flow (e.g. Do Pareto on what is causing delays in flow?)

Yes, but….

How do we know that FLOWS are not balanced…

STANDING ON THE SHOULDERS OF GIANTS

THE Four Concepts of Flow


Growth in Queues & Decay in Reliability vs. Growth in Resource Utilization

Qu

eu

e L

en

gth

/Su

pp

ly L

ead

tim

e

Resource Utilization

Relia

bility

in m

eetin

g d

em

an

d

0% 100% 80%

Linear growth

until reaching

“Turning the

Corner” Point

at >80%

utilization

Resource

Arrivals Departures

How can we turn this insight into a GOOD MEASUREMENT SYSTEM…?

RISK: DEMAND GROWTH / INSUFFICENT CAPACITY

Growth in backlog vs. Decay in Reliability of Supply...


WIP

Supply

Lead Time

Higher

WIP

Longer

Supply LT

Time Time

Higher

WIP

Longer

Supply LT

Time

LITTLE’s LAW

Work-in-Process = Flow Rate x Flow Time

WIPavg = FRavg x FTavg

Cumulative Flow Diagrams

If either arrivals (demand) increase or departures (supply) reduce, it causes Supply

Lead Time and WIP to grow.

• Growth will be exponential if demand grows faster than supply.

• Growth will be permanent without sufficient catch-up (protective) capacity…

Balancing FLOWS … not balancing CAPACITY

Using Cumulative Flow Diagrams as Early Warnings of Scarcity


CRITERIA FOR DESIGNING A GOOD

MEASUREMENT SYSTEM

GOOD MEASUREMENT SYSTEM

1. Accurately measures the STATUS (Ok or not?) and TREND (Improving or Not?)

Know WHEN to act…and When NOT

Mistakes

Type 1 - Reporting we are OK when we are not…and

Type 2 - Reporting we are not OK when we are.

2. Accurately predicts likely CAUSE(S) of the status (i.e. Demand or Supply problem?)

Know WHERE to act …and Where NOT

Mistakes

Type 1 – Reporting something as a major cause when it is not…and

Type 2 – Not Reporting something as a major cause when it was

3. Drives desired / discourages undesired behaviors (what is best for the system)

Know HOW to act…and HOW not

Mistakes

Type 1 - Encouraging an undesirable behaviour (local optima)…and

Type 2 – Not encouraging a desired behavior


How well does your company’s measurement system meet these criteria?

IMPORTANT GLOBAL MEASUREMENTS

Measuring Productivity, Flow and Timeliness

5%

10%

15%

20% 15%

10%

0-5d 5-10d 10-15d 15-20d 20-25d 25-30d 30-35d 35-40d > 40d

QUALITY THROUGHPUT

75% of On-time / Coverage 25% Late /

Not served

GOOD MEASUREMENTS

• Cumulative Flow for System and Sub-

systems

• Operational Productivity = $T/$OE or

(for Service Depts) = QT/OE

• Capital Productivity = $T/$I

• Quality can be measured as:

% Coverage, % OnTime or % InSpec

• % Protective Capacity Available on CCRs

(Capacity Constraint Resource)

Arrivals

(Demand)

Throughput

(Supply)

Longer Flow Time

Flow Time

WIP

Cu

mu

lative

Flo

w

Time in Days

CUMULATIVE FLOW

Operational Productivity = $T/$OE or QT/OE

Capital Productivity = $T/$I

Pro

du

ctivity

Time in Days

PRODUCTIVITY


Part 4

Case Study

How can we apply the 4 Concepts of flow

and insights on the damaging

consequences of Multi-tasking to improve

Productivity of Managers at all levels?


Case Study:

Focusing on improving Flow & stopping multi-tasking

Every manager can improve the productivity of its department if

they can find ways to reduce flow delays and stop multi-tasking

The case studies shared will show the impact of improving flow

and stopping multi-tasking in different departments within two

different companies.

Company 1 – Applying it within Sales Department This case study will reveal how the company applied the 4 Concepts to

significantly reduce the Average Sales Cycle Time and increase the success

rate of their sales

Company 2 – Applying it within IT Department This case study will reveal how the company applied the 4 Concepts to

significantly improve due date performance and reduce the average Lead

time of IT Projects.


CASE STUDY 1 – LESS IS MORE

Applying four FLOW concepts to Sales Department

1. IMPROVING FLOW IS #1 - Faster Flow of “good” (higher Throughput margin and higher

probability of closing deal) sales opportunities through the sales channel should be the #1

objective because any flow delays cause longer sales cycles, lower hit rate & margins.

2. MECHANISM TO PREVENT OVERPRODUCTION & SYNCHRONIZE PRIORITIES - “Choke

the release” by ensuring whole Sales Teams focus on “well qualified sales opportunities”–

Less is More because too High WIP causes Multi-tasking that cause bottlenecks, longer

sales cycles and lower hit rate …so more pressure to go get even more(vicious cycle)

3. ABOLISH LOCAL OPTIMA – Abolish any incentives or measurements that drive behavior

that is in conflict with better flow (e.g. number of opportunities in pipeline)

4. FOCUSING MECHANISM – Identify and eliminate the most significant sources of low hit ratio

and or long sales cycles to focus continuous improvement efforts - check for build-up of

WIP in sales process steps and record and analyze reasons for delay.

Reference: Chapter 21 of Theory of Constraints Handbook, Less is more: Applying Flow concepts to Sales by Mauricio Herman and Rami Goldratt

30% 47%

263%


CASE STUDY 2 – LESS IS MORE

Applying four FLOW concepts to IT Department

1. IMPROVING FLOW IS #1 - Faster Flow of “good” (higher ROI) projects through the Project

Office should be the #1 objective because any flow delays cause longer lead times,

lower quality and throughput of projects, higher cost & risk and lower ROI

2. MECHANISM TO PREVENT MULTITASKING & SYNCHRONIZE PRIORITIES - “Choke the

release” by pipelining projects (prioritize, freeze and stop) as starting projects too soon causes

multi-tasking that causes longer wait and work time (longer flow time).

3. ABOLISH LOCAL OPTIMA – Abolish any incentives or measurements that drive behavior

that is in conflict with better flow (e.g. no. of projects in pipeline, reporting % complete etc.)

4. FOCUSING MECHANISM – Identify and eliminate the most significant sources of delays on

projects and resource bottlenecks to focus continuous improvement efforts check for

build-up of WIP at TASK Manager Level (for resource constraints) and record and analyze

reasons for most penetrating delays.


CLOSING REMARKS

Achieving FLOW in Personal productivity…

Slide 34

STOP Multi-tasking – get into FLOW


Productive

Time (Adding Value)

Actual

Utilization

Available

Wasted Time/Attention

Not doing the RIGHT

things

Doing the WRONG

things

Doing right things

wrong


Not doing the

Wrong Things (STOP/NOT START)

Doing the Right

Things (ACCELERATE/START)

Doing the right

things right (FOCUS/DONT MULTI-TASK)

Learn from

Experience (FAST FEEDBACK)

Key Take-Aways

Repeating mistakes

REMEMBER….THE BOTTLENECK IS ALWAYS AT THE TOP OF THE BOTTLE


THANK YOU FOR YOUR

ATTENTION…

….I KNOW IT IS YOUR SCARCEST

RESOURCE

GOOD LUCK!

© Goldratt Research Labs, 2013 Slide 36

Q&A


ABOUT THE PRESENTERS

Dr. Alan Barnard (PhD)

Dr. Alan Barnard is one of the leading experts in the world in Theory

of Constraints (TOC) frequently worked with Dr. Eli Goldratt, creator

of Theory of Constraints on large and complex projects around the

world. He is the CEO of Goldratt Research Labs (USA), Chairman of

Realization Africa (RSA), African Phosphates (RSA) and The

Odyssey Institute (USA). Alan is also a board member of TOCICO

and the Dr. Eliyahu M. Goldratt Foundation.

In 2009, Alan was awarded a PhD in Management of Technology &

Innovation, from the Da Vinci Institute in 2009 with a thesis titled

“How to identify and unlock inherent potential within organizations

(private & public) and individuals?”. Alan is also the author of 2

chapters in the McGraw Hill published Theory of Constraints

Handbook.

Alan is a past-President of SAPICS (2000 to 2002) and past-President of TOCICO (2003 to

2005) and serve on the judging panels of the Logistics Achiever Awards and Technology

Top 100.

He has worked with global companies such as ABB, BHP, Cisco, SAP, Random House

Publishing, Tata in the Private sector and also with UN DP, UN WFP and InWent in the

public sector on applying for example Theory of Constraints to City Councils in

Developing Countries in the Public Sector to help them identify and unlock inherent

potential to achieve more with the same resources in less time.


how to better exploit (not waste) a company’s scarcest resource management attention

Business

unlock inherent potential

goldratt research labs

dice game insights

longer sales cycles

focusing mechanism identify

eli goldratt

detection

faster flow