I was working with a client on the west coast recently and it struck me how often I come across manufacturers who have abandoned the Theory of Constraints in their pursuit of lean, and like this client, are leaving much of the low-hanging fruit unpicked. There are many folks who seem to think that Eli Goldratt's core concepts are an alternative to lean thinking, or a predecessor from which lean evolved. In fact, the concept of constraint optimization is perhaps the most powerful tool in the lean kit. In fact, keeping a constant eye on the constraints is often the key to the powerful results some companies realize from lean.
The Theory of Constraints makes perfect sense to companies that have adopted lean accounting. It is just another technique to those that try to pursue lean thinking within the framework of traditional cost thinking.
Just about everyone trying to adopt lean understands the value stream map, and there are lots of clever forms and workbooks out there to help identify the non-value added costs and wasted resources at each step in the process. Under traditional cost thinking, any place where waste can be found is fair game for kaizen activities to root it out. That's great – as far as it goes - and I certainly would not want to belittle the value of such efforts.
However, a company that has value stream mapped things, but has also adopted lean accounting sees things quite a bit differently. In adopting lean accounting, that company has embraced the ideas that (1) the only costs that matter are the total value stream costs and looking at costs piece-meal, granularly by individual operations or by old fashioned cost centers, is not helpful; And (2) they understand that just about everything is fixed – especially direct labor. It is a small step in logic, then, to see that the best way to reduce the cost of the things being made is to speed up the flow from one end of the value stream to the other across those fixed costs.
That focus on flow is at the very heart of excellent manufacturing – not merely finding tidbits of waste and eliminating it. The final step in the logical thought progression is that the most fertile ground in the effort to accelerate the flow of products across the fixed costs within the value stream is to know what is limitingthe flow – and that is where Eli Goldratt comes in. He said that an hour saved at the bottleneck (constraint) is an hour saved for the system (in lean terms, an hour saved for everything within the value stream). An hour saved anywhere else is a mirage.
A big part of the problem is that Goldratt and his Institute initially positioned themselves as an alternative to lean, and now try to pawn themselves off as lean's big brother, stating that they are "tightly integrating the strengths of Lean Six Sigma into an overarching TOC-based solution", which is rather silly. But you don't want to throw the baby out with the bath water. Just because you are pursuing lean, rather than an "overarching TOC-based solution", you cannot afford to ignore the critical importance of constraint identification and optimization.
Another part of the problem is that too many of us are still tunnel visioned on headcount reduction, and cost cutting – after all we are manufacturing people and that's all we control, right? So if we were to get 10% more production across the value stream we would need 10% fewer people, but one of the cornerstones of lean is respect for people – which means no layoffs – which means we wouldn't really save anything since those people would still be on the payroll. Right?
Wrong! Lean is an enterprise wide strategy, and the benefit of increasing flow across the value stream is not from cost cutting, but from growing the business. The 10% improvement comes from being able to produce 10% more with no increase in conversion costs, and the Sales & Marketing function has to be thoroughly on board with their pricing strategies to move that 'free' product at a price that will bring the 10% improvement in flow to the bottom line.
The bottom line is – don't move beyond the theory of constraints as you get deeper and deeper into lean. It is not over, under, outside of or behind lean thinking. It is squarely in the middle of it.