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.
Droppa says
Excellent reminder of some Lean basics !
Nothing else to add. Great job.
Bruce Baker says
Good post. TOC definitely doesn’t at all detract fron the lean principles. In my last implementation we came to beleive this so much that we put a decision point in our VSM standard work that required you to determine if your system constraint was inside your control or if it was out in the marketplace. That followed the mapping and the creation to the TAKT v Cycle Time bar chart. Then we would show the VS leaders the 45 minutes movie of the Goal. It create HUGE clarity around formulating a vision for the future state VSM. We had great successes in both kinds of cases (internal and external constraints). Where there were internal constraints it became clear where we should put the main focus (not ignoring the bottom up initiatives like some autonomous teams, but we would focus our blitzes on the constraint area or associated areas that directly affect them – that would ‘elevate’), where in the old more ambiguous business planning effort there was generally a desire to have “something going in each area” in order to hold people accountable. In cases where we had exteranl constraints we learned to do things like differentiate on service (we put supermarkets of FGs in place for OE customers and then told them that if they sent us an order by noon we could ship by 4PM – people like that). We got rid of a lot of what Ohno would have called created demand like that – we learned that our 6 to 8 week lead time, depending on product line, was in the causal chain of our customers’ demand chaos cloud’. I don’t know if the Goal helped us with moving the focus to vendors when they were impeding our progress – we were used to blaming them anyway. The leadership didn’t see those things as opportunities before and it was the COMBINATION of VS mapping / extended stream philosophy AND “Goal thinking”. Many (not all) purists have told me that you shouldn’t mix those philospohies, or that Goldratt was inferior to TPS. I am glad that somebody smart agrees us. I had a lot of fun doing that stuff.
Tim McMahon says
Great post Bill. Every system has a constraint. The lean goal is to flow but TOC gives you tools optimize this flow through the contraint. Eli has provided the lean community a number of great works including Herbie in the Goal, drum-buffer-rope in TOC, and data analysis-paralysis in the Haystack Syndrome.
Danie Vermeulen says
Hi Bill
Thanks – another great post! I believe many Lean initiatives often “cross over” between TOC and Lean without even realizing it.
As with many things many “experts” get themselves and others confused by defining superficial “boxes” to keep their pet tools separate or to pretend that theirs are special or superior.
I agree that TOC should be part & parcel of the same integrated Lean enterprise strategy and “system”.
Masaaki Imai often reminds us that the solution is simply to “make it (value) flow – then to make the flow shorter”.
Isegoria says
As you note, the fundamental idea behind the Theory of Constraints is sound and powerful, but like many sound business ideas it became diluted as it evolved into a marketable overarching solution.
I’ve tried to distill down the useful bits here:
http://www.isegoria.net/labels/Theory%20of%20Constraints.htm
Cash Powell says
Bill, Great post. It points out that we simply must not get caught up in the either or syndrome with the tools that become available to us as we accmulate knowledge. There is no such thing as either or when we are striving toward improving the standard.There is only when do I use this tool or that. Eli taught us in the mid 80’s about bottlemecks and constraints and how to think about them. As continuous improvement becomes the daily operating practice of an organization, there are many times where significant money needs to be spent for improvements. TOC offers a priority tool for allocating money on this quarter’s improvements toward flow. Eli early on said spend the first money on the bottleneck that constrains the sytem and not on an area that is a non-bottleneck.When a bottleneck is removed through such expenditures, another constraint will appear. That becomes the next priority for the expenditure of funds for its removal. No company has unlimited funds. Meanwhile, in other parts of the factory little or no funds may have to be spent for improvement so improvements can proceed. Thank you for pointing out that TOC is one of the tools to be used where applicable and not the over arching umbrella for running the company. Cash Powell, University of Dayton
Jeff Amundson says
I once heard Dr. Don Novotny comment on this. He is the person Eli Godratt based the character Alex Rogo on in his book “The Goal”. Dr. Novotny quoted W. Edwards Deming, in a dinner conversation with Goldratt and Novotny, as saying “I never implied you should try to make improvements everywhere.”
Practitioners tend to create dogmatic boundaries where none actually exist.
Mike says
Back in the mid-nineties I had the chance to encounter some of Goldratt’s “disciples” in the US and came away with the very strong feeling that they were very dogmatic and almost cult-like in their devotion to THE WAY. I hated that and others I knew did, too. TOC may have had an easier time catching on if the people proposing it hadn’t been so arrogant about TOC being THE WAY. Maybe the Goldratt Institute is differnt these days, I’ve never been back to check.
Gavriel says
I’m also curious how Lean would fit in with TOC’s approach to Marketing and the Mafia Offer. I’m researching these areas and recently adopted The Cash Machine sales management approach to areas of my career.