Bottleneck Busters Blog

As I teach the Constraints Management course these days, especially to auto suppliers, I am surprised to hear the same obstacle to TOC brought up again and again. 

Supplier: “We can’t really use TOC, because we are meeting the market demand already.  Besides, all of the forecasts we have show that this segment of the market is in a downturn.  The ability to produce more parts won’t bring us the profits that are big part of the justification of what you are proposing.”

 I find myself asking the same questions over and over.  If the customer is in machining parts for engines and transmissions, for example, the conversation might go something like this:

BB: “How many of the quotes that you submit for the work that you really want do you win?”

Supplier: “Not as much as we like, maybe 10%.”

BB: “Hmm.  And what percentage of the request for quotes do you answer?”

Supplier: “Well, there is some work we don’t think we can do profitability, so I think it’s around 30-40% of the quotes that we get our hands on.”

BB: “But, if you could convince yourself that you could take on this work profitability, would your company bid on it?”

Supplier: “Right, but as I said, our financial folks wouldn’t probably buy in.  They don’t seem to trust us, for some reason.”

BB: “Let’s set the reasons for that aside for a moment, and assume you have proven you CAN do this work profitability.  Wouldn’t the financial people be very supportive of our efforts to get this work?”

Supplier: “Yeah, they probably would.”

BB: “So then, how much of the automotive market in this segment to you really have?”

Supplier: “Probably 10%. No, wait; I see what you are asking.  If we win 10% of the one we bid on, and that’s only 40% of the market, that’s only about 4%.”

BB: “And if we leave automotive and go into machine for other industries – marine engines, lawn mowers, etc. Is there a significant market segment of these types of products that you could bid on?”

Supplier: “Sure, but our VP has made it clear that we are not to go after that work.”

BB: “Why not?”

Supplier: “Well, we tried once and we got our butts kicked – lost a lot of money.  It’s a forbidden topic of discussion right now.  Don’t really have to worry about it - we don’t have the money to invest in machines and resources.”

BB:  “In hindsight, and now after the Constraints Management class, can you come up with logic on why you failed the first time?”

Supplier: “Yeah, I was thinking about it a lot during your class.  We designed the system knowing what the answer was – it HAD to work.  We changed all the efficiencies and speeds, made all the operators have zero variation, etc., etc., until we got the answer the bosses wanted – it would run.”

BB: “Yeow.  No wonder the financial guys don’t trust you. Who ended up being blamed?”

Supplier: “Oh, there was enough blame to go around, but we contracted the simulation work, and by the time the design started production, their contract was done.  So they were the easy group to point at as being responsible.”

BB: “Sounds painfully familiar. Do you think you could design that system now, with what you learned, and make it work?”

Supplier: “Make it work – probably.  Make it work profitability?  No, our efficiencies are way too low.”

BB:  “Recall that we talked about how deceptive the efficiency measure is.  Let’s assume instead you adopted a methodology of some sort that would, say, improve your throughput and your performance on certain key machines.  At some point in time, wouldn’t the improved numbers from that system make it more and more likely that a future design could be more profitable and have a higher ROI?

Supplier: “It’s possible. Plus, it could point out systems that would have to improve in the future.  Some that are performing good enough now, but won’t cut it in a future design.”

BB: “Good! And if you made a significant improvement in your level of performance in your current market, it might change your management perspective of what you could do in new markets.  Plus, the increased performance would generate more profits, right?  Those profits could be used to invest in new machinery and equipment.”

Supplier: “I guess, but it sounds a bit risky for this company.”

BB: “Of course, based upon your current performance, it would be. But if you implement TOC in operations, and improved your performance with little or no impact on investment, wouldn’t that be a good starting point?”

Supplier: “I guess so.”

BB: “Let’s summarize to make sure.  The reason your VP is confining you to this end of the market is not his fault - he’s made that decision based upon your past experiment in a new market, that was designed on an unrealistic level of performance.  The reason that you are not winning more quotes is due to your current level of performance.  The reason you don’t go after more quotes is because your financial guys know the company will lose money – based upon your current level of performance. So what’s preventing you from expanding your market?”

Supplier: “Okay, okay, it’s our level of performance.  But jumping into this process would be a lot easier is our demand was higher – I think the Sales guys need to be doing more to pull in more sales to help make the need more visible.  They should go get the orders, so we can justify TOC.”

BB: (Laughing) I would like to hear that conversation with the Sales and Marketing folks.

Supplier:  “Well, I though you could make that point to them as part of your consulting agreement. Look, what you taught us made sense. Teach it to them, and have them go get the orders.”

BB:  “I certainly think training Sales and Marketing will be part of the future steps, although the training might not be exactly the same.  Even with that, both Sales and Marketing wouldn’t go to customers unless they can look at the numbers and are convinced you can do it.  And their customers are not going to plunk down big dollars until they see the promised performance with you current customers.  Like or not, improving your operations is the first step in the grand scheme of things – not only to improve your area, but to improve the company as a whole, including the marketing and sales area.”

Supplier: “Okay, it makes sense.  I was pretty much bought into the concept, but I need to be able to answer these types of questions.  The logic seems pretty clear to me now.”

To be honest, this is rarely one conversation, but a series of conversations, where the people I am working with have to work through the conflict and slowly adopt the new paradigm.  When they can make the case to others without your input, you know you’re on your way.

Recently, I had a chance to review how Goldratt Consulting is using Strategy and Tactic trees to make some of these points, and I like the method because it not only shows the logic of the current obstacles they are facing, but brings out the obstacles they may face, and goes through the logic of how to address them.  It also seems to give the customers more insight and confidence into the process.  Look for more information and training on these trees in the future.

And, if you find yourself on the Supplier side of this discussion, please make sure you check out www.viablevision.com or www.goldrattconsulting.com.  You may find it worthwhile to find out when Eli Goldratt will be in your part of the world for a Viable Vision session. If you decide to attend, don’t forget to mention Bottleneck Busters!

Posted by KevinAKohls at 12:18 AM | Permalink | Comments (0) | TrackBacks (0)

There were many improvement efforts going on during my time at GM, not the least of these being Lean and TOC.  In the beginning, there were a few clashes between the two groups, but over time it became clear which problems would be addressed by each of the methods.

A few clear advantages of the TOC methods, especially for operations, are the following:

• System wide perspective
• Net Profit and ROI measurements
• Prioritization of efforts
  

The Lean tool that typically has the best system view point is a Value Stream Map (VSM), and we often created this map (or at least a Throughput version of it) when starting our original efforts.  Usually after that, in the Lean world, an attempt is made to fine the largest source of waste.  Waste seems to be unit-less measure, and can be dollars, minutes, production units, etc.

With that said, Lean efforts that are taken on without a TOC perspective often are cost focused, and are broken down into groups, usually by silo.  In GM, however, with the existence of bottleneck information in every plant and department, it wasn’t much of a stretch for the Lean guys to work on the bottleneck. After seeing the cause and effect of their work on the throughput of the area, it became a more widely accepted practice.  Not completely accepted, to be sure. Acceptance by Lean groups in GM of TOC ran the gamut, from avoid at all cost, to peaceful and profitable co-existence.

The toughest concept, especially when designing new systems, was the concept of protective capacity. From a strict Lean interpretation, this additional inventory is “waste,” and should not be allowed.  But by using simulation and data from the plant floor, it becomes clear that this inventory in this specific area keeps throughput at desirable levels.  If these products are in demand, as large trucks were a few years ago, this protective capacity can be proven to be “profitable.”

Thus the term “profitable waste” was created.  We used it to communicate to management our understanding of this important concept (and teach them about it at the same time).

We also needed to demonstrate that not all inventory was beneficial. Simulation could be used to challenge many of the inventory or buffer sizes in the plant.  Usually, from an overall perspective, inventory was less at the end of the simulation/design process than in the beginning.  Buffers that were installed to protect the throughput of a sub-area (to help ensure that area could, say, over-build to hit it production numbers) were demonstrated to be unprofitable waste.

The process ran roughly like this. Once a simulation for a process was complete, and the throughput running to desired rates, we could begin to challenge buffers.  A new version of the simulation model was run without the buffers being scrutinized. If there was no decrease in throughput, the buffer location is ineffective, and thus does not impact profits.  With the buffers removed, the ROI of the system would be higher, since the inventory (and more importantly, the equipment used to store it) would no longer have to be purchased and maintained.

Overtime, we stop using the term, as the need for protective capacity became clear to designers and management.  But in my work now as a consultant, I have found that I have to revisit some key aspects of my past work.  The term “profitable waste” has once again found its way back into my glossary, and the term itself begs the curious to ask questions.  It’s a good way to start the thinking process around these concepts.

Posted by KevinAKohls at 05:16 PM | Permalink | Comments (0) | TrackBacks (0)