Bottleneck Busters Blog

In The Haystack Syndrome, Eli Goldratt writes:

Identifying a constraint means that we already have some appreciation of the magnitude of its impact on the overall performance. Otherwise we might also have some trivialities in the list of constraints, or as I call them, some choopchicks.

Every now and then, I’ll blog on some of my “favorite” choopchicks, which usually appear not only with past clients, but seem to keep appearing with current clients.  Today’s blog will be on what I feel is perhaps the biggest choopchick:  cost cutting, or what a current client calls, the “War on Costs.”                     

I think cost cutting is the biggest choopchick because most of the companies who are on a cost cutting binge are frustrated that despite all their fine efforts, profits are not increasing.  Often, the company actually is losing more money that when they started the program!  If they are spending so much time on it, and it is yielding such poor results, then the actions may be focused on a “trival” cause and thus can be classified as a choopchick.

The cost measure is one management loves, because it looks to generate results quickly.  Cut a head here, slash a budget here, reduce inventory over there, sum up the total, and just like that, a manger has hit his cost cutting goal for the year.  In reality, most of these cost cutting actions have no significant effect on the bottom line, and many, especially if they impact the constraint, may actually have a negative impact on the bottom line.  The lost head may have been a problem solver on the throughput team, the budget was for a change to modify a bottleneck to reduce it’s downtime, the inventory was the buffer that was protecting the constraint from periodically running out of parts.  

Since most companies have no idea where their constraint is, they are blissfully ignorant, and assumed all these pennies saved will eventually add up to dollars.  Worse, this negative effect is often not even perceived, since the actual undesirable effect of adversely impacting the bottleneck may not be seen for quite awhile, and the connection between cause and effect may not even be realized.

My favorite example is the case of a manufacturing company who was working with two suppliers to supply dies for a production operation.  Both suppliers must be used; because neither of the two has enough capacity to supply all of the large number of dies required. The names have been changed to protect the guilty.

I was part of a team that was asked to come in to this company and figure out why a particular line wasn't running up to design rates, which was causing a tremendous loss in revenue. We were confused at first, because the machines that appeared to be the constraint (look for the buffer) seemed to be running to their designed capacity. Also, the data that production and maintenance provided our team was confusing, because there did not appear to be enough "down" time to justify the loss in production.

We soon figured out that the lost time was due to a machine that was down waiting for a die.  It was not considered machine down time by maintenance or production, because there was nothing wrong with the machine.  It was not considered set up time by the die setters, because a set up was not actually underway.  It turned out that there was actually no die to put into the machine!  We tracked the issue back to Purchasing, who had not acquired enough dies from their suppliers. 

We eventually ended up talking to a purchasing agent with a huge award plaque on his back wall for his contributions to the "War on Costs."  It turns out he has squeezed most of his suppliers for first one 5% reduction, and then followed that up a few months later with a second 5% reduction. 

One of the two suppliers for the dies could no longer make a profit on the manufacturing of these dies, and complained about the mandatory price cuts.  Of course, Purchasing was upset about this pushback, and placed the supplier on the "black list," preventing other purchasing agents from using this supplier.

Meanwhile, the other die supplier did not have enough capacity to supply enough all the dies, even though they, by default, got all the work.  Pressuring them for improved performance proved fruitless, since the slim profits did not justify investing in extra capacity to make more dies.

Thus, for a 5% reduction of a die (less than a few thousand dollars), the company ended up with a shortage of dies, and that resulted in constraint machines sitting idle waiting for dies that would never be supplied.  The lack of parts from the bottleneck machine resulted in a lost of production - the revenue from each product turned out to be easily twice as much as the savings from the cost cutting effort.

But the purchasing agent had won an award, gotten a bonus, and the long deserved recognition of his superiors.  He was, needless to say, reluctant to reverse this decision and admit that he might have made an error. But the weight of the numbers and the crush of the crisis caused him to cave in.  The supplier was taken off the black list, the dies ended up in the bottleneck, and the throughput of the system significantly increased.

In the end, I wish I could say the company learned from this example, but the reality is that is was an extreme case.  Unless the cost cutting decision has disastrous results which can be traced both quickly and directly back to the decision, most cost cutting still stands, no matter how trivial.  The result is companies pushing cost cutting to the extreme limit – like requiring admins to dole out color printer sheets, or making employees empty their own waste baskets.  It should surprise no one with a TOC background that these efforts are “trivial,” and have no significant positive impact on the bottom line.  And any Jonah would predict that these companies still cannot figure out why all of their cost savings never really hit the bottom line.

What’s your favorite choopchick, and why?  Do you have an example and/or story you would like to share?  Let me know!

Kevin